HAMILTON ALEXANDER VARIABLE INSURANCE TRUST, 485BPOS, 1997-05-01

HAMILTON ALEXANDER VARIABLE INSURANCE TRUST
485BPOS, 1997-05-01

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<PAGE>

As filed with the Securities and Exchange Commission on April 30, 1997

File No. 33-81658
File No. 811-8682

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. ___ / /

Post-Effective Amendment No. 2 /X/

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /

Amendment No. 3 /X/

ALEXANDER HAMILTON VARIABLE INSURANCE TRUST
(EXACT NAME OF REGISTRANT)

32991 Hamilton Court
Farmington Hills, MI 48334
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

Registrant's Telephone Number: 1-800-458-5299

(NAME AND ADDRESS OF AGENT
FOR SERVICE OF PROCESS) COPY TO:

J. Gregory Poole, Esquire Frederick R. Bellamy, Esquire
Alexander Hamilton Life Insurance Sutherland, Asbill & Brennan, LLP
Company of America 1275 Pennsylvania Avenue, N.W.
100 N. Greene Street Washington, D.C. 20004-2404
Greensboro, NC 27401

IT IS PROPOSED THAT THIS FILING BECOME EFFECTIVE:

immediately upon filing pursuant to paragraph (b)
---
X on May 1, 1997 pursuant to paragraph (b)
---
60 days after filing pursuant to paragraph (a)(i)
---
on __________ pursuant to paragraph (a)(i)
---
75 days after filing pursuant to paragraph (a)(ii)
---
on __________ pursuant to paragraph (a)(ii) of Rule 485
---

IF APPROPRIATE CHECK THE FOLLOWING BOX:

this Post-Effective Amendment designates
--- a new effective date for a previously filed Post-Effective
Amendment

Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the registrant
has registered an indefinite amount of securities. Its Rule 24f-2 notice for
fiscal year ended December 31, 1996 was filed with the Commission on or about
February 26, 1997.

<PAGE>

ALEXANDER HAMILTON VARIABLE INSURANCE TRUST
Registration Statement on Form N-1A

CROSS REFERENCE SHEET
Pursuant to Rule 481(a)

N-1A
Item No. Caption
- -------- -------

PART A INFORMATION REQUIRED IN A PROSPECTUS

1. Cover Page. . . . . . . . . . . . . . . Cover Page

2. Synopsis. . . . . . . . . . . . . . . . Not Applicable

3. Condensed Financial Information . . . . Not Applicable

4. General Description of Registrant . . . Introduction; Investment
Objectives and Policies;
Investment Methods and Risks

5. Management of the Fund. . . . . . . . . Management

5A Management's Discussion of Performance. Not Applicable

6. Capital Stock and Other Securities. . . Other Information

7. Purchase of Securities Being Offered. . Offering, Purchase and
Redemption of Shares

8. Redemption or Repurchase. . . . . . . . Offering, Purchase and
Redemption of Shares

9. Pending Legal Proceedings . . . . . . . Not Applicable

PART B INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION

10. Cover Page. . . . . . . . . . . . . . . Cover Page

11. Table of Contents . . . . . . . . . . . Table of Contents

12. General Information and History . . . . Introduction; Shares of Stock
<PAGE>

CROSS REFERENCE SHEET -- continued

N-1A
Item No. Caption
- -------- -------

13. Investment Objectives and Policies. . . Additional Investment Policy
Information; Investment
Methods and Risks; Investment
Restrictions

14. Management of the Registrant. . . . . . Trustees and Officers

15. Control Persons and Principal
Holders of Securities . . . . . . . . Shares of Stock

16. Investment Advisory and
Other Services. . . . . . . . . . . . Investment Adviser; Investment
Sub-Advisers

17. Brokerage Allocation and Other
Practices . . . . . . . . . . . . . . Portfolio Transactions and
Brokerage

18. Capital Stock and Other Securities. . . Shares of Stock

19. Purchase, Redemption and Pricing
of Securities Being Offered . . . . . Determination of Net Asset
Value

20. Tax Status. . . . . . . . . . . . . . . Not Applicable

21. Underwriters. . . . . . . . . . . . . . Not Applicable

22. Calculation of Performance Data . . . . Performance Information

23. Financial Statements. . . . . . . . . . Financial Statements

PART C OTHER INFORMATION

Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
<PAGE>
ALEXANDER HAMILTON VARIABLE INSURANCE TRUST

PROSPECTUS
MAY 1, 1997

The Alexander Hamilton Variable Insurance Trust (the "Trust") is an
investment company consisting of seven separate investment portfolios or funds
(the "Funds") each of which has different investment objectives.

INVESTMENT GRADE BOND FUND seeks a high level of total return to the extent
consistent with moderate risk of capital and maintenance of liquidity. This Fund
will pursue its objective by investing principally in a diversified portfolio of
high quality and investment grade debt securities.

HIGH YIELD BOND FUND seeks a high level of current income. This Fund will
pursue its objective by investing primarily in corporate obligations with
emphasis on higher-yielding, higher risk, lower-rated or unrated securities.

BALANCED FUND seeks high total return with reduced risk over the long term
by allocating its assets among stocks, bonds and short-term fixed-income
instruments.

GROWTH & INCOME FUND seeks growth of capital and income. This Fund will
pursue its objectives by investing primarily in equity securities and various
income producing securities, including, but not limited to, dividend paying
equity securities, fixed-income securities and money market instruments.

GROWTH FUND seeks capital growth. This fund invests primarily in equity
securities that have above-average growth prospects.

EMERGING GROWTH FUND seeks capital appreciation through investment in a
diversified portfolio of equity securities selected for their growth potential;
this Fund does not seek current income. This Fund will pursue its investment
objective by investing primarily in common stocks of companies that are early in
their life cycles but which have the potential to become major enterprises
(emerging growth companies).

INTERNATIONAL EQUITY FUND seeks long-term growth of capital through
investments in securities whose primary trading markets are outside of the
United States.

These Funds are available to the public only through the purchase of certain
variable annuity contracts issued by Alexander Hamilton Life Insurance Company
of America (the "Company") or Jefferson-Pilot Life Insurance Company (the
"Contracts").

This Prospectus briefly describes the information that investors should know
before investing in these Funds including the risks associated with investing in
each. Investors should read and retain this prospectus for future reference. A
Statement of Additional Information dated May 1, 1997, has been filed with the
Securities and Exchange Commission and is available without charge, by calling
1-800-289-1776. The Statement of Additional Information, as supplemented from
time to time, is incorporated herein by reference.

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

SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, NOR ARE THEY FEDERALLY INSURED BY THE FDIC OR ANY OTHER
GOVERNMENT AGENCY. INVESTING IN THE FUNDS INVOLVES CERTAIN INVESTMENT RISKS,
INCLUDING MARKET FLUCTUATION, AND POSSIBLE LOSS OF PRINCIPAL INVESTED.

THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE
CONTRACTS.
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INTRODUCTION............................................................................................... 1
FINANCIAL HIGHLIGHTS....................................................................................... 2
INVESTMENT OBJECTIVES AND POLICIES......................................................................... 3
Investment Grade Bond Fund............................................................................... 3
High Yield Bond Fund..................................................................................... 5
Balanced Fund............................................................................................ 6
Growth & Income Fund..................................................................................... 8
Growth Fund.............................................................................................. 9
Emerging Growth Fund..................................................................................... 10
International Equity Fund................................................................................ 11
INVESTMENT METHODS AND RISKS............................................................................... 12
Convertible Securities................................................................................... 12
Fixed-Income Securities.................................................................................. 13
Repurchase Agreements.................................................................................... 15
Reverse Repurchase Agreements............................................................................ 16
Swap Transactions........................................................................................ 16
Indexed Securities....................................................................................... 17
Dollar Roll Transactions................................................................................. 17
When-Issued Securities and Forward Commitments........................................................... 18
Lending of Portfolio Securities.......................................................................... 18
Restricted and Illiquid Securities....................................................................... 18
Borrowing................................................................................................ 18
Options on Securities and Securities Indices............................................................. 19
Futures Contracts and Options on Futures Contracts....................................................... 19
Foreign Transactions..................................................................................... 20
Brady Bonds.............................................................................................. 23
Emerging Market Securities............................................................................... 23
Other Investment Companies............................................................................... 23
Non-diversified Status................................................................................... 23
Risks of Investing in Emerging Companies................................................................. 24
Warrants and Rights...................................................................................... 24
Short Sales Against the Box.............................................................................. 24
INVESTMENT RESTRICTIONS.................................................................................... 25
PORTFOLIO TURNOVER......................................................................................... 25
MANAGEMENT................................................................................................. 27
Trustees and Officers.................................................................................... 27
Investment Adviser....................................................................................... 27
Investment Sub-Advisers.................................................................................. 27
PERFORMANCE INFORMATION.................................................................................... 29
DETERMINATION OF NET ASSET VALUE........................................................................... 30
OFFERING, PURCHASE AND REDEMPTION OF SHARES................................................................ 30
INCOME, DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.......................................................... 31
TAXES...................................................................................................... 31
OTHER INFORMATION.......................................................................................... 33
Reports.................................................................................................. 33
Voting and Other Rights.................................................................................. 33
Custody of Assets........................................................................................ 33
Accounting and Administrative Services................................................................... 34
Transfer Agent........................................................................................... 34
</TABLE>

i
<PAGE>
INTRODUCTION

The Alexander Hamilton Variable Insurance Trust (the "Trust") is an
open-end, management investment company established as a Massachusetts business
trust under a Declaration of Trust dated July 8, 1994. The Trust consists of
seven separate investment portfolios or funds (the "Funds" or a "Fund"), each of
which is, in effect, a separate mutual fund. The Trust issues a separate class
of shares for each Fund representing fractional undivided interests in that
Fund. An investor, by investing in a Fund, becomes entitled to a pro rata share
of all dividends and distributions arising from the net income and capital gains
on the investments of that Fund. Likewise, an investor shares pro rata in any
losses of that Fund.

Pursuant to an investment management agreement and subject to the authority
of the Trust's Board of Trustees, Alexander Hamilton Capital Management, Inc.
serves as the Trust's investment adviser (the "Adviser") and conducts the
business and affairs of the Trust. The Adviser has engaged the following
advisers to act as sub-adviser to provide the day-to-day portfolio management
for the respective Fund(s).

<TABLE>
<CAPTION>
FUND SUB-ADVISER
- -------------------------------------------------- ----------------------------------------------------
<S> <C>
Investment Grade Bond Fund........................ J.P. Morgan Investment Management, Inc.
High Yield Bond Fund.............................. Massachusetts Financial Services Company
Balanced Fund..................................... J.P. Morgan Investment Management, Inc.
Growth & Income Fund.............................. Warburg, Pincus Counsellors, Inc.
Growth Fund....................................... Strong Capital Management, Inc.
Emerging Growth Fund.............................. Massachusetts Financial Services Company
International Equity Fund......................... Lombard Odier International Portfolio
Management Limited
</TABLE>

The Trust currently offers each class of its shares to a separate account of
Alexander Hamilton Life Insurance Company of America and offers shares of the
Growth Fund and the Emerging Growth Fund to a separate account of
Jefferson-Pilot Life Insurance Company as funding vehicles for the Contracts
issued through the Alexander Hamilton Variable Annuity Separate Account and
Jefferson-Pilot Separate Account A (the "Separate Accounts"). The Trust does not
offer its shares directly to the general public. The Trust may, in the future,
offer its shares to other registered and unregistered separate accounts of the
Company and its affiliates supporting other variable annuity contracts or
variable life insurance contracts and to qualified pension and retirement plans.

1
<PAGE>

FINANCIAL HIGHLIGHTS

Contained below is per share operating performance data for a share of
Beneficial Interest outstanding, total investment return, ratios to average net
assets and other supplemental data for the period indicated. This information
has been derived from the Trust's financial statements which have been audited
by Ernst & Young LLP, the Trust's independent auditors. The financial statements
and related independent auditors' report are included in the Trust's December
31, 1996 Annual Report and appear in the Statement of Additional Information.

ALEXANDER HAMILTON VARIABLE INSURANCE TRUST
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OUTSTANDING THROUGHOUT THE PERIOD

<TABLE>
<CAPTION>
FOR THE PERIOD FEBRUARY 8, 1996* THROUGH DECEMBER 31, 1996
-----------------------------------------------------------------------------------------
INVESTMENT HIGH YIELD GROWTH & EMERGING INTERNATIONAL
GRADE BOND BOND BALANCED INCOME GROWTH GROWTH EQUITY
----------- ----------- ----------- ----------- ----------- ----------- -----------

<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING
OF PERIOD.......................... $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
----------- ----------- ----------- ----------- ----------- ----------- -----------

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)...... 0.56 0.72 0.28 0.08 0.18 -- 0.04
Net realized and unrealized gain
(loss).......................... (0.34) 0.18 0.55 (0.12) 2.08 0.42 1.02
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total from investment
operations.................... 0.22 0.90 0.83 (0.04) 2.26 0.42 1.06
----------- ----------- ----------- ----------- ----------- ----------- -----------

DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment
income.......................... (0.56) (0.72) (0.28) (0.08) (0.18) -- (0.09)
Distributions from net realized
gains........................... -- -- -- -- (0.32) (0.24) (0.08)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total distributions............. (0.56) (0.72) (0.28) (0.08) (0.50) (0.24) (0.17)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net asset
value.............................. (0.34) 0.18 0.55 (0.12) 1.76 0.18 0.89

Net asset value per share, end of
period............................. $9.66 $10.18 $10.55 $9.88 $11.76 $10.18 $10.89
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------

TOTAL RETURN (A) **................. 2.20% 8.96% 8.30% (0.38%) 22.59% 4.24% 10.59%

Net assets, end of period (000's
omitted)........................... $3,175 $2,339 $4,634 $5,382 $7,814 $6,734 $6,634
Ratio to average net assets of: ***
Expenses, net of fee waivers and
expense reimbursements.......... 0.85% 0.73% 1.00% 0.90% 1.00% 0.65% 1.40%
Expenses, prior to fee waivers and
expense reimbursements.......... 2.95% 4.09% 2.66% 2.14% 2.03% 2.14% 2.59%
Net investment income, net of fee
waivers and expense
reimbursements.................. 6.54% 8.32% 3.26% 0.95% 2.04% (0.01%) 0.48%
Portfolio turnover rate **.......... 421% 165% 241% 131% 349% 79% 62%
Average commission rate paid per
share of securities purchased and
sold............................... -- -- $ 0.0549 $ 0.0594 $ 0.0383 $ 0.0470 $ 0.0323
</TABLE>

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

* Commencement of operations.

** Not annualized.

*** Annualized.

(a)Total returns and expense ratios do not reflect any seperate account charges
under variable annuity contracts. Results would be lower if such charges
were included.

2
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

Each Fund has one or more investment objectives and related investment
policies and uses various investment techniques to pursue these objectives and
policies. THERE CAN BE NO ASSURANCE THAT ANY FUND WILL ACHIEVE ITS INVESTMENT
OBJECTIVE OR OBJECTIVES. Investors should not consider any one Fund alone to be
a complete investment program. All of the Funds are subject to the risk of
changing economic conditions, as well as the risk inherent in the ability of the
sub-adviser to make changes in the portfolio composition of the Fund in
anticipation of changes in economic, business, and financial conditions. As with
any security, a risk of loss is inherent in an investment in the shares of any
of the Funds.

The different types of securities, investments, and investment techniques
used by each Fund 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 required by the
instrument. In addition, the value of debt instruments generally rises and falls
inversely with prevailing current interest rates. As described below, an
investment in certain of the Funds entails additional risks as a result of their
ability to invest a substantial portion of their assets in either foreign
investments or small capitalization issuers or both. In addition, the
International Equity Fund is not diversified as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), and this entails certain
special risks. See "Investment Methods and Risks."

Certain types of investments and investment techniques common to one or more
Funds are described in greater detail, including the risks of each, under
"Investment Methods and Risks" and in the Statement of Additional Information
("SAI"). The Funds are also subject to certain investment restrictions that are
described under the caption "Investment Restrictions" in either this prospectus
or the SAI.

The investment objective or objectives of each Fund, as well as the
investment policies that are not fundamental, may be changed by the Trust's
Board of Trustees without shareholder approval. Certain of the investment
restrictions of each Fund are fundamental, however, and may not be changed
without the approval of a majority of the votes attributable to the outstanding
shares of that Fund. See "Investment Restrictions."

INVESTMENT GRADE BOND FUND

The Investment Grade Bond Fund's investment objective is to provide a high
total return consistent with moderate risk of capital and maintenance of
liquidity. Total return will consist of income plus realized and unrealized
capital gains and losses. Although the net asset value of the Fund will
fluctuate, the Fund attempts to preserve the value of its investments to the
extent consistent with its objective. The Fund is designed for investors who
seek a total return over time that is higher than that generally available from
a portfolio of shorter-term obligations while recognizing the greater price
fluctuation of longer-term instruments.

J.P. Morgan Investment Management, Inc. ("Morgan"), the sub-adviser,
actively manages the Fund's investments, including their duration, the
allocation of securities across market sectors, and the selection of specific
securities within sectors. Based on fundamental, economic and capital markets
research, Morgan adjusts the duration of the portfolio in light of market
conditions and Morgan's interest rate outlook. For example, if interest rates
are expected to fall, the duration may be lengthened to take advantage of the
expected associated increase in bond prices. Morgan also actively allocates the
Fund's assets among the broad sectors of the fixed-income market including, but
not limited to, obligations issued or guaranteed by U.S. Government agencies or
instrumentalities where the Fund must look principally to the issuing or
guaranteeing agency for ultimate repayment ("U.S. Government Securities"),
corporate securities, private placements, asset-backed and mortgage-related
securities. Specific securities which Morgan believes are undervalued are
selected for purchase within the sectors using advanced quantitative tools,
analysis of credit risk, the expertise of a dedicated trading desk, and the
judgment of fixed-income portfolio managers and analysts. Under normal
circumstances, Morgan intends to keep the Fund essentially fully invested with
at least 65% of the portfolio's assets invested in bonds.

3
<PAGE>

Duration is a measure of the weighted average maturity of the bonds held in
the Fund and can be used as a measure of the sensitivity of the Fund's market
value to changes in interest rates. Under normal market conditions the Fund's
duration will range between one year shorter and one year longer than the
duration of the U.S. investment grade fixed-income universe, as represented by
Salomon Brothers Broad Investment Grade Bond Index, the Fund's benchmark.
Currently, the Benchmark's duration is approximately 5 years. The maturities of
the individual securities in the Fund may vary widely, however.

The Investment Grade Bond Fund intends to manage its portfolio actively in
pursuit of its investment objective. Portfolio transactions are undertaken
principally to accomplish the Fund's objective in relation to expected movements
in the general level of interest rates, but the Fund may also engage in
short-term trading consistent with its objective. To the extent the Fund engages
in short-term trading, it may incur increased transaction costs.

The Fund may invest in a broad range of debt securities of domestic and
foreign issuers. These include debt securities of various types and maturities,
e.g., debentures, notes, equipment trust certificates and other collateralized
securities and zero coupon securities. The Fund does not intend to invest in
common stock but may invest to a limited extent in convertible debt or preferred
stock. The Fund does not expect to invest more than 25% of its assets in
securities of foreign issuers. If the Fund invests in non-U.S. dollar
denominated securities, it will hedge the foreign currency exposure into the
U.S. dollar. See "Investment Methods and Risks" for further information on
foreign investments and convertible securities.

The Investment Grade Bond Fund may invest in obligations issued or
guaranteed by the U.S. Government and backed by the full faith and credit of the
United States. These securities include Treasury securities, obligations of the
Government National Mortgage Association ("GNMA Certificates"), the Farmers Home
Administration and the Export Import Bank. The Fund may also invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities where the Fund must look principally to the issuing or
guaranteeing agency for ultimate repayment; some examples of agencies or
instrumentalities issuing these securities are the Federal Farm Credit System,
the Federal Home Loan Banks and the Federal National Mortgage Association.
Although these governmental issuers are responsible for payments on their
securities, they do not guarantee their market value.

The Fund may also invest in municipal obligations which may be general
obligations of the issuer or payable only from specific revenue sources.
However, the Fund will invest only in municipal obligations that have been
issued on a taxable basis or have an attractive yield excluding tax
considerations. In addition, the Fund may invest in debt securities of foreign
issuers. See "Investment Methods and Risks" for information on foreign
investments.

The Investment Grade Bond Fund may purchase money market instruments to
invest temporary cash balances or to maintain liquidity to meet withdrawals.
However, the fund may also invest in money market instruments or hold cash as a
temporary defensive measure taken during, or in anticipation of, adverse market
conditions. The money market investments permitted for the Fund include the
following: (1) U.S. Government Securities; (2) commercial paper (unsecured
promissory notes including variable amount master demand notes) issued or
guaranteed by U.S. corporations or other entities; (3) corporate debt securities
and obligations issued or guaranteed by U.S. banks (including certificates of
deposit, bank notes, loan participation interests, commercial paper, unsecured
promissory notes, time deposits, and bankers' acceptances); (4) unrated
corporate debt securities, commercial paper and bank obligations; (5) unrated
notes, paper, obligations or other instruments; and (6) repurchase agreements
with banks and government securities dealers that are recognized as primary
dealers by the Federal Reserve System.

It is a policy of the Investment Grade Bond Fund that under normal
circumstances at least 65% of its total assets will consist of securities that
are rated at least A by Moody's Investors Service, Inc. ("Moody's") or Standard
& Poor's Corporation ("Standard & Poors") or that are unrated but in Morgan's
opinion are of comparable quality. In the case of 30% of the Fund's investments,
the Fund may purchase debt securities that are rated Baa or better by Moody's or
BBB or better by Standard & Poor's or are unrated and in Morgan's opinion are of
comparable quality. The remaining 5% of the Fund's assets may be invested in
debt securities that are rated Ba or better by Moody's or BB or better by
Standard & Poor's or are unrated and in Morgan's opinion of comparable quality.
Securities rated Baa by Moody's or BBB by

4
<PAGE>
Standard & Poor's are considered investment grade, but have some speculative
characteristics. Securities rated Ba by Moody's or BB by Standard & Poor's are
below investment grade and considered to be speculative with regard to payment
of interest and principal. These standards must be satisfied at the time an
investment is made. If the quality of the investment later declines, the Fund
may continue to hold the investment. A more detailed discussion of the risks
associated with lower rated corporate debt obligations is found in "Investment
Methods and Risks" under "Lower Rated Corporate Debt Obligations" and in the
SAI. See Appendix A to the SAI for a description of corporate bond ratings
assigned by Standard & Poor's and Moody's.

The Investment Grade Bond Fund may invest in certain instruments or utilize
investment techniques that involve special risks. These include: convertible
securities, when-issued and delayed delivery securities, repurchase agreements,
reverse repurchase agreements, dollar roll transactions, lending portfolio
securities, borrowing from a bank, American Depository Receipts ("ADRs"),
European Depository Receipts ("EDRs"), foreign currency, forward foreign
currency exchange transactions, option contracts, futures contracts and options
on futures contracts. The Fund may invest in obligations issued or guaranteed by
foreign national governments, their agencies, instrumentalities, or political
subdivisions (including any entity which is majority owned by such government,
agency, instrumentality, or political subdivision), debt securities of foreign
companies, and securities issued or guaranteed by certain supranational entities
such as the World Bank, Asian Development Bank and European Investment Bank. The
Fund may also invest in collateralized mortgage obligations ("CMO's"), including
sequential pay CMOs, parallel pay CMOs and Planned Amortization Class CMOs ("PAC
Bonds"). Parallel pay CMOs are structured to provide payments of principal on
each specified payment date. PAC Bonds generally require payments of a specified
amount of principal on each payment date. The Fund may invest up to 15% of its
assets in illiquid securities. These investments and techniques and their
attendant risks are described in "Investment Methods and Risks." The Fund will
be diversified as defined by the 1940 Act.

HIGH YIELD BOND FUND

The High Yield Bond Fund seeks a high level of current income. The Fund will
seek to achieve its objective by investing primarily in corporate obligations
with emphasis on higher-yielding, higher risk, lower-rated or unrated
securities. Under normal conditions, Massachusetts Financial Services Company
("MFS"), the sub-adviser, expects that the Fund's assets will primarily consist
of a diversified portfolio of high-yielding bonds, convertible securities and
preferred stock of both domestic and foreign issuers. The Fund may purchase
securities on a when-issued basis and on a forward commitment basis.

The debt securities in which the High Yield Bond Fund may invest include
bonds, debentures, notes, equipment lease certificates, equipment trust
certificates (including interests in trusts or other entities representing such
obligations), conditional sales contracts, commercial paper and U.S. Government
Securities, mortgage-backed securities including CMOs, stripped mortgage-backed
securities, asset-backed bonds, collateralized bond or loan obligations, bonds
on which interest is payable in kind, deferred interest bonds and zero coupon
bonds. The Fund may also invest in parallel pay CMOs and PAC Bonds. The High
Yield Bond Fund also may invest in common stocks, warrants, loan participation,
assignments, securities sold through private placements and ADRs. The
sub-adviser believes that these investments will increase the Fund's
diversification and enhance return, but also involve certain risks, described
below. These investments and techniques and their attendant risks are described
in "Investment Methods and Risks."

The High Yield Bond Fund may also invest in other instruments or utilize
investment techniques that involve special risks. These include: emerging market
securities, brady bonds, interest rate swaps, currency swaps, other types of
available swap agreements, mortgage dollar roll transactions, options on
securities and securities indices, forward foreign currency exchange contracts,
options on foreign currency, futures contracts and options thereon, repurchase
agreements, borrowing from a bank and lending portfolio securities. The Fund may
invest up to 15% of its assets in illiquid securities. The Fund may also invest
up to 50% (and MFS expects generally to invest between 0% and 20%) of its total
assets in foreign securities (not including ADRs). The Fund may hold foreign
currency received in connection with investments in foreign securities when, in
the judgment of the sub-adviser, it would be beneficial to convert such currency

5
<PAGE>
into U.S. dollars at a later date, based on anticipated changes in the relevant
exchange rate. The Fund may also hold foreign currency in anticipation of
purchasing foreign securities.

The Fund may invest in futures contracts for hedging purposes only. The Fund
has adopted the additional restriction that it will not enter into a futures
contract if, immediately thereafter, the value of securities and other
obligations underlying all such futures contracts would exceed 50% of the value
of the Fund's total assets.

The High Yield Bond Fund may sell a security short as a hedge against
portfolio holdings whose credit is deteriorating. The Fund's short sales are
limited to situations where the Fund owns a debt security of a company and sells
short a different type of security issued by the same company such as common or
preferred stock or a senior or junior debt security. The total market value of
all securities sold short may not exceed 2% of the Fund's net assets.

During periods of unusual market conditions when the sub-adviser believes
that investing for temporary defensive purposes is appropriate, part or all of
the assets of the Fund may be invested in cash (including foreign currency) or
short-term money market instruments.

When and if available, fixed-income securities may be purchased at a
discount from face value. However, the Fund does not intend to hold such
securities to maturity for the purpose of achieving potential capital gains,
unless current yields on these securities remain attractive. From time to time
the Fund may purchase securities not paying interest at the time acquired if, in
the opinion of the sub-adviser, such securities have the potential for future
income or capital appreciation.

Securities offering the high current income sought by the High Yield Bond
Fund are ordinarily in the lower rating categories of recognized rating agencies
(that is, ratings of Baa or lower by Moody's or BBB by Standard & Poor's) or are
unrated and generally involve greater volatility of price and risk of principal
and income than securities in the higher rating categories. The Fund may invest
in securities rated Baa by Moody's or BBB by Standard & Poor's as well as
securities rated Ba or lower by Moody's or BB or lower by Standard & Poor's. No
minimum rating standard is required by the Fund. A detailed discussion of the
risks associated with lower rated corporate debt obligations is found in
"Investment Methods and Risks" under "Lower Rated Corporate Debt Obligations"
and in the SAI. See Appendix A to the SAI for a description of corporate bond
ratings assigned by Standard & Poor's and Moody's.

While the sub-adviser may refer to ratings issued by established credit
rating agencies, it is not the Fund's policy to rely exclusively on ratings
issued by these rating agencies, but rather to supplement such ratings with
MFS's own independent ongoing review of the credit quality. The Fund's
achievement of its investment objective may be more dependent on the
sub-adviser's own credit analysis than in the case of an investment company
primarily investing in higher quality fixed-income securities. Since shares of
the Fund represent an investment in securities with fluctuating market prices,
the value of shares of the Fund will vary as the aggregate value of the
portfolio securities of the Fund increases or decreases. However, changes in the
value of securities subsequent to their acquisition will not affect cash income
or yield to maturity to the Fund.

The Fund seeks to maximize the return on its portfolio by taking advantage
of market developments, yield disparities and variations in the creditworthiness
of issuers. This may result in increases or decreases in the holding by the Fund
of debt securities which sell at moderate to substantial premiums or discounts
from face value. Moreover, if the sub-adviser's expectations of changes in
interest rates or its evaluation of the normal yield relationship between two
securities proves to be incorrect, the income, net asset value and potential
capital gain of the Fund may be decreased or its potential capital loss may be
increased. The Fund will be diversified as defined under the 1940 Act.

BALANCED FUND

The Balanced Fund's investment objective is to provide a high total return
from a diversified portfolio of equity and fixed-income securities. Total return
will consist of income plus realized and unrealized capital gains and losses.
The Fund seeks to provide a total return that approaches that of the universe of
equity securities of large and medium sized U.S. companies and that exceeds the
return typical of a

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<PAGE>

portfolio of fixed-income securities. The Fund attempts to achieve this return
by investing in equity and fixed-income instruments, as described below.

The Balanced Fund is designed primarily for investors who wish to invest for
long term objectives such as retirement. It is appropriate for investors who
seek to attain real appreciation in the market value of their investments over
the long term, but with somewhat less price fluctuation than a portfolio
consisting only of equity securities. The Fund may be an attractive option for
investors who want a professional investment adviser to decide how their
investments should be allocated between equity and fixed-income securities.

Under normal circumstances, the Fund will be invested approximately 65% in
equity and 35% in fixed-income securities. However, J.P. Morgan Investment
Management, Inc. ("Morgan"), the sub-adviser, may allocate the Fund's
investments between these asset classes in a manner consistent with the Fund's
investment objective and current market conditions. Using a variety of
analytical tools, the sub-adviser assesses the relative attractiveness of each
asset class and determines an optimal allocation between them. The sub-adviser
then selects securities within each asset class based on fundamental research
and quantitative analysis.

Morgan intends to manage the Balanced Fund actively in pursuit of its
investment objective. Since the Fund has a long-term investment perspective, it
does not intend to respond to short-term market fluctuations or to acquire
securities for the purpose of short-term trading; however, it may take advantage
of short-term trading opportunities that are consistent with its objective. To
the extent the Fund engages in short-term trading, it may incur increased
transaction costs.

With regard to the equity component of the Balanced Fund, Morgan seeks to
achieve a high total return through fundamental analysis, systematic stock
valuation and disciplined portfolio construction. Based on internal fundamental
research, the sub-adviser uses a dividend discount model to value equity
securities and rank a universe of large and medium capitalization companies
within economic sectors according to their relative value. The sub-adviser then
buys and sells securities within each economic sector based on this valuation
process to seek to enhance the Fund's return. In addition, Morgan uses this
disciplined portfolio construction process to seek to reduce the volatility of
the equity portion of the Fund relative to that of the Standard & Poor's 500
Index.

The Fund's equity investments will be primarily the common stock of large
and medium sized U.S. companies with market capitalizations above $1.5 billion,
including common stock of any class or series or any similar equity interest,
such as trust or limited partnership interests. The Fund's equity investments
may also include ADRs, preferred stock, warrants, rights and convertible
securities. The Fund's equity securities may or may not pay dividends and may or
may not carry voting rights.

For the fixed-income component of the Balanced Fund, Morgan seeks to provide
a high total return by actively managing the duration of the Fund's fixed-income
securities, the allocation of securities across market sectors, and the
selection of securities within sectors. Based on fundamental, economic and
capital markets research, the sub-adviser adjusts the duration of the Fund's
fixed-income investments in light of market conditions. The sub-adviser also
actively allocates the Fund's fixed-income investments among the broad sectors
of the fixed-income market. Securities which the sub-adviser believes are
undervalued are selected for purchase from the sectors using advanced
quantitative tools, analysis of credit risk, the expertise of a dedicated
trading desk, and the judgment of fixed-income portfolio managers and analysts.

The Fund may invest in a broad range of debt securities of domestic issuers.
These include corporate bonds, debentures, notes, mortgage-related securities,
asset-backed securities, and CMOs, including sequential pay CMOs, parallel pay
CMOs, PAC Bonds and private placements. The Fund may invest in U.S. Government
and agency securities, including Treasury securities, GNMA Certificates, the
Farmers Home Administration and the Export Import Bank. The Fund may also invest
in municipal obligations which may be general obligations of the issuer or
payable only from specific revenue sources. However, the Fund will invest only
in municipal obligations that have been issued on a taxable basis or have an
attractive yield excluding tax considerations. In addition, the Fund may invest
in debt securities of foreign issuers.

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<PAGE>

Under normal circumstances at least 65% of the Fund's assets invested in
fixed-income securities will consist of securities that are rated at least A by
Moody's or Standard & Poor's or that are unrated and in Morgan's opinion are of
comparable quality. In the case of 30% of the Fund's fixed-income investments,
the Fund may purchase debt securities that are rated Baa or better by Moody's or
BBB or better by Standard & Poor's or are unrated and in Morgan's opinion are of
comparable quality. The remaining 5% of the Fund's fixed-income investments may
be debt securities rated Ba by Moody's or BB by Standard & Poor's or unrated and
in Morgan's opinion are of comparable quality. These standards must be satisfied
at the time an investment is made. If the quality of the investment later
declines, the Fund may continue to hold the investment. A detailed discussion of
the risks associated with lower rated corporate debt obligations is found in
"Investment Methods and Risks" under "Lower Rated Corporate Debt Obligations"
and in the SAI. See Appendix A to the SAI for a description of the corporate
bond ratings assigned by Standard & Poor's and Moody's.

In addition, the Balanced Fund may invest in securities on a when-issued or
forward commitment basis, invest in securities issued by supranational entities
and foreign companies, purchase ADRs and foreign currency, enter into repurchase
and reverse repurchase agreements, enter into dollar roll transactions, loan its
portfolio securities, purchase money market instruments and enter into forward
contracts on foreign currencies. The Fund may use options on securities and
indexes of securities, futures contracts and options on futures contracts for
hedging and risk management purposes. The Fund may also invest up to 15% of its
assets in illiquid securities. The Fund may borrow from banks. These securities
and techniques and their attendant risks are described in "Investment Methods
and Risks."

The Balanced Fund may invest in the types of money market instruments the
Investment Grade Bond Fund may invest. Under normal circumstances, the Fund will
purchase these securities to invest temporary cash balances or to maintain
liquidity to meet withdrawals. However, the Fund may invest in money market
instruments as a temporary defensive measure taken during, or in anticipation
of, adverse market conditions. The Fund may also hold cash during such times.
The Fund will be diversified as defined under the 1940 Act.

GROWTH & INCOME FUND

The Growth & Income Fund's investment objectives are to provide growth of
capital and income. The Fund will pursue its objectives by investing primarily
in equity securities and various income producing securities, including, but not
limited to, dividend paying equity securities, fixed-income securities and money
market instruments. The Fund may purchase securities on a when-issued or forward
commitment basis.

Under normal market conditions, Warburg, Pincus Counsellors, Inc.
("Warburg"), the Fund's sub-adviser, will invest substantially all of the Fund's
assets in equity securities, including common stocks, securities which are
convertible into common stocks and readily marketable securities, such as rights
and warrants, which derive their value from common stock. Investments in common
stock in general are subject to market risks that may cause their prices to
fluctuate over time. Therefore, an investment in the Growth & Income Fund may be
more suitable for long-term investors who can bear the risk of these
fluctuations. The Fund may invest up to 20% of its total assets in securities of
foreign issuers and may invest without limit in ADRs and small capitalization
companies. The Fund may also invest up to 15% of its assets in illiquid
securities. The Growth & Income Fund may from time to time hold various foreign
currencies pending their investment in foreign securities or their conversion
into U.S. dollars.

The Fund may also use certain investment techniques that entail special
risks. These include: reverse repurchase agreements, dollar roll transactions,
listed and unlisted options on securities and securities indices, futures
contracts and options thereon, holding and trading foreign currency, forward
foreign

8
<PAGE>
currency contracts, futures contracts on foreign currency and option contracts
on foreign currencies. The Growth & Income Fund will invest in futures contracts
and options on futures contracts for hedging purposes or to increase total
return so long as aggregate initial margins and premiums required for non-
hedging positions do not exceed 5% of the Fund's net assets, after taking into
account any unrealized profits and losses on any such contracts. The Fund may
also purchase mortgage-backed securities, asset-backed securities and foreign
government securities, borrow from banks, lend portfolio securities and engage
in short sales against the box. These securities and techniques and their
attendant risks are described in "Investment Methods and Risks."

When in the judgment of Warburg market conditions warrant, the Growth &
Income Fund may, for temporary defensive purposes, hold part or all of its
assets in cash and money market instruments of the type in which the Investment
Grade Bond Fund may invest as well as foreign currencies. The Fund will be
diversified as defined in the 1940 Act.

GROWTH FUND

The Growth Fund seeks capital growth. The Fund invests primarily in equity
securities that Strong Capital Management, Inc. ("Strong"), the Growth Fund's
sub-adviser, believes have above-average growth prospects. Under normal market
conditions, the Fund will invest at least 65% of its total assets in equity
securities, including common stocks, preferred stocks and securities convertible
into common or preferred stocks, such as warrants and convertible bonds. While
the emphasis of the Growth Fund is clearly on equity securities, the Growth Fund
may invest a limited portion of its assets in debt obligations when the Fund's
sub-adviser perceives that they are more attractive than stocks on a long-term
basis. When the sub-adviser determines that market conditions warrant a
temporary defensive position, the Growth Fund may invest without limitation in
cash and short-term fixed-income securities.

Strong will generally invest Fund assets in companies whose earnings are
believed to be in a relatively strong growth trend, and, to a lesser extent, in
companies in which significant further growth is not anticipated but whose
market value is thought to be undervalued. In identifying companies with
favorable growth prospects, the sub-adviser ordinarily looks to certain other
characteristics, such as the following: (1) prospects for above-average sales
and earnings growth; (2) high return on invested capital; (3) overall financial
strength, including sound financial and accounting policies and a strong balance
sheet; (4) competitive advantages, including innovative products and service;
(5) effective research, product development, and marketing; and (6) stable,
capable management.

The Growth Fund may invest up to 35% of its total assets in debt obligations
that are considered investment grade or, if not rated, of equivalent investment
quality as determined by Strong, including intermediate to long-term corporate,
U.S. Government or agency debt securities, bank obligations or commercial paper.
Although the debt obligations in which it invests will be primarily investment
grade, the Fund may invest up to 5% of its net assets in non-investment grade
debt obligations (debt securities rated Ba or lower by Moody's or BB or lower by
Standard & Poor's). A detailed discussion of the risks associated with lower
rated debt obligations is found in "Investment Methods and Risks" under "Lower
Rated Corporate Debt Obligations" and in the SAI. See Appendix A to the SAI for
a description of the bond ratings assigned by Standard & Poor's and Moody's.

The Growth Fund may invest up to 25% of its net assets directly in foreign
securities, including both direct investments and investments made through
depositary receipts. See "Implementation of Policies & Risks--Foreign Securities
and Currencies" for the special risks associated with foreign investments.

