OFFITBANK VARIABLE INSURANCE FUND INC, 485BPOS, 1998-07-29

OFFITBANK VARIABLE INSURANCE FUND INC
485BPOS, 1998-07-29

Previous: TELSCAPE INTERNATIONAL INC, SC 13D, 1998-07-29

Next: MCKESSON CORP, 10-K405/A, 1998-07-29

<PAGE>

Registration Nos. 33-81748
811-8640

As filed via EDGAR with the Securities and Exchange Commission on July 29, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No.
Post-Effective Amendment No. 12
and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 13
(Check appropriate box or boxes)

THE OFFITBANK VARIABLE INSURANCE FUND, INC.
(Exact name of Registrant as specified in charter)

400 Bellevue Parkway
Wilmington, Delaware 19809
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (800) 618-9510
-------------------------
Stephen Brent Wells, Esq.
OFFITBANK
520 Madison Avenue
New York, New York 10022
---------------
(Name and Address of Agent for Service)

with a copy to:
Carl Frischling, Esq.
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022

It is proposed that this filing will become effective:

X immediately upon filing pursuant to paragraph (b)
---
on (date) pursuant to paragraph (b)
---
on (date) pursuant to paragraph (a)(i)
---
60 days after filing pursuant to paragraph (a)(i)
---
75 days after filing pursuant to paragraph (a)(ii)
---
on (date) pursuant to paragraph (a)(ii) of rule 485.
---

If appropriate, check the following box:

/ / this post-effective amendment designates a new effective
date for a previously filed post-effective amendment

<PAGE>

THE OFFITBANK VARIABLE INSURANCE FUND, INC.
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
under the Securities Act of 1933

N-1A Item No. Location
- ------------ --------
Part A Prospectus Caption
- ------ ------------------
<S> <C> <C>
Item 1. Cover Page Cover Page

Item 2. Synopsis Not Applicable

Item 3. Condensed Financial Financial Highlights
Information

Item 4. General Description of Registrant Highlights; The Company;
Investment Objectives and
Policies; Investment Policies
and Techniques; Special Risk
Considerations; Limiting
Investment Risks; Appendix A

Item 5. Management of the Fund Management

Item 5A. Management's Discussion of Not Applicable
Fund Performance

Item 6. Capital Stock and Other How Distributions Are Made: Tax
Securities Information; Shareholder
Communications

Item 7. Purchase of Securities About Your Investment;
Being Offered How the Company Values Its
Shares

Item 8. Redemption or Repurchase About Your Investment;
Redemption of Shares

Item 9. Pending Legal Proceedings Not Applicable

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Statement of Additional
Part B Information Caption
- ------ -----------------------
<S> <C> <C>
Item 10. Cover Page Cover Page

Item 11. Table of Contents Table of Contents

Item 12. General Information and Not Applicable
History

Item 13. Investment Objectives and Policies Additional Information on
Portfolio Instruments and
Techniques; Additional Risk
Considerations; Investment
Limitations

Item 14. Management of the Registrant Management of the Funds

Item 15. Control Persons and Principal General Information
Holders of Securities

Item 16. Investment Advisory and Management of the Funds
Other Services

Item 17. Brokerage Allocation and Portfolio Transactions
Other Practices

Item 18. Capital Stock and Other General Information
Securities

Item 19. Purchase, Redemption and Management of the Funds;
Pricing of Securities Purchase of Shares;
Being Offered Redemption of Shares;

Item 20. Tax Status Additional Information
Concerning Taxes

Item 21. Underwriters Distributor

Item 22. Calculation of Performance Performance Calculations
Data

Item 23. Financial Statements Report of Independent
Accountants; Financial
Statements
</TABLE>

PART C

Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
<PAGE>

THE OFFITBANK VARIABLE INSURANCE FUND, INC.

THE OFFITBANK VIF-HIGH YIELD FUND

FUND PROFILE

JULY 29, 1998

THIS PROFILE SUMMARIZES KEY INFORMATION ABOUT THE FUND THAT IS INCLUDED IN THE
FUND'S PROSPECTUS. THE FUND'S PROSPECTUS INCLUDES ADDITIONAL INFORMATION ABOUT
THE FUND, INCLUDING A MORE DETAILED DESCRIPTION OF THE RISKS ASSOCIATED WITH
INVESTING IN THE FUND THAT YOU MAY WANT TO CONSIDER BEFORE YOU INVEST. YOU MAY
OBTAIN THE PROSPECTUS AND OTHER INFORMATION ABOUT THE FUND AT NO COST BY CALLING
1-800-618-9510.

1. WHAT IS THE FUND'S GOAL?

The Fund's primary goal is high current income with capital appreciation as a
secondary objective. The Fund seeks to realize these objectives by investing,
under normal market conditions, at least 65% of its total assets in U.S.
corporate fixed income securities which are rated below investment grade or are
unrated at the time of investment.

2. HOW IS THE PORTFOLIO INVESTED?

The Fund is managed for total return and safety and does not seek the highest
yield available. Rather, the Fund intends to buy and hold better quality high
yield issues that the Adviser expects will earn above average returns over time,
while minimizing the broad market risk to high yield investments. The Fund will
invest primarily in "seasoned" high yield issues-those whose issuers have been
operating in their current legal form for two or more years. Generally, the
Adviser seeks to invest in issues that have one or more of the following
characteristics: at least $50 million in earnings before interest, taxes, and
depreciation (EBITDA); at least two times EBITDA interest coverage; at least 25%
of the issuer's capital structure must be subordinated to the selected security;
approximately five times maximum total debt to EBITDA. The Fund's investments
are typically structured to include higher quality high yield issues with
intermediate maturities, in order to avoid the risks associated with lower
quality, longer dated securities. Although the Fund's investments will be
primarily in U.S. corporate securities, it may also invest in foreign debt
securities, sovereign and mortgage-backed debt, and U.S. dollar denominated
municipal obligations.

3. WHAT ARE THE RISKS OF INVESTING IN THE FUND?

There are market risks inherent in all investments in securities and the value
of an investment in the Fund will fluctuate over time. The Fund's net asset
value will fluctuate, reflecting fluctuations in the market value of its
portfolio positions and its currency exposure. The Fund may invest all or
substantially all of its assets in securities which are either below investment

1
<PAGE>

grade or unrated, and considered speculative by the major ratings agencies
(i.e., junk bonds). These securities generally offer yields that are superior
to those of higher rated securities, but also carry greater risk of default and
illiquidity in the secondary market than investment grade issues. In addition,
these securities may be more sensitive to individual corporate developments and
changes in economic conditions than higher-rated securities.

The Fund's investment in securities of foreign governmental entities and
supranational issuers that are not backed by the full faith and credit of a
foreign government may be adversely affected by changes in the creditworthiness
of the issuing agency. Investments in sovereign debt securities will expose the
Fund to the direct or indirect consequences of political, social or economic
changes in the countries that issue the securities. In addition, investment in
local-currency-denominated foreign securities can be substantially more volatile
than domestic issues and the Fund's net asset value can be expected to fluctuate
according to changes in foreign exchange rates.

The Fund is classified as non-diversified under the Investment Company Act of
1940, as amended which means that the Fund may invest a greater proportion of
its assets in the securities of a smaller number of issuers. As a result, the
Fund may be subject to greater risk of loss with respect to the value of its
portfolio securities than a diversified fund.

As of June 30, 1998 the returns for the OFFITBANK VIF - High Yield Fund, and by
comparison, for the Merrill Lynch BB High Yield 5-7 Year Index and the Merrill
Lynch 5 Year Treasury are as follows:

<TABLE>
<CAPTION>
QUARTER YEAR-TO-DATE AVG. ANNUAL*
<S> <C> <C> <C>
VIF-HIGH YIELD FUND 1.09% 4.27% 12.34%

ML HY BB 5-7 YEAR 2.07% 4.07% 10.55%

ML 5 YEAR TREASURY 1.79% 3.41% 6.82%
*Inception: April 1, 1996
</TABLE>

PLEASE NOTE: Past performance is not necessarily indicative of how the Fund
will perform in the future. Performance information presented for the Fund
should not be compared directly with performance information of other products
without taking into account insurance-related charges and expenses payable under
the variable annuity contracts and variable life insurance policy.

4. WHAT ARE THE FUND'S FEES AND EXPENSES?

The Advisory Agreement provides that the Adviser is entitled to receive a
monthly fee at the annual rate of 0.85 of 1% of the first $200,000,000 of the
average daily net assets of the Fund and 0.75 of 1% in excess thereof. In
addition to the Investment Advisory Fees, the Fund is subject to expenses
relating to administration, custody, transfer agency, legal, audit and
accounting, directors fees and other miscellaneous expenses. Such expenses may
be subject to

2
<PAGE>

waiver by the relevant service provider or reimbursement by the Adviser or
Administrator. Please refer to the Separate Account Prospectus for further
information about Separate Account charges. The Separate Account sets out
examples of aggregate Fund and Separate Account charges.

5. WHO MANAGES THE FUND?

The Fund is managed by OFFITBANK, a New York State chartered trust company. 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 approximately $10 billion in assets. Stephen T.
Shapiro serves as the portfolio manager for the Fund. Mr. Shapiro is a Managing
Director of the Adviser and has been associated with the Adviser since 1983.

6. HOW CAN YOU BUY SHARES?

Individuals may not place orders directly with the Fund. Shares of the Fund are
sold only to certain insurance companies and their separate accounts to fund
benefits under variable annuity contracts and variable life insurance policies
to be offered by the Participating Companies. Please refer to the appropriate
Account Prospectus of the Participating Company for more information on the
purchase of Portfolio shares.

7. HOW CAN YOU SELL SHARES?

Investors may not redeem shares of the Fund directly, but only through variable
annuity contracts and variable life insurance policies offered through separate
accounts of Participating Insurance Companies. Investors should refer to the
prospectus of the Participating Insurance Company's separate account for
information on how to redeem monies from the applicable contract or policy.

8. WHEN WILL YOU RECEIVE DISTRIBUTIONS?

The Fund will declare dividends daily and pay dividends annually from net
investment income and will distribute its net capital gains, if any, at least
annually to the Separate Account. Income and capital gains distributions will
be made in shares of the Fund.

9. WHAT INVESTOR SERVICES ARE AVAILABLE?

Contract or Policy Owners will receive from the Participating Companies 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. In addition, Contract or Policy owners may obtain
information about their investment on any business day by calling toll-free
1-800-4618-9510 between 8:15 a.m. and 6:00 p.m., New York time.

<PAGE>

THE OFFITBANK VARIABLE INSURANCE FUND, INC.

THE OFFITBANK VIF-EMERGING MARKETS FUND

FUND PROFILE

JULY 29, 1998

1. WHAT IS THE FUND'S GOAL?

The Fund's goal is to provide investors with a competitive total investment
return by focusing on current yield and opportunities for capital appreciation.
It seeks to achieve its objective by investing primarily in corporate and
sovereign debt securities of emerging markets countries.

2. HOW IS THE PORTFOLIO INVESTED?

The VIF-Emerging Markets Fund is actively managed to seek to achieve competitive
U.S. dollar total investment return while reducing relative volatility. The
Fund seeks to benefit from investment opportunities deriving from long-term
improving economic and political conditions, and other positive trends and
developments in emerging market countries. Accordingly, the Fund is intended
primarily for long-term investors and should not be considered as a vehicle for
trading purposes. Through credit analysis, the Adviser seeks to protect
principal and to minimize market and individual credit risk, as well as to
identify opportunities for capital appreciation. In selecting particular debt
instruments for the Fund, the Adviser considers factors such as liquidity, price
volatility, tax implications, interest rate sensitivity, foreign currency
exchange risks, counterparty risks and technical market considerations.

Under normal circumstances, the Fund will invest at least 80% of its total
assets in debt instruments, but may invest up to 20% of its assets in equity
securities. As used in its Prospectus, an "emerging market country" is any
country that is considered to be an emerging or developing country by the
International Bank for Reconstruction and Development (the "World Bank") or the
International Finance Corporation, or is determined by the Adviser to have per
capita gross domestic product below $7,500 (in 1994 dollars). Under normal
circumstances, the Fund will be invested in at least 3 different countries.
Subject to the restriction that the Fund will not invest 25% or more of its
total assets in obligations issued by any one country, its agencies,
instrumentalities or political subdivisions, there is no limit on the

<PAGE>

amount the Fund may invest in issuers located in any one country, or in
securities denominated in the currency of any one country, in order to take
advantage of what the Adviser believes to be favorable yields, currency exchange
conditions or total investment return potential. The Fund's investment may be
denominated in any currency, including U.S. dollars. Under normal circumstances,
the Fund will invest at least 25% of its total assets in securities of issuers
whose primary business activity is in the banking industry.

3. WHAT ARE THE RISKS OF INVESTING IN THE FUND?

The Fund may invest all or substantially all of its assets in securities which
are either below investment grade or unrated, and considered speculative by the
major ratings agencies. These securities generally offer yields that are
superior to those of higher rated securities, but also carry greater risk of
default and illiquidity in the secondary market than investment grade issues.

In addition, because the Fund may invest a substantial portion of its assets in
the securities of foreign issuers which are denominated in foreign currencies,
the strength or weakness of the U.S. dollar against such foreign currencies will
account for part of the Fund's investment performance. A decline in the value
of a particular currency against the U.S. dollar will cause a decline in the
U.S. dollar value of the Fund's holdings of securities denominated in that
currency, and will cause an overall decline in the Fund's net asset value and
any shareholder distributions.

2
<PAGE>

As of June 30, 1998 the returns for the OFFITBANK VIF - Emerging Markets Fund,
and by comparison, for J.P. Morgan Latin Eurobond Index and J.P. Morgan Emerging
Markets Bond Index are as follows:

<TABLE>
<CAPTION>
QUARTER YEAR-TO-DATE AVG. ANNUAL*
------- ------------ ------------
<S> <C> <C> <C>

VIF-EM FUND (3.53)% 1.46% 8.51%

50% JPM LEI + 50% JPM EMBI (4.64)% .21% 12.39%
*Inception: August 28, 1996

</TABLE>

PLEASE NOTE: Past performance is not necessarily indicative of how the Fund will
perform in the future. Performance information presented for the Fund should
not be compared directly with performance information of other products without
taking into account insurance-related charges and expenses payable under the
variable annuity contracts and variable life insurance policy.

4. WHAT ARE THE FUND'S FEES AND EXPENSES?

The Advisory Agreement provides that the Adviser is entitled to receive a
monthly fee at the annual rate of 0.90 of 1% of the first $200,000,000 of the
average daily net assets of the Fund and 0.80 of 1% in excess thereof. In
addition to the Investment Advisory Fees, the Fund is subject to expenses
relating to administration, custody, transfer agency, legal, audit and
accounting, directors fees and other miscellaneous expenses. Such expenses may
be subject to waiver by the relevant service provider or reimbursement by the
Adviser or Administrator. Please refer to the Separate Account Prospectus for
further information about Separate Account charges. The Separate Account sets
out examples of aggregate Fund and Separate Account charges.

5. WHO MANAGES THE FUND?

The Fund is managed by OFFITBANK, a New York State chartered trust company. 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 approximately $10 billion in assets. Dr. Wallace
Mathai-Davis and Richard M. Johnston serve as portfolio mangers for the Fund.
Dr. Mathai-Davis is a Managing Director of the Adviser and has been associated
with the Adviser since 1986. Mr. Johnston is a Managing Director of the Adviser
and has been the director of Latin American Investments since 1992.

6. HOW CAN YOU BUY SHARES?

3
<PAGE>

Please refer to the appropriate Account Prospectus of the Participating Company
for more information on the purchase of Portfolio shares.

7. HOW CAN YOU SELL SHARES?

8. WHEN WILL YOU RECEIVE DISTRIBUTIONS?

The Fund will declare dividends daily, pay dividends from net investment income
annually and will distribute its net capital gains, if any, at least annually to
the Separate Account. Income and capital gains distributions will be made in
shares of the Fund.

9. WHAT INVESTOR SERVICES ARE AVAILABLE?

Contract or Policy Owners will receive from the Participating Companies 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. In addition, Contract or 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.

4
<PAGE>

THE OFFITBANK VARIABLE INSURANCE FUND, INC.

THE OFFITBANK VIF-TOTAL RETURN FUND

FUND PROFILE

JULY 29, 1998

1. WHAT IS THE FUND'S GOAL?

The Fund's goal is to maximize total return from a combination of capital
appreciation and current income. The Total Return Fund will seek to achieve
this objective by investing primarily in a portfolio of fixed-income securities
of varying maturities and by giving OFFITBANK, its investment adviser, broad
discretion to deploy the Fund's assets among those segments of the fixed-income
market that the Adviser believes will best contribute to the achievement of the
Fund's objective.

2. HOW IS THE PORTFOLIO INVESTED?

The "total return" sought by the Fund will consist of interest from underlying
securities, capital appreciation reflected in increases in the value of
portfolio securities or from the purchase and sale of securities, and use of
futures and options, or gains from favorable changes in foreign currency
exchange rates.

Based on the Adviser's analysis of current economic and market conditions and
the relative risks and opportunities, the Fund will invest under normal market
conditions in the following securities: U.S. Government securities, investment
grade fixed income securities (including asset-backed and mortgage-backed
securities), high yield securities, international fixed income securities
including corporate and sovereign debt instruments of developed and emerging
market issuers, convertible securities, loan participations and assignments,
certificates of deposit and cash equivalents. To provide the Adviser with
flexibility in managing the Fund's assets, the Fund may invest directly in the
securities in these market segments or indirectly through investing in the other
OFFITBANK Funds (U.S. Government Securities Fund, Mortgage Securities Fund,
VIF-High Yield Fund and VIF-Emerging Markets Fund).

<PAGE>

3. WHAT ARE THE RISKS OF INVESTING IN THE FUND?

Since the Fund may invest across a broad range of market segments, there are a
number of risks involved. As interest rates increase, the value of securities
in the Fund tends to decrease. Additionally, government securities that are not
backed by the full faith and credit of the U.S. Treasury may be adversely
affected by changes in the creditworthiness of the issuing agency.

The investment characteristics of mortgage-related securities differ from
traditional debt securities, which can result in significantly greater price and
yield volatility than those of traditional fixed income securities. The major
differences typically include more frequent interest and principal payments and
the possibility that prepayments of principal may be made at any time, as
influenced by current interest rates and economic, geographic, and social
factors.

To the extent that the Fund may invest in the securities of non-U.S. issuers,
the Fund will be exposed to the consequences of political, social or economic
changes in the countries of corporations that issue the securities, as well as
changes in any applicable foreign currency exchange rates.

The Fund is classified as "non-diversified" under the Investment Company Act of
1940, as amended which means that the Fund may invest a greater proportion of
its assets in the securities of a smaller number of issuers. As a result, the
Fund will be subject to greater risk of loss with respect to its portfolio
securities than a diversified fund.

The Fund has not yet commenced operations and therefore does not have a
performance history.

4. WHAT ARE THE FUND'S FEES AND EXPENSES?

The Advisory Agreement provides that the Adviser is entitled to receive a
monthly fee at the annual rate of 0.80 of 1% of the average daily net assets of
the Fund. In addition to the Investment Advisory Fees, the Fund is subject to
expenses relating to administration, custody, transfer agency, legal, audit and
accounting, directors fees and other miscellaneous expenses. Such expenses may
be subject to waiver by the relevant service provider or reimbursement by the
Adviser or Administrator. Please refer to the Separate Account Prospectus for
further information about Separate Account charges. The Separate Account sets
out examples of aggregate Fund and Separate Account charges.

2
<PAGE>

5. WHO MANAGES THE FUND?

The Fund is managed by OFFITBANK, a New York State chartered trust company. 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 approximately $10 billion in assets. Jack D. Burks
will serve as the portfolio manager for the Fund. Mr. Burks is a Managing
Director of the Adviser and has been associated with the Adviser since 1985.

6. HOW CAN YOU BUY SHARES?

Individuals may not place orders directly with the Fund. Shares of the Fund are
sold only to certain life insurance companies and their separate accounts to
fund benefits under variable annuity contracts and variable life insurance
policies to be offered by the Participating Companies. Please refer to the
appropriate Account Prospectus of the Participating Company for more information
on the purchase of Portfolio shares.

7. HOW CAN YOU SELL SHARES?

8. WHEN WILL YOU RECEIVE DISTRIBUTIONS?

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

9. WHAT INVESTOR SERVICES ARE AVAILABLE?

Contract or Policy Owners will receive from the Participating Companies 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. In addition, Contract or Policy owners may obtain
information about their investment on any business day by calling toll-free
1-800-618-9510 between 8:15 am and 6:00 pm, New York time.

3
<PAGE>
THE OFFITBANK VARIABLE INSURANCE FUND, INC.

THE OFFITBANK VIF-U.S. GOVERNMENT SECURITIES FUND

FUND PROFILE

JULY 29, 1998

1. WHAT IS THE FUND'S GOAL?

The Fund's goal is to seek current income consistent with preservation of
capital. It seeks to achieve this objective by investing, under normal
circumstances, at least 80% of its total assets in obligations of the U.S.
Government and its agencies or instrumentalities.

2. HOW IS THE PORTFOLIO INVESTED?

Under normal circumstances, the Fund invests at least 80% of its total assets in
U.S. Government Securities which are either direct obligations of the U.S.
Treasury or obligations, issued or guaranteed by the agencies or
instrumentalities of the U.S. Government. In addition, the Fund may invest up
to 20% of its total assets in other high quality fixed income securities
including, but not limited to mortgage-backed and asset-backed securities and
sovereign obligations of Australia, Canada, Denmark, France, Germany, Japan, New
Zealand and the United Kingdom. Any Fund investments denominated in any foreign
currency will be hedged against fluctuations in value versus the U.S. dollar.

3. WHAT ARE THE RISKS OF INVESTING IN THE FUND?

There are market risks inherent in all investments in securities and the value
of an investment in the Fund will fluctuate over time. The Fund's net asset
value will fluctuate, reflecting fluctuations in the market value of its
portfolio positions. While U.S. Government Securities of the type in which the
Fund may invest have historically involved little risk of principal if held to
maturity, THE GOVERNMENT'S GUARANTEE OF THE SECURITIES IN THE FUND DOES NOT
GUARANTEE THE NET ASSET VALUE OF THE SHARES OF THE FUND.

The performance of the Fund also depends in part on interest rate changes and
the average maturity of the Fund's portfolio of securities. The longer the
average maturity, the more likely

1
<PAGE>

the price of the Fund's investment will tend to fluctuate. As interest rates
increase, the value of securities in the Fund tends to decrease. In addition,
foreign governmental entities and supranational issuers that are not backed by
the full faith and credit of a foreign government may be adversely affected by
changes in the creditworthiness of the issuing agency. Investments in sovereign
debt securities will expose the Fund to the direct or indirect consequences of
political, social or economic changes in the countries that issue the
securities.

The Fund has not yet commenced operations and therefore does not have a
performance history.

4. WHAT ARE THE FUND'S FEES AND EXPENSES?

The Advisory Agreement provides that, as compensation for services, the Adviser
is entitled to receive a monthly fee at the annual rate of .40 of 1% of the
average daily net assets of the Fund. In addition to the Investment Advisory
Fees, the Fund is subject to expenses relating to administration, custody,
transfer agency, legal, audit and accounting, directors fees and other
miscellaneous expenses. Such expenses may be subject to waiver by the relevant
service provider or reimbursement by the Adviser or Administrator. Please
refer to the Separate Account Prospectus for further information about Separate
Account charges. The Separate Account sets out examples of aggregate Fund and
Separate Account charges.

5. WHO MANAGES THE FUND?

The Fund is managed by OFFITBANK, a New York State chartered trust company. 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 approximately $10 billion in assets. Jack D. Burks
will serve as the portfolio manager for the Fund. Mr. Burks is a Managing
Director of the Adviser and has been associated with the Adviser since 1985.

6. HOW CAN YOU BUY SHARES?

Shares of the Fund are sold only to certain insurance companies and their
separate accounts to fund benefits under variable annuity contracts and variable
life insurance policies to be offered by the Participating Companies. Shares of
the Fund are offered on a continuous basis directly by OFFIT Funds Distributor,
Inc., the Fund's principal Underwriter.

