OFFITBANK VARIABLE INSURANCE FUND INC, 497, 1997-11-05

OFFITBANK VARIABLE INSURANCE FUND INC
497, 1997-11-05

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Rule 497(c)
Registration No. 33-81748

PROSPECTUS

THE OFFITBANK VARIABLE INSURANCE FUND, INC. OCTOBER 29, 1997

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DJG VALUE EQUITY FUND

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DJG Value Equity Fund (the "Fund") is a diversified investment portfolio of the
OFFITBANK Variable Insurance Fund, Inc. (the "Company"), an open-end, management
investment company. The Fund's investment objectives are long-term appreciation
and preservation of capital. The Fund will seek to achieve its objectives by
researching and investing in equity securities priced at a discount to their
intrinsic values. Capital appreciation is achieved over time as the price-value
gap narrows, often as a result of a corporate change or the occurrence of a
major non-operating event or combination thereof.

David J. Greene and Company, a registered investment adviser, serves as the
Fund's investment adviser and manages the Fund's portfolio (the "Adviser"). The
Adviser specializes in equity management with a value style orientation and
currently manages in excess of $1.8 billion in assets for pension, profit
sharing, endowment and individual accounts. The address of the Company is 125
West 55th Street, New York, New York 10019. Yield and other information
regarding the Fund may be obtained by calling 1-800- 618-9510.

SHARES OF THE FUND ARE SOLD ONLY TO CERTAIN LIFE INSURANCE COMPANIES
(COLLECTIVELY, "PARTICIPATING COMPANIES") AND THEIR SEPARATE ACCOUNTS
(COLLECTIVELY, THE "ACCOUNTS") TO FUND BENEFITS UNDER VARIABLE ANNUITY CONTRACTS
("CONTRACTS") AND VARIABLE LIFE INSURANCE POLICIES ("POLICIES") TO BE OFFERED BY
THE PARTICIPATING COMPANIES. THE ACCOUNTS INVEST IN SHARES OF THE FUND IN
ACCORDANCE WITH ALLOCATION INSTRUCTIONS RECEIVED FROM CONTRACT AND POLICY OWNERS
("CONTRACT OWNERS" OR "POLICY OWNERS," AS APPROPRIATE). SUCH ALLOCATION RIGHTS
ARE FURTHER DESCRIBED IN THE ACCOMPANYING ACCOUNT PROSPECTUS. SHARES ARE
REDEEMED TO THE EXTENT NECESSARY TO PROVIDE BENEFITS UNDER THE CONTRACTS AND
POLICIES.

This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus in conjunction with the prospectus for the Contract or Policy which
accompanies this Prospectus and retain this Prospectus for future reference.
Additional information about the Fund, contained in a Statement of Additional
Information dated January 31, 1997, as amended or supplemented from time to
time, has been filed with the Securities and Exchange Commission (the
"Commission") and is available to investors without charge by calling
1-800-618-9510. The Statement of Additional Information is incorporated in its
entirety by reference into this Prospectus.

INVESTORS ARE ADVISED THAT (A) THE COMPANY IS NOT AUTHORIZED TO ENGAGE IN THE
BUSINESS OF BANKING AND (B) SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR ENDORSED OR GUARANTEED BY, OFFITBANK OR ANY AFFILIATE OF OFFITBANK, NOR
ARE THEY FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.

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

WHAT YOU NEED TO KNOW

Highlights..................................................................2
Financial Highlights........................................................3
The Company................................................................ 4
Investment Objectives and Policies......................................... 4
Investment Policies and Techniques......................................... 5
Limiting Investment Risks.................................................. 7
Management................................................................. 8
About Your Investment...................................................... 9
How the Company Values Its Shares.......................................... 9
How Distributions are Made: Tax Information................................10
Shareholder Communications ................................................10
Performance Information....................................................11
Counsel; Independent Accountants...........................................11

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HIGHLIGHTS

INTRODUCTION
DJG Value Equity Fund (the "Fund") is one of ten separate investment portfolios
of the OFFITBANK Variable Insurance Fund, Inc. (the "Company") an open-end,
management investment company. The Fund's investment objectives are long-term
appreciation and preservation of capital.

FUND MANAGEMENT
David J. Greene and Company, a registered investment adviser and broker-dealer,
serves as the Fund's Adviser.

SHARES OF THE FUND
Shares of the Fund are sold only to certain life insurance companies
(collectively, "Participating Companies") and their separate accounts
(collectively, the "Accounts") to fund benefits under variable annuity contracts
("Contracts") and variable life insurance policies ("Policies") to be offered by
the Participating Companies. The Accounts invest in shares of the Fund in
accordance with allocation instructions received from Contract and Policy owners
("Contract Owners" or "Policy Owners," as appropriate). Such allocation rights
are further described in the accompanying Account Prospectus. Shares are
redeemed to the extent necessary to provide benefits under the Contracts and
Policies.

Shares of the Fund are offered on a continuous basis directly by OFFIT Funds
Distributor, Inc., the Fund's Underwriter, to the Accounts without any sales or
other charge, at the Fund's net asset value on each day on which the New York
Stock Exchange ("NYSE") is open for business. The Company will effect orders to
purchase or redeem shares of the Fund, that are based on premium payments,
surrender and transfer requests and any other transaction requests from Contract
and Policy Owners, annuitants and beneficiaries, at the Fund's net asset value
per share next computed after the Account receives such transaction request.

An Account may redeem all or any portion of the shares of the Fund in its
account at any time at the net asset value per share of the Fund calculated in
the manner described above.

A Contract or Policy Owner investing through an Account may exchange shares of
the Fund for shares of any of the other investment portfolios of the Company on
the basis of their respective net asset value. See "About Your Investment."

RISK FACTORS
Investment in the Fund is subject to certain risks, as set forth in detail under
"Investment Policies and Techniques". The Fund invests at least 65% of its total
assets in equity securities. See "Investment Objectives and Policies" and
"Investment Policies and Techniques".

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FINANCIAL HIGHLIGHTS

The table below sets forth certain financial information with respect to the
financial highlights of the Fund for the period ended September 30, 1997. The
information below has been derived from unaudited financial statements and notes
in which are included in the Statement of Additional Information. The
information set forth below is for a share of the Fund outstanding for the
period indicated. Further information about the performance of the Company is
included in the Semi-Annual Report to Shareholders which may be obtained without
charge by calling 1-800-618-9510.

VIF- DJG VALUE EQUITY FUND

For the period from
April 11, 1997* through
September 30, 1997
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Net asset value, beginning of period $ 10.00
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Income from Investment Operations:
Net investment income 0.02
Net realized and unrealized gains
on investment transactions 3.24
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Total income from investment operations 3.26
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Less Dividends from:
Net investment income 0.00
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Net change in net asset value per share 3.26
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Net asset value, end of period $ 13.26
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Total return (a) 32.60%(b)
Ratios/Supplemental Data:
Net assets at end of year (in thousands) $ 1,412
Ratios to average net assets:
Expenses** 1.25%(c)
Net investment income 0.31%(c)
Portfolio turnover rate 24%
Average commission rate paid (d) $ 0.0580

* Commencement of operations
** During the period, certain fees were voluntarily reduced and/ or
reimbursed. If such voluntary fee reductions and/ or reimbursements had
not occurred, the ratios would have been 5.14% annualized for Fund.
(a) Total return is based on the change in net asset value during the period
and assumes reinvestment of all dividends and distributions
(b) Not annualized.
(c) Annualized.
(d) Represents the dollar amount of commissions paid on portfolio transactions
divided by the total number of portfolio shares purchased and sold for
which commissions were charged.

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THE COMPANY

The Company, a Maryland corporation formed on July 1, 1994, is designed to serve
as a funding vehicle for Contracts and Policies offered by the Accounts of
Participating Companies. Shares of the Fund are offered only to the Accounts
through OFFIT Funds Distributor, Inc. (the "Distributor"), the principal
underwriter for the Company. The Fund is a no-load, separate investment
portfolio of the Company, an open-end management investment company. The Company
is not authorized to engage in the business of banking.

Shares of the Company are offered to Accounts of Participating Companies that
may not be affiliated with each other. The Participating Companies and their
Accounts may be subject to insurance regulation that varies between states and
to state insurance and federal tax or other regulation that varies between
Contracts and Policies. The Company does not currently foresee any disadvantages
to Contract or Policy Owners arising from these circumstances. However, it is
theoretically possible that the interests of Contract or Policy Owners
participating in the Company through the Accounts might at some time be in
conflict. In some cases, one or more Accounts might withdraw their investment in
the Fund, which could possibly force the Company to sell portfolio securities at
disadvantageous prices. The Company's Directors intend to monitor events in
order to identify any material irreconcilable conflicts that may possibly arise
and to determine what action, if any, should be taken in response thereto.

INVESTMENT OBJECTIVES AND POLICIES

The Fund has investment objectives which it pursues through investment policies
as described below. The objectives and policies of the Fund can be expected to
affect the return of the Fund and the degree of market and financial risk to
which the Fund is subject. For more information about the investment strategies
employed by the Fund, see "Investment Policies and Techniques." The investment
objective and policies of the Fund may, unless otherwise specifically stated, be
changed by the Directors of the Company without a vote of the shareholders. As a
matter of fundamental policy, the Directors would not materially change the
investment objectives of the Fund without thirty days prior written notice to
shareholders. There is no assurance that the Fund will achieve its objectives.

Additional portfolios may be created from time to time with different investment
objectives and policies for use as funding vehicles for the Accounts or for
other insurance products. In addition, the Directors may, subject to any
necessary regulatory approvals, create more than one class of shares in the
Fund, with the classes being subject to different charges and expenses and
having such other different rights as the Directors may prescribe.

The investment objectives of the Fund are long-term appreciation and
preservation of capital, which the Fund seeks to achieve by investing in
undervalued securities and in special situations. Capital appreciation is
achieved over time as the price-value gap narrows, often as a result of a
corporate change or the occurrence of a major non-operating event - such as a
major management change, substantial share repurchase, spin-off, split-up,
restructuring, liquidation, acquisition or other catalyst. The Adviser attempts
to manage the Fund so as to provide consistent absolute returns as well as
outperform the S&P 500 over a market cycle by using a bottom up value-oriented
approach to equity investment that stresses the purchase of securities with cash
flow, reported earnings and asset value at a measured price.

The Adviser's investment philosophy is centered upon fundamental research with
particular emphasis on event-driven special situations. Valuations are based on
cash flow (defined as earnings plus non-cash charges, less required capital
spending and working capital) rather than reported earnings in order to focus on
underlying economics rather than accounting. Furthermore, the Adviser believes
that management's capabilities and motivations with respect to the enhancement
of shareholder value are particularly important in making investment decisions.
Generally, the sale of a security will be based upon factors such as (i) an
increase in the share price which adequately reflects the original investment
premise, (ii) any other significant increase in the market valuation of a stock
relative to its true

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economic value (a narrowing of the price value gap); (iii) availability of
alternative investments with greater ratios of reward to risk; and (iv)
perceived deterioration of the issuer's operations which may adversely affect
the underlying value of the security. Turnover will be influenced by sound
investment practices related to the Fund's objectives, and the need for funds in
the event of redemptions of the Funds shares.

Investments for the Fund will be made by the Adviser on a stock by stock basis
without regard to market timing. Cash reserves for the Fund will fluctuate based
upon individual investment decisions as well as purchases and new redemptions of
the Fund's shares.

The Fund will normally invest its assets, at least 65% of total assets, in a
diversified portfolio of equity securities, including common stocks, rights, and
warrants to subscribe for or purchase common stocks. The Fund may purchase
listed and unlisted common and preferred stocks, securities of companies in
bankruptcy, fixed income securities which are convertible into equity
securities, as well as write covered call options on such equity securities. In
addition, the Fund may invest in "risk arbitrage positions", which include
securities that may become exchangeable for cash or other securities as a result
of the issuer being an announced candidate for a merger, acquisition,
restructuring or similar transaction, or securities the issuer of which has been
the subject of a filing on Schedule 13D under the Securities Exchange Act of
1934. Dividends and interest are not prime considerations in the purchase of
securities but are considered in relation to the total expected return of the
investment. Because the Fund will invest primarily in equity securities, it will
be subject to general conditions prevailing in securities markets and the net
asset value of the Fund's shares will fluctuate with changes in the market
prices of its portfolio securities. Cash reserves may be invested in short-term
fixed income instruments including money market funds, certificates of deposit
and commercial paper.

INVESTMENT POLICIES AND TECHNIQUES

WARRANTS
The Fund may invest in warrants which entitle the holder to buy equity
securities at a specific price for a specific period of time. The Fund will not,
however, purchase any warrant if, as a result of such purchase, 5% or more of
the Fund's total assets would be invested in warrants. Included within that
amount, but not to exceed 2% of the value of the Fund's total assets, may be
warrants which are not listed on the New York or American Stock Exchange.
Warrants acquired by the Fund in units or attached to securities may be deemed
to be without value.

COVERED CALL OPTIONS
To assist in the management of its portfolio and to enhance the Fund's
performance, the Fund may engage in the writing (selling) of call option
contracts on securities at such times as the Adviser shall determine to be
appropriate. However, options shall be written solely as "covered" call options,
that is, options on securities that the Fund owns. The fund will write covered
call options on securities held in the portfolio at the exercise price which
would approximate the price at which the Adviser would desire to sell the
security. The Fund will not write covered call options on portfolio securities
having an aggregate value in excess of 20 percent of the Fund's net assets. A
call option gives the purchaser of the option the right to buy a security from a
writer at the exercise price at any time prior to the expiration of the
contract, regardless of the market price of the security during the option
period. The premium paid to the writer is the consideration for undertaking the
obligations under the option contract. The writer forgoes the opportunity to
profit from an increase in the market price of the underlying security above the
exercise price except insofar as the premium represents a profit.

The Fund will purchase options only to close out a call option position. In
order to close out a position, the Fund will make a "closing purchase
transaction" - the purchase of a call option on the same security with the same
exercise price and expiration date as a call option which it has previously
written When a security is sold from the Fund's portfolio, the Fund will effect
a closing purchase transaction so as to close out any existing call option on

<PAGE>

that security. The Fund will realize a profit or loss from a closing purchase
transaction if the amount paid to purchase a call option is less or more than
the amount received from the sale thereof. There can be no assurance that the
Fund will be able to effect closing purchase transactions at a time when it
desires to do so. To facilitate closing purchase transactions, however, the Fund
will write options only if a secondary market for the options exists on a
national securities exchange.

Securities for the Fund's portfolio will at all times be bought and sold solely
on the basis of investment considerations and appropriateness to the fulfillment
of the Fund's objective.

CORPORATE REORGANIZATIONS
The Fund may invest in securities for which a tender or exchange offer has been
made or announced and in securities of companies for which a merger,
consolidation, liquidation or similar reorganization proposal has been announced
if, in the judgement of the Adviser, there is a reasonable prospect of capital
appreciation significantly greater than the added portfolio turnover expenses
inherent in the short term nature of such transactions. The principal risk is
that such offers or proposals may not be consummated within the time and under
the terms contemplated at the time of the investment, in which case, unless such
offers or proposals are replaced by equivalent or increased offers or proposals
which are consummated, the Fund may sustain a loss.

PORTFOLIO TRANSACTIONS

All orders for transactions in securities and any other investments on behalf of
the Fund will be placed with broker-dealers selected by the Adviser. The Adviser
may serve as the Fund's broker in effecting portfolio transactions on national
securities exchanges and in the national over-the-counter market as agent and
retain commissions in accordance with certain regulations of the Securities and
Exchange Commission (the "SEC") and procedures adopted by the Fund's Board of
Directors. In addition, the Adviser may select broker-dealers that provide it
with research services and may cause the Fund to pay these broker-dealers
commissions that exceed those other broker-dealers may have charged, if it views
the commissions as reasonable in relation to the value of the brokerage and/or
research services received. In placing orders, it is the policy of the Fund to
obtain the net best results taking into account the broker's general execution
and operational facilities as well as the type of transaction involved. While
the Adviser generally seeks a competitive price in placing its orders, the Fund
may not necessarily be paying the lowest price available. In accordance with
procedures adopted by the Board of Directors, in order for the Adviser, as an
affiliated person, to be permitted to effect portfolio transactions for the
Fund, the commissions, fees or other remuneration received by such affiliated
person must be reasonable and fair compared to the commissions, fees and other
remuneration received by other brokers in connection with comparable
transactions. This standard would allow such an affiliated person to receive no
more than the remuneration which would be expected to be received by an
unaffiliated broker in a commensurate arm's-length agency transaction.

Investment decisions for Fund are made independently from those for other
accounts advised or managed by the Adviser, including accounts designated as
proprietary. However, since the research resources and Investment Committee
process of the Adviser are common to all accounts, including the Fund, all such
other accounts are prepared to invest in, or desire to dispose of, the same
securities at the same time as the Fund, and transactions in such securities
will be made, insofar as feasible, for the respective accounts in a manner
deemed equitable to all. In some cases, this procedure may adversely affect the
size of the position obtained for or disposed of by the Fund or the price paid
or received by the Fund. In addition, because of different investment objectives
including tax considerations for individual accounts, a particular security may
be purchased for the Fund or such other accounts when the Fund or such other
accounts are selling the same security. To the extent permitted by law, the
Adviser may aggregate the securities to be sold or purchased for the Fund with
those to be sold or purchased for such other accounts, including proprietary
accounts, in order to obtain best execution in accordance with the Fund's Code
of Ethics and applicable SEC no-action positions on this subject.

<PAGE>

OTHER INVESTMENT COMPANIES
The Fund reserves the right to invest up to 10% of its total assets in the
securities of other investment companies. The Fund may not invest more than 5%
of its total assets in the securities of any one investment company or acquire
more than 3% of the voting securities of any other investment company. The Fund
does not intend to invest in such investment companies unless, in the judgment
of the Adviser, such an investment otherwise meets its criteria, such as a
closed-end investment company selling at a discount to its net asset value. The
Fund will indirectly bear its proportionate share of any management fees and
other expenses paid by investment companies in which it invests in addition to
the advisory fee paid by the Fund.

FUTURE DEVELOPMENTS
The Fund may, following notice to its shareholders, take advantage of other
investment practices which are not at present contemplated for use by the Fund
or which currently are not available but which may be developed, to the extent
such investment practices are both consistent with the Fund's investment
objectives and legally permissible for the Fund. Such investment practices, if
they arise, may involve risks which exceed those involved in the activities
described above.

In addition, pending investment of proceeds from new sales of Fund shares or to
meet ordinary daily cash needs, the Fund temporarily may hold cash (U.S.
dollars, foreign currencies or multinational currency units) and may invest any
portion of its assets in high quality foreign or domestic money market
instruments.

PORTFOLIO TURNOVER
The Adviser's investment style usually requires a holding period of one year or
more, however, when circumstances warrant, securities may be sold without regard
to the length of time held. It is not anticipated that, under normal conditions,
the portfolio turnover rate for the Fund will exceed 50% in any one year.

LIMITING INVESTMENT RISKS

To further protect investors, the Fund has adopted the following investment
limitations:

1. The Fund will not purchase the securities of any issuer (other
than securities issued or guaranteed by the U.S. Government or any
of its agencies or instrumentalities, or repurchase agreements
secured thereby) if, as a result, more than 25% of the value of
the Fund's total assets would be invested in the securities of
companies whose principal business activities are in the same
industry.

2. The Fund may not invest 25% or more of the value of its total
assets in securities of issuers in any one industry; provided that
there is no limitation with respect to investment in obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities.