While the Growth Fund will generally invest in securities for the purpose of
seeking long-term capital gains, it may engage in short-term trading to maximize
capital appreciation. Changes in the investment portfolio will be made whenever
Strong believes they are advisable, either as a result of a security having
reached its price objective, or for reasons not foreseen at the time of the
investment without regard to the length of time the security has been held by
the Fund. As a result, short-term trading may cause portfolio turnover to be
higher than that of other funds with less aggressive trading strategies, which
may, in turn, increase the Fund's transaction costs.

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<PAGE>
The Fund may purchase obligations on a when-issued or forward commitment
basis, enter into repurchase, reverse repurchase and mortgage dollar roll
agreements, swap agreements, foreign currency transactions, loan its portfolio
securities, purchase restricted securities, forward foreign currency contracts,
options and futures contracts and borrow from banks. The Fund may purchase zero
coupon bonds, mortgage and other asset backed securities, bonds with interest
payable in kind, foreign government securities and the securities of unsecured
issuers. The Fund may also purchase the securities of other investment companies
and small capitalization companies. The Growth Fund may make short sales
"against the box," and invest up to 15% of its assets in illiquid securities.
These investments and techniques and their attendant risks are described in
"Investment Methods and Risks." The Fund will be a diversified investment
company.

EMERGING GROWTH FUND

The Emerging Growth Fund's investment objective is capital appreciation. The
Fund will pursue its objective by investing in a diversified portfolio of equity
securities selected on the basis of their potential for growth. The Fund does
not seek current income. The Fund invests in the equity securities of companies
which are listed on domestic and foreign securities exchanges or are traded in
the over-the-counter markets. The securities acquired by the Emerging Growth
Fund are primarily issues of companies which the Fund's sub-adviser,
Massachusetts Financial Services Company ("MFS"), believes possess above-average
potential for appreciation. Under normal market conditions, at least 80% of the
Fund's net assets will be invested in the securities of such issuers.

Securities in which the Fund invests may be speculative and may involve
substantial risk. A risk of investing in small, emerging companies is that they
often have limited product lines, markets or financial resources, and their
securities may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or market averages in general.
In addition, there may be less research available on many promising small and
medium-sized emerging growth companies, making it more difficult to find and
analyze these companies. The Fund, therefore, may be subject to greater
fluctuation in value than a conservative equity fund or growth fund which
invests entirely in proven growth stocks.

While the Emerging Growth Fund will invest primarily in common stocks, the
Fund may, to a limited extent, seek appreciation in other types of securities
such as foreign or convertible securities and warrants when relative values make
such purchases appear attractive either as individual issues or as types of
securities in certain economic environments. The Fund may also enter into
forward foreign currency exchange contracts for the purchase or sale of foreign
currency for hedging purposes and non-hedging purposes, including transactions
entered into for the purpose of profiting from anticipated changes in foreign
currency exchange rates, as well as options on foreign currencies. The Fund may
also hold foreign currency. The Fund may invest up to 25% (and expects generally
to invest between 0% to 10%) of its total assets in foreign securities not
including ADRs. The Fund may hold cash equivalents or other forms of debt
securities as a reserve for future purchases of common stock or to meet
liquidity needs.

The Fund may invest in mortgage-backed and corporate asset-backed
securities. The Fund may write covered call and put options and purchase call
and put options on securities and stock indices. The Fund may also purchase and
sell stock index futures contracts and may write and purchase options thereon
for hedging purposes and for non-hedging purposes, subject to applicable law. In
addition, the Fund may purchase portfolio securities on a when-issued or on a
forward commitment basis. The Fund may also invest a portion of its assets in
loan participations or other direct indebtedness.

While it is not generally the Fund's policy to invest or trade for
short-term profits, the Fund may dispose of a portfolio security whenever the
sub-adviser is of the opinion that such security no longer has an appropriate
appreciation potential or when another security appears to offer relatively
greater appreciation potential. Subject to tax requirements, portfolio changes
are made without regard to the length of time a security has been held or
whether a sale would result in a profit or loss.

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<PAGE>

The Emerging Growth Fund may invest up to 20% of its net assets in debt
securities considered investment grade or, if not rated, of equivalent
investment quality, however, this restriction does not apply to convertible
securities. The Fund may also invest up to 5% of its net assets in
non-investment grade debt securities. See Appendix A to the SAI for a
description of the corporate bond ratings assigned by Standard & Poor's and
Moody's. No minimum rating standard is required by the Fund. To the extent the
Emerging Growth Fund invests in these lower rated fixed-income securities, the
achievement of its investment objective may be more dependent on MFS's own
credit analysis than in the case of a Fund investing in higher quality bonds.
While the sub-adviser may refer to ratings issued by established credit rating
agencies, it is not a policy of the Fund to rely exclusively on ratings issued
by these agencies, but rather to supplement such ratings with MFS's own
independent and ongoing review of credit quality.

The Fund may invest in forward commitments, floating or variable rate
instruments, reverse repurchase agreements, and when-issued securities. The Fund
may invest up to 15% of its assets in illiquid securities. The Fund may also
invest in ADRs, emerging markets securities and may lend portfolio securities.
When adverse market conditions warrant, the Fund may assume a temporary
defensive position by investing a large portion or all of its assets in cash or
cash equivalents including, but not limited to, obligations of banks with assets
of $1 billion or more (including certificates of deposit, bankers' acceptances
and repurchase agreements), commercial paper, short-term notes, U.S. Government
Securities and related repurchase agreements. A detailed discussion of the risks
associated with lower rated corporate debt obligations is found in "Investment
Methods and Risks" under "Lower Rated Corporate Debt Obligations" and in the
SAI.

The Fund will be a diversified investment company.

INTERNATIONAL EQUITY FUND

The International Equity Fund's investment objective is long-term capital
appreciation. The Fund will seek to achieve its objective by investing
substantially all, and at least 65%, of its total assets in equity and
equity-related securities of companies from countries outside of the United
States. The Fund will be "non-diversified" as defined in the 1940 Act. See
"Non-Diversified Status." The International Equity Fund is intended for
investors who can accept the risks involved in investments in equity and
equity-related securities of non-U.S. issuers, as well as in foreign currencies
and in the active management techniques that the Fund generally employs.

The equity and equity-related securities in which the International Equity
Fund will primarily invest are common stock, preferred stock, convertible debt
obligations, convertible preferred stock and warrants or other rights to acquire
stock that Lombard Odier International Portfolio Management Limited ("Lombard
Odier"), the sub-adviser, believes offer the potential for long-term capital
appreciation. Issuers of such securities may include smaller, emerging
companies. The Fund also may invest in securities of foreign issuers in the form
of sponsored and unsponsored ADRs, EDRs or other similar instruments
representing securities of foreign issuers. The Fund may purchase securities on
a when-issued basis. See "Investment Methods and Risks."

While the investment policy of the Fund is to be broadly diversified as to
both countries and individual issuers, Lombard Odier selects individual
countries and securities on the basis of several factors. Investments are
allocated among issuers in countries selected based on a comparison of values
between the equity markets in those countries. This comparison is based upon
criteria such as return on equity, book value, earnings, dividends, and interest
rates in each market. After evaluating these factors and others for each country
and comparing opportunities among countries, the sub-adviser selects those
countries which, in its opinion, have the most attractive equity markets. This
evaluation is influential in deciding the amount of investment in each equity
market. Individual equity securities are selected within each market. The
International Equity Fund will invest in individual equity securities based on
factors such as book value, earnings per share and other financial data. The
sub-adviser will also endeavor to identify industry, political, and geographical
trends which may affect equity values within individual countries or among a
group of countries. The Fund may also invest cash temporarily in short-term debt
instruments to maintain liquidity or pending other investment.

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<PAGE>
The International Equity Fund may purchase and sell foreign currency on a
spot basis in connection with the settlement of transactions in securities
traded in such foreign currency. The Fund will not purchase and sell foreign
currencies for speculative purposes. The Fund may enter into forward foreign
currency contracts and foreign currency futures contracts for hedging purposes
only. This includes entering into forward foreign currency contracts and foreign
currency futures contracts as an anticipatory hedge.

The International Equity Fund may invest cash, held to meet redemption
requests and expenses, in obligations of the United States and of foreign
governments (including their political subdivisions), commercial paper, bankers'
acceptances, certificates of deposit and other short-term evidences of
indebtedness. The Fund will only purchase commercial paper if it is rated
Prime-1 or Prime-2 by Moody's or A-1 or A-2 by Standard & Poor's. The Fund also
may invest cash held for such purposes in short-term, high grade foreign debt
securities. The Fund may lend portfolio securities to unaffiliated brokers,
dealers and financial institutions provided that (a) immediately after any such
loan, the value of the securities loaned does not exceed 15% of the total value
of the Fund's assets, and (b) any securities loan is collateralized in
accordance with applicable regulatory requirements.

The International Equity Fund may invest up to 15% of its assets in illiquid
securities. The Fund also may make short sales and short sales "against the
box". The Fund may not make short sales or maintain a short position if to do so
would cause more than 25% of its total assets, taken at market value, to be held
as collateral for such sales.

The International Equity Fund's investments may include U.S. Government
Securities, restricted securities, mortgage-backed obligations, repurchase
agreements, debt obligations of corporate and asset-backed issuers, debt
obligations of foreign governments and their respective agencies,
instrumentalities, political subdivisions and authorities and debt obligations
issued or guaranteed by international or supranational entities that, in the
opinion of Lombard Odier, offer the potential to enhance total return. The
timing of purchase and sale transactions in debt obligations may result in
capital appreciation or depreciation because the value of debt obligations
varies inversely with prevailing interest rates. Under normal circumstances, the
Fund will not invest more than 35% of its total assets in such debt obligations.
The debt obligations in which the Fund may invest will be rated BBB or higher by
S&P or Baa or higher by Moody's, or if unrated, determined by the sub-adviser to
be of comparable credit quality. The Fund will limit its investment in corporate
debt obligations to less than 35% of its total assets. A detailed discussion of
the risks associated with lower rated corporate debt obligations is found in
"Investment Methods and Risks" under "Lower Rated Corporate Debt Obligations"
and in the SAI. See Appendix A to the SAI for a description of the corporate
bond ratings assigned by Standard & Poor's and Moody's.

Notwithstanding the International Equity Fund's investment objective of
long-term capital appreciation through investment in equity and equity-related
securities of non-U.S. issuers or of companies whose securities are principally
traded outside the United States, the Fund may on occasion, for temporary
defensive purposes to preserve capital, hold part or all of its assets in cash,
money market instruments, non-convertible preferred stocks, or, subject to
certain tax restrictions, foreign currencies. The Fund may assume a temporary
defensive posture only when political and economic factors affect foreign equity
markets to such an extent that the sub-adviser believes there to be
extraordinary risks in being substantially invested in such markets.

INVESTMENT METHODS AND RISKS

CONVERTIBLE SECURITIES

All Funds may invest in convertible securities. Convertible securities may
include corporate notes or preferred stock but are ordinarily a long-term debt
obligation of the issuer convertible at a stated price or at a stated exchange
rate into common stock of the issuer. As with all debt securities, the market
value of convertible securities tends to decline as interest rates increase and,
conversely, to increase as interest rates decline. Convertible securities
generally offer lower interest or dividend yields than non-convertible
securities of similar quality. However, when the market price of the common
stock underlying a convertible security exceeds the conversion price, the price
of the convertible security tends to reflect the value of the

12
<PAGE>
underlying common stock. As the market price of the underlying common stock
declines, the convertible security tends to trade increasingly on a yield basis,
and thus may not depreciate to the same extent as the underlying common stock.
Convertible securities generally rank senior to common stocks in an issuer's
capital structure and are consequently of higher quality and entail less risk of
declines in market value than the issuer's common stock. However, the extent to
which such risk is reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed-income security. The
convertible debt securities in which a Fund may invest are subject to the same
rating criteria as that Fund's investment in non-convertible debt securities.

FIXED-INCOME SECURITIES

All Funds may invest in fixed-income securities. Fixed-income securities in
which the Funds may invest will tend to decrease in value when prevailing
interest rates rise and increase in value when prevailing interest rates fall.
Because the value of a Fund's investments in fixed-income securities is interest
rate sensitive, its performance may be affected by the sub-adviser's ability to
anticipate and respond to fluctuations in market interest rates. Fixed-income
securities that the various Funds may invest in include U.S. Government
Securities, debt obligations of states or municipalities or state or municipal
government agencies or instrumentalities, corporate debt obligations, preferred
stock, zero coupon bonds and deferred interest bonds.

U.S. GOVERNMENT SECURITIES. All of the Funds may purchase U.S. Government
Securities. U.S. Government Securities are obligations issued or guaranteed by
the U.S. Government, its agencies, authorities or instrumentalities. Some U.S.
Government Securities, such as Treasury bills, notes and bonds, which differ
only in their interest rates, maturities and times of issuance, are supported by
the full faith and credit of the United States. Others, such as obligations
issued or guaranteed by U.S. Government agencies, authorities or
instrumentalities are supported either by (a) the full faith and credit of the
U.S. Government (such as securities of the Small Business Administration), (b)
the right of the issuer to borrow from the Treasury (such as securities of the
Federal Home Loan Banks), (c) the discretionary authority of the U.S. Government
to purchase the agency's obligations (such as securities of the Federal National
Mortgage Association), or (d) only the credit of the issuer. No assurance can be
given that the U.S. Government will provide financial support to U.S. Government
agencies, authorities or instrumentalities in the future. U.S. Government
Securities may also include zero coupon bonds.

Securities guaranteed as to principal and interest by the U.S. Government,
its agencies, authorities or instrumentalities are considered to include (a)
securities for which the payment of principal and interest is backed by a
guarantee of or an irrevocable letter of credit issued by the U.S. Government,
its agencies, authorities or instrumentalities and (b) participation in loans
made to foreign governments or their agencies that are so guaranteed. The
secondary market for certain of these participations is limited. Such
participation may therefore be regarded as illiquid.

CORPORATE DEBT OBLIGATIONS. All of the Funds may purchase corporate debt
obligations. Corporate debt securities are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations (credit
risk) and may also be subject to price volatility due to such factors as
interest rate sensitivity, market perception of the creditworthiness of the
issuer and general market liquidity (market risk). Lower rated or unrated
securities are more likely to react to developments affecting market and credit
risk than are more highly rated securities, which react primarily to movements
in the general level of interest rates. A sub-adviser considers both credit risk
and market risk in making investment decisions as to corporate debt obligations
for a Fund.

LOWER RATED CORPORATE DEBT OBLIGATIONS. The corporate debt obligations in
which the Investment Grade Bond Fund, the High Yield Bond Fund, the Balanced
Fund, the Growth Fund and the Emerging Growth Fund may invest may be rated below
investment grade by Standard & Poor's or by Moody's (I.E., bonds rated BB or
below by Standard & Poor's or Ba or below by Moody's) or be unrated. The
Investment Grade Bond Fund, the Growth Fund and the Emerging Growth Fund will
limit their investment in below investment grade corporate debt obligations to
5% of their total assets. The Balanced Fund will limit its

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investment in below investment grade corporate debt obligations to 5% of its
fixed-income investments. The High Yield Bond Fund may invest 100% of its net
assets in lower rated corporate debt obligations. Bonds rated BB or below by
Standard & Poor's or Ba or below by Moody's (or comparable unrated securities),
commonly known as "high yield, high risk," are considered, on balance,
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation and will generally involve more
credit risk than securities in the higher rating categories. As a result,
investment in such bonds will entail greater speculative risks than those
associated with investment in investment-grade bonds (I.E., bonds rated BBB or
higher by Standard & Poor's or Baa or higher by Moody's). The Securities and
Exchange Commission takes the position that bonds rated BB or below by Standard
& Poor's or Ba or below by Moody's (or comparable unrated securities) may be
classified as "junk bonds." No minimum rating standard is required for a
purchase of bonds by the High Yield Bond Fund, the Growth Fund and the Emerging
Growth Fund. See Appendix A to the SAI for a description of the ratings issued
by investment rating services.

An economic downturn could severely affect the ability of highly leveraged
issuers to service their debt obligations or to repay their obligations upon
maturity. Factors having an adverse impact on the market value of lower rated
securities will have an adverse effect on a Fund's net asset value to the extent
it invests in such securities. In addition, a Fund may incur additional expenses
to the extent it is required to seek recovery upon a default in payment of
principal or interest on its portfolio holdings.

The secondary market for high yield, high risk bond securities, which is
concentrated in relatively few market makers, may not be as liquid as the
secondary market for more highly rated securities, a factor which may have an
adverse effect on a Fund's ability to dispose of a particular security when
necessary to meet its liquidity needs. Under adverse market or economic
conditions, the secondary market for high yield, high risk bond securities could
contract further, independent of any specific adverse changes in the condition
of a particular issuer. As a result, a Fund could find it more difficult to sell
these securities or may be able to sell the securities only at prices lower than
if such securities were widely traded. Prices realized upon the sale of such
lower rated or unrated securities, under these circumstances, may be less than
the prices used in calculating a Fund's net asset value.

Since investors generally perceive that there are greater risks associated
with lower-rated debt securities, the yields and prices of such securities may
tend to fluctuate more than those for higher-rated securities. In the lower
quality segments of the fixed-income securities market, changes in perceptions
of issuers' creditworthiness tend to occur more frequently and in a more
pronounced manner than do changes in higher quality segments of the fixed-income
securities market resulting in greater yield and price volatility.

Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. In addition,
the prices of fixed-income securities fluctuate in response to the general level
of interest rates. Fluctuations in the prices of portfolio securities subsequent
to their acquisition will not affect cash income from such securities but will
be reflected in a Fund's net asset value.

Lower-rated (and comparable non-rated) securities tend to offer higher
yields than higher-rated securities with the same maturities because the
historical financial condition of the issuers of such securities may not have
been as strong as that of other issuers. In addition to the risk of default,
there are the related costs of recovery on defaulted issues. The sub-advisers
will attempt to reduce these risks through diversification of these Funds'
portfolios and by analysis of each issuer and its ability to make timely
payments of income and principal, as well as broad economic trends in corporate
developments.

ZERO COUPON BONDS. The Investment Grade Bond Fund, the High Yield Bond
Fund, the Balanced Fund, and the Growth Fund may invest in zero coupon bonds.
Zero coupon bonds are debt obligations which are issued at a significant
discount from face value. The original discount approximates the total amount of
interest the bonds will accrue and compound over the period until maturity or
the first interest accrual date at a rate of interest reflecting the market rate
of the security at the time of issuance. A zero coupon security pays no interest
to its holder during its life and its value (above its cost to a Fund) consists

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<PAGE>
of the difference between its face value at maturity and its cost. Such
investments experience greater volatility in market value due to changes in
interest rates than debt obligations which provide for regular payments of
interest.

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. All of the Funds may invest in
mortgage-backed securities, which represent direct or indirect participation in,
or are collateralized by and payable from, mortgage loans secured by real
property. The Funds may also invest in asset-backed securities, which represent
participation in, or are secured by and payable from, assets such as motor
vehicle installment sale contracts, installment loan contracts, leases of
various types of real and personal property, receivables from revolving credit
(credit card) agreements and other categories of receivables. Such securities
are generally issued by trusts and special purpose corporations.

Mortgage-backed and asset-backed securities are often subject to more rapid
repayment than their stated maturity dates would indicate as a result of the
pass-through of prepayments of principal on the underlying loans. During periods
of declining interest rates, prepayment of loans underlying mortgage-backed and
asset-backed securities can be expected to accelerate, and thus impair the
ability to reinvest the returns of principal at comparable yields. Accordingly,
the market values of such securities will vary with changes in market interest
rates generally and in yield differentials among various kinds of U.S.
Government Securities and other mortgage-backed and asset-backed securities.
Asset-backed securities present certain additional risks that are not presented
by mortgage-backed securities because asset-backed securities generally do not
have the benefit of a security interest in collateral that is comparable to
mortgage assets. There is the possibility that, in some cases, recoveries on
repossessed collateral may not be available to support payments on these
securities.

The Investment Grade Bond Fund, the High Yield Bond Fund and the Balanced
Fund may also invest in CMOs, including sequential pay CMOs, parallel pay CMOs,
and PAC Bonds. Parallel pay CMOs are structured to provide payments of principal
on each specified payment date to more than one class. These simultaneous
payments are taken into account in calculating the stated maturity date or final
distribution date of each class, which, as with other CMO structures, must be
retired by its stated maturity date or final distribution date, but may be
retired earlier. PAC Bonds generally require payments of a specified amount of
principal on each payment date.

STRIPPED MORTGAGE-BACKED SECURITIES. The High Yield Bond Fund and the
Growth Fund may invest a portion of their assets in stripped mortgage-backed
securities which are derivative multi-class mortgage securities issued by
agencies or instrumentalities of the United States government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, mortgage banks, commercial banks and investment banks. Stripped
mortgage-backed securities are usually structured with two classes that receive
different proportions of the interest and principal distributions from a pool of
mortgage assets. A common type of stripped mortgage-backed securities will have
one class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" Class) while the other class will
receive all of the principal (the principal only or "PO" Class). The yield to
maturity on an IO is extremely sensitive to the rate of principal payments
(including prepayments on the related underlying mortgage assets) and a rapid
rate of principal payments may have a material adverse effect on such security's
yield to maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Funds may fail to fully recoup their
initial investment in these securities. The market value of the class consisting
primarily or entirely of principal payments generally is unusually volatile in
response to changes in interest rates. Because stripped mortgage-backed
securities were only recently introduced, established trading markets for these
securities have not yet developed, although the securities are traded among
institutional investors and investment banking firms.

REPURCHASE AGREEMENTS

All of the Funds may enter into repurchase agreements with "primary dealers"
in U.S. Government Securities and member banks of the Federal Reserve System
which furnish collateral at least equal in value

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<PAGE>
or market price to the amount of their repurchase obligation. The collateral
must consist of U.S. Government securities or instruments that are rated in the
highest rating category by the requisite NRSROs. In a repurchase agreement, an
investor (E.G., a Fund) purchases a debt security from a seller which undertakes
to repurchase the security at a specified repurchase price on an agreed future
date (ordinarily a week or less). The repurchase price generally exceeds the
purchase price by an amount which reflects an agreed-upon market interest rate
for the term of the repurchase agreement. The primary risk is that, if the
seller defaults, a Fund might suffer a loss to the extent that the proceeds from
the sale of the underlying securities and other collateral held by that Fund in
connection with the related repurchase agreement are less than the repurchase
price. In addition, in the event of bankruptcy of the seller or failure of the
seller to repurchase the securities as agreed, that Fund could suffer losses,
including loss of interest on or principal of the security and costs associated
with delay and enforcement of the repurchase agreement. In evaluating whether to
enter into a repurchase agreement, the applicable sub-adviser will carefully
consider the creditworthiness of the seller.

REVERSE REPURCHASE AGREEMENTS

The Investment Grade Bond Fund, the Balanced Fund, the Growth & Income Fund,
the Growth Fund and the Emerging Growth Fund may enter into reverse repurchase
agreements. In a reverse repurchase agreement, a Fund sells a security and
agrees to repurchase the same security at a mutually agreed upon date and price.
It may also be viewed as the borrowing of money by the Fund. The Funds will
invest the proceeds of borrowings under reverse repurchase agreements. In
addition, the Funds will enter into a reverse repurchase agreement only when the
interest income to be earned from the investment of the proceeds is greater than
the interest expense of the transaction. The Funds will not invest the proceeds
of a reverse repurchase agreement for a period which exceeds the duration of the
reverse repurchase agreement. A Fund may not enter into reverse repurchase
agreements exceeding in the aggregate one-third of the market value of its total
assets, less liabilities other than the obligations created by reverse
repurchase agreements. Each Fund will establish and maintain with the custodian
a separate account with a segregated portfolio of securities in an amount at
least equal to its purchase obligations under its reverse repurchase agreements.

SWAP TRANSACTIONS

The High Yield Bond Fund and the Growth Fund may, to the extent permitted by
the SEC, enter into privately negotiated "swap" transactions with other
financial institutions in order to take advantage of investment opportunities
generally not available in public markets. In general, these transactions
involve "swapping" a return based on certain securities, instruments, or
financial indexes with another party, such as a commercial bank in exchange for
a return based on different securities, instruments, or financial indexes.

By entering into swap transactions, a Fund may be able to protect the value
of a portion of its securities against declines in market values. A Fund may
also enter into swap transactions to facilitate implementation of allocation
strategies between different market segments or to take advantage of market
opportunities which may arise from time to time. A Fund may be able to enhance
its overall performance if the return offered by the other party to the swap
transaction exceeds the return swapped by the Fund. However, there can be no
assurance that the return a Fund receives from the counterparty to the swap
transaction will exceed the return it swaps to that party.

While a Fund will only enter into swap transactions with counterparties it
considers creditworthy (and will monitor the creditworthiness of parties with
which it enters into swap transactions), a risk inherent in swap transactions is
that the other party to the transaction may default on its obligations under the
swap agreement. If the other party to the swap transaction defaults on its
obligations, a Fund would be limited to contractual remedies under the swap
agreement. There can be no assurance that a Fund will succeed when pursuing its
contractual remedies. To minimize a Fund's exposure in the event of default, the
Funds will usually enter into swap transactions on a net basis (I.E., the
parties to the transaction will net the payments payable to each other before
such payments are made). When a Fund enters into swap transactions on a net
basis, the net amount of the excess, if any, of the Fund's obligations over its
entitlements with respect

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<PAGE>
to each such swap agreement will be accrued on a daily basis and an amount of
liquid assets having an aggregate market value at least equal to the accrued
excess will be segregated by the Fund's custodian. To the extent a Fund enters
into swap transactions other than on a net basis, the amount segregated will be
the full amount of the Fund's obligations, if any, with respect to each such
swap agreement, accrued on a daily basis.

Swap agreements are considered to be illiquid by the SEC staff and will be
subject to the limitations on illiquid investments. A detailed discussion of the
limitations on illiquid investments is found in "Restricted and Illiquid
Securities" and in the SAI.

INTEREST RATE SWAPS. The High Yield Bond Fund and the Growth Fund may enter
into interest rate swaps for hedging purposes and non-hedging purposes. Since
swaps are entered into for good faith hedging purposes or are offset by a
segregated account, the sub-advisers believe that swaps do not constitute senior
securities as defined in the 1940 Act and, accordingly, will not treat them as
being subject to each Fund's borrowing restrictions. The net amount of the
excess, if any, of a Fund's obligations over its "entitlement" with respect to
each interest rate swap will be accrued on a daily basis and an amount of cash
or liquid high grade debt securities (I.E., securities rated in one of the top
three ratings categories by Moody's or Standard & Poor's, or, if unrated, deemed
by the sub-adviser to be of comparable credit quality) having an aggregate net
asset value at least equal to such accrued excess will be maintained in a
segregated account by the custodian. A Fund will not enter into any interest
rate swap unless the credit quality of the unsecured senior debt or the
claims-paying ability of the other party thereto is considered to be investment
grade by the sub-adviser. If there is a default by the other party to such a
transaction, a Fund will have contractual remedies pursuant to the agreement.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid in comparison with the markets for other similar
instruments which are traded in the interbank market.

The SEC, however, considers interest rate swaps to be illiquid and therefore
subject to the limitations on illiquid investments. A detailed discussion of the
limitations on illiquid investments is found in "Restricted and Illiquid
Securities" and in the SAI.

INDEXED SECURITIES

The High Yield Bond Fund and the Emerging Growth Fund may invest in indexed
securities whose value is linked to foreign currencies, interest rates,
commodities, indices or other financial indicators. Most indexed securities are
short to intermediate term fixed-income securities whose values at maturity
and/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.

DOLLAR ROLL TRANSACTIONS

All Funds except the Emerging Growth Fund and the International Equity Fund
may enter into mortgage "dollar roll" transactions with selected banks and
broker-dealers pursuant to which a Fund sells mortgage-backed securities for
delivery in the future (generally within 30 days) and simultaneously contracts
to repurchase substantially similar (same type, coupon and maturity) securities
on a specified future date. A Fund will only enter into covered rolls. A
"covered roll" is a specific type of dollar roll for which there is an
offsetting cash position or a cash equivalent security position which matures on
or before the forward settlement date of the dollar roll transaction. In the
event that the party with whom the Fund contracts to replace substantially
similar securities on a future date fails to deliver such securities, the Fund
may not be able to obtain such securities at the price specified in such
contract and thus may not benefit from the price differential between the
current sales price and the repurchase price.

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<PAGE>
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

All Funds may purchase when-issued securities. When-issued transactions
arise when securities are purchased by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
price and yield to the Fund at the time of entering into the transaction. The
Investment Grade Bond Fund, the Balanced Fund, the Growth & Income Fund, the
Growth Fund and the Emerging Growth Fund may also purchase securities on a
forward commitment basis, that is, make contracts to purchase securities for a
fixed price at a future date beyond customary settlement time. A Fund is
required to hold and maintain in a segregated account with its custodian until
the settlement date cash or liquid securities in an amount sufficient to meet
the purchase price. Alternatively, the Fund may enter into offsetting contracts
for the forward sale of other securities that it owns. Purchase of securities on
a when-issued or forward commitment basis involves a risk of loss if the value
of the security to be purchased declines prior to the settlement date. Although
a Fund would generally purchase securities on a when-issued or forward
commitment basis with the intention of acquiring securities for its portfolio,
the Fund may dispose of a when-issued security or forward commitment prior to
settlement if the sub-adviser deems it advantageous to do so.

LENDING OF PORTFOLIO SECURITIES

All Funds may seek to increase their income by lending portfolio securities.
Under present regulatory policies, such loans may be made to institutions, such
as certain broker-dealers, and are required to be secured continuously by
collateral in cash, cash equivalents, or U.S. Government Securities maintained
on a current basis at an amount at least equal to the market value of the
securities loaned. A Fund may experience a loss or delay in the recovery of its
securities if the institution with which it has engaged in a portfolio security
loan transaction breaches its agreement with the Fund. If the sub-adviser
determines to make securities loans, the value of the securities loaned will not
exceed one-third of the value of the total assets of a Fund except for the
International Equity Fund, which will not loan portfolio securities in excess of
15% of the value of its total assets.

RESTRICTED AND ILLIQUID SECURITIES

All Funds may invest in illiquid securities. However, no Fund will invest
more than 15% of its net assets in illiquid investments, which include most
repurchase agreements maturing in more than seven days, currency and interest
rate swaps, time deposits with a notice or demand period of more than seven
days, certain over-the-counter option contracts, participation interests in
loans, securities that are not readily marketable and restricted securities.
Such restriction shall not apply to restricted securities offered and sold to
"qualified institutional buyers" under Rule 144A under the Securities Act of
1933, as amended (the "1933 Act"), to foreign securities which are offered or
sold outside the United States, or with respect to the Growth Fund, to certain
Section 4(2) commercial paper.

The Board of Trustees of the Trust has adopted guidelines and delegated to
the sub-advisers the daily function of determining and monitoring the liquidity
of restricted securities. The Board, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Board will carefully
monitor each Fund's investments in these securities, focusing on such important
factors, among others, as valuation, liquidity and availability of information.
To the extent that qualified institutional buyers become for a time uninterested
in purchasing these restricted securities, this investment practice could have
the effect of decreasing the level of liquidity in a Fund.

The purchase price and subsequent valuation of restricted securities
normally reflect a discount from the price at which such securities would trade
if they were not restricted, since the restriction makes them less liquid. The
amount of the discount from the prevailing market prices is expected to vary
depending upon the type of security, the character of the issuer, the party who
will bear the expenses of registering the restricted securities and prevailing
supply and demand conditions.

BORROWING

The Investment Grade Bond Fund, the High Yield Bond Fund, the Emerging
Growth Fund, the Growth & Income Fund, the Growth Fund and the Balanced Fund may
borrow money but only from banks

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<PAGE>

and only for temporary or short-term purposes. The Funds will not borrow for
leveraging purposes and will maintain continuous asset coverage of at least 300%
(as defined in the 1940 Act) with respect to all of its borrowings. Should the
value of a Fund's assets decline to below 300% of borrowings, the Fund may be
required to sell portfolio securities within three days to reduce the Fund's
debt and restore 300% asset coverage. Borrowing involves interest costs.

OPTIONS ON SECURITIES AND SECURITIES INDICES

WRITING COVERED OPTIONS. All of the Funds except the International Equity
Fund may write (sell) covered call and put options on any securities in which
they may invest. All call options written by the Funds are covered, which means
that Fund will own the securities subject to the option so long as the option is
outstanding. All put options written by the Funds are covered, which means that
a Fund would have deposited with its custodian cash, U.S. Government Securities
or other high grade liquid debt securities with a value at least equal to the
exercise price of the put option. Call and put options written by a Fund will
also be considered to be covered to the extent that the Fund's liabilities under
such options are wholly or partially offset by its rights under call and put
options purchased by the Fund or otherwise covered by portfolio positions or by
other means consistent with applicable regulatory policies. The Funds may also
write call and put options on any securities index composed of securities in
which they may invest.

PURCHASING OPTIONS. All of the Funds except the International Equity Fund
may purchase put and call options on any securities in which they may invest or
options on any securities index based on securities in which they may invest.

RISKS ASSOCIATED WITH OPTIONS TRANSACTIONS. There is no assurance that a
liquid secondary market on a domestic or foreign options exchange will exist for
any particular exchange-traded option or at any particular time. If a Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
dispose of assets held in a segregated account until the options expire or are
exercised. Similarly, if a Fund is unable to effect a closing sale transaction
with respect to options it has purchased, it would have to exercise the options
in order to realize any profit and will incur transaction costs upon the
purchase or sale of the underlying securities. In a closing purchase or sale
transaction, a Fund acquires a position that offsets and cancels an option
position then held by the Fund.

The Funds (other than the International Equity Fund) may purchase and sell
both options that are traded on United States and foreign exchanges and options
traded over-the-counter with broker-dealers who make markets in these options.
The ability to terminate over-the-counter options is more limited than with
exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. Until
such time as the staff of the SEC changes its position, the Funds will treat
purchased over-the-counter options and all assets used to cover written
over-the-counter options as illiquid securities. However, for options written
with primary dealers in U.S. Government Securities pursuant to an agreement
requiring a closing purchase transaction at a formula price, the amount of
illiquid securities may be calculated with reference to a formula approved by
the SEC staff.

The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. For example, the successful use of
puts for hedging purposes depends in part on the ability of the sub-adviser to
predict future price fluctuations and the degree of correlation between the
options and securities markets. If the sub-adviser is incorrect in its
determination of the direction or the extent of the movement of the yield
differential, the investment performance of a Fund will be less favorable than
it would have been in the absence of such option transactions. The Funds pay
brokerage commissions or spreads in connection with their options transactions.
The writing of options could significantly increase a Fund's portfolio turnover
rate.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

To hedge against changes in interest rates, securities prices or currency
exchange rates or to increase total return, the Funds may purchase and sell
various kinds of futures contracts, and purchase and sell call

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<PAGE>
and put options on any futures contract that it may purchase or sell. The
futures contracts may be based on various securities (such as U.S. Government
Securities), securities indices, foreign currencies and other financial
instruments and indices. The Funds may also enter into closing purchase and sale
transactions with respect to any futures contract and options that each may
purchase or sell. No Fund will engage in futures and related options
transactions except for bona fide hedging purposes as defined in regulations of
the Commodity Futures Trading Commission ("CFTC") or to increase total return to
the extent permitted by such regulations.

Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a Fund to purchase securities or currencies, may require a Fund to
segregate high grade liquid debt securities with a value equal to the amount of
the Fund's obligations unless the obligations are otherwise covered by portfolio
positions or by other means consistent with applicable regulatory policies.

While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
while a Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for the Fund than if it had not
entered into any futures contracts or options transactions. The loss incurred by
a Fund in writing options on futures is potentially unlimited and may exceed the
amount of the premium received.

In the event of an imperfect correlation between a futures position and a
portfolio position which is intended to be protected, the desired protection may
not be obtained, and a Fund may be exposed to risk of loss. The risk of
imperfect correlation may be minimized by investing in contracts whose price
behavior is expected to resemble that of a Fund's underlying securities. The
risk that a Fund will be unable to close out a futures position will be
minimized to the extent that a Fund enters into such transactions on a national
exchange with an active and liquid secondary market. Nonetheless, it is not, for
example, possible to hedge fully or perfectly against currency fluctuations
affecting the value of securities denominated in foreign currencies because the
value of such securities is also likely to fluctuate as a result of independent
factors not related to currency fluctuations. Therefore, perfect correlation
between a Fund's futures positions and portfolio positions will be impossible to
achieve.

A Fund's transactions in futures contracts and options thereon may be
limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company.

FOREIGN TRANSACTIONS

FOREIGN INVESTMENTS. Investments in the securities of companies organized
outside the United States or of companies whose securities are principally
traded outside the United States ("foreign issuers") may offer potential
benefits not available from investments solely in securities of domestic issuers
or dollar denominated securities. Such benefits may include the opportunity to
invest in foreign issuers that appear, in the opinion of the sub-adviser, to
offer better opportunity for long-term capital appreciation or current earnings
than investments in domestic issuers, the opportunity to invest in foreign
countries with economic policies or business cycles different from those of the
United States and the opportunity to reduce fluctuations in portfolio value by
taking advantage of foreign securities markets that do not necessarily move in a
manner parallel to U.S. markets.

Investing in the securities of foreign issuers, including the governments of
foreign nations, involves significant risks that are not typically associated
with investing in U.S. dollar denominated securities or in securities of
domestic issuers. Such investments may be affected by changes in currency rates,
changes in foreign or U.S. laws or restrictions applicable to such investments
and in exchange control regulations (E.G., currency blockage). For example, a
decline in the exchange rate would reduce the value of certain portfolio
investments. In addition, if the exchange rate for the currency in which a Fund
receives interest payments declines against the U.S. dollar before such interest
is paid as dividends to shareholders, the Fund may have to sell portfolio
securities to obtain sufficient cash to pay such dividends. As discussed below,
a Fund may employ certain investment techniques to hedge its foreign currency
exposure; however,

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<PAGE>
such techniques also entail certain risks. Some foreign stock markets may have
substantially less volume than, for example, the New York Stock Exchange and
securities of some foreign issuers may be less liquid than securities of
comparable domestic issuers. Commissions and dealer mark-ups on transactions in
foreign investments may be higher than for similar transactions in the United
States. In addition, clearance and settlement procedures may be different in
foreign countries and, in certain markets, on certain occasions, such procedures
have been unable to keep pace with the volume of securities transactions, thus
making it difficult to conduct such transactions. For example, delays in
settlement could result in temporary periods when a portion of the assets of a
Fund are uninvested and no return is earned thereon. The inability of a Fund to
make intended investments due to settlement problems could cause it to miss
attractive investment opportunities. Inability to dispose of portfolio
securities or other investments due to settlement problems could result either
in losses to a Fund due to subsequent declines in value of the portfolio
investment or, if the Fund has entered into a contract to sell the investment,
could result in possible liability to the Fund.

Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to domestic
companies. There may be less publicly available information about a foreign
issuer than about a domestic issuer. In addition, there is generally less
government regulation of stock exchanges, brokers, and listed and unlisted
issuers in foreign countries than in the United States. Furthermore, with
respect to certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, imposition of withholding taxes on dividend or interest
payments, limitations on the removal of funds or other assets of the Fund, or
political or social instability or diplomatic developments which could affect
investments in those countries. Individual foreign economies also may differ
favorably or unfavorably from the United States economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position.