2
<PAGE>

7. HOW CAN YOU SELL SHARES?

8. WHEN WILL YOU RECEIVE DISTRIBUTIONS?

9. WHAT INVESTOR SERVICES ARE AVAILABLE?

Contract or Policy Owners will receive from the Participating Companies 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. In addition, Contract or Policy owners may obtain
information about their investment on any business day by calling toll-free
1-800-618-9510 between 8:15 am and 6:00 pm, New York time.

<PAGE>

PROSPECTUS
THE OFFITBANK VARIABLE INSURANCE FUND, INC. JULY 29, 1998
- --------------------------------------------------------------------------------

OFFITBANK VIF-HIGH YIELD FUND

- --------------------------------------------------------------------------------
OFFITBANK VIF - High Yield Fund (the "Fund") is an investment portfolio of the
OFFITBANK Variable Insurance Fund, Inc. (the "Company"), an open-end, management
investment company consisting of ten separate investment portfolios. The Fund's
investment objective is to seek high current income with capital appreciation as
a secondary objective. The Fund invests, under normal circumstances, at least
65% of its total assets in U.S. corporate fixed income securities rated below
investment grade offering potential returns that are sufficiently high to
justify the greater investment risks.

THE FUND MAY INVEST PRIMARILY IN HIGH YIELD, HIGH RISK CORPORATE DEBT SECURITIES
AND SOVEREIGN DEBT OBLIGATIONS WHICH ARE CONSIDERED SPECULATIVE AND SUBJECT TO
CERTAIN RISKS. 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 Adviser currently
manages approximately $10 billion in assets. The address of the Company is 400
Bellevue Parkway, Wilmington, Delaware 19809. Yield and other information
regarding the Funds may be obtained by calling 1-800-618-9510.

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 July 29, 1998, 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. This Prospectus, the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund is
available at the Commission's Website (http://www.sec.gov).

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

INVESTORS ARE ADVISED THAT (i) THE COMPANY IS NOT AUTHORIZED TO ENGAGE IN THE
BUSINESS OF BANKING AND (ii) SHARES OF THE FUNDS 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.

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

<TABLE>
<S> <C>
Highlights . . . . . . . . . . . . . . . . . . . . . .2
Financial Highlights . . . . . . . . . . . . . . . . .3
The Company. . . . . . . . . . . . . . . . . . . . . .4
Investment Objective and Policies. . . . . . . . . . .4
Investment Policies and Techniques . . . . . . . . . .5
Special Risk Considerations. . . . . . . . . . . . . 11
Limiting Investment Risks. . . . . . . . . . . . . . 20
Management . . . . . . . . . . . . . . . . . . . . . 21
About Your Investment. . . . . . . . . . . . . . . . 22
How the Company Values Its Shares. . . . . . . . . . 22
How Distributions are Made: Tax Information. . . . . 23
Shareholder Communications . . . . . . . . . . . . . 23
Performance Information. . . . . . . . . . . . . . . 24
Counsel and Independent Accountants. . . . . . . . . 24
Appendix A . . . . . . . . . . . . . . . . . . . . .A-1
</TABLE>

<PAGE>

HIGHLIGHTS

INTRODUCTION
OFFITBANK VIF-High Yield 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
seek high current income with capital appreciation as a secondary objective.

FUND MANAGEMENT
OFFITBANK, a New York State chartered trust company 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 "Distributor") 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
"Special Risk Considerations." The Fund invests at least 65% of its total
assets in U.S. corporate fixed income securities rated below investment grade
offering and are generally perceived by the marketplace to be high yield/high
risk securities. 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
investment results of the Fund. The information for the periods below has been
derived from financial statements which have been audited by
PricewaterhouseCoopers LLP, independent accountants for the Company. The current
report on the financial statements and financial highlights of the Fund is
incorporated by reference into 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 Annual Report to Shareholders which may be obtained without
charge by calling 1-800-618-9510.

VIF- HIGH YIELD FUND

For the period April 1,
For the year ended 1996* through
March 31, 1998 March 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . $10.37 $10.00
-------- --------
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.86 0.78
Net realized and unrealized gains . . . . . . . . . . . . . . . . . . . . . 0.63 0.37
-------- --------
Total income from investment operations . . . . . . . . . . . . . . . . . . 1.49 1.15
-------- --------
LESS DIVIDENDS FROM:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.86) (0.78)
-------- --------
Net change in net asset value per share. . . . . . . . . . . . . . . . . . . . . (0.63) 0.37
-------- --------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . $11.00 $10.37
-------- --------
-------- --------
TOTAL RETURN (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.84% 11.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands). . . . . . . . . . . . . . . . . . $31,675 $25,114
RATIOS TO AVERAGE NET ASSETS:
Expenses (**) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.15% 1.15%
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.98% 7.45%
PORTFOLIO TURNOVER RATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32% 4%
</TABLE>

* Commencement of Operations.
** If the Fund had borne all expenses that were assumed or waived by the
Adviser and Administrator, the above expense ratios would have been 1.54%
for the fiscal year ended March 31, 1998 and 2.25% for the period April 1,
1996 through March 31, 1997.
(a) Total return is based on the change in net asset value during the period
and assumes reinvestment of all dividends and distributions.

3
<PAGE>

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 the principal underwriter for the Company. The Fund is a no-load,
non-diversified 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 Funds, 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 OBJECTIVE AND POLICIES

The High Yield Fund's primary investment objective is high current income.
Capital appreciation is a secondary objective. The Fund seeks to achieve its
objectives by investing, under normal circumstances, at least 65% of its total
assets in U.S. corporate fixed income securities (including debt securities,
convertible securities and preferred stocks) which are rated below investment
grade or are unrated at the time of investment. The Fund is managed for total
return and safety and does not seek the highest yields available. Rather, the
Fund intends to buy and hold better quality high yield issues that the Adviser
expects will earn above average returns over time, while minimizing the broad
market risk to high yield investments. Ultimately, the Fund seeks to outperform
over market cycles by compounding higher yielding coupons while avoiding large
capital losses.

Investment decisions on portfolio securities are primarily credit driven.
Generally, the Adviser seeks to invest in high yield securities that have one or
more of the following characteristics: at least $50 million in earnings before
interest, taxes and depreciation ("EBITDA"); at least two times EBITDA interest
coverage; at least 25% of the issuer's capital structure must be subordinated to
the selected security; approximately five times maximum total debt to EBITDA;
and over two years operating experience in current legal form ("seasoned").

Securities that meet the Adviser's credit quality criteria are then selected for
purchase after consideration of relative value. In selecting a security for
investment by the High Yield Fund, the Adviser may also consider the following
factors, among others: (1) the current yield, the yield to maturity where
appropriate, and the price of the security relative to other securities of
comparable quality and maturity; (2) the market price of the security relative
to its face value; (3) the rating, or absence of a rating, by Standard & Poor's
Ratings Group ("S&P"), Moody's Investors Service, Inc. ("Moody's") or Duff &
Phelps Credit Rating Co. ("D&P"); and (4) the variety of issuers and industries
represented in the Fund's portfolio. Industry trends and fundamental
developments that may affect an issuer are also analyzed, including factors such
as liquidity, profitability and asset quality.

The Fund's investments are typically structured to include higher quality high
yield holdings with intermediate maturities in order to avoid the risk and
volatility generally associated with lower rated, longer dated maturities. The
Fund will generally purchase securities at par or a discount to capture coupon
dollars and to maintain exposure to a potential increase in value of the
security. By approximately equally weighting the security holdings, the Adviser
maximizes diversification and protects the portfolio from possible credit
disappointments.

4
<PAGE>

The Fund invests primarily in "seasoned" senior securities. The Fund defines a
"seasoned" security as any security whose issuer has been operating in its
current form for over two years. The Fund generally does not invest in original
issue high yield securities of newly formed, highly leveraged corporations but
reserves the right to do so. An additional risk associated with such
investments is the unproven credit quality of newly formed corporations because
of the lack of any operating history. The Fund is free to invest in high
yield, high risk debt securities of any maturity and duration and the interest
rates on such securities may be fixed or floating.

The higher yields sought by the High Yield Fund are generally obtainable from
non-investment grade securities (i.e., rated BB or lower by S&P or D&P, or Ba or
lower by Moody's, or if unrated, of equivalent quality as determined by the
Adviser). See Appendix A to this Prospectus for a description of ratings of
S&P, Moody's and D&P. Investments in high yield, high risk debt securities
involve comparatively greater risks, including price volatility and the risk of
default in the timely payment of interest and principal, than higher rated
securities. Some of such investments may be non-performing when purchased. See
"Special Risk Considerations-High Yield Securities".

Although the High Yield Fund's investments are primarily in U.S. corporate
securities, it may also invest in foreign debt securities, sovereign debt and
mortgage-backed debt having many of the characteristics of its corporate
portfolio. In addition, the High Yield Fund may invest in U.S. dollar
denominated municipal obligations in seeking to achieve its investment
objectives. Such investments may include municipal bonds issued at a discount,
in circumstances where the Adviser determines that such investments would
facilitate the High Yield Fund's ability to achieve its investment objectives.
Dividends on shares attributable to interest on municipal securities held by the
High Yield Fund will not be exempt from Federal income taxes. The Adviser does
not currently anticipate seeking investments in the common stock of any issuers.
However, the Fund may acquire securities convertible into common stock or
receive common stock in lieu of dividends, interest, or principal.

GENERAL. As indicated above, the Fund is generally managed in the style
similar to other open-end investment companies which are managed by OFFITBANK
and whose shares are generally offered to the public. These other OFFITBANK
Funds may, however, employ different investment practices and may invest in
securities different from those in which their counterpart Fund invests, and, as
such, may not have identical portfolios or experience identical investment
results.

INVESTMENT POLICIES AND TECHNIQUES

FOREIGN SECURITIES
The Fund may invest 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 will be affected by changes in exchange rates. See
"Special Risk Considerations."

BRADY BONDS
The Fund may invest in "Brady Bonds" which are debt securities issued or
guaranteed by foreign governments in exchange for existing external commercial
bank indebtedness under a plan announced by former U.S. Treasury Secretary
Nicholas F. Brady in 1989. To date, over $160 billion (face amount) of Brady
Bonds have been issued by the governments of fifteen countries, the largest
proportion having been issued by Argentina, Brazil, Mexico and Venezuela. Brady
Bonds have been issued only recently, and accordingly, they do not have a long
payment history. Brady Bonds may be collateralized or uncollateralized, are
issued in various currencies (primarily the U.S. dollar) and are actively traded
in the over-the-counter secondary market.

5
<PAGE>

on such bonds generally are collateralized by cash or securities in an amount
that, in the case of fixed rate bonds, is equal to at least six months of
rolling interest payments or, in the case of floating rate bonds, initially is
equal to at least one year's rolling interest payments based on the applicable
interest rate at that time and is adjusted at regular intervals thereafter.
Brady Bonds which have been issued to date are rated BB or B by S&P or Ba or B
by Moody's or, in cases in which a rating by S&P or Moody's has not been
assigned, are generally considered by the Adviser to be of comparable quality.

HEDGING AND OTHER STRATEGIC TRANSACTIONS
The Fund may use, as portfolio management strategies, cross currency hedges,
interest rate transactions, commodity futures contracts in the form of futures
contracts on securities, securities indices and foreign currencies, and related
options transactions. The Fund also may enter into forward foreign currency
contracts and options transactions to hedge in connection with currency and
interest rate positions and in order to enhance the Fund's income or gain. See
"Special Risk Considerations-Hedging and Other Strategic Transactions."

LOAN PARTICIPATIONS AND ASSIGNMENTS
The Fund may invest in fixed and floating rate loans ("Loans") arranged through
private negotiations between a foreign entity and one or more financial
institutions ("Lenders"). The majority of the Fund's investments in Loans in
emerging markets is expected to be in the form of participations
("Participations") in Loans and assignments ("Assignments") of portions of Loans
from third parties. Participations typically will result in the Fund having a
contractual relationship only with the Lender, not with the borrower government.
The Fund will have the right to receive payments of principal, interest and any
fees to which it is entitled only from the Lender selling the Participation and
only upon receipt by the Lender of the payments from the borrower. In
connection with purchasing Participations, the Fund generally will have no right
to enforce compliance by the borrower with the terms of the loan agreement
relating to the loan ("Loan Agreement"), nor any rights of set-off against the
borrower, and the Fund may not directly benefit from any collateral supporting
the Loan in which it has purchased the Participation. As a result, the Fund
will assume the credit risk of both the borrower and the Lender that is selling
the Participation. In the event of the insolvency of the Lender selling a
Participation, the Fund may be treated as a general creditor of the Lender and
may not benefit from any set-off between the Lender and the borrower. The Fund
will acquire Participations only if the Lender interpositioned between the Fund
and the borrower is determined by the Adviser to be creditworthy.
Creditworthiness will be judged based on the same credit analysis performed by
the Adviser when purchasing marketable securities. When the Fund purchases
Assignments from Lenders, the Fund will acquire direct rights against the
borrower on the Loan. However, since Assignments are arranged through private
negotiations between potential assignees and potential assignors, the rights and
obligations acquired by the Fund as the purchaser of an Assignment may differ
from, and be more limited than, those held by the assigning Lender.

The Fund may have difficulty disposing of Assignments and Participations. The
liquidity of such securities is limited and the Fund anticipates that such
securities could be sold only to a limited number of institutional investors.
The lack of a liquid secondary market could have an adverse impact on the value
of such securities and on the Funds' ability to dispose of particular
Assignments or Participations when necessary to meet the Funds' liquidity needs
or in response to a specific economic event, such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary market for
Assignments and Participations also may make it more difficult for the Fund to
assign a value to those securities for purposes of valuing the Fund's portfolio
and calculating its net asset value. The investment of the Fund in illiquid
securities, including Assignments and Participations, is limited to 15% of net
assets, respectively. See "Illiquid Securities" below.

6
<PAGE>

apportioned among the newly issued structured products to create securities with
different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to structured products is dependent on the extent of the cash flow
on the underlying instruments. The Fund may invest in structured products which
represent derived investment positions based on relationships among different
markets or asset classes.

The Fund may also invest in other types of structured products, including among
others, inverse floaters, spread trades and notes linked by a formula to the
price of an underlying instrument or currency. Inverse floaters have coupon
rates that vary inversely at a multiple of a designated floating rate (which
typically is determined by reference to an index rate, but may also be
determined through a dutch auction or a remarketing agent) (the "reference
rate"). As an example, inverse floaters may constitute a class of
collateralized mortgage obligations with a coupon rate that moves inversely to a
designated index, such as LIBOR (London Interbank Offered Rate) or the Cost of
Funds Index. Any rise in the reference rate of an inverse floater (as a
consequence of an increase in interest rates) causes a drop in the coupon rate
while any drop in the reference rate of an inverse floater causes an increase in
the coupon rate. A spread trade is an investment position relating to a
difference in the prices or interest rates of two securities or currencies where
the value of the investment position is determined by movements in the
difference between the prices or interest rates, as the case may be, of the
respective securities or currencies. When the Fund invests in notes linked to
the price of an underlying instrument or currency, the price of the underlying
security or the exchange rate of the currency is determined by a multiple (based
on a formula) of the price of such underlying security or exchange rate of such
currency. Because they are linked to their underlying markets or securities,
investments in structured products generally are subject to greater volatility
than an investment directly in the underlying market or security. Total return
on the structured product is derived by linking return to one or more
characteristics of the underlying instrument. Although the Fund's purchase of
structured products would have a similar economic effect to that of borrowing
against the underlying securities, the purchase will not be deemed to be
leverage for purposes of the limitations placed on the extent of the Fund's
assets that may be used for borrowing and other leveraging activities.

Certain issuers of structured products may be deemed to be "investment
companies" as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). As a result, the Fund's investment in these structured products
may be limited by the restrictions contained in the 1940 Act. See "Other
Investment Companies" below. Structured products are typically sold in private
placement transactions, and there currently is no active trading market for
structured products. As a result, certain structured products in which the Fund
invests may be deemed illiquid and subject to the 15% limitation described below
under "Illiquid Securities."

DEPOSITORY RECEIPTS AND DEPOSITORY SHARES
The Fund may invest in American Depository Receipts ("ADRs") or other similar
securities, such as American Depository Shares and Global Depository Shares,
convertible into securities of foreign issuers. These securities may not
necessarily be denominated in the same currency as the securities into which
they may be converted. ADRs are receipts typically issued by a U.S. bank or
trust company evidencing ownership of the underlying securities. Generally,
ADRs in registered form are designed for use in U.S. securities markets. As a
result of the absence of established securities markets and publicly-owned
corporations in certain foreign countries as well as restrictions on direct
investment by foreign entities, the Fund may be able to invest in such countries
solely or primarily through ADRs or similar securities and government approved
investment vehicles. The Adviser expects that the Fund, to the extent of its
investment in ADRs, will invest predominantly in ADRs sponsored by the
underlying issuers. The Fund, however, may invest in unsponsored ADRs. Issuers
of the stock of unsponsored ADRs are not obligated to disclose material
information in the United States and, therefore, there may not be a correlation
between such information and the market value of such ADRs.

7
<PAGE>

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, 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.

The Fund has no current intention of converting any convertible securities they
may own into equity securities or holding them as an equity investment upon
conversion, although they may do so for temporary purposes. 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.

MORTGAGE-RELATED SECURITIES
The Fund may invest in mortgage-related securities, consistent with their
respective investment objectives and policies, that provide funds for mortgage
loans made to residential homeowners. These include securities which represent
interests in pools of mortgage loans made by lenders such as savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled for sale to investors (such as the Fund) by various
governmental, government-related and private organizations. Interests in pools
of mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their residential mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Prepayments are caused by repayments of principal resulting from the sale of the
underlying residential property, refinancing or foreclosure, net of fees or
costs which may be incurred.

Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers may
in addition be the originators of the underlying mortgage loans as well as the
guarantors of the mortgage-related securities. Pools created by such
non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government guarantees of payments in such pools. However, timely payment of
interest and/or principal of these pools is supported by various forms of
insurance or guarantees, including individual loan, title, pool or hazard
insurance. There can be no assurance that the private insurers can meet their
obligations under the policies. The Fund may buy mortgage-related securities
without insurance or guarantees if through an examination of the loan experience
and practices of the poolers the Adviser determines that the securities meet the
Fund's investment criteria. Although the market for such securities is becoming
increasingly liquid, securities issued by certain private organizations may not
be readily marketable.

The Adviser expects that governmental, governmental-related or private entities
may create mortgage loan pools offering pass-through investments in addition to
those described above. The mortgages underlying these securities may be second
mortgages or alternative mortgage instruments, that is, mortgage instruments
whose principal or interest payments may vary or whose terms to maturity may
differ from customary long-term fixed rate mortgages. As new types of
mortgage-related securities are developed and offered to investors, the Adviser
will, consistent with the Fund's investment objective and policies, consider
making investments in such new types of securities. For additional information
regarding mortgage-related securities and the risks associated with investment
in such instruments, see "Additional Information on Portfolio Instruments and
Techniques - Mortgage-Backed Securities" in the Statement of Additional
Information.

ASSET-BACKED SECURITIES

8
<PAGE>

The Fund may invest in asset-backed securities in accordance with its investment
objective and policies. Asset-backed securities represent an undivided
ownership interest in a pool of installment sales contracts and installment
loans collateralized by, among other things, credit card receivables and
automobiles. In general, asset-backed securities and the collateral supporting
them are of shorter maturity than mortgage loans. As a result, investment in
these securities should result in greater price stability for the Fund.

Asset-backed securities are often structured with one or more types of credit
enhancement. For a description of the types of credit enhancement that may
accompany asset-backed securities, see the Statement of Additional Information.
The Fund will not limit their investments to asset-backed securities with credit
enhancements. Although asset-backed securities are not generally traded on a
national securities exchange, such securities are widely traded by brokers and
dealers, and to such extent will not be considered illiquid for the purposes of
the Fund's limitation on investment in illiquid securities.

U.S. MUNICIPAL SECURITIES
In circumstances where the Adviser determines that investment in U.S.
dollar-denominated municipal obligations would facilitate the Fund's ability to
accomplish its investment objectives, the Fund may invest in such obligations,
including municipal bonds issued at a discount.

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 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 such 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 cash not available for
investment or U.S. government securities or other high quality debt securities
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 such Fund to purchase
the amount of foreign currency being hedged by a forward sale contract at a
price no higher than the 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.

9
<PAGE>

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 total
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.

ZERO COUPON SECURITIES, PAY-IN-KIND BONDS AND DISCOUNT OBLIGATIONS
The Fund may invest in zero coupon securities and pay-in-kind bonds. These
investments involve special risk considerations. Zero coupon securities are
debt securities that pay no cash income but are sold at substantial discounts
from their value at maturity. When a zero coupon security is held to maturity,
its entire return, which consists of the amortization of discount, comes from
the difference between its purchase price and its maturity value. This
difference is known at the time of purchase, so that investors holding zero
coupon securities until maturity know at the time of their investment what the
return on their investment will be. Certain zero coupon securities also are
sold at substantial discounts from their maturity value and provide for the
commencement of regular interest payments at a deferred date. The Fund also may
purchase pay-in-kind bonds. Pay-in-kind bonds pay all or a portion of their
interest in the form of debt or equity securities. The Fund will only purchase
pay-in-kind bonds that pay all or a portion of their interest in the form of
debt securities. Zero coupon securities and pay-in-kind bonds may be issued by
a wide variety of corporate and governmental issuers.

Zero coupon securities, pay-in-kind bonds and debt securities acquired at a
discount are subject to greater price fluctuations in response to changes in
interest rates than are ordinary interest-paying debt securities with similar
maturities; the value of zero coupon securities and debt securities acquired at
a discount appreciates more during periods of declining interest rates and
depreciates more during periods of rising interest rates. Under current federal
income tax law, the Fund is required to accrue as income each year the value of
securities received in respect of pay-in-kind bonds and a portion of the
original issue discount with respect to zero coupon securities and other
securities issued at a discount to the stated redemption price. In addition,
the Fund will elect similar treatment for any market discount with respect to
debt securities acquired at a discount. Accordingly, the Fund may have to
dispose of portfolio securities under disadvantageous circumstances in order to
generate current cash to satisfy certain distribution requirements.

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 Adviser will
monitor the liquidity of such restricted securities under the supervision of the
Board of Directors.

10
<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, 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 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
objectives, the 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 (U.S. dollars, foreign currencies or
multinational currency units) and/or invest up to 100% of its total assets in
high quality debt securities or money market instruments of U.S. or foreign
issuers, and most or all of the Fund's investments may be made in the United
States and denominated in U.S. dollars.

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 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. Because emerging markets can be
especially volatile, securities of emerging markets countries may at times be
held only briefly. It is not anticipated that, under normal conditions, the
portfolio turnover rates for the Fund will exceed 75% 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 Fund's fixed income securities generally fluctuates inversely with interest
rate movements and fixed income securities with longer maturities tend to be
subject to increased volatility. There is no assurance that the Fund will
achieve its investment objective.

The Fund is classified as a "non-diversified" fund under the 1940 Act, which
means that the Fund is not limited by the 1940 Act in the proportion of its
assets that may be invested in the obligations of a single issuer. Thus, the
Fund may invest a greater proportion of its assets in the securities of a
smaller number of issuers and, as a result, will be subject to greater risk of
loss with respect to its portfolio securities as compared to a diversified fund.
The Fund, however, intends to comply with the diversification requirements
imposed by the Internal Revenue Code of

11
<PAGE>

1986, as amended (the "Code") applicable to segregated asset accounts underlying
variable products under section 817(h) of the Code and to regulated investment
companies under Subchapter M of the Code.

HIGH YIELD SECURITIES
GENERAL. The Fund may invest all or substantially all of its assets in high
yield, high risk debt securities, commonly referred to as "junk bonds."
Securities rated below investment grade and comparable unrated securities offer
yields that fluctuate over time, but generally are superior to the yields
offered by higher rated securities. However, securities rated below investment
grade also involve greater risks than higher rated securities. Under rating
agency guidelines, medium- and lower-rated securities and comparable unrated
securities will likely have some quality and protective characteristics that are
outweighed by large uncertainties or major risk exposures to adverse conditions.
Certain of the debt securities in which the Fund may invest may have, or be
considered comparable to securities having, the lowest ratings for
non-subordinated debt instruments assigned by Moody's, S&P or D&P (i.e., rated C
by Moody's or CCC or lower by S&P or D&P). Under rating agency guidelines,
these securities are considered to have extremely poor prospects of ever
attaining any real investment standing, to have a current identifiable
vulnerability to default, to be unlikely to have the capacity to pay interest
and repay principal when due in the event of adverse business, financial or
economic conditions, and/or to be in default or not current in the payment of
interest or principal. Such securities are considered speculative with respect
to the issuer's capacity to pay interest and repay principal in accordance with
the terms of the obligations. Unrated securities deemed comparable to these
lower- and lowest-rated securities will have similar characteristics.
Accordingly, it is possible that these types of factors could, in certain
instances, reduce the value of securities held by the Fund with a commensurate
effect on the value of their respective shares. Therefore, an investment in the
Fund should not be considered as a complete investment program for all
investors.