3. The Fund may not borrow money except from banks for temporary or
emergency purposes; provided, that (a) the amount of such
borrowing may not exceed 20% of the value of the Fund's total
assets, and (b) the Fund will not purchase portfolio securities
while such outstanding borrowing exceeds 5% of the value of the
Fund's total assets.

4. The Fund may not invest an amount equal to 15% or more of the
current value of its net assets in investments that are illiquid.

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percentage restriction on investment or use of assets contained in these
investment limitations or elsewhere in this Prospectus or Statement of
Additional Information is adhered to at the time a transaction is effected,
later changes in percentage resulting from any cause other than actions by the
Fund will not be considered a violation; provided, that the restrictions on
borrowing described in (3) and the restrictions on illiquid investments
described in (4) above shall apply at all times. As used in this Prospectus and
in the Statement of Additional Information, the term "majority", when referring
to the approvals to be obtained from shareholders in connection with matters
affecting the Fund (e.g., approval of investment advisory contracts), means the
vote of the lesser of (i) 67% of the shares of the Fund represented at a meeting
if the holders of more than 50% of the outstanding shares of the Fund are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of the Fund. Shareholders are entitled to one vote for each full share held and
to fractional votes for fractional shares held.

MANAGEMENT

The business and affairs of the Fund are managed under the general direction and
supervision of the Company's Board of Directors. The Fund's day-to-day
operations are handled by the Company's officers. The Management of the Fund's
portfolio, including the placement of purchase and sale orders, is the
responsibility of the investment adviser.

INVESTMENT ADVISER
The Adviser provides investment advisory services to the Fund pursuant to an
Investment Advisory Agreement with the Company (the "Advisory Agreement"). The
Advisory Agreement provides that, as compensation for services, the Adviser is
entitled to receive a fee from the Fund, computed daily and paid monthly, at the
annual rate of .80% of the Fund's average daily net assets.

David J. Greene & Company ("the Adviser") is an investment adviser and
broker-dealer registered with the SEC and the National Association of Securities
Dealers, Inc. (the "NASD"). The Firm, established as a partnership in 1952, is
located at 599 Lexington Avenue, New York, N.Y. 10022. As of September 30, 1997,
the Adviser had investment management authority with respect to approximately
$1.8 billion of assets for pension, profit sharing, endowment and individual
accounts. The partnership consists of fourteen partners and a staff of
twenty-one professional and support persons, all of whom devote their full time
to the business. The Adviser specializes in equity management with a value style
orientation.

PORTFOLIO MANAGER
Erwin A. Zeuschner, a Senior Partner of David J. Greene and Company for the past
17 years, is primarily responsible for the daily management of the Fund. Mr.
Zeuschner will undertake his responsibilities under guidelines established by
the Adviser's Investment Committee, consisting of Alan I. Greene, Robert J.
Ravitz, Michael C. Greene and David R. Pedowitz in addition to himself.

ADMINISTRATOR, FUND ACCOUNTING, CUSTODIAN AND TRANSFER AGENT
BISYS Fund Services Limited Partnership, d/b/a BISYS Fund Services ("BISYS")
serves as the Company's administrator and generally assists the Company in all
aspects of its administration and operation. The Bank of New York serves as
custodian of the assets of the Fund. Pursuant to an Administration Agreement
between the Company and BISYS, BISYS is entitled to a monthly fee, based on
annual rate of .15% of aggregate average daily net assets of the Company as
compensation for its administrative services. BISYS may waive this fee from time
to time. BISYS Fund Services, Inc. provides transfer agency services, dividend
disbursing services and fund accounting for the Fund. The principal business
address of BISYS and BISYS Fund Services, Inc. is 3435 Stelzer Road, Columbus,
Ohio 43219. The principal business address of The Bank of New York is 90
Washington Street, New York, New York 10286.

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FUND EXPENSES
In addition to the fees described above with respect to the Investment Advisory
Agreement, the Fund will be responsible for expenses relating to administration,
custody, transfer agency, legal, audit and accounting, directors fees and other
miscellaneous expenses pursuant to written agreements with such service
providers or otherwise. Such expenses are subject to waiver by the relevant
service provider or reimbursement by the Adviser or Administrator.

ABOUT YOUR INVESTMENT

Shares of the Fund are offered on a continuous basis directly by OFFIT Funds
Distributor, Inc., the Fund's Principal Underwriter, to the Accounts without any
sales or other charge, at the Fund's net asset value on each day on which the
New York Stock Exchange ("NYSE") is open for business. The Company will effect
orders to purchase or redeem shares of the Fund, that are based on premium
payments, surrender and transfer requests and any other transaction requests
from Contract and Policy Owners, annuitants and beneficiaries, at the Fund's net
asset value per share next computed after the Account receives such transaction
request. Any orders to purchase or redeem Fund shares that are not based on
actions by Contract or Policy Owners, annuitants, and beneficiaries will be
effected at the Fund's net asset value per share next computed after the order
is received by the Distributor. The Fund reserves the right to suspend the sale
of the Fund's shares in response to conditions in the securities markets or for
other reasons.

Individuals may not place orders directly with the Fund. Please refer to the
appropriate Account Prospectus of the Participating Company for more information
on the purchase of Portfolio shares.

REDEMPTION OF SHARES
An Account may redeem all or any portion of the shares of the Fund in its
account at any time at the net asset value per share of the Fund calculated in
the manner described above. Shares redeemed are entitled to earn dividends, if
any, up to and including the day redemption is effected. There is no redemption
charge. Payment of the redemption price will normally be made within seven days
after receipt of such tender for redemption.

The right of redemption may be suspended or the date of payment may be postponed
for any period during which the NYSE is closed (other than customary weekend and
holiday closings) or during which the SEC determines that trading thereon is
restricted, or for any period during which an emergency (as determined by the
SEC) exists as a result of which disposal by the Fund of securities is not
reasonably practicable or as a result of which it is not reasonably practicable
for the Company fairly to determine the value of the Fund's net assets, or for
such other periods as the SEC may by order permit for the protection of security
holders of the Company.

EXCHANGE PRIVILEGE
A Contract or Policy Owner investing through an Account may exchange shares of
the Fund for shares of any of the other investment portfolios offered through
the Account on the basis of their respective net asset values.

HOW THE COMPANY VALUES ITS SHARES

The net asset value per share of the Fund is calculated once daily at 4:15 p.m.,
New York time, Monday through Friday, each day the NYSE is open. The net asset
value per share of the Fund is computed by dividing the value of the net assets
of the Fund by the total number of Fund shares outstanding. Equity securities
held by the Fund are valued at the last sale price on the exchange or in the
principal over-the-counter market in which such securities are traded, as of the
close of business on the day the securities are being valued or, lacking any
sales, at the last available bid price. Debt securities held by the Fund
generally are valued based on quoted bid prices. Short-term debt investments
having maturities of 60 days or less are amortized to maturity based on their
cost, and if applicable, adjusted for foreign exchange translation. Foreign
securities are valued on the basis of quotations from

<PAGE>

the primary market in which they are traded and are translated from the local
currency into U.S. dollars using prevailing exchange rates. Securities for which
market quotations are not readily available are valued at fair value determined
in good faith by or under the direction of the Company's Board of Directors (as
may be delegated from time to time to a pricing committee designated by the
Board of Directors). Securities may be valued by independent pricing services
which use prices provided by market-makers or estimates of market values
obtained from yield data relating to instruments or securities with similar
characteristics.

HOW DISTRIBUTIONS ARE MADE: TAX INFORMATION

DISTRIBUTIONS
The Fund will declare and distribute dividends from net investment income and
will distribute its net capital gains, if any, at least annually. Such income
and capital gains distributions will be made in shares of the Fund.

TAX MATTERS

THE FUND. The Fund intends to qualify as a regulated investment company by
satisfying the requirements under Subchapter M of the Internal Revenue Code, as
amended (the "Code"), concerning the diversification of assets, distribution of
income, and sources of income. When the Fund qualifies as a regulated investment
company and all of its taxable income is distributed in accordance with the
timing requirements imposed by the Code, the Fund will not be subject to Federal
income tax. If, however, for any taxable year the Fund does not qualify as a
regulated investment company, then all of its taxable income will be subject to
tax at regular corporate rates (without any deduction for distributions to the
Accounts), and the receipt of such distributions will be taxable to the extent
that the Fund has current and accumulated earnings and profits.

FUND DISTRIBUTIONS. Distributions by the Fund are taxable, if at all, to the
Accounts, and not to Contract or Policy Owners. An Account will include
distributions in its taxable income in the year in which they are received
(whether paid in cash or reinvested).

SHARE REDEMPTIONS. Redemptions of the shares held by the Accounts generally will
not result in gain or loss for the Accounts and will not result in gain or loss
for the Contract or Policy Owners.

SUMMARY. The foregoing discussion of Federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus, and is
subject to change by legislative or administrative action. The foregoing
discussion also assumes that the Accounts are the owners of the shares and that
Policies or Contracts qualify as life insurance policies or annuities,
respectively, under the Code. If the foregoing requirements are not met then the
Contract or Policy owners will be treated as recognizing income (from
distributions or otherwise) related to the ownership of Fund shares. The
foregoing discussion is for general information only; a more detailed discussion
of Federal income tax considerations is contained in the Statement of Additional
Information. Contract or Policy Owners must consult the prospectuses of their
respective Contract or Policy for information concerning the Federal income tax
consequences of owning such Contracts or Policies.

SHAREHOLDER COMMUNICATIONS

It is expected that Contract or Policy Owners will receive from the
Participating Companies for which shares of the Fund are the investment vehicle,
reports that will include, among other things, the Company's unaudited
semi-annual financial statements and year-end financial statements audited by
the Company's independent accountants. Each report will show the investments
owned by the Fund and will provide other information about the Fund and its
operations. It is expected that the Company will pay a portion of the cost of
preparing certain of these reports.

<PAGE>

Contract and Policy Owners may obtain information about their investment on any
business day by calling toll-free 1-800-618-9510 between 8:15 a.m. and 6:00
p.m., New York time. Specially trained representatives will answer questions and
provide information about Contract and Policy Owners' account in the Fund.

Each Account owning shares of the Fund will vote its shares in accordance with
instructions received from Contract or Policy Owners, annuitants and
beneficiaries. Fund shares held by an Account 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 that Account as to which instructions have
been received. Fund shares held by an Account that are not attributable to
Contracts or Policies will also be voted for or against any proposition in the
same proportion as the shares for which voting instructions are received by the
Account. If the Participating Insurance Company determines, however, that it is
permitted to vote any such shares of the 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.

PERFORMANCE INFORMATION

From time to time the Fund may advertise certain information about its
performance. The Fund may present standardized and nonstandardized total return
in advertisements or other written material. Standardized total return is
calculated in accordance with the Commission's formula. Nonstandardized total
return differs from the standardized total return only in that it may be related
to a nonstandard period or is presented in the aggregate rather than as an
annual average. In addition, the Fund may make available information as to its
respective "yield" and "effective yield" over a thirty-day period, as calculated
in accordance with the Commission's prescribed formula. The "effective yield"
assumes that the income earned by an investment in the Fund is reinvested, and
will therefore be higher than the yield because of the compounding effect of
this assumed reinvestment.

The performance of the Fund may be quoted and compared to those of other mutual
funds with similar investment objectives and to other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example,
performance information may be compared with data published by Lipper Analytical
Services, Inc. or to unmanaged mutual fund or market indices or rankings such as
those prepared by Dow Jones & Co., Inc. and Standard and Poor's Corporation .
The performance information may also include evaluations of the Fund published
by nationally recognized ranking services and by various national or local
financial publications, such as Business Week, Forbes, Fortune, Institutional
Investor, Money, The Wall Street Journal, Barron's, Changing Times, Morningstar,
Mutual Fund Values, U.S.A. Today or The New York Times or other industry or
financial publications.

Performance information presented for the Fund should not be compared directly
with performance information of other insurance products without taking into
account insurance-related charges and expenses payable under the variable
annuity contract and variable life insurance policy. These charges and expenses
are not reflected in the Fund's performance and would reduce an investor's
return under the annuity contract or life policy.

The Fund's performance information is historical, will fluctuate and should not
be considered as representative of future results. The Commission's formulas for
calculating performance are described under "Performance Information" in the
Statement of Additional Information. Quotations of the Fund's performance will
not reflect charges levied at the Account level.

COUNSEL; INDEPENDENT ACCOUNTANTS

Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York, serves
as counsel to the Company. Price Waterhouse LLP serves as the independent
accountants to the Company. Price Waterhouse LLP is located at 1177 Avenue of
the Americas, New York, New York 10036.

<PAGE>

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTORS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTORS IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.

<PAGE>

Rule 497(c)
Registration No. 33-81748

PROSPECTUS

THE OFFITBANK VARIABLE INSURANCE FUND, INC. OCTOBER 29, 1997

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

OFFITBANK VIF-U.S. SMALL CAP FUND

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

OFFITBANK VIF-U.S. Small Cap Fund (the "Fund") is a diversified investment
portfolio of the OFFITBANK Variable Insurance Fund, Inc. (the "Company"), an
open-end, management investment company. The Fund's investment objective is to
achieve capital appreciation. The Fund will seek to achieve its objective by
investing primarily in a diversified portfolio of securities of smaller
companies located in the United States. Up to 10% of the Fund's portfolio may be
in companies located outside the United States. At least 65% of the Fund's
portfolio will consist of securities of smaller portfolio companies with a
capitalization of $1 billion or less at the time of purchase, although the Fund
may also invest in any company, entity or vehicle that conforms to its
investment objective, including investments such as warrants and convertible
debt securities. The Fund intends to invest primarily in publicly-held
companies.

THE FUND WILL INVEST IN SMALL CAPITALIZATION ISSUERS WHICH ARE MORE VOLATILE
THAN INVESTMENTS IN ISSUERS WITH MARKET CAPITALIZATION GREATER THAN $1 BILLION
DUE TO THE LACK OF DIVERSIFICATION IN THE BUSINESS ACTIVITIES, AND CORRESPONDING
GREATER SUSCEPTIBILITY TO CHANGES IN THE BUSINESS CYCLE OF SMALL CAPITALIZATION
ISSUERS. SEE "INVESTMENT OBJECTIVE AND POLICIES" AND "SPECIAL RISK
CONSIDERATIONS". There can be no assurance that the Fund's investment objective
will be achieved.

OFFITBANK, a trust company specializing in global fixed income management,
serves as the Fund's investment adviser (the "Adviser"). The address of the
Company is 125 West 55th Street, New York, New York 10019. Rockefeller & Co.,
Inc. (the "Sub- Adviser") has been engaged to provide investment advisory
services, including portfolio management, to the Fund, subject to the
supervision of the Adviser. Information regarding the Fund may be obtained by
calling 1-800-618-9510.

INVESTORS ARE ADVISED THAT SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR ENDORSED OR GUARANTEED BY, OFFITBANK OR ANY AFFILIATE OF OFFITBANK, NOR
ARE THEY FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. THE COMPANY IS NOT AUTHORIZED TO
ENGAGE IN THE BUSINESS OF BANKING.

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

WHAT YOU NEED TO KNOW

Highlights..................................................................2
Financial Highlights........................................................3
The Company................................................................ 4
Investment Objective and Policies.......................................... 4
Investment Policies and Techniques......................................... 5
Special Risk Considerations................................................ 8
Limiting Investment Risks..................................................10
Management................................................................10
About Your Investment......................................................11
How the Company Values Its Shares..........................................12
How Distributions are Made: Tax Information............................... 13
Shareholder Communications ............................................... 13
Performance Information................................................... 14
Counsel; Independent Accountants.......................................... 14

<PAGE>

HIGHLIGHTS

INTRODUCTION
OFFITBANK VIF-U.S. Small Cap Fund (the "Fund") is one of ten separate investment
portfolios of the OFFITBANK Variable Insurance Fund, Inc. (the "Company") an
open-end, management investment company. The Fund's investment objective is to
achieve capital appreciation.

FUND MANAGEMENT
OFFITBANK, a New York State chartered trust company serves as the Fund's
Adviser. Rockefeller & Co., Inc. serves as Sub-Adviser to the Fund and manages
the Fund's portfolio of investements.

An Account may redeem all or any portion of the shares of the Fund in its
account at any time at the net asset value per share of the Fund calculated in
the manner described above.

RISK FACTORS
Investment in the Fund is subject to certain risks, as set forth in detail under
"Special Risk Considerations". The Fund generally invests at least 65% of its
total assets in securities of smaller portfolio companies with a capitalization
of $1 billion or less at the time of purchase. See "Investment Objective and
Policies" and "Special Risk Considerations".

2
<PAGE>

FINANCIAL HIGHLIGHTS

The table below sets forth certain financial information with respect to the
financial highlights of the Fund for the period ended September 30, 1997. The
information below has been derived from unaudited financial statements and notes
which are included in the Statement of Additional Information. The information
set forth below is for a share of the Fund outstanding for the period indicated.
Further information about the performance of the Company is included in the
Semi-Annual Report to Shareholders which may be obtained without charge by
calling 1-800-618-9510.

VIF-U.S. SMALL CAP FUND

For the period April
11, 1997* through
September 30, 1997
- -------------------------------------------------------------------------------

Net asset value, beginning of period $ 10.00
--------

Income from Investment Operations:
Net investment loss (0.01)
Net realized and unrealized gains
on investment transactions 3.19
--------
Total income from investment operations 3.18
--------

Less Dividends from:
Net investment income 0.00
--------

Net change in net asset value per share 3.18
--------

Net asset value, end of period $ 13.18
========

Total Return (a) 31.80%(b)
Ratios/Supplemental Data:
Net assets at end of year (in thousands) $ 1,308
Ratios to average net assets
Expenses** 1.50%(c)
Net Investment Income (0.31%)(c)
Portfolio turnover rate 28%
Average commission rate paid (d) $ 0.03499

* Commencement of operations
** During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had
not occurred, the ratios would have been and 6.68% annualized for the
Fund.
(a) Total return is based on the change in net asset value during the period
and assumes reinvestment of all dividends and distributions
(b) Not annualized.
(c) Annualized.
(d) Represents the dollar amount of commissions paid on portfolio transactions
divided by the total number of portfolio shares purchased and sold for
which commissions were charged.

<PAGE>

THE COMPANY

INVESTMENT OBJECTIVE AND POLICIES

The Fund has an investment objective which it pursues through investment
policies as described below. The objective and policies of the Fund can be
expected to affect the return of the Fund and the degree of market and financial
risk to which the Fund is subject. For more information about the investment
strategies employed by the Fund, see "Investment Policies and Techniques." The
investment objective and policies of the Fund may, unless otherwise specifically
stated, be changed by the Directors of the Company without a vote of the
shareholders. As a matter of fundamental policy, the Directors would not
materially change the investment objective of the Fund without thirty days prior
written notice to shareholders. There is no assurance that the Fund will achieve
its objective.

The investment objective of the Fund is to achieve capital appreciation. The
Fund will seek to achieve its objective by investing primarily in a diversified
portfolio of securities of smaller publicly-held companies located in the United
States. Up to 10% of the Fund's portfolio, however, may consist of securities of
companies located outside the United States. At least 65% of the Fund's
portfolio will consists of securities of smaller companies with a capitalization
of $1 billion or less at the time of purchase, although the Fund may also invest
in any company, entity or vehicle that conforms to its investment objective,
including investments such as convertible debt securities and warrants. The Fund
intends to invest primarily in publicly-held companies.

The Fund will invest primarily in companies which are expected to meet most of
the following criteria: the company should have a market position in a fast
growing segment of the economy, good management, preferably a leading position
in its business, superior financial returns (i.e., primarily return on assets
and invested capital) with ability to self-finance, and a reasonable market
valuation. While the Fund will not generally invest in start-ups, it may invest
in stock of companies' initial public securities offerings and companies having
only a few years' operating history.