INVESTMENTS IN ADRS AND EDRS. Many securities of foreign issuers are
represented by American Depository Receipts ("ADRs") and European Depository
Receipts ("EDRs"). All Funds may invest in ADRs; the Investment Grade Bond Fund,
the Growth Fund and the International Equity Fund may invest in EDRs as well.
ADRs represent the right to receive securities of foreign issuers deposited in a
domestic bank or a foreign correspondent bank. Prices of ADRs are quoted in U.S.
dollars, and ADRs are traded in the United States on exchanges or
over-the-counter and are sponsored and issued by domestic banks. ADRs do not
eliminate all the risk inherent in investing in the securities of foreign
issuers. To the extent that a Fund acquires ADRs through banks which do not have
a contractual relationship with the foreign issuer of the security underlying
the ADR to issue and service such ADRs, there may be an increased possibility
that the Fund would not become aware of and be able to respond to corporate
actions such as stock splits or rights offerings involving the foreign issuer in
a timely manner. In addition, the lack of information may result in
inefficiencies in the valuation of such instruments. However, by investing in
ADRs rather than directly in the stock of foreign issuers, a Fund will avoid
currency risks during the settlement period for either purchases or sales. In
general, there is a large, liquid market in the United States for ADRs quoted on
a national securities exchange or the NASD's national market system. The
information available for ADRs is subject to the accounting, auditing and
financial reporting standards of the domestic market or exchange on which they
are traded, which standards are more uniform and more exacting than those to
which many foreign issuers may be subject.

Certain of the Funds may also invest in EDRs, which are receipts evidencing
an arrangement with a European bank similar to that for ADRs and are designed
for use in the European securities markets. EDRs are not necessarily quoted in
the same currency as the underlying security.

FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because the Funds may be
exposed to currency exposure independent of their securities positions, the
value of the assets of the Funds invested in foreign issuers as measured in U.S.
dollars will be affected by changes in foreign currency exchange rates. To the
extent that a Fund's assets consist of investments denominated in a particular
currency, the Fund's exposure to adverse developments affecting the value of
such currency will increase.

21
<PAGE>
An issuer of securities purchased by a Fund may be domiciled in a country
other than the country in whose currency the instrument is denominated or
quoted. Currency exchange rates may fluctuate significantly over short periods
of time causing, along with other factors, a Fund's net asset value to fluctuate
as well. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or anticipated changes in interest rates and other complex
factors, as seen from an international perspective. Currency exchange rates also
can be affected unpredictably by intervention by U.S. or foreign governments or
central banks, or the failure to intervene, or by currency controls or political
developments in the U.S. or abroad. The market in forward foreign currency
exchange contracts, currency swaps and other privately negotiated currency
instruments offers less protection against defaults by the other party to such
instruments than is available for currency instruments traded on an exchange. To
the extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions, is
denominated in the currencies of foreign countries, the Fund will be more
susceptible to the risk of adverse economic and political developments within
those countries. The Funds may enter into forward foreign currency exchange
contracts for hedging purposes in order to protect against anticipated changes
in future foreign currency exchange rates or to increase total return.

The Funds may enter into contracts to purchase foreign currencies to protect
against an anticipated rise in the U.S. dollar price of securities it intends to
purchase. They may enter into contracts to sell foreign currencies to protect
against a decline in value of their foreign currency denominated or quoted
portfolio securities, or a decline in the value of anticipated dividends from
such securities, due to a decline in the value of foreign currencies against the
U.S. dollar. Contracts to sell foreign currency could limit any potential gain
which might be realized by a Fund if the value of the hedged currency increased.

If a Fund enters into a forward foreign currency exchange contract to sell
foreign currency to increase total return or to buy foreign currency for any
purpose, the Fund will be required to place cash or liquid securities in a
SEGREGATED ACCOUNT of the Fund in an amount equal to the value of the Fund's
total assets committed to the consummation of the forward contract unless the
obligations are otherwise covered by portfolio positions or by other means
consistent with applicable regulatory policies. If the value of the securities
placed in the segregated account declines, additional cash or securities will be
placed in a segregated account so that the value of the account will equal the
amount of the Fund's commitment with respect to the contract.

Forward contracts are subject to the risk that the counterparty to such
contract will default on its obligations. Since a forward foreign currency
exchange contract is not guaranteed by an exchange or clearinghouse, a default
on the contract would deprive a Fund of unrealized profits, transaction costs or
expected benefits of a currency hedge or force the Fund to cover its purchase or
sale commitments, if any, at the current market price. A Fund will not enter
into such transactions unless the credit quality of the unsecured senior debt or
the claims-paying ability of the counterparty is considered to be investment
grade by the sub-adviser.

OPTIONS ON CURRENCIES. The High Yield Bond Fund, the Growth & Income Fund,
the Growth Fund, the Emerging Growth Fund and the International Equity Fund may
purchase and sell (write) put and call options on foreign currencies for hedging
purposes only to protect against declines in the U.S. dollar value of foreign
portfolio securities and anticipated dividends on such securities and against
increases in the U.S. dollar cost of foreign securities to be acquired. As with
other kinds of option transactions, however, the writing of an option on foreign
currency will constitute only a partial hedge, up to the amount of the premium
received. A Fund could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on foreign currency may constitute an effective hedge against exchange
rate fluctuations; however, in the event of exchange rate movements adverse to a
Fund's position, the Fund may forfeit the entire amount of the premium plus
related transaction costs. Options on foreign currencies to be written or
purchased by these Funds will be traded on U.S. and foreign exchanges or
over-the-counter. See "Options on Securities and Securities Indices" above for a
discussion of the liquidity risks associated with options transactions.

22
<PAGE>
BRADY BONDS

The High Yield Bond Fund and, consistent with their objectives and policies,
the Investment Grade Bond Fund and the Balanced Fund may invest in Brady Bonds,
which are securities created through the exchange of existing commercial bank
loans to public and private entities in certain emerging markets for new bonds
in connection with debt restructurings under a debt restructuring plan
introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady (the
"Brady Plan"). Brady Plan debt restructurings have been implemented to date in
Argentina, Brazil, Bulgaria, Costa Rica, Dominican Republic, Ecuador, Jordan,
Mexico, Nigeria, Panama, the Philippines, Poland, Uruguay and Venezuela. Brady
Bonds have been issued only recently and, for that reason, do not have a long
payment history. Brady Bonds may be collateralized or uncollateralized, are
issued in various currencies (but primarily the U.S. dollar) and are actively
traded in over-the-counter secondary markets. U.S. dollar-denominated,
collateralized Brady Bonds, which may be fixed-rate bonds or floating-rate
bonds, are generally collateralized in full as to principal by U.S. Treasury
zero coupon bonds having the same maturity as the bonds. Brady Bonds are often
viewed as having three or four valuation components: the collateralized
repayment of principal at final maturity; the collateralized interest payments;
the uncollateralized interest payments; and any uncollateralized repayment of
principal at maturity (these uncollateralized amounts constituting the "residual
risk"). In light of the residual risk of Brady Bonds and the history of defaults
of countries issuing Brady Bonds with respect to commercial bank loans by public
and private entities, investments in Brady Bonds may be viewed as speculative.

EMERGING MARKET SECURITIES

The High Yield Bond Fund, Emerging Growth Fund and, consistent with quality
requirements and applicable limitations on investment in securities of foreign
issuers, the Investment Grade Bond Fund and the Balanced Fund may invest in
securities of issuers whose principal activities are located in emerging market
countries. Emerging market countries include any country determined by the
sub-adviser to have an emerging market economy, taking into account a number of
factors, including whether the country has a low- to middle-income economy
according to the International Bank for Reconstruction and Development, the
country's foreign currency debt rating, its political and economic stability and
the development of its financial and capital markets. The sub-adviser determines
whether an issuer's principal activities are located in an emerging market
country by considering such factors as its country of organization, the
principal trading market for its securities and the source of its revenues and
assets. The issuer's principal activities generally are deemed to be located in
a particular country if: (a) the security is issued or guaranteed by the
government of that country or any of its agencies, authorities or
instrumentalities; (b) the issuer is organized under the laws of, and maintains
a principal office in, that country; (c) the issuer has its principal securities
trading market in that country; (d) the issuer derives 50% or more of its total
revenues from goods sold or services performed in that country; or (e) the
issuer has 50% or more of its assets in that country.

OTHER INVESTMENT COMPANIES

The Growth & Income Fund and the Growth Fund may invest up to 10% of their
total assets, calculated at the time of purchase, in the securities of other
investment companies, including business development companies, and small
business investment companies. The Funds may not invest more than 5% of their
total assets in the securities of any one investment company or in more than 3%
of the voting securities of any other investment company. The Funds may
indirectly bear their proportionate share of any advisory fees paid by
investment companies in which they invest in addition to the management fee paid
by the Funds.

NON-DIVERSIFIED STATUS

Since the International Equity Fund is not "diversified" as defined by the
1940 Act, it may invest a greater percentage of its assets in any single issuer
than otherwise permissible for diversified investment companies, and it will be
more susceptible to adverse developments affecting any single issuer.
Nonetheless, this "non-diversified" Fund is still subject to the diversification
requirements that arise under federal tax law. See "Taxes."

23
<PAGE>
RISKS OF INVESTING IN EMERGING COMPANIES

Investing in securities of smaller, lesser-known companies involves greater
risks than investing in larger, more mature, better known issuers, including an
increased possibility of portfolio price volatility. Historically, small
capitalization stocks and stocks of recently organized companies, in which the
High Yield Bond Fund, the Growth & Income Fund, the Emerging Growth Fund and the
International Equity Fund may also invest, have been more volatile in price than
the larger capitalization stocks included in the Standard & Poor's 500. Among
the reasons for the greater price volatility of these small company stocks are
the less certain growth prospects of smaller firms, the lower degree of
liquidity in the markets for such stocks and the greater sensitivity of small
companies to changing economic conditions. For example, these companies are
associated with higher investment risk than that normally associated with
larger, more mature, better known firms due to the greater business risks of
small size and limited product lines, markets, distribution channels and
financial and managerial resources.

The values of small company stocks may fluctuate independently of larger
company stock prices. Small company stocks may decline in price as large company
stock prices rise, or rise in price as large company stock prices decline. In
addition, in many instances the securities of smaller companies are traded only
over-the-counter or on a regional securities exchange, and the frequency and
volume of their trading is substantially less than is typical of larger
companies. Investors should therefore expect that to the extent a Fund invests
in stock of small capitalization companies, the net asset value of that Fund's
shares may be more volatile than, and may fluctuate independently of, broad
stock market indices such as the Standard & Poor's 500. Furthermore, the
securities of companies with small stock market capitalizations may trade less
frequently and in limited volume.

WARRANTS AND RIGHTS

All Funds except the Investment Grade Bond Fund may invest up to 5% of their
net assets (calculated at the time of purchase) in certain warrants or rights
that entitle the holder to buy equity securities at a specific price for a
specific period of time.

SHORT SALES "AGAINST THE BOX"

The Growth & Income Fund, the Growth Fund and International Equity Fund may
make short sales "against the box." In a short sale, a Fund sells a borrowed
security and has a corresponding obligation to the lender to return the
identical security. Each Fund may engage in short sales if at the time of the
short sale the Fund owns or has the right to obtain without additional costs an
equal amount of the security being sold short. This investment technique is
known as a short sale "against the box."

In a short sale, the seller does not immediately deliver the securities sold
and is said to have a short position in those securities until delivery occurs.
If a Fund engages in a short sale, the collateral for the short position will be
maintained by the Trust's custodian or qualified sub-custodian. While the short
sale is open, the Fund will maintain in a segregated account an amount of
securities equal in kind and amount to the securities sold short or securities
convertible into or exchangeable for such equivalent securities. These
securities constitute the Fund's long position.

The Funds do not intend to engage in short sales "against the box" for
investment purposes. A Fund may, however, make a short sale as a hedge, when it
believes that the price of a security may decline, causing a decline in the
value of a security owned by the Fund (or a security convertible or exchangeable
for such security), or when the Fund wants to sell the security at an attractive
current price, but also wishes to defer recognition of gain or loss for U.S.
federal income tax purposes and for purposes of satisfying certain tests
applicable to regulated investment companies under the Code. In such case, any
future losses in the Fund's long position should be offset by a gain in the
short position and, conversely, any gain in the long position should be reduced
by a loss in the short position. The extent to which such gains or losses are
reduced will depend upon the amount of the security sold short relative to the
amount the Fund owns. There will be certain additional transaction costs
associated with short sales "against the box", but the Funds will endeavor to
offset these costs with the income from the investment of the cash proceeds of
short sales.

24
<PAGE>
INVESTMENT RESTRICTIONS

Each of the Funds is also subject to certain investment restrictions which
have been adopted by the Trust for each Fund as fundamental policies that cannot
be changed without the approval of a majority of the outstanding votes
attributable to shares of the Fund. Among other restrictions, as diversified
funds, the Investment Grade Bond Fund, the High Yield Bond Fund, the Balanced
Fund, the Growth & Income Fund and the Growth Fund each may not, with respect to
75% of its total assets, purchase the securities of any one issuer (except U.S.
Government Securities) if more than 5% of the value of the Fund's assets would
be invested in such issuer. Similarly, none of the Funds except the High Yield
Bond Fund may invest more than 25% of its total assets in securities of issuers
in any one industry, except that this limitation does not apply to U.S.
Government Securities or foreign currency investments. For a more complete
description of the investment restrictions to which each Fund is subject, see
the SAI.

PORTFOLIO TURNOVER

The portfolio turnover rate is calculated by dividing the lesser of the
dollar amount of sales or purchases of portfolio securities by the average
monthly value of the Fund's portfolio securities, excluding securities having a
maturity at the date of purchase of one year or less.

The portfolio turnover rate for each Fund is shown in the Financial
Highlights of the Trust on page 2 of the Prospectus. The portfolio turnover
rates for three Funds, the Investment Grade Bond Fund, the Balanced Fund, and
the Growth Fund, were higher than anticipated, as discussed below.

Portfolio turnover in the Investment Grade Bond Fund during 1996 was higher
than expected due to strategies associated with the creation of a new fund in a
volatile interest rate setting. Initial investments in the fund were modest in
amount and were placed in the U.S. Treasury market which provides the most
efficient pricing for small fixed-income investments. As interest rates changed
in 1996, Treasuries were sold and replaced with other Treasuries having a
different coupon and maturity. This was necessary in order to maximize total
return in a changing interest rate environment. As Fund assets grew in size late
in the year, some Treasuries were sold in order to create a more diversified
portfolio. With the portfolio now diversified across different fixed-income
sectors, the turnover rate should decline in 1997.

Portfolio turnover in the Balanced Fund during 1996 was higher than expected
due to strategies associated with the creation of a new fund. This is
particularly relevant to the fixed-income portion of the portfolio, whose
turnover was significantly higher than that of the equity portion. Initial
investments in the fund were modest in size. This necessitated that the
fixed-income position of the portfolio be invested in the U.S. Treasury market,
where efficient pricing exists for small purchases. As interest rates changed
during 1996, Treasuries were sold and replaced with other Treasuries having a
different maturity and coupon. This was necessary to enhance total return in a
volatile interest rate environment. As fund assets grew in size, some Treasuries
were sold in order to diversify the portfolio across different sectors of the
fixed-income market. With the fixed-income portfolio now diversified and the
equity turnover rate expected to be similar to last year, total portfolio
turnover should decline in 1997.

25
<PAGE>

During 1996 portfolio turnover in the Growth Fund was higher than expected
as the portfolio manager reduced the market risk of the holdings by selling high
P/E stocks and replacing them with lower P/E and larger capitalization stocks.
In addition, as interest rates declined, the portfolio rotated out of technology
and consumer cyclical stocks into the more interest sensitive financial services
sector.

High rates of portfolio turnover involve correspondingly greater expenses
which must be borne by a Fund and its shareholders and may under certain
circumstances make it more difficult for a Fund to qualify as a regulated
investment company under the Code.

26
<PAGE>
MANAGEMENT

TRUSTEES AND OFFICERS

The Trust's Board of Trustees is responsible for deciding matters of general
policy and reviewing the actions of the Adviser and the sub-advisers, the
custodian, accounting and administrative services provider and other providers
of services to the Trust. The officers of the Trust supervise its daily business
operations. The SAI contains information as to the identity of, and other
information about, the directors and officers of the Trust.

INVESTMENT ADVISER

Alexander Hamilton Capital Management, Inc. (the "Adviser"), 100 North
Greene St., Greensboro, North Carolina 27401, is the investment adviser of the
Trust and its Funds. Adviser is a wholly-owned subsidiary of the Alexander
Hamilton Life Insurance Company of America ("Alexander Hamilton Life"), a
Michigan stock life insurance company. Alexander Hamilton Life was incorporated
under the laws of Michigan on October 31, 1963. It is principally engaged in the
sale of life insurance and annuities and is licensed in Canada, the District of
Columbia, and all states except New York. As of December 31, 1996, Alexander
Hamilton Life had assets of over $9.2 billion. Alexander Hamilton Life is
wholly-owned by Jefferson-Pilot Corporation, a $17.6 billion asset company based
in Greensboro, North Carolina. Jefferson-Pilot is in the insurance business
through Jefferson-Pilot Life Insurance Company and in the communications
business through television and radio stations.

The Adviser has entered into an investment management agreement, dated
October 9, 1995, with the Trust under which the Adviser assumes overall
responsibility, subject to the supervision of the Trust's Board of Trustees, for
administering all operations of the Trust and for monitoring and evaluating the
management of the assets of each of the Funds by the sub-advisers on an ongoing
basis. The Adviser provides or arranges for the provision of the overall
business management and administrative services necessary for the Trust's
operations and furnishes or procures any other services and information
necessary for the proper conduct of the Trust's business. The Adviser also acts
as liaison among, and supervisor of, the various service providers to the Trust,
including the custodian, transfer agent, and accounting services agent and to
its own administration agent that performs services for the Trust on its behalf.
The Adviser is also responsible for overseeing the Trust's compliance with the
requirements of applicable law and with each Fund's investment objective(s),
policies and restrictions, including oversight of the sub-advisers.

For its services to the Trust, the Adviser receives a monthly management
fee. The Adviser waived its fee for each Fund for 1996.

INVESTMENT SUB-ADVISERS

J.P. Morgan Investment Management, Inc. ("Morgan") is the sub-adviser to the
Investment Grade Bond Fund and the Balanced Fund. Morgan, with principal offices
at 522 Fifth Avenue, New York, NY 10036, is a wholly-owned subsidiary of J.P.
Morgan & Co. Incorporated, a bank holding company organized under the laws of
Delaware. Morgan offers a wide range of investment management services and acts
as investment adviser to corporate and institutional clients. As of December 31,
1996, Morgan had assets under management of over $172 billion. Subject to the
supervision of the Trustees and the Adviser, Morgan makes the day-to-day
investment decisions, arranges for the execution of portfolio transactions and
generally manages the investments of the Investment Grade Bond and Balanced
Funds.

Morgan uses a sophisticated, disciplined, collaborative process for managing
all asset classes. The following persons are primarily responsible for the
day-to-day management and implementation of Morgan's process for the Investment
Grade Bond Fund (his or her business experience for the past 5 years is
indicated parenthetically): Harriet T. Huber, Vice President (employed by Morgan
since 1989) and Mark E. Smith, Vice President (employed by Morgan since 1994,
previously fixed-income portfolio manager with Allied Signal, Inc.). The
following persons are primarily responsible for the day-to-day management and
implementation of Morgan's process for the Balanced Fund: Michael J. Kelly, Vice
President (employed by Morgan since 1985) and Harriet T. Huber, Vice President
(employed by Morgan since 1989).

27
<PAGE>

Massachusetts Financial Services Company ("MFS") is the sub-adviser to the
High Yield Bond Fund and the Emerging Growth Fund. MFS serves as investment
adviser to a variety of individual and institutional investors, including mutual
funds. MFS was established in 1924 and is a subsidiary of SunLife Assurance
Company of Canada (U.S.). As of February 28, 1997, the firm managed
approximately $52.8 billion of assets and 2.3 million investor accounts.

Joan S. Batchelder, Senior Vice President, is primarily responsible for the
day-to-day management of the High Yield Bond Fund's portfolio. Ms. Batchelder
has been employed as a portfolio manager by MFS since 1984.

John W. Ballen, Senior Vice President & Chief Equity Officer, and Mark
Regan, Vice President, are together primarily responsible for the management of
the Emerging Growth Fund. Mr. Ballen has been employed as a portfolio manager by
MFS since 1984. Mr. Regan has been employed by MFS as a portfolio manager since
1989.

Warburg, Pincus Counsellors, Inc. ("Warburg"), serves as the sub-adviser to
the Growth & Income Fund. Warburg is a wholly-owned subsidiary of Warburg,
Pincus Counsellors G.P. ("Warburg G.P."), a New York general partnership which
itself is controlled by Warburg, Pincus & Co. ("W.P. & Co."), also a New York
partnership. Lionel I. Pincus, the Managing Partner of W.P. & Co., may be deemed
to control both W.P. & Co. and Warburg. Warburg G.P. has no business other than
being a holding company of Warburg and its subsidiaries. Warburg, organized in
1970, is a professional investment counselling firm which provides investment
services to investment companies, employee benefit plans, endowment funds,
foundations and other institutions and individuals. As of February 28, 1997,
Warburg managed nearly $17.3 billion in assets. Warburg's offices are located at
466 Lexington Avenue, New York, New York 10017-3147. As sub-adviser to the
Growth & Income Fund, Warburg is responsible for the investment of the Fund's
assets subject to the supervision of the trustees and the adviser.

Brian S. Posner, a Managing Director of Warburg, has been with Warburg since
January 1997 and since May 1, 1997 has been the chief investment officer and
responsible for the day-to-day management of the Growth & Income Fund's
investments. Prior to joining Warburg, Mr. Posner had been a portfolio manager
with Fidelity Investments since 1987, most recently the Vice President and
portfolio manager of the Fidelity Equity-Income II Fund. Mr. Posner manages
other investment portfolios with investment objectives and policies similar to
those of the Growth & Income Fund.

Strong Capital Management, Inc. ("Strong"), the sub-adviser to the Growth
Fund, was organized in 1974. Since then, Strong's principal business has been
providing continuous investment supervision for individuals and institutional
accounts, such as pension funds and profit-sharing plans. The sub-adviser also
acts as investment adviser for its own propriety mutual funds. As of February
28, 1997, the sub-adviser managed over $24.2 billion in assets. Strong's
principal mailing address is P.O. Box 2936, Milwaukee, Wisconsin 53201. Richard
S. Strong is the controlling shareholder of the sub-adviser.

Subject to the supervision of the Trust's Trustees and the Adviser, Strong
manages the Growth Fund's portfolio in accordance with its stated investment
objective and policies, makes investment decisions for the Fund, places orders
to purchase and sell securities on behalf of the Fund, and administers the
affairs of the Fund. The portfolio manager for the Growth Fund is Mr. Ronald C.
Ognar. Mr. Ognar, a Chartered Financial Analyst with more than twenty-five years
of investment experience, joined the Adviser in April 1993 after two years as a
principal and portfolio manager with RCM Capital Management. For approximately
three years prior to that, he was a portfolio manager at Kemper Financial
Services in Chicago. Mr. Ognar began his investment career in 1968 at LaSalle
National Bank in Chicago after serving two years in the U.S. Army. He received
his bachelor's degree in accounting from the University of Illinois in 1968. In
addition to his duties as portfolio manager of the Fund, he also co-manages the
Strong Total Return Fund, the Strong Growth Fund II, and the Asset Allocation
Fund.

Lombard Odier, the sub-adviser to the International Equity Fund, provides
investment advisory services with respect to the Fund's investments in foreign
securities, including recommending optimal geographic and equity allocation.
Lombard Odier is wholly-owned by Lombard, Odier & Cie ("LOC"), one of the
largest and oldest private banks in Switzerland, established in 1798. Mr. Jean
Bonna, a

28
<PAGE>
Managing Partner of LOC, is Chairman of Lombard Odier. Mr. Robert van Maasdijk
is the Managing Director of Lombard Odier. Lombard Odier presently serves as
investment sub-adviser to one open-end investment company and one closed-end
investment company.

The Trust retains Lombard Odier to manage the investment of the
International Equity Fund's assets and to place orders for the purchase and sale
of portfolio securities. Lombard Odier will be primarily responsible for
recommending the allocation of investments among various international markets
and currencies, recommendation and selection of particular securities in the
international markets, and placement of portfolio transactions in the foreign
equity markets. Although overall strategy is set by the Lombard Odier Strategy
Committee, Mr. Ronald Armist (15 years of investment experience) and Mr. Omid
Kamshad (20 years of investment experience) will primarily be responsible for
the day-to-day management of the International Equity Fund.

INVESTMENT SUB-ADVISORY AGREEMENTS. Each sub-adviser has entered into an
investment sub-advisory agreement with the Adviser under which the sub-adviser,
subject to the general supervision of the Adviser and the Trust's Board of
Trustees, manages the investment portfolio of the Fund(s) of which it is the
sub-adviser. Under the investment advisory agreements, the sub-advisers are
responsible for making investment decisions for the Funds and for placing the
purchase and sale orders for the portfolio securities of each Fund. The
sub-advisers may place orders for portfolio transactions with any broker
including, to the extent and in the manner permitted by applicable law,
affiliated brokers.

As compensation for its services, the sub-advisers receive a monthly fee
from the Adviser based on the average daily net assets of each Fund at the
following annual rates:

<TABLE>
<CAPTION>
SUB-ADVISER SUB-ADVISORY FEE
- -------------------------------------------------------------------------------------- -------------------
<S> <C>
J.P. Morgan (Investment Grade Bond Fund).............................................. 0.30%
J.P. Morgan (Balanced Fund)*.......................................................... 0.45%
MFS (High Yield Bond Fund)............................................................ 0.40%
MFS (Emerging Growth)................................................................. 0.40%
Warburg Pincus (Growth & Income Fund)................................................. 0.50%
Strong (Growth Fund)*................................................................. 0.60%
Lombard Odier (International Equity Fund)............................................. 0.50%
</TABLE>

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

* At certain specified net asset levels, the sub-advisory fee for the Balanced
Fund and the Growth Fund will each decrease as a percentage of net assets.
Specifically, the sub-advisory fee for the Balanced Fund equals 0.45% of the
Fund's net assets up to $100 million, 0.40% of net assets between $100
million and $200 million, 0.35% of net assets between $200 million and $400
million and 0.30% of net assets above $400 million. The sub-advisory fee for
the Growth Fund equals 0.60% of the Fund's net assets up to $25 million,
0.50% of net assets between $25 million and $100 million, 0.40% of net assets
between $100 million and $150 million and 0.30% of net assets above $150
million.

See the SAI for more detailed information about the investment advisory
agreements.

PERFORMANCE INFORMATION

From time to time the Trust may publish average annual total return figures
for one or more of the Funds in advertisements, and communications to
shareholders or sales literature. Average annual total return is determined by
computing the annual percentage change in value of $1,000 invested for specified
periods ending with the most recent calendar quarter, assuming reinvestment of
all dividends and distributions at net asset value. The average annual total
return calculation assumes a complete redemption of the investment at the end of
the relevant period.

The Trust also may from time to time publish year-by-year total return,
cumulative total return and yield information for the Funds in advertisements,
communications to shareholders or sales literature. These may be provided for
various specified periods by means of quotations, charts, graphs or schedules.
Year-by-year total return and cumulative total return for a specified period are
each derived by calculating

29
<PAGE>
the percentage rate required to make a $1,000 investment in a Fund (assuming all
distributions are reinvested) at the beginning of such period equal to the
actual total value of such investment at the end of such period.

Certain Funds also may advertise their yield. Yield is computed by dividing
net investment income earned during a recent 30 day period by the product of the
average daily number of shares outstanding and entitled to receive dividends
during the period and the price per share on the last day of the relevant
period. The results are compounded on a bond equivalent (semi-annual) basis and
then annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from the
net investment income determined for accounting purposes.

In addition, the Trust may from time to time publish performance of its
Funds relative to certain performance rankings and indices.

The investment results of the Funds will fluctuate over time and any
presentation of investment results for any prior period should not be considered
a representation of what an investment may earn or what a Fund's performance may
be in any future period. In addition to information provided in shareholder
reports, the Trust may, in its discretion, from time to time make a list of the
Fund's holdings available to investors upon request.

DETERMINATION OF NET ASSET VALUE

The net asset value per share of each Fund is normally determined once daily
as of the close of regular trading on the New York Stock Exchange, currently
4:00 p.m. New York time, on each day when the New York Stock Exchange is open,
except as noted below. The New York Stock Exchange is scheduled to be open
Monday through Friday throughout the year, except for certain federal and other
holidays. The net asset value of each Fund's shares will not be calculated on
the Friday following Thanksgiving, the Friday following Christmas if Christmas
falls on a Thursday and the Monday before Christmas if Christmas falls on a
Tuesday. The net asset value of each Fund is determined by dividing the value of
the Fund's securities, cash, and other assets (including accrued but uncollected
interest and dividends), less all liabilities (including accrued expenses but
excluding capital and surplus) by the number of shares of the Fund outstanding.

The value of each Fund's securities and assets, except those of certain
short-term debt securities held by the Funds, is determined on the basis of
their market values. All short-term debt securities having remaining maturities
of sixty days or less held by the Funds are valued by the amortized cost method,
which is intended to approximate market value. Investments for which market
quotations are not readily available are valued at their fair value as
determined in good faith by, or under authority delegated by, the Trust's Board
of Trustees. See "Determination of Net Asset Value" in the SAI.

OFFERING, PURCHASE AND REDEMPTION OF SHARES

Shares of the Funds are sold in a continuous offering and are authorized to
be offered to the Alexander Hamilton Variable Annuity Separate Account and
Jefferson-Pilot Separate Account A (collectively, the "Separate Accounts") to
support variable annuity contracts. Net purchase payments under the Contracts
are placed in one or more subaccounts and the assets of each such subaccount are
invested in the shares of the Fund corresponding to that subaccount. The
Separate Accounts purchase and redeem shares of the Funds for its subaccounts at
net asset value without sales or redemption charges.

For each day on which a Fund's net asset value is calculated, the Separate
Accounts transmit to the Trust any orders to purchase or redeem shares of the
Fund(s) based on the purchase payments, redemption (surrender) requests, and
transfer requests from Contract owners, annuitants and beneficiaries that have
been processed on that day. The Separate Accounts purchase and redeem shares of
each Fund at the Fund's net asset value per share calculated as of that same day
although such purchases and redemptions may be executed the next morning. Money
received by the Trust from the Separate Accounts for the

30
<PAGE>
purchase of shares of the International Equity Fund may not be invested by those
Funds until the day following the execution of such purchases.

Please refer to the separate prospectus for the Contracts and the Separate
Accounts for a more detailed description of the procedures whereby a Contract
owner, annuitant, or beneficiary may allocate his or her interest in the
Separate Accounts to a subaccount using the shares of one of the Funds as an
underlying investment medium.

In the future, the Trust may offer shares of one or more of the Funds
(including new funds that might be added to the Trust) to other registered or
unregistered separate accounts of Alexander Hamilton Life or Jefferson-Pilot
Life to support variable annuity contracts (other than the Contracts) or
variable life insurance contracts. Likewise, the Trust may also, in the future,
offer shares of one or more of the Funds directly to qualified pension and
retirement plans.

In the event that shares of any Fund are offered to a separate account
supporting variable life insurance or to qualified pension and retirement plans,
a potential for certain conflicts may exist between the interests of variable
annuity contract owners, variable life insurance contract owners and plan
participants. The Trust currently does not foresee any disadvantage to owners of
the Contracts arising from the fact that shares of any Fund might be held by
such entities. In such an event, the Trust's Board of Trustees, however, will
monitor the Funds in order to identify any material irreconcilable conflicts of
interest which may possibly arise, and to determine what action, if any, should
be taken in response to such conflicts.

INCOME DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

The Funds intend to distribute substantially all of their net investment
income quarterly. Each Fund also intends to annually distribute substantially
all of its net realized capital gains. All income dividends and capital gain
distributions declared by a Fund to a separate account supporting variable
annuity contracts will be reinvested in shares of that Fund at the Fund's net
asset value.

TAXES

TAX STATUS. The Trust believes that each Fund will qualify as a regulated
investment company under Subchapter M, Chapter 1, Subtitle A of the Internal
Revenue Code of 1986, as amended (the "Code"), and each Fund intends to
distribute substantially all of its net income and net investment capital gain
to its shareholders. As a result, under the provisions of subchapter M, there
should be little or no income or gains taxable to the Funds. In addition, each
Fund intends to comply with certain other distribution rules specified in the
Code so that it will not incur a 4% nondeductible federal excise tax that
otherwise would apply. Under current law, the net income of the Funds, including
net capital gain, is not taxed to Alexander Hamilton Life to the extent that it
is applied to increase the reserves held by Alexander Hamilton Life in respect
of the annuity contracts.

DISTRIBUTION OF INCOME. To qualify as a regulated investment company, a
Fund must distribute to its shareholders (I.E., the insurance companies) for
each taxable year at least 90% of its investment company taxable income
(consisting generally of net investment income, net short-term capital gain, and
net gains from certain foreign currency transactions).

SOURCES OF GROSS INCOME. To qualify for treatment as a regulated investment
company, a Fund must also derive at least 90% of its gross income each taxable
year from dividends, interest, payments with respect to securities loans, gains
from the sale or other disposition of securities or foreign currencies, or other
income (including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in securities, or
currencies. A Fund must also derive less than 30% of its gross income each
taxable year from the sale or other disposition of any of the following which
was held for less than three months: (1) stock or securities, (2) options,
futures, or forward contracts (other than options, futures, or forward contracts
on foreign currencies), or (3) foreign currencies (or options, futures, or
forward contracts on foreign currencies) but only if such currencies (or
options, futures, or forward

31
<PAGE>
contracts) are not directly related to the Fund's principal business of
investing in stock or securities (or options and futures with respect to stock
or securities). For purposes of these tests, gross income generally is
determined without regard to losses from the sale or other disposition of stock
or securities or other Fund assets.

DIVERSIFICATION OF ASSETS. To qualify for treatment as a regulated
investment company, a Fund must also satisfy certain requirements with respect
to the diversification of its assets. A Fund must have, at the close of each
quarter of the taxable year, at least 50% of the value of its total assets
represented by cash, cash items, United States Government securities, securities
of other regulated investment companies, and other securities which, in respect
of any one issuer, do not represent more than 5% of the value of the total
assets of the Fund nor more than 10% of the voting securities of that issuer. In
addition, at those times not more than 25% of the value of the Fund's total
outstanding assets may be invested in securities (other than United States
Government securities or the securities of other regulated investment companies)
of any one issuer, or of two or more issuers which the Fund controls and which
are engaged in the same or similar trades or businesses or related trades or
businesses. For purposes of the Fund's requirements to maintain diversification
for tax purposes, the issuer of a loan participation will be the underlying
borrower. In cases where the Fund does not have recourse directly against the
borrower, both the borrower and each agent bank and co-lender interposed between
the Fund and the borrower will be deemed issuers of the loan participation for
tax diversification purposes. The Fund's investments in U.S. Government
Securities are not subject to these limitations. The foregoing diversification
requirements are in addition to those imposed by the Investment Company Act of
1940.

Because the Trust is established as an investment medium for variable
annuity contracts, Section 817(h) of the Code imposes additional diversification
requirements on each Fund. These requirements generally are that as of the end
of each quarter or within 30 days thereafter, no more than 55% of the value of
the total assets of a Fund may be represented by any one investment; no more
than 70% by any two investments; no more than 80% by any three investments; and
no more than 90% by any four investments. For these purposes, all securities of
the same issuer are treated as a single investment and each United States
government agency or instrumentality is treated as a separate issuer. Section
817(h) provides, as a safe harbor, that a separate account will be treated as
being adequately diversified if the diversification requirements under
Subchapter M are satisfied and no more than 55% of the value of the account's
total assets are cash, cash items, government securities, and securities of
other regulated investment companies.

FOREIGN INVESTMENTS. Funds investing in foreign securities or currencies
may be required to pay withholding or other taxes to foreign governments.
Foreign tax withholding from dividends and interest, if any, is generally at a
rate between 10% and 35%. The investment yield of the Funds that invest in
foreign securities or currencies will be reduced by these foreign taxes.
Shareholders will bear the cost of any foreign tax withholding, but may not be
able to claim a foreign tax credit or deduction for these foreign taxes. Funds
investing in securities of passive foreign investment companies may be subject
to U.S. Federal income taxes and interest charges, and the investment yield of
the Funds making such investments will be reduced by these taxes and interest
charges. Shareholders will bear the cost of these taxes and interest charges but
will not be able to claim a deduction for these amounts.

ADDITIONAL TAX CONSIDERATIONS. If a Fund failed to qualify as a regulated
investment company, (1) owners of Contracts based on the Fund might be taxed
currently on the investment earnings under their Contracts and thereby lose the
benefit of tax deferral, and (2) the Fund might incur additional taxes. In
addition, if a Fund failed to comply with the diversification requirements of
Section 817(h) of the Code, owners of Contracts based on the Fund would be taxed
on the investment earnings under their Contracts and thereby lose the benefit of
tax deferral. Accordingly, compliance with the above rules is carefully
monitored by the sub-advisers, and it is intended that the Funds will comply
with these rules as they exist or as they may be modified from time to time.
Compliance with the tax requirements described above may result in a reduction
in the return under a Fund since, to comply with the above rules, the
investments utilized (and the time at which such investments are entered into
and closed out) may be different from that the sub-adviser might otherwise
believe to be desirable.

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<PAGE>

The shareholders of the Funds are currently limited to the Separate Accounts
and the Company. For more information regarding the tax implications for the
purchaser of a Contract who allocates investments to the Funds, please refer to
the prospectus for the Contract.

The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations currently in effect. It is not
intended to be a complete explanation or a substitute for consultation with
individual tax advisors. For the complete provisions, reference should be made
to the pertinent Code sections and the Treasury Regulations promulgated
thereunder. The Code and Regulations are subject to change.

OTHER INFORMATION

REPORTS

Annual Reports containing audited financial statements of the Trust and
Semi-Annual Reports containing unaudited financial statements, as well as proxy
materials, are sent to Contract owners, annuitants or beneficiaries, as
appropriate. Inquiries may be directed to the Trust at the telephone number or
address set forth on the cover page of this prospectus.

VOTING AND OTHER RIGHTS

Each share outstanding is entitled to one vote on all matters submitted to a
vote of shareholders (of a Fund or the Trust) and is entitled to a pro rata
share of any distributions made by a Fund and, in the event of liquidation, of
its net assets remaining after satisfaction of outstanding liabilities. Each
share (of each Fund), when issued, is nonassessable and has no preemptive or
conversion rights. The shares have noncumulative voting rights. Alexander
Hamilton Life will vote shares of a Fund held by the Separate Account which are
attributable to Contracts in accordance with instructions received from Contract
owners, annuitants and beneficiaries as provided in the prospectus for the
Contracts. Fund shares held by the Separate Accounts as to which no instructions
have been received will be voted for or against any proposition, or in
abstention, in the same proportion as the shares of the Separate Accounts as to
which instructions have been received. Fund shares held by any registered
separate account of Alexander Hamilton Life or its affiliates that are not
attributable to Contracts will also be voted for or against any proposition in
the same proportion as the shares for which voting instructions are received by
that separate account. However, if the Trust determines that it is permitted to
vote any such shares of a Fund in its own right, it may elect to do so, subject
to the then current interpretation of the 1940 Act and the rules thereunder.

As a Massachusetts business trust, the Trust is not required to hold regular
annual shareholder meetings. The Trust is, however, required to hold shareholder
meetings for the following purposes: (i) approving certain agreements as
required by the 1940 Act; (ii) changing fundamental investment objectives,
policies and restrictions of any Fund; and (iii) filling vacancies on the board
of trustees in the event that less than a majority of the Trustees were elected
by shareholders. Trustees may also be removed by shareholders by a vote of
two-thirds of the outstanding votes attributable to shares of all Funds at a
meeting called at the request of holders of 10% or more of such votes. The Trust
has the obligation to assist in shareholder communications.