The secondary markets for high yield, high risk corporate and sovereign debt
securities are not as liquid as the secondary markets for higher rated
securities. The secondary markets for high yield, high risk debt securities are
characterized by relatively few market makers and participants in the market are
mostly institutional investors, including insurance companies, banks, other
financial institutions and mutual funds. In addition, the trading volume for
high yield, high risk debt securities is generally lower than that for
higher-rated securities and the secondary markets could contract under adverse
market or economic conditions independent of any specific adverse changes in the
condition of a particular issuer. These factors may have an adverse effect on
the Fund's ability to dispose of particular portfolio investments and may limit
its ability to obtain accurate market quotations for purposes of valuing
securities and calculating net asset value. If the Fund is not able to obtain
precise or accurate market quotations for a particular security, it will become
more difficult for the Company's Board of Directors to value the Fund's
portfolio securities and the Company's Directors may have to use a greater
degree of judgment in making such valuations. Furthermore, adverse publicity
and investor perceptions about lower-rated securities, whether or not based on
fundamental analysis, may tend to decrease the market value and liquidity of
such lower-rated securities. Less liquid secondary markets may also affect the
Fund's ability to sell securities at their fair value. In addition, the Fund
may invest up to 15% of its net assets, measured at the time of investment, in
illiquid securities, which may be more difficult to value and to sell at fair
value. If the secondary markets for high yield, high risk debt securities
contract due to adverse economic conditions or for other reasons, certain
previously liquid securities in the Fund's portfolio may become illiquid and the
proportion of the Fund's assets invested in illiquid securities may increase.

The ratings of fixed income securities by Moody's, S&P and D&P are a generally
accepted barometer of credit risk. They are, however, subject to certain
limitations from an investor's standpoint. The rating of an issuer is heavily
weighted by past developments and does not necessarily reflect probable future
conditions. There is frequently a lag between the time a rating is assigned and
the time it is updated. In addition, there may be varying degrees of difference
in credit risk of securities within each rating category. See Appendix A to
this Prospectus for a description of such ratings.

12
<PAGE>

Many fixed income securities, including certain U.S. corporate fixed income
securities in which the Fund may invest, contain call or buy-back features which
permit the issuer of the security to call or repurchase it. Such securities may
present risks based on payment expectations. If an issuer exercises such a
"call option" and redeems the security, the Fund may have to replace the called
security with a lower yielding security, resulting in a decreased rate of return
for the Fund.

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

The ability of a foreign sovereign obligor to make timely and ultimate payments
on its external debt obligations will also be strongly influenced by the
obligor's balance of payments, including export performance, its access to
international credits and investments, fluctuations in interest rates and the
extent of its foreign reserves. A country whose exports are concentrated in a
few commodities or whose economy depends on certain strategic imports could be
vulnerable to fluctuations in international prices of these commodities or
imports. To the extent that a country receives payment for its exports in
currencies other than U.S. dollars, its ability to make debt payments
denominated in dollars could be adversely affected. If a foreign sovereign
obligor cannot generate sufficient earnings from foreign trade to service its
external debt, it may need to depend on continuing loans and aid from foreign
governments, commercial banks and multilateral organizations, and inflows of
foreign investment. The commitment on the part of these foreign governments,
multilateral organizations and others to make such disbursements may be
conditioned on the government's implementation of economic reforms and/or
economic performance and the timely service of its obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may curtail the willingness of such third parties
to lend funds, which may further impair the obligor's ability or willingness to
service its debts in a timely manner. The cost of servicing external debt will
also generally be adversely affected by rising international interest rates,
because many external debt obligations bear interest at rates which are adjusted
based upon international interest rates. The ability to service external debt
will also depend on the level of the relevant government's international
currency reserves and its access to foreign exchange. Currency devaluations may
affect the ability of a sovereign obligor to obtain sufficient foreign exchange
to service its external debt.

13
<PAGE>

to obtain recourse may be subject to the political climate in the relevant
country. In addition, no assurance can be given that the holders of commercial
bank debt will not contest payments to the holders of other foreign sovereign
debt obligations in the event of default under their commercial bank loan
agreements.

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

In addition to high yield foreign sovereign debt securities, the Fund may also
invest in foreign corporate securities. For a discussion of such securities and
their associated risks, see "Foreign Securities" below.

FOREIGN SECURITIES
A portion of the Fund's assets may be invested in the securities of non-U.S.
issuers. Investors should recognize that investing in securities of non-U.S.
issuers involves certain risks and special considerations, including those set
forth below, which are not typically associated with investing in securities of
U.S. issuers. Further, certain investments that the Fund may purchase, and
investment techniques in which it may engage, involve risks, including those set
forth below.

SOCIAL, POLITICAL AND ECONOMIC FACTORS. Many countries in which the Fund will
invest, and the emerging market countries in particular, may be subject to a
substantially greater degree of social, political and economic instability than
is the case in the United States, Japan and Western European countries. Such
instability may result from, among other things, some or all of the following:
(1) authoritarian governments or military involvement in political and economic
decision-making, and changes in government through extra-constitutional means;
(2) popular unrest associated with demands for improved political, economic and
social conditions; (3) internal insurgencies and terrorist activities; (4)
hostile relations with neighboring countries; and (5) drug trafficking. Social,
political and economic instability could significantly disrupt the principal
financial markets in which the Funds invest and adversely affect the value of
the Fund's assets.

Individual foreign economies in general, and those of emerging market countries
in particular, may differ favorably or unfavorably and significantly from the
U.S. economy in such respects as the rate of growth of gross domestic product or
gross national product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency, structural unemployment and balance of
payments position. Governments of many of these countries have exercised and
continue to exercise substantial influence over many aspects of the private
sector. In some cases, the government owns or controls many companies,
including some of the largest in the country. Accordingly, government actions
in the future could have a significant effect on economic conditions in many
countries, including emerging market countries, which could affect private
sector companies and the Fund, and on market conditions, prices and yields of
securities in the Fund's portfolio. There may be the possibility of
nationalization or expropriation of assets, or future confiscatory levels of
taxation affecting the Fund. In the event of nationalization, expropriation or
other confiscation, the Fund may not be fairly compensated for its loss and
could lose its entire investment in the country involved.

14
<PAGE>

countries and may increase the costs and expenses of the Fund. For example,
certain countries require governmental approval prior to investments by foreign
persons in the country or in a particular company or industry sector or limit
investment by foreign persons to only a specific class of securities of a
company which may have less advantageous terms (including price) than securities
of the company available for purchases by nationals. Certain countries may also
restrict or prohibit investment opportunities in issuers or industries deemed
important to national interests. As a result of investment restrictions, the
Fund may, in certain countries (such as Mexico) invest through intermediary
vehicles or trusts. In addition, the repatriation of both investment income and
capital from some of these countries requires governmental approval and if there
is a deterioration in a country's balance of payments or for other reasons, a
country may impose temporary restrictions on foreign capital remittances abroad.
Even where there is no outright restriction on repatriation of capital, the
mechanics of repatriation may affect certain aspects of the operation of the
Fund.

The Fund could be adversely affected by delays in, or a refusal to grant any
required governmental approval for repatriation of capital, as well as by the
application to the Fund of any restrictions on investments. If, because of
restrictions on repatriation or conversion, the Fund was unable to distribute
substantially all of its net investment income and long-term capital gains
within applicable time periods, the Fund could be subject to U.S. federal income
and excise taxes which would not otherwise be incurred and may cease to qualify
for the favorable tax treatment afforded to regulated investment companies under
the Code, in which case it would become subject to U.S. federal income tax on
all of its income and gains.

CURRENCY FLUCTUATIONS. Because the Fund may invest a portion of its assets in
the securities of foreign issuers which are denominated in foreign currencies,
the strength or weakness of the U.S. dollar against such foreign currencies will
account for part of the Fund's investment performance. A decline in the value
of any particular currency against the U.S. dollar will cause a decline in the
U.S. dollar value of the Fund's holdings of securities denominated in such
currency and, therefore, will cause an overall decline in the Fund's net asset
value and any net investment income and capital gains to be distributed in U.S.
dollars to shareholders of the Fund.

The rate of exchange between the U.S. dollar and other currencies is determined
by several factors including the supply and demand for particular currencies,
central bank efforts to support particular currencies, the movement of interest
rates, the pace of business activity in certain other countries and the United
States, and other economic and financial conditions affecting the world economy.

Although the Fund values its assets daily in terms of U.S. dollars, the Fund
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. The Fund will do so from time to time, and investors should
be aware of the costs of currency conversion. Although foreign exchange dealers
do not charge a fee for conversion, they do realize a profit based on the
difference ("spread") between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to sell that currency to the dealer.

INFLATION. Many countries have experienced substantial, and in some periods
extremely high and volatile, rates of inflation. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of these countries and emerging
market countries in particular. In an attempt to control inflation, wage and
price controls have been imposed at times in certain countries.

15
<PAGE>

capitalization and trading volume. In addition, the application of certain 1940
Act provisions may limit the Fund's ability to invest in certain non-U.S.
issuers and to participate in public offerings in these countries. The limited
liquidity of certain non-U.S. securities markets may also affect the Fund's
ability to acquire or dispose of securities at the price and time it wishes to
do so.

Many companies traded on securities markets in many foreign countries are
smaller, newer and less seasoned than companies whose securities are traded on
securities markets in the United States. Investments in smaller companies
involve greater risk than is customarily associated with investing in larger
companies. Smaller companies may have limited product lines, markets or
financial or managerial resources and may be more susceptible to losses and
risks of bankruptcy. Additionally, market making and arbitrage activities are
generally less extensive in such markets and with respect to such companies,
which may contribute to increased volatility and reduced liquidity of such
markets or such securities. Accordingly, each of these markets and companies
may be subject to greater influence by adverse events generally affecting the
market, and by large investors trading significant blocks of securities, than is
usual in the United States. To the extent that any of these countries
experiences rapid increases in its money supply and investment in equity
securities for speculative purposes, the equity securities traded in any such
country may trade at price-earning multiples higher than those of comparable
companies trading on securities markets in the United States, which may not be
sustainable. In addition, risks due to the lack of modern technology, the lack
of a sufficient capital base to expand business operations, the possibility of
permanent or temporary termination of trading, and greater spreads between bid
and ask prices may exist in such markets.

Trading practices in certain foreign securities markets are also significantly
different from those in the United States. Brokerage commissions and other
transaction costs on the securities exchanges in many countries are generally
higher than in the United States. In addition, securities settlements and
clearance procedures in certain countries, and, in particular, in emerging
market countries, are less developed and less reliable than those in the United
States and the Fund may be subject to delays or other material difficulties and
could experience a loss if a counterparty defaults. Delays in settlement could
result in temporary periods when assets of the Funds are uninvested and no
return is earned thereon. The inability of the Fund to make intended security
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. The inability to dispose of a portfolio security due
to settlement problems could result either in losses to the Fund due to
subsequent declines in the value of such portfolio security or, if the Fund has
entered into a contract to sell the security, could result in possible liability
to the purchaser.

NON-U.S. SUBCUSTODIANS. Rules adopted under the 1940 Act permit the Fund to
maintain its non-U.S. securities and cash in the custody of certain eligible
non-U.S. banks and securities depositories. Certain banks in non-U.S. countries
may not be eligible subcustodians for the Fund, in which event the Fund may be
precluded from purchasing securities in which they would otherwise invest, and
other banks that are eligible subcustodians may be recently organized or
otherwise lack extensive operating experience. At present, custody arrangements
complying with the requirements of the Securities and Exchange Commission (the
"Commission") are available in each of the countries in which the Adviser
intends to invest. In certain countries in which the Fund may make investments,
there may be legal restrictions or limitations on the ability of the Fund to
recover assets held in custody by subcustodians in the event of the bankruptcy
of the subcustodian.

GOVERNMENT SUPERVISION; LEGAL SYSTEMS. Disclosure and regulatory standards in
certain foreign countries, including emerging market countries, are in many
respects less stringent than U.S. standards. There may be less government
supervision and regulation of securities exchanges, listed companies and brokers
in these countries than exists in the United States. Brokers in some countries
may not be as well capitalized as those in the United States, so that they may
be more susceptible to financial failure in times of market, political, or
economic stress, exposing the Fund to a risk of loss. Less information may be
available to the Fund than with respect to investments in the United States and,
in certain of these countries, less information may be available to the Fund
than to local market participants. In addition, existing laws and regulations
are often inconsistently applied. Foreign investors may be adversely affected
by new laws and regulations, changes to existing laws and regulations and
preemption of local laws and regulations by national laws. In circumstances
where adequate laws exist, it may not be possible to obtain swift and equitable

16
<PAGE>

enforcement of the law.

FINANCIAL INFORMATION AND STANDARDS. Non-U.S. issuers may be subject to
accounting, auditing and financial standards and requirements that differ, in
some cases significantly, from those applicable to U.S. issuers. In particular,
the assets and profits appearing on the financial statements of certain non-U.S.
issuers may not reflect their financial position or results of operations in the
way they would be reflected had the financial statements been prepared in
accordance with U.S. generally accepted accounting principles. In addition, for
an issuer that keeps accounting records in local currency, inflation accounting
rules may require, for both tax and accounting purposes, that certain assets and
liabilities be restated on the issuer's balance sheet in order to express items
in terms of currency of constant purchasing power. Inflation accounting may
indirectly generate losses or profits. Consequently, financial data may be
materially affected by restatements for inflation and may not accurately reflect
the real condition of those issuers and securities markets. Moreover,
substantially less information may be publicly available about non-U.S. issuers
than is available about U.S. issuers. In addition to the foreign securities
listed above, the Fund may also invest in foreign sovereign debt securities,
which involve certain additional risks. See "Sovereign Debt Securities" above.

FOREIGN TAXES
The Fund's investment income from foreign issuers may be subject to non-U.S.
withholding taxes, thereby reducing the Fund's net investment income. For more
information about tax risks related to the Fund, see "How Distributions are
Made: Tax Information" below and "Additional Information Concerning Taxes" in
the Statement of Additional Information.

HEDGING AND OTHER STRATEGIC TRANSACTIONS
The Fund may be authorized to use a variety of investment strategies to hedge
various market risks (such as interest rates, currency exchange rates and broad
or specific market movements), to manage the effective maturity or duration of
debt instruments held by the Fund, or, with respect to certain strategies, to
seek to increase the Fund's income or gain (such investment strategies and
transactions are referred to herein as "Hedging and Other Strategic
Transactions"). Currently, the Fund may use, as portfolio management
strategies, cross currency hedges, interest rate transactions, commodity futures
contracts in the form of futures contracts on securities, securities indices and
foreign currencies, and related options transactions. The Fund also may enter
into forward foreign currency contracts and options transactions to hedge in
connection with currency and interest rate positions and in order to enhance the
Fund's income or gain.

A discussion of the risks associated with Hedging and Other Strategic
Transactions follows below. The Fund will not be obligated, however, to pursue
any of such strategies and Fund makes no representation as to the availability
of these techniques at this time or at any time in the future. In addition, the
Fund's ability to pursue certain of these strategies may be limited by the
Commodity Exchange Act, as amended, applicable rules and regulations of the
Commodity Futures Trading Commission ("CFTC") thereunder and the federal income
tax requirements applicable to regulated investment companies which are not
operated as commodity pools. To the extent not otherwise restricted by the
Commission, the CFTC, the Code or its investment objectives and policies, the
Fund may utilize, without limitation, Hedging and Other Strategic Transactions.
For further information see "Additional Information on Investment Policies and
Techniques - Hedging and Other Strategic Transactions" and "Additional
Information Concerning Taxes" in the Statement of Additional Information.

IN GENERAL

Subject to the constraints described above, the Fund may (if and to the extent
so authorized) purchase and sell (or write) exchange-listed and over-the-counter
put and call options on securities, index futures contracts, financial futures
contracts and fixed income indices and other financial instruments, and enter
into financial futures contracts, interest rate transactions and currency
transactions (collectively, these transactions are referred to in this
Prospectus as "Hedging and Other Strategic Transactions"). The Fund's interest
rate transactions may take the form of swaps, caps, floors and collars, and the
Fund's currency transactions may take the form of currency forward contracts,

17
<PAGE>

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 securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
securities, to facilitate the sale of those securities for investment purposes,
to manage the effective maturity or duration of the Fund's securities or to
establish a position in the derivatives markets as a temporary substitute for
purchasing or selling particular securities. 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 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. The Fund is not a "commodity pool' (i.e., a pooled investment
vehicle which trades in commodity futures contracts and options thereon and the
operator of which is registered with the Commodity Futures Trading Commission
(the "CFTC")) and Hedging and Other Strategic Transactions involving futures
contracts and options on futures contracts will be purchased, sold or entered
into only for bona fide hedging, and non-hedging purposes to the extent
permitted by CFTC regulations; provided that the Fund may enter into futures
contracts or options thereon for purposes other than bona fide hedging if
immediately thereafter, the sum of the amount of its initial margin and premiums
on open contracts would not exceed 5% of the liquidation value of the Fund's
portfolio; provided further, than 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 use of certain Hedging and Other Strategic
Transactions will require that the Fund segregate cash, U.S. government
securities or other liquid high grade debt obligations to the extent the Fund's
obligations are not otherwise "covered" through ownership of the underlying
security, financial instrument or currency. A detailed discussion of various
Hedging and Other Strategic Transactions, including applicable regulations of
the CFTC and the requirement to segregate assets with respect to these
transactions, appears in the Statement of Additional Information.

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 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. Use
of put and call options could result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, or cause the Fund to hold a security it might otherwise sell.

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

18
<PAGE>

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.

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.

USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS

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

19
<PAGE>

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

In the case of a futures contract or an option on a futures contract, the Fund
must deposit initial margin and, in some instances, daily variation margin in
addition to segregating assets sufficient to meet its obligations to purchase or
provide securities or currencies, or to pay the amount owed at the expiration of
an index-based futures contract. These assets may consist of cash, cash
equivalents, liquid high grade debt securities or other acceptable assets. The
Fund will accrue the net amount of the excess, if any, of its obligations
relating to swaps over its entitlements with respect to each swap on a daily
basis and will segregate with its custodian, or designated sub-custodian, an
amount of cash or liquid high grade debt obligations having an aggregate value
equal to at least the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
Hedging and Other Strategic Transactions may be covered by means other than
those described above when consistent with applicable regulatory policies. The
Fund may also enter into offsetting transactions so that its combined position,
coupled with any segregated assets, equals its net outstanding obligation in
related options and Hedging and Other Strategic Transactions. The Fund could
purchase a put option, for example, if the strike price of that option is the
same or higher than the strike price of a put option sold by the Fund.
Moreover, instead of segregating assets if it holds a futures contract or
forward contract, the Fund could purchase a put option on the same futures
contract or forward contract with a strike price as high or higher than the
price of the contract held. Other Hedging and Other Strategic Transactions may
also be offset in combinations. If the offsetting transaction terminates at the
time of or after the primary transaction, no segregation is required, but if it
terminates prior to that time, assets equal to any remaining obligation would
need to be segregated.

CONCENTRATION

Under normal market conditions, the Fund may invest greater than 25% of its
assets in securities of issuers whose primary business activity is in the
banking industry (see "Limiting Investment Risks" below). As such, an
investment in the Fund should be made with an understanding of the
characteristics of the banking industry and the risks that such an investment
may entail. Banks are subject to extensive government 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 financing 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 financial difficulties of borrowers might affect a bank's ability
to meet its obligations. 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 obligations. For a discussion of
additional risks, see "Foreign Securities" above.

LIMITING INVESTMENT RISKS

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

2. The Fund may not borrow money (except that they may enter into
reverse repurchase agreements) except from banks for temporary or
emergency purposes; PROVIDED, that (a) the amount of such

20
<PAGE>

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 its
total assets.

3. 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 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 (2) and the restrictions on illiquid investments
described in (3) 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% or more 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

INVESTMENT ADVISER
OFFITBANK provides investment advisory services to the Fund pursuant to an
Investment Advisory Agreement with the Company (the "Advisory Agreement").
Subject to such policies as the Company's Board of Directors may determine, the
Adviser makes investment decisions for the Fund.

The Advisory Agreement provides that, as compensation for services, the Adviser
is entitled to receive from the Fund a monthly fee at the annual rate of .85%
for the first $200,000,000 of assets and .75% for amounts in excess thereof
based upon the average daily net assets of the Fund. The investment advisory
fee for the Fund is higher than that paid by most investment companies, but is
comparable to that paid by other investment companies that have strategies
focusing on high yield and international investments.

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 approximately $10 billion in assets and serves as
investment adviser to twenty-one other registered investment companies (or
portfolios thereof). The principal business address of the Adviser is 520
Madison Avenue, New York, New York 10022.

PORTFOLIO MANAGERS. Stephen T. Shapiro serves as the portfolio manager for the
Fund. Mr. Shapiro is a Managing Director of the Adviser and has been associated
with the Adviser since 1983.

ADMINISTRATOR, TRANSFER AGENT AND CUSTODIAN
PFPC Inc., an indirect, wholly owned subsidiary of PNC Bank Corp., serves as the
Company's administrator.

21
<PAGE>

PFPC also provides transfer agency and dividend disbursing services to the
Company. The Bank of New York serves as custodian of the assets of the Fund.
PFPC is entitled to an annual fee calculated daily and paid monthly which will
not exceed .125% of aggregate average daily net assets of the Company as
compensation for its services as administrator. The principal business address
of PFPC is 400 Bellevue Parkway, Wilmington, Delaware 19809. The principal
business address of The Bank of New York is 90 Washington Street, New York,
New York 10286.

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,
transfer agency, custody, 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 "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 Fund 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 Commission determines that trading thereon
is restricted, or for any period during which an emergency (as determined by the
Commission) 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 Commission 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 of the Company on
the basis of their respective net asset values.

HOW THE COMPANY VALUES ITS SHARES

22
<PAGE>

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 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 dividends daily and pay the dividends annually 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 intends to continue to qualify as a regulated investment company under
the Internal Revenue Code of 1986, as amended (the "Code") so that it will not
be subject to federal income tax on its earnings and capital gains that are
distributed to its shareholders. In addition, the Fund intends to comply with
the diversification requirements of the Code and Treasury Regulations in order
to maintain the tax-deferred status of the Accounts.

Shares of the Fund must be purchased through Policies or Contracts. As a
result, it is anticipated that any dividend or capital gains distribution from
the Fund will be exempt from current taxation if left to accumulate within a
Policy or Contract. The Fund is managed without regard to tax ramifications.
Withdrawals from Contracts or Policies may be subject to ordinary income tax
plus a 10% penalty tax if made before age 59 1/2.

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, administrative or judicial action. As the foregoing
discussion is for general information only, a prospective investor should also
review the more detailed discussion of federal income tax considerations that is
contained in the Statement of Additional Information. In addition, each
prospective investor should consult with his own tax adviser as to the tax
consequences of investments in the Fund, including the application of state and
local taxes which may differ from the federal income tax consequences described
above.

THE TAX STATUS OF YOUR INVESTMENT IN THE FUND DEPENDS UPON THE FEATURES OF YOUR
POLICY OR CONTRACT. FOR FURTHER INFORMATION, PLEASE REFER TO THE ACCOUNT OR
POLICY PROSPECTUS.

SHAREHOLDER COMMUNICATIONS

It is expected that Contract or Policy Owners will receive from the
Participating Companies for which shares of one or more Funds 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. Contract and Policy Owners may obtain
information about their investment on any business day by

23
<PAGE>

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 accounts.

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 their
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 slightly 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 indices of performance, including, but not
limited to, Value Line Composite, Lehman Brothers Bond, Government Corporate,
Corporate and Aggregate Indices, Merrill Lynch Government & Agency and
Intermediate Agency Indices, Morgan Stanley Capital International Europe,
Australia, Far East Index or Morgan Stanley Capital International World Index.
The performance information may also include evaluations of the Funds 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, KIPLINGER'S, 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 AND INDEPENDENT ACCOUNTANTS

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

24
<PAGE>

APPENDIX A
RATINGS

The following is a description of certain ratings of Standard & Poor's
Ratings Group ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Duff &
Phelps Credit Rating Co. ("D&P") that are applicable to certain obligations in
which the Fund may invest.