<PAGE>

In addition to investments expected to meet the preceding criteria, the Fund may
also invest in companies which have undervalued assets and in special
situations. Special situations might include private placements, fixed-income
securities, cyclically depressed companies or take-over candidates. In analyzing
convertible debt securities, the Sub- Adviser will consider both the yield on
the convertible security and the potential capital appreciation that is offered
by the underlying common stock.

The Fund will have a diversified portfolio. It will not ordinarily acquire more
than 5% of its assets in the equity securities of any single issuer, although
the holding of higher equity percentages will be considered under some
circumstances. In furthering its objective, the Fund may also engage in indirect
investments as discussed below, including investments in mutual funds, funds
directed by other investment advisers or other pooled vehicles, (although the
Sub-Adviser does not currently intend to invest in registered investment
companies). Such investments will not exceed 10% of the portfolio. In the case
of mutual funds, funds directed by other investment advisers or other pooled
vehicles, such investments may be subject to management fees including
performance fees which will be reflected in the net asset value of such
securities. The Fund's management may alter the proportion of the portfolio
invested for defensive purposes in order to respond to market conditions.

Trading policy (as opposed to investment policy) is determined by market
conditions and is not constrained by tax considerations.

There can be no assurance that the investment methodology employed will satisfy
the Fund's objective of capital appreciation. The Fund believes that investments
that meet its objective potentially offer above average return, but they are
higher risk investments and are expected to fluctuate more widely in price than
the general market. An investor should be aware that investment in small
capitalization issuers may be more volatile than investments in issuers with
market capitalizations greater than $1 billion due to the lack of
diversification in the business activities, limited product lines, markets or
financial resources, and correspondingly greater susceptibility to changes in
the business cycle of small capitalization issuers. Smaller capitalization
stocks as a group may not respond to general market rallies or downturns as much
as other types of equity securities. This investment policy involves the risks
that the changes or trends identified by the Sub-Adviser will not occur or will
not be as significant as projected and that, even if the changes or trends
develop, the particular issues held by the Fund will not benefit as anticipated
from such changes or trends.

The convertible securities that may be held by the Fund include any corporate
debt security or preferred stock that may be converted into underlying shares of
common stock and include both traditional convertible securities and synthetic
convertible securities. The common stock underlying convertible securities may
be issued by a different entity than the issuer of the convertible securities.
Convertible securities entitle the holder to receive interest payments paid on
corporate debt securities or the dividend preference on a preferred stock until
such time as the convertible security matures or is redeemed or until the holder
elects to exercise the conversion privilege.

The Fund believes that the characteristics of convertible securities make them
appropriate investments for an investment company seeking capital appreciation.
These characteristics include the potential for capital appreciation as the
value of the underlying common stock increases and decreased risks of decline in
value relative to the underlying common stock due to their fixed income nature.

Under normal circumstances, the Fund may invest up to 10% of its assets in other
types of securities including equity securities and nonconvertible debt
securities of U.S. and non-U.S. issuers.

<PAGE>

INVESTMENT POLICIES AND TECHNIQUES

FOREIGN SECURITIES. The Fund may invest up to 10% of its assets in securities of
foreign issuers. When the Fund invests in foreign securities, they may be
denominated in foreign currencies. Thus, the Fund's net asset value could be
affected by changes in exchange rates. See "Special Risk Considerations."

HEDGING AND OTHER STRATEGIC TRANSACTIONS. The Fund may be authorized to use a
variety of investment strategies to hedge various market risks such as broad or
specific market movements (such investment strategies and transactions are
referred to herein as "Hedging and Other Strategic Transactions"). Currently,
the Fund may use cross currency hedges as a portfolio management strategy. The
Fund also may enter into forward foreign currency contracts and options
transactions to hedge in connection with currency positions. See "Special Risk
Considerations - Risks of Hedging and Other Strategic Transactions". The Fund
will not be obligated, however, to pursue any of such strategies and the Fund
makes no representation as to the availability of these techniques at this time
or at any time in the future.

Subject to the constraints described above, the Fund may (if and to the extent
so authorized) enter into currency transactions. The Fund's currency
transactions may take the form of currency forward contracts, currency futures
contracts, currency swaps and options on currencies or currency futures
contracts.

Hedging and Other Strategic Transactions may generally be used to attempt to
protect against possible changes in the market value of securities held or to be
purchased by the Fund resulting from currency exchange rate fluctuations. The
Fund may use any or all types of Hedging and Other Strategic Transactions which
it is authorized to use at any time; no particular strategy will dictate the use
of one type of transaction rather than another, as use of any authorized Hedging
and Other Strategic Transaction will be a function of numerous variables,
including market conditions. The ability of the Fund to utilize Hedging and
Other Strategic Transactions successfully will depend on, in addition to the
factors described above, the Sub-Adviser's ability to predict pertinent market
movements, which cannot be assured. These skills are different from those needed
to select the Fund's securities.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may purchase or sell
forward foreign currency exchange contracts ("forward contracts") as part of its
portfolio investment strategy. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date which is
individually negotiated and privately traded by currency traders and their
customers. The Fund may enter into a forward contract, for example, when it
enters into a contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of the security
("transaction hedge"). Additionally, for example, when the Fund believes that a
foreign currency may suffer a substantial decline against the U.S. dollar, it
may enter into a forward sale contract to sell an amount of that foreign
currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency. Conversely, when the Fund
believes that the U.S. dollar may suffer a substantial decline against a foreign
currency, it may enter into a forward purchase contract to buy that foreign
currency for a fixed dollar amount ("position hedge"). In this situation, the
Fund may, in the alternative, enter into a forward contract to sell a different
foreign currency for a fixed U.S. dollar amount where the Fund believes that the
U.S. dollar value of the currency to be sold pursuant to the forward contract
will fall whenever there is a decline in the U.S. dollar value of the currency
in which portfolio securities of the Fund are denominated ("cross-hedge"). The
Fund's custodian will place liquid securities or cash not available for
investment in a segregated account having a value equal to the aggregate amount
of the Fund's commitments under forward contracts entered into with respect to
position hedges, cross-hedges and transaction hedges, to the extent they do not
already own the security subject to the transaction hedge. If the value of the
securities placed in a 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. As an alternative to maintaining all or part of the segregated
account, the Fund may purchase a call option permitting the Fund to purchase the
amount of foreign currency being hedged by a forward sale contract at a price no
higher than the

<PAGE>

forward contract price or the Fund may purchase a put option permitting the Fund
to sell the amount of foreign currency subject to a forward purchase contract at
a price as high or higher than the forward contract price. Unanticipated changes
in currency prices may result in poorer overall performance for the Fund than if
it had not entered into such contracts. If the party with which the Fund enters
into a forward contract becomes insolvent or breaches its obligation under the
contract, then the Fund may lose the ability to purchase or sell a currency as
desired.

REVERSE REPURCHASE AGREEMENTS. The Fund may borrow by entering into reverse
repurchase agreements. Pursuant to such agreements, the Fund would sell
portfolio securities to financial institutions, such as banks and
broker-dealers, and agree to repurchase them at an agreed upon date, price and
interest payment. When effecting reverse repurchase transactions, liquid
securities of a dollar amount equal in value to the securities subject to the
agreement will be maintained in a segregated account with the Fund's custodian.
A reverse repurchase agreement involves the risk that the market value of the
portfolio securities sold by the Fund may decline below the price of the
securities the Fund is obligated to repurchase, which price is fixed at the time
the Fund enters into such agreement.

SECURITIES LOANS, REPURCHASE AGREEMENTS, WHEN-ISSUED AND FORWARD COMMITMENTS
TRANSACTIONS. The Fund may lend portfolio securities in an amount up to 30% of
its assets to broker-dealers, major banks or other recognized domestic
institutional borrowers of securities. The Fund may also enter into repurchase
agreements with dealers, domestic banks or recognized financial institutions
which, in the opinion of the Adviser, present minimal credit risks. These
transactions must be fully collateralized at all times, but involve some risk to
the Fund if the other party should default on its obligations and the Fund is
delayed or prevented from recovering the collateral. The Fund may also purchase
securities on a when-issued basis or for future delivery, which may increase its
overall investment exposure and involves a risk of loss if the value of the
securities declines prior to the settlement date.

ILLIQUID SECURITIES. The Fund will not invest more than 15% of the value of its
net assets in illiquid securities, including securities which are not readily
marketable, time deposits and repurchase agreements not terminable within seven
days. Illiquid assets are assets which may not be sold or disposed of in the
ordinary course of business within seven days at approximately the value at
which the Fund has valued the investment. Securities that have readily available
market quotations are not deemed illiquid for purposes of this limitation
(irrespective of any legal or contractual restrictions on resale). The Fund may
purchase securities that are not registered under the Securities Act of 1933, as
amended, but which can be sold to qualified institutional buyers in accordance
with Rule 144A under that Act ("Rule 144A securities"). Rule 144A securities
generally must be sold to other qualified institutional buyers. If a particular
investment in Rule 144A securities is not determined to be liquid, that
investment will be included within the 15% limitation on investment in illiquid
securities. The ability to sell Rule 144A securities to qualified institutional
buyers is a recent development and it is not possible to predict how this market
will mature. The Fund may also invest in commercial obligations issued in
reliance on the so-called "private placement" exemption from registration
afforded by Section 4(2) of the Securities Act of 1933, as amended ("Section
4(2) paper"). Section 4(2) paper is restricted as to disposition under the
federal securities laws, and generally is sold to institutional investors such
as the Fund who agree that they are purchasing the paper for investment and not
with a view to public distribution. Any resale by the purchaser must be in an
exempt transaction. Section 4(2) paper normally is resold to other institutional
investors like the Fund through or with the assistance of the issuer or
investment dealers who make a market in the Section 4(2) paper, thus providing
liquidity. The Sub-Adviser will monitor the liquidity of such restricted
securities under the supervision of the Board of Directors.

CONVERTIBLE SECURITIES. The Fund may invest up to 10% of its assets in
convertible securities, which are bonds, debentures, notes, preferred stocks or
other securities that may be converted into or exchanged for a prescribed amount
of common stock of the same or a different issuer within a particular period of
time at a specified price or formula. A convertible security entitles the holder
to receive interest generally paid or accrued on debt or the dividend paid on
preferred stock until the convertible security matures or is redeemed, converted
or exchanged. Convertible securities have several unique investment
characteristics such as (1) higher yields than common stocks,

<PAGE>

but lower yields than comparable nonconvertible securities, (2) a lesser degree
of fluctuation in value than the underlying stock since they have fixed income
characteristics, and (3) the potential for capital appreciation if the market
price of the underlying common stock increases.

A convertible security might be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument. If a convertible security held by the Fund is called for redemption,
the Fund may be required to permit the issuer to redeem the security, convert it
into the underlying common stock or sell it to a third party.

OTHER INVESTMENT COMPANIES AND POOLED VEHICLES. The Fund reserves the right to
invest up to 10% of its total assets in the securities of other investment
companies, including mutual funds, investment partnerships and other pooled
investment vehicles. The Fund may not invest more than 5% of its total assets in
the securities of any one investment company or acquire more than 3% of the
voting securities of any other investment company. The Fund does not intend to
invest in such investment companies unless, in the judgment of the Sub-Adviser,
the potential benefits of such investment justify the payment of any premium to
net asset value of the investment company or of any sales charge. The Fund will
indirectly bear its proportionate share of any management fees and other
expenses paid by investment companies or pooled investment products in which it
invests in addition to the advisory fee paid by the Fund.

FUTURE DEVELOPMENTS. The Fund may, following notice to its shareholders, take
advantage of other investment practices which are not at present contemplated
for use by the Fund or which currently are not available but which may be
developed, to the extent such investment practices are both consistent with the
Fund's investment objective and legally permissible for the Fund. Such
investment practices, if they arise, may involve risks which exceed those
involved in the activities described above.

TEMPORARY STRATEGIES. The Fund retains the flexibility to respond promptly to
changes in market and economic conditions. Accordingly, consistent with the
Fund's investment objective, the Sub-Adviser may employ a temporary defensive
investment strategy if it determines such a strategy is warranted. Under such a
defensive strategy, the Fund temporarily may hold cash and/or invest its assets
in high quality debt securities or money market instruments of U.S. issuers.

In addition, pending investment of proceeds from new sales of Fund shares or to
meet ordinary daily cash needs, the Fund temporarily may hold cash and may
invest any portion of its assets in high quality money market instruments of
U.S. Issuers.

PORTFOLIO TURNOVER. The Fund will not trade in securities with the intention of
generating short-term profits but, when circumstances warrant, securities may be
sold without regard to the length of time held. It is not anticipated that,
under normal conditions, the portfolio turnover rate for the Fund will exceed
100% in any one year. A high rate of portfolio turnover (100% or more) involves
correspondingly greater brokerage commission expenses and/or markups and
markdowns, which will be borne directly by the Fund and indirectly by the Fund's
shareholders. High portfolio turnover may also result in the realization of
substantial net capital gains.

SPECIAL RISK CONSIDERATIONS

GENERAL
The Fund's net asset value will fluctuate, reflecting fluctuations in the market
value of its portfolio positions and its net currency exposure. The value of the
securities held by the Fund generally fluctuates, to varying degrees, based on,
among other things, (1) changes in the actual and perceived creditworthiness of
the issuers of such securities, (2) factors affecting the industry in which the
issuer operates, such as competition or technological

<PAGE>

advances and (3) factors affecting the issuer directly, such as management
changes or labor relations. There is no assurance that the Fund will achieve its
investment objective.

FOREIGN SECURITIES
The Fund may invest up to 10% of its total assets in the securities of foreign
issuers. There are certain risks involved in investing in securities of
companies and governments of foreign nations which are in addition to the usual
risks inherent in domestic investments. These risks include those resulting from
fluctuations in currency exchange rates, revaluation of currencies, future
adverse political and economic developments and the possible imposition of
currency exchange blockages or other foreign governmental laws or restrictions,
reduced availability of public information concerning issuers, the lack of
uniform accounting, auditing and financial reporting standards and other
regulatory practices and requirements that are often generally less rigorous
than those applied in the United

States. Moreover, securities of many foreign companies may be less liquid and
their prices more volatile than those securities of comparable U.S. companies.
Certain foreign countries are known to experience long delays between the trade
and settlement dates of securities purchased or sold. In addition, with respect
to certain foreign countries, there is the possibility of expropriation,
nationalization, confiscatory taxation and limitations on the use or removal of
funds or other assets of the Fund, including the withholding of dividends.
Foreign securities may be subject to foreign government taxes that would reduce
the net return on such securities. 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 investment, resources
self-sufficiency and balance of payments positions. Investment in foreign
securities will also result in higher operating expenses due to the cost of
converting foreign currency into U.S. dollars, the payment of fixed brokerage
commissions on foreign exchanges, which generally are higher than commissions on
U.S. exchanges, higher valuation and communications costs and the expense of
maintaining securities with foreign custodians.

RISKS OF HEDGING AND OTHER STRATEGIC TRANSACTIONS
Hedging and Other Strategic Transactions have special risks associated with
them, including possible default by the Counterparty to the transaction,
illiquidity and, to the extent the Sub-Adviser's view as to certain market
movements is incorrect, the risk that the use of the Hedging and Other Strategic
Transactions could result in losses greater than if they had not been used.

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

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

<PAGE>

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

LIMITING INVESTMENT RISKS

To further protect investors, the Fund has adopted the following investment
limitations:

2. The Fund may not invest 25% or more of the value of its total
assets in securities of issuers in any one industry, provided that
there is no limitation with respect to investment in obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.

3. The Fund may not borrow money (except that it may enter into
reverse repurchase agreements) except from banks for temporary or
emergency purposes; provided, that (a) the amount of such
borrowing may not exceed 30% of the value of the Fund's total
assets and (b) the Fund will not purchase portfolio securities
while such outstanding borrowing exceeds 5% of the value of its
total assets.

4. The Fund may not invest an amount equal to 15% or more of the
current value of its net assets in investments that are illiquid.

The foregoing investment limitations described immediately above and certain of
those described in the Statement of Additional Information under "Investment
Limitations" are fundamental policies of the Fund that may be changed only when
permitted by law and approved by the holders of a "majority" of the Fund's
outstanding shares. If a percentage restriction on investment or use of assets
contained in these investment limitations or elsewhere in this Prospectus or
Statement of Additional Information is adhered to at the time a transaction is
effected, later changes in percentage resulting from any cause other than
actions by the Fund will not be considered a violation; provided, that the
restrictions on borrowing described in (3) and the restrictions on illiquid
investments described in (4) above shall apply at all times. As used in this
Prospectus and in the Statement of Additional Information, the term "majority",
when referring to the approvals to be obtained from shareholders in connection
with matters affecting the Fund (e.g., approval of investment advisory
contracts), means the vote of the lesser of (i) 67% of the shares of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of the Fund are present in person or by proxy, or (ii) more than 50% of
the outstanding shares of the Fund. Shareholders are entitled to one vote for
each full share held and to fractional votes for fractional shares held.

MANAGEMENT

<PAGE>

INVESTMENT ADVISER
OFFITBANK provides investment advisory services to the Fund pursuant to an
Investment Advisory Agreement with the Company (the "Advisory Agreement"). The
Advisory Agreement provides that, as compensation for services, the Adviser is
entitled to receive a fee from the Fund, computed daily and paid monthly, at the
annual rate of 1.00% of the Fund's average daily net assets.

The Adviser is a New York State chartered trust company. Under its charter, the
Adviser may neither accept deposits nor make loans except for deposits or loans
arising directly from its exercise of the fiduciary powers granted it under the
New York Banking Law. The Adviser's principal business is the rendering of
discretionary investment management services to high net worth individuals and
family groups, foundations, endowments and corporations. The Adviser specializes
in fixed income management and offers its clients a complete range of fixed
income

investments in capital markets throughout the world. The Adviser currently
manages in excess of $8.8 billion in assets and serves as investment adviser to
twenty-one other registered investment companies (or portfolios thereof). The
principal business address of the Advisor is 520 Madison Avenue, New York, New
York 10022.

THE SUB-ADVISER AND PORTFOLIO MANAGER

The Sub-Adviser, Rockefeller & Co., Inc., subject to the overall supervision of
the Adviser, provides the Fund with investment advisory services, including
portfolio management, pursuant to an Investment Management Agreement (the
"Management Agreement"). The Sub-Adviser, which is registered as an investment
adviser under the Investment Advisers Act of 1940, is a private investment
advisory and management firm established by the Rockefeller Family to serve its
own needs and those of a small number of other persons and institutions. As of
September 30, 1997, the Sub-Adviser managed over $4.1 billion in assets. The
Sub-Adviser, with offices at 30 Rockefeller Plaza, New York, New York 10112, is
an indirect, wholly-owned subsidiary of the Rockefeller Family Trust.

The Sub-Adviser places the orders for the purchase and sale of portfolio
securities and options and futures transactions for the Fund. In doing so, the
Sub-Adviser seeks to obtain the best combination of price and execution, which
involves a number of judgmental factors.

The Management Agreement provides that, as compensation for services, the
Sub-Adviser is entitled to receive a fee from OFFITBANK, computed daily and paid
monthly, at the annual rate of 1.00% of the Fund's average daily net assets.

PORTFOLIO MANAGER
Jane A. Freeman, an investment manager with the Sub-Adviser since 1988, is
primarily responsible for the day-to- day management of the Fund's portfolio.
Ms. Freeman has been the portfolio manager of other small capitalization equity
investment vehicles managed by the Sub-Adviser. She received a B.A. from Cornell
University in 1975, a License from the University of Louvain (Belgium) in 1977,
and an M.B.A. (with distinction) from Cornell University in 1978.