The Jefferson-Pilot Corporation Employees' Retirement Benefit Plan and
Alexander Hamilton Life own more than 25% of the outstanding shares of each Fund
which may result in it being deemed a controlling person of each of these Funds,
as that term is defined in the 1940 Act.

CUSTODY OF ASSETS

Pursuant to a custody agreement with the Trust, The Bank of New York serves
as the custodian of the Funds' assets.

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<PAGE>
ACCOUNTING AND ADMINISTRATIVE SERVICES

Pursuant to the Fund Accounting and Administrative Service agreements, The
Bank of New York also performs certain accounting services for the Trust. These
services include maintaining and keeping current the Trust's books, accounts,
records, journals and other records of original entry related to the Trust's
business, performing certain daily functions related thereto, including
calculating each Fund's daily net asset value. The Bank of New York is
responsible for providing certain administrative services to the Trust such as
calculating each Fund's standardized performance information, preparing annual
and semi-annual reports to shareholders and the SEC, preparing each Fund's tax
returns, monitoring compliance and performing other administrative duties.

TRANSFER AGENT

Pursuant to a service agreement with the Trust, The Bank of New York also
acts as a transfer, redemption and dividend disbursing agent for the Trust.

34
<PAGE>

PART B
------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
------------------------------------

ALEXANDER HAMILTON VARIABLE INSURANCE TRUST

INVESTMENT GRADE BOND FUND
HIGH YIELD BOND FUND
BALANCED FUND
GROWTH & INCOME FUND
GROWTH FUND
EMERGING GROWTH FUND
INTERNATIONAL EQUITY FUND

May 1, 1997

This Statement of Additional Information is not a prospectus. Much of the
information contained in this Statement expands upon information discussed in
the prospectus for Alexander Hamilton Variable Insurance Trust (the "Trust") and
should, therefore, be read in conjunction with the prospectus for the Trust. To
obtain a copy of the prospectus with the same date as this Statement of
Additional Information write to the Trust at its Administrative Service Center,
P.O. Box 1776, Farmington Hills, Michigan 48333-9896 or call 1-(800)-289-1776.

<PAGE>

TABLE OF CONTENTS

Page
----

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ADDITIONAL INVESTMENT POLICY INFORMATION . . . . . . . . . . . . . . . . . 5

Investment Grade Bond Fund . . . . . . . . . . . . . . . . . . . . . . 5
High Yield Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . 7
Balanced Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Growth & Income Fund . . . . . . . . . . . . . . . . . . . . . . . . . 14
Growth Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Emerging Growth Fund . . . . . . . . . . . . . . . . . . . . . . . . . 15
International Equity Fund. . . . . . . . . . . . . . . . . . . . . . . 18

SPECIAL INVESTMENT METHODS AND RISKS . . . . . . . . . . . . . . . . . . . 20

Restricted and Illiquid Securities . . . . . . . . . . . . . . . . . . 20
Options on Securities and Securities Indices . . . . . . . . . . . . . 21
Futures Contracts and Options on Futures Contracts . . . . . . . . . . 28
Foreign Investments. . . . . . . . . . . . . . . . . . . . . . . . . . 36
Fixed-Income Securities. . . . . . . . . . . . . . . . . . . . . . . . 45
Warrants and Rights. . . . . . . . . . . . . . . . . . . . . . . . . . 55
Swap and Related Transactions. . . . . . . . . . . . . . . . . . . . . 55
Short Sales "Against the Box". . . . . . . . . . . . . . . . . . . . . 57
Dollar Roll Transactions . . . . . . . . . . . . . . . . . . . . . . . 59
Emerging Market Securities. . . . . . . . . . . . . . . . . . . . . . 60

INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 62

Fundamental Restrictions . . . . . . . . . . . . . . . . . . . . . . . 62
Non-fundamental Restrictions . . . . . . . . . . . . . . . . . . . . . 69
Interpretive Rules . . . . . . . . . . . . . . . . . . . . . . . . . . 75

INVESTMENT ADVISER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

Investment Management Agreement. . . . . . . . . . . . . . . . . . . . 76
Expenses of the Trust. . . . . . . . . . . . . . . . . . . . . . . . . 80

<PAGE>

Page
----

PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . 81
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . 84
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . 88
SHARES OF STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
CUSTODY OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . 98

OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 103
Legal Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . 103

APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

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INTRODUCTION

The Alexander Hamilton Variable Insurance Trust (the "Trust") is an
open-end management investment company established as a Massachusetts business
trust under a Declaration of Trust dated July 8, 1994. The Trust consists of
seven separate investment portfolios or funds (the "Funds" or a "Fund"), each of
which is, in effect, a separate mutual fund. The Trust issues a separate class
of shares for each Fund representing fractional undivided interests in that
Fund. An investor, by investing in a Fund, becomes entitled to a pro-rata share
of all dividends and distributions arising from the net income and capital gains
on the investments of that Fund. Likewise, an investor shares pro-rata in any
losses of that Fund.

Pursuant to an investment management agreement and subject to the authority
of the Trust's Board of Trustees, Alexander Hamilton Capital Management, Inc.
(the "Adviser") serves as the Trust's investment adviser and conducts the
business and affairs of the Trust. The Adviser has engaged the following
advisers to act as sub-adviser to provide the day-to-day portfolio management
for the respective Fund(s).

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<PAGE>

FUND SUB-ADVISER
- -------------------------------------------------------------------------------
Investment Grade Bond Fund J. P. Morgan Investment Management, Inc.

High Yield Bond Fund Massachusetts Financial Services Company

Balanced Fund J. P. Morgan Investment Management, Inc.

Growth & Income Fund Warburg, Pincus Counsellors, Inc.

Growth Fund Strong Capital Management, Inc.

Emerging Growth Fund Massachusetts Financial Services Company

International Equity Fund Lombard Odier International Portfolio
Management Limited
- -------------------------------------------------------------------------------

The Trust currently offers each class of its shares to the Alexander
Hamilton Variable Annuity Separate Account (a separate account of the
Alexander Hamilton Life Insurance Company of America) and offers shares of
the Growth Fund and the Emerging Growth Fund to Jefferson-Pilot Separate
Account A (a separate account of Jefferson-Pilot Life Insurance Company) as
the underlying funding vehicle for certain variable annuity contracts (the
"Contracts"). The Trust may also offer classes of its shares to separate
accounts sponsored by insurance companies affiliated with the Company to fund
variable annuity contracts. The Trust does not offer its shares directly to
the general public. The Alexander Hamilton Variable Annuity Separate Account
and Jefferson-Pilot Separate Account A, like the Trust, are registered as
investment companies with the Securities and

-4-

<PAGE>

Exchange Commission ("SEC") and separate prospectuses describe the Separate
Accounts and the Contracts. The prospectuses for the Separate Accounts and
the Contracts also have a statement of additional information similar to this
Statement of Additional Information.

The Trust may, in the future, offer its stock to other registered and
unregistered separate accounts of the Alexander Hamilton Life Insurance Company
or Jefferson-Pilot Life Insurance Company and their affiliates supporting other
variable annuity contracts or variable life insurance contracts and to qualified
pension and retirement plans.

Terms appearing in this Statement of Additional Information that are
defined in the Prospectus have the same meaning herein as in the Prospectus.

ADDITIONAL INVESTMENT POLICY INFORMATION

INVESTMENT GRADE BOND FUND

The Investment Grade Bond Fund seeks high total return consistent with
moderate risk of capital and maintenance of liquidity. Subject to this
investment objective, the sub-adviser will consider the total rate of return on
portfolio securities in managing the Fund. Under normal market or economic
conditions,

-5-

<PAGE>

the Fund will invest a majority of its assets in investment grade debt
obligations and money market instruments.

The Investment Grade Bond Fund may or may not be suitable or appropriate
for all investors. The Fund is not a money market fund and is not an
appropriate investment for those whose primary objective is stability of
principal. The value of the portfolio securities of the Fund will fluctuate
based upon market, economic, and to some degree, foreign exchange conditions.
Although the Fund seeks to reduce risk by investing in a diversified portfolio,
such diversification does not eliminate all risk. There is no assurance,
however, that the Fund will achieve this result.

Yields on short, intermediate, and long-term securities are dependent on a
variety of factors, including the general conditions of the money, bond and
foreign exchange markets, the size of a particular offering, the maturity of the
obligation, and the rating of the issue. Debt securities with longer maturities
tend to produce higher yields and are generally subject to potentially greater
capital appreciation and depreciation than obligations with shorter maturities
and lower yields. The market prices of debt securities usually vary, depending
upon available yields (known as market risk). An increase in interest rates
will

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<PAGE>

generally reduce the value of portfolio investments, and a decline in interest
rates will generally increase the value of portfolio investments. The ability
of the Investment Grade Bond Fund to achieve its investment objective is also
dependent on the continuing ability of the issuers of the debt securities to
meet their obligations for the payment of interest and principal when due (known
as credit risk).

HIGH YIELD BOND FUND

The High Yield Bond Fund seeks a high level of current income. The Fund
will seek to achieve its objective by investing primarily in corporate debt
obligations(1) with emphasis on higher-yielding, higher risk, lower-rated or
unrated securities. Under normal conditions, the sub-adviser expects that the
Fund's assets will primarily consist of a diversified portfolio of
high-yielding bonds, convertible securities and preferred stock.

The High Yield Bond Fund intends to invest a substantial portion of its
assets in fixed-income securities offering high current income. Such high
yielding fixed-income securities are ordinarily in the lower rating categories
of Moody's or Standard & Poor's or will be unrated securities of comparable
quality. Such securities are commonly known as "junk bonds." These lower-rated
fixed-income securities are considered, on balance, as predominantly speculative
with respect to capacity to pay

- ------------------------
(1) The maturities of these securities is expected to range from 8 to 12 years.

-7-

<PAGE>

interest and repay principal in accordance with the terms of the obligation and
will generally involve more credit risk than securities in the higher rating
categories. The market values of such securities tend to reflect individual
corporate developments to a greater extent than do higher-rated securities,
which react primarily to fluctuations in the general level of interest rates.
Such lower-rated securities also tend to be more sensitive to economic
conditions than are higher-rated securities. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, regarding lower-rated
bonds may depress prices and liquidity for such securities. Factors adversely
affecting the market value of high yielding securities will adversely affect the
Fund's net asset value. In addition, the Fund may incur additional expenses to
the extent it were required to seek recovery upon a default in the payment of
principal or interest on its portfolio holdings. Although some risk is inherent
in all securities ownership, holders of fixed-income securities have a claim on
the assets of the issuer prior to the holders of common stock. Therefore, an
investment in fixed-income securities generally entails less credit risk than an
investment in common stock of the same issuer.

The sub-adviser's judgment as to the "reasonableness" of the risk involved
in any particular investment will be a function of its experience in managing
fixed-income investments and its

-8-

<PAGE>

evaluation of general economic and financial conditions of a specific issuer.

In some circumstances, defensive strategies may be implemented to preserve
or enhance capital even at the sacrifice of current yield. Defensive
strategies, which may be used singly or in any combination, may include, but are
not limited to, investments in zero coupon bonds or investments in money market
instruments.

High yielding securities may be issued by corporations in the growth stage
of their development. They may also be issued in connection with a corporate
reorganization or as part of a corporate takeover. Companies that issue such
high yielding securities are often highly leveraged and may not have available
to them more traditional methods of financing. Therefore, the risk associated
with acquiring the securities of such issuers generally is greater than is the
case with higher-rated securities. For example, during an economic downturn or
a sustained period of rising interest, highly leveraged issuers of high yielding
securities may experience financial stress. During such periods, such issuers
may not have sufficient revenues to meet their interest payment obligations.
The issuer's ability to service its debt obligations may also be adversely
affected by specific corporate developments, or the issuer's inability to meet
specific projected business forecasts, or the unavailability

-9-

<PAGE>

of additional financing. The risk of loss due to default by the issuer is
significantly greater for the holders of high yielding securities because such
securities are generally unsecured and are often subordinated to other creditors
of the issuer.

High yielding securities frequently have call or buy-back features that
would permit an issuer to call or repurchase the security from the Fund. If a
call were exercised by the issuer during a period of declining interest rates,
the Fund would likely have to replace such called security with a lower yielding
security, thus decreasing the net investment income to the Fund. The premature
disposition of a high yielding security because of a call or buy-back feature,
the deterioration of the issuer's creditworthiness or a default may also make it
more difficult for the Fund to time its receipt of income, which may have tax
implications.

The Fund may have difficulty disposing of certain high yielding securities
for which there is a thin trading market. Because not all dealers maintain
markets in all high yielding securities, there is no established retail
secondary market for many of these securities, and the Fund anticipates that
they could be sold only to a limited number of dealers or institutional
investors. To the extent there is a secondary trading market for high yielding
securities, it is generally not so liquid as that for higher-rated securities.
The lack of a liquid secondary

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<PAGE>

market may have an adverse impact on market price and the Fund's ability to
dispose of particular issues when necessary to meet the Fund's liquidity needs
or in response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities may also make it more difficult for the Fund to obtain
accurate market quotations for purposes of valuing the Fund's assets. Market
quotations are generally available on many high yield issues only from a limited
number of dealers and may not necessarily represent firm bids of such dealers or
prices for actual sales.

It is likely that a major economic recession could severely affect the
market for and the values of high yielding securities, as well as the ability of
the issuers of such securities to repay principal and pay interest thereon.

The High Yield Bond Fund may acquire high yielding securities that are sold
without registration under the federal securities laws and therefore carry
restrictions on resale. Many recent high yielding securities have been sold
with registration rights, covenants and penalty provisions for delayed
registration; however, if a Fund is required to sell such restricted securities
before the securities have been registered, then the Fund may be deemed an
underwriter of such securities as defined in the Securities Act of 1933 (the
"1933 Act"), which entails special responsibilities and liabilities. The Fund
may incur special

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costs in disposing of such securities, but will generally incur no costs when
the issuer is responsible for registering the securities.

The High Yield Bond Fund may acquire high yielding securities during an
initial underwriting. Such securities involve special risks because they are
new issues. The Fund has no arrangement with any person concerning the
acquisition of such securities and the sub-adviser will carefully review the
credit and other characteristics pertinent to such new issues.

From time to time in the past, there were proposals for legislation
designed to limit the use of certain high yielding securities in connection with
leveraged buy-outs, mergers and acquisitions, or to limit the deductibility of
interest payments on such securities. Such proposals if enacted into law could
reduce the market for such securities generally, could negatively affect the
financial condition of issuers of high yield securities by removing or reducing
a source of future financing, and could negatively affect the value of specific
high yield issues. However, such legislation is not currently proposed.

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BALANCED FUND

The Balanced Fund seeks high total return. The Fund will pursue its
investment objective by investing in a diversified portfolio of equity and fixed
income securities. The equity component of the Fund will consist primarily of
the common stock of large and medium sized U.S. companies within various
economic sectors according to their relative value. The sub-adviser buys and
sells securities within each economic sector based on this valuation process to
enhance total return.

The sub-adviser believes that diversification of the Fund's investments
among economic sectors will better enable the Fund to achieve its investment
objective of high total return and may result in a reduction in investment risk
and lower volatility. The Balanced Fund's equity investments also include ADRs,
preferred stock, warrants, rights and convertible securities.

The fixed income component of the Balanced Fund will invest in fixed income
securities allocated across the broad sectors of the fixed income markets.
Under normal market conditions, the substantial majority of fixed income
securities will be rated in the highest rating categories by Standard & Poor's
and Moody's. The Fund may invest up to 5% of its assets dedicated to fixed
income investments in securities rated Ba by Moody's or BB by Standard & Poor's.

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GROWTH & INCOME FUND

The Growth & Income Fund's investment objectives are to provide growth of
capital and income. The Fund will pursue its objectives by investing primarily
in equity securities and in various income producing securities including, but
not limited to, dividend paying equity securities, fixed income securities and
money market instruments.

The portion of the Fund invested at any given time in each of these asset
classes will vary depending on market conditions, and there may be extended
periods when the Fund is primarily invested in one of them. In addition, the
amount of income derived from the Fund will fluctuate depending on the
composition of the Fund's holdings and will tend to be lower when a higher
portion of the Fund is invested in equity securities. Under normal market
conditions, Counsellors will invest substantially all of the Fund's assets in
equity securities, including common stocks, securities which are convertible
into common stocks and readily marketable securities, such as rights and
warrants, which derive their value from common stocks.

THE GROWTH FUND

The investment objective of the Growth Fund is to seek capital growth. The
Fund invests primarily in equity securities that the sub-adviser believes have
above-average growth prospects. The Fund generally will invest in companies
whose

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earnings are believed to be in a relatively strong growth trend, and, to a
lesser extent, in companies which significant further growth is not anticipated,
but whose market value is thought to be undervalued.

In determining whether to invest Fund assets in a particular company, the
Growth Fund's sub-adviser ordinarily looks to the following characteristics:
(1) prospects for above-average sales and earnings growth; (2) high return on
invested capital; (3) overall financial strength, including sound financial and
accounting policies and a strong balance sheet; (4) competitive advantages,
including innovative products and service; (5) effective research, product
development and marketing; and (6) stable, capable management.

EMERGING GROWTH FUND

The Emerging Growth Fund's investment objective is capital appreciation.
The Fund will pursue its objective by investing primarily in common stocks and
other equity type securities issued by companies with strong growth potential.

The sub-adviser's investment philosophy is to identify investment values
available in the market at attractive prices. Investment value arises from the
ability to generate earnings or from the ownership of assets or resources.
Underlying earnings potential and asset values are frequently demonstrable but
not recognized in the market prices of the securities representing

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their ownership. Important investment opportunities often occur where companies
develop solutions to large, complex, fundamental problems, such as declining
industrial productivity; rising costs and declining sources of energy; the
economic imbalances and value erosion caused by years of high inflation and
interest rates; the soaring costs and competing priorities of providing health
care; and the accelerating interdependence and "shrinking size" of the world.

Solutions or parts of solutions to large problems may be generated by
established companies or comparatively new companies of all sizes through the
development of new products, technologies or services, or through new
applications of older ones.

Investment in such companies represents a very wide range of investment
potential, current income return rates, and exposure to market risks. Income
generated by investments in these companies would be expected to be moderate,
characterized by lesser rates than those of a fund whose sole objective is
current income, and somewhat higher rates than those of a higher-risk growth
fund.

The stock market frequently values the aggregate ownership of a company at
a substantially lower figure than its component assets would be worth if they
were sold off separately over time. Such assets may include intangible assets
such as product and

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market franchises, operating know-how, or distribution systems, as well as such
tangible properties as oil reserves, timber, real estate, or production
facilities. Investment opportunities in these companies are determined by the
magnitude of difference between economic worth and current market price.

Market undervaluations are very often corrected by purchase and sale,
restructuring of the company, or market appreciation to recognize the actual
worth. The recognition process may well occur over time, however, creating a
form of time-exposure risk. Success from investing in these companies is often
great, but may well be achieved only after a waiting period of inactivity.

Investment by the Emerging Growth Fund in smaller sized companies may
involve a significantly greater degree of risk and the reduction of current
income to a negligible level. Such investments will not be limited to new,
small companies engaged only in frontier technology; rather, the sub-adviser
will seek opportunities for maximum appreciation through the full spectrum of
business operations, products, services, and asset values. Such companies are
usually more flexible in trying new approaches to problem-solving and in making
new or different employment of assets. Because of the high risk level involved,
the ratio of success among such companies is lower than the average, but for
those companies which succeed, the magnitude of investment reward is potentially
higher.

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INTERNATIONAL EQUITY FUND

Although widespread interest in foreign equity investments has only
recently developed among U.S. investors, foreign equities have since 1970
produced higher returns in dollars than the Standard & Poor's 500 Index.
Research coverage outside the U.S. is often fragmented and relatively
unsophisticated; for this reason many foreign companies that are well-positioned
to grow and prosper have not come to the attention of investors. The
sub-adviser for the International Equity Fund believes that the high historical
returns and less efficient pricing of foreign markets create favorable
conditions for the Fund's highly focused investment approach.

Using fundamental company and industry research, the sub-adviser seeks to
identify companies that have a high probability of achieving superior long-term
returns. Companies of this type tend to operate within industries which are
less economically sensitive, relatively free of regulation and which favor
strong franchises.

To identify these long-term investment opportunities, the sub-adviser will
look for those companies which enjoy a stable competitive advantage and are able
to benefit from the favorable dynamics of the industry in which they operate.
This stage includes analyzing the current and expected financial performance of
the company; contacting suppliers, customers and competitors;

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and meeting with management. In particular, the sub-adviser looks for companies
whose managers have a strong commitment to both maintaining the high returns of
the existing business and reinvesting the capital generated at high rates of
return. The International Equity Fund looks for companies whose management
always acts in the interests of the owners and seek to maximize returns to all
stockholders.

The sub-adviser measures a company's business value by its ability to
generate substantial free cash flow after all working and fixed capital
expenditures. In the judgment of the sub-adviser, free cash flow is the best
measure of the underlying economics of a company, is less subject to
manipulation than reported earnings, and is more meaningful when valuing
companies across different tax and accounting regimes. Having identified
companies with superior free cash flow characteristics, the sub-adviser then
considers that free cash flow relative to the current stock price and the
prospects for long-term growth. These two components are used to determine an
expected total return at the stock's prevailing market price.

After buying a stock, the sub-adviser for the International Equity Fund
monitors developments within the company and its industry and maintains regular
contact with management. The Fund is a long-term holder of stocks and because
of this, the sub-adviser adjusts the Fund's portfolio only when expected returns

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fall below acceptable levels or when the sub-adviser identifies substantially
more attractive investments.

SPECIAL INVESTMENT METHODS AND RISKS

RESTRICTED AND ILLIQUID SECURITIES

The Investment Grade Bond Fund, the High Yield Bond Fund, the Balanced
Fund, the Growth & Income Fund, the Emerging Growth Fund, the Growth Fund and
the International Equity Fund may purchase certain restricted securities (those
that are not registered under the Securities Act of 1933 (the "1933 Act") but
can be offered and sold to "qualified institutional buyers" under Rule 144A of
that Act) and limited amounts of illiquid investments, including illiquid
restricted securities. Limitations on illiquid securities and other illiquid
investments for each Fund are described in non-fundamental investment
restriction #3 below.

Illiquid investments include many restricted securities, repurchase
agreements that mature in more than seven days, currency and interest rate
swaps, time deposits that mature in more than seven days or that have a notice
or demand period more than seven days, certain over-the-counter option
contracts, participation interests in loans, securities not readily marketable
and certain restricted securities.

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<PAGE>

Certain repurchase agreements which provide for settlement in more than
seven days, however, can be liquidated before the nominal fixed term on seven
days or less notice. The Trust will consider such repurchase agreements as
liquid. Likewise, restricted securities (including commercial paper issued
pursuant to Section 4(2) of the 1933 Act) that the Board of Trustees of the
Trust or the sub-advisers have determined to be liquid will be treated as such.

The SEC staff has taken the position that fixed time deposits maturing in
more than seven days that cannot be traded on a secondary market and
participation interests in loans are illiquid and not readily marketable. Until
such time (if any) as this position changes, the Trust will include such
investments in the percentage limitation on illiquid investments applicable to
each Fund.

OPTIONS ON SECURITIES AND SECURITIES INDICES

All of the Funds except the International Equity Fund may write (sell)
covered call and put options on any securities in which they may invest. A call
option written by a Fund obligates such Fund to sell specified securities to the
holder of the option at a specified price if the option is exercised at any time
before the expiration date.

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<PAGE>

All call options written by a Fund are covered, which means that such Fund will
own the securities subject to the option so long as the option is outstanding.
A Fund's purpose in writing covered call options is to realize greater income
than would be realized on portfolio securities transactions alone. However, a
Fund may forgo the opportunity to profit from an increase in the market price of
the underlying security.

A put option written by a Fund would obligate such Fund to purchase
specified securities from the option holder at a specified price if the option
is exercised at any time before the expiration date. All put options written by
a Fund would be covered, which means that such Fund would have deposited with
its custodian cash or liquid high grade debt securities with a value at least
equal to the exercise price of the put option. The purpose of writing such
options is to generate additional income for the Fund. However, in return for
the option premium, a Fund accepts the risk that it will be required to purchase
the underlying securities at a price in excess of the securities' market value
at the time of purchase.

In addition, a written call option or put option may be covered by
maintaining cash or liquid high grade debt securities (either of which may be
denominated in any currency) in a segregated account with its custodian or by
purchasing an offsetting option or any other option which, by virtue of its

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<PAGE>

exercise price or otherwise, reduces a Fund's net exposure on its written option
position.

The Funds other than the International Equity Fund may also write (sell)
covered call and put options on any securities index composed of securities in
which it may invest. Options on securities indices are similar to options on
securities, except that the exercise of securities index options requires cash
payments and normally does not involve the actual purchase or sale of
securities. In addition, securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security.

A Fund may cover call options on a securities index by owning securities
whose price changes are expected to be similar to those of the underlying index,
or by having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities in its portfolio. A Fund may cover call and put options on a
securities index by maintaining cash or liquid high grade debt securities with a
value equal to the exercise price in a segregated account with its custodian.

A Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to

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<PAGE>

the one it has written. Obligations under over-the-counter options may be
terminated only by entering into an offsetting transaction with the counterparty
to such option. Such purchases are referred to as "closing purchase"
transactions.

Each Fund may purchase put and call options on any securities in which it
may invest or options on any securities index based on securities in which it
may invest. A Fund would also be able to enter into closing sale transactions
in order to realize gains or minimize losses on options it had purchased.

A Fund would normally purchase call options in anticipation of an increase
in the market value of securities of the type in which it may invest. The
purchase of a call option would entitle a Fund, in return for the premium paid,
to purchase specified securities at a specified price during the option period.
A Fund would ordinarily realize a gain if, during the option period, the value
of such securities exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise such a Fund would realize a loss on the purchase of
the call option.

A Fund would normally purchase put options in anticipation of a decline in
the market value of securities in its portfolio ("protective puts") or in
securities in which it may invest. The purchase of a put option would entitle a
Fund, in exchange for the premium paid, to sell specified securities at a
specified price during the option period. The purchase of protective puts

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<PAGE>

is designed to offset or hedge against a decline in the market value of a Fund's
securities. Put options may also be purchased by a Fund for the purpose of
affirmatively benefiting from a decline in the price of securities which it does
not own. A Fund would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreased below the exercise price
sufficiently to cover the premium and transaction costs; otherwise such a Fund
would realize a loss on the purchase of the put option. Gains and losses on the
purchase of protective put options would tend to be offset by countervailing
changes in the value of the underlying portfolio securities.

The Fund would purchase put and call options on securities indices for the
same purposes as it would purchase options on individual securities.

RISKS ASSOCIATED WITH OPTIONS TRANSACTIONS. There is no assurance that a
liquid secondary market on an options exchange will exist for any particular
exchange-traded option or at any particular time. If a Fund is unable to effect
a closing purchase transaction with respect to covered options it has written,
the Fund will not be able to sell the underlying securities or dispose of assets
held in a segregated account until the options expire or are exercised.
Similarly, if a Fund is unable to effect a closing sale transaction with respect
to options it has purchased, it would have to exercise the options

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<PAGE>

in order to realize any profit and will incur transaction costs upon the
purchase or sale of underlying securities.

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 may be 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; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
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 or 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 that class or series of options) would cease to
exist, although outstanding options on that exchange that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.

The Funds other the International Equity Fund may purchase and sell both
options that are traded on United States and foreign exchanges and options
traded over-the-counter with broker-dealers who make markets in these options.
The ability to

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<PAGE>

terminate over-the-counter options is more limited than with exchange-traded
options and may involve the risk that broker-dealers participating in such
transactions will not fulfill their obligations. Until such time as the staff
of the SEC changes its position, each Fund will treat purchased over-the-counter
options and all assets used to cover written over-the-counter options as
illiquid securities, except that with respect to options written with primary
dealers in U.S. Government securities pursuant to an agreement requiring a
closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the formula.

Transactions by a Fund in options on securities and stock indices will be
subject to limitations established by each of the exchanges, boards of trade or
other trading facilities governing the maximum number of options in each class
which may be written or purchased by a single investor or group of investors
acting in concert. Thus, the number of options which a Fund may write or
purchase may be affected by options written or purchased by other investment
advisory clients of the sub-advisers. An exchange, board of trade or other
trading facility may order the liquidations of positions found to be in excess
of these limits, and it may impose certain other sanctions.

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<PAGE>

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

The Funds may purchase and sell futures contracts and purchase and write
options on futures contracts. The Funds may purchase and sell futures contracts
based on various securities (such as U.S. Government Securities), securities
indices, foreign currencies and other financial instruments and indices. A Fund
will engage in futures, or related options transactions, only for bona fide
hedging purposes, as defined below, or to increase total returns to the extent
permitted by regulations of the Commodity Futures Trading Commission ("CFTC").
All futures contracts entered into by a Fund are traded on U.S. exchanges or
boards of trade that are licensed and regulated by the CFTC or on foreign
exchanges.

FUTURES CONTRACTS. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed upon price during a designated month (or to deliver the final cash
settlement

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<PAGE>

price, in the case of a contract relating to an index or otherwise not calling
for physical delivery at the end of trading in the contract).

When interest rates are rising or securities prices are falling, a Fund can
seek through the sale of futures contracts to offset a decline in the value of
its current portfolio securities. When rates are falling or prices are rising,
a Fund, through the purchase of futures contracts, can attempt to secure better
rates or prices than might later be available in the market when it effects
anticipated purchases. Similarly, the Growth & Income Fund, the Growth Fund and
the International Equity Fund can sell futures contracts on a specified currency
to attempt to protect against a decline in the value of such currency and its
portfolio securities which are denominated in such currency. These Funds can
purchase futures contracts on foreign currency to fix the price in U.S. dollars
of a security denominated in such currency that such Fund has acquired or
expects to acquire.

Positions taken normally in the futures markets are not normally held to
maturity, but are instead liquidated through offsetting transactions which may
result in a profit or a loss. While a Fund's futures contracts on securities or
currency will usually be liquidated in this manner, it may instead make or take
delivery of the underlying securities or currency whenever, if

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possible, it appears economically advantageous for the Fund to do so. A
clearing corporation associated with the exchange on which futures on securities
or currency are traded guarantees that, if still open, the sale or purchase will
be performed on the settlement date.

HEDGING STRATEGIES. Hedging by use of futures contracts seeks to establish
with more certainty than would otherwise be possible (1) the effective price,
(2) rate of return or (3) currency exchange rate on portfolio securities or
securities that a Fund owns or proposes to acquire. A Fund may, for example,
take a "short" position in the futures market by selling futures contracts in
order to attempt to hedge against an anticipated rise in interest rates or a
decline in market prices or foreign currency rates that would adversely affect
the U.S. dollar value of the Fund's portfolio securities. Such futures
contracts may include contracts for the future delivery of securities held by
the Fund or securities with characteristics similar to those of a Fund's
portfolio securities. Similarly, the Growth & Income Fund, the Growth Fund and
the International Equity Fund may sell futures contracts on a currency in which
its portfolio securities are denominated or in one currency to hedge against
fluctuations in the value of securities denominated in a different currency if,
for example, there is an established historical pattern of correlation between
the two currencies.

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If, in the opinion of its sub-adviser, there is a sufficient degree of
correlation between price trends for a Fund's portfolio securities and
futures contracts based on other financial instruments, securities indices or
other indices, the Fund may also enter into such futures contracts as part of
its hedging strategy. Although under some circumstances prices of securities
in a Fund's portfolio may be more or less volatile than prices of such
futures contracts, the sub-adviser will attempt to estimate the extent of
this difference in volatility based on historical patterns and to compensate
for it by having the Fund enter into a greater or lesser number of futures
contracts or by attempting to achieve only a partial hedge against price
changes affecting the Fund's securities portfolio. When hedging of this
character is successful, any depreciation in the value of portfolio
securities will substantially be offset by appreciation in the value of the
futures position. On the other hand, it is possible that any unanticipated
appreciation in the value of the Fund's portfolio securities would be
substantially offset by a decline in the value of the futures position.

On other occasions, a Fund may take a "long" position by purchasing such
futures contracts. This would be done, for example, when a Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the

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applicable market to be less favorable than prices or rates that are currently
available.

OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call options on
futures contracts will give a Fund the right (but not the obligation), for a
specified price, to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, a Fund obtains the benefit of the futures position if prices
move in a favorable direction but limits its risk of loss in the event of an
unfavorable price movement to the loss of the premium and transaction costs.

The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of a Fund's assets. By
writing a call option, a Fund becomes obligated, in exchange for the premium, to
sell a futures contract, which may have a value higher than the exercise price.
Conversely, the writing of a put option on a futures contract generates a
premium, which may partially offset an increase in the price of securities that
the Fund intends to purchase. However, a Fund becomes obligated to purchase a
futures contract, which may have a value lower than the exercise price. Thus,
the loss incurred by the Fund in writing options on futures is potentially
unlimited and may exceed the amount of the premium

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received. A Fund will incur increased transaction costs in connection with the
writing of options on futures.

The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same series.
There is no guarantee that such closing transactions can be effected. A Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.

OTHER CONSIDERATIONS. Where permitted, a Fund will engage in futures
transactions and in related options transactions only for bona fide hedging or
to increase total return to the extent permitted by CFTC regulations. A Fund
will determine that the price fluctuations in the futures contracts and options
on futures used for hedging purposes are substantially related to price
fluctuations in securities held by the Fund or which it expects to purchase.
Except as stated below, each Fund's futures transactions will be entered into
for traditional hedging purposes -- I.E., futures contracts will be sold to
protect against a decline in the price of securities (or the currency in which
they are denominated) that the Fund owns, or futures contracts will be purchased
to protect the Fund against an increase in the price of securities (or the
currency in which they are denominated) it intends to purchase. However, in
particular cases, when it is economically advantageous for a Fund

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to do so, a long futures position may be terminated or an option may expire
without the corresponding purchase of securities or other assets.

As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits a Fund to elect to comply with a different
test, under which the aggregate initial margin and premiums required to
establish positions in futures contracts and options on futures for the purpose
of increasing total return, will not exceed 5 percent of the net asset value of
the Fund's portfolio, after taking into account unrealized profits and losses on
any such positions and excluding the amount by which such options were
in-the-money at the time of purchase. As permitted, each Fund will engage in
transactions in futures contracts and in related options transactions only to
the extent such transactions are consistent with the requirements of the
Internal Revenue Code of 1986, as amended (the "Code"), for maintaining its
qualification as a regulated investment company for federal income tax purposes
(see "Taxation").

Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a Fund to purchase securities or currencies, may require the Fund to
segregate with its custodian liquid high grade debt securities in an amount
equal to the underlying value of such contracts and options.

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<PAGE>

While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for a Fund than if it had not
entered into any futures contracts or options transactions. In the event of an
imperfect correlation between a futures position and portfolio position which is
intended to be protected, the desired protection may not be obtained and a Fund
may be exposed to risk of loss.

Perfect correlation between a Fund's futures positions and portfolio
positions may be difficult to achieve because no futures contracts based on
individual equity securities are currently available. The only futures
contracts available to hedge a Fund's portfolio are various futures on U.S.
Government securities, securities indices and foreign currencies. In addition,
it is not possible for a Fund to hedge fully or perfectly against currency
fluctuations affecting the value of securities denominated in foreign currencies
because the value of such securities is likely to fluctuate as a result of
independent factors not related to currency fluctuations.

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FOREIGN INVESTMENTS

Investing in the securities of companies organized outside the United
States or of companies whose securities are principally traded outside the
United States ("foreign issuers") or investments in securities denominated or
quoted in foreign currency ("non-dollar securities") involves certain special
considerations, including those set forth below, which are not typically
associated with investing in securities of domestic issuers or U.S. dollar
denominated securities. Since investments in foreign issuers may involve
currencies of foreign countries and since a Fund may temporarily hold funds in
bank deposits in foreign currencies during completion of investment programs and
since a Fund may be subject to currency exposure independent of its securities
positions, the Fund may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations and may incur costs in
connection with conversions between various currencies.

Since foreign issuers are not subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. issuers, there may be less publicly available information
about a foreign issuer than about a domestic issuer. Volume and liquidity in
most foreign securities markets are less than in the United

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States and securities of many foreign issuers are less liquid and more volatile
than securities of comparable domestic issuers. Fixed commissions on foreign
securities exchanges are generally higher than negotiated commissions on U.S.
exchanges. There is generally less government supervision and regulation of
securities exchanges, brokers, dealers and listed and unlisted issuers than in
the United States. Mail service and other communications between the United
States and foreign countries may be slower or less reliable than within the
United States, thus increasing the risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities.

Foreign investment markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when a portion of the assets of a Fund are uninvested and no return is
earned on such assets. The inability of a Fund to make intended security
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of portfolio investments due to
settlement problems could result either in losses to a Fund due to subsequent
declines in value of the portfolio securities or, if the Fund has entered into a
contract to sell the

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securities, could result in possible liability to the purchaser. In addition,
with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect a Fund's investments in those
countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Funds may enter into
forward foreign currency exchange contracts. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and no commissions are
generally charged at any stage for trades.

At the maturity of a forward contract the Fund may either accept or make
delivery of the currency specified in the contract or, at or prior to maturity,
enter into a closing purchase transaction involving the purchase or sale of an
offsetting

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contract. Closing purchase transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract.

The Funds may enter into forward foreign currency exchange contracts in
several circumstances. First, when a Fund enters into a contract for the
purchase or sale of a security denominated or noted in a foreign currency, or
when the Fund anticipates the receipt in a foreign currency of dividend or
interest payments on such a security which it holds, the Fund may desire to
"lock in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such dividend or interest payment, as the case may be. By entering into a
forward contract for the purchase or sale, for a fixed amount of dollars, of the
amount of foreign currency involved in the underlying transactions, the Fund
will attempt to protect itself against an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.

Additionally, when the sub-adviser of a Fund believes that the currency of
a particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell, for a fixed amount of
dollars, the

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<PAGE>

amount of foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. The precise matching
of the forward contract amounts and the value of the securities involved will
not generally be possible because the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date on which the contract is entered into and the
date it matures. Using forward contracts to protect the value of a Fund's
portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which a Fund can achieve at some future point in
time. The precise projection of short-term currency market movements is not
possible, and short-term hedging provides a means of fixing the dollar value of
only a portion of a Fund's foreign assets.

The Funds may engage in cross-hedging by using forward contracts in one
currency to hedge against fluctuations in the value of securities denominated in
a different currency if the sub-adviser determines that there is a pattern of
correlation between the two currencies. These Funds may also purchase and sell
forward contracts for non-hedging purposes when the sub-adviser anticipates that
the foreign currency will appreciate or depreciate in value, but securities
denominated in that currency

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<PAGE>

do not present attractive investment opportunities and are not held in the
Fund's portfolio.

A Fund's custodian will place cash or liquid securities into a
segregated account of the Fund in an amount equal to the value of the Fund's
total assets committed to the consummation of forward foreign currency
exchange contracts requiring the Fund to purchase foreign currencies or
forward contracts entered into for non-hedging purposes. If the value of the
securities placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the value
of the account will equal the amount of the Fund's commitments with respect
to such contracts. The segregated account will be marked-to-market on a
daily basis. Although the contracts are not presently regulated by the CFTC,
the CFTC may in the future assert authority to regulate these contracts. In
such event, the Fund's ability to utilize forward foreign currency exchange
contracts may be restricted.