COMMERCIAL PAPER RATINGS

A S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The following summarizes the rating categories used by S&P for
commercial paper:

"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment is strong. Within this
category, certain obligations are designated with a plus sign (+). This
indicates that the obligor's capacity to meet its financial commitment on these
obligations is extremely strong.

"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations
rated "A-1". However, the obligor's capacity to meet its financial commitment on
the obligation is satisfactory.

"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.

"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.

"C" - Obligations are currently vulnerable to nonpayment and are
dependent on favorable business, financial, and economic conditions for the
obligor to meet its financial obligation.

"D" - Obligations are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes such payments will
be made during such grace period. The "D" rating will also be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.

Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:

"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.

"Prime-2" - Issuers (or supporting institutions) have a strong ability
for repayment of senior

A-1
<PAGE>

short-term debt obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.

"Prime-3" - Issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.

"Not Prime" - Issuers do not fall within any of the Prime rating
categories.

The three rating categories of D&P for investment grade commercial
paper and short-term debt are "D-1," "D-2" and "D-3." D&P employs three
designations, "D-1+," "D-1" and "D-1-," within the highest rating category. The
following summarizes the rating categories used by D&P for commercial paper:

"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.

"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.

"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.

"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.

"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issues as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.

"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.

"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.

CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS

The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:

"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.

"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.

"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in

A-2
<PAGE>

circumstances and economic conditions than obligations in higher rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.

"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.

"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.

"BB" - Debt is less vulnerable to non-payment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.

"B" - Debt is more vulnerable to non-payment than obligations rated
"BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.

"CCC" - Debt is currently vulnerable to non-payment, and is dependent
upon favorable business, financial and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.

"CC" - An obligation rated "CC" is currently highly vulnerable to
non-payment.

"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.

"D" - An obligation rated "D" is in payment default. This rating is
used when payments on an obligation are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon
the filing of a bankruptcy petition or the taking of similar action if payments
on an obligation are jeopardized.

PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.

"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.

The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:

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

A-3
<PAGE>

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

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

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

"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.

Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.

Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, Baa1, Ba1 and B1.

The following summarizes the long-term debt ratings used by D&P for
corporate and municipal long-term debt:

"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.

"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.

"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.

"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.

"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.

A-4
<PAGE>

To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.

A-5
<PAGE>

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' 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 FUNDS
OR THEIR DISTRIBUTORS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
FUNDS OR BY THE DISTRIBUTORS IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.

<PAGE>

PROSPECTUS

THE OFFITBANK VARIABLE INSURANCE FUND, INC. JULY 29, 1998

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

OFFITBANK VIF-Emerging Markets Fund

- --------------------------------------------------------------------------------
OFFITBANK VIF - Emerging Markets Fund (the "Fund") is an investment portfolio of
the OFFITBANK Variable Insurance Fund, Inc. (the "Company"), an open-end,
management investment company consisting of ten separate investment portfolios.
The Fund's investment objective is to seek 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. Under normal
circumstances, the Fund will invest at least 80% of its total assets in debt
instruments, but may invest up to 20% of its total assets in equity securities.

The Fund may invest primarily in high yield, high risk corporate debt securities
and sovereign debt obligations which are considered speculative and subject to
certain risks. See "Investment Objective and Policies" and "Special Risk
Considerations." There can be no assurance that the Fund's investment objective
will be achieved.

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

WHAT YOU NEED TO KNOW
---------------------

<TABLE>
<CAPTION>
<S> <C>
Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Investment Objective and Policies. . . . . . . . . . . . . . . . . . . . . . . 4
Investment Policies and Techniques . . . . . . . . . . . . . . . . . . . . . . 6
Special Risk Considerations. . . . . . . . . . . . . . . . . . . . . . . . . .11
Limiting Investment Risks. . . . . . . . . . . . . . . . . . . . . . . . . . .20
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
About Your Investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
How the Company Values Its Shares. . . . . . . . . . . . . . . . . . . . . . .22
How Distributions are Made: Tax
Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Shareholder Communications . . . . . . . . . . . . . . . . . . . . . . . . . .23
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Counsel and Independent Accountants. . . . . . . . . . . . . . . . . . . . . .24
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>

<PAGE>
HIGHLIGHTS

INTRODUCTION
OFFITBANK VIF-Emerging Markets 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 provide investors with a competitive total investment return by
focusing on current yield and opportunities for capital appreciation.

FUND MANAGEMENT
OFFITBANK, a New York State chartered trust company, serves as the Fund's
Adviser.

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.

RISK FACTORS
Investment in the Fund is subject to certain risks, as set forth in detail under
"Special Risk Considerations." The Fund will invest at least 80% of its total
assets in debt instruments, but may invest up to 20% of its total assets in
equity securities. 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
investment results of the Fund. The information for the periods below has been
derived from financial statements which have been audited by
PricewaterhouseCoopers LLP, independent accountants for the Company, whose
current report on the financial statements and financial highlights of the Fund
is incorporated by reference into 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 Annual Report to Shareholders which may be obtained without
charge by calling 1-800-618-9510.

<TABLE>
<CAPTION>
VIF - EMERGING MARKETS FUND

For the period August
For the year ended 28, 1996* through
March 31, 1998 March 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . $10.30 $10.00
Net investment income . . . . . . . . . . . . . . 0.86 0.48
Net realized and unrealized gains . . . . . . . . 0.27 0.34
Total income from investment operations . . . . . 1.13 0.82
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income . . . . . . . . . . . . . . (0.86) (0.48)
Excess of net investment income . . . . . . . . . (0.02) ----
Realized Gains. . . . . . . . . . . . . . . . . . ---- (0.04)
TOTAL DIVIDENDS AND DISTRIBUTIONS. . . . . . . . . . (0.88) (0.52)
NET CHANGE IN NET ASSET VALUE PER SHARE. . . . . . . 0.25 0.30
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . $10.55 $10.30
TOTAL RETURN (a) . . . . . . . . . . . . . . . . . . 11.26% 8.29%(b)
RATIOS/SUPPLEMENT DATA:
Net assets, end of period (in thousands). . . . . $5,780 $4,346
Ratios to average net assets:
Expenses ** . . . . . . . . . . . . . . . . . . . 1.50% 1.50%(c)
Net investment income . . . . . . . . . . . . . . 8.27% 8.04%(c)
PORTFOLIO TURNOVER RATE. . . . . . . . . . . . . . . 53% 96%

</TABLE>

* Commencement of Operations.
** If the Fund had borne all expenses that were assumed or waived by the
Adviser and Administrator, the above expense ratios would have been 2.66%
for the fiscal year ended March 31, 1998 and 4.87% for the period August
28, 1996 through March 31, 1997.
(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.

3
<PAGE>

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 the principal underwriter for the Company. The Fund is a no-load, non-
diversified investment portfolio of the Company, an open-end management
investment company. The Company is not authorized to engage in the business of
banking.

INVESTMENT OBJECTIVE AND POLICIES

The Fund has an objective 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 policy, the Directors would not materially change the investment
objective of the Fund without shareholder approval. There is no assurance that
the Fund will achieve its objective.

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 Fund may utilize many of the same investment techniques and invest in
similar securities. Investors should note, however, that the Fund will invest
their assets in accordance with their respective investment objectives and
policies described below. Accordingly, the Adviser expects that the Fund's
investment portfolios will be distinct, notwithstanding their ability to invest
in comparable instruments.

The investment objective of the Fund is to provide a competitive total
investment return by focusing on current yield and opportunities for capital
appreciation. The Fund will seek to achieve its objective by investing
primarily in corporate and sovereign debt instruments of emerging market
countries. Under normal circumstances, the Fund will invest at least 80% of its
total assets in debt instruments, but may invest up to 20% of its total assets
in equity securities. As used in this Prospectus, an "emerging market country"
is any country that is considered to be an emerging or developing country by the
International Bank for Reconstruction and Development (the "World Bank") or the
International Finance Corporation, or is determined by the Adviser to have per
capita gross domestic product below $7,500 (in 1994 dollars). Under normal
circumstances, the Fund will invest at least 25% of its total assets in
securities of issuers whose primary business activity is in the banking
industry. The Fund will not invest 25% or more of its total assets in
obligations issued by any one country, its agencies, instrumentalities or
political subdivisions. See "Special Risk Considerations - Concentration" and
"Limiting Investment Risks."

The Fund seeks to benefit from investment opportunities deriving from long-term
improving economic and political conditions, and other positive trends and
developments in emerging market countries. Accordingly, the Fund is intended
primarily for long-term investors and should not be considered as a vehicle for
trading purposes. The

4
<PAGE>

continuation of a long-term international trend encouraging greater market
orientation and economic growth may result in local or international political,
economic or financial developments that could benefit the capital markets in
emerging market countries.

An "emerging market country" debt instrument or equity security, as used in this
Prospectus, means an instrument or security: (1) of an issuer organized or with
more than 50% of its business activities in such emerging market country; (2)
denominated in such country's currency or with a primary trading market in such
emerging market country; (3) of a company which derives at least 50% of its
gross revenues from goods produced, sales made, services performed or
investments in such emerging market country; or (4) issued or guaranteed by the
government of such emerging market country, its agencies, political subdivisions
or instrumentalities, or the central bank of such country. Determinations as to
eligibility will be made by the Adviser based on publicly available information
and inquiries made to companies. See "Special Risk Considerations-Foreign
Securities" in this Prospectus and "Additional Risk Considerations-Non-Uniform
Corporate Disclosure Standards and Governmental Regulation" in the Statement of
Additional Information for a discussion of the nature of publicly available
information for non-U.S. companies.

DEBT INSTRUMENTS. The Fund intends to invest in debt instruments including
bonds, notes, bills, debentures, convertible securities, debt with attached
warrants, bank obligations, short-term paper, loan participations and
assignments, trust and partnership interests, money market instruments and other
similar instruments. Such instruments may be issued or guaranteed by the
governments of emerging market countries, their agencies, instrumentalities or
political subdivisions, international organizations or business entities located
in such countries, including financial institutions, or companies located in
emerging market countries that are subsidiaries of multinational business
entities. Such obligations may be payable in U.S. dollars, Eurocurrencies or
other currencies (including currencies of emerging market countries which may be
indexed to the U.S. dollar). The Adviser will be free to invest in debt
securities of any maturity and duration and the interest rates on such
securities may be fixed or floating. The Fund's debt instruments may or may not
be listed or traded on a securities exchange.

In selecting particular debt instruments for the Fund, the Adviser intends to
consider factors such as liquidity, price volatility, tax implications, interest
rate sensitivity, foreign currency exchange risks, counterparty risks and
technical market considerations. Debt instruments in which the Fund may invest
will not be required to meet a minimum rating standard and a substantial amount
of such instruments are expected to be non-investment grade securities (i.e.,
rated BB or lower by S&P or D&P, or Ba or lower by Moody's, or if unrated, of
comparable quality as determined by the Adviser). See Appendix A to this
Prospectus for a description of ratings of S&P, Moody's and D&P. Investments in
high yield, high risk debt securities involve comparatively greater risks,
including price volatility and the risk of default in the timely payment of
interest and principal, than higher rated securities. Some of such investments
may be non-performing when purchased. See "Special Risk Considerations-High
Yield Securities."

EQUITY SECURITIES. The Fund may invest up to 20% of its total assets in common
stocks, preferred stocks, detachable warrants and other equity securities that
may or may not be listed or traded on a recognized securities exchange. The
Fund intends that such investments in equity securities often will be related to
the Fund's investments in debt instruments, such as those equity securities
received upon the exercise of convertible debt instruments or attached warrants,
or those equity securities acquired pursuant to investment opportunities
deriving from the Fund's activities in emerging market debt markets. The equity
securities purchased by the Fund may include American Depository Receipts,
European Depository Receipts and interests in investment companies.

5
<PAGE>

INVESTMENT POLICIES AND TECHNIQUES

The Fund may invest in either collateralized or uncollateralized Brady Bonds.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed rate par
bonds or floating rate discount bonds, are collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Interest payments on such bonds generally are collateralized by cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least six months of rolling interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's rolling interest payments based
on the applicable interest rate at that time and is adjusted at regular
intervals thereafter. Brady Bonds which have been issued to date are rated BB
or B by S&P or Ba or B by Moody's or, in cases in which a rating by S&P or
Moody's has not been assigned, are generally considered by the Adviser to be of
comparable quality.

LOAN PARTICIPATIONS AND ASSIGNMENTS The Fund may invest in fixed and floating
rate loans ("Loans") arranged through private negotiations between a foreign
entity and one or more financial institutions ("Lenders"). The majority of
the Fund's investments in Loans in emerging markets is expected to be in the
form of participations ("Participations") in Loans and assignments
("Assignments") of portions of Loans from third parties. Participations
typically will result in the Fund having a contractual relationship only with
the Lender, not with the borrower government. The Fund will have the right to
receive payments of principal, interest and any fees to which it is entitled
only from the Lender selling the Participation and only upon receipt by the
Lender of the payments from the borrower. In connection with purchasing
Participations, the Fund generally will have no right to enforce compliance
by the borrower with the terms of the loan agreement relating to the loan
("Loan Agreement"), nor any rights of set-off against the borrower, and the
Fund may not directly benefit from any collateral supporting the Loan in
which it has purchased the Participation. As a result, the Fund will assume
the credit risk of both the borrower and the Lender that is selling the
Participation. In the event of the insolvency of the Lender selling a
Participation, the Fund may be treated as a general creditor of the Lender
and may not benefit from any set-off between the Lender and the borrower.
The Fund will acquire Participations only if the Lender interpositioned
between the Fund and the borrower is determined by the Adviser to be
creditworthy. Creditworthiness will be judged based on the same credit
analysis performed by the Adviser when purchasing marketable securities.
When the Fund purchases Assignments from Lenders, the Fund will acquire
direct rights against the borrower on the Loan. However, since Assignments
are arranged through private negotiations between potential assignees and
potential assignors, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and be more limited than, those
held by the assigning Lender.
6
<PAGE>

The Fund may have difficulty disposing of Assignments and Participations. The
liquidity of such securities is limited and the Fund anticipate that such
securities could be sold only to a limited number of institutional investors.
The lack of a liquid secondary market could have an adverse impact on the value
of such securities and on the Funds' ability to dispose of particular
Assignments or Participations when necessary to meet the Funds' liquidity needs
or in response to a specific economic event, such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary market for
Assignments and Participations also may make it more difficult for the Fund to
assign a value to those securities for purposes of valuing the Fund's portfolio
and calculating its net asset value. The investment of the Fund in illiquid
securities, including Assignments and Participations, is limited to 15% of net
assets, respectively. See "Illiquid Securities" below.

STRUCTURED PRODUCTS
The Fund may invest in interests in entities organized and operated solely for
the purpose of restructuring the investment characteristics of certain debt
obligations. This type of restructuring involves the deposit with or purchase
by an entity, such as a corporation or trust, of specified instruments (such as
commercial bank loans or Brady Bonds) and the issuance by that entity of one or
more classes of securities ("structured products") backed by, or representing
interests in, the underlying instruments. The cash flow on the underlying
instruments may be apportioned among the newly issued structured products to
create securities with different investment characteristics such as varying
maturities, payment priorities and interest rate provisions, and the extent of
the payments made with respect to structured products is dependent on the extent
of the cash flow on the underlying instruments. The Fund may invest in
structured products which represent derived investment positions based on
relationships among different markets or asset classes.

7
<PAGE>

may not necessarily be denominated in the same currency as the securities into
which they may be converted. ADRs are receipts typically issued by a U.S. bank
or trust company evidencing ownership of the underlying securities. Generally,
ADRs in registered form are designed for use in U.S. securities markets. As a
result of the absence of established securities markets and publicly-owned
corporations in certain foreign countries as well as restrictions on direct
investment by foreign entities, the Fund may be able to invest in such countries
solely or primarily through ADRs or similar securities and government approved
investment vehicles. The Adviser expects that the Fund, to the extent of its
investment in ADRs, will invest predominantly in ADRs sponsored by the
underlying issuers. The Fund, however, may invest in unsponsored ADRs. Issuers
of the stock of unsponsored ADRs are not obligated to disclose material
information in the United States and, therefore, there may not be a correlation
between such information and the market value of such ADRs.

CONVERTIBLE SECURITIES
The Fund may invest 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, 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.

8
<PAGE>

marketable.

ASSET-BACKED SECURITIES
The Fund may invest in asset-backed securities in accordance with its investment
objective and policies. Asset-backed securities represent an undivided
ownership interest in a pool of installment sales contracts and installment
loans collateralized by, among other things, credit card receivables and
automobiles. In general, asset-backed securities and the collateral supporting
them are of shorter maturity than mortgage loans. As a result, investment in
these securities should result in greater price stability for the Fund.

9
<PAGE>

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, 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.

ZERO COUPON SECURITIES, PAY-IN-KIND BONDS AND DISCOUNT OBLIGATIONS
The Fund may invest in zero coupon securities and pay-in-kind bonds and a
substantial portion of the Fund's sovereign debt securities may be acquired at a
discount. These investments involve special risk considerations. Zero coupon
securities are debt securities that pay no cash income but are sold at
substantial discounts from their value at maturity. When a zero coupon security
is held to maturity, its entire return, which consists of the amortization of
discount, comes from the difference between its purchase price and its maturity
value. This difference is known at the time of purchase, so that investors
holding zero coupon securities until maturity know at the time of their
investment what the return on their investment will be. Certain zero coupon
securities also are sold at substantial discounts from their maturity value and
provide for the commencement of regular interest payments at a deferred date.
The Fund also may purchase pay-in-kind bonds. Pay-in-kind bonds pay all or a
portion of their interest in the form of debt or equity securities. The Fund
may receive payments from pay-in-kind bonds in the form of both debt and equity
securities provided such equity securities do not cause the Fund to exceed its
20% investment limitation in such securities. Zero coupon securities and
pay-in-kind bonds may be issued by a wide variety of corporate and governmental
issuers.

10
<PAGE>

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 Adviser will monitor the liquidity of such restricted
securities under the supervision of the Board of Directors.

TEMPORARY STRATEGIES
The Fund retains the flexibility to respond promptly to changes in market and
economic conditions. Accordingly, consistent with the Fund's investment
objectives, the 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 (U.S. dollars, foreign currencies or
multinational currency units) and/or invest up to 100% of its assets in high
quality debt securities or money market instruments of U.S. or foreign issuers,
and most or all of the Fund's investments may be made in the United States and
denominated in U.S. dollars.

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. Because emerging markets can be
especially volatile, securities of emerging markets countries may at times be
held only briefly. It is not anticipated that, under normal conditions, the
portfolio turnover rates for the Fund will exceed 200% 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

The Fund is classified as a "non-diversified" fund under the 1940 Act, which
means that the Fund is not limited by the 1940 Act in the proportion of their
assets that may be invested in the obligations of a single issuer. Thus, the

11
<PAGE>

Fund may invest a greater proportion of its assets in the securities of a
smaller number of issuers and, as a result, will be subject to greater risk of
loss with respect to its portfolio securities as compared to a diversified fund.
The Fund, however, intends to comply with the diversification requirements
imposed by the Internal Revenue Code of 1986, as amended (the "Code") applicable
to segregated asset accounts underlying variable products under section 817(h)
of the Code and to regulated investment companies under Subchapter M of the
Code.

HIGH YIELD SECURITIES
GENERAL. The Fund may invest all or substantially all of its assets in high
yield, high risk debt securities, commonly referred to as "junk bonds."
Securities rated below investment grade and comparable unrated securities
offer yields that fluctuate over time, but generally are superior to the
yields offered by higher rated securities. However, securities rated below
investment grade also involve greater risks than higher rated securities.
Under rating agency guidelines, medium- and lower-rated securities and
comparable unrated securities will likely have some quality and protective
characteristics that are outweighed by large uncertainties or major risk
exposures to adverse conditions. Certain of the debt securities in which the
Fund may invest may have, or be considered comparable to securities having,
the lowest ratings for non-subordinated debt instruments assigned by Moody's,
S&P or D&P (i.e., rated C by Moody's or CCC or lower by S&P or D&P). Under
rating agency guidelines, these securities are considered to have extremely
poor prospects of ever attaining any real investment standing, to have a
current identifiable vulnerability to default, to be unlikely to have the
capacity to pay interest and repay principal when due in the event of adverse
business, financial or economic conditions, and/or to be in default or not
current in the payment of interest or principal. Such securities are
considered speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. Unrated
securities deemed comparable to these lower- and lowest-rated securities will
have similar characteristics. Accordingly, it is possible that these types of
factors could, in certain instances, reduce the value of securities held by
the Fund with a commensurate effect on the value of their respective shares.
Therefore, an investment in the Fund should not be considered as a complete
investment program for all investors.

12
<PAGE>

CORPORATE DEBT SECURITIES. While the market values of securities rated below
investment grade and comparable unrated securities tend to react less to
fluctuations in interest rate levels than do those of higher-rated securities,
the market values of certain of these securities also tend to be more sensitive
to individual corporate developments and changes in economic conditions than
higher-rated securities. In addition, such securities generally present a
higher degree of credit risk. Issuers of these securities are often highly
leveraged and may not have more traditional methods of financing available to
them, so that their ability to service their debt obligations during an economic
downturn or during sustained periods of rising interest rates may be impaired.
The risk of loss due to default in payment of interest or principal by such
issuers is significantly greater than with investment grade securities because
such securities generally are unsecured and frequently are subordinated to the
prior payment of senior indebtedness.
Many fixed income securities, including certain U.S. corporate fixed income
securities in which the Fund may invest, contain call or buy-back features which
permit the issuer of the security to call or repurchase it. Such securities may
present risks based on payment expectations. If an issuer exercises such a
"call option" and redeems the security, the Fund may have to replace the called
security with a lower yielding security, resulting in a decreased rate of return
for the Fund.

13
<PAGE>

given that the holders of commercial bank debt will not contest payments to the
holders of other foreign sovereign debt obligations in the event of default
under their commercial bank loan agreements.

FOREIGN SECURITIES
Most of the Fund's assets will be invested in the securities of non-U.S.
issuers. Investors should recognize that investing in securities of non-U.S.
issuers involves certain risks and special considerations, including those set
forth below, which are not typically associated with investing in securities of
U.S. issuers. Further, certain investments that the Fund may purchase, and
investment techniques in which it may engage, involve risks, including those set
forth below.

advantageous terms (including price) than securities of the company available
for purchases by nationals. Certain countries may also restrict or prohibit
investment opportunities in issuers or industries deemed important to national
interests. As a result of investment restrictions, the Fund may, in certain
countries (such as Mexico) invest through intermediary vehicles or trusts. In
addition, the repatriation of both investment income and capital from some of
these countries requires governmental approval and if there is a deterioration
in a country's balance of payments or for other reasons, a country may impose
temporary restrictions on foreign capital remittances abroad. Even where there
is no outright restriction on repatriation of capital, the mechanics of
repatriation may affect certain aspects of the operation of the Fund.

CURRENCY FLUCTUATIONS. Because the Fund may invest a substantial portion of its
assets in the securities of foreign issuers which are denominated in foreign
currencies, the strength or weakness of the U.S. dollar against such foreign
currencies will account for part of the Fund's investment performance. A
decline in the value of any particular currency against the U.S. dollar will
cause a decline in the U.S. dollar value of the Fund's holdings of securities
denominated in such currency and, therefore, will cause an overall decline in
the Fund's net asset value and any net investment income and capital gains to be
distributed in U.S. dollars to shareholders of the Fund.

MARKET CHARACTERISTICS; DIFFERENCES IN SECURITIES MARKETS. The securities
markets in many countries, and in emerging markets in particular generally have
substantially less volume than the New York Stock Exchange, and equity
securities of most companies listed on such markets may be less liquid and more
volatile than equity securities of U.S. companies of comparable size. Some of
the stock exchanges outside of the United States and in emerging market
countries, to the extent that established securities markets even exist, are in
the earlier stages of their development. A high proportion of the shares of
many foreign companies may be held by a limited number of persons, which may
limit the number of shares available for investment by the Fund. A limited
number of issuers in most, if not all, of these securities markets may represent
a disproportionately large percentage of market capitalization and trading
volume. In addition, the application of certain 1940 Act provisions may limit
the Fund's ability to invest in certain non-U.S. issuers and to participate in
public offerings in these countries. The limited liquidity of certain non-U.S.
securities markets may also affect the Fund's ability to acquire or dispose of
securities at the price and time it wishes to do so.