ADMINISTRATOR, CUSTODIAN, FUND ACCOUNTING AND TRANSFER AGENT
BISYS Fund Services Limited Partnership, d/b/a BISYS Fund Services ("BISYS")
serves as the Company's administrator and generally assists the Company in all
aspects of its administration and operation. The Bank of New York serves as
custodian of the assets of the Fund. Pursuant to an Administration Agreement
between the Company and BISYS, BISYS is entitled to a monthly fee, based on an
annual rate of .15% of aggregate average daily net assets of the Company as
compensation for its administrative services. BISYS may waive this fee from time
to time. BISYS Fund Services, Inc. provides transfer agency services, dividend
disbursing services and fund accounting for the Fund. The principal business
address of BISYS and BISYS Fund Services, Inc. is 3435 Stelzer Road, Columbus,
Ohio 43219. The principal business address of The Bank of New York is 90
Washington Street, New York, New York 10286.

<PAGE>

ABOUT YOUR INVESTMENT

Shares of the Fund are offered on a continuous basis directly by OFFIT Funds
Distributor, Inc. (the "Distributor"), the Fund's principal underwriter, to the
Accounts without any sales or other charge, at the Fund's net asset value on
each day on which the New York Stock Exchange ("NYSE") is open for business. The
Company will effect

orders to purchase or redeem shares of the Fund, that are based on premium
payments, surrender and transfer requests and any other transaction requests
from Contract and Policy Owners, annuitants and beneficiaries, at the Fund's net
asset value per share next computed after the Account receives such transaction
request. Any orders to purchase or redeem Fund shares that are not based on
actions by Contract or Policy Owners, annuitants, and beneficiaries will be
effected at the Fund's net asset value per share next computed after the order
is received by the Distributor. The Fund reserves the right to suspend the sale
of the Fund's shares in response to conditions in the securities markets or for
other reasons.

Individuals may not place orders directly with the Fund. Please refer to the
appropriate Account Prospectus of the Participating Company for more information
on the purchase of Portfolio shares.

EXCHANGE PRIVILEGE
A Contract or Policy Owner investing through an Account may exchange shares of
the Fund for shares of any of the other investment portfolios of the Company on
the basis of their respective net asset values.

HOW THE COMPANY VALUES ITS SHARES

<PAGE>

the primary market in which they are traded and are translated from the local
currency into U.S. dollars using prevailing exchange rates.

Securities for which market quotations are not readily available are valued at
fair value determined in good faith by or under the direction of the Company's
Board of Directors (as may be delegated from time to time to a pricing committee
designated by the Board of Directors). Securities may be valued by independent
pricing services which use prices provided by market-makers or estimates of
market values obtained from yield data relating to instruments or securities
with similar characteristics.

HOW DISTRIBUTIONS ARE MADE: TAX INFORMATION

DISTRIBUTIONS

The Fund will declare and distribute from net investment income and will
distribute its net capital gains, if any, at least annually. Such income and
capital gains distributions will be made in shares of the Fund.

TAX MATTERS

SHARE REDEMPTIONS. Redemptions of the shares held by the Accounts generally will
not result in gain or loss for the Accounts and will not result in gain or loss
for the Contract or Policy Owners.

SUMMARY. The foregoing discussion of Federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus, and is
subject to change by legislative or administrative action. The foregoing
discussion also assumes that the Accounts are the owners of the shares and that
Policies or Contracts qualify as life insurance policies or annuity contracts,
respectively, under the Code. If the foregoing requirements are not met, then
the Contract or Policy owners will be treated as recognizing income (from
distributions or otherwise) related to the ownership of Fund shares. The
foregoing discussion is for general information only; a more detailed discussion
of Federal income tax considerations is contained in the Statement of Additional
Information. Contract or Policy Owners must consult the prospectuses of their
respective Contract or Policy for information concerning the Federal income tax
consequences of owning such Contracts or Policies.

SHAREHOLDER COMMUNICATIONS

<PAGE>

Each Account owning shares of the Fund will vote its shares in accordance with
instructions received from Contract or Policy Owners, annuitants and
beneficiaries. Fund shares held by an Account 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 that Account as to which instructions have
been received. Fund shares held by an Account that are not attributable to
Contracts or Policies will also be voted for or against any proposition in the
same proportion as theshares for which voting instructions are received by the
Account. If the Participating Insurance Company determines, however, that it is
permitted to vote any such shares of the 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.

PERFORMANCE INFORMATION

The performance of the Fund may be quoted and compared to those of other mutual
funds with similar investment objectives and to other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example,
performance information may be compared with data published by Lipper Analytical
Services, Inc. or to unmanaged indices of performance, including, but not
limited to, Russell 2000 (total return), and S&P SmallCap Index (total return).
The performance information may also include evaluations of the Fund published
by nationally recognized ranking services and by various national or local
financial publications, such as Business Week, Forbes, Fortune, Institutional
Investor, Money, The Wall Street Journal, Barron's, Changing Times, Morningstar,
Mutual Fund Values, U.S.A. Today or The New York Times or other industry or
financial publications.

COUNSEL; INDEPENDENT ACCOUNTANTS

<PAGE>

Rule 497(c)
Registration No. 33-81748

THE OFFITBANK VARIABLE INSURANCE FUND, INC.

125 West 55th Street
New York, New York 10019
(800) 618-9510

STATEMENT OF ADDITIONAL INFORMATION

January 31, 1997
As Revised October 29, 1997

The OFFITBANK Variable Insurance Fund, Inc. (the "Company") is a no load mutual
fund consisting of ten portfolios whose shares are available to participating
life insurance companies ("Participating Companies") and their separate accounts
("Accounts") to fund benefits under variable annuity contracts ("Contracts") and
variable life insurance policies ("Policies") issued by the Participating
Companies. The portfolios are DJG Value Equity Fund (the "Value Equity Fund"),
OFFITBANK VIF-U.S. Government Securities Fund ("U.S. Government Fund") ,
OFFITBANK VIF-U.S. Small Cap Fund ("U.S. Small Cap Fund"), OFFITBANK VIF-High
Yield Fund ("High Yield Fund"), OFFITBANK VIF-Emerging Markets Fund ("Emerging
Markets Fund"), OFFITBANK VIF-Global Convertible Fund ("Global Convertible
Fund"), OFFITBANK VIF-Total Return Fund ("Total Return Fund"), OFFITBANK
VIF-Latin America Equity Fund (the "Latin America Equity Fund"), OFFITBANK
VIF-CVO Greater China Fund (the "Greater China Fund") and OFFITBANK VIF-Mortgage
Securities Fund (the "Mortgage Securities Fund").

This Statement of Additional Information should be read in conjunction with the
individual Prospectuses offering shares of the following portfolios only: Value
Equity Fund, U.S. Government Fund, U.S. Small Cap Fund, High Yield Fund,
Emerging Markets Fund and Global Convertible Fund. The U.S. Small Cap Fund, U.S.
Government Fund, High Yield Fund, Emerging Markets Fund, Global Convertible
Fund, Total Return Fund, Latin America Equity Fund and Mortgage Securities Fund
are advised by OFFITBANK. OFFITBANK has retained Rockefeller & Co., Inc.
("Rockefeller & Co.") as Sub-Adviser to the U.S. Small Cap Fund. The Value
Equity Fund is advised by David J. Greene & Company ("DJ Greene"). The Greater
China Fund is advised by CVO Greater China Partners, L.P. As used herein, the
term "Adviser" shall mean, with respect to each Fund, the entity responsible for
portfolio management.

This Statement of Additional Information sets forth information which may be of
interest to investors but which is not necessarily included in the Prospectus
offering each Fund. Any reference to the "Prospectus" in this Statement of
Additional Information is a reference to the Prospectus or Prospectuses offering
a Fund or Funds to which this Statement pertains. In each instance, the specific
Prospectus or Prospectuses referred to are referenced by the surrounding text,
which identifies a specific Fund or Funds.

<PAGE>

This Statement of Additional Information is NOT a prospectus and is only
authorized for distribution when preceded or accompanied by an effective
Prospectus. Copies of each Prospectus may be obtained by an investor without
charge by writing or calling the Company at the address and telephone number set
forth above.

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

TABLE OF CONTENTS

PAGE
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
AND TECHNIQUES............................................................ 2
ADDITIONAL RISK CONSIDERATIONS............................................ 16
INVESTMENT LIMITATIONS.................................................... 18
MANAGEMENT OF THE FUNDS................................................... 20
PORTFOLIO TRANSACTIONS.................................................... 29
PURCHASE OF SHARES........................................................ 30
REDEMPTION OF SHARES...................................................... 30
PERFORMANCE CALCULATIONS.................................................. 30
ADDITIONAL INFORMATION CONCERNING TAXES................................... 32
DETERMINATION OF NET ASSET VALUE.......................................... 33
GENERAL INFORMATION....................................................... 34
FINANCIAL STATEMENTS...................................................... 37
- --------------------------------------------------------------------------

ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS AND
TECHNIQUES

Information concerning each Fund's investment objective is set forth in each
fund's Prospectus under the heading "Investment Objectives and Policies." There
can be no assurance that any Fund will achieve its objective. The principal
features of each Fund's investment program and the primary risks associated with
that program are discussed in the Prospectus. The following discussion of
investment policies supplements the discussion of investment objectives and
policies set forth in each Fund's Prospectus.

REPURCHASE AGREEMENTS

If and to the extent authorized to do so, each Fund may enter into repurchase
agreements. A repurchase agreement is a transaction in which the seller of a
security commits itself at the time of the sale to repurchase that security from
the buyer at a mutually agreed upon time and price. The Funds will enter into
repurchase agreements only with dealers, domestic banks or recognized financial
institutions which, in the opinion of OFFITBANK, DJ Greene, or Rockefeller &
Co., as the case may be, based on guidelines established by the Company's Board

<PAGE>

of Directors, present minimal credit risks. The relevant Adviser will monitor
the value of the securities underlying the repurchase agreement at the time the
transaction is entered into and at all times during the term of the repurchase
agreement to ensure that the value of the securities always exceeds the
repurchase price plus accrued interest. In the event of default by the seller
under the repurchase agreement, each Fund may incur costs and experience time
delays in connection with the disposition of the underlying securities.

REVERSE REPURCHASE AGREEMENTS

If and to the extent authorized to do so, each Fund may enter into reverse
repurchase agreements. A reverse repurchase agreement is a borrowing transaction
in which a Fund transfers possession of a security to another party, such as a
bank or broker/dealer, in return for cash, and agrees to repurchase the security
in the future at an agreed upon price, which includes an interest component.
Whenever a Fund enters into a reverse repurchase agreement as described in the
Prospectus, it will place in a segregated custodian account liquid assets having
a value equal to the repurchase price (including accrued interest) and will
subsequently monitor the account to ensure such equivalent value is maintained.
Reverse repurchase agreements are considered to be borrowings by a Fund under
the 1940 Act.

DOLLAR ROLL TRANSACTIONS

In order to enhance portfolio returns and manage prepayment risks, if and to the
extent authorized to do so, each Fund may engage in dollar roll transactions
with respect to mortgage securities issued by GNMA, FNMA and FHLMC. In a dollar
roll transaction, a Fund sells a mortgage security held in the portfolio to a
financial institution such as a bank or broker-dealer, and simultaneously agrees
to repurchase a substantially similar security (same type, coupon and maturity)
from the institution at a later date at an agreed upon price. The mortgage
securities that are repurchased will bear the same interest rate as those sold,
but generally will be collateralized by different pools of mortgages with
different prepayment histories. During the period between the sale and
repurchase, a Fund will not be entitled to receive interest and principal
payments on the securities sold. Proceeds of the sale will be invested in
short-term instruments, and the income from these investments, together with any
additional fee income received on the sale, could generate income for a Fund
exceeding the yield on the sold security. When a Fund enters into a dollar roll
transaction, cash or liquid securities of the Fund, in a dollar amount
sufficient to make payment for the obligations to be repurchased, are segregated
with its custodian at the trade date. These securities are marked to market
daily and are maintained until the transaction is settled.

ASSET-BACKED SECURITIES

If and to the extent authorized to do so, each Fund may invest in Asset-Backed
Securities. Asset-backed securities are generally issued as pass through
certificates, which represent undivided fractional ownership interests in the
underlying pool of assets, or as debt instruments, and are generally issued as
the debt of a special purpose entity organized solely for the purpose of owning
such assets and issuing such debt. Asset-backed securities are often backed by a
pool

<PAGE>

of assets representing the obligations of a number of different parties.
Payments of principal and interest may be guaranteed up to certain amounts and
for a certain time period by a letter of credit or other enhancement issued by a
financial institution unaffiliated with the entities issuing the securities.
Assets which, to date, have been used to back asset-backed securities include
motor vehicle installment sales contracts or installment loans secured by motor
vehicles, and receivables from revolving credit (credit card) agreements.

Asset-backed securities present certain risks which are, generally, related to
limited interests, if any, in related collateral. Credit card receivables are
generally unsecured and the debtors 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. Most issuers of automobile receivables permit the services 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 related automobile
receivables. 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 all of the obligations backing such receivables. Therefore, there is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities. If the letter of
credit is exhausted, holders of asset-backed securities may also experience
delays in payments or losses if the full amounts due on underlying sales
contracts are not realized. Because asset-backed securities are relatively new,
the market experience in these securities is limited and the market's ability to
sustain liquidity through all phases of the market cycle has not been tested.

Credit Support. Asset-backed securities often contain elements of credit support
to lessen the effect of the potential failure by obligors to make timely
payments on underlying assets. Credit support falls into two categories: (i)
liquidity protection and (ii) protection against losses resulting from ultimate
default by an obligor on the underlying asset. Liquidity protection ensures that
the pass through of payments due on the installment sales contracts and
installment loans which comprise the underlying pool occurs in a timely fashion.
Protection against losses resulting from ultimate default enhances the
likelihood of ultimate payment of the obligations on at least a portion of the
assets in the pool. Such protection may be provided through guarantees,
insurance policies or letters of credit obtained by the issuer or sponsor from
third parties, through various means of structuring the transaction or through a
combination of such approaches. The Funds will not pay any additional fee for
such credit support. The existence of credit support may increase the market
price of the security.

MORTGAGE-BACKED SECURITIES

Collateralized Mortgage Obligations ("CMOs"). If and to the extent authorized to
do so, each Fund may invest in CMOs. CMOs are debt obligations collateralized by
certificates issued by the Government National Mortgage Association, the Federal
National Mortgage Association and the Federal Home Loan Mortgage Corporation,
but also may be collateralized by whole loans or private pass-through securities
(such collateral collectively referred to as "Mortgage Assets"). Multiclass
pass-through securities are equity interests in a trust composed of Mortgage
Assets.

<PAGE>

Payments of principal and of interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distributions on the multiclass pass-through securities. CMOs
may be issued by agencies or instrumentalities of the U.S. government, or by
private originators of, or investors in, mortgage loans, including savings and
loan associations, mortgage banks, commercial banks, investment banks and
special purpose subsidiaries of the foregoing.

In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a "tranche", is issued at a specified fixed
or floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid on all classes of the CMOs on a monthly, quarterly or
semi-annual basis. The principal of and interest on the Mortgage Assets may be
allocated among the several classes of a series of a CMO in innumerable ways. In
one structure, for example, payments of principal, including any principal
prepayments, on the Mortgage Assets are applied to the classes of a CMO in order
of their respective stated maturities or final distribution dates, so that no
payment of principal will be made on any class of CMOs until all other classes
having an earlier stated maturity or final distribution date have been paid in
full.

Stripped Mortgage-Backed Securities ("SMBS"). If and to the extent authorized to
do so, each Fund may invest in SMBS. SMBS are derivative multiclass mortgage
securities. SMBS may be issued by agencies or instrumentalities of the U.S.
government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing.

SMBS are structured with two or more classes of securities that receive
different proportions of the interest and principal distributions on a pool of
Mortgage Assets. A common type of SMBS will have at least one class receiving
only a small portion of the principal from the Mortgage Assets, while the other
classes will receive primarily interest and only a small portion of the
principal. In the most extreme case, one class will receive all of the interest
("IO" or interest-only class) while the other class will receive all of the
principal ("PO" or principal-only class). The yield to maturity on an IO class
is extremely sensitive to the rate of principal payments (including prepayments)
on the related underlying Mortgage Assets, and a rapid rate of principal
payments may have a material adverse effect on such securities' yield to
maturity and result in a loss to the investor.

Under the Internal Revenue Code of 1986, as amended, POs may generate taxable
income from the current accrual of original issue discount, without a
corresponding distribution of cash to a Fund. In addition, the Staff of the
United States Securities and Exchange Commission (the "SEC") considers privately
issued SMBS to be illiquid securities.

Mortgage-backed and asset-backed securities are generically considered to be
derivative securities.

<PAGE>

DEPOSITORY RECEIPTS

If and to the extent authorized to do so, each Fund may hold equity securities
of foreign issuers in the form of American Depository Receipts ("ADRs"),
American Depository Shares ("ADSs") and European Depository Receipts ("EDRs"),
or other securities convertible into securities of eligible issuers. These
securities may not necessarily be denominated in the same currency as the
securities for which they may be exchanged. ADRs and ADSs typically are issued
by an American bank or trust company which evidences ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depository Receipts ("CDRs"), are receipts issued in Europe
typically by foreign banks and trust companies that evidence ownership of either
foreign or domestic securities. Generally, ADRs and ADSs in registered form are
designed for use in United States securities markets and EDRs, and CDRs in
bearer form are designed for use in European securities markets. For purposes of
each Fund's investment policies, each Fund's investments in ADRs, ADSs, EDRs,
and CDRs will be deemed to be investments in the equity securities representing
securities of foreign issuers into which they may be converted.

WARRANTS OR RIGHTS

Warrants or rights may be acquired by a Fund in connection with other securities
or separately, and provide the Fund with the right to purchase at a later date
other securities of the issuer. Warrants or rights acquired by a Fund in units
or attached to securities will be deemed to be without value for purpose of this
restriction. These limits are not fundamental policies of the Funds and may be
changed by the Company's Board of Directors without shareholder approval.

LENDING OF PORTFOLIO SECURITIES

For the purpose of realizing additional income, if and to the extent authorized
to do so, each Fund may make secured loans of portfolio securities amounting to
not more than 30% of its total assets. Each Fund may make loans which are
short-term (nine months or less) or long-term. Securities loans are made to
broker/dealers or institutional investors pursuant to agreements requiring that
the loans continuously be secured by collateral at least equal at all times to
the value of the securities lent plus any accrued interest, "marked to market"
on a daily basis. The collateral received will consist of cash, U.S. short-term
government securities, bank letters of credit or such other collateral as may be
permitted under each Fund's investment program and by regulatory agencies and
approved by the Company's Board of Directors. While the securities loan is
outstanding, each Fund will continue to receive the equivalent of the interest
or dividends paid by the issuer on the securities, as well as interest on the
investment of the collateral or a fee from the borrower. Each Fund has the right
to call each loan and obtain the securities on five business days' notice. To
the extent applicable, each Fund will not have the right to vote equity
securities while they are being lent, but it will call in a loan in anticipation
of any important vote. The risks in lending portfolio securities, as with other
extensions of secured credit, consist of possible delay in receiving additional
collateral or in the recovery of the securities or possible loss of rights in
the collateral should the borrower fail financially. Loans only will be made to
firms deemed by the Adviser to be of good standing and will not be made

<PAGE>

unless, in the judgment of the Adviser, the consideration to be earned from such
loans would justify the risk.