While a Fund will enter into forward contracts to reduce currency exchange
rate risks, transactions in such contracts involve certain other risks. Thus,
while a Fund may benefit from such transactions, unanticipated changes in
currency prices may

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result in a poorer overall performance for the Fund than if it had not engaged
in any such transactions. Moreover, there may be imperfect correlation between
a Fund's portfolio holdings of securities denominated in a particular currency
and forward contracts entered into by the Fund. Such imperfect correlation may
cause the Fund to sustain losses which will prevent the Fund from achieving a
complete hedge or expose the Fund to risk of foreign exchange loss.

WRITING AND PURCHASING CURRENCY CALL AND PUT OPTIONS. The High Yield Bond
Fund, the Growth & Income Fund, the Growth Fund, the Emerging Growth Fund and
the International Equity Fund may write covered put and call options and
purchase put and call options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired.

A call option written by a Fund obligates the Fund to sell specified
currency to the holder of the option at a specified price at any time before the
expiration date. A put option written by a Fund would obligate the Fund to
purchase specified currency from the option holder at a specified price at any
time before the expiration date. The writing of currency options involves a
risk that a Fund will, upon exercise of the option, be required to sell currency
subject to a call at a price that is

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less than the currency's market value or be required to purchase currency
subject to a put at a price that exceeds the currency's market value.

A Fund may terminate its obligations under a call or put option by
purchasing an option identical to the one it has written. Such purchases are
referred to as "closing purchase transactions." A Fund could also enter into
closing sale transactions in order to attempt to realize gains or minimize
losses on options purchased by it.

A Fund would normally purchase call options in anticipation of an increase
in the U.S. dollar value of currency in which securities to be acquired by the
Fund are denominated. The purchase of a call option would entitle a Fund, in
return for the premium paid, to purchase specified currency at a specified price
during the option period. The Fund would ordinarily realize a gain if, during
the option period, the value of such currency exceeded the sum of the exercise
price, the premium paid and transaction costs; otherwise the Fund would realize
either no gain or a loss on the purchase of the call option.

A Fund would normally purchase put options in anticipation of a decline in
the dollar value of currency in which securities in its portfolio are
denominated ("protective puts"). The purchase of a put option would entitle the
Fund, in exchange for the premium paid, to sell specified currency at a
specified price

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<PAGE>

during the option period. The purchase of protective puts is designed merely to
offset or hedge against a decline in the dollar value of the Fund's portfolio
securities due to currency exchange rate fluctuations. A Fund would ordinarily
realize a gain if, during the option period, the value of the underlying
currency decreased below the exercise price sufficiently to more than cover the
premium and transaction costs; otherwise the Fund would realize either no gain
or a loss on the purchase of the put option. Gains and losses on the purchase
of protective put options would tend to be offset by countervailing changes in
the value of underlying currency.

SPECIAL RISKS ASSOCIATED WITH OPTIONS ON CURRENCY. An exchange traded
options position may be closed out only on an options exchange which provides a
secondary market for an option of the same series. Although a Fund will
generally purchase or write only those 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.
For some options no secondary market on an exchange may exist. In such event,
it might not be possible to effect closing transactions in particular options,
with the result that a Fund would have to exercise its options in order to
realize any profit and would incur transaction costs upon the sale of underlying
securities pursuant to the exercise of put

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options. If a Fund 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 currency (or security denominated in that currency) until the
option expires or it delivers the underlying currency upon exercise.

There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain of the facilities of
the Options Clearing Corporation inadequate, and thereby result in the
institution by an exchange of special procedures which may interfere with the
timely execution of customers' orders.

A Fund may purchase and write over-the-counter options to the extent
consistent with its limitation on investments in restricted securities. See
"Investment Restrictions" in the Prospectus. Trading in over-the-counter
options is subject to the risk that the other party will be unable or unwilling
to close-out options purchased or written by the Fund.

The amount of the premiums which a Fund may pay or receive may be adversely
affected as new or existing institutions, including other investment companies,
engage in or increase their option purchasing and writing activities.

FIXED-INCOME SECURITIES

SHORT-TERM BANK AND CORPORATE OBLIGATIONS. Commercial paper represents
short-term unsecured promissory notes issued in bearer

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form by banks or bank holding companies, corporations, and finance companies.
The commercial paper purchased by the Funds consists of direct U.S.
dollar-denominated obligations of domestic issuers. Bank obligations in which
the Funds may invest include certificates of deposit, bankers' acceptances,
fixed time deposits and bank notes. Certificates of deposit are certificates
issued against funds deposited in a commercial bank for a definite period of
time and earning a specified return.

Bankers' acceptances are negotiable drafts or bills of exchange, normally
drawn by an importer or exporter to pay for specific merchandise, which are
"accepted" by a bank, meaning, in effect, that the bank unconditionally agrees
to pay the face value of the instrument on maturity. Fixed time deposits are
bank obligations payable at a stated maturity date and bearing interest at a
fixed rate. Fixed time deposits may be withdrawn on demand by the investor, but
may be subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits. Certain fixed time deposits maturing in more than seven days may be
deemed to be illiquid securities. Bank notes rank junior to deposit liabilities
of the bank and PARI PASSU with other senior, unsecured obligations of the bank.
Bank

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notes are classified as "other borrowings" on a bank's balance sheet, while
deposit notes and certificates of deposit are classified as deposits. Bank
notes are not insured by the Federal Deposit Insurance Corporation or any other
insurer. Deposit notes are insured by the Federal Deposit Insurance Corporation
only to the extent of $100,000 per depositor per bank.

VARIABLE AMOUNT MASTER DEMAND NOTES. The Funds may purchase variable
amount master demand notes. These obligations permit the investment of
fluctuating amounts at varying rates of interest pursuant to direct arrangements
between the lender and borrower and are not generally transferable nor are they
ordinarily rated. A Fund may invest in them only if the sub-adviser believes
that the notes are of comparable quality to the other obligations in which the
Fund may invest.

VARIABLE RATE AND FLOATING RATE DEMAND INSTRUMENTS. The Emerging Growth
Fund may purchase variable and floating rate demand instruments that are debt
securities that possess a floating or variable interest rate adjustment formula.
These instruments also permit the Fund to demand payment of the principal
balance plus unpaid accrued interest upon a specified number of days' notice to
the issuer or its agent. The demand feature may be backed by a bank letter of
credit or guarantee issued with respect to such instrument.

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<PAGE>

The terms of the variable or floating rate demand instruments that the Fund
may purchase provide that interest rates are adjustable at intervals ranging
from daily to up to six months, and the adjustments are based upon current
market levels, the prime rate of a bank or another appropriate interest rate
adjustment index as provided in the respective instruments. Some of these
instruments are payable on demand on a daily basis or on not more than seven
days' notice. Others, such as instruments with quarterly or semiannual interest
rate adjustments, may be put back to the issuer on designated days on not more
than thirty days' notice. Still others are automatically called by the issuer
unless the Fund instructs otherwise. The Emerging Growth Fund intends to
exercise the demand only (1) upon a default under the terms of the debt
security, (2) as needed to provide liquidity to the Fund, (3) to maintain the
respective quality standards of a Fund's investment portfolio, or (4) to attain
a more optimal portfolio structure.

The maturity of the variable or floating rate demand instruments held by
the Fund will ordinarily be deemed to be the longer of (1) the notice period
required before the Fund is entitled to receive payment of the principal amount
of the instrument or (2) the period remaining until the instrument's next
interest rate adjustment.

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<PAGE>

LOAN PARTICIPATION INTERESTS. The High Yield Bond Fund, the Growth &
Income Fund, the Growth Fund and the Emerging Growth Fund may purchase loan
participation interests with remaining maturities of thirteen months or less in
loans of any maturity. Such loans must be to issuers in whose obligations the
Funds may otherwise invest. Any participation purchased by the Funds must be
issued by a bank in the United States with assets exceeding $1 billion. Because
the issuing bank does not guarantee the participation in any way, the
participations are subject to the credit risks generally associated with the
underlying corporate borrower. In addition, because it may be necessary under
the terms of the loan participation for the Funds to assert through the issuing
bank such rights as may exist against the underlying corporate borrower, in the
event the underlying corporate borrower fails to pay principal and interest when
due, the Funds may be subject to delays, expenses and risks that are greater
than those that would have been involved if the Funds had purchased a direct
obligation (such as commercial paper) of such borrower. Moreover, under the
terms of the loan participation the High Yield Bond Fund, the Growth & Income
Fund, the Growth Fund or the Emerging Growth Fund may be regarded as a creditor
of the issuing bank (rather than of the underlying corporate borrower), so that
the Fund may also be subject to the risk that the issuing bank may become
insolvent. Further, in the event of

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the bankruptcy or insolvency of the corporate borrower, the loan participation
may be subject to certain defenses that can be asserted by such borrower as a
result of improper conduct by the issuing bank. The secondary market, if any,
for these loan participations is limited and any such participation purchased by
the Fund may be regarded as illiquid.

The Funds do not believe that price quotations currently obtainable from
banks, dealers or pricing services consistently represent the market values of
participation interests. Therefore, the Trust's accounting servicing agent
will, following guidelines established by the Board of Trustees, value the
participation interests held by the Funds at fair value, which approximates
market value. In valuing a participation interest, the agent will consider the
following factors: (i) the characteristics of the participation interest,
including the cost, size, interest rate, period until next interest rate reset,
maturity and base lending rate of the participation interest, the terms and
conditions of the loan and any related agreements and the position of the loan
in the borrower's debt structure; (ii) the nature, adequacy and value of the
collateral, including the Fund's rights, remedies and interests with respect to
the collateral; (iii) the creditworthiness of the borrower, based on an
evaluation of its financial condition, financial statements and information
about the borrower's business, cash flows,

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capital structure and future prospects; (iv) the market for the participation
interest, including price quotations for and trading in the participation
interest and similar participation interest or instruments and the market
environment and investor attitudes towards the participation interest or
participation interests generally; (v) the quality and creditworthiness of any
intermediate participants; and (vi) general economic or market conditions.

ZERO COUPON BONDS. The Investment Grade Bond Fund, the High Yield Bond
Fund, the Balanced Fund, and the Growth Fund may invest in zero coupon bonds
which are debt obligations that do not entitle the holder to any periodic
payments of interest prior to maturity or provide for a specified cash payment
date when the bonds begin paying current interest. As a result, zero coupon
bonds are generally issued and traded at a significant discount from their face
value. The discount approximates the present value amount of interest the bonds
would have accrued and compounded over the period until maturity.

Zero coupon bonds benefit the issuer by mitigating its initial need for
cash to meet debt service, but generally provide a higher rate of return to
compensate investors for the deferment of cash interest or principal payments.
Such securities are often issued by companies that may not have the capacity to
pay current interest and so may be considered to have more risk than

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current interest-bearing securities. In addition, the market price of zero
coupon bonds generally is more volatile than the market prices of securities
that provide for the periodic payment of interest. The market prices of zero
coupon bonds are likely to fluctuate more in response to changes in interest
rates than those of interest-bearing securities having similar maturities and
credit quality.

Zero coupon bonds carry the additional risk that, unlike securities that
provide for the periodic payment of interest to maturity, the Funds will realize
no cash until a specified future payment date unless a portion of such
securities is sold. If the issuer of such securities defaults, the Funds may
obtain no return at all on their investment. In addition, a Fund's investment
in zero coupon bonds may require it to sell certain of its portfolio securities
to generate sufficient cash to satisfy certain income distribution requirements.
See "Taxation" below.

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. All of the Funds may invest
in mortgage-backed securities, which represent direct or indirect participation
in, or are collateralized by and payable from, mortgage loans secured by real
property. The Funds may also invest in asset-backed securities, which represent
participation in, or are secured by and payable from, assets such as motor
vehicle installment sales, installment loan contracts, leases of various types
of real and personal property,

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receivables from revolving credit (I.E., credit card) agreements and other
categories of receivables. Such assets are securitized through the use of
trusts and special purpose corporations. Payments or distributions of principal
and interest may be guaranteed up to certain amounts and for a certain time
period by a letter of credit or a pool insurance policy issued by a financial
institution unaffiliated with the trust or corporation, or other credit
enhancements may be present.

Mortgage-backed and asset-backed securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying loans. This can
occur when interest rates decline significantly. A Fund's ability to maintain
positions in such securities will be affected by reductions in the principal
amount of such securities resulting from prepayments, and its ability to
reinvest the returns of principal at comparable yields is subject to generally
prevailing interest rates at that time. To the extent that a Fund invests in
mortgage-backed and asset-backed securities, the values of its portfolio
securities will vary with changes in market interest rates generally and the
differentials in yields among various kinds of U.S. Government Securities and
other mortgage-backed and asset-backed securities.

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Asset-backed securities present certain additional risks that are not
presented by mortgage-backed securities because asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. Credit card receivables are generally unsecured
and the debtors on such receivables are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set-off certain amounts owed on the credit cards, thereby reducing the
balance due. Automobile receivables generally are secured, but by automobiles
rather than residential real property. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations.
If the servicer were to sell these obligations to another party, there is a risk
that the purchaser would acquire an interest superior to that of the holders of
the asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have a
proper security interest in the underlying automobiles. Therefore, there is the
possibility that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.

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WARRANTS AND RIGHTS

All Funds except the Investment Grade Bond Fund may invest up to 5% of
their net assets, calculated at the time of purchase, in warrants or rights
(other than those acquired in units or attached to other securities) which
entitle the holder to buy equity securities at a specific price for a specific
period of time but will do so only if such equity securities are deemed
appropriate by the sub-adviser for investment by the Fund. The Funds will each
not invest more than 2% of their net assets, calculated at the time of purchase,
in warrants or rights which are not listed on the New York or American Stock
Exchanges. Warrants and rights have no voting rights, receive no dividends and
have no rights with respect to the assets of the issuer.

SWAPS AND RELATED TRANSACTIONS

The High Yield Bond Fund and the Growth Fund may enter into interest rate
swaps, currency swaps and other types of available swap agreements, such as
caps, collars and floors.

Swap agreements may be individually negotiated and structured to include
exposure to a variety of different types of investments or market factors.
Depending on their structure, swap agreements may increase or decrease a Fund's
exposure to long or short-term interest rates (in the U.S. or abroad), foreign
currency values, mortgage securities, corporate borrowing rates, or other
factors such as securities prices or inflation

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rates. Swap agreements can take many different forms and are known by a variety
of names. A Fund is not limited to any particular form or variety of swap
agreement if the sub-adviser determines it is consistent with the Fund's
investment objective and policies.

The High Yield Bond Fund and the Growth Fund will maintain cash or
appropriate liquid assets with the custodian to cover its current obligations
under swap transactions. If a Fund enters into a swap agreement on a net basis
(I.E., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments), the Fund
will maintain cash or liquid assets with the custodian with a daily value at
least equal to the excess, if any, of the Fund's accrued obligations under the
swap agreement over the accrued amount the Fund is entitled to receive under the
agreement. If a Fund enters into a swap agreement on other than a net basis, it
will maintain cash or liquid assets with a value equal to the full amount of the
Fund's accrued obligations under the agreement. Changes in the specific
interest rate, currency or certain other factors determine the amount of
payments to be made under the swap, cap, floor or collar. If the sub-adviser is
incorrect in its forecasts of such factors, the investment performance of a Fund
would be less than what it would have been if these investment techniques had
not been used. If a swap

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agreement calls for payments by a Fund, the Fund must be prepared to make such
payments when due. In addition, if the counterparty's creditworthiness
declined, the value of the swap agreement would be likely to decline,
potentially resulting in losses.

If the counterparty defaults, a Fund's risk of loss consists of the net
amount of payments that the Fund is contractually entitled to receive. Each
Fund anticipates that it will be able to eliminate or reduce its exposure under
these arrangements by assignment or other disposition or by entering into an
offsetting agreement with the same or another counterparty.

SHORT SALES "AGAINST THE BOX"

The Growth & Income Fund, the Growth Fund and the International Equity Fund
may make short sales "against the box." In a short sale, a Fund sells a
borrowed security and has a corresponding obligation to the lender to return the
identical security. Each Fund may engage in short sales if at the time of the
short sale the Fund owns or has the right to obtain without additional cost an
equal amount of the security being sold short. This investment technique is
known as a short sale "against the box."

In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If a Fund engages in a short

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sale, the collateral for the short position will be maintained by the Trust's
custodian or qualified sub-custodian. While the short sale is open, the Fund
will maintain in a segregated account an amount of securities equal in kind and
amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities. These securities constitute the
Fund's long position.

The Funds do not intend to engage in short sales against the box for
investment purposes. A Fund may, however, make a short sale as a hedge, when it
believes that the price of a security may decline, causing a decline in the
value of a security owned by the Fund (or the security convertible or
exchangeable for such security), or when the Fund wants to sell the security at
an attractive current price, but also wishes to defer recognition of gain or
loss for U.S. federal income tax purposes and for purposes of satisfying certain
tests applicable to regulated investment companies under the Code. In such
case, any future losses in the Fund's long position should be offset by a gain
in the short position and, conversely, any gain in the long position should be
reduced by a loss in the short position. The extent to which such gains or
losses are reduced will depend upon the amount of the security sold short
relative to the amount the Fund owns. There will be certain additional
transaction costs associated with short sales against the box, but the Funds
will

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endeavor to offset these costs with the income from the investment of the cash
proceeds of short sales.

DOLLAR ROLL TRANSACTIONS

The Investment Grade Bond Fund, the Growth & Income Fund, the Growth Fund,
and the Balanced Fund may enter into mortgage "dollar rolls" in which the Funds
sell mortgage-backed securities for delivery in the current month and
simultaneously contract to repurchase substantially similar (same type, coupon,
and maturity) securities on a specified future date. Dollar roll transactions
consist of the sale by a fund of mortgage-backed securities together with a
commitment to purchase similar, but not necessarily identical, securities at a
future date. Any difference between the sale price and the purchase price is
netted against the interest income foregone on the securities to arrive at an
implied borrowing (reverse repurchase) rate. Alternatively, the sale and
purchase transactions which constitute the dollar roll can be executed at the
same price, with a fund being paid a fee as consideration for entering into the
commitment to purchase. Dollar rolls may be renewed prior to cash settlement
and initially may involve only firm commitment agreements by the Funds to buy a
security. If the broker-dealer to whom the Fund sells the security becomes
insolvent, a Fund's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over the term of

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the dollar roll; the security that the Fund is required to repurchase may be
worth less than the security that the Fund originally held and the return earned
by the Fund with the proceeds of a dollar roll may not exceed transaction costs.
The Fund will place U.S. Government or other liquid, high quality assets in a
segregated account in an amount sufficient to cover its repurchase obligation.

EMERGING MARKET SECURITIES

The risks of investing in foreign securities may be intensified in the case
of investments in emerging markets. Securities of many issuers in emerging
markets may be less liquid and more volatile than securities of comparable
domestic issuers. Emerging markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when a portion of the assets of the Fund is uninvested and no
return is earned thereon. The inability of the Fund to make intended security
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of portfolio securities due to
settlement problems could result in losses to the Fund due to subsequent
declines in value of the portfolio security, a decrease in the

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level of liquidity in the Fund's portfolio, or, if the Fund has entered into a
contract to sell the security, in possible liability to the purchaser. Certain
markets may require payment for securities before delivery, and in such markets
the Fund bears the risk that the securities will not be delivered and that the
Fund's payments will not be returned. Securities prices in emerging markets can
be significantly more volatile than in the more developed nations of the world,
reflecting the greater uncertainties of investing in less established markets
and economies. In particular countries with emerging markets may have
relatively unstable governments, present the risk of nationalization of
businesses, restrictions on foreign Ownership, or prohibitions of repatriation
of assets, and may have less protection of property rights than more developed
countries. The economies of countries with emerging markets may be
predominantly based on only a few industries, may be highly vulnerable to
changes in local or global trade conditions, and may suffer from extreme and
volatile debt burdens or inflation rates. Local securities markets may trade a
small number of securities and may be unable to respond effectively to increases
in trading volume, potentially making prompt liquidation of substantial holdings
difficult or impossible at times. Securities of issuers located in countries
with emerging markets may have limited marketability and may be subject to more
abrupt or erratic price movements.

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Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Fund could be
adversely affected by delays in, or a refusal to grant any required governmental
approval for repatriation of capital, as well as by the application to the Fund
of any restrictions on investments.

Investment in certain foreign emerging market debt obligations may be
restricted or controlled to varying degrees. These restrictions or controls may
at times preclude investment in certain foreign emerging market debt obligations
and increase the expenses of the Fund.

INVESTMENT RESTRICTIONS

FUNDAMENTAL RESTRICTIONS

The following investment restrictions have been adopted by the Trust as
fundamental policies for the Fund to which each applies, as shown below.

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A fundamental policy is one that cannot be changed without the affirmative
vote of the holders of a majority (as defined in the Investment Company Act of
1940, the "1940 Act") of the outstanding votes attributable to the shares of a
Fund. The investment objective or objectives of each Fund and all other
investment policies or practices of the Fund are considered by the Trust not to
be fundamental and accordingly may be changed by the Trust's Board of Trustees
without shareholder approval. See "Investment Objective and Policies" in the
Trust's Prospectus. For purposes of the 1940 Act, "majority" means the lesser
of (a) 67% or more of the votes attributable to shares of the Fund present at a
meeting, if the holders of more than 50% of such votes are present or
represented by proxy, or (b) more than 50% of the votes attributable to shares
of the Fund.

With the exception of the Growth Fund whose investment restrictions are set
out below, none of the Funds may:

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1. Pledge, mortgage or hypothecate its assets, except:(a) to the extent
necessary to secure permitted borrowings; and (b) to the extent related to the
deposit of assets in escrow in connection with (i) the writing of covered put
and call options, (ii) the purchase of securities on a forward commitment or
delayed-delivery basis, (iii) collateral and initial or variation margin
arrangements with respect to currency transactions, options, futures contracts
(including those relating to indices), options on futures contracts or indices,
and (iv) collateral with respect to forward currency exchange contracts and
dollar roll transactions.

2. Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, but a Fund may make margin
deposits in connection with transactions in currencies, options, futures
contracts and options on futures contracts.

3. Underwrite securities issued by others, except to the extent that the
sale of portfolio securities by a Fund may be deemed to be underwriting.

4. Purchase, hold or deal in real estate (including real estate limited
partnerships) or oil, gas or mineral leases, although a Fund may purchase and
sell securities that are secured by real estate or interests therein, may
purchase mortgage-related securities and securities issued by real estate

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investment trusts, may hold and sell real estate acquired for the Fund as a
result of the ownership of securities and may purchase or sell securities of
companies that invest in or sponsor oil, gas, or mineral exploration or
development programs.

5. Invest in commodities except that a Fund may purchase and sell futures
contracts, including those relating to securities, currencies and indices, and
options on futures contracts, securities, currencies or indices, and purchase
and sell currencies or securities on a forward commitment or delayed-delivery
basis as described in the Prospectus.

6. Lend any money or other assets except through the purchase of all or a
portion of an issue of securities or obligations of the type in which the Fund
may invest. However, a Fund may lend its portfolio securities in an amount not
to exceed one-third of the value of its total assets and enter into repurchase
agreements.

7. Issue any senior security (as such term is defined in Section 18(f) of
the 1940 Act) except as otherwise permitted under these fundamental investment
restrictions.

8. Alone or together with any other of the Funds, make investments for
the purpose of exercising control over, or management of, any issuer.

9. Borrow money except from banks for temporary or short-term purposes
and then only if the Fund maintains asset coverage

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of at least 300% for such borrowings. For purposes of this investment
restriction, transactions in currency, swaps, options, futures contracts,
including those relating to indices, forward contracts, options on futures
contracts or indices and forward commitment transactions shall not constitute
borrowing. None of the Funds will purchase securities when such borrowings
exceed 5% of its assets.

Fund-specific restrictions:

10. All Funds other than the High Yield Bond Fund may not invest more than
25% of the value of their total assets in the securities of issuers conducting
their principal business activities in the same industry. This limitation does
not apply to U.S. Government Securities.

11. The Funds, except for the High Yield Bond Fund and the International
Equity Fund, may not sell securities short and the Funds, except for the Growth
& Income Fund, the Growth Fund and the International Equity Fund, may not engage
in short sales against the box.

12. All Funds other than the International Equity Fund may not, as to
75% of the total assets at the time of purchase, purchase the
securities of any issuer if more than 5% of the value of the Fund's
total assets would be invested in such securities.

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The Growth Fund:

1. May not with respect to 75% of its total assets, purchase the
securities of any issuer (except securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities) if, as a result, (i) more than
5% of the Fund's total assets would be invested in the securities of that
issuer, or (ii) the Fund would hold more than 10% of the outstanding voting
securities of that issuer.

2. May (i) borrow money from banks and (ii) make other investments or
engage in other transactions permissible under the 1940 Act which may involve a
borrowing, provided that the combination of (i) and (ii) shall not exceed 33
1/3% of the value of the Fund's total assets (including the amount borrowed),
less the Fund's liabilities (other than borrowings), except that the Fund may
borrow up to an additional 5% of its total assets (not including the amount
borrowed) from a bank for temporary or emergency purposes (but not for leverage
or the purchase of investments).

3. May not issue senior securities, except as permitted under the 1940
Act.

4. May not act as an underwriter of another issuer's securities, except
to the extent that the Fund may be deemed to be an underwriter within the
meaning of the 1933 Act in connection with the purchase and sale of portfolio
securities.

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5. May not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall not
prevent the Fund from purchasing or selling options, futures contacts or other
derivative instruments, or from investing in securities or other instruments
backed by physical commodities).

6. May not make loans if, as a result, more than 33 1/3% of the Fund's
total assets would be lent to other persons, except through (i) purchases of
debt securities or other debt instruments, or (ii) engaging in repurchase
agreements.

7. May not purchase the securities of any issuer if, as a result, more
than 25% of the Fund's total assets would be invested in the securities of
issuers, the principal business activities of which are in the same industry.

8. May not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prohibit the
Fund from purchasing or selling securities or other instruments backed by real
estate or of issuers engaged in real estate activities).

9. May, notwithstanding any other fundamental investment policy or
restriction, invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental investment
objective, policies, and restrictions as the Fund.

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NON-FUNDAMENTAL RESTRICTIONS

In addition to the investment restrictions mentioned above, the Trustees of
the Trust have adopted certain non-fundamental restrictions for each Fund as
shown below. Non-fundamental restrictions represent the current intentions of
the Trust's Board of Trustees and they differ from fundamental investment
restrictions in that they may be changed or amended by the Board of Trustees
without prior notice to or approval of shareholders.

With the exception of the Growth Fund whose non-fundamental restrictions
are set out below, none of the Funds may:

1. Purchase the securities of any issuer if by such purchase the Fund
would own more than 10% of the outstanding voting securities of such issuer.

2. Write covered calls or put options with respect to more than 25% of
the value of its net assets at any time, invest more than 25% of its net assets
at any time in purchased puts, calls, spreads or straddles, or any combination
thereof other than protective put options. The aggregate value of premiums paid
on all options held by one of these Funds at any time will not exceed 20% of the
Fund's total net assets.

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Fund specific restrictions:

3. The Investment Grade Bond Fund, the High Yield Bond Fund, the Balanced
Fund, the Growth & Income Fund, the Emerging Growth Fund and the International
Equity Fund will not invest in illiquid securities, if, as a result of such
investment, more than 15% of its net assets would be invested in illiquid
securities or such other amounts as may be permitted under the 1940 Act.

4. The International Equity Fund will not invest in foreign issuers
unless, after such investment, issuers in at least the following number of
different countries are represented in the Fund's portfolio: if up to 40% of
the Fund's total assets are invested in foreign issuers, two foreign countries;
if between 40% and 60% of the Fund's total assets are invested in foreign
issuers, three foreign countries; if between 60% and 80% of the Fund's total
assets are invested in foreign issuers, four foreign countries; and if over 80%
of the Fund's total assets are invested in foreign issuers, five foreign
countries.

5. The Investment Grade Bond Fund, the Balanced Fund, the Growth-Income
Fund and the Emerging Growth Fund may not enter into reverse repurchase
agreements exceeding in the aggregate one-third of the market value of the
Fund's total assets, less

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liabilities other than obligations created by reverse repurchase agreements.

The Growth Fund may not:

1. Sell securities short, unless the Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short, or unless
it covers such short sale as required by the current rules and positions of the
SEC or its staff, and provided that transactions in options, futures contracts,
options on futures contracts, or other derivative instruments are not deemed to
constitute selling securities short.

2. Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions; and
provided that margin deposits in connection with futures contracts, options on
futures contracts, or other derivative instruments shall not constitute
purchasing securities on margin.

3. Invest in illiquid securities if, as a result of such investment, more
than 15% of its net assets would be invested in illiquid securities, or such
other amounts as may be permitted under the 1940 Act.

4. Purchase securities of other investment companies except in compliance
with the 1940 Act and applicable state law.

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5. Invest all of its assets in the securities of a single open-end
investment management company with substantially the same fundamental investment
objective, restrictions and policies as the Fund.

6. Purchase the securities of any issuer (other than securities issued or
guaranteed by domestic or foreign governments or political subdivisions thereof)
if, as a result more than 5% of its total assets would be invested in the
securities of issuers that, including predecessor or unconditional guarantors,
have a record of less than three years of continuous operation. This policy
does not apply to securities of pooled investment vehicles or mortgage or
asset-backed securities.

7. Invest in direct interests in oil, gas, or other mineral exploration
programs or leases; however, the Fund may invest in the securities of issuers
that engage in these activities.

8. Engage in futures or options on futures transactions which are
impermissible pursuant to Rule 4.5 under the Commodity Exchange Act and, in
accordance with Rule 4.5, will use futures or options on futures transactions
solely for bona fide hedging transactions (within the meaning of the Commodity
Exchange Act), provided, however, that the Fund may, in addition to bona fide
hedging transactions, use futures and options on futures

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transactions if the aggregate initial margin and premiums required to establish
such positions, less the amount by which any such options positions are in the
money (within the meaning of the Commodity Exchange Act), do not exceed 5% of
the Fund's net assets.

In addition, (i) the aggregate value of securities underlying call options
on securities written by the Fund or obligations underlying put options on
securities written by the Fund determined as of the date the options are written
will not exceed 50% of the Fund's net assets; (ii) the aggregate premiums paid
on all options purchased by the Fund and which are being held will not exceed
20% of the Fund's net assets; (iii) the Fund will not purchase put or call
options, other than hedging positions, if, as a result thereof, more than 5% of
its total assets would be so invested; and (iv) the aggregate margin deposits
required on all futures and options on futures transactions being held will not
exceed 5% of the Fund's total assets.

9. Pledge, mortgage or hypothecate any assets owned by the Fund except as
may be necessary in connection with permissible borrowings or investments and
then such pledging, mortgaging, or hypothecating may not exceed 33 1/3% of the
Fund's total assets at the time of the borrowing or investment.

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10. Purchase or retain the securities of any issuer if any officer or
director of the Fund or its investment adviser beneficially owns more than 1/2
of 1% of the securities of such issuer and such officers and directors together
own beneficially more then 5% of the securities of such issuer.

11. Purchase warrants, valued at the lower of cost or market value, in
excess 5% of the Fund's net assets. Included in that amount, but not to exceed
2% of the Fund's net assets, may be warrants that are not listed on any stock
exchange. Warrants acquired by the Fund in units or attached to securities are
not subject to these restrictions.

12. Borrow money except (i) from banks or (ii) through reverse repurchase
agreements or mortgage dollar rolls, and will not purchase securities when bank
borrowings exceed 5% of its total assets.

13. Make any loans other than loans of portfolio securities, except
through (i) purchases of debt securities or other debt instruments, or (ii)
engaging in repurchase agreements.

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INTERPRETIVE RULES

For purposes of the foregoing limitations, any limitation which involves a
maximum percentage will not be violated unless an excess over the percentage
occurs immediately after, and is caused by, an acquisition or encumbrance of
securities or assets of, or borrowings by, a Fund. In addition, with regard to
exceptions recited in a restriction, a Fund may only rely on an exception if its
investment objective(s) or policies (as disclosed in the Prospectus) otherwise
permit it to rely on the exception.

INVESTMENT ADVISER

Alexander Hamilton Capital Management, Inc. (the "Adviser"), 100 North
Greene Street, Greensboro, North Carolina 27401, is the investment manager of
the Trust and its Funds. The Adviser is a wholly-owned subsidiary of the
Alexander Hamilton Life Insurance Company of America ("Alexander Hamilton
Life"), a Michigan stock life insurance company.

In turn, Alexander Hamilton Life is a wholly-owned subsidiary of
Jefferson-Pilot Corporation, a $17.6 billion asset company based in Greensboro,
North Carolina. Jefferson-Pilot is in the insurance business through its
subsidiary, Jefferson-Pilot Life Insurance Company, and in the communication
business through television and radio stations.

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INVESTMENT MANAGEMENT AGREEMENT

The Adviser has entered into an investment management agreement, dated
October 9, 1995, with the Trust under which the Adviser assumes overall
responsibility, subject to the supervision of the Trust's Board of Trustees, for
administering all operations of the Trust and for monitoring and evaluating the
management of the assets of each of the Funds by the sub-advisers on an ongoing
basis. The Adviser provides or arranges for the provision of the overall
business management and administrative services necessary for the Trust's
operations and furnishes or procures any other services and information
necessary for the proper conduct of the Trust's business. The Adviser also acts
as liaison among, and supervisor of, the various service providers to the Trust,
including the sub-advisers, custodian, transfer agent, and accounting and
administration services agent that performs services for the Trust on its
behalf.

The Adviser is also responsible for overseeing the Trust's compliance with
the requirements of applicable law and in conformity with each Fund's investment
objective(s), policies and restrictions, including oversight of the
sub-advisers.

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For its services to the Trust, the Adviser receives a monthly management
fee. The fee is deducted daily from the assets of each of the Funds and paid to
the Adviser monthly. The fee for each Fund is based on the average daily net
assets of the Fund at the following annual rates:

FUND ADVISORY FEE
Investment Grade Bond Fund 0.60%
High Yield Bond Fund 0.75%
Balanced Fund 0.80%
Growth & Income Fund 0.70%
Growth Fund 0.75%
Emerging Growth Fund 0.80%
International Equity Fund 1.00%

The investment management agreement does not place limits on the operating
expenses of the Trust or of any Fund. However, the Adviser has voluntarily
undertaken to pay any such expenses (but not including brokerage or other
portfolio transaction expenses or expenses of litigation, indemnification, taxes
or other extraordinary expenses) to the extent that such expenses and the
advisory fee, as accrued for each Fund, exceed the following percentages of that
Fund's estimated average daily net assets on an annualized basis:

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FUND EXPENSE CAP
Investment Grade Bond Fund 0.85%
High Yield Bond Fund 0.95%
Balanced Fund 1.00%
Growth & Income Fund 0.90%
Growth Fund 1.00%
Emerging Growth Fund 1.05%
International Equity Fund 1.40%

For the year ended December 31, 1996, the Trust did not pay any
management fees to the Adviser. For the year ended December 31, 1996, the
Adviser paid $8,012, $3,474, $16,720, $23,241, $34,042, $3,933, and $25,028
to the sub-adviser for the Investment Grade Bond Fund, High Yield Bond Fund,
Balanced Fund, Growth & Income Fund, Growth Fund, Emerging Growth Fund and
International Equity Fund, respectively.

The investment management agreement provides that the Adviser may render
similar services to others so long as the services that it provides thereunder
are not impaired thereby.

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The investment management agreement also provides that the Adviser shall
not be liable for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in the management of
the Trust, except for (i) willful misfeasance, bad faith or gross negligence in
the performance of its duties or by reason of reckless disregard of its duties
or obligations under the investment management agreement, and (ii) to the extent
specified in Section 36(b) of the Act concerning loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation.

The investment management agreement was approved for each Fund by the
Trustees of the Trust, including a majority of the Trustees of the Trust who are
not parties to the investment advisory agreement or "interested persons" (as
such term is defined in the Act) of any party thereto (the "non-interested
trustees"), and by the initial shareholders of the Trust. The investment
management agreement will remain in effect until October 9, 1997 and from year
to year thereafter provided such continuance is specifically approved as to each
Fund at least annually by (a) the vote of a majority of the votes attributable
to shares of the Fund or a majority of the Trustees of the Trust, and (b) the
vote of a majority of the non-interested Trustees of the Trust, cast in person
at a meeting called for the purpose of voting on such approval. The investment
management agreement will terminate automatically if assigned (as defined in the
1940 Act). The investment management agreement

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is also terminable as to any Fund at any time by the Trustees of the Trust or by
vote of a majority of the votes attributable to outstanding voting securities of
the applicable Fund (a) without penalty and (b) on 60 days' written notice to
the Adviser. The agreement is also terminable by the Adviser on six months
written notice to the Trust.

EXPENSES OF THE TRUST

The Trust incurs certain operating and general administrative expenses in
addition to the Adviser's fee. These expenses, which are accrued daily, include
but are not limited to: taxes; expenses for legal and auditing services; costs
of printing; charges for custody services; transfer agent fees, if any; expenses
of redemption of shares; expense of registering shares under federal and state
securities laws; accounting costs; insurance; dues of trade associations;
interest; brokerage costs, and other expenses properly payable by the Trust.

In general, each Fund is charged for the expenses incurred in its
operations as well as for a portion of the Trust's general administrative
expenses, allocated on the basis of the asset size of the respective Funds, or
by the Board of Trustees as appropriate. Expenses other than the Adviser's fee
that are borne directly and paid individually by a Fund include, but are

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not limited to, brokerage commissions, dealer markups, taxes, custody fees, and
other costs properly payable by the Fund. Expenses which are allocated among
the Funds include, but are not limited to, Trustees' fees and expenses,
independent accountant fees, transfer agent fees, expenses of redemption,
insurance costs, legal fees, and all other costs of operation properly payable
by the Trust.

PORTFOLIO TRANSACTIONS AND BROKERAGE

The sub-advisers are responsible for decisions to buy and sell securities
for the Funds, the selection of brokers and dealers to effect the transactions
and the negotiation of brokerage commissions, if any. Purchases and sales of
securities on a securities exchange are effected through brokers who charge a
negotiated commission for their services. Orders may be directed to any broker
including, to the extent and in the manner permitted by applicable law,
affiliates of the Adviser or sub-advisers.

In placing orders for portfolio securities of a Fund, its sub-adviser is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that the sub-adviser will seek to execute each
transaction at a price and commission, if any, which provide the most favorable
total cost or proceeds reasonably attainable in the

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circumstances. While the sub-adviser generally seeks reasonably competitive
spreads or commissions, the Funds will not necessarily be paying the lowest
spread or commission available. Within the framework of this policy, the
sub-advisers will consider research and investment services provided by brokers
or dealers who effect or are parties to portfolio transactions of the Funds, the
sub-advisers and their affiliates, or other clients of the sub-advisers or their
affiliates. Such research and investment services include statistical and
economic data and research reports on particular companies and industries. Such
services are used by the sub-advisers in connection with all of their investment
activities, and some of such services obtained in connection with the execution
of transactions for the Funds may be used in managing other investment accounts.
Conversely, brokers furnishing such services may be selected for the execution
of transactions of such other accounts, whose aggregate assets are far larger
than those of the Funds, and the services furnished by such brokers may be used
by the sub-advisers in providing investment advisory services for the Funds.

On occasions when the sub-adviser deems the purchase or sale of a security
to be in the best interests of a Fund as well as its other advisory clients
(including any other fund or other investment company or advisory account for
which the sub-adviser or an affiliate acts as investment adviser), the
sub-adviser, to

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the extent permitted by applicable laws and regulations, may aggregate the
securities to be sold or purchased for the Fund with those to be sold or
purchased for such other customers in order to obtain the best net price and
most favorable execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction, will be
made by the sub-adviser in the manner it considers to be most equitable and
consistent with its fiduciary obligations to the Fund and such other customers.
In some instances, this procedure may adversely affect the price and size of the
position obtainable for a Fund.