15
<PAGE>

NON-U.S. SUBCUSTODIANS. Rules adopted under the 1940 Act permit the Fund to
maintain its non-U.S. securities and cash in the custody of certain eligible
non-U.S. banks and securities depositories. Certain banks in non-U.S. countries
may not be eligible subcustodians for the Fund, in which event the Fund may be
precluded from purchasing securities in which they would otherwise invest, and
other banks that are eligible subcustodians may be recently organized or
otherwise lack extensive operating experience. At present, custody arrangements
complying with the requirements of the Commission are available in each of the
countries in which the Adviser intends to invest. In certain countries in which
the Fund may make investments, there may be legal restrictions or limitations on
the ability of the Fund to recover assets held in custody by subcustodians in
the event of the bankruptcy of the subcustodian.

accounting records in local currency, inflation accounting rules may require,
for both tax and accounting purposes, that certain assets and liabilities be
restated on the issuer's balance sheet in order to express items in terms of
currency of constant purchasing power. Inflation accounting may indirectly
generate losses or profits. Consequently, financial data may be materially
affected by restatements for inflation and may not accurately reflect the real
condition of those issuers and securities markets. Moreover, substantially
less information may be publicly available about non-U.S. issuers than is
available about U.S. issuers.

In addition to the foreign securities listed above, the Fund may also invest in
foreign sovereign debt securities, which involve certain additional risks. See
"Sovereign Debt Securities" above.

FOREIGN TAXES.
The Fund's investment income from foreign issuers may be subject to non-U.S.
withholding taxes, thereby reducing the Fund's net investment income. For more
information about tax risks related to the Fund, see "How Distributions are
Made: Tax Information" below and "Additional Information Concerning Taxes" in
the Statement of Additional Information.

A discussion of the risks associated with Hedging and Other Strategic
Transactions follows below. The Fund will not be obligated, however, to pursue
any of such strategies and Fund makes no representation as to the availability
of these techniques at this time or at any time in the future. In addition, the
Fund's ability to pursue certain of these strategies may be limited by the
Commodity Exchange Act, as amended, applicable rules and regulations of the
Commodity Futures Trading Commission ("CFTC") thereunder and the federal income
tax requirements applicable to regulated investment companies which are not
operated as commodity pools. To the extent not otherwise restricted by the
Commission, the CFTC, the Code or its investment objectives and policies, the
Fund may utilize, without limitation, Hedging and Other Strategic Transactions.
For further information see "Additional Information on Portfolio Instruments and
Techniques - Hedging and Other Strategic Transactions" and "Additional
Information Concerning Taxes" in the Statement of Additional Information.

IN GENERAL
Subject to the constraints described above, the Fund may (if and to the extent
so authorized) purchase and sell (or write) exchange-listed and over-the-counter
put and call options on securities, index futures contracts, financial futures
contracts and fixed income indices and other financial instruments, and enter
into financial futures contracts, interest rate transactions and currency
transactions (collectively, these transactions are referred to in this
Prospectus as "Hedging and Other Strategic Transactions"). The Fund's interest
rate transactions may take the form of swaps, caps, floors and collars, and 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.

17
<PAGE>

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 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. The Fund is not a "commodity
pool' (i.e., a pooled investment vehicle which trades in commodity futures
contracts and options thereon and the operator of which is registered with the
Commodity Futures Trading Commission (the "CFTC")) and Hedging and Other
Strategic Transactions involving futures contracts and options on futures
contracts will be purchased, sold or entered into only for bona fide hedging,
and non-hedging purposes to the extent permitted by CFTC regulations; provided
that the Fund may enter into futures contracts or options thereon for purposes
other than bona fide hedging if immediately thereafter, the sum of the amount of
its initial margin and premiums on open contracts would not exceed 5% of the
liquidation value of the Fund's portfolio; provided further, than 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 use of certain
Hedging and Other Strategic Transactions will require that the Fund segregate
cash, U.S. government securities or other liquid high grade debt obligations to
the extent the Fund's obligations are not otherwise "covered" through ownership
of the underlying security, financial instrument or currency. A detailed
discussion of various Hedging and Other Strategic Transactions, including
applicable regulations of the CFTC and the requirement to segregate assets with
respect to these transactions, appears in the Statement of Additional
Information.

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 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. Use
of put and call options could result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, or cause the Fund to hold a security it might otherwise sell.

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.

18
<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.

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

19
<PAGE>

floors and collars require segregation of assets with a value equal to the
Fund's net obligation, if any.

Hedging and Other Strategic Transactions may be covered by means other than
those described above when consistent with applicable regulatory policies. The
Fund may also enter into offsetting transactions so that its combined position,
coupled with any segregated assets, equals its net outstanding obligation in
related options and Hedging and Other Strategic Transactions. The Fund could
purchase a put option, for example, if the strike price of that option is the
same or higher than the strike price of a put option sold by the Fund.
Moreover, instead of segregating assets if it holds a futures contracts or
forward contract, the Fund could purchase a put option on the same futures
contract or forward contract with a strike price as high or higher than the
price of the contract held. Other Hedging and Other Strategic Transactions may
also be offset in combinations. If the offsetting transaction terminates at the
time of or after the primary transaction, no segregation is required, but if it
terminates prior to that time, assets equal to any remaining obligation would
need to be segregated.

CONCENTRATION
Under normal market conditions, the Fund may invest greater than 25% of its
assets in securities of issuers whose primary business activity is in the
banking industry (see "Limiting Investment Risks" below). As such, an
investment in the Fund should be made with an understanding of the
characteristics of the banking industry and the risks that such an investment
may entail. Banks are subject to extensive government 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 financing 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 financial difficulties of borrowers might affect a bank's ability
to meet its obligations. 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 obligations. For a discussion of
additional risks, see "Foreign Securities" above.

LIMITING INVESTMENT RISKS

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

1. 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;
and provided further that, under normal market conditions, this
limitation shall not apply with respect to the purchase of securities
of issuers whose primary business activity is in the banking industry.

2. The Fund may not borrow money (except that they 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 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 its total assets.

3. 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.

20
<PAGE>

investment advisory contracts), means the vote of the lesser of (i) 67% or more
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 Advisory Agreement provides that, as compensation for services, the Adviser
is entitled to receive from the Fund a monthly fee at the annual rate of .90%
for the first $200,000,000 of assets and .80% for amounts in excess thereof
based upon the average daily net assets of the Fund. The investment advisory
fee for the Fund is higher than that paid by most investment companies, but is
comparable to that paid by other investment companies that have strategies
focusing on high yield and international investments.

PORTFOLIO MANAGERS
Dr. Wallace Mathai-Davis and Richard M. Johnston serve as portfolio managers of
the Fund. Dr. Mathai-Davis is a Managing Director of the Adviser and has been
associated with the Adviser since 1986. Mr. Johnston is a Managing Director of
the Adviser and has been the director of Latin American investments since 1992.
From 1988 to 1992 Mr. Johnston was Vice President, International Corporate
Finance at Salomon Brothers Inc.

ADMINISTRATOR, TRANSFER AGENT AND CUSTODIAN
PFPC Inc., on indirect, wholly owned subsidiary of PNC Bank Corp., serves as
the Company's administrator. PFPC also provides transfer agency and dividend
disbursing services to the Company. The Chase Manhattan Bank, N.A. serves as
the custodian of the assets of the Fund. PFPC is entitled to an annual fee
calculated daily and paid monthly, which will not exceed .125% of aggregate
average daily net assets of the Company as compensation for its services as
administrator. The principal business address of PFPC is 400 Bellevue Parkway,
Wilmington, Delaware 19809. The principal business address of The Chase
Manhattan Bank, N.A. is 4 Metrotech Center, Brooklyn, New York 11245.

ABOUT YOUR INVESTMENT

Shares of the Fund are offered on a continuous basis directly by OFFIT Funds
Distributor, Inc. ("the Distributor"),

21
<PAGE>

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 Fund shares.

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

HOW DISTRIBUTIONS ARE MADE: TAX INFORMATION

DISTRIBUTIONS

22
<PAGE>

The Fund will declare dividends daily and pay the dividends annually 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 intends to continue to qualify as a regulated investment company under
the Internal Revenue Code of 1986, as amended (the "Code") so that it will not
be subject to federal income tax on its earnings and capital gains that are
distributed to its shareholders. In addition, the Fund intends to comply with
the diversification requirements of the Code and Treasury Regulations in order
to maintain the tax-deferred status of the Accounts.

THE TAX STATUS OF YOUR INVESTMENT IN THE FUND DEPENDS UPON THE FEATURES OF YOUR
POLICY OR CONTRACT. FOR FURTHER INFORMATION, PLEASE REFER TO THE ACCOUNT OR
POLICY PROSPECTUS.

SHAREHOLDER COMMUNICATIONS

PERFORMANCE INFORMATION

23
<PAGE>

The "effective yield" assumes that the income earned by an investment in the
Fund is reinvested, and will therefore be slightly higher than the yield because
of the compounding effect of this assumed reinvestment.

COUNSEL AND INDEPENDENT ACCOUNTANTS

24
<PAGE>

APPENDIX A

RATINGS

The following is a description of certain ratings of Standard & Poor's
Ratings Group ("S&P"), Moody's Investors Service, Inc. ("Moody's") and Duff &
Phelps Credit Rating Co. ("D&P") that are applicable to certain obligations in
which the Fund may invest.

COMMERCIAL PAPER RATINGS

"C" - Obligations are currently vulnerable to nonpayment and are
dependent on favorable business, financial, and economic conditions for the
obligor to meet its financial obligation.

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

A-1
<PAGE>

"Not Prime" - Issuers do not fall within any of the Prime rating
categories.

"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.

"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.

"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.

CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS

The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:

"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.

"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.

"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.

A-2
<PAGE>

"CC" - An obligation rated "CC" is currently highly vulnerable to
non-payment.

"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.

PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.

The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:

A-3
<PAGE>

may be present which suggest a susceptibility to impairment sometime in the
future.

Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, Baa1, Ba1 and B1.

The following summarizes the long-term debt ratings used by D&P for
corporate and municipal long-term debt:

"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.

"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.

"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.

A-4
<PAGE>

A-5
<PAGE>

PROSPECTUS
THE OFFITBANK VARIABLE INSURANCE FUND, INC. JULY 29, 1998
- --------------------------------------------------------------------------------

DJG VALUE EQUITY FUND

- --------------------------------------------------------------------------------
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, LLC, (the "Adviser") a registered investment
adviser, serves as the Fund's investment adviser and manages the Fund's
portfolio. The Adviser specializes in equity management with a value style
orientation and currently manages approximately $2 billion in assets for
pension, profit sharing, endowment and individual accounts. The address of the
Company is 400 Bellevue Parkway, Wilmington, Delaware 19809. Yield and other
information regarding the Fund may be obtained by calling 1-800-618-9510.

WHAT YOU NEED TO KNOW
<TABLE>
<CAPTION>
<S> <C>
Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . . . 4
Investment Policies and Techniques . . . . . . . . . . . . . . . . . . . . . . 5
Limiting Investment Risks. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
About Your Investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
How the Company Values Its Shares. . . . . . . . . . . . . . . . . . . . . . . 9
How Distributions are Made: Tax Information. . . . . . . . . . . . . . . . . . 9
Shareholder Communications . . . . . . . . . . . . . . . . . . . . . . . . . .10
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Counsel and Independent Accountants. . . . . . . . . . . . . . . . . . . . . .11

</TABLE>

<PAGE>

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.

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
"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."

2
<PAGE>

FINANCIAL HIGHLIGHTS

The table below sets forth certain financial information with respect to the
investment results of the Fund. The information for the period below has been
derived from financial statements and notes which have been audited by
PricewaterhouseCoopers LLP, independent accountants for the Company, whose
current report on the financial statements and financial highlights of the Fund
is incorporated by reference into 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 Annual Report to Shareholders which may be obtained without
charge by calling 1-800-618-9510.

DJG VALUE EQUITY FUND

For the period April
11, 1997* through
March 31, 1998
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD. . . . . . . . . . . $ 10.00(d)
----------
Net Investment income. . . . . . . . . . . . . . . . 0.02

Net realized and unrealized gains. . . . . . . . . . 4.92
----------
Total income from investment operations. . . . . . . 4.94
----------
Net change in net asset value per share. . . . . . . 4.94
----------
NET ASSET VALUE, END OF PERIOD. . . . . . . . . . . . . . $ 14.94
----------
----------
TOTAL RETURN(a) . . . . . . . . . . . . . . . . . . . . . 49.40%(b)
----------
----------
RATIOS/SUPPLEMENTAL DATA:

Net assets at end of period (in thousands) . . . . . $ 2,018
----------
----------
RATIOS TO AVERAGE NET ASSETS:

Expenses** . . . . . . . . . . . . . . . . . . . . . 1.25%(c)

Net investment income. . . . . . . . . . . . . . . . 0.16%(c)

Portfolio turnover rate . . . . . . . . . . . . . . . . . 33%

</TABLE>

* 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 above expense ratio would have been 5.09% for the period from April 11,
1997 through March 31, 1998.
(a) Total return is based on the change in net asset value during the period
and assumes reinvestment of all dividends and distributions

3
<PAGE>

(b) Not annualized.
(c) Annualized.
(d) Initial offering price.

4
<PAGE>

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 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.

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 Standard & Poor's 500 Index ("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: (1) an
increase in the share price which adequately reflects the original investment
premise; (2) any other significant increase in the market valuation of a stock
relative to its true economic value (a narrowing of the price value gap);
(3) availability of alternative investments with greater ratios of reward to
risk; and (4) perceived deterioration of the issuer's operations which may
adversely affect the underlying value of the security. Turnover will be
influenced by sound

5
<PAGE>

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 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 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

6
<PAGE>

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
Commission 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 Commission no-action positions on this
subject.

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.

7
<PAGE>

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.

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.

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% or more 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.

8
<PAGE>

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, LLC ("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 is located at 599 Lexington Avenue, New
York, N.Y. 10022. As of June 30, 1998, the Adviser had investment management
authority with respect to approximately $2 billion of assets for pension, profit
sharing, endowment and individual accounts. The Adviser consists of fifteen
principals and a staff of twenty-three 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 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 himself, Alan
I. Greene, Robert J. Ravitz, Michael C. Greene and David R. Pedowitz.

ADMINISTRATOR, TRANSFER AGENT AND CUSTODIAN
PFPC Inc., an indirect, wholly owned subsidiary of PNC Bank Corp., serves as the
Company's administrator. PFPC also provides transfer agency and dividend
disbursing services to the Company. The Bank of New York serves as custodian of
the assets of the Fund. PFPC is entitled to an annual fee calculated daily and
paid monthly which will not exceed .125% of aggregate average daily net assets
of the Company as compensation for its services as administrator. The principal
business address of PFPC is 400 Bellevue Parkway, Wilmington, Delaware 19809.
The principal business address of The Bank of New York is 90 Washington Street,
New York, New York 10286.

ABOUT YOUR INVESTMENT

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 Fund shares.

9
<PAGE>

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.

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

HOW DISTRIBUTIONS ARE MADE: TAX INFORMATION

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

10
<PAGE>

each prospective investor should consult with his own tax adviser as to the tax
consequences of investments in the Fund, including the application of state and
local taxes which may differ from the federal income tax consequences described
above.

THE TAX STATUS OF YOUR INVESTMENT IN THE FUND DEPENDS UPON THE FEATURES OF YOUR
POLICY OR CONTRACT. FOR FURTHER INFORMATION, PLEASE REFER TO THE ACCOUNT OR
POLICY PROSPECTUS.

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. 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' accounts in the Fund.

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, KIPLINGER'S, MORNINGSTAR,
MUTUAL FUND VALUES, U.S.A. TODAY OR THE NEW YORK TIMES or other industry or
financial publications.

11
<PAGE>

COUNSEL AND INDEPENDENT ACCOUNTANTS

12
<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.

13
<PAGE>

PROSPECTUS
THE OFFITBANK VARIABLE INSURANCE FUND, INC. JULY 29, 1998
- --------------------------------------------------------------------------------

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 400 Bellevue Parkway, Wilmington, Delaware 19809. 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.

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 July 29, 1998, 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. This Prospectus, the Statement of Additional Information,
material incorporated by reference herein and other information regarding the
Fund is available at the Commission's Website (http://www.sec.gov).

WHAT YOU NEED TO KNOW
---------------------
<S> <C>
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. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
About Your Investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
How the Company Values Its Shares. . . . . . . . . . . . . . . . . . . . . . .12
How Distributions are Made: Tax Information. . . . . . . . . . . . . . . . . .12
Shareholder Communications . . . . . . . . . . . . . . . . . . . . . . . . . .13
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Counsel and Independent Accountants. . . . . . . . . . . . . . . . . . . . . .13
</TABLE>

<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 investments.

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
investment results of the Fund. The information below has been derived from
financial statements and notes which have been audited by PricewaterhouseCoopers
LLP, independent accountants for the Company, whose current report on the
financial statements and financial highlights of the Fund is incorporated by
reference into 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.

<TABLE>
<CAPTION>
VIF-U.S. SMALL CAP FUND

For the period April 11,
1997* through
March 31, 1998
- --------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . $ 10.00(e)

Net investment loss . . . . . . . . . . . . . . . (0.08)

Net realized and unrealized gains . . . . . . . . 4.22

Total income from investment operations . . . . . 4.14

Net change in net asset value per share . . . . . 4.14

NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . $ 14.14

TOTAL RETURN (a) . . . . . . . . . . . . . . . . . . . 41.40% (b)

RATIOS/SUPPLEMENTAL DATA:

Net assets, at end of period (in thousands) . . . $ 1,394

Ratios to average net assets:

Expenses ** . . . . . . . . . . . . . . . . . . . 1.50% (c)

Net Investment Income . . . . . . . . . . . . . . (0.74%) (c)

Portfolio turnover rate. . . . . . . . . . . . . . . . 51%

</TABLE>

* Commencement of Operations.
** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions

3
<PAGE>

and/or reimbursements had not occurred, the ratio would have been 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.
(e) Initial offering price.

4
<PAGE>
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 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 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 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

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.

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.

5
<PAGE>

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.

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

6
<PAGE>
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 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.

7
<PAGE>
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, 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.

8
<PAGE>

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 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.

FOREIGN TAXES
The Fund's investment income from foreign issuers may be subject to non-U.S.
withholding taxes, thereby reducing

9
<PAGE>

the Fund's net investment income. For more information about tax risks related
to the Fund, see "How Distributions are Made: Tax Information" below and
"Additional Information Concerning Taxes" in the Statement of Additional
Information.

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.

10
<PAGE>

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.

MANAGEMENT

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 approximately $10 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
June 30, 1998, the Sub-Adviser managed approximately $4.3 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,

11
<PAGE>

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
Effective May 31, 1998, Rockefeller & Co., Inc. has decided to utilize a team
approach with respect to the management of this portfolio, in lieu of Jane A.
Freeman, the former Portfolio Manager of the Fund. As such, the day to day
portfolio management of the Fund is the responsibility of members of the
Rockefeller & Co., Inc. U.S. Small Cap Group and certain other members of the
Rockefeller & Co., Inc. Investment Staff.

ABOUT YOUR INVESTMENT

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 Fund shares.

12
<PAGE>

for such other periods as the Commission may by order permit for the protection
of security holders of the Company.

HOW THE COMPANY VALUES ITS SHARES

HOW DISTRIBUTIONS ARE MADE: TAX INFORMATION

TAX MATTERS

The Fund intends to continue to qualify as a regulated investment company under
the Internal Revenue Code of 1986, as amended (the "Code"), so that it will not
be subject to federal income tax on its earnings and capital gains that are
distributed to its shareholders. In addition, the Fund intends to comply with
the diversification requirements of the Code and Treasury Regulations in order
to maintain the tax-deferred status of the Accounts.

THE TAX STATUS OF YOUR INVESTMENT IN THE FUND DEPENDS UPON THE FEATURES OF YOUR
POLICY OR CONTRACT. FOR FURTHER INFORMATION, PLEASE REFER TO THE ACCOUNT OR
POLICY PROSPECTUS.

13
<PAGE>

SHAREHOLDER COMMUNICATIONS

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, KIPLINGER'S, MORNINGSTAR,
MUTUAL FUND VALUES, U.S.A. TODAY OR THE NEW YORK TIMES or other industry or
financial publications.

COUNSEL AND INDEPENDENT ACCOUNTANTS

14
<PAGE>

LLP is located at 1177 Avenue of the Americas, New York, New York 10036.

15
<PAGE>

PROSPECTUS

THE OFFITBANK VARIABLE INSURANCE FUND, INC. JULY 29, 1998

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

OFFITBANK VIF-Total Return Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

OFFITBANK VIF - Total Return Fund (the "Total Return Fund") is one of ten
separate investment portfolios of the OFFITBANK Variable Insurance Fund, Inc.
(the "Company"), an open-end, management investment company. The Total Return
Fund's investment objective is to maximize total return from a combination of
capital appreciation and current income. The Total Return Fund will seek to
achieve its objective by investing primarily in a portfolio of fixed-income
securities of varying maturities and by giving OFFITBANK, the Fund's investment
adviser (the "Adviser"), broad discretion to deploy the Total Return Fund's
assets among certain segments of the fixed-income market that the Adviser
believes will best contribute to the achievement of the Total Return Fund's
objective. The Total Return Fund may invest directly in the markets and
securities described is this prospectus, or indirectly through investing in the
following investment portfolios of the OFFITBANK Investment Fund, Inc. and the
Company: 1) the OFFITBANK U.S. Government Securities Fund (the "U.S. Government
Securities Fund"); 2) the OFFITBANK Mortgage Securities Fund (the "Mortgage
Securities Fund"); 3) the OFFITBANK VIF-High Yield Fund (the "High Yield Fund");
and 4) the OFFITBANK VIF-Emerging Markets Fund (the "Emerging Markets Fund" and
collectively with the Total Return Fund, U.S. Government Securities Fund,
Mortgage Securities Fund and High Yield Fund, the "Funds" and each individually,
a "Fund").

THE TOTAL RETURN FUND MAY INVEST ALL OR A PORTION OF ITS ASSETS IN HIGH YIELD,
HIGH RISK CORPORATE DEBT SECURITIES AND SOVEREIGN DEBT OBLIGATIONS WHICH ARE
CONSIDERED SPECULATIVE AND SUBJECT TO CERTAIN RISKS. SEE "INVESTMENT OBJECTIVE
AND POLICIES" AND "SPECIAL RISK CONSIDERATIONS". There can be no assurance that
the Total Return Fund's investment objective will be achieved.

OFFITBANK, a trust company specializing in global fixed income management,
serves as the Total Return Fund's investment adviser. The Adviser currently
manages approximately $10 billion in assets principally invested in global fixed
income securities. The address of the Company is 400 Bellevue Parkway,
Wilmington, Delaware 19809. Yield and other information regarding the Total
Return Fund may be obtained by calling 1-800-618-9510.

SHARES OF THE TOTAL RETURN 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 Total Return
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 July 29, 1998, 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. This Prospectus, the Statement of
Additional Information, material incorporated by reference and other information
regarding the Total Return Fund is available at the Commission's Website
(http://www.sec.gov).

INVESTORS ARE ADVISED THAT (i) THE COMPANY IS NOT AUTHORIZED TO ENGAGE IN THE
BUSINESS OF BANKING AND (ii) SHARES OF THE TOTAL RETURN 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.

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

WHAT YOU NEED TO KNOW

<TABLE>

<S> <C>
Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Investment Objective and Policies. . . . . . . . . . . . . . . . . . . . . .5
Investment Policies and Techniques . . . . . . . . . . . . . . . . . . . . .6
Special Risk Considerations. . . . . . . . . . . . . . . . . . . . . . . . 12
Limiting Investment Risks. . . . . . . . . . . . . . . . . . . . . . . . . 20
Description of the Underlying Funds . . . . . . . . . . . . . . . . . . . 21
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
About Your Investment. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
How the Company Values Its Shares. . . . . . . . . . . . . . . . . . . . . 25
How Distributions are Made: Tax Information. . . . . . . . . . . . . . . . 25
Shareholder Communications . . . . . . . . . . . . . . . . . . . . . . . . 25
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . . . 26
Counsel and Independent Accountants. . . . . . . . . . . . . . . . . . . . 26
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
</TABLE>

HIGHLIGHTS

<PAGE>

INTRODUCTION
OFFITBANK VIF-Total Return Fund (the "Total Return Fund") is one of ten separate
investment portfolios of the OFFITBANK Variable Insurance Fund, Inc. (the
"Company") an open-end, management investment company. The Total Return Fund's
investment objective is to maximize total return from a combination of capital
appreciation and current income.