UNITED STATES GOVERNMENT OBLIGATIONS

If and to the extent authorized to do so, each Fund may invest in securities
issued or guaranteed by the U.S. government or by its agencies or
instrumentalities. Such securities in general include a wide variety of U.S.
Treasury obligations consisting of bills, notes and bonds, which principally
differ only in their interest rates, maturities and times of issuance.
Securities issued or guaranteed by U.S. government agencies and
instrumentalities are debt securities issued by agencies or instrumentalities
established or sponsored by the U.S. government.

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

Securities issued or guaranteed by U.S. government agencies and
instrumentalities include obligations that are supported by (a) the full faith
and credit of the U.S. Treasury (e.g., direct pass-through certificates of the
Government National Mortgage Association); (b) the limited authority of the
issuer or guarantor to borrow from the U.S. Treasury (e.g., obligations of
Federal Home Loan Banks); or (c) only the credit of the issuer or guarantor
(e.g., obligations of the Federal Home Loan Mortgage Corporation). In the case
of obligations not backed by the full faith and credit of the U.S. Treasury, the
agency issuing or guaranteeing the obligation is principally responsible for
ultimate repayment.

Agencies and instrumentalities that issue or guarantee debt securities and that
have been established or sponsored by the U.S. government include, in addition
to those identified above, the Bank for Cooperatives, the Export-Import Bank,
the Federal Farm Credit System, the Federal Intermediate Credit Banks, the
Federal Land Banks, the Federal National Mortgage Association and the Student
Loan Marketing Association.

BANK OBLIGATIONS

As stated in the Prospectus, bank obligations that may be purchased by and to
the extent authorized to do so, each Fund include certificates of deposit,
bankers' acceptances and fixed time deposits. A certificate of deposit is a
short-term negotiable certificate issued by a commercial bank against funds
deposited in the bank and is either interest-bearing or purchased on a discount
basis. A bankers' acceptance is a short-term draft drawn on a commercial bank by
a borrower, usually in connection with an international commercial transaction.
The borrower is liable for payment as is the bank, which unconditionally
guarantees to pay the draft at its face amount on the maturity date. Fixed time
deposits are obligations of branches of U.S. banks or

<PAGE>

foreign banks which are payable at a stated maturity date and bear a fixed rate
of interest. Although fixed time deposits do not have a market, there are no
contractual restrictions on the right to transfer a beneficial interest in the
deposit to a third party. The Funds do not consider fixed time deposits illiquid
for purposes of the restriction on investment in illiquid securities.

Banks are subject to extensive governmental regulations that may limit both the
amounts and types of loans and other financial commitments that may be made and
the interest rates and fees that may be charged. The profitability of this
industry is largely dependent upon the availability and cost of capital funds
for the purpose of funding lending operations under prevailing money market
conditions. Also, general economic conditions play an important part in the
operations of this industry and exposure to credit losses arising from possible
financial difficulties of borrowers might affect a bank's ability to meet its
obligations. Bank obligations may be general obligations of the parent bank or
may be limited to the issuing branch by the terms of the specific obligations or
by government regulation.

Investors should also be aware that securities of foreign banks and foreign
branches of U.S. banks may involve investment risks in addition to those
relating to domestic bank obligations. Such investment risks include future
political and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on such securities held by each
Fund, the possible seizure or nationalization of foreign assets and the possible
establishment of exchange controls or other foreign governmental laws or
restrictions which might affect adversely the payment of the principal of and
interest on such securities held by each Fund. In addition, there may be less
publicly-available information about a foreign issuer than about a U.S. issuer,
and foreign issuers may not be subject to the same accounting, auditing and
financial record-keeping standards and requirements as U.S. issuers.

With the exception of the U.S. Small Cap Fund, the Funds will not purchase
securities which the relevant Adviser believes, at the time of purchase, will be
subject to exchange controls or foreign withholding taxes; however, there can be
no assurance that such laws may not become applicable to certain of each Fund's
investments. In the event unforeseen exchange controls or foreign withholding
taxes are imposed with respect to each Fund's investments, the effect may be to
reduce the income received by each Fund on such investments.

CONVERTIBLE SECURITIES

GENERAL. Under normal market circumstances, each Fund may invest in convertible
securities (the U.S. Small Cap Fund will limit its investment to up to 10% of
its total assets in such securities and the U.S. Government Fund may invest only
in convertible securities rated AAA). Set forth below is additional information
concerning convertible securities.

Convertible securities are issued and traded in a number of securities markets.
For the past several years, the principal markets have been the United States,
the Euromarket and Japan. Issuers during this period have included major
corporations domiciled in the United States, Japan, France, Switzerland, Canada
and the United Kingdom. Since each Fund's investments are expected to be
primarily in the U.S. market or the Euromarket where convertible bonds have

<PAGE>

been primarily denominated in U.S. dollars, it is expected that ordinarily a
substantial portion of the convertible securities held by each Fund will be
denominated in U.S. dollars. However, the underlying equity securities typically
will be quoted in the currency of the country where the issuer is domiciled.
With respect to convertible securities denominated in a currency different from
that of the underlying equity securities, the conversion price may be based on a
fixed exchange rate established at the time the security is issued. As a result,
fluctuations in the exchange rate between the currency in which the debt
security is denominated and the currency in which the share price is quoted will
affect the value of the convertible security. Each Fund may enter into foreign
currency hedging transactions in which they may seek to reduce the impact of
such fluctuations.

Apart from currency considerations, the value of convertible securities is
influenced by both the yield of non-convertible securities of comparable issuers
and by the value of the underlying common stock. The value of a convertible
security viewed without regard to its conversion feature (i.e., strictly on the
basis of its yield) is sometimes referred to as its "investment value." To the
extent there are changes in interest rates or yields of similar non-convertible
securities, the investment value of the convertible security typically will
fluctuate. However, at the same time, the value of the convertible security will
be influenced by its "conversion value," which is the market value of the
underlying common stock that would be obtained if the convertible security were
converted. Conversion value fluctuates directly with the price of the underlying
common stock. If, because of a low price of the underlying common stock, the
conversion value is below the investment value of the convertible security, the
price of the convertible security is governed principally by its investment
value.

To the extent the conversion value of a convertible security increases to a
point that approximates or exceeds its investment value, the price of the
convertible security will be influenced principally by its conversion value. A
convertible security will sell at a premium over the conversion value to the
extent investors place value on the right to acquire the underlying common stock
while holding a fixed income security. The yield and conversion premium of
convertible securities issued in Japan and the Euromarket are frequently
determined at levels that cause the conversion value to affect their market
value more than the securities' investment value. If no capital appreciation
occurs on the underlying common stock, a premium may not be fully recovered.

Holders of convertible securities have a claim on the assets of the issuer prior
to the common stockholders but may be subordinated to similar non-convertible
debt securities of the same issuer. A convertible security may be subject to
redemption at the option of the issuer at a price established in the charter
provision, indenture or other governing instrument pursuant to which the
convertible security was issued. If a convertible security held by a Fund is
called for redemption, the Fund will be required to redeem the security, convert
it into the underlying common stock or sell it to a third party. Certain
convertible debt securities may provide a put option to the holder which
entitles the holder to cause the security to be redeemed by the issuer at a
premium over the stated principal amount of the debt security.

<PAGE>

HEDGING AND OTHER STRATEGIC TRANSACTIONS

As described in the Prospectus under "Special Risk Considerations - Hedging and
Other Strategic Transactions," each Fund may enter into transactions in options,
futures, and forward contracts on a variety of instruments and indexes, in order
to hedge various market risks and/or in the case of Funds other than the U.S.
Small Cap Fund, to manage the effective maturity or duration of debt instruments
held by a Fund. In addition, the Value Equity Fund may enter into transactions
to seek to increase a Fund's income or gain. The U.S. Government Fund currently
intends to pursue such transactions only to hedge its exposure to foreign
currencies versus the U.S. dollar. The discussion below supplements the
discussion in each Fund's Prospectus.

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

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

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

<PAGE>

entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.

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

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

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

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

<PAGE>

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

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

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

If and to the extent authorized to do so, a Fund may purchase and sell put
options on securities (whether or not it holds the securities in its portfolio)
and on securities indices, currencies and futures contracts. In selling put
options, a Fund faces the risk that it may be required to buy the underlying
security at a disadvantageous price above the market price.

GENERAL CHARACTERISTICS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

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

A Fund's use of financial futures contracts and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the rules and regulations of the CFTC and generally will be entered into only
for bona fide hedging, risk management (including duration management) or other
permissible non-hedging purposes. Maintaining a futures contract or selling an
option on a futures contract will typically require a Fund to deposit with a
financial intermediary, as security for its obligations, an amount of cash or
other specified

<PAGE>

assets ("initial margin") that initially is from 1% to 10% of the face amount of
the contract (but may be higher in some circumstances). Additional cash or
assets ("variation margin") may be required to be deposited thereafter daily as
the mark-to-market value of the futures contract fluctuates. The purchase of an
option on a financial futures contract involves payment of a premium for the
option without any further obligation on the part of a Fund. If a Fund exercises
an option on a futures contract it will be obligated to post initial margin (and
potentially variation margin) for the resulting futures position just as it
would for any futures position. Futures contracts and options thereon are
generally settled by entering into an offsetting transaction, but no assurance
can be given that a position can be offset prior to settlement or that delivery
will occur.

No Fund will enter into a futures contract or option thereon for purposes other
than bona fide hedging if, immediately thereafter, the sum of the amount of its
initial margin and premiums required to maintain permissible non-hedging
positions in futures contracts and options thereon would exceed 5% of the
liquidation value of the Fund's net assets; however, in the case of an option
that is in-the-money at the time of the purchase, the in-the-money amount may be
excluded in calculating the 5% limitation. The segregation requirements with
respect to futures contracts and options thereon are described below under "Use
of Segregated and Other Special Accounts".

OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES

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

CURRENCY TRANSACTIONS

If and to the extent authorized to do so, each Fund may engage in currency
transactions with Counterparties to hedge the value of portfolio securities
denominated in particular currencies against fluctuations in relative value.
Currency transactions include currency forward contracts, exchange-listed
currency futures contracts and options thereon, exchange-listed and OTC options

<PAGE>

on currencies, and currency swaps. A forward currency contract involves a
privately negotiated obligation to purchase or sell (with delivery generally
required) a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. A currency swap is an agreement to exchange cash flows
based on the notional difference among two or more currencies and operates
similarly to an interest rate swap, which is described below under "Swaps, Caps,
Floors and Collars". Each Fund may enter into currency transactions only with
Counterparties that are deemed creditworthy by the Adviser.

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

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

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

COMBINED TRANSACTIONS

If and to the extent authorized to do so, each Fund may enter into multiple
transactions, including multiple options transactions, multiple futures
transactions, multiple currency transactions (including forward currency
contracts), multiple interest rate transactions and any

<PAGE>

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

SWAPS, CAPS, FLOORS AND COLLARS

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

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

<PAGE>

relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and, for that
reason, they are less liquid than swaps.

The liquidity of swap agreements will be determined by the Adviser based on
various factors, including (1) the frequency of trades and quotations, (2) the
number of dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including any
demand or tender features) and (5) the nature of the marketplace for trades
(including the ability to assign or offset a Fund's rights and obligations
relating to the investment). Such determination will govern whether a swap will
be deemed within the 15% restriction on investments in securities that are not
readily marketable.

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

EURODOLLAR INSTRUMENTS

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

ADDITIONAL RISK CONSIDERATIONS

POLITICAL AND ECONOMIC RISKS

Investing in securities of non-U.S. companies may entail additional risks due to
the potential political and economic instability of certain countries and the
risks of expropriation, nationalization, confiscation or the imposition of
restrictions on foreign investment and on repatriation of capital invested. In
the event of such expropriation, nationalization or other confiscation by any
country, a Fund could lose its entire investment in any such country.

<PAGE>

FOREIGN INVESTMENT RESTRICTIONS

Certain countries prohibit or impose substantial restrictions on investments in
their capital markets, particularly their equity markets, by foreign entities
such as each of the Funds. For example, certain countries require governmental
approval prior to investments by foreign persons, or limit the amount of
investment by foreign persons in a particular company, or limit the investment
by foreign persons to only a specific class of securities of a company that may
have less advantageous terms than securities of the company available for
purchase by nationals. Moreover, the national policies of certain countries may
restrict investment opportunities in issuers or industries deemed sensitive to
national interests. In addition, some countries require governmental approval
for the repatriation of investment income, capital or the proceeds of securities
sales by foreign investors. A Fund could be adversely affected by delays in, or
a refusal to grant, any required governmental approval for repatriation, as well
as by the application to it of other restrictions on investments.

NON-UNIFORM CORPORATE DISCLOSURE STANDARDS AND GOVERNMENTAL REGULATION

Foreign companies are subject to accounting, auditing and financial standards
and requirements that differ in some cases significantly from those applicable
to U.S. companies. In particular, the assets, liabilities and profits appearing
on the financial statements of such a company may not reflect its financial
position or results of operations in the way they would be reflected had such
financial statements been prepared in accordance with U.S. generally accepted
accounting principles. Most of the securities held by a Fund will not be
registered with the SEC or regulators of any foreign country, nor will the
issuers thereof be subject to the SEC's reporting requirements. Thus, there will
be less available information concerning foreign issuers of securities held by a
Fund than is available concerning U.S. issuers. In instances where the financial
statements of an issuer are not deemed to reflect accurately the financial
situation of the issuer, the Adviser will take appropriate steps to evaluate the
proposed investment, which may include interviews with its management and
consultations with accountants, bankers and other specialists. There is
substantially less publicly available information about foreign companies than
there are reports and ratings published about U.S. companies and the U.S.
government. In addition, where public information is available, it may be less
reliable than such information regarding U.S. issuers.

ADVERSE MARKET CHARACTERISTICS

Securities of many foreign issuers may be less liquid and their prices more
volatile than securities of comparable U.S. issuers. In addition, foreign
securities exchanges and brokers generally are subject to less governmental
supervision and regulation than in the United States, and foreign securities
exchange transactions usually are subject to fixed commissions, which generally
are higher than negotiated commissions on U.S. transactions. In addition,
foreign securities exchange transactions may be subject to difficulties
associated with the settlement of such transactions. Delays in settlement could
result in temporary periods when assets of a Fund are uninvested and no return
is earned thereon. The inability of a Fund to make intended security purchases
due to settlement problems could cause the Fund to miss attractive
opportunities.

<PAGE>

Inability to dispose of a portfolio security due to settlement problems either
could result in losses to a Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser. The Adviser will
consider such difficulties when determining the allocation of such Fund's
assets, though the Adviser does not believe that such difficulties will have a
material adverse effect on the Fund's portfolio trading activities.

NON-U.S. WITHHOLDING TAXES

If and to the extent authorized to do so, each Fund's net investment income from
foreign issuers may be subject to non-U.S. withholding taxes thereby reducing
each Fund's net investment income. See "Additional Information Concerning
Taxes".

ILLIQUID SECURITIES

If and to the extent authorized to do so, each Fund may invest up to 15% of its
net assets in illiquid securities. See "Limiting Investment Risks" in the
Prospectus. The sale of restricted or illiquid securities require more time and
result in higher brokerage charges or dealer discounts and other selling
expenses than the sale of securities eligible for trading on securities
exchanges or in the over-the-counter markets. Restricted securities often sell
at a price lower than similar securities that are not subject to restrictions on
resale.

With respect to liquidity determinations generally, the Company's Board of
Directors has the ultimate responsibility for determining whether specific
securities, including restricted securities pursuant to Rule 144A under the
Securities Act of 1933, are liquid or illiquid. The Board has delegated the
function of making day to day determinations of liquidity to the Adviser,
pursuant to guidelines reviewed by the Board. The relevant Adviser takes into
account a number of factors in reaching liquidity decisions, including, but not
limited to: (i) the frequency of trading in the security; (ii) the number of
dealers who make quotes for the security; (iii) the number of dealers who have
undertaken to make a market in the security; (iv) the number of other potential
purchasers; and (v) the nature of the security and how trading is effected
(e.g., the time needed to sell the security, how offers are solicited and the
mechanics of transfer). The relevant Adviser will monitor the liquidity of
securities in each Fund's portfolio and report periodically on such decisions to
the Board of Directors.

INVESTMENT LIMITATIONS

In addition to the restrictions described under "Limiting Investment Risks" in
the Prospectus, each Fund may not:

(1) purchase or sell commodities or commodity contracts, except that a
Fund may purchase and sell financial and currency futures contracts
and options thereon, and may purchase and sell currency forward
contracts, options on foreign currencies and may otherwise engage in
transactions in foreign currencies;

<PAGE>

(2) make loans, except that a Fund may (a) (i) purchase and hold debt
instruments (including bonds, debentures or other obligations and
certificates of deposit and bankers' acceptances) and (ii) invest in
loans and participations in accordance with its investment
objectives and policies, (b) make loans of portfolio securities and
(c) enter into repurchase agreements with respect to portfolio
securities;

(3) underwrite the securities of other issuers, except to the extent
that the purchase of investments directly from the issuer thereof
and later disposition of such securities in accordance with a Fund's
investment program may be deemed to be an underwriting;

(4) purchase real estate or real estate limited partnership interests
(other than securities secured by real estate or interests therein
or securities issued by companies that invest in real estate or
interests therein);

(5) purchase more than 3% of the stock of another investment company, or
purchase stock of other investment companies equal to more than 5%
of a Fund's net assets in the case of any one other investment
company and 10% of such net assets in the case of all other
investment companies in the aggregate. This restriction shall not
apply to investment company securities received or acquired by a
Fund pursuant to a merger or plan of reorganization;

(6) purchase securities on margin (except for delayed delivery or
when-issued transactions or such short-term credits as are necessary
for the clearance of transactions, and except for initial and
variation margin payments in connection with the use of options,
futures contracts, options thereon or forward currency contracts; a
Fund may also make deposits of margin in connection with futures and
forward contracts and options thereon);

(7) sell securities short (except for short positions in a futures
contract or forward contract);

(8) invest for the purpose of exercising control over management of any
company;

(9) invest directly in interests in oil, gas or other mineral
exploration development programs or mineral leases;

(10) pledge, hypothecate, mortgage or otherwise encumber its assets,
except to secure permitted borrowings;

(11) invest in stock or bond futures and/or options on futures unless (i)
not more than 5% of a Fund's total assets are required as deposit to
secure obligations under such futures and/or options on futures
contracts, provided, however, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be
excluded in computing such 5%; and

(12) invest in puts, calls straddles or spreads, except as described in
(11) above.

<PAGE>

With respect to the U.S. Government Fund, the U.S. Government Fund has adopted
the following fundamental investment restriction: the Fund will not purchase the
securities of any issuer (other than securities issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities, or repurchase agreements
secured thereby) if, as a result, more than 25% of the value of the Fund's total
assets would be invested in the securities of companies whose principal business
activities are in the same industry. Note that each of the Funds is also subject
to this fundamental restriction as described under "Limiting Investment Risks"
in each such Funds' Prospectus.

If a percentage restriction on investment or use of assets set forth above is
adhered to at the time a transaction is effected, later changes in percentages
resulting from changing values will not be considered a violation.

Investment restrictions (1) through (5) described above and those set forth in
the Prospectus under "Limiting Investment Risks" are fundamental policies of
each Fund which may be changed only when permitted by law and approved by the
holders of a majority of each Fund's outstanding voting securities, as described
under "General Information--Capital Stock". Restrictions (7) through (12) are
nonfundamental policies of each Fund, and may be changed by a vote of the
Company's Board of Directors.

MANAGEMENT OF THE FUNDS

DIRECTORS AND OFFICERS

The principal occupations of the directors and executive officers of the Company
for the past five years are listed below.

MANAGEMENT OF THE FUNDS

DIRECTORS AND OFFICERS

The principal occupations of the directors and executive officers of the Company
for the past five years are listed below.