Commission rates are established pursuant to negotiations with the broker
based on the quality and quantity of execution services provided by the broker
in the light of generally prevailing rates. The allocation of orders among
brokers and the commission rates paid are reviewed periodically by the Board of
Trustees of the Trust.

For the year ended December 31, 1996, the Trust paid in the aggregate
$126,819 as brokerage commissions, $6,259 of which was paid for research
services received.

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DETERMINATION OF NET ASSET VALUE

Under the 1940 Act, the Board of Trustees of the Trust is responsible for
determining in good faith the fair value of securities of each Fund. In
accordance with procedures adopted by the Board of Trustees of the Trust, the
net asset value per share is calculated by determining the net worth of each
Fund (assets, including securities at market value or amortized cost value,
minus liabilities) divided by the number of that Fund's outstanding shares. All
securities are valued as of the close of regular trading on the New York Stock
Exchange. Each Fund will compute its net asset value once daily at the close of
such trading (normally 4:00 p.m. New York time), on each day (as described in
the Prospectus) that the Trust is open for business.

In the event that the New York Stock Exchange or the national securities
exchange on which stock options are traded adopt different trading hours on
either a permanent or temporary basis, the Board of Trustees of the Trust will
reconsider the time at which net asset value is computed. In addition, the
Funds may compute their net asset value as of any time permitted pursuant to any
exemption, order or statement of the SEC or its staff.

Portfolio assets of the Funds are valued as follows:

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(a) securities and other investments listed on any U.S. or foreign stock
exchange or the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") are valued at the last sale price on that
exchange or NASDAQ on the valuation day; if no sale occurs, securities
traded on a U.S. exchange or NASDAQ are valued at the mean between the
closing bid and closing asked prices and securities traded on a
foreign exchange will be valued at the official bid price (the last
sale price and official bid price for securities traded principally on
a foreign exchange will be determined as of the close of the London
Foreign Exchange);

(b) over-the-counter securities not quoted on NASDAQ are valued at the
last sale price on the valuation day or, if no sale occurs, at the
mean between the last bid and asked prices;

(c) debt securities with a remaining maturity of 61 days or more are
valued on the basis of dealer-supplied quotations or by a pricing
service selected by the sub-adviser and approved by the Board of
Trustees of the Trust if those prices are deemed by the sub-adviser to
be representative of market values at the close of business of the New
York Stock Exchange;

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(d) options and futures contracts are valued at the last sale price on the
market where any such option or futures contracts is principally
traded;

(e) over-the-counter options are valued based upon prices provided by
market makers in such securities or dealers in such currencies;

(f) forward foreign currency exchange contracts are valued based upon
quotations supplied by dealers in such contracts;

(g) all other securities and other assets, including those for which a
pricing service supplies no quotations or quotations are not deemed by
the sub-adviser to be representative of market values, but excluding
debt securities with remaining maturities of 60 days or less, are
valued at fair value as determined in good faith pursuant to
procedures established by the Board of Trustees of the Trust; and

(h) debt securities with a remaining maturity of 60 days or less will be
valued at their amortized cost which approximates market value.

Portfolio securities traded on more than one U.S. national securities
exchange or foreign securities exchange are valued at the last sale price on
each business day at the close of the exchange representing the principal market
for such securities.

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The value of all assets and liabilities expressed in foreign currencies will be
converted into U.S. dollar values at the mean between the buying and selling
rates of such currencies against U.S. dollars last quoted by any major bank. If
such quotations are not available, the rate of exchange will be determined in
good faith by or under procedures established by the Board of Trustees of the
Trust.

Trading in securities on European and Far Eastern securities exchanges and
on over-the-counter markets is normally completed well before the close of
business on each business day. In addition, European or Far Eastern securities
trading generally or in a particular country or countries may not take place on
all business days. Furthermore, trading takes place in Japanese markets on
certain Saturdays and in various foreign markets on days which are not business
days for the Trust and days on which the Funds' net asset value is not
calculated. Such calculation does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities used in
such calculation. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the close of regular
trading on the New York Stock Exchange will not be reflected in a Fund's
calculation of net asset values unless the sub-adviser deems that the particular

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event would materially affect net asset value, in which case an adjustment will
be made.

PERFORMANCE INFORMATION

The Trust may from time to time quote or otherwise use average annual total
return information for the Funds in advertisements, shareholder reports or sales
literature. Average annual total return values are computed pursuant to
equations specified by the SEC.

Average annual total return for a specified period is derived by
calculating the actual dollar amount of the investment return on a $1,000
investment in a Fund made at the beginning of the period, and then calculating
the annual compounded rate of return which would produce that amount, assuming a
redemption at the end of the period. This calculation assumes a complete
redemption of the investment. It also assumes that all dividends and
distributions are reinvested at net asset value on the reinvestment dates during
the period.

The Trust also may from time to time quote or otherwise use year-by-year
total return, cumulative total return and yield information for the Funds in
advertisements, shareholder reports or sales literature. Year-by-year total
return and cumulative total return for a specified period are each derived by
calculating the percentage rate required to make a $1,000

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investment in a Fund (assuming that all distributions are reinvested) at the
beginning of such period equal to the actual total value of such investment at
the end of such period.

Yield is computed by dividing net investment income earned during a recent
30 day period by the product of the average daily number of shares outstanding
and entitled to receive dividends during the period and the price per share on
the last day of the relevant period. The results are compounded on a bond
equivalent (semi-annual) basis and then annualized. Net investment income per
share is equal to the dividends and interest earned during the period, reduced
by accrued expenses for the period. The calculation of net investment income
for these purposes may differ from the net investment income determined for
accounting purposes.

Any performance data quoted for a Fund will represent historical
performance and the investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. Performance data for the Funds will not reflect charges
deducted under the variable annuity contracts. If contract charges are taken
into account, such performance data would reflect lower returns. Accordingly,
any advertisement that includes performance data for the Funds will also include
performance data for the variable annuity contracts.

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From time to time the Trust may publish an indication of the Funds' past
performance as measured by independent sources such as (but not limited to)
Lipper Analytical Services, Weisenberger Investment Companies Service,
Donoghue's Money Fund Report, Barron's, Business Week, Changing Times, Financial
World, Forbes, Fortune, Money, Personal Investor, Sylvia Porter's Personal
Finance and The Wall Street Journal. The Trust may also advertise information
which has been provided to the NASD for publication in regional and local
newspapers. In addition, the Trust may from time to time advertise its
performance relative to certain indices and benchmark investments, including
(but not limited to): (a) the Lipper Analytical Services, Inc. Mutual Fund
Performance Analysis, Fixed-Income Analysis and Mutual Fund Indices (which
measure total return and average current yield for the mutual fund industry and
rank mutual fund performance); (b) the CDA Mutual Fund Report published by CDA
Investment Technologies, Inc. (which analyzes price, risk and various measures
of return for the mutual fund industry); (c) the Consumer Price Index published
by the U.S. Bureau of Labor Statistics (which measures changes in the price of
goods and services); (d) Stocks, Bonds, Bills and Inflation published by
Ibbotson Associates (which provides historical performance figures for stocks,
government securities and inflation); (e) the Hambrecht & Quist Growth Stock
Index; (f) the NASDAQ OTC

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Composite Prime Return; (g) the Russell Midcap Index; (h) the Russell 2000
Index - Total Return; (i) the ValueLine Composite-Price Return; (j) the Wilshire
4500 Index; (k) the Salomon Brothers' World Bond Index (which measures the total
return in U.S. dollar terms of government bonds, Eurobonds and foreign bonds of
ten countries, with all such bonds having a minimum maturity of five years); (l)
the Shearson Lehman Brothers Aggregate Bond Index or its component indices (the
Aggregate Bond Index measures the performance of Treasury, U.S. Government
agencies, mortgage and Yankee bonds); (m) the S&P Bond indices (which measure
yield and price of corporate, municipal and U.S. Government bonds); (n) the J.P.
Morgan Global Government Bond Index; (o) Donoghue's Money Market Fund Report
(which provides industry averages of 7-day annualized and compounded yields of
taxable, tax-free and U.S. Government money market funds); (p) other taxable
investments including certificates of deposit, money market deposit accounts,
checking accounts, savings accounts, money market mutual funds and repurchase
agreements; (q) historical investment data supplied by the research departments
of Goldman Sachs, Lehman Brothers, First Boston Corporation, Morgan Stanley
(including EAFE), Salomon Brothers, Merrill Lynch, Donaldson Lufkin and Jenrette
or other providers of such data; (r) the FT-Actuaries Europe and Pacific Index;
(s) mutual fund performance indices published by Variable Annuity

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<PAGE>

Research & Data Service; (t) S&P 500 Index; and (u) mutual fund performance
indices published by Morningstar, Inc. The composition of the investments in
such indices and the characteristics of such benchmark investments are not
identical to, and in some cases are very different from, those of a Fund's
portfolio. These indices and averages are generally unmanaged and the items
included in the calculations of such indices and averages may be different from
those of the equations used by the Trust to calculate a Fund's performance
figures.

The Trust may from time to time summarize the substance of discussions
contained in shareholder reports in advertisements and publish the sub-advisers'
views as to markets, the rationale for a Fund's investments and discussions of
the Fund's current asset allocation.

From time to time, advertisements or information may include a discussion
of certain attributes or benefits to be derived by an investment in a particular
Fund. Such advertisements or information may include symbols, headlines or
other material which highlight or summarize the information discussed in more
detail in the communication.

Such performance data will be based on historical results and will not be
intended to indicate future performance. The total return or yield of a Fund
will vary based on market conditions, portfolio expenses, portfolio investments
and other

-92-

<PAGE>

factors. The value of a Fund's shares will fluctuate and an investor's shares
may be worth more or less than their original cost upon redemption. The Trust
may also, at its discretion, from time to time make a list of a Fund's holdings
available to investors upon request.

SHARES OF STOCK

The Trust is an open-end, management investment company established as a
Massachusetts business trust under a Declaration of Trust dated July 8, 1994.
The Trust issues a separate class of shares for each Fund representing
fractional undivided interests in that Fund. The Board of Trustees of the Trust
have authority to divide or combine the shares of any Fund into greater or
lesser number without thereby changing the proportionate beneficial interests in
the Fund.

Each issued and outstanding share is entitled to participate equally in
dividends and distributions declared for the respective class and, upon
liquidation or dissolution, in net assets allocated to such class remaining
after satisfaction of outstanding liabilities. The shares of each class, when
issued, will be fully paid and non-assessable and have no preemptive or
conversion rights.

Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted by the provisions of the 1940 Act,

-93-

<PAGE>

applicable state law or otherwise to the holders of the outstanding voting
securities of an investment company such as the Trust shall not be deemed to
have been effectively acted upon unless approved by the holders of a majority of
the outstanding shares of each class affected by such matter. Rule 18f-2
further provides that a class shall be deemed to be affected by a matter unless
the interests of each class in the matter are substantially identical or the
matter does not affect any interest of such class. However, Rule 18f-2 exempts
the selection of independent public accountants, the approval of principal
underwriting contracts and the election of Trustees from the separate voting
requirements of Rule 18f-2.

The Jefferson-Pilot Corporation Employees' Retirement Plan and Alexander
Hamilton Life provided capital for each of the Trust's Funds by purchasing
stock of each class in the following amounts: Investment Grade Bond Fund,
$3,000,000; High Yield Bond Fund, $2,000,000; Balanced Fund, $4,000,000;
Growth & Income Fund, $5,000,000; Growth Fund, $5,000,000; Emerging Growth
Fund, $5,000,000; and International Equity Fund, $5,000,000. Such shares
were acquired for investment and can only be disposed of by redemption. As
of December 31, 1996, The Jefferson-Pilot Corporation Employees' Retirement
Plan owned 93%, 78%, 77%, and 83% of the shares of the Growth & Income
Fund, the Growth Fund, the Emerging Growth Fund, and the International Equity
Fund, respectively. As of December 31, 1996 Alexander Hamilton Life owned
97%, 93%, and 94% of the Investment Grade Bond Fund, the High Yield Fund, and
the Balanced Fund, respectively. The Jefferson-Pilot Corporation Employees'
Retirement Plan's ownership of more than 25% of the shares of the Growth &
Income Fund, the Growth Fund, the Emerging Growth Fund, and the
International Equity Fund, and Alexander Hamilton Life's ownership of more
than 25% of the Investment Grade Bond Fund, the High Yield Fund, and the
Balanced Fund may result in their being deemed to be controlling persons of
such Funds.

-94-

<PAGE>

Under normal circumstances, the Trust will redeem shares of the Funds in
cash the next business day. However, the right of a shareholder to redeem
shares and the date of payment by the Trust may be suspended for more than seven
days for any period during which the New York Stock Exchange is closed, other
than the customary weekends or holidays, or when trading on such Exchange is
restricted as determined by the SEC; or during any emergency, as determined by
the SEC, as a result of which it is not reasonably practicable for a Fund to
dispose of securities owned by it or fairly to determine the value of its net
assets; or for such other period as the SEC may by order permit for the
protection of shareholders.

Under Massachusetts law, the Trust is not required to hold annual
shareholder meetings and does not intend to do so.

-95-

<PAGE>

CUSTODY OF ASSETS

Pursuant to a custody agreement with the Trust, Bank of New York holds the
cash and portfolio securities of the Trust as custodian.

Bank of New York is responsible for holding all securities and cash of each
Fund, receiving and paying for securities purchased, delivering against payment
securities sold, and receiving and collecting income from investments, making
all payments covering expenses of the Trust, all as directed by persons
authorized by the Trust.

Bank of New York does not exercise any supervisory function in such matters
as the purchase and sale of portfolio securities, payment of dividends, or
payment of expenses of the Funds or the Trust. Portfolio securities of the
Funds purchased domestically are maintained in the custody of Bank of New York
and may be entered into the Federal Reserve, Depository Trust Company, or
Participant's Trust Company book entry systems. Pursuant to the Custody
Agreement, portfolio securities purchased outside the United States will be
maintained in the custody of various foreign branches of Bank of New York and
such other custodians or subcustodians, including foreign banks and foreign
securities depositories, as are approved by the Board of Trustees of the Trust,
in accordance with regulations under the 1940 Act.

-96-

<PAGE>

Bank of New York holds securities of the Funds on which call options have
been written and certain assets of the Funds constituting margin deposits with
respect to financial futures contracts at the disposal of the futures commission
merchants ("FCMs") through which such transactions are effected. The Funds may
also be required to post margin deposits with respect to covered call and put
options written on stock indices and for this purpose certain assets of those
Funds may be held by the custodian pursuant to similar arrangements with the
brokers involved.

This arrangement regarding margin deposits essentially consists of Bank of
New York creating a separate segregated account into which it transfers (upon
the Trust's instructions) assets from a Fund's general (regular) custodial
account. The custody agreement for such arrangement provides that FCMs or
brokers will have access to the funds in the segregated accounts when and if the
FCMs or brokers represent that the Trust has defaulted on its obligation to the
FCMs or brokers and that the FCMs or brokers have met all the conditions
precedent to their right to receive such funds under the agreement between the
Trust and the FCMs or brokers. The Trust has an agreement with each FCM or
broker which provides (1) that the assets of any Fund held by the FCM or broker
will be in the possession of Bank of New York until released or sold or
otherwise disposed of in

-97-

<PAGE>

accordance with or under the terms of such agreement, (2) that such assets would
not otherwise be pledged or encumbered by the FCM or broker, (3) that when
requested by the Trust the FCM or broker will cause Bank of New York to release
to its general custody account any assets to which a Fund is entitled under the
terms of such agreement, and (4) that the assets in the segregated account shall
otherwise be used only to satisfy the Trust's obligations to the FCM or broker
under the terms of such agreement.

If on any day a Fund experiences net realized or unrealized gains with
respect to financial futures contracts or covered options on stock indices held
through a given FCM or broker, it is entitled immediately to receive from the
FCM or broker, and usually will receive by the next business day, the net amount
of such gains. Thereupon, such assets will be deposited in its general or
segregated account with Bank of New York, as appropriate.

TRUSTEES AND OFFICERS

The Trustees and officers of the Trust are listed below together with their
respective positions with the Trust and a brief statement of their principal
occupations during the past five years and any positions held with affiliates of
the Trust:

-98-

<PAGE>

<TABLE>
<CAPTION>
Position(s) Principal
Name, Address, Held with Occupation(s)
and Age the Trust During Past 5 Years
- -------------------- --------- -------------------
<S> <C> <C>

E.J. Yelton*
(age 57) Trustee and President Executive Vice President
Jefferson-Pilot Life Insurance
Company since October 1993; prior
thereto, President ING Investment
Centre

Dennis R. Glass* Trustee Executive Vice President and
(age 47) Chief Financial Officer,
Jefferson-Pilot Life Insurance
Company since October 1993;
Executive Vice President and
Chief Financial Officer,
Protective Life Corporation
(from 1991 to 1993); prior
thereto, Executive Vice
President and Chief Financial
Officer, The Portman Companies

Mark E. Konen* Trustee Senior Vice President and
(age 37) Corporate Actuary,
Jefferson-Pilot Corporation
since August 1994; prior
thereto, Vice President and
Actuary, FMI Inc.

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<PAGE>

Timothy Brooks Burnett Trustee President and Treasurer,
822 North Elm Street Bessemer Investment Company;
Greensboro, NC 27401 and Chairman and Secretary,
(age 56) Burkely Property Group since
January 1990

Terrence E. Geremski Trustee Director, Guilford Mills, Inc.
1 Loch Ridge Court since 1993; Vice President,
Greensboro, NC 27408 Chief Financial Officer and
(age 49) Treasurer, Guilford Mills,
Inc. since July 1992; prior
thereto, Vice President,
Controller, Varity
Corporation.

Ralph K. Shelton Trustee President, Southeast Fuels,
1617 Foxhollow Rd. Inc.
Greensboro, NC 27410
(age 54)

-100-

<PAGE>

H. Lusby Brown* Vice President Second Vice President,
(age 38) and Treasurer Jefferson-Pilot Life Insurance
Company since August 1991

J. Gregory Poole* Secretary Associate Counsel and
(age 32) Assistant Secretary,
Jefferson-Pilot Life Insurance
Company since January 1994;
prior thereto, Attorney,
Jefferson-Pilot Life Insurance Company

Catherine B. Ream* Assistant Manager, Variable Annuities,
(age 30) Treasurer Jefferson-Pilot Life Insurance
Company since July 1996; prior
thereto Manager, Variable
Products, Alexander Hamilton
Life Insurance Company since
November 1992; prior thereto,
Investment Support Officer,
Connecticut Mutual Life
Insurance Company
</TABLE>

There is no family relationship between any of the Trustees or officers
listed above.

* "Interested Person" of the Trust for purposes of the 1940 Act. The address
of Interested Persons is Jefferson-Pilot Life, 100 North Greene Street,
Greensboro, NC 27401.

Mr.Glass, Mr. Yelton and Mr. Brown are members of the Trust's Interim
Valuation Committee, and Mr. Burnett, Mr. Geremski and Mr. Shelton are members
of the Trust's Audit Committee.

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<PAGE>

The Trustees of the Trust received the following compensation from the
Trust for the fiscal year ended on December 31, 1996:

<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits Estimated from the
Aggregate Accrued as Annual Trust and
Compensation Part of the Benefits Fund Complex
from the Trust's upon Paid to
Name of Person, Position Trust Expenses Retirement Trustees
- ------------------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Dennis R. Glass $ 0 $0 $0 N.A.
Trustee

E.J. Yelton $ 0 $0 $0 N.A.
Trustee

Mark E. Konen $ 0 $0 $0 N.A.
Trustee

Timothy B. Burnett* $7,250 $0 $0 $7,250
Trustee

Terrence E. Geremski* $7,250 $0 $0 $7,250
Trustee

Ralph K. Shelton* $7,250 $0 $0 $7,250
Trustee

</TABLE>

*Each non-interested Trustee currently receives an annual retainer of $4,000
plus $750 per meeting of the Board and $250 for each committee meeting which he
or she attends.

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<PAGE>

OTHER INFORMATION

FINANCIAL STATEMENTS

This Statement of Additional Information contains audited financial statements
for the Trust as of December 31, 1996. Ernst & Young LLP, serves as
independent auditors for the Trust.

LEGAL COUNSEL

Sutherland, Asbill & Brennan, L.L.P., 1275 Pennsylvania Avenue, N.W.,
Washington, D.C. 20004-2404, is counsel to the Trust.

OTHER INFORMATION

The Prospectus and this Statement do not contain all the information
included in the registration statement filed with the SEC under the 1933 Act
with respect to the securities offered by the Prospectus. Certain portions of
the registration statement have been omitted from the Prospectus and this
Statement pursuant to the rules and regulations of the SEC. The registration
statement including the exhibits filed therewith may be examined at the office
of the SEC in Washington, D.C. Statements contained in the Prospectus or in
this Statement as to the contents of any contract or other document referred to
are not

-103-

<PAGE>

necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the registration
statement of which the Prospectus and this Statement form parts, each such
statement being qualified in all respects by such reference.

-104-

<PAGE>

APPENDIX A

DESCRIPTION OF CORPORATE BOND AND PREFERRED STOCK RATINGS

AND COMMERCIAL PAPER(1)

DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S

CORPORATE BOND RATINGS

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

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

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

- ----------------------------
(1) The rating systems described herein are believed to be the most recent
ratings systems available from Moody's Investors Service, Inc. ("Moody's")
and Standard & Poor's Corporation ("S&P") at the date of this Statement for
the securites listed. Ratings are generally given to securities at the time of
issuance. While the rating agencies may from time to time revise such ratings,
they undertake no obligations to do so, and the ratings indicated do not
necessarily represent ratings which will be given to these securities on the
date of the Fund's fiscal year end.

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<PAGE>

Baa: Bonds which are rated Baa are considered a 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 maybe characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

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

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

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

Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.

Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.

Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.

Note: Those bonds in the Aa, A and Baa groups which Moody's believe
possess the strongest investment attributes are designated by the symbols Aa1,
A1 and Baa1.

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<PAGE>

DESCRIPTION OF STANDARD & POOR'S CORPORATION'S

CORPORATE BOND RATINGS

AAA: Bonds rated AAA have the highest rating assigned by S&P. 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 higher rated issues only in small degree.

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

BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. 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 in higher rated categories.

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

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

Unrated: Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.

Notes: Bonds which are unrated expose the investor to risks with respect
to capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative obligations. The Fund is dependent on the sub-adviser's
judgment, analysis and experience in the evaluation of such bonds.

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<PAGE>

DESCRIPTION OF CERTAIN COMMERCIAL PAPER RATINGS

STANDARD & POOR'S

Commercial paper rated A by S&P has the following characteristics:
Liquidity ratios are adequate to meet cash requirements. Long-term senior debt
is rated "A" or better, although in some cases "BBB" credits may be allowed.
The issuer has access to at least two additional channels of borrowing. Basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances. Typically, the issuer's industry is well established and the
issuer has a strong position within the industry. The reliability and quality
of management are unquestioned. The rating is described by S&P as the
investment grade category, the highest rating classification. Relative strength
or weakness of the above factors determine whether the issuer's commercial paper
is rated A-1, A-2 or A-3.

MOODY'S

Among the factor considered by Moody's in assigning commercial paper
ratings are the following: (1) evaluation of the management of the issuer;
(2) economic evaluation of the issuer's industry or industries and an appraisal
of speculative-type risks which may be inherent in certain areas; (3) evaluation
of the issuer's products in relation to competition and customer acceptance;
(4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings
over a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; (8) recognitions by the management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Relative differences in
strengths and weaknesses in respect of these criteria establish a rating in one
of three classifications. The rating Prime-1 is the highest commercial paper
rating assigned by Moody's. Its other two ratings, Prime-2 and Prime-3 are
designated Higher Quality and High Quality, respectively.

FITCH INVESTORS SERVICE, INC.

Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.

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<PAGE>

F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for
timely payment.

F-1: Very Strong Credit Quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than
issues rated "F-1+".

DUFF & PHELPS

Commercial Paper/Certificates of Deposits
Category 1: Top Grade

Duff 1 plus: Highest certainty of timely payment. Short-term liquidity
including internal operating factors and/or ready access to
alternative sources of funds, is clearly outstanding, and
safety is just below risk-free U.S. Treasury short-term
obligations.

Duff 1: Very high certainty of timely payment. Liquidity factors
are excellent and supported by strong fundamental protection
factors. Risk factors are minor.

Notes: Bonds which are unrated may expose the investor to risks with respect
to capacity to pay interest or repay principal which are similar to
the risks of lower-rated bonds. The Fund is dependent on the
sub-adviser's judgment, analysis and experience in the evaluation of
such bonds.

Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on
the issuer's ability to make interest and principal payments.

IBCA LIMITED AND ICBA INC.

A-1: Short-term obligations rate A-1 are supported by very strong capacity
for timely repayment. A plus ("+") sign is added to those issues determined to
possess the highest capacity for timely repayment.

A-2: Short-term obligations rated A-2 are supported by a strong capacity
for timely repayment, although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.

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<PAGE>

THOMPSON BANKWATCH, INC.

The TBW short-term ratings apply only to unsecured instruments that have a
maturity of one year or less and specifically assess the likelihood of an
untimely payment of principal and interest.

TBW-1: The highest category; indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.

TBW-2: The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated
TBW-1.

CREDIT RATINGS FOR GOVERNMENT BONDS

The following table shows the credit rating assigned by Moody's Investors
Service, Inc. and Standard & Poor's Corporation for foreign currency-denominated
debt issued by various countries.

COUNTRY MOODY'S S & P
------- ------- -----

USA Aaa AAA
Japan Aaa AAA
Germany Aaa AAA
Italy Aa3 AA
France Aaa AAA
UK Aaa AAA
Canada Aa2 AA+
Belgium Aa1 AA+
Denmark Aa1 AA+
Sweden Aa3 AA+
Switzerland Aaa AAA
Netherlands Aaa AAA
Spain Aa2 AA
Australia Aa2 AA

Certain governments listed above carry an implied rating by Moody and/or
S&P. Information is as of April 29, 1997 for Moody's and as of April 29, 1997
for Standard & Poor's.

-110-
<PAGE>
ALEXANDER HAMILTON VARIABLE INSURANCE TRUST
-------------------------------------------------------------------------
INVESTMENT GRADE BOND FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
-------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- --------------
<S> <C> <C>
CORPORATE BONDS - 38.4%
CONVERTIBLE BOND - 0.8%
INDUSTRIAL - 0.8%
Ryerson Tull, Inc., 8.50%, due 7/15/01 (cost $24,934) $25,000 $25,649
--------------

NON-CONVERTIBLE BONDS - 37.6%
AUTOMOTIVE - 12.4%
Aegis Auto Rec., 1996-2, 8.90%, due 1/20/02 126,669 128,569
General Motors Corp., 7.40%, due 9/01/25 125,000 124,219
Premier Auto Trust Mortgage, 6.15%, due 3/06/00 (a) 140,000 140,302
--------------
393,090
--------------

BANKS AND SAVINGS & LOANS - 4.5%
Midland Bank PLC, 7.625%, due 6/15/06 140,000 144,839
--------------

FINANCIAL SERVICES - 10.3%
Green Tree Financial Corp., 1995-10 A2,
5.80% due 2/15/27 (a) 140,000 140,085
Metropolitan Life Insurance Co., 7.80%, due 11/01/25 135,000 136,687
Santista Export Sec., I, 8.09%, due 11/30/06 50,000 50,000
--------------
326,772
--------------

INDUSTRIAL - 4.8%
AK Steel Corp., 9.125%, due 12/15/06 25,000 25,688
Celulosa Arauco, 6.75%, due 12/15/03 130,000 125,878
--------------
151,566
--------------

RETAILING - 0.8%
Federated Department Stores, 8.50%, due 6/15/03 25,000 26,014
--------------

TELECOMMUNICATIONS & EQUIPMENT - 0.5%
TCI Communications, Inc., 7.875%, due 2/15/26 20,000 17,344
--------------

UTILITIES - 4.3%
Boston Edison Co., 6.05%, due 8/15/00 140,000 135,875
--------------
TOTAL NON-CONVERTIBLE BONDS (COST $1,170,503) 1,195,500
--------------
TOTAL CORPORATE BONDS (COST $1,195,437) 1,221,149
--------------
</TABLE>

111
<PAGE>
ALEXANDER HAMILTON VARIABLE INSURANCE TRUST
-------------------------------------------------------------------------
INVESTMENT GRADE BOND FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- --------------
<S> <C> <C>
U.S. GOVERNMENT & U.S. GOVERNMENT
AGENCY OBLIGATIONS - 58.8%
U.S. GOVERNMENT OBLIGATIONS - 15.2%
U.S. Treasury Bond, 11.875%, due 11/15/03 $84,000 $109,541
U.S. Treasury Bond, 10.75%, due 8/15/05 56,000 71,838
U.S. Treasury Bond, 8.75%, due 8/15/20 50,000 61,578
U.S. Treasury Note, 6.875%, due 3/31/00 233,000 238,315
--------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (COST $485,671) 481,272
--------------

U.S. GOVERNMENT AGENCY OBLIGATIONS - 43.6%
Federal Home Loan Mortgage Corp.,
Gold Pool #C00427, 8.00%, due 10/01/25 183,681 187,412
Federal Home Loan Mortgage Corp.,
Gold Pool CMTMT, 7.50%, due 1/01/26 200,000 201,250
Federal National Mortgage Assoc.,
Pool #337434, 6.50%, due 2/01/26 140,011 133,888
Federal National Mortgage Assoc.,
Pool #338690, 6.00%, due 2/01/26 139,974 130,187
Federal National Mortgage Assoc.,
Pool #303998, 9.00%, due 7/01/26 78,569 83,694
Federal National Mortgage Assoc.,
Pool #352795, 7.00%, due 7/01/26 131,616 128,979
Federal National Mortgage Assoc.,
Pool #250672, 7.00%, due 9/01/26 128,100 125,958
Government National Mortgage Assoc. I,
Pool #422881, 8.00%, due 5/15/26 217,417 222,037
Government National Mortgage Assoc. II,
Pool #2247, 7.00%, due 7/20/26 175,827 171,157
--------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST $1,367,567) 1,384,562
--------------
TOTAL U.S. GOVERNMENT & U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $1,853,238) 1,865,834
--------------
TOTAL INVESTMENTS (COST $3,048,675) - 97.2% 3,086,983
OTHER ASSETS IN EXCESS OF LIABILITIES - 2.8% 88,378
--------------
NET ASSETS - 100.0% $3,175,361
--------------
--------------
</TABLE>

(a) Mortgage trust bond.

See notes to financial statements.

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-------------------------------------------------------------------------
HIGH YIELD BOND FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
-------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- --------------
<S> <C> <C>
CORPORATE BONDS - 94.3%
CONVERTIBLE BONDS - 6.4%
AUTOMOTIVE PARTS & EQUIPMENT - 2.3%
Hayes Wheels International, 11.00%, due 7/15/06 $50,000 $54,500
--------------

BUILDING & CONSTRUCTION - 1.1%
Nortek, Inc., 9.875%, due 3/01/04 25,000 25,312
--------------

CONGLOMERATES - 0.4%
Reeves Industries, Inc., 11.00%, due 7/15/02 10,000 9,550
--------------

TEXTILES - 2.6%
Synthetic Industries, 12.75%, due 12/01/02 55,000 60,912
--------------
TOTAL CONVERTIBLE BONDS (COST $141,538) 150,274
--------------

NON-CONVERTIBLE BONDS - 87.9%
AEROSPACE & DEFENSE - 2.5%
BE Aerospace, Inc., 9.875%, due 2/01/06 25,000 26,375
K&F Industries, Inc., 10.375%, due 9/01/04 30,000 31,800
--------------
58,175
--------------

BUILDING PRODUCTS & MATERIALS - 4.5%
American Standard, 10.50%, due 6/01/05 (a) 25,000 23,563
Building Materials Corp., 11.75%, due 7/01/04 (a) 50,000 43,000
Building Materials Corp., 8.625%, due 12/15/06 40,000 40,000
--------------
106,563
--------------

CHEMICALS - 1.1%
UCC Investors, 10.50%, due 5/01/02 25,000 26,875
--------------

COMMUNICATIONS & MEDIA - 1.1%
Cablevision Systems Corp., 9.25%, due 11/01/05 25,000 24,875
--------------

CONGLOMERATES - 0.9%
Atlantis Group, Inc., 11.00%, due 2/15/03 20,000 20,450
--------------

CONTAINERS & PACKAGING - 4.4%
Calmar, Inc.,11.50%, due 8/15/05 25,000 25,937
Gaylord Container, 12.75%, due 5/15/05 45,000 49,837
U.S. Can Corp., 10.125%, due 10/15/06 25,000 26,375
--------------
102,149
--------------

COSMETICS & TOILETRIES - 0.7%
Revlon Worldwide, 0.00%, due 3/15/98 (c) 20,000 17,450
--------------
</TABLE>

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PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- --------------
<S> <C> <C>
DIVERSIFIED HOLDING COMPANIES - 3.6%
E&S Holdings Corp., 144A, 10.375%, due 10/01/06 (d) $50,000 $52,563
Thermadyne Holding Corp., 10.75%, due 11/01/03 30,000 30,675
--------------
83,238
--------------

ENERGY - 1.2%
Mesa Operating Co., 10.625%, due 7/01/06 25,000 27,187
--------------

ENTERTAINMENT & LEISURE - 2.2%
American Skiing Corp., 144A, 12.00%, due 7/15/06 (d) 25,000 26,438
Grand Casinos, Inc., 10.125%, due 12/01/03 25,000 25,375
--------------
51,813
--------------

FOOD & BEVERAGE - 0.7%
Delta Beverage Group, 9.75%, due 12/15/03 15,000 15,431
--------------

GAMING & HOTELS - 3.1%
El Dorado Resorts, 10.50%, due 8/15/06 45,000 47,700
Red Roof Inns, 9.625%, due 12/15/03 20,000 20,300
Santa Fe Hotel, 11.00%, due 12/15/00 5,000 3,725
--------------
71,725
--------------

HEALTH CARE - 2.4%
Tenet Healthcare Corp., 10.125%, due 3/01/05 50,000 55,500
--------------

INDUSTRIAL - 26.6%
AAF-McQuay, Inc., 8.875%, due 2/15/03 50,000 50,250
Clark-Schwebel, Inc.,144A, 10.50%, due 4/15/06 (d) 25,000 26,750
Finlay Enterprises, 12.00%, due 5/01/98 (a) 25,000 22,000
Genmar Holdings, 13.50%, due 7/15/01 20,000 19,500
Harvard Industries, Inc., 11.125%, due 8/01/05 25,000 21,063
Haynes International, Inc., 11.625%, due 9/01/04 50,000 52,750
Howmet Corp., 10.00%, due 12/01/03 50,000 54,750
IMO Industries, 144A,11.75%, due 5/01/06 (d) 30,000 27,900
Interlake Corp., 12.125%, due 3/01/02 35,000 36,313
International Knife & Saw, 144A, 11.375%, due 11/15/06 (d) 40,000 41,600
Iron Mountain, Inc., 10.125%, due 10/01/06 50,000 53,250
Marvel Holdings, 0.00%, due 4/15/98 (c) 20,000 3,100
Mettler Toledo, Inc., 9.75%, due 10/01/06 45,000 47,475
Moog, Inc., 144A, 10.00%, due 5/01/06 (d) 25,000 26,068
Motors & Gears, Inc., 10.75%, due 11/15/06 50,000 52,000
Pierce Leahy Corp., 11.125%, due 7/15/06 50,000 54,875
</TABLE>

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PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- --------------
<S> <C> <C>
INDUSTRIAL (CONT'D) - 26.6%
Polymer Group, 12.25%, due 7/15/02 $30,000 $32,700
--------------
622,344
--------------

METALS & MINING - 1.5%
Kaiser Aluminum & Chemical, 9.875%, due 2/15/02 35,000 35,787
--------------

OFFICE & BUSINESS EQUIPMENT - 1.1%
Quest Diagnostic, Inc., 10.75%, due 12/15/06 25,000 26,375
--------------

STEEL - 7.6%
AK Steel Corp., 144A, 9.125%, due 12/15/06 (d) 25,000 25,687
Algoma Steel, Inc., 12.375%, due 7/15/05 25,000 27,000
Gulf States Steel Alabama, 13.50%, due 4/15/03 50,000 47,500
WCI Steel, Inc., 10.00%, due 12/01/04 75,000 76,875
--------------
177,062
--------------

SUPERMARKETS - 5.3%
Grand Union Co., 12.00%, due 9/01/04 20,000 21,300
Jitney-Jungle, 12.00%, due 3/01/06 5,000 5,325
Pathmark Stores, 9.625%, due 5/01/03 50,000 48,125
Ralph's Grocery Co., 10.45%, due 6/15/04 20,000 21,350
Smiths Food & Drug Centers, 11.25%, due 5/15/07 25,000 27,750
--------------
123,850
--------------

TELECOMMUNICATIONS - 15.2%
Colt Telecommunications Group PLC, 12.00%, due 12/15/06 (a) 50,000 30,250
Echostar Satellite Broadcast, 13.125%, due 3/15/04 (a) 30,000 23,100
Intelecom Group USA, Inc.,144A, 12.50%, due 5/01/06 (a) (d) 50,000 32,875
Lenfest Communications, 144A, 10.50%, 10.50%, due 6/15/06
(d) 25,000 26,500
MFS Communications, 8.875%, due 1/15/06 (a) 100,000 74,125
Mobilmedia Communications, 10.50%, due 12/01/03 (a) 25,000 5,250
Paging Network, 8.875%, due 2/01/06 25,000 23,969
Sprint Spectrum L.P. Fin., 11.00%, due 8/15/06 50,000 54,375
Sygnet Wireless, Inc., 11.50%, due 10/01/06 25,000 25,750
Teleport Communications, 11.125%, due 7/01/07 (a) 50,000 34,500
Western Wireless Communications, 10.50%, due 2/01/07 25,000 26,219
--------------
356,913
--------------
</TABLE>

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-------------------------------------------------------------------------
HIGH YIELD BOND FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- --------------
<S> <C> <C>
TEXTILES & APPAREL - 1.1%
Westpoint Stevens, Inc., 9.375%, due 12/15/05 (b) $25,000 $25,875
--------------

TRANSPORTATION - 1.1%
CHC Helicopter, 11.50%, due 7/15/02 25,000 25,625
--------------
TOTAL NON-CONVERTIBLE BONDS (COST $1,997,562) 2,055,262
--------------
TOTAL CORPORATE BONDS (COST $2,139,100) 2,205,536
--------------
TOTAL INVESTMENTS (COST $2,139,100) - 94.3% 2,205,536
OTHER ASSETS IN EXCESS OF LIABILITIES - 5.7% 133,827
--------------
NET ASSETS - 100.0% $2,339,363
--------------
--------------
</TABLE>

(a) Step coupon bond. Zero coupon at December 31, 1996, interest rate stated
begins on a specified future date.
(b) Collateral trust bond.
(c) Zero coupon bond.
(d) Security exempt from registration under Rule 144A of the Securities Act of
1933.
These securities may be resold in transactions exempt from registration
normally to qualified institutional buyers. At December 31, 1996, these
securities amounted to a value of $286,381 or 12.2% of net assets.

See notes to financial statements.