The Total Return Fund may invest directly in the markets and securities
described in this prospectus, or indirectly through investing in the U.S.
Government Securities Fund, the Mortgage Securities Fund, the High Yield Fund
and the Emerging Markets Fund series of the Company.

FUND MANAGEMENT
OFFITBANK, a trust company specializing in global fixed income management,
serves as the Total Return Fund's investment adviser.

SHARES OF THE FUND
Shares of the Total Return 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 Total Return 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 Total Return 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 Total Return 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
"Special Risk Considerations." The Total Return Fund may invest all or a
portion of its assets in high yield, high risk corporate debt securities and
sovereign debt obligations which are considered speculative and subject to
certain risks. See "Investment Objective and Policies" and "Special Risk
Considerations."

2
<PAGE>

FINANCIAL HIGHLIGHTS

The tables below set forth certain financial information with respect to the
investment results of the U.S. Government Securities, Mortgage Securities, High
Yield and Emerging Markets Funds for the respective periods. During these
periods, the Total Return Fund had not commenced operations. The information
for the periods below has been derived from financial statements which have been
audited by PricewaterhouseCoopers LLP, independent accountants for the OFFITBANK
Investment Fund, Inc. and the Company. The current reports on the financial
statements and financial highlights of the OFFITBANK Investment Fund, Inc. and
the Company is incorporated by reference into the Statement of Additional
Information. The information set forth below is for a share of each Fund
outstanding for the period indicated. Further information about the performance
of the OFFITBANK Investment Fund Inc. and the Company is included in their
Annual Reports to Shareholders which may be obtained without charge by calling
1-800-618-9510.

U.S. GOVERNMENT
SECURITIES FUND

Select Shares (d)
For the period
July 1, 1997 *
through December 31, 1997
-------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . $10.00(e)
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income . . . . . . . . . . . . . . 0.27
Net realized and unrealized gains . . . . . . . . 0.19
----
Total income from investment operations . . . . . 0.46
----
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income . . . . . . . . . . . . . . (0.27)
Excess of net investment income . . . . . . . . . (0.01)
Net realized gains. . . . . . . . . . . . . . . . (0.01)
------
Total dividends and distributions. . . . . . . . . . . (0.29)
------
Net change in net asset value per share. . . . . . . . 0.17
----
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . $10.17
------
------
TOTAL RETURN (a) . . . . . . . . . . . . . . . . . . . 4.71%(b)
--------
--------
RATIOS/SUPPLEMENT DATA:
Net assets, end of period (in thousands). . . . . $3,955
Ratios to average net assets:
Expenses ** . . . . . . . . . . . . . . . . . . . 0.50%(c)
Net investment income . . . . . . . . . . . . . . 5.32%(c)
PORTFOLIO TURNOVER RATE. . . . . . . . . . . . . . . . 153%
</TABLE>

* 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 ratio would have been higher.
(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) As of December 31, 1997 there were no Advisor Shares outstanding.
(e) Initial offering price.

3
<PAGE>

MORTGAGE SECURITIES FUND

Select Shares (d)
For the period
July 1, 1997 * through
December 31, 1997
------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . $10.00(e)
INCOME FROM INVESTMENT OPERATIONS: ---------
Net investment income . . . . . . . . . . . . . 0.29
Net realized and unrealized gains . . . . . . . 0.22
---------
Total income from investment operations . . . . 0.51
---------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income . . . . . . . . . . . . . (0.29)
Excess of net investment income . . . . . . . . (0.01)
Net realized gains . . . . . . . . . . . . . . . (0.04)
---------
Total dividends and distributions . . . . . . . . . . (0.34)
---------
Net change in net asset value per share . . . . . . . 0.17
---------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . $10.17
---------
---------
TOTAL RETURN (a) . . . . . . . . . . . . . . . . . . 5.10%(b)
---------
---------
RATIOS/SUPPLEMENT DATA:
Net assets, end of period (in thousands) . . . . $17,037
Ratios to average net assets:
Expenses ** . . . . . . . . . . . . . . . . . . 0.50%(c)
Net investment income . . . . . . . . . . . . . 5.77%(c)
PORTFOLIO TURNOVER RATE . . . . . . . . . . . . . . . 81%
</TABLE>

* 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 ratio would have been higher.
(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) As of December 31, 1997 there were no Advisor Shares outstanding.
(e) Initial offering price.

4
<PAGE>

VIF-HIGH YIELD FUND

For the period
For the year April 1, 1996*
ended March 31, through March
1998 31, 1997
---------------- ----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . $10.37 $10.00
------ ------
Net investment income . . . . . . . . . . . . . 0.86 0.78
Net realized and unrealized gains . . . . . . . 0.63 0.37
------ ------
Total income from investment operations . . . . 1.49 1.15
------ ------
LESS DIVIDENDS FROM:
Net investment income . . . . . . . . . . . . . (0.86) (0.78)
------ ------
Net change in net asset value per share . . . . . . . 0.63 0.37
------ ------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . $11.00 $10.37
------ ------
------ ------
TOTAL RETURN (a) . . . . . . . . . . . . . . . . . . 14.84% 11.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) . . . . $31,675 $25,114
RATIOS TO AVERAGE NET ASSETS:
Expenses(**) . . . . . . . . . . . . . . . . . . 1.15% 1.15%
Net investment income . . . . . . . . . . . . . 7.98% 7.45%
PORTFOLIO TURNOVER RATE . . . . . . . . . . . . . . . 32% 4%
</TABLE>

* Commencement of Operations.
(**) If the Fund had borne all expenses that were paid or assumed by the Adviser
and Administrator, the above expense ratios would have been 1.54% for the
fiscal year ended March 31, 1998 and 2.25% for the period April 1, 1996
through March 31, 1997.
(a) Total return is based on the change in net asset value during the period
and assumes reinvestment of all dividends and distributions.

5
<PAGE>

VIF - EMERGING MARKETS FUND

For the period August
For the year ended 28, 1996* through
March 31, 1998 March 31, 1997
------------------ ---------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:

NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . $10.30 $10.00
------ ------
Net investment income . . . . . . . . . . . . . 0.86 0.48
Net realized and unrealized gains on investments 0.27 0.34
------ ------
Total income from investment operations . . . . 1.13 0.82
------ ------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income . . . . . . . . . . . . . (0.86) (0.48)
Excess of net investment income . . . . . . . . (0.02) ---
Realized gains . . . . . . . . . . . . . . . . . --- (0.04)
------ ------
Total dividends and distribution . . . . . . . . . . (0.88) (0.52)
------ ------
Net change in net asset value per share . . . . . . . 0.25 0.30
------ ------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . $10.55 $10.30
------ ------
------ ------
TOTAL RETURN(a) . . . . . . . . . . . . . . . . . . . 11.26% 8.29%(b)
RATIOS/SUPPLEMENT DATA:
NET ASSETS END OF PERIOD (in thousands) . . . . $5,780 $4,346
RATIOS TO AVERAGE NET ASSETS:
EXPENSES(**) . . . . . . . . . . . . . . . . . . 1.50% 1.50%(c)
NET INVESTMENT INCOME . . . . . . . . . . . . . 8.27% 8.04%(c)
PORTFOLIO TURNOVER RATE . . . . . . . . . . . . . . . 53% 96%
</TABLE>

* Commencement of Operations.
** If the Fund had borne all expenses that were paid or assumed by the Adviser
and Administrator, the above expense ratios would have been 2.66% for the
fiscal year ended March 31, 1998 and 4.87% for the period April 1, 1996
through March 31, 1997.
(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.

6
<PAGE>

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 Total Return 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, non-diversified
investment portfolio of the Company, a newly organized, 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 Total Return 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 OBJECTIVE AND POLICIES

The Total Return 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 of the Fund may not be changed except by a
vote of a majority of the Fund's outstanding voting securities, as defined in
the Investment Company Act of 1940, as amended (the "1940 Act"). The
investment policies of the Fund may, unless otherwise specifically stated, be
changed by the Directors of the Company without a vote of the shareholders.
There is no assurance that the Fund will achieve its objective.

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
Total Return Fund, with the classes being subject to different charges and
expenses and having such other different rights as the Directors may prescribe.

The investment objective of the Total Return Fund is to maximize total return
from a combination of capital appreciation and current income. The Fund will
seek to achieve its objective by investing primarily in a diversified portfolio
of fixed-income securities of varying maturities and by giving the Adviser broad
discretion to deploy the Fund's assets among certain segments of the
fixed-income market that the Adviser believes will best contribute to the
achievement of the Fund's objective. At any point in time, the Adviser will
deploy the Fund's assets based on the Adviser's analysis of current economic and
market conditions and the relative risks and opportunities present in the
following market segments: securities of the U.S. Government, its agencies and
instrumentalities, mortgage-backed and asset-backed securities, foreign
sovereign and multi-national debt obligations, including obligations of emerging
market and developing countries, debt instruments, convertible securities and
preferred stocks of domestic and foreign corporations, including high yield
securities, and local-currency denominated fixed income securities of issuers
located in developed and emerging markets. The Fund may also invest in the
securities of the other investment portfolios of the Company or investment
companies managed by the Adviser. The Fund may invest directly in the markets
and securities described in this prospectus, or indirectly through investing in
the U.S. Government Securities Fund, the Mortgage Securities Fund, the High
Yield Fund and the Emerging Markets Fund series of the Company (the "underlying
funds").

In evaluating proposed investments for the Total Return Fund, the Adviser will
seek to enhance the total return on the Fund's portfolio through the active
management of: (1) portfolio duration; (2) allocation of investments among the
various sectors of the fixed income market; (3) yield curve positioning; and (4)
currency exposure. The Adviser will seek to maximize the Total Return Fund's
total return in terms of U.S. dollars. The Adviser intends to base its
investment decisions for the Total Return Fund on the continual evaluation of
various factors, including: (1) the supply and demand for capital in various
capital markets; (2) the shape of the global yield curve; (3) "bottom up" credit
analysis of particular issuers; (4) relative value between and within global
capital markets; and

7
<PAGE>

(5) yield spreads among domestic high grade, non-dollar and high yield sectors.
Portfolio holdings will be concentrated in areas of the fixed income market
which the Adviser believes to be relatively undervalued. In evaluating markets,
the Adviser will consider such factors as the condition and growth potential of
various economies and securities markets, currency and taxation factors
(including the applicability and rate of withholding taxes) and other pertinent
financial, social, national and political factors. There can be no assurance
that the Fund will achieve its investment objective.

The "total return" sought by the Total Return Fund will consist of interest from
underlying securities, capital appreciation reflected in increases in the value
of portfolio securities or from the purchase and sale of securities, and use of
futures and options, or gains from favorable changes in foreign currency
exchange rates. Under normal market conditions, the Fund will invest its assets
in a variety of markets and instruments, including securities of other
investment companies, securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities, investment grade fixed income securities
(including asset-backed and mortgage backed securities), high yield securities
and international fixed income securities.

The Total Return Fund may invest in any country where the Adviser sees potential
for total return. In making international fixed income securities investments,
the Adviser may consider, among other things, the relative growth and inflation
rates of different countries. The Adviser may also consider expected changes in
foreign currency exchange rates, including the prospects for central bank
intervention, in determining the anticipated returns of securities denominated
in foreign currencies. The Adviser may further evaluate, among other things,
foreign yield curves and regulatory and political factors, including the fiscal
and monetary policies of such countries.

The Total Return Fund expects to primarily invest in income-producing
securities, together with certain futures, options and foreign currency
contracts and other investments described below. The Fund may also invest in
lower quality fixed income securities. Investments in these high yield, high
risk debt securities are considered to be speculative and involve comparatively
greater risks, including price volatility and the risk of default in the timely
payment of interest and principal, than investment grade securities or
securities of comparable value. Some of such investments may be non-performing
when purchased. See "Special Risk Considerations-High Yield Securities."

The Total Return Fund has established no rating criteria for the debt securities
in which it may invest and such securities may not be rated at all for
creditworthiness. Securities rated in the medium to lower rating categories of
nationally recognized statistical rating organizations and unrated securities of
comparable quality are predominantly speculative with respect to the capacity to
pay interest and repay principal in accordance with the terms of the security
and generally involve a greater volatility of price and risk of default than
securities in higher rating categories. See "Special Risk Considerations - High
Yield Securities." In purchasing such securities, the Fund will rely on the
Adviser's judgment, analysis and experience in evaluating the creditworthiness
of an issuer of such securities. The Adviser will take into consideration,
among other things, the issuer's financial resources, its sensitivity to
economic conditions and trends, its operating history, the quality of the
issuer's management and regulatory matters. The Fund does not intend to
purchase debt securities that are in default or which the Adviser believes will
be in default. See Appendix A to this Prospectus for a description of ratings
of Standard & Poor's Ratings Group ("S&P"), Moody's Investors Services, Inc.
("Moody's") and Duff & Phelps Credit Ratings Co. ("D&P").

INVESTMENT POLICIES AND TECHNIQUES

FOREIGN SECURITIES. The Funds and the underlying funds (collectively, the
"Funds") may invest in securities of foreign issuers. When the Funds invest in
foreign securities, they may be denominated in foreign currencies. Thus, each
Fund's net asset value may be affected by changes in exchange rates. See
"Special Risk Considerations."

MORTGAGE-RELATED SECURITIES. The Funds may invest in mortgage-related
securities, consistent with their respective investment objectives and policies,
that provide funds for mortgage loans made to residential homeowners. These
include securities which represent interests in pools of mortgage loans made by
lenders such as savings and loan institutions, mortgage bankers, commercial
banks and others. Pools of mortgage loans are assembled for sale to investors
(such as the Funds) by various governmental, government-related and private
organizations. Interests in pools of mortgage-related securities differ from
other forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential

8
<PAGE>

mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Prepayments are caused by repayments of principal resulting from
the sale of the underlying residential property, refinancing or foreclosure, net
of fees or costs which may be incurred.

Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers may
in addition be the originators of the underlying mortgage loans as well as the
guarantors of the mortgage-related securities. Pools created by such
non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government guarantees of payments in such pools. However, timely payment of
interest and/or principal of these pools is supported by various forms of
insurance or guarantees, including individual loan, title, pool or hazard
insurance. There can be no assurance that the private insurers can meet their
obligations under the policies. The Funds may buy mortgage-related securities
without insurance or guarantees if through an examination of the loan experience
and practices of the poolers the Adviser determines that the securities meet the
Funds' investment criteria. Although the market for such securities is becoming
increasingly liquid, securities issued by certain private organizations may not
be readily marketable.

The Adviser expects that governmental, governmental-related or private entities
may create mortgage loan pools offering pass-through investments in addition to
those described above. The mortgages underlying these securities may be second
mortgages or alternative mortgage instruments, that is, mortgage instruments
whose principal or interest payments may vary or whose terms to maturity may
differ from customary long-term fixed rate mortgages. As new types of
mortgage-related securities are developed and offered to investors, the Adviser
will, consistent with the Fund's investment objective and policies, consider
making investments in such new types of securities. For additional information
regarding mortgage-related securities and the risks associated with investment
in such instruments, see "Additional Information on Portfolio Instruments and
Techniques - Mortgage-Related Securities" in the Statement of Additional
Information.

ASSET-BACKED SECURITIES. The Funds may invest in asset-backed securities in
accordance with their respective investment objectives and policies.
Asset-backed securities represent an undivided ownership interest in a pool of
installment sales contracts and installment loans collateralized by, among other
things, credit card receivables and automobiles. In general, asset-backed
securities and the collateral supporting them are of shorter maturity than
mortgage loans. As a result, investment in these securities should result in
greater price stability for a Fund.

Asset-backed securities are often structured with one or more types of credit
enhancement. For a description of the types of credit enhancement that may
accompany asset-backed securities, see the Statement of Additional Information.
The Funds will not limit their investments to asset-backed securities with
credit enhancements. Although asset-backed securities are not generally traded
on a national securities exchange, such securities are widely traded by brokers
and dealers, and to such extent will not be considered illiquid for the purposes
of each Fund's limitation on investment in illiquid securities

BRADY BONDS. Each Fund, except the U.S. Government Securities and Mortgage
Securities Funds, may invest in "Brady Bonds" which are debt securities issued
or guaranteed by foreign governments in exchange for existing external
commercial bank indebtedness under a plan announced by former U.S. Treasury
Secretary Nicholas F. Brady in 1989. To date, over $160 billion (face amount)
of Brady Bonds have been issued by the governments of Argentina, Brazil, Costa
Rica, Mexico, Nigeria, the Philippines, Uruguay and Venezuela, the largest
proportion having been issued by Argentina, Brazil, Mexico and Venezuela. Brady
Bonds have been issued only recently, and accordingly, they do not have a long
payment history. Brady Bonds may be collateralized or uncollateralized, are
issued in various currencies (primarily the U.S. dollar) and are actively traded
in the over-the-counter secondary market.

The Funds may invest in either collateralized or uncollateralized Brady Bonds.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed rate par
bonds or floating rate discount bonds, are collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Interest payments on such bonds generally are collateralized by cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's rolling interest payments based
on the applicable interest rate at that time and is adjusted at regular
intervals thereafter. Brady Bonds which have been issued to date are rated BB
or B by S&P or Ba or B by Moody's or, in cases in which a rating by S&P or
Moody's has not been assigned, are generally considered by the Adviser to be of
comparable quality.

9
<PAGE>

HEDGING AND OTHER STRATEGIC TRANSACTIONS. The Funds may use, as a portfolio
management strategy, cross currency hedges, interest rate transactions,
commodity futures contracts in the form of futures contracts on securities,
securities indices and foreign currencies, and related options transactions.
The Funds also may enter into forward foreign currency contracts and options
transactions to hedge in connection with currency and interest rate positions
and in order to enhance the Funds' income or gain. See "Special Risk
Considerations-Hedging and Other Strategic Transactions."

LOAN PARTICIPATIONS AND ASSIGNMENTS. The Funds, except the U.S. Government
Securities and Mortgage Securities Funds, may invest in fixed and floating rate
loans ("Loans") arranged through private negotiations between a foreign entity
and one or more financial institutions ("Lenders"). The majority of the Funds'
investments in Loans in emerging markets is expected to be in the form of
participations ("Participations") in Loans and assignments ("Assignments") of
portions of Loans from third parties. Participations typically will result in a
Fund having a contractual relationship only with the Lender, not with the
borrower government. Such Fund will have the right to receive payments of
principal, interest and any fees to which it is entitled only from the Lender
selling the Participation and only upon receipt by the Lender of the payments
from the borrower. In connection with purchasing Participations, a Fund
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the loan ("Loan Agreement"), nor any
rights of set-off against the borrower, and such Fund may not directly benefit
from any collateral supporting the Loan in which it has purchased the
Participation. As a result, the Fund will assume the credit risk of both the
borrower and the Lender that is selling the Participation. In the event of the
insolvency of the Lender selling a Participation, the Fund may be treated as a
general creditor of the Lender and may not benefit from any set-off between the
Lender and the borrower. The Funds will acquire Participations only if the
Lender interpositioned between the Fund and the borrower is determined by the
Adviser to be creditworthy. Creditworthiness will be judged based on the same
credit analysis performed by the Adviser when purchasing marketable securities.
When the Funds purchase Assignments from Lenders, the Funds will acquire direct
rights against the borrower on the Loan. However, since Assignments are
arranged through private negotiations between potential assignees and potential
assignors, the rights and obligations acquired by the Funds as the purchaser of
an Assignment may differ from, and be more limited than, those held by the
assigning Lender.

The Funds may have difficulty disposing of Assignments and Participations. The
liquidity of such securities is limited and the Funds anticipate that such
securities could be sold only to a limited number of institutional investors.
The lack of a liquid secondary market could have an adverse impact on the value
of such securities and on each Fund's ability to dispose of particular
Assignments or Participations when necessary to meet the Fund's liquidity needs
or in response to a specific economic event, such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary market for
Assignments and Participations also may make it more difficult for the Funds to
assign a value to those securities for purposes of valuing a Fund's portfolio
and calculating its net asset value. The investment of each Fund in illiquid
securities, including Assignments and Participations, is limited to 15% of net
assets. See "Illiquid Securities" below.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Funds may purchase or sell
forward foreign currency exchange contracts ("forward contracts") as part of
their portfolio investment strategies. 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. A 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 a 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 a 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 cash not available for investment or U.S. government
securities or other high quality debt securities 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

10
<PAGE>

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 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 a Fund than if it had not
entered into such contracts. If the party with which a 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.

STRUCTURED PRODUCTS. The Funds may invest in interests in entities organized
and operated solely for the purpose of restructuring the investment
characteristics of certain debt obligations. This type of restructuring
involves the deposit with or purchase by an entity, such as a corporation or
trust, of specified instruments (such as commercial bank loans or Brady
Bonds) and the issuance by that entity of one or more classes of securities
("structured products") backed by, or representing interests in, the
underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued structured products to create securities
with different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to structured products is dependent on the extent of the cash
flow on the underlying instruments. The Funds may invest in structured
products which represent derived investment positions based on relationships
among different markets or asset classes.

The Funds may also invest in other types of structured products, including among
others, inverse floaters, spread trades and notes linked by a formula to the
price of an underlying instrument or currency. Inverse floaters have coupon
rates that vary inversely at a multiple of a designated floating rate (which
typically is determined by reference to an index rate, but may also be
determined through a dutch auction or a remarketing agent) (the "reference
rate"). As an example, inverse floaters may constitute a class of
collateralized mortgage obligations with a coupon rate that moves inversely to a
designated index, such as LIBOR (London Interbank Offered Rate) or the Cost of
Funds Index. Any rise in the reference rate of an inverse floater (as a
consequence of an increase in interest rates) causes a drop in the coupon rate
while any drop in the reference rate of an inverse floater causes an increase in
the coupon rate. A spread trade is an investment position relating to a
difference in the prices or interest rates of two securities or currencies where
the value of the investment position is determined by movements in the
difference between the prices or interest rates, as the case may be, of the
respective securities or currencies. When a Fund invests in notes linked to the
price of an underlying instrument or currency, the price of the underlying
security or the exchange rate of the currency is determined by a multiple (based
on a formula) of the price of such underlying security or exchange rate of such
currency. Because they are linked to their underlying markets or securities,
investments in structured products generally are subject to greater volatility
than an investment directly in the underlying market or security. Total return
on the structured product is derived by linking return to one or more
characteristics of the underlying instrument. Although a Fund's purchase of
structured products would have a similar economic effect to that of borrowing
against the underlying securities, the purchase will not be deemed to be
leveraged for purposes of the limitations placed on the extent of the Fund's
assets that may be used for borrowing and other leveraging activities.

Certain issuers of structured products may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, a Fund's investment in
these structured products may be limited by the restrictions contained in the
1940 Act. See "Other Investment Companies" below. Structured products are
typically sold in private placement transactions, and there currently is no
active trading market for structured products. As a result, certain structured
products in which the Funds invest may be deemed illiquid and subject to the 15%
limitation described below under "Illiquid Securities."

DEPOSITORY RECEIPTS AND DEPOSITORY SHARES. The Funds, except the U.S.
Government Securities and Mortgage Securities Funds, may invest in American
Depository Receipts ("ADRs") or other similar securities, such as American
Depository Shares and Global Depository Shares, convertible into securities of
foreign issuers. These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. ADRs are
receipts typically issued by a U.S. bank or trust company evidencing ownership
of the underlying securities. Generally, ADRs in registered form are designed
for use in U.S. securities markets. As a result of the absence of established
securities markets and publicly-owned corporations in certain foreign countries
as well as restrictions on direct investment by foreign entities, the Funds may
be able to invest in such countries solely or primarily through ADRs or similar
securities and government approved investment vehicles. The Adviser expects
that the Funds, to the extent of their investment in ADRs, will invest
predominantly in ADRs sponsored by

11
<PAGE>

the underlying issuers. The Funds, however, may invest in unsponsored ADRs.
Issuers of the stock of unsponsored ADRs are not obligated to disclose material
information in the United States and, therefore, there may not be a correlation
between such information and the market value of such ADRs.