POSITION(S) PRINCIPAL
HELD WITH OCCUPATION(S)
NAME, ADDRESS AND AGE THE COMPANY PAST 5 YEARS
- --------------------- ----------- ------------

Morris W. Offit, 60* Chairman of the President and Director,
OFFITBANK Board, President OFFITBANK (1983 - present).
520 Madison Avenue and Director Chairman of the Board, President
New York, NY 10022 and Director of OFFITBANK
Investment Fund, Inc.

Edward J. Landau, 70 Director Member, Lowenthal, Landau
Lowenthal, Landau, Fischer & Bring, P.C. (1960 -
Fischer & Bring, P.C. present); Director, Revlon Group
250 Park Avenue Inc. (cosmetics), Revlon Consumer
New York, NY 10177 Products Inc. (cosmetics),
Pittsburgh Annealing Box (metal
fabricating) and Clad Metals Inc.
(cookware).

- -----------------
* "Interested person" as defined in the 1940 Act.

<PAGE>

The Very Reverend Director Retired; formerly Dean of
James Parks Morton, 58 Cathedral of St. John the Divine
Cathedral of St. John the (1972 - 1996).
Divine
1047 Madison Avenue
New York, NY 10025

Wallace Mathai-Davis, 53 Secretary and Managing Director, OFFITBANK
OFFITBANK Treasurer (1986 - present). Secretary and
520 Madison Avenue Treasurer of OFFITBANK
New York, NY 10022 Investment Fund, Inc.

Stephen Brent Wells, 53 Assistant Managing Director, OFFITBANK
OFFITBANK Treasurer (1994 - present); General Counse
520 Madison Avenue Gabelli Funds, Inc. (1993 - 1994
New York, NY 10022 General Counsel and President,
Funds Group, Goldman Sachs Asset
Management (1989 - 1993).

Vincent M. Rella, 45 Assistant Controller, OFFITBANK
OFFITBANK Treasurer (1986 - present).
520 Madison Avenue
New York, NY 10022

Ellen Stoutamire, 48 Assistant Vice President, Client Legal
BISYS Fund Services Secretary Services, BISYS Fund Services;
3435 Stelzer Road Associate Counsel, Franklin
Columbus, Ohio 43219 Templeton Mutual Funds; Vice
President and General Counsel,
Pioneer Western Corporation.

Matthew Constancio, 33 Assistant Associate Manager, Client Legal
BISYS Fund Services Secretary Services, BISYS Fund Services
3435 Stelzer Road (November 1996 to present);
Columbus, Ohio 43219 Previously, Mutual Fund
Administrator, Payden & Rygel
Investment Group.

Alaina V. Metz, 30 Assistant Chief Administrative Officer of
BISYS Fund Services Secretary BISYS Fund Services from June
3435 Stelzer Road 1995 to present. Previously,
Columbus, Ohio 43219 Supervisor of Blue Sky Department
at Alliance Capital Management,
May 1989 to June 1995.

<PAGE>

The Board of Directors has designated an audit committee to advise the full
Board with respect to accounting, auditing and financial matters affecting the
Company. The Audit Committee is comprised of Mr. Landau and The Very Reverend
Morton and meets periodically.

The Company pays each Director who is not also an officer or affiliated person
an annual fee of $3,000 and a fee of $500 for each Board of Directors and Board
committee meeting attended and are reimbursed for all out-of-pocket expenses
relating to attendance at meetings. Directors who are affiliated with the
Adviser do not receive compensation from the Company but are reimbursed for all
out-of-pocket expenses relating to attendance at meetings.

ESTIMATED DIRECTOR COMPENSATION
(FOR CALENDAR YEAR 1997)
TOTAL
PENSION OR COMPENSATION
RETIREMENT ESTIMATED FROM REGISTRANT
AGGREGATE BENEFITS ANNUAL AND FUND
COMPENSATION ACCRUED BENEFITS COMPLEX* PAID
NAME OF PERSON, POSITION FROM REGISTRANT AS PART OF FUND UPON TO DIRECTORS
EXPENSES RETIREMENT

<S> <C> <C> <C> <C>
Morris W. Offit $0,000 0 N/A $0

Edward J. Landau $5,000 0 N/A $20,000

The Very Reverend $5,000 0 N/A $20,000
James Parks Morton

</TABLE>

INVESTMENT ADVISER

U.S. SMALL CAP FUND, U.S. GOVERNMENT FUND, HIGH YIELD FUND, EMERGING MARKETS
FUND AND GLOBAL CONVERTIBLE FUND

The Company has retained OFFITBANK, a New York State chartered trust company, to
act as its investment adviser (the "Adviser") for the U.S. Small Cap Fund, U.S.
Government Fund, High Yield Fund, Emerging Markets Fund and Global Convertible
Fund. The advisory agreement (the "Advisory Agreement") between the Adviser and
the Company provides that the Adviser shall manage the operations of the
Company, subject to policies established by the Board of Directors of the
Company. Pursuant to the Advisory Agreement, except in the case of the U.S.
Small Cap Fund, the Adviser manages the Company's investment portfolios, directs
purchases and sales of the portfolio securities and reports thereon to the
Company's officers and directors regularly. In addition, the Adviser pays the
compensation of the Company's officers, employees and directors affiliated with
the Adviser. The Company bears all other costs of its operations, including the
compensation of its directors not affiliated with the Adviser.

For its services under the Advisory Agreement, the Adviser receives from each
Fund an advisory fee. The fee is payable monthly at an annual rate of 1.00% of
U.S. Small Cap Fund's

<PAGE>

average daily net assets, 0.40% of U.S. Government Fund's average daily net
assets 0.85% of the first $200,000,000 and 0.75% on amounts in excess thereof of
VIF-High Yield Fund's average daily net assets, 0.85% of the first $200,000,000
and 0.75% on amounts in excess thereof of VIF-Emerging Markets Fund's average
daily net assets, 0.80% of the first $200,000,000 and 0.70% on amounts in excess
thereof of VIF-Investment Grade Global Debt Fund's average daily net assets and
0.90% of VIF-Global Convertible Fund's average daily net assets. The Adviser may
waive all or part of its fee from time to time in order to increase a Fund's net
investment income available for distribution to shareholders. The Funds will not
be required to reimburse the Adviser for any advisory fees waived. For the
period ended March 31, 1997, the Adviser earned and waived fees of $76,943 and
$13,449 for the High Yield and Emerging Markets Funds, respectively.

Unless sooner terminated, the Advisory Agreement provides that it will continue
in effect as to a particular Fund until February 28, 1997 and for consecutive
one year terms thereafter, provided such continuance is approved at least
annually by the Company's Board of Directors or by a vote of a majority (as
defined under "General Information--Capital Stock") of the outstanding shares of
each Fund, and, in either case, by a majority of the directors who are not
parties to the contract or "interested persons" (as defined in the 1940 Act) of
any party by votes cast in person at a meeting called for such purpose. The
Advisory Agreement may be terminated by the Company or the Adviser on 60 days'
written notice, and will terminate immediately in the event of its assignment.

VALUE EQUITY FUND

David J. Greene & Company ("DJ Greene") is responsible for managing the
investment portfolio of the Value Equity Fund. DJ Greene is a registered
investment adviser under the 1940 Act and a member of the New York Stock
Exchange. The advisory agreement (the "DJ Greene Agreement") between DJ Greene
and the Company provides that DJ Greene shall manage the investment operations
of the Company, subject to policies established by the Board of Directors of the
Company. Pursuant to the DJ Greene Agreement, DJ Greene manages the Company's
Value Equity Fund, directs purchases and sales of the portfolio securities for
the Value Equity Fund and reports regularly thereon to the Company's officers
and directors. The Company bears all other costs of its operations.

DJ Greene is an investment adviser and broker-dealer registered with the SEC and
the NASD. The Firm, established as a partnership in 1952, is located at 599
Lexington Avenue, New York, N.Y. 10022. As of September 30, 1997, DJ Greene had
investment management authority with respect to approximately $1.8 billion of
assets for pension, profit sharing, endowment and individual accounts. The
partnership consists of fourteen partners and a staff of twenty-one professional
and support persons, all of whom devote their full time to the business. DJ
Greene specializes in equity management with a value style orientation.

For its services under the Advisory Agreement, DJ Greene receives an advisory
fee. The fee is payable monthly at an annual rate of .80% of the Value Equity
Fund's average daily net worth. DJ Greene may waive all or part of its fee from
time to time in order to increase the Value Equity Fund's net investment income
available for distribution to shareholders. The Value Equity Fund will not be
required to reimburse DJ Greene for any advisory fees waived.

<PAGE>

The DJ Greene Agreement, dated September 3, 1996, was approved by the Company's
Board of Directors on July 17, 1996, for an initial two year period. Unless
sooner terminated, the Advisory Agreement will continue in effect with respect
to the Company and from year to year thereafter if such continuance is approved
at least annually by the Company's Board of Directors or by a vote of a majority
(as defined under "General Information" - Capital Stock") of the outstanding
shares of the Value Equity Fund, and, in either case, by a majority of the
directors who are not parties to the contract or "interested persons" (as
defined in the 1940 Act) of any party by votes case in person at a meeting
called for such purpose. The Advisory Agreement may be terminated by the Company
or DJ Greene on 60 days' written notice and will terminate immediately in the
event of its assignment.

SUB-ADVISER - U.S. SMALL CAP FUND

Rockefeller & Co., Inc. subject to the review and overall supervision of the
Adviser, is responsible for managing the investment portfolio of the U.S. Small
Cap Fund. Rockefeller & Co. is a registered investment adviser under the
Investment Advisers Act of 1940. Its earliest predecessor was established in the
19th century for the benefit of John D. Rockefeller and his family. Today,
Rockefeller & Co. is a private investment advisory and management firm that
serves the needs of the Rockefeller family and those of a small number of other
persons and institutions. As of September 30, 1997, Rockefeller & Co. managed
over $4.1 billion in assets. Rockefeller & Co., with offices at 30 Rockefeller
Plaza, New York, New York 10112, is a wholly-owned subsidiary of Rockefeller
Financial Services, Inc., all of the voting shares of which are owned by the
Rockefeller Family Trust. The Rockefeller Family Trust was established in 1979,
primarily for the benefit of the grandchildren of John D. Rockefeller, Jr. and
their descendants. The grantors of the trust property are the senior members of
the Rockefeller Family. In 1980, Rockefeller & Co. was registered as an
investment adviser and commenced providing management services to
non-Rockefeller Family clients. Rockefeller & Co. provides comprehensive
investment management services in the global equity and fixed- income markets.
It allocates capital to asset classes with superior investment return potential,
commensurate with the overall financial objectives and risk tolerances of its
clients. Each asset class employed is managed by a specialized investment unit
with dedicated investment and research professionals suited to its particular
asset class or geographic region. Rockefeller & Co. is located in New York City
and also maintains subsidiary research offices in London and Hong Kong.

Rockefeller & Co. has been retained to provide sub-advisory services to the U.S.
Small Cap Fund pursuant to an agreement between Rockefeller & Co. and OFFITBANK
(the "Sub- Advisory Agreement"). Pursuant to the Sub-Advisory Agreement,
OFFITBANK has delegated to Rockefeller & Co. the authority and responsibility to
make and execute portfolio investment decisions for the U.S. Small Cap Fund
within the framework of the U.S. Small Cap Fund's investment objectives,
policies and restrictions, and subject to review by OFFITBANK and the Board of
Directors of the Company. The Sub-Advisory Agreement provides that OFFITBANK,
and not the U.S. Small Cap Fund will pay to Rockefeller & Co. monthly
compensation based on the average daily net assets of the U.S. Small Cap Fund at
the annual rate of 1.00%.

<PAGE>

The Sub-Advisory Agreement, dated September 3, 1996, was approved by the Fund's
Directors on July 17, 1996. The Sub-Advisory Agreement provides that it may be
terminated without penalty by either the Fund or Rockefeller & Co. at any time
by the giving of 60 days' written notice to the other and terminates
automatically in the event of "assignment", as defined in the 1940 Act or upon
termination of the Advisory Agreement. The Sub-Advisory Agreement provides that,
unless sooner terminated, it shall continue in effect for an initial two year
period, and from year to year thereafter only so long as such continuance is
specifically approved at least annually by either the Board of Directors of the
Company or by a vote of the majority of the outstanding voting securities of the
Fund, provided, that in either event, such continuance is also approved by the
vote of the majority of the Directors who are not parties to the Sub-Advisory
Agreement or "interested persons" of such parties cast in person at a meeting
called for the purpose of voting on such approval.

REGULATORY MATTERS

OFFITBANK is a trust company chartered under the New York Banking Law and is
supervised and examined thereunder by the New York Banking Department. OFFITBANK
is prohibited by its charter from accepting deposits other than deposits arising
directly from its exercise of the fiduciary powers granted under the New York
Banking Law and, accordingly, is not an insured depository institution for
purposes of the Federal Deposit Insurance Act or any other banking law or
regulation.

Banking laws and regulations, as currently interpreted by the New York Banking
Department, prohibit New York State chartered trust companies from controlling,
or distributing the shares of, a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit such trust
companies generally from issuing, underwriting, selling or distributing
securities, but do not prohibit such trust companies from acting as investment
adviser, administrator, transfer agent or custodian to such an investment
company or from purchasing shares of such a company as agent for and upon the
order of a customer. OFFITBANK believes that it may perform the services
described in this Prospectus with respect to the Company without violation of
such laws or regulations. OFFITBANK is not a member of the Federal Reserve
System and is not subject to the Glass-Steagall Act, the Bank Holding Company
Act of 1956 or any other federal banking law or regulation that might affect its
ability to perform such services.

If the Adviser or DJ Greene were prohibited from performing the services
described in this Prospectus with respect to the Funds, it is expected that the
Company's Board of Directors would recommend to each Fund's shareholders that
they approve new agreements with another entity or entities qualified to perform
such services and selected by the Board of Directors. The Company does not
anticipate that investors would suffer any adverse financial consequences as a
result of these occurrences.

<PAGE>

DISTRIBUTOR

OFFIT Funds Distributor, Inc., (the "Distributor"), a wholly-owned subsidiary of
BISYS Fund Services Limited Partnership, with its principal office at 125 West
55th Street, New York 10019, distributes the shares of the Company. Under a
distribution agreement with the Company (the "Distribution Agreement"), the
Distributor is not obligated to sell any specific amount of shares of the
Company. The Distributor, as agent of the Company, agrees to use its best
efforts as sole distributor of the Company's shares.

The Distribution Agreement will continue in effect with respect to a particular
Fund from year to year if such continuance is approved at least annually by the
Company's Board of Directors and by a majority of the Directors who have no
direct or indirect financial interest in the Agreement ("Qualified Directors")
and who are not "interested persons" (as defined in the 1940 Act) of any party
by votes cast in person at a meeting called for such purpose. In approving the
continuance of the Distribution Agreement, the Directors must determine that the
Agreement is in the best interest of the shareholders of the Fund. There is no
fee payable under the Distribution Agreement.

ADMINISTRATION, FUND ACCOUNTING, CUSTODY AND TRANSFER AGENCY SERVICES

BISYS Fund Services Limited Partnership, d/b/a BISYS Fund Services ("BISYS")
provides the Company with administrative services pursuant to an Administration
Agreement dated October 1, 1996 (the "Administration Agreement"). BISYS Fund
Services, Inc. provides the Company with fund accounting services pursuant to a
Fund Accounting Agreement dated October 1, 1996 (the "Fund Accounting
Agreement"). Both the Administration Agreement and the Fund Accounting Agreement
became effective on January 1, 1997 and continue to be in effect until January
1, 1998 and from year to year thereafter if such continuances are approved at
least annually by the Company's Board of Directors and by a majority of the
Directors who are not parties to such Agreement or "interested persons" (as
defined in the 1940 Act).

Pursuant to the Administration Agreement, BISYS performs certain administrative
and clerical services, including calculating the net asset value of each Fund,
certain accounting services, facilitation of redemption requests, exchange
privileges, and account adjustments and maintenance of certain books and
records; and certain services to the Company's shareholders, including assuring
that investments and redemptions are completed efficiently, responding to
shareholder inquiries and maintaining a flow of information to shareholders.
BISYS also furnishes office space and certain facilities reasonably necessary
for the performance of its services under the Administration Agreement, and
provides the office space, facilities, equipment and personnel necessary to
perform the following services for the Company: SEC compliance, including record
keeping, reporting requirements and registration statements and proxies;
supervision of Company operations, including custodian, accountants and counsel
and other parties performing services or operational functions for the Company.
As compensation for its administrative services, BISYS receives a monthly fee,
based on an annual rate of .15% of aggregate average daily net assets of the
Funds plus an annual fee of $30,000 for each Fund.

<PAGE>

From January 1, 1997 to March 31, 1997, BISYS earned administrative services
fees and fund accounting fees, amounting to $6,868 and $7,500, respectively, for
the High Yield Fund and $1,236 and $7,500, respectively, for the Emerging
Markets Fund. During the same period, BISYS waived the administrative service
fees for each Fund.

BISYS Fund Services, Inc. serves as the Company's Transfer Agent and Dividend
Disbursing Agent pursuant to a transfer agency agreement (the "Transfer Agency
Agreement") with the Company. Under the Transfer Agency Agreement, BISYS Fund
Services, Inc. has agreed, among other things, to: (i) issue and redeem shares
of each Fund; (ii) transmit all communications by each Fund to its shareholders
of record, including reports to shareholders, dividend and distribution notices
and proxy materials for meetings of shareholders; (iii) respond to
correspondence by shareholders and others relating to its duties; (iv) maintain
shareholder accounts; and (v) make periodic reports to the Board of Directors
concerning each Funds' operations. Each Fund pays BISYS Fund Services, Inc. such
compensation as may be agreed upon from time to time. The Transfer Agency
Agreement continues in effect until January 1, 1998 and from year to year
thereafter if such continuance is approved at least annually by the Company's
Board of Directors and by a majority of the Directors who are not "interested
persons" (as defined in the 1940 Act) of any party, and such Agreement may be
terminated by either party on 60 days' written notice. From January 1, 1997 to
March 31, 1997, BISYS earned transfer agent fees amounting to $170 for the High
Yield Fund and $124 for the Emerging Markets Fund.

From the inception of the High Yield Fund (April 1, 1996) and the Emerging
Markets Fund (August 26, 1996) through December 31, 1996, (collectively, the
"Relevant Periods") Furman Selz LLC ("Furman Selz") provided the Company with
Administrative, fund accounting, dividend disbursing and transfer agency
services pursuant to an administration agreement. During the Relevant Periods,
Furman Selz earned and waived fees of $6,710 for the High Yield Fund and $1,005
for the Emerging Markets Fund for administrative services rendered. As
Administrator, Furman Selz provided the Funds with fund accounting and related
services. For these services Furman Selz was paid a fee of $2,500 per month.
During the Relevant Periods, Furman Selz earned fees of $22,500 for the High
Yield Fund and $7,500 for the Emerging Markets Fund. Furman Selz also acted as
Transfer Agent for the Funds and received reimbursement of certain expenses plus
a per account fee of $15.00 per year. During the Relevant Periods, Furman Selz
earned fees of $697 for the High Yield Fund and $414 for the Emerging Markets
Fund for transfer agency services.