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-------------------------------------------------------------------------
BALANCED FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
-------------------------------------------------------------------------

<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------ --------------
<S> <C> <C>
COMMON STOCKS - 57.1%
AEROSPACE & DEFENSE - 3.2%
Coltec Industries * 900 $16,987
General Motors Corp., Class H 940 52,875
McDonnell Douglas Corp. 300 19,200
Rohr, Inc. * 2,790 63,124
--------------
152,186
--------------

APPAREL & TEXTILES - 0.8%
Collins & Aikman Corp. * 5,650 35,313
--------------

BANKS AND SAVINGS & LOANS - 1.5%
Boatmen's Bancshares, Inc. 460 29,670
Crestar Financial Corp. 100 7,438
First Chicago NBD Corp. 440 23,650
Firstar Corp. 200 10,500
--------------
71,258
--------------

BUILDING MATERIALS - 0.5%
Owens-Corning Fiberglas Corp. * 540 23,017
--------------

CAPITAL EQUIPMENT - 0.8%
AlliedSignal, Inc. 540 36,180
--------------

CHEMICALS - 3.0%
Albemarle Corp. 2,480 44,950
Crompton & Knowles Corp. 750 14,437
Du Pont (E.I.) de Nemours & Co. 640 60,400
Union Carbide Corp. 440 17,985
--------------
137,772
--------------

COMMUNICATIONS & MEDIA - 0.8%
Time Warner, Inc. 990 37,125
--------------

COMPUTERS & COMPUTER SOFTWARE - 4.6%
Cisco Systems, Inc. * 760 48,355
Compaq Computer Corp. * 210 15,593
EMC Corp. * 1,190 39,419
International Business Machines Corp. 340 51,340
Learning Company, Inc. 990 14,231
Read-Rite Corp. * 930 23,482
Sun Microsystems, Inc. * 850 21,834
--------------
214,254
--------------
</TABLE>

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-------------------------------------------------------------------------
BALANCED FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------ --------------
<S> <C> <C>
CONGLOMERATES - 1.7%
Unilever NV 440 $77,110
--------------

CONSUMER DURABLES - 1.4%
General Motors Corp. 1,140 63,555
--------------

CONTAINERS - 0.6%
Temple-Inland, Inc. 540 29,228
--------------

ELECTRICAL EQUIPMENT - 0.5%
Anixter International, Inc. * 1,570 25,316
--------------

ELECTRONICS - 1.3%
General Instrument Corp. * 570 12,326
Intel Corp. 210 27,497
Perkin-Elmer Corp. 330 19,429
--------------
59,252
--------------

ENTERTAINMENT & LEISURE - 0.4%
Boyd Gaming Corp. * 300 2,475
International Game Technology 900 16,425
--------------
18,900
--------------

ENVIRONMENTAL MANAGEMENT - 0.8%
WMX Technologies, Inc. 1,140 37,193
--------------

FINANCIAL SERVICES - 6.6%
ADVANTA CORP, Class B 530 21,664
Bear Stearns Co. Inc. 2,000 55,750
Capital RE Corp. 640 29,840
Dean Witter Discover & Co. 640 42,400
Edwards, (A.G.), Inc. 540 18,157
Great Western Financial 1,290 37,410
Providian Corp. 1,250 64,219
Salomon, Inc. 750 35,344
--------------
304,784
--------------

FOOD, BEVERAGE & TOBACCO - 2.1%
CPC International, Inc. 200 15,500
Kellogg Co. 310 20,344
Philip Morris Cos. 540 60,818
--------------
96,662
--------------
</TABLE>

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-------------------------------------------------------------------------
BALANCED FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------ --------------
<S> <C> <C>
HEALTH CARE PRODUCTS & SERVICES - 1.9%
Columbia/HCA Healthcare Corp. 1,400 $57,050
United Healthcare Corp. 700 31,500
--------------
88,550
--------------

HOUSEHOLD PRODUCTS - 1.5%
Procter & Gamble Co. 630 67,725
--------------

MACHINERY & EQUIPMENT - 1.8%
Cooper Industries, Inc. 2,000 84,250
--------------

MANUFACTURING - 0.3%
Allegheny Teledyne, Inc. 675 15,525
--------------

OFFICE & BUSINESS EQUIPMENT - 0.6%
Xerox Corp. 520 27,365
--------------

OIL & OIL SERVICES - 6.9%
Anadarko Petroleum Corp. 330 21,368
Ashland, Inc. 630 27,641
British Petroleum Ltd. ADR 340 48,350
Chevron Corp. 210 13,650
Exxon Corp. 900 88,200
Panenergy Corp. 520 23,400
Ultramar Diamond Shamrock 1,540 48,702
Union Pacific Resources Group 488 14,274
Wheelabrator Technologies, Inc. * 1,970 32,012
--------------
317,597
--------------

PHARMACEUTICALS - 3.2%
Bristol-Myers Squibb Co. 440 47,850
Forest Laboratories, Inc. * 510 16,702
Schering Plough 210 13,598
Warner-Lambert Co. 930 69,750
--------------
147,900
--------------

RETAILING - 2.3%
General Nutrition Cos. * 1,700 28,688
Toys R Us * 750 22,500
Wal-Mart Stores, Inc. 2,480 56,730
--------------
107,918
--------------
</TABLE>

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-------------------------------------------------------------------------
BALANCED FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------ --------------
<S> <C> <C>
TELECOMMUNICATIONS & EQUIPMENT - 5.1%
MCI Communications 1,350 $44,128
NYNEX Corp. 860 41,387
SBC Communications, Inc. 210 10,868
TCI Satellite Entertainment, Class A * 569 5,619
Tele-Communications, Class A 5,700 74,456
US West Media Group, Inc. * 750 24,188
WorldCom, Inc. * 1,290 33,621
--------------
234,267
--------------

TRANSPORTATION - 1.4%
Consolidated Freightways Corp. * 590 5,236
Consolidated Freightways, Inc. 1,180 26,255
Union Pacific Corp. 570 34,271
--------------
65,762
--------------

UTILITIES - 1.5%
Dominion Resources, Inc. 670 25,795
New England Electric System 440 15,345
Pacific Gas & Electric 710 14,910
Portland General Corp. 310 13,020
--------------
69,070
--------------
TOTAL COMMON STOCKS (COST $2,436,854) 2,645,034
--------------
<CAPTION>

PRINCIPAL
AMOUNT
------------
<S> <C> <C>
CORPORATE BONDS - 13.2%
CONVERTIBLE BOND - 0.2%
INDUSTRIAL - 0.2%
Ryerson Tull, Inc., 8.50%, due 7/15/01 (cost $9,974) $10,000 10,259
--------------

NON-CONVERTIBLE BONDS - 13.0%
AUTOMOTIVE - 4.4%
Aegis Auto Rec., Ser. 1996-2, 8.90%, due 1/20/02 63,335 64,379
General Motors Corp., 7.40%, due 9/01/25 70,000 69,563
Premier Auto Trust Mortgage, 6.15%, due 3/06/00 (a) 70,000 70,151
--------------
204,093
--------------

BANKS AND SAVINGS & LOANS - 1.5%
Midland Bank PLC, 7.625%, due 6/15/06 70,000 72,419
--------------
</TABLE>

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-------------------------------------------------------------------------
BALANCED FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------ --------------
FINANCIAL SERVICES - 3.5%
<S> <C> <C>
Green Tree Financial Corp. 1995-10 A2, 5.80%, due 2/15/27
(a) $70,000 $70,043
Metropolitan Life Insurance Co., 7.80%, due 11/01/25 70,000 70,875
Santista Export Sec. I, 8.09%, due 11/30/06 20,000 20,000
--------------
160,918
--------------

INDUSTRIAL - 1.7%
AK Steel Corp., 9.125%, due 12/15/06 10,000 10,144
Celulosa Arauco, 6.75%, due 12/15/03 70,000 67,780
--------------
77,924
--------------

RETAILING - 0.2%
Federated Department Stores, 8.50%, due 6/15/03 10,000 10,406
--------------

TELECOMMUNICATIONS & EQUIPMENT - 0.2%
TCI Communications, Inc., 7.875%, due 2/15/26 10,000 8,672
--------------

UTILITIES - 1.5%
Boston Edison Co., 6.05%, due 8/15/00 70,000 67,938
--------------
TOTAL NON-CONVERTIBLE BONDS (COST $589,577) 602,370
--------------
TOTAL CORPORATE BONDS (COST $599,551) 612,629
--------------

U.S. GOVERNMENT & U.S. GOVERNMENT AGENCY OBLIGATIONS - 27.7%
U.S. GOVERNMENT OBLIGATIONS - 13.1%
U.S. Treasury Note, 6.875%, due 3/31/00 134,000 137,057
U.S. Treasury Note, 6.50%, due 10/15/06 25,000 25,148
U.S. Treasury Bond, 11.875%, due 11/15/03 12,000 15,649
U.S. Treasury Bond, 8.50%, due 2/15/20 357,000 428,512
--------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (COST $591,529) 606,366
--------------

U.S. GOVERNMENT AGENCY OBLIGATIONS - 14.6%
Federal Home Loan Mortgage Corp., Gold Pool #C00427, 8.00%,
due 10/01/25 87,007 88,774
Federal Home Loan Mortgage Corp., Gold Pool CMTMT, 7.50%,
due 1/01/26 75,000 75,469
Federal National Mortgage Assoc., Pool #337434, 6.50%, due
2/01/26 70,005 66,944
Federal National Mortgage Assoc., Pool #339454, 6.00%, due
3/01/26 70,114 65,211
Federal National Mortgage Assoc., Pool #303998, 9.00%, due
7/01/26 41,596 44,308
</TABLE>

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-------------------------------------------------------------------------
BALANCED FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------ --------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (CONT'D) - 14.6%
<S> <C> <C>
Federal National Mortgage Assoc., Pool #352795, 7.00%, due
7/01/26 $43,873 $42,994
Federal National Mortgage Assoc., Pool #354237, 7.00%, due
8/01/26 59,168 57,982
Government National Mortgage Assoc., Pool #422913, 8.00%,
due 6/15/26 112,669 115,064
Government National Mortgage Assoc., Pool #2247 7.00%, due
7/20/26 125,591 122,255
--------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST $670,698) 679,001
--------------
TOTAL U.S. GOVERNMENT & U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $1,262,227) 1,285,367
--------------
TOTAL INVESTMENTS (COST $4,298,632) - 98.0% 4,543,030
OTHER ASSETS IN EXCESS OF LIABILITIES - 2.0% 90,924
--------------
NET ASSETS - 100.0% $4,633,954
--------------
--------------
</TABLE>

* Non-income producing security.

ADR - American Depository Receipt.

(a) Mortgage bond.

See notes to financial statements.

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-------------------------------------------------------------------------
GROWTH & INCOME FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
-------------------------------------------------------------------------

<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------ --------------
<S> <C> <C>
COMMON STOCKS - 94.7%
AEROSPACE & DEFENSE - 9.6%
General Motors Corp., Class H 2,000 $112,500
GRC International, Inc. * 5,500 44,688
Litton Industries * 3,500 166,688
Lockheed Martin 800 73,200
Loral Space & Communications * 2,000 36,750
Sundstrand Corp. 2,000 85,000
--------------
518,826
--------------

BANKS AND SAVINGS & LOANS - 17.6%
BankAmerica Co. 1,800 179,550
Bank of New York Co., Inc. 4,000 135,000
Bankers Trust NY Corp. 1,500 129,375
Chase Manhattan Corp. 2,000 178,500
Morgan (J.P.) & Co. 800 78,100
PNC Bank Corp. 3,000 112,875
Wells Fargo & Co. 500 134,875
--------------
948,275
--------------

BUSINESS SERVICES - 1.0%
First Data Corp. 1,500 54,750
--------------

CAPITAL EQUIPMENT - 1.0%
AlliedSignal, Inc. 800 53,600
--------------

COMMUNICATIONS & MEDIA - 2.8%
Infinity Broadcasting, Class A * 3,500 117,687
Spelling Entertainment Group * 4,500 33,188
--------------
150,875
--------------

COMPUTERS & COMPUTER SOFTWARE - 9.0%
Amdahl Corp. * 6,000 72,750
Hewlett-Packard 800 40,200
Honeywell, Inc. 3,500 230,125
Informix Corp. * 1,500 30,563
Newbridge Networks Corp. * 2,000 56,500
Sun Microsystems, Inc. * 2,000 51,375
--------------
481,513
--------------
</TABLE>

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-------------------------------------------------------------------------
GROWTH & INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------ --------------
<S> <C> <C>
CONSUMER DURABLES - 3.2%
Ford Motor Co. 4,500 $143,437
General Motors Corp. 500 27,875
--------------
171,312
--------------

ELECTRONICS - 0.8%
VeriFone, Inc. * 1,500 44,250
--------------

ENTERTAINMENT & LEISURE - 2.6%
Mirage Resorts, Inc. * 6,500 140,562
--------------

FINANCIAL SERVICES - 17.4%
Aetna Life & Casualty Co. 2,500 200,000
Capital One Financial Corp. 2,100 75,600
Chubb Corp. 800 43,000
Federal National Mortgage Association 1,000 37,250
Student Loan Marketing Association 2,000 186,250
The Charles Schwab Corp. 5,000 160,000
TIG Holdings, Inc. 2,000 67,750
Transamerica Corp. 500 39,500
USF&G Corp. 6,000 125,250
--------------
934,600
--------------

HEALTH CARE - 7.9%
ALZA Corp. * 5,000 129,375
Allergan, Inc. 2,500 89,063
Baxter International, Inc. 2,100 86,100
Biomet, Inc. * 2,000 30,250
Humana, Inc. * 3,000 57,375
Nellcor Puritan Bennett, Inc. * 1,500 32,812
--------------
424,975
--------------

INDUSTRIAL MANUFACTURING & PROCESSING - 5.4%
Corning, Inc. 3,500 161,875
Inco Ltd. 4,000 127,500
--------------
289,375
--------------

LODGING & RESTAURANTS - 1.2%
ITT Corp. * 1,500 65,062
--------------

OIL SERVICES - 5.1%
Baker Hughes, Inc. 4,500 155,250
Halliburton Co. 2,000 120,500
--------------
275,750
--------------
</TABLE>

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-------------------------------------------------------------------------
GROWTH & INCOME FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------ --------------
<S> <C> <C>
PHARMACEUTICALS - 0.6%
Columbia Laboratories, Inc. * 2,000 $29,000
--------------

RETAILING - 1.0%
Staples, Inc. * 3,000 54,188
--------------

TELECOMMUNICATIONS & EQUIPMENT - 7.3%
Bay Networks, Inc. * 2,000 41,750
DSC Communications Corp. * 5,000 89,375
General Instrument Corp. * 1,800 38,925
Globalstar Telecommunications * 1,000 63,000
Lucent Technologies, Inc. * 1,700 78,625
QUALCOMM, Inc. * 2,000 79,750
--------------
391,425
--------------

TRANSPORTATION - 1.2%
Southwest Airlines 3,000 66,375
--------------
TOTAL COMMON STOCKS (COST $4,803,562) 5,094,713
--------------
<CAPTION>

PRINCIPAL
AMOUNT
------------
<S> <C> <C>
REPURCHASE AGREEMENT - 3.4%
Repurchase agreement with State Street Bank, 5.00%, due
1/02/97, dated 12/31/96, with a maturity value of $185,051;
collateralized by $190,000 U.S. Treasury Note, 6.125%, due
5/15/98; market value $192,138
(COST $185,000) $185,000 185,000
--------------
TOTAL INVESTMENTS (COST $4,988,562) - 98.1% 5,279,713
OTHER ASSETS IN EXCESS OF LIABILITIES - 1.9% 102,547
--------------
NET ASSETS - 100.0% $5,382,260
--------------
--------------
</TABLE>

* Non-income producing security.

See notes to financial statements.

125
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GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
-------------------------------------------------------------------------

<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------ --------------
<S> <C> <C>
COMMON STOCKS - 84.7%
APPAREL & TEXTILES - 1.0%
Jones Apparel Group, Inc. * 1,000 $37,375
Nautica Enterprises, Inc. * 1,700 42,925
--------------
80,300
--------------

BANKS AND SAVINGS & LOANS - 6.4%
Chase Manhattan Corp. 700 62,475
Citicorp 1,100 113,300
First Bank System, Inc. 1,200 81,900
Firstar Corp. 1,000 52,500
Mellon Bank Corp. 900 63,900
Norwest Corp. 1,700 73,950
TCF Financial Corp. 1,200 52,200
--------------
500,225
--------------

CHEMICALS - 1.5%
Monsanto Co. 3,000 116,625
--------------

COMMERCIAL SERVICES - 3.1%
AccuStaff, Inc. * 3,000 63,375
CoreStaff, Inc. * 1,850 43,822
CUC International, Inc. * 2,200 52,250
Service Corp. International 3,000 84,000
--------------
243,447
--------------

COMPUTERS & COMPUTER SOFTWARE - 12.2%
3Com Corp. * 1,500 110,062
CBT Group PLC ADR * 1,400 75,950
Cadence Design System, Inc. * 1,300 51,675
Cisco Systems, Inc. * 2,500 159,063
Dell Computer Corp. * 700 37,187
International Business Machines Corp. 1,000 151,000
McAfee Associates, Inc. * 800 35,200
Microsoft Corp. * 1,000 82,625
Netscape Communications Corp. * 600 34,125
Parametric Technology Corp. * 1,400 71,925
PeopleSoft, Inc. * 1,500 71,906
Sykes Enterprises, Inc. * 2,000 75,000
--------------
955,718
--------------

DIVERSIFIED OPERATIONS - 0.5%
Alco Standard Corp. 800 41,300
--------------
</TABLE>

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GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------ --------------
<S> <C> <C>
ELECTRICAL EQUIPMENT - 1.7%
Applied Materials, Inc.* 1,000 $35,937
General Electric Co. 1,000 98,875
--------------
134,812
--------------

ELECTRONICS - 7.4%
Altera Corp. * 700 50,881
Intel Corp. 1,500 196,406
Maxim Integrated Products, Inc. * 1,300 56,225
National Semiconductor Corp. * 2,400 58,500
Perkin-Elmer Corp. 1,300 76,538
Sipex Corp. * 1,300 41,925
Teradyne, Inc. * 1,800 43,875
Uniphase Corp. * 1,000 52,500
--------------
576,850
--------------

ENTERTAINMENT & LEISURE - 2.0%
Carnival Corp., Class A 2,500 82,500
Regal Cinemas, Inc. * 2,300 70,725
--------------
153,225
--------------

FINANCIAL SERVICES - 9.1%
American Express Co. 2,000 113,000
Conseco, Inc. 2,000 127,500
Federal Home Loan Mortgage Corp. 700 77,088
Federal National Mortgage Association 1,600 59,600
MGIC Investment Corp. 1,000 76,000
Starwood Lodging Trust 2,000 110,250
The Charles Schwab Corp. 2,000 64,000
The Travelers Corp. 1,866 84,670
--------------
712,108
--------------

FOOD, BEVERAGE & TOBACCO - 3.9%
Interstate Bakeries Corp. 1,500 73,687
Philip Morris Cos., Inc. 1,000 112,625
Sara Lee Corp. 2,000 74,500
The Coca-Cola Co. 800 42,100
--------------
302,912
--------------

FOREST & PAPER PRODUCTS - 1.0%
Kimberly-Clark Corp. 800 76,200
--------------
</TABLE>

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-------------------------------------------------------------------------
GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------ --------------
<S> <C> <C>
HEALTH CARE PRODUCTS & SERVICES - 6.5%
AmeriSource Distribution Corp., Class A * 2,000 $96,500
Boston Scientific Corp. * 2,000 120,000
HealthSouth Corp. * 2,000 77,250
Medtronic, Inc. 2,000 136,000
Oxford Health Plans, Inc. * 1,300 76,131
--------------
505,881
--------------

OFFICE EQUIPMENT - 1.8%
Danka Business Systems PLC ADR 4,000 141,500
--------------

OIL & OIL SERVICES - 8.0%
B.J. Services Co. * 1,200 61,200
Baker Hughes, Inc. 2,500 86,250
Cooper Cameron Corp. * 1,500 114,750
Diamond Offshore Drilling, Inc. * 700 39,900
ENSCO International, Inc. * 1,500 72,750
Global Marine, Inc. * 1,800 37,125
Noble Affiliates, Inc. 1,000 47,875
Schlumberger Ltd. 700 69,913
Smith International, Inc. * 2,200 98,725
--------------
628,488
--------------

PHARMACEUTICALS - 7.9%
Abbott Laboratories 1,000 50,750
American Home Products Corp. 600 35,175
Cardinal Health, Inc. 3,000 174,750
Dura Pharmaceuticals, Inc. * 2,000 95,500
Eli Lilly & Co. 1,500 109,500
Parexel International Corp. * 1,100 56,788
Pfizer, Inc. 1,100 91,163
--------------
613,626
--------------

PUBLISHING - 0.5%
Cognizant Corp. 1,100 36,300
--------------

RESTAURANTS & LODGING - 2.1%
Boston Chicken, Inc. * 2,000 71,750
Hospitality Franchise Systems, Inc. * 600 35,850
Starbucks Corp. * 2,000 57,250
--------------
164,850
--------------
</TABLE>

128
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-------------------------------------------------------------------------
GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------ --------------
<S> <C> <C>
RETAILING - 3.1%
Consolidated Stores Corp. * 2,000 $64,500
Dollar Tree Stores, Inc. * 2,000 76,500
Kohl's Corp. * 1,500 58,875
Staples, Inc. * 2,400 43,350
--------------
243,225
--------------

TELECOMMUNICATIONS & EQUIPMENT - 4.5%
Advanced Fibre Communication, Inc. * 500 27,812
Cincinnati Bell, Inc. 2,500 154,063
Tellabs, Inc. * 2,500 94,062
US Robotics Corp. * 1,000 72,000
--------------
347,937
--------------

TRANSPORTATION - 0.5%
Midwest Express Holdings, Inc. * 1,100 39,600
--------------
TOTAL COMMON STOCKS (COST $5,926,440) 6,615,129
--------------
TOTAL INVESTMENTS (COST $5,926,440) - 84.7% 6,615,129
OTHER ASSETS IN EXCESS OF LIABILITIES - 15.3% 1,198,883
--------------
NET ASSETS - 100.0% $7,814,012
--------------
--------------
</TABLE>

* Non-income producing security.

ADR - American Depository Receipt.

See notes to financial statements.

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-------------------------------------------------------------------------
EMERGING GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
-------------------------------------------------------------------------

<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------ --------------
<S> <C> <C>
COMMON STOCKS - 93.8%
COMMERCIAL SERVICES - 4.5%
ADT Ltd. 3,200 $73,200
CUC International, Inc. * 2,362 56,098
Loewen Group, Inc. 4,450 174,106
--------------
303,404
--------------

COMMUNICATIONS & MEDIA - 2.6%
Cox Radio, Inc. * 1,600 28,000
Heritage Media Corp., Class A * 7,200 81,000
Infinity Broadcasting * 1,900 63,888
--------------
172,888
--------------

COMPUTERS & COMPUTER SOFTWARE - 23.1%
Adobe Systems, Inc. 2,800 104,650
BISYS Group, Inc. * 1,100 40,769
BMC Software, Inc. * 3,900 161,363
Cabletron Systems, Inc. * 5,780 192,185
Cadence Design System, Inc. * 2,900 115,275
Ceridian Corp. * 800 32,400
Computer Sciences Corp. * 1,100 90,337
Cooper & Chyan Technology * 3,000 98,250
DST Systems, Inc. * 2,100 65,888
Edify Corp. * 1,100 17,600
Electronic Arts * 5,200 155,675
Epic Design Technology, Inc. * 700 17,500
Fiserv, Inc. * 2,700 99,225
HBO & Co. 1,100 65,312
Oracle Corp. * 3,800 158,650
SPS Transaction Services CRP, Inc. * 2,700 41,175
Synopsys, Inc. * 2,100 97,125
--------------
1,553,379
--------------

ELECTRICAL EQUIPMENT - 1.9%
Cable Design Technologies * 4,100 127,612
--------------

ELECTRONICS - 1.4%
Atmel Corp. * 700 23,188
LSI Logic Corp. * 2,600 69,550
--------------
92,738
--------------
</TABLE>

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-------------------------------------------------------------------------
EMERGING GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------ --------------
<S> <C> <C>
ENTERTAINMENT & LEISURE - 3.0%
Grand Casinos, Inc. 2,200 $29,700
Harrah's Entertainment, Inc. * 5,400 107,325
Hollywood Entertainment Corp. * 300 5,550
Showboat, Inc. 3,600 62,100
--------------
204,675
--------------

FINANCIAL SERVICES - 12.1%
ADVANTA Corp., Class B 2,100 85,838
Capital One Financial Corp. 2,500 90,000
Countrywide Credit Industries, Inc. 1,800 51,525
FINOVA Group 1,100 70,675
First USA, Inc. 1,800 62,325
First USA Paymentech, Inc. 100 3,388
Franklin Resources, Inc. 2,400 164,100
Green Tree Financial Corp. 3,500 135,187
Riscorp, Inc., Class A * 5,300 19,212
United Cos. Financial Corp. 4,900 130,462
--------------
812,712
--------------

HEALTH CARE PRODUCTS & SERVICES - 19.2%
CompDent Corp. * 1,900 66,975
Coventry Corp * 2,200 20,384
HCIA, Inc. * 4,000 138,000
HEALTHSOUTH Corp. * 2,300 88,837
Health Management Associates, Inc., Class A * 8,250 185,625
Healthsource, Inc. * 5,600 73,500
Manor Care, Inc. 800 21,600
Mariner Health Group, Inc. * 8,500 71,187
PacifiCare Health Systems, Class A * 2,030 164,938
St. Jude Medical, Inc. * 800 34,100
United Healthcare Corp. 4,100 184,500
Ventritex, Inc. * 8,700 214,238
Vivra, Inc. * 1,200 33,150
--------------
1,297,034
--------------

HOUSEHOLD PRODUCTS - 0.7%
Department 56, Inc. * 1,900 47,025
--------------

OFFICE EQUIPMENT - 1.0%
Danka Business Systems PLC ADR 2,000 70,750
--------------
</TABLE>

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-------------------------------------------------------------------------
EMERGING GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------ --------------
<S> <C> <C>
OIL SERVICES - 0.1%
Titan Exploration, Inc. * 300 $3,600
--------------

RESTAURANTS & LODGING - 5.8%
Applebee's International, Inc. 2,200 60,500
Buffets, Inc. * 3,100 28,287
Choice Hotels Corp., Inc. * 800 14,100
Hospitality Franchise Systems, Inc. * 2,950 176,263
Promus Hotel Corp. * 2,900 85,913
Renaissance Hotel Group NV * 1,100 25,850
--------------
390,913
--------------

RETAILING - 9.3%
AnnTaylor Stores * 2,900 50,750
AutoZone, Inc. * 1,100 30,250
General Nutrition Cos. * 5,900 99,562
Gymboree Corp. * 5,200 118,950
Nine West Group, Inc. * 1,900 88,112
Office Depot * 5,900 104,725
Rite Aid Corp. 1,300 51,675
Viking Office Products, Inc. * 3,000 80,063
--------------
624,087
--------------

TELECOMMUNICATIONS & EQUIPMENT - 6.1%
Aerial Communications, Inc. * 4,900 39,813
Ascend Communications, Inc. * 500 31,062
Glenayre Technologies, Inc. * 6,350 136,922
Rogers Cantel Mobile, Class B * 2,900 56,188
Telephone and Data Systems, Inc. 4,100 148,625
--------------
412,610
--------------

TRANSPORTATION - 2.9%
Kansas City Southern Industries 700 31,500
Wisconsin Central Transportation Corp. * 4,100 162,463
--------------
193,963
--------------

TRAVEL SERVICES - 0.0%
Sabre Group Holdings, Inc. * 100 2,787
--------------

WHOLESALE DISTRIBUTION - 0.1%
Earthgrains 100 5,225
--------------
TOTAL COMMON STOCKS (COST $6,260,217) 6,315,402
--------------
</TABLE>

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EMERGING GROWTH FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------ --------------

U.S. GOVERNMENT AGENCY OBLIGATIONS - 8.9%
<S> <C> <C>
Federal Home Loan Bank, 6.50%, due 1/02/97
(COST $599,892) $600,000 $599,783
--------------
TOTAL INVESTMENTS (COST $6,860,109) - 102.7% 6,915,185
LIABILITIES IN EXCESS OF OTHER ASSETS - (2.7%) (180,796)
--------------
NET ASSETS - 100.0% $6,734,389
--------------
--------------
</TABLE>

* Non-income producing security.

ADR - American Depository Receipt.

See notes to financial statements.

133
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-------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
-------------------------------------------------------------------------

<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------ --------------
<S> <C> <C>
COMMON STOCKS - 84.7%
AUSTRALIA - 2.0%
National Australian Bank Ltd. 9,000 $105,795
WMC Limited 4,500 28,343
--------------
134,138
--------------

CANADA - 1.7%
BCE, Inc. 300 14,292
BRE-X Minerals Ltd. 900 14,249
Bank of Montreal 500 15,905
Barrick Gold Corp. 1,000 28,636
Berkley Petroleum Corp. 500 12,074
Cinram Ltd. 500 13,680
Gulfstream Resources CDA Ltd. 1,500 14,336
--------------
113,172
--------------

CHINA - 1.6%
Guangzhou Investment 220,000 105,236
--------------

FRANCE - 6.3%
Christian Dior SA 850 136,851
Pinault-Printemps 320 126,677
Sodexho SA 280 155,653
--------------
419,181
--------------

GERMANY - 5.9%
BASF AG 3,900 149,308
Gehe AG 1,700 109,042
Veba AG 2,300 132,080
--------------
390,430
--------------

HONG KONG - 4.6%
Cheung Kong Holdings 17,000 151,099
HSBC Holdings PLC 7,200 154,096
--------------
305,195
--------------

ITALY - 1.6%
Gucci Group NV 1,550 103,946
--------------

JAPAN - 24.5%
Aiwa Co. Ltd. 5,000 85,724
Autobacs Seven Co. Ltd. 1,000 70,561
Fast Retailing Co. Ltd. 2,200 56,294
Fuji Machine Mfg Co. 3,000 79,349
</TABLE>

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-------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------ --------------
<S> <C> <C>
JAPAN (CONT'D) - 24.5%
Hitachi Ltd. 9,000 $83,743
Meiwa Estate Co. Ltd. 2,000 49,970
Mitsui Trust & Banking 3,000 23,391
NTT Data Corp. 3 87,619
Nichiei Co. Ltd. 900 65,986
Nintendo Corp. Ltd. 700 49,996
Nippon Steel Co. 21,000 61,876
Nippon Telegraph & Telephone 7 52,951
Nomura Securities Co. Ltd. 4,000 59,964
Rohm Co. 1,000 65,478
Shima Seiki Mfg. Ltd. 1,000 46,524
Sony Corp. 1,100 71,931
Sumitomo Bank 5,000 71,939
The Bank of Tokyo 5,000 92,616
Toda Construction Co. 11,000 83,398
Tokai Rubber Industries 5,000 55,139
Tokio Marine & Fire Insurance 4,000 37,564
Tokyo Style 5,000 69,785
Ushio, Inc. 8,000 86,844
West Japan Railway Co. 16 51,693
Yamada Denki 3,000 65,908
--------------
1,626,243
--------------

MALAYSIA - 3.5%
Malayan Banking Berhad 21,000 232,825
--------------

NETHERLANDS - 6.2%
Elsevier NV 2,480 41,865
Internationale Nederlanden Groep NV 4,070 146,354
Royal Dutch Petroleum 250 43,778
VNU-Verenigde Nederlandse Uitgeversbed 6,600 137,743
Wolters Kluwer - CVA 330 43,784
--------------
413,524
--------------

SINGAPORE - 1.9%
United Overseas Bank 11,000 122,675
--------------

SPAIN - 1.4%
Centros Comerciales Pryca, SA 4,250 89,852
--------------
</TABLE>

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-------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
------------ --------------
<S> <C> <C>
SWEDEN - 3.5%
Atlas Copco AB 1,950 $47,408
Scania AB 1,550 38,591
Telefonaktiebolaget LM Ericsson, Class B 4,660 144,004
--------------
230,003
--------------

SWITZERLAND - 4.1%
Novartis AG * 238 271,727
--------------

UNITED KINGDOM - 15.9%
BBA Group PLC 20,000 121,160
Barclays PLC 8,500 145,533
British Petroleum Co. 11,000 131,864
Granada Group PLC 8,000 117,943
Henlys Group PLC 13,000 119,577
NEXT PLC 12,000 116,540
Rentokil Group PLC 14,000 105,176
Rolls Royce PLC 23,000 101,352
Zeneca Group 3,500 98,678
--------------
1,057,823
--------------
TOTAL COMMON STOCKS (COST $5,101,151) 5,615,970
--------------

PREFERRED STOCK - 1.1%
JAPAN - 1.1%
Koito Manufacturing Co. Ltd
(COST $68,346) 11,000 73,447
--------------
TOTAL INVESTMENTS (COST $5,169,497) - 85.8% 5,689,417
OTHER ASSETS IN EXCESS OF LIABILITIES - 14.2% 944,843
--------------
NET ASSETS - 100.0% $6,634,260
--------------
--------------
</TABLE>

* Non-income producing security.

See notes to financial statements.

136
<PAGE>
ALEXANDER HAMILTON VARIABLE INSURANCE TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
INVESTMENT HIGH YIELD GROWTH & EMERGING INTERNATIONAL
GRADE BOND BOND BALANCED INCOME GROWTH GROWTH EQUITY
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value
(Note 2)........................... $3,086,983 $2,205,536 $4,543,030 $5,094,713 $6,615,129 $6,915,185 $5,689,417
Repurchase agreements, at value
(Note 2)........................... - - - 185,000 - - -
Cash................................ 35,729 59,313 53,362 734 1,624,762 25,736 936,897
Cash denominated in foreign
currencies......................... - - - - - - 1,553
Receivables:
Investment securities sold........ 201,309 75,937 103,396 91,321 177,956 36,503 -
Dividends and interest............ 33,452 50,756 31,055 3,762 9,721 2,190 8,222
Due from Adviser.................. 48,200 51,920 48,619 48,322 50,357 39,062 34,714
Foreign taxes recoverable......... - - - - - - 3,131
Unrealized appreciation on forward
exchange
currency contracts (Note 2)...... - - - - - - 3,341
Prepaid insurance expense........... 788 788 788 788 788 788 788
-----------------------------------------------------------------------------------------
TOTAL ASSETS.................... 3,406,461 2,444,250 4,780,250 5,424,640 8,478,713 7,019,464 6,678,063
-----------------------------------------------------------------------------------------

LIABILITIES:
PAYABLES:
Investment securities purchased... 200,500 75,000 111,226 6,395 623,744 246,683 4,836
Fund shares redeemed.............. - - - - - 4,149 -
Other payables and accrued
expenses......................... 30,600 29,887 35,070 35,985 40,957 34,243 38,967
-----------------------------------------------------------------------------------------
TOTAL LIABILITIES............... 231,100 104,887 146,296 42,380 664,701 285,075 43,803
-----------------------------------------------------------------------------------------

NET ASSETS.......................... $3,175,361 $2,339,363 $4,633,954 $5,382,260 $7,814,012 $6,734,389 $6,634,260
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------

SOURCE OF NET ASSETS:
Capital stock, at par............... $ 329 $ 230 $ 439 $ 545 $ 664 $ 664 $ 609
Additional paid-in capital.......... 3,280,700 2,306,836 4,403,430 5,444,996 6,943,506 6,634,175 6,182,517
Net unrealized appreciation on:
Investment securities............. 38,308 66,436 244,398 291,151 688,689 55,076 519,920
Foreign currency related
transactions..................... - - - - - - 3,494
Undistributed net investment income
(loss)............................. 905 526 1,340 108 381 (649) 602
Accumulated net realized gain
(loss)............................. (144,881) (34,665) (15,653) (354,540) 180,772 45,123 (72,882)
-----------------------------------------------------------------------------------------

Shares outstanding.................. 328,576 229,859 439,047 544,662 664,422 661,770 609,481
Net asset value per share........... $9.66 $10.18 $10.55 $9.88 $11.76 $10.18 $10.89
Cost of investments................. 3,048,675 2,139,100 4,298,632 4,803,562 5,926,440 6,860,109 5,169,497
Cost of repurchase agreements....... - - - 185,000 - - -
Cost of foreign currencies.......... - - - - - - 1,512
</TABLE>

See notes to financial statements.

137
<PAGE>
ALEXANDER HAMILTON VARIABLE INSURANCE TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE PERIOD FEBRUARY 8, 1996* THROUGH DECEMBER 31, 1996
- --------------------------------------------------------------------------------

EXPENSES: (NOTE 3)
Investment advisory fees.......... 16,024 13,908 29,724 32,538 42,552 40,790 50,056
Administration fees............... 17,566 17,513 17,632 17,714 17,752 17,710 17,710
Accounting fees and expenses...... 14,333 14,290 14,385 14,452 14,482 14,448 24,368
Audit fees........................ 7,957 7,957 7,957 7,957 7,957 7,957 7,957
Legal fees........................ 7,095 7,095 7,095 7,095 7,095 7,095 7,095
Custodian fees and expenses....... 3,654 3,653 9,558 6,728 12,123 7,558 7,323
Reports to shareholders........... 3,647 3,647 3,647 3,647 3,647 3,647 3,647
Cash management fees.............. 2,145 2,145 2,145 2,145 2,145 2,145 2,145
Trustees' fees.................... 2,059 2,059 2,059 2,059 2,059 2,059 2,059
Insurance expense................. 1,713 1,713 1,713 1,713 1,713 1,713 1,713
Other expenses.................... 2,721 1,924 2,898 3,452 4,078 3,946 5,800
-----------------------------------------------------------------------------------------
Total expenses...................... 78,914 75,904 98,813 99,500 115,603 109,068 129,873
Fees waivers and expense
reimbursements................... (56,213) (62,354) (61,623) (57,619) (58,867) (75,919) (59,739)
-----------------------------------------------------------------------------------------
Net expenses........................ 22,701 13,550 37,190 41,881 56,736 33,149 70,134
-----------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS)........ 174,825 154,290 121,095 44,403 115,746 (649) 23,990

NET REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities............. (144,881) (34,665) (15,653) (354,540) 383,458 202,815 (27,870)
Foreign currency related
transactions..................... - - - - - - 33,028
-----------------------------------------------------------------------------------------
Net realized gain (loss) on
investments.................... (144,881) (34,665) (15,653) (354,540) 383,458 202,815 5,158
-----------------------------------------------------------------------------------------
Net unrealized appreciation on:
Investment securities............. 38,308 66,436 244,398 291,151 688,689 55,076 519,920
Foreign currency related
transactions..................... - - - - - - 3,494
-----------------------------------------------------------------------------------------
Net unrealized appreciation on
investments.................... 38,308 66,436 244,398 291,151 688,689 55,076 523,414
-----------------------------------------------------------------------------------------

NET GAIN (LOSS) ON INVESTMENTS...... (106,573) 31,771 228,745 (63,389) 1,072,147 257,891 528,572
-----------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS... $68,252 $186,061 $349,840 ($18,986) $1,187,893 $257,242 $552,562
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
</TABLE>

* Commencement of operations.

See notes to financial statements.