REVERSE REPURCHASE AGREEMENTS. The Funds may borrow by entering into reverse
repurchase agreements. Pursuant to such agreements, a 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, 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 a
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 make loans which are
short-term (nine months or less) or long-term. 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.

ZERO COUPON SECURITIES, PAY-IN-KIND BONDS AND DISCOUNT OBLIGATIONS. The Funds
may invest in zero coupon securities and pay-in-kind bonds. These investments
involve special risk considerations. Zero coupon securities are debt securities
that pay no cash income but are sold at substantial discounts from their value
at maturity. When a zero coupon security is held to maturity, its entire
return, which consists of the amortization of discount, comes from the
difference between its purchase price and its maturity value. This difference
is known at the time of purchase, so that investors holding zero coupon
securities until maturity know at the time of their investment what the return
on their investment will be. Certain zero coupon securities also are sold at
substantial discounts from their maturity value and provide for the commencement
of regular interest payments at a deferred date. The Funds also may purchase
pay-in-kind bonds. Pay-in-kind bonds pay all or a portion of their interest in
the form of debt or equity securities. The Funds will only purchase pay-in-kind
bonds that pay all or a portion of their interest in the form of debt
securities. Zero coupon securities and pay-in-kind bonds may be issued by a
wide variety of corporate and governmental issuers.

Zero coupon securities, pay-in-kind bonds and debt securities acquired at a
discount are subject to greater price fluctuations in response to changes in
interest rates than are ordinary interest-paying debt securities with similar
maturities; the value of zero coupon securities and debt securities acquired at
a discount appreciates more during periods of declining interest rates and
depreciates more during periods of rising interest rates. Under current federal
income tax law, the Funds are required to accrue as income each year the value
of securities received in respect of pay-in-kind bonds and a portion of the
original issue discount with respect to zero coupon securities and other
securities issued at a discount to the stated redemption price. In addition,
the Funds will elect similar treatment for any market discount with respect to
debt securities acquired at a discount. Accordingly, the Funds may have to
dispose of portfolio securities under disadvantageous circumstances in order to
generate current cash to satisfy certain distribution requirements.

ILLIQUID SECURITIES. No Fund will 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 a 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 Funds
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 Funds 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)

12
<PAGE>

paper is restricted as to disposition under the federal securities laws, and
generally is sold to institutional investors such as the Funds 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
Funds 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 adviser
will monitor the liquidity of such restricted securities under the supervision
of the Board of Directors.

OTHER INVESTMENT COMPANIES. Pursuant to an exemptive order from the Commission,
the Total Return Fund may purchase shares of any existing or future series of
the Company. The Fund currently intends to invest all or a portion of its
assets in shares of the underlying funds only. Allocations of the Total Return
Fund's assets among underlying funds will be made in accordance with the Total
Return Fund's investment objective. The underlying funds in which the Total
Return Fund may presently invest along with their respective investment
objectives are listed below:

(1) OFFITBANK U.S. GOVERNMENT SECURITIES FUND: The investment objective
of the U.S. Government Securities Fund is to seek current income. The Fund
seeks to achieve its objective by investing, under normal circumstances, at
least 80% of its total assets in U.S. Government Securities. In addition,
the Fund may invest up to 20% of its total assets in other fixed income
securities rated AAA by Standard & Poor's Ratings Group or Duff & Phelps
Credit Rating Co., or Aaa by Moody's Investors Services, Inc., or
securities deemed to be of comparable quality by the Adviser.

(2) OFFITBANK MORTGAGE SECURITIES FUND: The investment objective of the
Mortgage Securities Fund is to maximize total return from a combination of
investment income and capital appreciation. The Fund seeks to achieve its
objective by investing at least 80% of its total assets in investment grade
or comparable mortgage-related securities issued by U.S. entities. Up to
20% of the Fund's total assets may be invested in investment grade or
comparable fixed income securities of U.S. and non-U.S. issuers, including
mortgage related securities of issuers in Canada, the United Kingdom,
Denmark or other countries which may develop mortgage securities markets in
the future.

(3) OFFITBANK VIF-HIGH YIELD FUND: The High Yield Fund seeks high current
income with capital appreciation as a secondary objective. The Fund
invests, under normal circumstances, at least 65% of its total assets in
U.S. corporate fixed income securities rated below investment grade
offering potential returns that are sufficiently high to justify the
greater investment risks.

(4) OFFITBANK VIF-EMERGING MARKETS FUND: The 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. Under normal circumstances, the Fund will invest at least 80%
of its total assets in debt instruments, but may invest up to 20% of its
total assets in equity securities.

The Total Return Fund reserves the right to invest up to 10% of its total assets
in the securities of investment companies other than the underlying funds
("unaffiliated funds"). The Total Return Fund may not invest more than 5% of
its total assets in the securities of any one unaffiliated fund or acquire more
than 3% of the voting securities of any unaffiliated fund. The Total Return
Fund does not intend to invest in unaffiliated funds unless, in the judgment of
the Adviser, the potential benefits of such investment justify the payment of
any premium to net asset value of the unaffiliated fund or any sales charge.
The Total Return Fund will indirectly bear its proportionate share of any
management fees and other expenses paid by unaffiliated funds in which it
invests in addition to the advisory fee paid by the Total Return Fund.

Each Fund may each invest up to 10% of their respective total assets in the
securities of other investment companies. The Funds may not invest more than 5%
of their respective 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 Funds do not intend to invest in other investment companies
unless, in the judgment of the Adviser, the potential benefits of such
investment justify the payment of any premium to net asset value of the
investment company or any sales charge. Each 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.

TEMPORARY STRATEGIES. Each Fund retains the flexibility to respond promptly to
changes in market and economic conditions. Accordingly, consistent with each
Fund's investment objective, the Adviser may employ a temporary

13
<PAGE>

defensive investment strategy if it determines such a strategy is warranted.
Under such a defensive strategy, the Funds temporarily may hold cash (U.S.
dollars, foreign currencies or multinational currency units) and/or invest up to
100% of their respective assets in high quality debt securities or money market
instruments of U.S. or foreign issuers, and most or all of each Fund's
investments may be made in the United States and denominated in U.S. dollars.

In addition, pending investment of proceeds from new sales of Fund shares or to
meet ordinary daily cash needs, each 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 Funds 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. Because emerging markets can
be especially volatile, securities of emerging markets countries may at times be
held only briefly. It is not anticipated that, under normal conditions, the
portfolio turnover rates for the Total Return Fund, High Yield Fund, Emerging
Markets Fund, Mortgage Securities Fund and U.S. Government Securities Fund will
exceed 100%, 75%, 200%, 75% and 75%, respectively, 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.

CONVERTIBLE SECURITIES. The High Yield Fund and Emerging Market Fund may invest
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, 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.

The Funds have no current intention of converting any convertible securities
they may own into equity securities or holding them as an equity investment upon
conversion, although they may do so for temporary purposes. 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 a fund is called for redemption, such 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.

U.S. MUNICIPAL SECURITIES. In circumstances where the Adviser determines that
investment in U.S. dollar-denominated municipal obligations would facilitate the
High Yield Fund's ability to accomplish its investment objectives, the Fund may
invest in such obligations, including municipal bonds issued at a discount.

SPECIAL RISK CONSIDERATIONS

GENERAL
Each Fund's net asset value will fluctuate, reflecting fluctuations in the
market value of its portfolio positions and its net currency exposure. In
addition, to the extent that the Total Return Fund holds shares of the
underlying funds the Total Return Fund will be subject to the same risks as
those funds. The value of the securities held by the Funds generally fluctuates,
to varying degrees, based on, among other things, (1) interest rate movements,
(2) changes in the actual and perceived creditworthiness of the issuers of such
securities, (3) changes in any applicable foreign currency exchange rates, (4)
social, economic or political factors, (5) factors affecting the industry in
which the issuer operates, such as competition or technological advances and (6)
factors affecting the issuer directly, such as management changes or labor
relations. There is no assurance that the Funds will achieve their investment
objectives.

NON-DIVERSIFIED FUND
Each Fund is classified as a "non-diversified" fund under the 1940 Act, which
means that the Fund is not limited by the 1940 Act in the proportion of its
assets that may be invested in the obligations of a single issuer. Thus, the
Funds may invest a greater proportion of their respective assets in the
securities of a smaller number of issuers and,

14
<PAGE>

as a result, will be subject to greater risk of loss with respect to their
portfolio securities as compared to a diversified fund. Each Fund, however,
intends to comply with the diversification requirements imposed by the Internal
Revenue Code of 1986, as amended, (the "Code") applicable to segregated asset
accounts underlying variable products under section 817(h) of the Code and to
regulated investment companies under Subchapter M of the Code.

FOREIGN SECURITIES

Most of the assets of the Emerging Markets Fund will be invested in the
securities of non-U.S. issuers. Each of the U.S. Government Securities,
Mortgage Securities, High Yield and Total Return Funds may also invest in the
securities of non-U.S. issuers. The U.S. Government Securities Fund may also
invest up to 20% of its assets in the securities of non-U.S. issuers. Investors
should recognize that investing in securities of non-U.S. issuers involves
certain risks and special considerations, including those set forth below, which
are not typically associated with investing in securities of U.S. issuers.
Further, certain investments that the Fund may make, and investment techniques
in which they may engage, involve risks, including those set forth below.

SOCIAL, POLITICAL AND ECONOMIC FACTORS. Many countries in which the Funds will
invest may be subject to a substantially greater degree of social, political and
economic instability than is the case in the United States, Japan and Western
European countries. Such instability may result from, among other things, some
or all of the following: (1) authoritarian governments or military involvement
in political and economic decision-making, and changes in government through
extra-constitutional means; (2) popular unrest associated with demands for
improved political, economic and social conditions; (3) internal insurgencies
and terrorist activities; (4) hostile relations with neighboring countries; and
(5) drug trafficking. Social, political and economic instability could
significantly disrupt the principal financial markets in which the funds invest
and adversely affect the value of a fund's assets.

Individual foreign economies in general may differ favorably or unfavorably and
significantly from the U.S. economy in such respects as the rate of growth of
gross domestic product or gross national product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, structural
unemployment and balance of payments position. Governments of many of these
countries have exercised and continue to exercise substantial influence over
many aspects of the private sector. In some cases, the government owns or
controls many companies, including some of the largest in the country.
Accordingly, government actions in the future could have a significant effect on
economic conditions in many countries, including emerging market countries,
which could affect private sector companies and the Funds, and on market
conditions, prices and yields of securities in the Funds' portfolios. There may
be the possibility of nationalization or expropriation of assets, or future
confiscatory levels of taxation affecting the Funds. In the event of
nationalization, expropriation or other confiscation, a Fund may not be fairly
compensated for its loss and could lose its entire investment in the country
involved.

INVESTMENT AND REPATRIATION RESTRICTIONS. Investment by the Funds in non-U.S.
issuers may be restricted or controlled to varying degrees. These restrictions
may limit or preclude investment in certain of such issuers or countries and may
increase the costs and expenses of the Fund. For example, certain countries
require governmental approval prior to investments by foreign persons in the
country or in a particular company or industry sector or limit investment by
foreign persons to only a specific class of securities of a company which may
have less advantageous terms (including price) than securities of the company
available for purchases by nationals. Certain countries may also restrict or
prohibit investment opportunities in issuers or industries deemed important to
national interests. As a result of investment restrictions, the Funds may, in
certain countries (such as Mexico) invest through intermediary vehicles or
trusts. In addition, the repatriation of both investment income and capital
from some of these countries requires governmental approval and if there is a
deterioration in a country's balance of payments or for other reasons, a country
may impose temporary restrictions on foreign capital remittances abroad. Even
where there is no outright restriction on repatriation of capital, the mechanics
of repatriation may affect certain aspects of the operation of the Funds.

The Funds could be adversely affected by delays in, or a refusal to grant any
required governmental approval for repatriation of capital, as well as by the
application to the Fund of any restrictions on investments. If, because of
restrictions on repatriation or conversion, the Funds were unable to distribute
substantially all of its net investment income and long-term capital gains
within applicable time periods, the Funds could be subject to U.S. federal
income and excise taxes which would not otherwise be incurred and may cease to
qualify for the favorable tax treatment afforded to regulated investment
companies under the Code, in which case it would become subject to U.S. federal
income tax on all of its income and gains.

15
<PAGE>

CURRENCY FLUCTUATIONS. Because the Total Return, U.S. Government Securities,
Mortgage Securities and High Yield Funds may invest a portion of their
respective assets, and the Emerging Markets Fund may invest a substantial
portion of its assets, in the securities of foreign issuers which are
denominated in foreign currencies, the strength or weakness of the U.S. dollar
against such foreign currencies will account for part of each Fund's investment
performance. A decline in the value of any particular currency against the U.S.
dollar will cause a decline in the U.S. dollar value of each Fund's holdings of
securities denominated in such currency and, therefore, will cause an overall
decline in the Fund's net asset value and any net investment income and capital
gains to be distributed in U.S. dollars to shareholders of the Fund.

Although the Funds value their assets daily in terms of U.S. dollars, the Funds
do not intend to convert their holdings of foreign currencies into U.S. dollars
on a daily basis. Each Fund will do so from time to time, and investors should
be aware of the costs of currency conversion. Although foreign exchange dealers
do not charge a fee for conversion, they do realize a profit based on the
difference ("spread") between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to a
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to sell that currency to the dealer.

INFLATION. Many countries have experienced some periods of extremely high and
volatile rates of inflation. Inflation and rapid fluctuations in inflation
rates have had and may continue to have very negative effects on the economies
and securities markets of these countries and emerging market countries in
particular. In an attempt to control inflation, wage and price controls have
been imposed at times in certain countries.

MARKET CHARACTERISTICS; DIFFERENCES IN SECURITIES MARKETS. The securities
markets in many countries, and in emerging markets in particular, generally have
substantially less volume than the New York Stock Exchange, and equity
securities of most companies listed on such markets may be less liquid and more
volatile than equity securities of U.S. companies of comparable size. Some of
the stock exchanges outside of the United States and in emerging market
countries, to the extent that established securities markets even exist, are in
the earlier stages of their development. A high proportion of the shares of
many foreign companies may be held by a limited number of persons, which may
limit the number of shares available for investment by the Funds. A limited
number of issuers in most, if not all, of these securities markets may represent
a disproportionately large percentage of market capitalization and trading
volume. In addition, the application of certain 1940 Act provisions may limit
the Funds' ability to invest in certain non-U.S. issuers and to participate in
public offerings in these countries. The limited liquidity of certain non-U.S.
securities markets may also affect the Funds' ability to acquire or dispose of
securities at the price and time it wishes to do so.

16
<PAGE>

counterparty defaults. 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 investment opportunities. The
inability to dispose of a portfolio security due to settlement problems could
result either in losses to the Fund due to subsequent declines in the value of
such portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser.

NON-U.S. SUBCUSTODIANS. Rules adopted under the 1940 Act permit the Funds to
maintain its non-U.S. securities and cash in the custody of certain eligible
non-U.S. banks and securities depositories. Certain banks in non-U.S. countries
may not be eligible subcustodians for the Funds, in which event the Funds may be
precluded from purchasing securities in which they would otherwise invest, and
other banks that are eligible subcustodians may be recently organized or
otherwise lack extensive operating experience. At present, custody arrangements
complying with the requirements of the Commission are available in each of the
countries in which the Adviser intends to invest. In certain countries in which
the Funds may make investments, there may be legal restrictions or limitations
on the ability of the Funds to recover assets held in custody by subcustodians
in the event of the bankruptcy of the subcustodian.

GOVERNMENT SUPERVISION; LEGAL SYSTEMS. Disclosure and regulatory standards in
certain foreign countries, including emerging market countries, are in many
respects less stringent than U.S. standards. There may be less government
supervision and regulation of securities exchanges, listed companies and brokers
in these countries than exists in the United States. Brokers in some countries
may not be as well capitalized as those in the United States, so that they may
be more susceptible to financial failure in times of market, political, or
economic stress, exposing the Funds to a risk of loss. Less information may be
available to the Funds than with respect to investments in the United States
and, in certain of these countries, less information may be available to the
Funds than to local market participants. In addition, existing laws and
regulations are often inconsistently applied. Foreign investors may be
adversely affected by new laws and regulations, changes to existing laws and
regulations and preemption of local laws and regulations by national laws. In
circumstances where adequate laws exist, it may not be possible to obtain swift
and equitable enforcement of the law.

In addition to the foreign securities listed above, the Funds may also invest in
foreign sovereign debt securities, which involve certain additional risks. See
"Sovereign Debt Securities" below.

FOREIGN TAXES. The Total Return Fund's investment income from foreign issuers
may be subject to non-U.S. withholding taxes, thereby reducing the Total Return
Fund's net investment income. For more information about tax risks related to
the Total Return Fund, see "How Distributions are Made: Tax Information" below
and "Additional Information Concerning Taxes" in the Statement of Additional
Information.

HIGH YIELD SECURITIES

GENERAL. The Funds, except the U.S. Government Securities and Mortgage
Securities Funds, may invest all or a portion of their respective assets in high
yield, high risk debt securities, commonly referred to as "junk bonds."
Securities rated below investment grade and comparable unrated securities offer
yields that fluctuate over time, but generally are superior to the yields
offered by higher rated securities. However, securities rated below investment
grade also involve greater risks than higher rated securities. Under rating
agency guidelines, medium- and lower-rated securities and comparable unrated
securities will likely have some quality and protective characteristics that are
outweighed by large uncertainties or major risk exposures to adverse conditions.
Certain of the debt securities in which the Funds may invest may have, or be
considered comparable to securities having, the lowest ratings for
non-subordinated debt instruments assigned by Moody's, S&P or D&P (i.e., rated C
by Moody's or CCC or lower by

17
<PAGE>

S&P or D&P). Under rating agency guidelines, these securities are considered to
have extremely poor prospects of ever attaining any real investment standing, to
have a current identifiable vulnerability to default, to be unlikely to have the
capacity to pay interest and repay principal when due in the event of adverse
business, financial or economic conditions, and/or to be in default or not
current in the payment of interest or principal. Such securities are considered
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. Unrated securities
deemed comparable to these lower- and lowest-rated securities will have similar
characteristics. Accordingly, it is possible that these types of factors could,
in certain instances, reduce the value of securities held by the Funds with a
commensurate effect on the value of their respective shares. Therefore, an
investment in the Funds should not be considered as a complete investment
program for all investors.

The secondary markets for high yield, high risk corporate and sovereign debt
securities are not as liquid as the secondary markets for higher rated
securities. The secondary markets for high yield, high risk debt securities are
characterized by relatively few market makers and participants in the market are
mostly institutional investors, including insurance companies, banks, other
financial institutions and mutual funds. In addition, the trading volume for
high yield, high risk debt securities is generally lower than that for
higher-rated securities and the secondary markets could contract under adverse
market or economic conditions independent of any specific adverse changes in the
condition of a particular issuer. These factors may have an adverse effect on
each Fund's ability to dispose of particular portfolio investments and may limit
its ability to obtain accurate market quotations for purposes of valuing
securities and calculating net asset value. If a Fund is not able to obtain
precise or accurate market quotations for a particular security, it will become
more difficult for the Company's Board of Directors to value the Fund's
portfolio securities and the Company's Directors may have to use a greater
degree of judgment in making such valuations. Furthermore, adverse publicity
and investor perceptions about lower-rated securities, whether or not based on
fundamental analysis, may tend to decrease the market value and liquidity of
such lower-rated securities. Less liquid secondary markets may also affect each
Fund's ability to sell securities at their fair value. In addition, the Funds
may invest up to 15% of their respective net assets, measured at the time of
investment, in illiquid securities, which may be more difficult to value and to
sell at fair value. If the secondary markets for high yield, high risk debt
securities contract due to adverse economic conditions or for other reasons,
certain previously liquid securities in each Fund's portfolio may become
illiquid and the proportion of the Fund's assets invested in illiquid securities
may increase.

Many fixed income securities, including certain U.S. corporate fixed income
securities in which the Funds may invest, contain call or buy-back features
which permit the issuer of the security to call or repurchase it. Such
securities may present risks based on payment expectations. If an issuer
exercises such a "call option" and redeems the security, the Funds may have to
replace the called security with a lower yielding security, resulting in a
decreased rate of return for the Funds.

SOVEREIGN DEBT SECURITIES. Investing in sovereign debt securities will expose
the Funds, including the U.S. Government Securities Fund, to the direct or
indirect consequences of political, social or economic changes in the developing
and emerging countries that issue the securities. The ability and willingness
of sovereign obligors in developing and emerging countries or the governmental
authorities that control repayment of their external debt to pay principal and
interest on such debt when due may depend on general economic and political
conditions within the relevant country. Countries such as those in which the
Funds may invest have historically experienced, and may

18
<PAGE>

continue to experience, high rates of inflation, high interest rates, exchange
rate fluctuations, trade difficulties and extreme poverty and unemployment.
Many of these countries are also characterized by political uncertainty or
instability. Additional factors which may influence the ability or willingness
to service debt include, but are not limited to, a country's cash flow
situation, the availability of sufficient foreign exchange on the date a payment
is due, the relative size of its debt service burden to the economy as a whole,
and its government's policy towards the International Monetary Fund, the World
Bank and other international agencies.

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

In addition to high yield foreign sovereign debt securities, the Funds, except
the U.S. Government Securities Fund, may also invest in foreign corporate
securities. For a discussion of such securities and their associated risks, see
"Foreign Securities" above.

HEDGING AND OTHER STRATEGIC TRANSACTIONS
Each Fund may be authorized to use a variety of investment strategies to hedge
various market risks (such as interest rates, currency exchange rates and broad
or specific market movements), to manage the effective maturity or duration of
debt instruments held by the Fund, or, with respect to certain strategies, to
seek to increase the Fund's income or gain (such investment strategies and
transactions are referred to herein as "Hedging and Other Strategic
Transactions"). Currently, each Fund may use, as portfolio management
strategies, cross currency hedges, interest rate transactions, commodity futures
contracts in the form of futures contracts on securities, securities indices and
foreign currencies, and related options transactions. Each Fund also may enter
into forward foreign currency

19
<PAGE>

contracts and options transactions to hedge in connection with currency and
interest rate positions and in order to enhance the Fund's income or gain.

A discussion of the risks associated with Hedging and Other Strategic
Transactions follows below. The Funds will not be obligated, however, to pursue
any of such strategies and the Funds make no representation as to the
availability of these techniques at this time or at any time in the future. In
addition, each Fund's ability to pursue certain of these strategies may be
limited by the Commodity Exchange Act, as amended, applicable rules and
regulations of the Commodity Futures Trading Commission ("CFTC") thereunder and
the federal income tax requirements applicable to regulated investment companies
which are not operated as commodity pools. To the extent not otherwise
restricted by the Commission, the CFTC, the Code or its investment objective and
policies, the Funds may utilize, without limitation, Hedging and Other Strategic
Transactions. For further information see "Additional Information on Investment
Policies and Techniques - Hedging and Other Strategic Transactions" and
"Additional Information Concerning Taxes" in the Statement of Additional
Information.

IN GENERAL. Subject to the constraints described above, the Funds may (if and
to the extent so authorized) purchase and sell (or write) exchange-listed and
over-the-counter put and call options on securities, index futures contracts,
financial futures contracts and fixed income indices and other financial
instruments, and enter into financial futures contracts, interest rate
transactions and currency transactions (collectively, these transactions are
referred to in this Prospectus as "Hedging and Other Strategic Transactions").
The Funds' interest rate transactions may take the form of swaps, caps, floors
and collars, and the Funds' 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 Funds resulting from securities markets or currency exchange
rate fluctuations, to protect the Funds' unrealized gains in the value of its
securities, to facilitate the sale of those securities for investment purposes,
to manage the effective maturity or duration of the Fund's securities or to
establish a position in the derivatives markets as a temporary substitute for
purchasing or selling particular securities. The Funds may use any or all types
of Hedging and Other Strategic Transactions which they are 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 Funds to utilize Hedging and Other Strategic
Transactions successfully will depend on, in addition to the factors described
above, the Adviser's ability to predict pertinent market movements, which cannot
be assured. These skills are different from those needed to select the Funds'
securities. The Funds are not "commodity pools" (i.e., a pooled investment
vehicle which trades in commodity futures contracts and options thereon and the
operator of which is registered with the Commodity Futures Trading Commission
(the "CFTC")) and Hedging and Other Strategic Transactions involving futures
contracts and options on futures contracts will be purchased, sold or entered
into only for bona fide hedging, and non-hedging purposes to the extent
permitted by CFTC regulations; provided that the Funds may enter into futures
contracts or options thereon for purposes other than bona fide hedging if
immediately thereafter, the sum of the amount of its initial margin and premiums
on open contracts would not exceed 5% of the liquidation value of the Fund's
portfolio; provided further, than 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 use of certain Hedging and Other Strategic
Transactions will require that the Funds segregate cash, U.S. government
securities or other liquid high grade debt obligations to the extent the Fund's
obligations are not otherwise "covered" through ownership of the underlying
security, financial instrument or currency. A detailed discussion of various
Hedging and Other Strategic Transactions, including applicable regulations of
the CFTC and the requirement to segregate assets with respect to these
transactions, appears in the Statement of Additional Information.