The Bank of New York ("BONY") serves as the Company's custodian, with respect to
all Funds, other than the Emerging Markets Fund, pursuant to a custodian
agreement (the "BONY Custodian Agreement") with the Company. BONY is located at
90 Washington Street, New York, New York 10286. Under the BONY Custodian
Agreement, BONY has agreed to (i) maintain a segregated account or accounts in
the name of each Fund; (ii) hold and disburse portfolio securities on account of
each Fund; (iii) collect and receive all income and other payments and
distributions on account of each Fund's portfolio securities; (iv) respond to
correspondence relating to its duties; and (v) make periodic reports to the
Company's Board of

<PAGE>

Directors concerning the Funds' operations. BONY is authorized under the BONY
Custodian Agreement to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Funds, provided that BONY remains responsible for
the performance of all of its duties under the BONY Custodian Agreement. BONY is
entitled to receive such compensation from the Funds as may be agreed upon from
time to time.

The Chase Manhattan Bank, N.A. ("Chase") serves as the Company's custodian, with
respect to the Emerging Markets Fund only, pursuant to a custodian agreement
(the "Chase Custodian Agreement") with the Company. Chase is located at 4
MetroTech Center, 18th Floor, Brooklyn, New York 11245. Under the Chase
Custodian Agreement, Chase has agreed to (i) maintain a segregated account or
accounts in the name of each Fund; (ii) hold and disburse portfolio securities
on account of each Fund; (iii) collect and receive all income and other payments
and distributions on account of each Fund's portfolio securities; (iv) respond
to correspondence relating to its duties; and (v) make periodic reports to the
Company's Board of Directors concerning the Funds' operations. Chase is
authorized under the Chase Custodian Agreement to select one or more banks or
trust companies to serve as sub-custodian on behalf of the Funds, provided that
Chase remains responsible for the performance of all of its duties under the
Chase Custodian Agreement. Chase is entitled to receive monthly fees under the
Chase Custodian Agreement based upon the types of assets held by each Fund, at
the annual rate of .0865% on the first $10 million and .05% on amounts in excess
thereof for assets held in the United States and .20% on the first $10 million
and .15% on amounts in excess thereof for assets held outside the United States,
except that with respect to assets held in certain emerging market countries,
the annual fee shall be .30% of such Fund's assets held in the particular type
of security. The Chase Custodian Agreement continues in effect until December
31, 1996 and from year to year thereafter if such continuance is approved at
least annually by the Company's Board of Directors and by a majority of the
Directors who are not parties to such Agreement or "interested persons" (as
defined in the 1940 Act) of any party, and such Agreement may be terminated by
either party on 60 days' written notice.

OTHER INFORMATION CONCERNING FEES AND EXPENSES

All or part of the fees payable by any or all of each of the Funds to the
organizations retained to provide services for each of the Funds may be waived
from time to time in order to increase such Funds' net investment income
available for distribution to shareholders or total return.

Except as otherwise noted, OFFITBANK, BISYS and BISYS Fund Services, Inc. bear
all expenses in connection with the performance of their advisory and
administrative services respectively. The Company bears the expenses incurred in
its operations, including: taxes; interest; fees (including fees paid to its
directors who are not affiliated with the Company); fees payable to the SEC;
costs of preparing prospectuses for regulatory purposes and for distribution to
shareholders; advisory and administration fees; charges of its custodian and
transfer agent; certain insurance costs; auditing and legal expenses; fees of
independent pricing services; costs of shareholders' reports and shareholder
meetings, including proxy statements and related

<PAGE>

materials; and any extraordinary expenses. The Company also pays for brokerage
fees and commissions, if any, in connection with the purchase of portfolio
securities.

PORTFOLIO TRANSACTIONS

The Company has no obligation to deal with any dealer or group of dealers in the
execution of transactions in portfolio securities. Subject to policies
established by the Company's Board of Directors, except as stated below, the
Adviser is primarily responsible for the Company's portfolio decisions and the
placing of the Company's portfolio transactions. DJ Greene is primarily
responsible for the portfolio decisions and the placing of the portfolio
transaction for the Value Equity Fund. Rockefeller & Co., however, under the
supervision of the Adviser, is primarily responsible for the portfolio decisions
and the placing of the portfolio transactions for the U.S. Small Cap Fund.

With respect to the U.S. Government Fund High Yield Fund, Emerging Markets Fund,
Global Convertible Fund and Total Return Fund, portfolio securities normally
will be purchased or sold from or to dealers at a net price, which may include
dealer spreads and underwriting commissions. With respect to the U.S. Small Cap
Fund, Value Equity Fund, purchases and sales of securities on a stock exchange
are effected through brokers who charge a commission. In the over-the-counter
market, securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. In placing orders, it
is the policy of the Company to obtain the best results taking into account the
dealer's general execution and operational facilities, the type of transaction
involved and other factors such as the dealer's risk in positioning the
securities involved. While the Adviser, DJ Greene and Rockefeller & Co. each
generally seeks a competitive price in placing its orders, the Company may not
necessarily be paying the lowest price available.

Under the 1940 Act, persons affiliated with the Company are prohibited from
dealing with the Company as a principal in the purchase and sale of securities
unless the transaction is conducted in accordance with procedures established by
the Company's Board of Directors and complies in all other respects with certain
criteria or an exemptive order allowing such transactions is obtained from the
SEC. Affiliated persons of the Company, or affiliated persons of such persons,
may from time to time be selected to execute portfolio transactions for the
Company as agent. Subject to the considerations discussed above and in
accordance with procedures adopted by the Board of Directors, in order for such
an affiliated person to be permitted to effect any portfolio transactions for
the Company, the commissions, fees or other remuneration received by such
affiliated person must be reasonable and fair compared to the commissions, fees
and other remuneration received by other brokers in connection with comparable
transactions. This standard would allow such an affiliated person to receive no
more than the remuneration which would be expected to be received by an
unaffiliated broker in a commensurate arm's-length agency transaction.

<PAGE>

Investment decisions for the Company are made independently from those for other
funds and accounts advised or managed by the Adviser, DJ Greene or Rockefeller &
Co., as the case may be. Such other funds and accounts may also invest in the
same securities as the Company. If those funds or accounts are prepared to
invest in, or desire to dispose of, the same security at the same time as the
Company, however, transactions in such securities will be made, insofar as
feasible, for the respective funds and accounts in a manner deemed equitable to
all. In some cases, this procedure may adversely affect the size of the position
obtained for or disposed of by the Company or the price paid or received by the
Company. In addition, because of different investment objectives, a particular
security may be purchased for one or more funds or accounts when one or more
funds or accounts are selling the same security. To the extent permitted by law,
the Adviser, DJ Greene and Rockefeller & Co. may aggregate the securities to be
sold or purchased for the Company with those to be sold or purchased for other
funds or accounts in order to obtain best execution.

Portfolio turnover may vary from year to year as well as within a year. The
turnover rate for the High Yield Fund for the period April 1, 1996 (commencement
of operations) through March 31, 1997 was 4%. The turnover rate for the Emerging
Markets Fund for the period August 28, 1996 (commencement of operations) through
March 31, 1997 was 96%.

PURCHASE OF SHARES

The Company reserves the right, in its sole discretion, to (i) suspend the
offering of shares of each of its Funds, and (ii) reject purchase orders when,
in the judgment of management, such suspension or rejection is in the best
interest of the Company.

REDEMPTION OF SHARES

The Company may suspend redemption privileges or postpone the date of payment
(i) during any period that the New York Stock Exchange (the "NYSE") or the bond
market is closed, or trading on the NYSE is restricted as determined by the SEC,
(ii) during any period when an emergency exists as defined by the rules of 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 assets, and
(iii) for such other periods as the SEC may permit.

Furthermore, if the Board of Directors determines that it is in the best
interests of the remaining shareholders of a Fund, such Fund may pay the
redemption price, in whole or in part, by a distribution in kind.

PERFORMANCE CALCULATIONS

The Company may from time to time quote various performance figures to
illustrate the past performance of each of its Funds. Performance quotations by
investment companies are subject to rules adopted by the SEC, which require the
use of standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by a Fund be

<PAGE>

accompanied by certain standardized performance information computed as required
by the SEC. An explanation of the SEC methods for computing performance follows.

TOTAL RETURN

A Fund's average annual total return is determined by finding the average annual
compounded rates of return over 1, 5 and 10 year periods (or, if sooner, the
period since inception of the Fund) that would equate an initial hypothetical
$1,000 investment to its ending redeemable value. The calculation assures that
all dividends and distributions are reinvested when paid. The quotation assumes
the amount was completely redeemed at the end of each 1, 5 and 10 year period
(or, if shorter, the period since inception of the Fund) and the deduction of
all applicable Fund expenses on an annual basis. Average annual total return is
calculated according to the following formula:

P (1+T)^n = ERV

Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the stated period

A Fund may also calculate total return on an aggregate basis which reflects the
cumulative percentage change in value over the measuring period. The formula for
calculating aggregate total return can be expressed as follows:

Aggregate Total Return = [( ERV ) - 1]
---
P

In addition to total return, a Fund may quote performance in terms of a 30-day
yield. The yield figures provided will be calculated according to a formula
prescribed by the SEC and can be expressed as follows:

Yield = 2 [ (a-b +1)^6 - 1]
---
cd

Where: a = dividends and interest earned during the period.

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

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

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

<PAGE>

For the purpose of determining the interest earned (variable "a" in the formula)
on debt obligations that were purchased by a Fund at a discount or premium, the
formula generally calls for amortization of the discount or premium; the
amortization schedule will be adjusted monthly to reflect changes in the market
value of the debt obligations.

The total return of the High Yield Fund since April 1, 1996 (inception) through
March 31, 1997 was 11.90%. The total return of the Emerging Markets Fund since
August 28, 1996 (inception) through March 31, 1997 was 8.29%. The total return
of the Value Equity Fund since April 11, 1997 (inception) through September 30,
1997 was 32.60%. The total return of the U.S. Small Cap Fund since April 11,
1997 (inception) through September 30, 1997 was 31.80%.

The performance of a Fund may be compared to data prepared by Lipper Analytical
Services, Inc. or other independent services which monitor the performance data
of investment companies, and may be quoted in advertising in terms of their
rankings in each applicable universe. In addition, the Company may use
performance reported in financial and industry publications, including Barron's,
Business Week, Forbes, Fortune, Institutional Investor, Money, Morningstar,
Mutual Fund Values, The Wall Street Journal, The New York Times and U.S.A.
Today.

Performance information presented for each of the Funds should not be compared
directly with performance information of other insurance products without taking
into account insurance-related charges and expenses payable under the variable
annuity contract and variable life insurance policy. These charges and expenses
are not reflected in the Funds' performance and would reduce an investor's
return under the annuity contract or life policy.

ADDITIONAL INFORMATION CONCERNING TAXES

The following is only a summary of certain additional tax considerations that
are not described in the Prospectus and generally affect each Fund and its
shareholders. No attempt is made to present a detailed explanation of the tax
treatment of each Fund or its shareholders, and the discussions here and in the
Prospectus are not intended as substitutes for careful tax planning.

Each Fund intends to qualify to be treated as a "regulated investment company"
("RIC") under the Internal Revenue Code of 1986 (the "Code"). If so qualified,
each Fund will not be subject to federal income tax on its investment company
taxable income and net capital gains to the extent that such investment company
taxable income and net capital gains are distributed in each taxable year to the
separate accounts of insurance companies that hold its shares. In addition, if
each Fund distributes annually to the separate accounts its ordinary income and
capital gain net income, in the manner prescribed in the Code, it will also not
be subject to the 4% federal excise tax otherwise applicable to the RIC's on any
of its income or gains. Distributions of net investment income and net
short-term capital gains will be treated as ordinary income and distributions of
net long-term capital gains will be treated as long-term capital gain in the
hands of the insurance companies. Under current tax law, capital gains or
dividends from any Funds are not currently taxable when left to accumulate
within a variable annuity or variable life insurance contract.

<PAGE>

Section 817(h) of the Code requires that investments of a segregated asset
account of an insurance company be "adequately diversified", in accordance with
Treasury Regulations promulgated thereunder, in order for the holders of the
variable annuity contracts or variable life insurance policies investing in the
account to receive the tax-deferred or tax-free treatment generally afforded
holders of annuities or life insurance policies under the Code. The Department
of the Treasury has issued Regulations under section 817(h) which, among other
things, provide the manner in which a segregated asset account will treat
investments in a RIC for purposes of the applicable diversification
requirements. Under the Regulations, if a RIC satisfies certain conditions, that
RIC will not be treated as a single investment for these purposes, but rather
the segregated asset account will be treated as owning its proportionate share
of each of the assets of the RIC. Each Fund plans to satisfy these conditions at
all times so that each segregated asset account of a life insurance company
investing in the Funds will be treated as adequately diversified under the Code
and Regulations.

For information concerning the federal income tax consequences to the holders of
variable annuity contracts and variable rate insurance policies, such holders
should consult the prospectuses used in connection with the issuance of their
particular contracts or policies.

DETERMINATION OF NET ASSET VALUE

The Company values the shares of each Fund daily on each day the New York Stock
Exchange (the "NYSE") is open. Currently, the NYSE is closed Saturdays, Sundays
and the following holidays: New Year's Day, Reverend Martin Luther King, Jr.'s
Day, President's Day, Good Friday, Memorial Day, the Fourth of July, Labor Day,
Thanksgiving and Christmas. The Company determines net asset value as of the
close of the NYSE. However, equity options held by a Fund are priced as of the
close of trading at 4:10 p.m, and futures on U.S. government securities and
index options held by a Fund are priced as of their close of trading at 4:15
p.m.

Each Fund determines net asset value as follows: Securities for which market
quotations are readily available are valued at prices which, in the opinion of
the Directors, most nearly represent the market values of such securities.
Currently, such prices are determined using the last reported sales price on or,
if no sales are reported (as in the case of some securities traded
over-the-counter) the last reported bid price, except that certain U.S.
government securities are stated at the mean between the reported bid and asked
prices. Short-term investments having remaining maturities of 60 days or less
are stated at amortized cost, which approximates market. All other securities
and assets are valued at their fair value following procedures approved by the
Directors. Liabilities are deducted from the total, and the resulting amount is
divided by the number of shares outstanding.

Reliable market quotations are not considered to be readily available for
long-term corporate bonds and notes, certain preferred stocks, tax-exempt
securities, or certain foreign securities. Securities for which reliable
quotations are not readily available and all other assets will be valued at
their respective fair market value as determined in good faith by, or under
procedures established by, the Company's Board of Directors.

<PAGE>

If any securities held by a Fund are restricted as to resale, their fair value
will be determined in good faith by, or under procedures established by, the
Company's Board of Directors. The Directors periodically review such valuations
and procedures. The fair value of such securities is generally determined as the
amount which Fund could reasonably expect to realize from an orderly disposition
of such securities over a reasonable period of time. The valuation procedures
applied in any specific instance are likely to vary from case to case. However,
consideration is generally given to the financial position of the issuer and
other fundamental analytical data relating to the investment and to the nature
of the restrictions on disposition of the securities (including any registration
expenses that might be borne by the Fund in connection with such disposition).
In addition, specific factors are also generally considered, such as the cost of
the investment, the market value of any unrestricted securities of the same
class (both at the time of purchase and at the time of valuation), the size of
the holding, the prices of any recent transactions or offers with respect to
such securities and any available analysts' reports regarding the issuer.

To the extent a Fund invests in foreign securities, the calculation of the
Fund's net asset value may not take place contemporaneously with the
determination of the prices of certain of the portfolio securities used in the
calculation. Also, because of the amount of time required to collect and process
trading information as to large numbers of securities issues, the values of
certain securities (such as convertible bonds, U.S. government securities, and
tax-exempt securities) are determined based on market quotations collected
earlier in the day at the latest practicable time prior to the close of the
NYSE. Occasionally, events which affect the values of such securities (and, with
respect to foreign securities, the value of the currency in which the security
is denominated) may occur between the times at which they are determined and the
close of the NYSE and will therefore not be reflected in the computation of a
Fund's net asset value. If events materially affecting the value of such
securities occur during such period, then these securities will be valued at
their fair value as determined in good faith by, or under procedures established
by, the Company's Board of Directors. Similarly, market movements can occur with
respect to foreign securities on days on which an investor does not have access
to the Fund.

GENERAL INFORMATION

CAPITAL STOCK

All shares of the Company have equal voting rights and will be voted in the
aggregate, and not by class, except where voting by class is required by law. As
used in this Statement of Additional Information, the term "majority", when
referring to the approvals to be obtained from shareholders in connection with
general matters affecting the Company and all Funds, means the vote of the
lesser of (i) 67% of the Company's shares represented at a meeting if the
holders of more than 50% of the outstanding shares are present in person or by
proxy or (ii) more than 50% of the Company's outstanding shares. The term
"majority", when referring to the approvals to be obtained from shareholders in
connection with matters affecting any single Fund (e.g., approval of Advisory
Agreements), means the vote of the lesser of (i) 67% of the shares of the

<PAGE>

Fund represented at a meeting if the holders of more than 50% of the outstanding
shares of the Fund are present in person or by proxy or (ii) more than 50% of
the outstanding shares of the Fund. Shareholders are entitled to one vote for
each full share held and fractional votes for fractional shares held.

Each share of a Fund of the Company is entitled to such dividends and
distributions out of the income earned on the assets belonging to that Fund as
are declared in the discretion of the Company's Board of Directors. In the event
of the liquidation or dissolution of the Company, shares of a Fund are entitled
to receive the assets allocable to that Fund which are available for
distribution, and a proportionate distribution, based upon the relative net
assets of the Funds, of any general assets not belonging to a Fund which are
available for distribution.

Shareholders are not entitled to any preemptive rights. All shares, when issued,
will be fully paid, non-accessible, fully transferable and redeemable at the
option of the holder.

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP serves as the independent accountants for the Company.
Price Waterhouse LLP is located at 1177 Avenue of the Americas, New York, New
York 10036.

COUNSEL

Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York 10022,
serves as counsel to each of the Funds.

OTHER INFORMATION

The Prospectus and this Statement of Additional Information do not contain all
the information included in the Registration Statement filed with the SEC under
the Securities Act of 1933 with respect to the securities offered by the
Prospectus. Certain portions of the Registration Statement have been omitted
from the Prospectus and this Statement of Additional Information 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 of Additional
Information as to the contents of any contract or other document referred to are
not 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 of Additional Information
form a part, each such statement being qualified in all respects by such
reference.

<PAGE>

As of October 2, 1997, the Trustees and officers of the Company in the aggregate
owned less than 1% of the outstanding shares of any of the Portfolios. Also, as
of that date, the shareholders listed below owned of record more than five
percent of the following Portfolios:

<TABLE>
<CAPTION>
Shares of % of
Shareholder Portfolio Owned Portfolio Owned
----------- --------------- ---------------

EMERGING MARKETS FUND:

<S> <C> <C>
C M Life 452,675.017 84.327%*
c/o Continuum
301 West 11th Street

Kansas City, Missouri 64105-1634

Security Equity Life Insurance Co. 80,765.878 15.045%
84 Business Park Drive

Armonk, New York 10504-1711

HIGH YIELD FUND:

C M Life 2,065,772.381 77.700%*
c/o Continuum
301 West 11th Street

Kansas City, Missouri 64105-1634

Security Equity Life Insurance Co. 589,506.594 22.173%
84 Business Park Drive

Armonk, New York 10504-1711

DJG VALUE EQUITY FUND:

Security Equity Life Insurance Co. 106,452.370 100%*
84 Business Park Drive

Armonk, New York 10504-1711

U.S. SMALL CAP FUND:

Security Equity Life Insurance Co. 99,214.049 100%*
84 Business Park Drive

Armonk, New York 10504-1711

</TABLE>
- --------
* May be deemed to "control" the Fund as that term is defined under the 1940
Act.