138
<PAGE>
ALEXANDER HAMILTON VARIABLE INSURANCE TRUST
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FEBRUARY 8, 1996* THROUGH DECEMBER 31, 1996
- --------------------------------------------------------------------------------

DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............... (173,920) (153,764) (119,755) (44,295) (115,365) - (56,416)
Net realized gain from investment
transactions....................... - - - - (202,686) (157,692) (45,012)
-----------------------------------------------------------------------------------------
Total Distributions to
shareholders..................... (173,920) (153,764) (119,755) (44,295) (318,051) (157,692) (101,428)
-----------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from shares sold........... 3,108,990 2,170,394 4,388,096 5,542,511 6,934,982 7,090,949 6,287,701
Cost of shares issued upon
reinvestment of distributions...... 173,920 153,764 119,755 44,295 318,051 157,692 101,428
Payments for shares redeemed........ (1,881) (17,092) (103,982) (141,265) (308,863) (613,802) (206,003)
-----------------------------------------------------------------------------------------
Net increase in net assets from
share transactions................. 3,281,029 2,307,066 4,403,869 5,445,541 6,944,170 6,634,839 6,183,126
-----------------------------------------------------------------------------------------
Net increase in net assets.......... 3,175,361 2,339,363 4,633,954 5,382,260 7,814,012 6,734,389 6,634,260
NET ASSETS
Beginning of period............... - - - - - - -
-----------------------------------------------------------------------------------------
End of period (including
undistributed net investment
income (loss))................... $3,175,361 $2,339,363 $4,633,954 $5,382,260 $7,814,012 $6,734,389 $6,634,260
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
Undistributed Net Investment Income
(Loss)............................. $905 $526 $1,340 $108 $381 ($649) $602
-----------------------------------------------------------------------------------------
SHARE TRANSACTIONS
Shares sold....................... 310,759 216,429 437,742 554,436 662,842 705,476 619,314
Shares issued upon reinvestment... 18,004 15,104 11,351 4,483 27,045 15,490 9,314
Shares redeemed................... (187) (1,674) (10,046) (14,257) (25,465) (59,196) (19,147)
-----------------------------------------------------------------------------------------
Net increase........................ 328,576 229,859 439,047 544,662 664,422 661,770 609,481
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
</TABLE>

* Commencement of operations.

See notes to financial statements.

139
<PAGE>
ALEXANDER HAMILTON VARIABLE INSURANCE TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING
OF PERIOD.......................... $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
-----------------------------------------------------------------------------------------

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)...... 0.56 0.72 0.28 0.08 0.18 - 0.04
Net realized and unrealized gain
(loss)........................... (0.34) 0.18 0.55 (0.12) 2.08 0.42 1.02
-----------------------------------------------------------------------------------------
Total from investment
operations..................... 0.22 0.90 0.83 (0.04) 2.26 0.42 1.06
-----------------------------------------------------------------------------------------

DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment
income........................... (0.56) (0.72) (0.28) (0.08) (0.18) - (0.09)
Distributions from net realized
gains............................ - - - - (0.32) (0.24) (0.08)
-----------------------------------------------------------------------------------------
Total distributions............. (0.56) (0.72) (0.28) (0.08) (0.50) (0.24) (0.17)
-----------------------------------------------------------------------------------------
Net increase (decrease) in net asset
value.............................. (0.34) 0.18 0.55 (0.12) 1.76 0.18 0.89

Net asset value per share, end of
period............................. $9.66 $10.18 $10.55 $9.88 $11.76 $10.18 $10.89
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------

TOTAL RETURN (A) **................. 2.20% 8.96% 8.30% (0.38%) 22.59% 4.24% 10.59%

Net assets, end of period (000's
omitted)........................... $3,175 $2,339 $4,634 $5,382 $7,814 $6,734 $6,634
Ratio to average net assets of: ***
Expenses, net of fee waivers and
expense reimbursements........... 0.85% 0.73% 1.00% 0.90% 1.00% 0.65% 1.40%
Expenses, prior to fee waivers and
expense reimbursements........... 2.95% 4.09% 2.66% 2.14% 2.03% 2.14% 2.59%
Net investment income, net of fee
waivers and expense
reimbursements................... 6.54% 8.32% 3.26% 0.95% 2.04% (0.01%) 0.48%
Portfolio turnover rate **.......... 421% 165% 241% 131% 349% 79% 62%
Average commission rate paid per
share of securities purchased and
sold............................... - - $0.0549 $0.0594 $0.0383 $0.0470 $0.0323
</TABLE>

* Commencement of operations.

** Not annualized.

*** Annualized.

(a) Total returns do not reflect any seperate account charges under variable
annuity contracts.

See notes to financial statements.

140
<PAGE>
ALEXANDER HAMILTON VARIABLE INSURANCE TRUST
-------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BUSINESS:

The Alexander Hamilton Variable Insurance Trust (the "Trust") is an
open-end, management investment company established as a Massachusetts
business trust under a Declaration of Trust dated September 16, 1994. The
Trust consists of seven separate investment portfolios or funds (the
"Funds" or a "Fund"), each of which is, in effect, a separate mutual fund.
The Trust is intended to be a funding vehicle for variable annuity
contracts to be offered by a separate account of Alexander Hamilton Life
Insurance Company and affiliates.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:

(A) Net Asset Value - The net asset value per share of each Fund is
normally determined once daily as of the close of regular trading on the
New York Stock Exchange. The net asset value of each Fund is determined by
dividing the value of the Fund's securities and other assets, less all
liabilities by the number of shares of the Fund outstanding.

(B) Portfolio Valuation - The value of each Fund's securities and other
assets, except those of certain short-term debt securities held by the
Funds, is determined on the basis of their fair values. All short-term debt
securities having remaining maturities of sixty days or less held by the
Funds are valued by the amortized cost method, which is intended to
approximate fair value. Investments for which market quotations are not
readily available are valued at their fair value as determined in good
faith by, or under authority delegated by, the Trust's Board of Trustees.
Portfolio securities traded on more than one U.S. national securities
exchange or foreign securities exchange are valued at the last sale price
on each business day at the close of the exchange representing the
principal market for such securities. If no sale occurs, securities traded
on a U.S. exchange or NASDAQ are valued at the mean between the closing bid
and closing asked prices and securities traded on a foreign exchange will
be valued at the official bid price.

Debt securities with a remaining maturity of 61 days or more are valued on
the basis of dealer-supplied quotations or by a pricing service selected by
the sub-adviser and approved by the Board of Trustees of the Trust if those
prices are deemed by the sub-adviser to be representative of market values
at the close of business of the New York Stock Exchange.

Forward foreign currency exchange contracts are valued based upon
quotations supplied by dealers in such contracts.

(C) Tax Status - It is the policy of each Fund to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code, and to
make distributions of taxable income and net realized capital gains
sufficient to relieve

141
<PAGE>
it from all, or substantially all, Federal income and excise taxes. For
Federal income tax purposes, each Fund is treated as a separate single
entity for the purposes of determining such qualification. For Federal
income tax purposes, the Funds indicated below have capital loss
carryforwards as of December 31, 1996 which are available to offset future
capital gains, if any. The carryovers do not include net realized losses
from November 1, 1996 through December 31, 1996; if any, which are treated
for Federal income tax purposes as arising in fiscal 1997. Accordingly, no
capital gains distribution is expected to be paid to shareholders until net
gains have been realized in excess of such amounts.

<TABLE>
<CAPTION>
CAPITAL LOSS
CARRYFORWARD EXPIRATION
-------------- -------------
<S> <C> <C>
Investment Grade Bond $ 142,000 2004
High Yield Bond 32,000 2004
Balanced 1,900 2004
Growth & Income 136,000 2004
</TABLE>

As a result of varying treatment for financial reporting and Federal income
tax purposes, the International Equity Fund reclassed $33,028 of net
realized gains from foreign currency related transactions from accumulated
net realized gains to undistributed net investment income.

(D) Security Transactions and Investment Income - Security transactions are
recorded on a trade date basis. Net realized gains and losses from security
transactions are recorded on the basis of identified cost. Interest income,
adjusted for amortization of premiums and, when appropriate, discounts on
investments, is recorded on the accrual basis and dividend income is
recorded on the ex-dividend date.

(E) Repurchase Agreements - The Funds' custodian or designated sub-
custodians, as the case may be under tri-party repurchase agreements, takes
possession of the collateral pledged for investments in repurchase
agreements. The underlying collateral is valued daily on a mark-to-market
basis to ensure that the value, including accrued interest, is at least
equal to the repurchase price. In the event of default of the obligation to
repurchase, the Funds have the right to liquidate the collateral and apply
the proceeds in satisfaction of the obligation. Under certain
circumstances, in the event of default or bankruptcy by the other party to
the agreement, realization and/or retention of the collateral may be
subject to legal proceedings.

(F) Foreign investments involve special risks not typically associated with
investing in securities of U.S. issuers. The risks include revaluation of
currencies and future adverse political and economic developments.
Moreover, securities of many foreign issuers and their markets may be less
liquid and their prices more volatile than those of securities of
comparable U.S. issuers. Funds investing in foreign securities or
currencies may be required to pay withholding or other taxes to foreign
governments.

142
<PAGE>
(G) Foreign Currency Translations - The books and records of the
International Equity Fund are maintained in U.S. dollars. Foreign currency
transactions are translated into U.S. dollars on the following basis:

(i) market value of investment securities, other assets and
liabilities -- at the daily rates of exchange, and

(ii) purchases and sales of investment securities, dividends and
interest income and expenses -- at the rates of exchange
prevailing on the respective dates of such transactions.

Net realized gain (loss) on foreign currency related transactions includes
realized foreign currency gains and losses between trade and settlement
dates on securities transactions, gains and losses arising from sale of
foreign currency, realized foreign currency gains and losses from the sale
of investment securities and foreign currency gains and losses between the
ex-date and payment date on dividends and interest. Gains and losses from
translating foreign currency denominated assets and liabilities at year-end
exchange rates are included in net unrealized appreciation (depreciation)
on foreign currency related transactions.

(H) Forward Exchange Currency Contracts - The Funds may enter into forward
exchange currency contracts in order to hedge their exposure to changes in
foreign currency exchange rates on foreign portfolio holdings and to hedge
certain firm purchase and sale commitments denominated in foreign
currencies. A forward exchange currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated
forward rate. The gain or loss arising from the difference between the
original contract and the closing of such contract is included in net
realized gain or loss from foreign currency transactions.

Fluctuations in the value of forward exchange currency contracts are
recorded for financial reporting purposes as net unrealized appreciation
(depreciation) on foreign currency related transactions by the Fund.

The Funds' custodian will place and maintain cash not available for
investment or securities in a separate account of the Fund having a value
equal to the aggregate amount of the Fund's commitments under forward
exhange currency contracts entered into with respect to position hedges.

Risks may arise from the potential inability of the counterparty to meet
the terms of a contract and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar. The face or foreign currency
amount, in U.S. dollars, as reflected in the following table, reflects the
total exposure the Fund has in that particular currency contract.

143
<PAGE>
At December 31, 1996, the International Equity Fund had outstanding forward
exchange currency contracts to sell foreign currencies against the U.S.
dollar, as follows:

<TABLE>
<CAPTION>
FOREIGN PROCEEDS ON U.S. $
FOREIGN CURRENCY CURRENCY ORIGINATION CURRENCY UNREALIZED
SELL CONTRACTS AMOUNT DATE VALUE APPRECIATION
- ------------------------ ----------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Japanese Yen, expiring
3/04/97 22,600,000 $200,000 $196,659 $3,341
</TABLE>

(I) Dollar Roll Transactions - The Funds may enter into mortgage dollar
roll transactions, with selected banks and broker-dealers pursuant to which
a Fund sells mortgage-backed securities for delivery in the current month
and simultaneously contracts to repurchase substantially similar securities
on a specified future date. In the event that the party with whom the Fund
contracts to replace substantially similar securities on a future date
fails to deliver such securities, the Fund may not be able to obtain such
securities at the price specified in the contract and thus may not benefit
from the price differential between the current sales price and the
repurchase price.

(J) Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

(K) Expenses - Expenses directly attributable to a Fund are charged to that
Fund's operations; expenses which are applicable to all Funds are allocated
among them.

NOTE 3 - FEES AND RELATED PARTY TRANSACTIONS:

(A) Alexander Hamilton Capital Management, Inc. (the "Adviser"), is the
investment adviser of the Funds. The adviser is a wholly-owned subsidiary
of the Alexander Hamilton Life Insurance Company of America ("Alexander
Hamilton Life"), a Michigan stock life insurance company. Alexander
Hamilton Life is wholly-owned by Jefferson-Pilot Corporation.

144
<PAGE>
For its services to the Trust, the Adviser receives a management fee,
payable monthly, based on the average daily net assets of the Fund at the
following annual rates:

<TABLE>
<CAPTION>
ADVISORY
FUND FEE
- --------------------------------------------------------- -----------
<S> <C>
Investment Grade Bond 0.60%
High Yield Bond 0.75%
Balanced 0.80%
Growth & Income 0.70%
Growth 0.75%
Emerging Growth 0.80%
International Equity 1.00%
</TABLE>

The Adviser has voluntarily agreed to waive fees and reimburse operating
expenses of the Trust or of any Fund to the extent the expenses exceed a
predetermined percentage of a Fund's average daily net assets. For the
period ending December 31, 1996, the Adviser voluntarily waived fees and
reimbursed Fund expenses in the following amounts pursuant to these
voluntary limitations:

<TABLE>
<CAPTION>
FEE WAIVER AND EXPENSE
EXPENSE CAP REIMBURSEMENT
--------------- ---------------------------

<S> <C> <C>
Investment Grade Bond 0.85% $ 56,213
High Yield Bond 0.95 62,354
Balanced 1.00 61,623
Growth & Income 0.90 57,619
Growth 1.00 58,867
Emerging Growth 1.05 75,919
International Equity 1.40 59,739
</TABLE>

(B) Sub-Advisers:

J.P. Morgan Investment Management, Inc. ("Morgan") is the sub-adviser to
the Investment Grade Bond Fund and the Balanced Fund.

Massachusetts Financial Services Company ("MFS") is the sub-adviser to the
High Yield Bond Fund and the Emerging Growth Fund.

Warburg, Pincus Counsellors, Inc. ("Counsellors"), serves as the
sub-adviser to the Growth & Income Fund.

Strong Capital Management, Inc. ("Strong"), is the sub-adviser to the
Growth Fund.

145
<PAGE>
As compensation for its services, the sub-advisers receive a monthly fee
from the Adviser based on the average daily net assets of each Fund at the
following annual rates:

<TABLE>
<CAPTION>
SUB-ADVISER SUB-ADVISORY FEE
- -------------------------------------------------- -----------------------
<S> <C>
J.P. Morgan (Investment Grade Bond Fund) 0.30%
J.P. Morgan (Balanced Fund)* 0.45%
MFS (High YIeld Bond Fund) 0.40%
MFS (Emerging GrowthFund) 0.40%
Warburg, Pincus Counsellors (Growth & Income Fund) 0.50%
Strong (Growth Fund)* 0.60%
Lombard Odier (International Equity Fund) 0.50%
</TABLE>

* At certain specified net asset levels, the sub-advisory fee paid by the
adviser for the Balanced Fund and the Growth Fund will decrease.

NOTE 4 - SECURITIES TRANSACTIONS:

For the period ended December 31, 1996, the cost of purchases and the
proceeds from sales of portfolio securities (excluding short-term
investments) were as follows:

<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------

<S> <C> <C>
Investment Grade Bond $15,362,690 $12,170,523
High Yield Bond 5,350,021 3,195,738
Balanced 13,953,654 9,639,689
Growth & Income 11,180,168 6,022,067
Growth 25,083,652 19,540,948
Emerging Growth 10,317,063 4,259,352
International Equity 8,450,722 3,253,354
</TABLE>

At December 31, 1996, the cost of each Fund's securities for federal income
tax purposes was substantially the same as for financial reporting
purposes.

The unrealized appreciation (depreciation) of the Funds' investments as of
December 31, 1996 were as follows:

<TABLE>
<CAPTION>
GROSS UNREALIZED GROSS UNREALIZED NET UNREALIZED
FUND APPRECIATION DEPRECIATION APPRECIATION
- --------------------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
Investment Grade Bond $ 43,913 $ (5,605) $ 38,308
High Yield Bond 101,907 (35,471) 66,436
Balanced 297,356 (52,958) 244,398
Growth & Income 518,748 (227,597) 291,151
Growth 768,974 (80,285) 688,689
Emerging Growth 529,959 (474,883) 55,076
International Equity 777,102 (257,182) 519,920
</TABLE>

146
<PAGE>
NOTE 5 - INDUSTRY CONCENTRATIONS:

At December 31, 1996, the International Equity Fund had the following
concentrations by industry (as a percentage of total investments):

<TABLE>
<CAPTION>
% OF TOTAL
U.S. VALUE INVESTMENTS
----------- -------------

<S> <C> <C>
Banking $988,455 17.4%
Retailing 629,778 11.1%
Pharmaceuticals 479,447 8.4%
Oil & Gas 334,132 5.9%
Electronics 321,789 5.7%
Commercial Services 260,829 4.6%
Financial Services 248,625 4.4%
Automotive & Trucking 240,737 4.2%
Publishing 223,392 3.9%
Telecommunications 211,247 3.7%
Real Estate Development 201,069 3.5%
Engineering 184,750 3.3%
Chemicals 149,308 2.6%
Cosmetics & Toiletries 136,851 2.4%
Machinery & Equipment 125,873 2.2%
Metals & Mining 118,855 2.1%
Entertainment & Leisure 117,943 2.1%
Diversified Holding Companies 105,235 1.8%
Computers 87,619 1.5%
Manufacturing 87,127 1.5%
Electrical Equipment 71,931 1.3%
Distribution & Wholesale 69,785 1.2%
Tire & Rubber 55,139 1.0%
Miscellaneous 52,840 0.9%
Transportation 51,693 0.9%
Toys 49,996 0.9%
Construction Equipment 47,408 0.8%
Insurance 37,564 0.7%
----------- -------------
$5,689,417 100.0%
----------- -------------
----------- -------------
</TABLE>

147
<PAGE>
ALEXANDER HAMILTON VARIABLE INSURANCE TRUST
-------------------------------------------------------------------------
REPORT OF ERNST & YOUNG, LLP INDEPENDENT AUDITORS
-------------------------------------------------------------------------

The Board of Trustees and Shareholders
Alexander Hamilton Variable Insurance Trust

We have audited the accompanying statement of assets and liabilities, including
the portfolios of investments, of Alexander Hamilton Variable Insurance Trust
(comprising, respectively, the Investment Grade Bond, High Yield Bond, Balanced,
Growth and Income, Growth, Emerging Growth and International Equity Funds) (the
"Trust") as of December 31, 1996, and the related statements of operations,
changes in net assets, and financial highlights for the period from February 8,
1996 (commencement of operations) to December 31, 1996. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
financial highlights. Our procedures included confirmation of investments owned
as of December 31, 1996, by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Funds constituting the Alexander Hamilton Variable Insurance
Trust at December 31, 1996, the results of their operations, the changes in
their net assets, and their financial highlights for the period from February 8,
1996 to December 31, 1996, in conformity with generally accepted accounting
principles.

/s/ Ernst & Young LLP

New York, New York
January 24, 1997

148
<PAGE>

PART C

OTHER INFORMATION

Item 24. FINANCIAL STATEMENTS AND EXHIBITS.

(a) Financial Statements:
The audited financial statements of the Trust are found in Part B.

(b) Exhibits:

1. Declaration of Trust.*/

2. By-Laws of the Company.**/

3. None.

4. None.

5. (a) Investment Advisory Agreement Between Alexander Hamilton Capital
Management, Inc. and the Alexander Hamilton Variable Insurance
Trust.*/

(b) Form of Investment Advisory Agreements (sub-advisory agreements)
between the Trust and each of the following: J.P. Morgan
Investment Management, Inc.; MFS Asset Management; Credit Suisse
Investment Management Limited; Warburg, Pincus Counsellors, Inc.;
Strong Capital Management, Inc.; and Lombard Odier.**/

6. (a) Form of Participation Agreement between the Alexander Hamilton
Variable Insurance Trust, Alexander Hamilton Capital Management,
Inc. and Alexander Hamilton Life Insurance Company of America.
**/

(b) Form of Participation Agreement between the Alexander Hamilton
Variable Insurance Trust, Alexander Hamilton Capital
Management, Inc. and Jefferson-Pilot Life Insurance Company.

7. None.

8. Form of Custody Agreement between the Alexander Hamilton Variable
Insurance Trust and Bank of New York.**/

9. (a) Form of Fund Accounting Agreement between the Alexander Hamilton
Variable Insurance Trust and Bank of New York.**/

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

*/ Incorporated herein by reference to registrant's initial registration
statement filed with the Securities and Exchange Commission on July 19, 1994
(File No. 33-81658).

**/ Incorporated herein by reference to registrant's registration statement
filed with the Securities and Exchange Commission on September 29, 1995 (File
No. 33-81658).

***/ Incorporated herein by reference to Pre-Effective Amendment No. 2 to the
registrant's registration statement filed with the Securities and Exchange
Commission on April 30, 1996 (File No. 33-81608).

C-1
<PAGE>

(b) Form of Administration Agreement between the Alexander Hamilton
Variable Insurance Trust and Bank of New York.**/

10. Opinion and Consent of Greg Poole.***/

11. (a) Consent of Sutherland, Asbill & Brennan L.L.P.
(b) Consent of Ernst & Young, LLP

12. None.

13. None.

14. None.

15. None.

16. None

17. None.

18. None.

19. Copies of Powers of Attorney.***/

27. Financial Data Schedule.

Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

The Trust currently intends to sell its shares to the Alexander Hamilton
Variable Annuity Separate Account sponsored by the Alexander Hamilton Life
Insurance Company of America (AHLIC) and to the Jefferson-Pilot Separate
Account A sponsored by Jefferson-Pilot Life Insurance Company (JPLIC).
Alexander Hamilton Life Insurance Company of America and Jefferson-Pilot Life
Insurance Company are wholly-owned subsidiaries of Jefferson-Pilot
Corporation.

Separate financial statements are filed, for the Registrant and AHLIC.

The following is a list of corporations controlled by Jefferson-Pilot
Corporation:

C-2
<PAGE>

% Voting
Organized Stock
Under Owned By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- --------
Jefferson-Pilot Life Insurance Company North Carolina 100%
JP Investment Management Company North Carolina 100%
Jefferson-Pilot Investor Services, Inc. North Carolina 100%
Jefferson-Pilot Communication Company North Carolina 100%
Alexander Hamilton Life Insurance Company of America Michigan 100%
Alexander Hamilton Capital Management, Inc. Michigan 100%
AH (Michigan) Life Insurance Company Michigan 100%
First Alexander Hamilton Life Insurance Company New York 100%
Chubb Life Insurance Company of America New Hampshire 100%
Chubb Colonial Life Insurance Company New Jersey 100%
Chubb Sovereign Life Insurance Company New Hampshire 100%
Chubb Securities Corporation New Hampshire 100%

Omitted from the list are subsidiaries of Jefferson-Pilot Corporation and
the other companies listed which, considered in aggregate as a single
subsidiary, would not constitute a significant subsidiary. Since none of the
companies listed is a subsidiary of the Registrant, only the financial
statements of the Registrant are filed.

Item 26. NUMBER OF HOLDERS OF SECURITIES.

Number of Record Holders
Title of Class As of April 1, 1997
-------------- ------------------------

Investment Grade Bond Fund 2
High Yield Bond Fund 2
Balanced Fund 2
Growth & Income Fund 2
Growth Fund 3
Emerging Growth Fund 3
International Equity Fund 2

Item 27. INDEMNIFICATION.

Article IX of the Alexander Hamilton Variable Insurance Trust's By-Laws
provide for the indemnification of the Trust's Trustees and officers and states
in relevant part as follows: "Every person who is or has been a Trustee or
officer of the Trust and persons who serve at the Trust's request as director,
officer, trustee, partner or fiduciary of another corporation, partnership,
joint venture, trust or other enterprise shall be indemnified by the Trust (or
the appropriate Series, where such Trustee or officer is acting on behalf of or
with respect to single Series) to the fullest extent permitted by law against
liability and all expenses, including amounts incurred in satisfaction of
judgments, settlements, compromises, fines, penalties, and counsel fees
reasonably incurred or paid by him in connection with any debt, claim, action,
demand, suit or

C-3
<PAGE>

proceeding of any kind, whether civil or criminal, in which he becomes involved
as a party or otherwise by virtue of his being or having been a Trustee or
officer of the Trust or his serving or having served as a director, officer,
trustee, partner or fiduciary of another corporation, partnership, joint
venture, trust or other enterprise at the request of the Trust; provided that
the Trust shall indemnify any such person seeking indemnification in connection
with a proceeding initiated by such person only if such proceeding was
authorized by the Board of Trustees."

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 ("Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act, and Registrant will be governed by the final
adjudication of such issue.

Item 28. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.

OFFICERS since February 23, 1996

Positions with Other Business, Profession,
Alexander Hamilton Vocation or Employment
Name Captial Management During Past Two Years*
- ---- ------------------ ---------------------------

H. Lusby Brown 2nd VP and Asst. Second Vice President-
Treasurer Securities, JPLIC

Leah S. Ogden 2nd VP Second Vice President-
Securities JPLIC

J. Gregory Poole Secretary Associate Counsel and
Assistant Secretary, JPLIC
Assistant Secretary,
Jefferson-Pilot
Corporation, AHLIC, AH
(Michigan) Life Insurance
Company, First Alexander
Hamilton Life Insurance
Company; Secretary,
Jefferson-Pilot Investor
Services, Inc.

Robert A. Reed Asst. Secretary Vice President, Secretary
and Associate General
Counsel, Jefferson-Pilot
Corporation and JPLIC,
Vice President and
Secretary, AHLIC, AH
(Michigan) Life Insurance
Company, and First
Alexander Hamilton Life
Insurance Company;
Assistant Secretary,
Jefferson-Pilot Investor
Services, Inc.

DIRECTORS since February 23, 1996

Positions with Other Business, Profession,
Alexander Hamilton Vocation or Employment
Name Captial Management During Past Two Years*
- ---- ------------------ ---------------------------

Donna Drew Director Second Vice President-
Annuity Network AHLIC, 32991
Hamilton Court, Farmington
Hills, Michigan 48334

John C. Ingram Director, Senior VP Senior Vice President-
Treasurer Securities JPLIC, AHLIC,
and AH (Michigan) Life
Insurance Company

E. Jay Yelton Director, President, Director and Executive Vice
Chief Executive Officer President-Investments, JPLIC,
Director and Executive Vice
President, AHLIC; Director,
First Alexander Hamilton
Life Insurance Company;
Director, Jefferson-Pilot
Investor Services, Inc,
Senior Vice President-
Investments, Jefferson-Pilot
Corporation; Director and
Executive Vice President-
Investments, AH (Michigan)
Life Insurance Company

* The principal business address for each company listed is, unless
otherwise indicated, 100 N. Greene St., Greensboro, N.C. 27401.

C-4
<PAGE>

Item 29. PRINCIPAL UNDERWRITER.

Inapplicable.

Item 30. LOCATION OF ACCOUNTS AND RECORDS.

All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules thereunder
Trust will be maintained at the following offices of the Trust, or Bank of New
York.

Alexander Hamilton Variable Insurance Trust
32991 Hamilton Boulevard
Farmington Hills, MI 48334

The Bank of New York
90 Washington Street
New York, NY 10286

Item 31. MANAGEMENT SERVICES.

Inapplicable.

Item 32. UNDERTAKINGS.

(a) Inapplicable.

(b) Inapplicable.

(c) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.

C-5
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this registration statement pursuant to
paragraph (b) of rule 485 under the Securities Act of 1933, and
has duly caused this Post-effective Amendment No. 2 to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Greensboro and State of North Carolina, on the
30th day of April, 1997.

ALEXANDER HAMILTON VARIABLE INSURANCE TRUST

By /s/ E. J. Yelton
------------------------------
President

Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities and
on the dates indicated.

Signatures Title Date
- ---------- ----- ----

/s/ E. J. Yelton President and Trustee April 30, 1997
- --------------------------
E. J. Yelton

/s/ Dennis R. Glass Trustee April 30, 1997
- --------------------------
Dennis R. Glass

/s/ Mark E. Konen Trustee April 30, 1997
- --------------------------
Mark E. Konen

/s/ H. Lusby Brown Treasurer April 30, 1997
- ---------------------------
H. Lusby Brown

/s/ Timothy Brooks Burnett* Trustee April 30, 1997
- --------------------------
Timothy Brooks Burnett*

C-6
<PAGE>

Signatures Title Date
- ---------- ----- ----

/s/ Terrence E. Geremski* Trustee April 30, 1997
- --------------------------
Terrence E. Geremski*

/s/ Ralph K. Shelton* Trustee April 30, 1997
- --------------------------
Ralph K. Shelton*

By: /s/ J. Gregory Poole April 30, 1997
-----------------------------------

*Executed by J. Gregory Poole on behalf of those indicated pursuant to Power of
Attorney.

C-7
<PAGE>

EXHIBIT INDEX

11 (a) Opinion and Consent of Sutherland, Asbill & Brennan.

(b) Consent of Ernst & Young, LLP

27 Financial Data Schedule

<PAGE>

Exhibit 11(a)

SUTHERLAND, ASBILL & BRENNAN, L.L.P.
[LETTERHEAD]

April 28, 1997

Alexander Hamilton Variable Insurance Trust
32991 Hamilton Court
Farmington Hills, MI 48334

Gentlemen:

We hereby consent to the reference to our name under the caption
"Legal Counsel" in the Statement of Additional Information filed as part of
Post-Effective Amendment No. 2 to the Form N-1A Registration Statement. In
giving this consent, we do not admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933.

Very truly yours,

SUTHERLAND, ASBILL & BRENNAN, L.L.P.

By: /s/ Frederick R. Bellamy
----------------------------------------
Frederick R. Bellamy

<PAGE>

Exhibit 11(b)

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Financial Highlights"
in the Prospectus and "Financial Statements" in the Statement of Additional
Information and to the use of our report dated January 24, 1997 in this
Registration Statement (Form N-1A No. 33-81658) of Alexander Hamilton Variable
Insurance Trust.

ERNST & YOUNG LLP
/s/ Ernst & Young LLP

New York, New York
April 28, 1997

<PAGE>
<ARTICLE> 6
<CIK> 0000927123
<NAME> ALEXANDER HAMILTON VARIABLE INSURANCE TRUST
<SERIES>
<NUMBER> 1
<NAME> INVESTMENT GRADE BOND FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> FEB-08-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 3,048,675
<INVESTMENTS-AT-VALUE> 3,086,983
<RECEIVABLES> 282,961
<ASSETS-OTHER> 36,517
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,406,461
<PAYABLE-FOR-SECURITIES> 200,500
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 30,600
<TOTAL-LIABILITIES> 231,100
<SENIOR-EQUITY> 329
<PAID-IN-CAPITAL-COMMON> 3,280,700
<SHARES-COMMON-STOCK> 328,576
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 905
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (144,881)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 38,308
<NET-ASSETS> 3,175,361
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 197,526
<OTHER-INCOME> 0
<EXPENSES-NET> 22,701
<NET-INVESTMENT-INCOME> 174,825
<REALIZED-GAINS-CURRENT> (144,881)
<APPREC-INCREASE-CURRENT> 38,308
<NET-CHANGE-FROM-OPS> 68,252
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (173,920)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 310,759
<NUMBER-OF-SHARES-REDEEMED> (187)
<SHARES-REINVESTED> 18,004
<NET-CHANGE-IN-ASSETS> 3,175,361
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 16,024
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 78,914
<AVERAGE-NET-ASSETS> 2,980,817
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.56
<PER-SHARE-GAIN-APPREC> (0.34)
<PER-SHARE-DIVIDEND> (0.56)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.66
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000927123
<NAME> ALEXANDER HAMILTON VARIABLE INSURANCE TRUST
<SERIES>
<NUMBER> 2
<NAME> HIGH YIELD BOND FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> FEB-08-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 2,139,100
<INVESTMENTS-AT-VALUE> 2,205,536
<RECEIVABLES> 178,613
<ASSETS-OTHER> 60,101
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,444,250
<PAYABLE-FOR-SECURITIES> 75,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 29,887
<TOTAL-LIABILITIES> 104,887
<SENIOR-EQUITY> 230
<PAID-IN-CAPITAL-COMMON> 2,306,836
<SHARES-COMMON-STOCK> 229,859
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 526
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (34,665)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 66,436
<NET-ASSETS> 2,339,363
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 167,840
<OTHER-INCOME> 0
<EXPENSES-NET> 13,550
<NET-INVESTMENT-INCOME> 154,290
<REALIZED-GAINS-CURRENT> (34,665)
<APPREC-INCREASE-CURRENT> 66,436
<NET-CHANGE-FROM-OPS> 186,061
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (153,764)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 216,429
<NUMBER-OF-SHARES-REDEEMED> (1,674)
<SHARES-REINVESTED> 15,104
<NET-CHANGE-IN-ASSETS> 2,339,363
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13,908
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 75,904
<AVERAGE-NET-ASSETS> 2,070,285
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.72
<PER-SHARE-GAIN-APPREC> 0.18
<PER-SHARE-DIVIDEND> (0.72)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.18
<EXPENSE-RATIO> 0.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000927123
<NAME> ALEXANDER HAMILTON VARIABLE INSURANCE TRUST
<SERIES>
<NUMBER> 3
<NAME> BALANCED FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> FEB-08-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 4,298,632
<INVESTMENTS-AT-VALUE> 4,543,030
<RECEIVABLES> 183,070
<ASSETS-OTHER> 54,150
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,780,250
<PAYABLE-FOR-SECURITIES> 111,226
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 35,070
<TOTAL-LIABILITIES> 146,296
<SENIOR-EQUITY> 439
<PAID-IN-CAPITAL-COMMON> 4,403,430
<SHARES-COMMON-STOCK> 439,047
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,340
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (15,653)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 244,398
<NET-ASSETS> 4,633,954
<DIVIDEND-INCOME> 39,467
<INTEREST-INCOME> 118,818
<OTHER-INCOME> 0
<EXPENSES-NET> 37,190
<NET-INVESTMENT-INCOME> 121,095
<REALIZED-GAINS-CURRENT> (15,653)
<APPREC-INCREASE-CURRENT> 244,398
<NET-CHANGE-FROM-OPS> 349,840
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (119,755)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 437,742
<NUMBER-OF-SHARES-REDEEMED> (10,046)
<SHARES-REINVESTED> 11,351
<NET-CHANGE-IN-ASSETS> 4,633,954
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 29,724
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 98,813
<AVERAGE-NET-ASSETS> 4,148,131
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.28
<PER-SHARE-GAIN-APPREC> 0.55
<PER-SHARE-DIVIDEND> (0.28)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.55
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000927123
<NAME> ALEXANDER HAMILTON VARIABLE INSURANCE TRUST
<SERIES>
<NUMBER> 4
<NAME> GROWTH & INCOME FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> FEB-08-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 4,988,562
<INVESTMENTS-AT-VALUE> 5,279,713
<RECEIVABLES> 143,405
<ASSETS-OTHER> 1,522
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,424,640
<PAYABLE-FOR-SECURITIES> 6,395
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 35,985
<TOTAL-LIABILITIES> 42,380
<SENIOR-EQUITY> 545
<PAID-IN-CAPITAL-COMMON> 5,444,996
<SHARES-COMMON-STOCK> 544,662
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 108
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (354,540)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 291,151
<NET-ASSETS> 5,382,260
<DIVIDEND-INCOME> 54,439
<INTEREST-INCOME> 31,845
<OTHER-INCOME> 0
<EXPENSES-NET> 41,881
<NET-INVESTMENT-INCOME> 44,403
<REALIZED-GAINS-CURRENT> (354,540)
<APPREC-INCREASE-CURRENT> 291,151
<NET-CHANGE-FROM-OPS> (18,986)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (44,295)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 554,436
<NUMBER-OF-SHARES-REDEEMED> (14,257)
<SHARES-REINVESTED> 4,483
<NET-CHANGE-IN-ASSETS> 5,382,260
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 32,538
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 99,500
<AVERAGE-NET-ASSETS> 5,188,479
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> (0.12)
<PER-SHARE-DIVIDEND> (0.08)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.88
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000927123
<NAME> ALEXANDER HAMILTON VARIABLE INSURANCE TRUST
<SERIES>
<NUMBER> 5
<NAME> GROWTH FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> FEB-08-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 5,926,440
<INVESTMENTS-AT-VALUE> 6,615,129
<RECEIVABLES> 238,034
<ASSETS-OTHER> 1,625,550
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,478,713
<PAYABLE-FOR-SECURITIES> 623,744
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 40,957
<TOTAL-LIABILITIES> 664,701
<SENIOR-EQUITY> 664
<PAID-IN-CAPITAL-COMMON> 6,943,506
<SHARES-COMMON-STOCK> 664,422
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 381
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 180,772
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 688,689
<NET-ASSETS> 7,814,012
<DIVIDEND-INCOME> 134,800
<INTEREST-INCOME> 37,682
<OTHER-INCOME> 0
<EXPENSES-NET> 56,736
<NET-INVESTMENT-INCOME> 115,746
<REALIZED-GAINS-CURRENT> 383,458
<APPREC-INCREASE-CURRENT> 688,689
<NET-CHANGE-FROM-OPS> 1,187,893
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (115,365)
<DISTRIBUTIONS-OF-GAINS> (202,686)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 662,842
<NUMBER-OF-SHARES-REDEEMED> (25,465)
<SHARES-REINVESTED> 27,045
<NET-CHANGE-IN-ASSETS> 7,814,012
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 42,552
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 115,603
<AVERAGE-NET-ASSETS> 6,340,589
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> 2.08
<PER-SHARE-DIVIDEND> (0.18)
<PER-SHARE-DISTRIBUTIONS> (0.32)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.76
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000927123
<NAME> ALEXANDER HAMILTON VARIABLE INSURANCE TRUST
<SERIES>
<NUMBER> 6
<NAME> EMERGING GROWTH FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> FEB-08-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 6,860,109
<INVESTMENTS-AT-VALUE> 6,915,185
<RECEIVABLES> 77,755
<ASSETS-OTHER> 26,524
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,019,464
<PAYABLE-FOR-SECURITIES> 246,683
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 38,392
<TOTAL-LIABILITIES> 285,075
<SENIOR-EQUITY> 664
<PAID-IN-CAPITAL-COMMON> 6,634,175
<SHARES-COMMON-STOCK> 661,770
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (649)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 45,123
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 55,076
<NET-ASSETS> 6,734,389
<DIVIDEND-INCOME> 8,255
<INTEREST-INCOME> 24,245
<OTHER-INCOME> 0
<EXPENSES-NET> 33,149
<NET-INVESTMENT-INCOME> (649)
<REALIZED-GAINS-CURRENT> 202,815
<APPREC-INCREASE-CURRENT> 55,076
<NET-CHANGE-FROM-OPS> 257,242
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (157,692)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 705,476
<NUMBER-OF-SHARES-REDEEMED> (59,196)
<SHARES-REINVESTED> 15,490
<NET-CHANGE-IN-ASSETS> 6,734,389
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 40,790
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 109,068
<AVERAGE-NET-ASSETS> 5,676,086
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0.42
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.24)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.18
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000927123
<NAME> ALEXANDER HAMILTON VARIABLE INSURANCE TRUST
<SERIES>
<NUMBER> 7
<NAME> INTERNATIONAL EQUITY FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> FEB-08-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 5,169,497
<INVESTMENTS-AT-VALUE> 5,689,417
<RECEIVABLES> 46,067
<ASSETS-OTHER> 942,579
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,678,063
<PAYABLE-FOR-SECURITIES> 4,836
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 38,967
<TOTAL-LIABILITIES> 43,803
<SENIOR-EQUITY> 609
<PAID-IN-CAPITAL-COMMON> 6,182,517
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<NET-CHANGE-FROM-OPS> 552,562
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (56,416)
<DISTRIBUTIONS-OF-GAINS> (45,012)
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<NUMBER-OF-SHARES-SOLD> 619,314
<NUMBER-OF-SHARES-REDEEMED> (19,147)
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<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.04
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<PER-SHARE-DIVIDEND> (0.09)
<PER-SHARE-DISTRIBUTIONS> (0.08)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.89
<EXPENSE-RATIO> 1.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>