<PAGE>

FINANCIAL STATEMENTS

The audited financial statements for the OFFITBANK VIF-Emerging Markets Fund and
the OFFITBANK VIF-High Yield Fund for the period ended March 31, 1997 are
incorporated herein by reference to the Company's Annual Report to Shareholders
dated March 31, 1997. The unaudited financial statements for the DJG Value
Equity Fund and the OFFITBANK VIF-U.S. Small Cap Fund for the period ended
September 30, 1997 and the unaudited statement of assets and liabilities for
each such Fund for the period ended September 30, 1997 are included herein. The
March 31, 1997 financial statements are incorporated herein in reliance upon the
report of Price Waterhouse LLP, independent accountants, given on the authority
of such firm as experts in auditing and accounting.

<PAGE>

THE OFFITBANK VARIABLE INSURANCE FUND, INC.
STATEMENT OF OPERATIONS (unaudited)
DJG Value Equity Fund
For the period from April 11, 1997* through September 30, 1997
- --------------------------------------------------------------------------------
Investment Income:
Interest $ 4,722
Dividends 4,438
----------
$ 9,160

Expenses:
Advisory (Note 3) 4691
Administration (Note 3) 880
Fund accounting (Note 3) 14,584
Amortization of organization expenses 858
Legal 940
Audit 7,488
Miscellaneous 821
----------
Total expenses before waivers/ reimbursements 30,262
Less expenses waived/ reimbursed (Note 3) (22,926)
--------
Net expenses 7,336

--------
Net Investment Income 1,824
--------
Realized and Unrealized Gains on Investments:
Net realized gains on investment transactions 57,330
Net change in unrealized appreciation on
investments 289,531
----------
Net realized and unrealized gains on investments 346,861
--------
Increase in Net Assets Resulting from Operations $348,685
========

* Commencement of operations.

VIF- U.S. Small Cap Fund
For the period from April 11, 1997* through September 30, 1997
- --------------------------------------------------------------------------------

Investment Income:
Interest $ 3,166
Dividends 2,069
----------
$ 5,235

Expenses:
Advisory (Note 3) 4,440
Administration (Note 3) 666
Fund accounting (Note 3) 14,842
Amortization of organization expenses 858
Legal 699
Audit 7,488
Miscellaneous 838
----------
Total expenses before waivers/ reimbursements 29,831
Less expenses waived/ reimbursed (Note 3) (23,165)
--------
Net expenses 6,666
--------
Net Investment Loss (1,431)
--------

Realized and Unrealized Gains on Investments:
Net realized gains on investment transactions 46,596
Net realized loss on foreign currency
transactions (14)
Net change in unrealized appreciation on
investments 215,037
----------
Net realized and unrealized gains on
investments 261,619
--------
Increase in Net Assets Resulting from Operations $260,188
========

* Commencement of operations.

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
<CAPTION>
THE OFFITBANK VARIABLE INSURANCE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
DJG Value Equity Fund
For the period from
April 11, 1997* through
September 30, 1997
(unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Operations:
<S> <C>
Net investment income $ 1,824
Net realized gains on investment transactions 57,330
Net change in unrealized appreciation of investments 289,531
--------------
Change in net assets resulting from operations 348,685
--------------

Distributions to Shareholders from:
Net investment income --
--------------
Capital Share Transactions:
Proceeds from shares issued 1,072,010
Dividends reinvested --
Cost of shares redeemed (8,644)
--------------
Change in net assets from capital share transactions 1,063,366

Change in net assets 1,412,051

Net Assets:
Beginning of period --
--------------
End of period (including undistributed net investment income of $1,824) $ 1,412,051
==============

VIF- U.S. Small Cap Fund
For the period from
April 11, 1997* through
September 30, 1997
(unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
Investment Activities:
Operations:
Net investment loss $ (1,431)
Net realized gains on investment and foreign currency transactions 46,582
Net change in unrealized appreciation of investments 215,037
--------------
Change in net assets resulting from operations 260,188
--------------
Distributions to Shareholders from:
Net investment income --
--------------
Capital Share Transactions:
Proceeds from shares issued 1,054,010
Dividends reinvested --
Cost of shares redeemed (6,630)
--------------
Change in net assets from capital share transactions 1,047,380
--------------

Change in net assets 1,307,568

Net Assets:
Beginning of period --
--------------
End of period (including undistributed net investment loss of ($1,431)) $ 1,307,568
==============

* Commencement of operations

The accompanying notes are an integral part of the financial statements
</TABLE>

<PAGE>

THE OFFITBANK VARIABLE INSURANCE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------

NOTE 1 -- ORGANIZATION

The OFFITBANK Variable Insurance Fund, Inc. (the "Company") was incorporated in
Maryland on July 1, 1994. The Company is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"). The Company consists of ten separately
managed funds, of which four, OFFITBANK VIF-High Yield Fund (VIF-High Yield
Fund), OFFITBANK VIF-Emerging Markets Fund (VIF-Emerging Markets Fund), DJG
Value Equity Fund (DJG Value Equity Fund) and OFFITBANK VIF-U.S. Small Cap Fund
(VIF-U.S. Small Cap Fund) (individually, a "Fund", and collectively, the
"Funds") had commenced operations on April 1, 1996, August 28, 1996, April 11,
1997 and April 11, 1997, respectively. The VIF-High Yield Fund and VIF-Emerging
Markets Fund operate as non-diversified, open-end management investment
companies. The DJG Value Equity Fund and VIF-U.S. Small Cap Fund operate as
diversified, open-end management investment companies.

The VIF-High Yield Fund seeks to provide investors with a high level of current
income by investing primarily in high yield, high risk corporate debt securities
and sovereign debt obligations. The VIF-Emerging Markets Fund seeks to provide
investors with a competitive total investment return by focusing on current
yield and opportunities for capital appreciation primarily by investing in
corporate and sovereign debt securities of emerging market countries. The DJG
Value Equity Fund seeks to achieve its objectives of long-term appreciation and
preservation of capital by researching and investing in equity securities priced
at a discount to their intrinsic values. The VIF-U.S. Small Cap Fund invests
primarily in a diversified portfolio of securities of smaller companies located
in the United States to achieve its investment objective of capital
appreciation.

OFFITBANK serves as the VIF-High Yield, VIF-Emerging Markets and VIF-U.S. Small
Cap Funds' investment adviser. David J. Greene and Company serves as the DJG
Value Equity Fund's investment adviser. BISYS Fund Services, Limited Partnership
("BISYS"), serves as the Funds' administrator. OFFIT Funds Distributor, Inc.
(the "Distributor"), serves as the distributor of the Funds' shares. BISYS Fund
Services, Inc., serves as fund accountant and transfer and dividend disbursing
agent of the Funds. BISYS, the Distributor, and BISYS Fund Services, Inc. are
each a wholly-owned subsidiary of The BISYS Group, Inc.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.

PORTFOLIO VALUATIONS:

Securities held by a Fund generally are valued based on quoted bid prices.
Short-term debt investments having maturities of 60 days or less are amortized
to maturity based on their cost and, if applicable, adjusted for foreign
exchange translation. Securities for which market quotations are not readily
available are valued at fair value determined in good faith by or under the
direction of the Company's Board of Directors. Securities quoted in foreign
currencies initially are valued in the currency in which they are denominated
and are then translated into U.S. dollars at the prevailing foreign exchange
rate. Securities may be valued by independent pricing services which use prices
provided by market-makers or estimates of market values obtained from yield data
relating to instruments or securities with similar characteristics.

<PAGE>
THE OFFITBANK VARIABLE INSURANCE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (continued)
- --------------------------------------------------------------------------------

SECURITIES TRANSACTIONS AND RELATED INCOME:

The Funds record security transactions on a trade date basis. Interest income,
including accretion of discount and amortization of premium is accrued daily.
Realized gains and losses from security transactions are recorded on the
identified cost basis.

EXPENSES:

The Company accounts separately for the assets, liabilities and operations of
each Fund. Direct expenses of a fund are charged to that fund, while general
Company expenses are allocated among the Company's respective portfolios.

Costs incurred in connection with the organization and initial registration of
the Funds have been deferred and are being amortized on a straight line basis
over a sixty-month period beginning with each of the Fund's commencement of
operations.

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:

The VIF-High Yield Fund's net investment income, if any, is declared daily and
paid monthly. The VIF-Emerging Markets Fund's net investment income, if any, is
declared daily and paid quarterly. The DJG Value Equity And VIF-U.S. Small Cap
Funds' net investment income, if any, is declared and paid annually. Net
realized gains on portfolio securities, if any, are distributed at least
annually by each Fund. However, to the extent net realized gains can be offset
by capital loss carryovers, such gains will not be distributed. Dividends and
distributions are recorded by the Funds on the ex dividend date.

The amount of dividends from net investment income and distributions from net
realized gains are determined in accordance with federal income tax regulations
which may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the composition of net assets based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized gains. To the extent they exceed net investment income and net realized
capital gains for tax purposes, they are reported as distributions of capital.

Permanent book/tax differences are primarily attributable to non-deductible
organization costs and foreign exchange gains/losses.

FEDERAL INCOME TAXES:

It is the Funds' policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute timely all
of their net investment company taxable income and net capital gains to
shareholders. Therefore, no federal income tax provision is required.

FOREIGN CURRENCY TRANSLATION:

The accounting records of the Funds are maintained in U.S. dollars. Foreign
currency amounts are translated into U.S. dollars at the current rate of
exchange to determine the value of investments, assets and liabilities.
Purchases and sales of securities, and income and expenses are translated at the
prevailing rate of exchange on the respective dates of such transactions. The
Funds do not isolate that portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gains or losses from investments.

<PAGE>
THE OFFITBANK VARIABLE INSURANCE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (continued)
- --------------------------------------------------------------------------------

Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities and forward currency contracts, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of dividends, interest and foreign withholding amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities, resulting
from changes in the exchange rate.

DERIVATIVE INSTRUMENTS:

The Funds may invest in various financial instruments including positions in
forward currency contracts, enter into currency swaps and purchase foreign
currency options. The Funds enter into such contracts for the purposes of
hedging exposure to changes in foreign currency exchange rates on their
portfolio holdings.

Each of the Funds is also permitted to enter into swap agreements to manage
interest rate or currency exposure. Swap agreements involve the commitment to
exchange with another party cash flows which are based upon the application of
interest rates or currency movements to a notional principal amount. Gains and
losses associated with currency swap transactions are included in realized gains
and losses on foreign currency translation.

A forward foreign exchange contract is a commitment to sell or buy a foreign
currency at a future date at a negotiated exchange rate. A Fund bears the market
risk which arises from possible changes in foreign exchange values. Risks may
arise from the potential inability of counterparties to meet the terms of their
contracts and from unanticipated movements in the value of the foreign currency
relative to the U.S. dollar. Forward foreign exchange contracts may involve
market or credit risk in excess of the related amounts reflected on the Fund's
statement of assets and liabilities.

The gain or loss from the difference between the cost of original contracts and
the amount realized upon the closing of such contracts is included in net
realized gain on foreign currency transactions. Fluctuations in the value of
forward contracts held at September 30, 1997 are recorded for financial
reporting purposes as unrealized gains and losses by the Funds.

At September 30, 1997, there were no outstanding forward currency contracts for
the VIF-High Yield, DJG Value Equity and VIF-U.S. Small Cap Funds. The table
below indicates the VIF-Emerging Markets Fund's outstanding forward currency
contract positions at September 30, 1997:

<TABLE>
<CAPTION>
VALUE ON VALUE AT UNREALIZED
CONTRACT MATURITY ORIGINATION SEPTEMBER 30, APPRECIATION
CURRENCY AMOUNTS DATE DATE 1997 (DEPRECIATION)
--------------- ----------------- ------------- ---------------- ----------------- --------------------
<S> <C> <C> <C> <C> <C>
Sell DEM (595,000) 10-20-97 ($332,172) ($338,441) ($3,964)
</TABLE>

A purchased option contract gives the Fund the right to sell (puts) or purchase
(calls) a specified amount of foreign currency at a fixed price. The maximum
exposure to loss for any purchased option is limited to the premium initially
paid for the option. Such options are reflected at value in the Fund's portfolio
of investments. There were no purchased options owned at September 30, 1997.

The VIF-Emerging Markets Fund may also invest in indexed securities whose value
is linked directly to changes in foreign currencies, interest rates and other
financial indices. Indexed securities may be more volatile than the underlying
instrument but the risk of loss is limited to the amount of the original
investment.

NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES:

The Company has entered into investment advisory agreements (the "Investment
Advisory Agreements") with OFFITBANK (the "Adviser"). Pursuant to the terms of
the Investment Advisory Agreements, the Adviser is entitled to a fee that is
calculated daily and paid monthly based on the average daily net assets of each
Fund, at the annual rate of:

<PAGE>
THE OFFITBANK VARIABLE INSURANCE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (continued)
- --------------------------------------------------------------------------------

0.85% of the first $200 million of average daily net assets for the VIF-High
Yield Fund and 0.75% of average daily net assets in excess of $200 million;
0.90% of the first $200 million of average daily net assets for the VIF-Emerging
Markets Fund and 0.80% of average daily net assets in excess of $200 million;
and 1.00% of average daily net assets for the VIF-U.S. Small Cap Fund.
Rockefeller & Co. serves as sub-adviser for the U.S. Small Cap Fund and is
entitled to a fee from the Adviser that is calculated daily and payable monthly
at the annual rate of 1.00% of the Fund's average daily net assets. Pursuant to
the terms of its Investment Advisory Agreement, David J. Greene and Company is
entitled to a fee that is calculated daily and payable monthly at the annual
rate of 0.80% of the average daily net assets of the DJG Value Equity Fund. For
the six months ended September 30, 1997, the Adviser earned fees of $111,839 for
the VIF-High Yield Fund, and earned and waived fees of $24,335, and $4,440 for
the VIF-Emerging Markets and VIF-U.S. Small Cap Funds, respectively. David J.
Greene and Company earned and waived fees of $4,691 for the DJG Value Equity
Fund.

BISYS provides the Company with administrative services pursuant to an
administration agreement (the "Administration Agreement"). The services under
the Administration Agreement are subject to the supervision of the Company's
Board of Directors and officers and include the day-to-day administration of
matters related to the corporate existence of the Company, maintenance of its
records, preparation of reports, supervision of the Company's arrangements with
its custodian and assistance in the preparation of the Company's registration
statements under federal and state laws. Pursuant to the Administration
Agreement, the Company pays BISYS a monthly fee for its services which on an
annualized basis will not exceed 0.15% of the average daily net assets of the
Company. For the six months ended September 30, 1997, BISYS earned fees of
$19,736 and waived fees of $12,038 for the VIF-High Yield, and earned and waived
fees of $4,056 for the VIF-Emerging Markets Funds. For the period from April 11,
1997 (commencement of operations) to September 30, 1997, BISYS earned and waived
fees of $880 and $666 for the DJG Value Equity Fund and VIF-U.S. Small Cap Fund,
respectively.

BISYS provides the Funds with fund accounting and related services pursuant to a
fund accounting agreement with the Company. For these services BISYS was paid a
fee of $2,500 per month per Fund. For the six months ended September 30, 1997,
BISYS earned fees of $15,276 and $14,976 for the VIF-High Yield Fund and
VIF-Emerging Markets Fund, respectively. For the period from April 11, 1997
(commencement of operations) to September 30, 1997, BISYS earned fees of $14,584
and $14,842 for the DJG Value Equity Fund and VIF-U.S. Small Cap Fund,
respectively.

BISYS also serves as Transfer Agent for the Funds and pursuant to a transfer
agency agreement with the Company, receives reimbursement of certain expenses
plus a per account fee of $15.00 per year. For the period ended September 30,
1997, BISYS earned fees of $196 and $106 for the VIF-High Yield Fund and
VIF-Emerging Markets Fund, respectively. For the period from April 11, 1997
(commencement of operations) to September 30, 1997, BISYS earned fees of $35 and
$33 for the DJG Value Equity Fund and VIF-U.S. Small Cap Fund, respectively.

The Company has entered into a distribution agreement (the "Distribution
Agreement') with the Distributor. Under the Distribution Agreement, the
Distributor, as agent of the Company, agrees to use its best efforts as sole
distributor of the Company's shares. The Distribution Agreement provides that
the Company will bear the costs of the registration of its shares with the
Commission and various states and the printing of its prospectuses, statements
of additional information and reports to shareholders. There is no fee payable
under the Distribution Agreement.

OFFITBANK and David J. Greene and Company have voluntarily agreed to limit the
expense ratios for the Funds at 1.15%, 1.50%, 1.25%, and 1.50% for the VIF-High
Yield, VIF-Emerging Markets, DJG Value Equity, and VIF-U.S. Small Cap Funds,
respectively. In order to maintain these ratios, for the six months ended
September 30, 1997, the Adviser and David J. Greene and Company have waived
their advisory fee and have also agreed to reimburse the VIF-High Yield Fund,
DJG Value Equity Fund and VIF-U.S. Small Cap Fund $40,016, $17,355 and $18,059,
respectively.

<PAGE>
THE OFFITBANK VARIABLE INSURANCE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (continued)
- --------------------------------------------------------------------------------

NOTE 4 -- SECURITIES TRANSACTIONS

For the period ended September 30, 1997, the cost of purchases and the proceeds
from sales of the Funds' portfolio securities (excluding short-term
investments), amounted to $13,730,989 and $4,572,799, respectively for the
VIF-High Yield Fund, $3,382,839 and $1,393,865, respectively for the
VIF-Emerging Markets Fund, $1,030,836 and $249,176 for the DJG Value Equity Fund
and $1,199,806 and $232,187 for the VIF-U.S. Small Cap Fund, respectively. The
cost of securities is substantially the same for Federal income tax purposes as
it is for financial reporting purposes.

The Funds may purchase instruments from financial institutions, such as banks
and broker-dealers, subject to the seller's agreement to repurchase them at an
agreed upon time and price ("repurchase agreements"). The seller under a
repurchase agreement is required to maintain the value of the securities subject
to the agreement at not less than the repurchase price. Default by the seller
would, however, expose the relevant Fund to possible loss because of adverse
market action or delay in connection with the disposition of the underlying
obligations.

NOTE 5 -- CAPITAL SHARE TRANSACTIONS

The Company's Articles of Incorporation permit the Company to issue nine billion
shares (par value $0.001). Transactions in shares of common stock for the period
ended September 30, 1997, were as follows:

<TABLE>
<CAPTION>
VIF-HIGH YIELD VIF-EMERGING MARKETS
-------------------------------------- -------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares issued...................... 415,949 $4,424,985 90,184 $933,291
Shares reinvested ................ 95,662 1,016,130 16,226 170,871
Shares redeemed................... (291,155) (3,026,219) (1,685) (17,882)
---------------- ----------------- --------------- ----------------

Net 220,456 $2,414,896 104,725 1,086,280
increase.........................
================ ================= =============== ================

DJG VALUE EQUITY VIF-U.S. SMALL CAP
-------------------------------------- -------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------- ----------------- --------------- ----------------
Shares issued...................... 107,201 $1,072,010 99,796 $1,054,010
Shares reinvested ................ -- -- -- --
Shares redeemed................... (748) (8,644) (581) (6,630)
---------------- ----------------- --------------- ----------------

Net 106,453 $1,063,366 99,215 $1,047,380
increase.........................
================ ================= =============== ================
</TABLE>

NOTE 6 -- OTHER MATTERS

The VIF-High Yield Fund and the VIF-Emerging Markets Fund invest in obligations
of foreign entities and securities denominated in foreign currencies that
involve risk not typically involved in domestic investments. Such risks include
fluctuations in the foreign exchange rates, ability to convert proceeds into
U.S. dollars, less publicly available information about foreign financial
instruments, less liquidity resulting from substantially less trading volume,
more volatile prices and generally less government supervision of foreign
markets and issuers.