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
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. Use of put and call options could
result in losses to the Funds, force the sale or purchase of portfolio
securities at inopportune times or for prices higher than (in the case of put
options) or lower than (in the case of call options) current market values, or
cause a Fund to hold a security it might otherwise sell.

20
<PAGE>

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

Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Currency transactions can result in
losses to the Funds 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 Funds are 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 Funds if they
are unable to deliver or receive currency or monies in settlement of obligations
and could also cause hedges they have 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 each 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.

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 each 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.

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

21
<PAGE>

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

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

Hedging and Other Strategic Transactions may be covered by means other than
those described above when consistent with applicable regulatory policies. Each
Fund may also enter into offsetting transactions so that its combined position,
coupled with any segregated assets, equals its net outstanding obligation in
related options and Hedging and Other Strategic Transactions. Each Fund could
purchase a put option, for example, if the strike price of that option is the
same or higher than the strike price of a put option sold by the Fund.
Moreover, instead of segregating assets if it holds a futures contracts or
forward contract, each Fund could purchase a put option on the same futures
contract or forward contract with a strike price as high or higher than the
price of the contract held. Other Hedging and Other Strategic Transactions may
also be offset in combinations. If the offsetting transaction terminates at the
time of or after the primary transaction, no segregation is required, but if it
terminates prior to that time, assets equal to any remaining obligation would
need to be segregated.

INTEREST RATE FLUCTUATIONS AND CREDIT RISK.
The performance of the Funds, especially the U.S. Government Securities Fund,
depends in part on interest rate changes. As interest rates increase, the value
of the fixed income securities held by the Funds tend to decrease. This effect
will be more pronounced with respect to investments by the Funds in
mortgage-related securities, the value of which are more sensitive to interest
rate changes. There is no restriction on the maturity of the portfolios of the
Funds or any individual portfolio security, and to the extent each Fund invests
in securities with longer maturities, the volatility of the Fund in response to
changes in interest rates can be expected to be greater than if the Fund had
invested in comparable securities with shorter maturities. The performance of
the Funds will also depend on the quality of its investments. While U.S.
Government securities generally are of high quality, government securities that
are not backed by the full faith and credit of the U.S. Treasury may be affected
by changes in the creditworthiness of the agency that issued them. Guarantees
of principal and interest on obligations that may be purchased by the Funds are
not guarantees of the market value of such obligations, nor do they extend to
the value of shares of the Funds. Other fixed-income securities in which the
Funds may invest, while of investment-grade quality, may be of lesser credit
quality than U.S. Government securities.

CONCENTRATION
Under normal market conditions, the Emerging Markets Fund may invest greater
than 25% of its assets in securities of issuers whose primary business activity
is in the banking industry. Banks are subject to extensive government
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 financing 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 financial difficulties of borrowers might
affect a bank's ability to meet its obligations. 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 obligations. For a
discussion of additional risks, see "Foreign Securities" above.

22
<PAGE>

LIMITING INVESTMENT RISKS

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

1. The Total Return 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.

2. The Total Return 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 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 its total assets.

3. The Total Return 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 and certain of those described in the
Statement of Additional Information under "Investment Limitations" are
fundamental policies of the Total Return 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 (2) 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% or more 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.

DESCRIPTION OF THE UNDERLYING FUNDS

THE U.S. GOVERNMENT SECURITIES FUND. The investment objective of the U.S.
Government Securities Fund is to seek current income consistent with
preservation of capital. The Fund seeks to achieve its objective by investing,
under normal circumstances, at least 80% of its total assets in U.S. Government
obligations. In addition, the Fund may invest up to 20% of its total assets in
sovereign obligations of Australia, Canada, Denmark, France, Germany, Japan, New
Zealand and The United Kingdom. Any Fund investments denominated in any foreign
currency will be hedged against fluctuations in value versus the U.S. dollar.

Obligations of the U.S. Government in which the Fund may invest are in two broad
categories and include the following: (1) direct obligations of the U.S.
Treasury, which differ only in their interest rates, maturities and times of
issuance, including U.S. Treasury Bills (maturities of one year or less), U.S.
Treasury Notes (maturities of one to ten years), and U.S. Treasury Bonds
(generally, maturities greater than ten years); and (2) obligations issued or
guaranteed by the agencies or instrumentalities of the U.S. Government which are
supported by: (a) the full faith and credit of the U.S. Government (e.g.,
Government National Mortgage Association ("GNMA") Certificates, See below); (b)
the right of the issuer to borrow an amount limited to a specific amount of
credit from the U.S. Government; (c) the credit of the instrumentality (e.g.,
bonds issued by the Federal National Mortgage Association ("FNMA")); or (d) the
discretionary authority of the U.S. Government to purchase certain obligations
of U.S. Government agencies or instrumentalities (collectively, "Government
Securities").

Government Securities of the type in which the Fund may invest have historically
involved little risk of principal if held to maturity. The Government's
guarantee of the securities in the Fund, however, does not guarantee the net
asset value of the shares of the Fund. There are market risks inherent in all
investments in securities and the value of an investment in the Fund will
fluctuate over time. Normally, the value of the Fund's investments varies
inversely with changes in interest rates. For example, as interest rates rise,
the value of the Fund's investments will tend to decline and as interest rates
fall, the value of the Fund's investments will tend to increase. Because of
these factors, the Fund's share value and yield are not guaranteed and will
fluctuate. The magnitude of these fluctuations generally will be greater when
the average maturity of the Fund's portfolio securities is longer.

23
<PAGE>

There is no restriction on the maturity of the Fund's portfolio or of any
individual portfolio security. Debt securities with longer maturities generally
tend to produce higher yields and are subject to greater market fluctuation as a
result of changes in interest rates than debt securities with shorter
maturities.

Up to 20% of the Fund may be allocated to the sovereign obligations and other
fixed income securities, in each case denominated in non-U.S. currencies or
composite currencies, including: debt obligations issued or guaranteed by
foreign national, provincial, state, municipal or other governments with taxing
authority or by their agencies or instrumentalities of Australia, Canada,
Denmark, France, Germany, Japan, New Zealand and The United Kingdom; debt
obligations of supranational entities; and debt obligations of the U.S.
Government issued in non-dollar securities.

THE MORTGAGE SECURITIES FUND. The investment objective of the Mortgage
Securities Fund is to maximize total return from a combination of current income
and capital appreciation. The Fund seeks to achieve this investment objective
by investing at least 80% of the value of its assets in a portfolio of
investment grade or comparable mortgage-related securities.

Mortgage-related securities are securities that, directly or indirectly,
represent participations in, or are secured by and payable from, loans secured
by residential or commercial property. Mortgage-related securities include
mortgage pass-through securities, adjustable rate mortgage securities, CMOs and
stripped mortgage-backed securities. These mortgage-related securities include
derivative mortgage securities.

The Fund's primary emphasis will be on mortgage-related securities representing
interests in residential property. Residential mortgage-related securities in
the U.S. fall into three categories: (a) those issued or guaranteed by the U.S.
Government or one of its agencies or instrumentalities, such as GNMA, FNMA and
Federal Home Loan Mortgage Corporation ("FHLMC"); (b) those issued by
non-governmental issuers that represent interests in, or are collateralized by,
mortgage-related securities issued or guaranteed by the U.S. Government or one
of its agencies or instrumentalities; and (c) those issued by non-governmental
issuers that represent an interest in, or are collateralized by, whole mortgage
loans or mortgaged-related securities without a government guarantee but usually
with over-collateralization or some e other form of private credit enhancement.
Non-governmental issuers referred to in (b) and (c) above include originators of
and investors in mortgage loans, including savings and loan associations,
mortgage bankers, commercial banks, investment banks and special purpose
subsidiaries of the foregoing.

The Fund may also invest in adjustable rate mortgage securities ("ARMS"). ARMS
are pass-through mortgage securities collateralized by residential mortgages
with interest rates that are adjustable from time to time. The adjustments
usually are determined in accordance with a predetermined interest rate index
and may be subject to certain limits. The Fund may invest in collateralized
mortgage obligations ("CMOs") issued by U.S. entities. CMOs are debt
obligations collateralized by mortgage loans or mortgage pass-through
securities. CMOs may be collateralized by GNMA, FNMA, or Freddie Mac
Certificates, but also may be collateralized by whole loans or private
pass-throughs. 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.

Mortgage-related securities issued by private issuers in the U.S. may entail
greater risk than mortgage-related securities that are guaranteed by the U.S.
Government, its agencies or instrumentalities. Privately-issued mortgage
securities are issued by private originators of, or investors in, mortgage
loans, including mortgage bankers, commercial banks, investment banks, savings
and loan associations and special purpose subsidiaries of the foregoing. Since
privately-issued mortgage certificates are not guaranteed by an entity having
the credit status of GNMA or FHLMC, such securities generally are structured
with one or more types of credit enhancement. Such credit support falls into
two categories: 1) liquidity protection and 2) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the pass-through of
payments due on the underlying pool occurs in a timely fashion. Protection
against losses resulting from ultimate default enhances the likelihood of
ultimate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches.

Up to 20% of the Fund's total assets may be allocated to other fixed income
securities, each of which will be rated investment grade by S&P, Moody's or D&P
or securities deemed of comparable quality by the Adviser, including:

24
<PAGE>

mortgage related securities of issuers in Canada, Denmark, the United Kingdom or
other countries which may develop mortgage securities markets in the future;
debt obligations issued or guaranteed by foreign, national, provincial, state,
municipal or other governments with taxing authority or by their agencies or
instrumentatlities of Australia, Canada, Denmark, France, Germany, Japan, New
Zealand and the United Kingdom; debt obligations of supranational entities;
non-U.S. dollar denominated debt obligations of the U.S. Government; and
corporate obligations including asset-backed securities. Any Fund investment
denominated in a foreign currency will be hedged against fluctuations in value
versus the U.S. dollar.

THE HIGH YIELD FUND. The High Yield Fund's primary investment objective is high
current income. Capital appreciation is a secondary objective. The Fund will
seek to achieve its objectives by investing, under normal circumstances, at
least 65% of its total assets in U.S. corporate fixed income securities
(including debt securities, convertible securities and preferred stocks) which
are lower rated or unrated at the time of investment and are generally perceived
by the marketplace to be high yield/high risk securities, commonly referred to
as "junk bonds." In addition, the Fund will seek to invest in debt securities
which are (1) "seasoned" senior securities, i.e. any security whose issuers
have been operating in their current form for a considerable period of time, and
offer sufficiently high potential yields to justify the greater investment risk,
(2) judged by the Adviser to be more creditworthy than generally perceived in
the marketplace, or (3) issued by once creditworthy companies that are now
considered a high risk investment generally due to changing industry conditions,
a change in company capitalization or a reduction of earning power. The Fund
will seek capital appreciation opportunities in those special situations in
which an issuer's senior securities sell at a substantial discount in relation
to their liquidation value, or in which the creditworthiness of an issuer is
believed, in the judgment of the Adviser, to be improving. For purposes of this
Prospectus, a "senior" security of an issuer is any security entitled to
preference over the issuer's common stock in the distribution of income or
assets upon liquidation.

Although the High Yield Fund's investments are primarily in U.S. corporate
securities, it may also invest in foreign corporate debt securities, sovereign
debt, municipal securities and mortgage-backed debt having many of the
characteristics of its corporate portfolio. The Adviser does not currently
anticipate seeking investments in the common stock of any issuers. However, the
Fund may acquire securities convertible into common stock or receive common
stock in lieu of dividends, interest, or principal.

THE EMERGING MARKETS FUND. The investment objective of the Emerging Markets
Fund is to provide a competitive total investment return by focusing on current
yield and opportunities for capital appreciation. The Fund will seek to achieve
its objective by investing primarily in corporate and sovereign debt instruments
of emerging market countries. Under normal circumstances, the Fund will invest
at least 80% of its total assets in debt instruments, but may invest up to 20%
of its total assets in equity securities. As used in this Prospectus, an
"emerging market country" is any country that is considered to be an emerging or
developing country by the International Bank for Reconstruction and Development
(the "World Bank") or the International Finance Corporation, or is determined by
the Adviser to have per capita gross domestic product below $10,000 (in 1997
dollars). Under normal circumstances, the Fund will invest at least 25% of its
total assets in securities of issuers whose primary business activity is in the
banking industry. The Fund will not invest 25% or more of its total assets in
obligations issued by any one country, its agencies, instrumentalities or
political subdivisions. See "Special Risk Considerations - Concentration."

An "emerging market country" debt instrument or equity security, as used in this
Prospectus, means an instrument or security (1) of an issuer organized or with
more than 50% of its business activities in such emerging market country, (2)
denominated in such country's currency or with a primary trading market in such
emerging market country, (3) of a company which derives at least 50% of its
gross revenues from goods produced, sales made, services performed or
investments in such emerging market country, or (4) issued or guaranteed by the
government of such emerging market country, its agencies, political subdivisions
or instrumentalities, or the central bank of such country. Determinations as to
eligibility will be made by the Adviser based on publicly available information
and inquiries made to companies. See "Special Risk Considerations-Foreign
Securities" in this Prospectus and "Additional Risk Considerations-Non-Uniform
Corporate Disclosure Standards and Governmental

25
<PAGE>

Regulation" in

the Statement of Additional Information for a discussion of the nature of
publicly available information for non-U.S. companies.

DEBT INSTRUMENTS. The Emerging Markets Fund intends to invest in debt
instruments including bonds, notes, bills, debentures, convertible securities,
debt with attached warrants, bank obligations, short-term paper, loan
participations and assignments, trust and partnership interests, money market
instruments and other similar instruments. Such instruments may be issued or
guaranteed by the governments of emerging market countries, their agencies,
instrumentalities or political subdivisions, international organizations or
business entities located in such countries, including financial institutions,
or companies located in emerging market countries that are subsidiaries of
multinational business entities. Such obligations may be payable in U.S.
dollars, Eurocurrencies or other currencies (including currencies of emerging
market countries which may be indexed to the U.S. dollar). The Adviser will be
free to invest in debt securities of any maturity and duration and the interest
rates on such securities may be fixed or floating. The Fund's debt instruments
may or may not be listed or traded on a securities exchange.

In selecting particular debt instruments for the VIF-Emerging Markets Fund, the
Adviser intends to consider factors such as liquidity, price volatility, tax
implications, interest rate sensitivity, foreign currency exchange risks,
counterparty risks and technical market considerations. Debt instruments in
which the Fund may invest will not be required to meet a minimum rating standard
and a substantial amount of such instruments are expected to be non-investment
grade securities (i.e., rated BB or lower by S&P or D&P, or Ba or lower by
Moody's, or if unrated, of comparable quality as determined by the Adviser).
See Appendix A to this Prospectus for a description of ratings of S&P, Moody's
and D&P. Investments in high yield, high risk debt securities involve
comparatively greater risks, including price volatility and the risk of default
in the timely payment of interest and principal, than higher rated securities.
Some of such investments may be non-performing when purchased. See "Special
Risk Considerations-High Yield Securities."

EQUITY SECURITIES. The Emerging Markets Fund may invest up to 20% of its total
assets in common stocks, preferred stocks, detachable warrants and other equity
securities that may or may not be listed or traded on a recognized securities
exchange. The Fund intends that such investments in equity securities often
will be related to the Fund's investments in debt instruments, such as those
equity securities received upon the exercise of convertible debt instruments or
attached warrants, or those equity securities acquired pursuant to investment
opportunities deriving from the Fund's activities in emerging market debt
markets. The equity securities purchased by the Fund may include American
Depository Receipts, European Depository Receipts and interests in investment
companies.

MANAGEMENT

The business and affairs of the Funds are managed under the general direction
and supervision of the Company's Board of Directors. Each Fund's day-to-day
operations are handled by the Company's officers.

INVESTMENT ADVISER
OFFITBANK provides investment advisory services to the Funds pursuant to an
Investment Advisory Agreement with the Company (the "Advisory Agreement").
Subject to such policies as the Company's Board of Directors may determine, the
Adviser makes investment decisions for the Funds.

The Advisory Agreement provides that, as compensation for services, the Adviser
is entitled to receive an advisory fee from the Total Return Fund, computed
daily and paid monthly, at the annual rate of 0.80% of the Fund's average daily
net assets. The advisory fee paid by the Total Return Fund is only with respect
to that portion of the Fund's assets invested directly in stocks, bonds, and
other instruments. The Adviser will waive its fee with respect to the portion
of the Total Return Fund's assets invested in the underlying funds. To the
extent that the Total Return Fund invests in the underlying funds, the Fund will
indirectly bear a pro rata share of fees and expenses incurred by the underlying
funds and the investment returns of the Total Return Fund will be net of the
expenses of the underlying funds.

26
<PAGE>

Government Securities and Mortgage Securities Funds. The investment advisory
fee for each underlying fund is higher than that paid by most investment
companies, but is comparable to that paid by other investment companies that
have strategies focusing on high yield and international investments.

PORTFOLIO MANAGER. Jack D. Burks will serve as the portfolio manager for the
Fund. Mr. Burks is a Managing Director of the Adviser and has been associated
with the Adviser since 1985.

ADMINISTRATOR, TRANSFER AGENT AND CUSTODIAN

PFPC Inc., an indirect, wholly owned subsidiary of PNC Bank Corp., serves as the
Company's administrator. PFPC also provides transfer agency and dividend
disbursing services to the Company. The Bank of New York serves as custodian of
the assets of the Fund. PFPC is entitled to an annual fee calculated daily and
paid monthly which will not exceed .125% of aggregate average daily net assets
of the Company as compensation for its services as administrator. The principal
address of PFPC is 400 Bellevue Parkway, Wilmington, Delaware 19809. The
principal business address of The Bank of New York is 90 Washington Street, New
York, New York 10286.

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, transfer agency, custody, 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 Total Return 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 Total Return Fund. Please
refer to the appropriate Account Prospectus of the Participating Company for
more information on the purchase of Total Return Fund shares.

REDEMPTION OF SHARES
An Account may redeem all or any portion of the shares of the Total Return 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 Commission determines that trading thereon
is restricted, or for any period during which an emergency (as determined by the
Commission) exists as a result of which disposal by the Total Return 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 Commission may by order
permit for the protection of security holders

27
<PAGE>

of the Company.

EXCHANGE PRIVILEGE
A Contract or Policy Owner investing through an Account may exchange shares of
the Total Return 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

The net asset value per share of the Total Return 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 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 Total Return Fund will declare and distribute dividends from net investment
income annually 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 Total Return Fund intends to continue to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code") so that it will not be subject to federal income tax on its earnings
and capital gains that are distributed to its shareholders. In addition, the
Total Return Fund intends to comply with the diversification requirements of
the Code and Treasury Regulations in order to maintain the tax-deferred
status of the Accounts.

Shares of the Total Return Fund must be purchased through Policies or Contracts.
As a result, it is anticipated that any dividend or capital gains distribution
from the Total Return Fund will be exempt from current taxation if left to
accumulate within a Policy or Contract. The Total Return Fund is managed
without regard to tax ramifications. Withdrawals from Contracts or Policies may
be subject to ordinary income tax plus a 10% penalty tax if made before age
59 1/2.

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, administrative or judicial action. As the foregoing
discussion is for general information only, a prospective investor should also
review the more detailed discussion of federal income tax considerations that is
contained in the Statement of Additional Information. In addition, each
prospective investor should consult with his own tax adviser as to the tax
consequences of investments in the Total Return Fund, including the application
of state and local taxes which may differ from the federal income tax
consequences described above.

THE TAX STATUS OF YOUR INVESTMENT IN THE TOTAL RETURN FUND DEPENDS UPON THE
FEATURES OF YOUR POLICY OR CONTRACT. FOR FURTHER INFORMATION, PLEASE REFER TO
THE ACCOUNT OR POLICY PROSPECTUS.

28
<PAGE>

SHAREHOLDER COMMUNICATIONS

It is expected that Contract or Policy Owners will receive from the
Participating Companies for which shares of the Total Return 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. 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' accounts.

Each Account owning shares of the Total Return 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 Total Return 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 slightly higher than the yield because of the compounding
effect of this assumed reinvestment.

The performance of the Total Return 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, Value Line Composite, Lehman Brothers Bond, Government Corporate,
Corporate and Aggregate Indices, Merrill Lynch Government & Agency and
Intermediate Agency Indices, Morgan Stanley Capital International Europe,
Australia, Far East Index or Morgan Stanley Capital International World Index.
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, KIPLINGER'S, MORNINGSTAR,
MUTUAL FUND VALUES, U.S.A. TODAY OR THE NEW YORK TIMES or other industry or
financial publications.

Performance information presented for 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.

THE TOTAL RETURN 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.

COUNSEL AND INDEPENDENT ACCOUNTANTS

29
<PAGE>

APPENDIX A
RATINGS

COMMERCIAL PAPER RATINGS

"C" - Obligations are currently vulnerable to nonpayment and are
dependent on favorable business, financial, and economic conditions for the
obligor to meet its financial obligation.

A-1
<PAGE>

"Not Prime" - Issuers do not fall within any of the Prime rating
categories.

"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.

"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.

"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.

CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS

The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:

"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.

"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.

A-2
<PAGE>

"CC" - An obligation rated "CC" is currently highly vulnerable to
non-payment.

"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.

PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.

The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:

A-3
<PAGE>

may be present which suggest a susceptibility to impairment sometime in the
future.

Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, Baa1, Ba1 and B1.

The following summarizes the long-term debt ratings used by D&P for
corporate and municipal long-term debt:

"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.

"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.

"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.

A-4
<PAGE>

<PAGE>

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

PROSPECTUS
THE OFFITBANK VARIABLE INSURANCE FUND, INC. JULY 29, 1998

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

OFFITBANK VIF-U.S. GOVERNMENT SECURITIES FUND

OFFITBANK VIF-U.S. Government Securities Fund (the "Fund") is an investment
portfolio of the OFFITBANK Variable Insurance Fund, Inc. (the "Company"), an
open-end, management investment company consisting of ten separate portfolios.
The Fund's investment objective is to seek current income consistent with
preservation of capital. The Fund seeks to achieve its objective by investing,
under normal circumstances, at least 80% of its total assets in U.S. Government
Obligations. 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 Adviser currently
manages approximately $10 billion in assets. The address of the Company is 400
Bellevue Parkway, Wilmington, Delaware 19809. 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 July 29, 1998, 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. This Prospectus, the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund is
available at the Commission's Website (http://www.sec.gov).

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

WHAT YOU NEED TO KNOW

<S> <C>
Highlights............................................. 2
The Company............................................ 3
Investment Objective and Policies...................... 3
Investment Policies and Techniques..................... 5
Special Risk Considerations............................ 7
Limiting Investment Risks.............................. 10
Management............................................. 11
About Your Investment.................................. 11
How the Company Values Its Shares...................... 12
How Distributions Are Made: Tax Information............ 12
Shareholder Communications............................. 13
Performance Information................................ 13
Counsel and Independent Accountants.................... 13

</TABLE>

<PAGE>

HIGHLIGHTS

INTRODUCTION
OFFITBANK VIF-U.S. Government Securities 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 seek high current income with capital appreciation as
a secondary objective.

FUND MANAGEMENT
OFFITBANK, a New York State chartered trust company serves as the Fund's
Adviser.

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 invests at least 80% of its total
assets in U.S. Government obligations and may invest up to 20% of its total
assets in other high quality fixed income securities including, but not limited
to, mortgage-backed and asset-backed securities, sovereign obligations of
Australia, Canada, Denmark, France, Germany, Japan, New Zealand and the United
Kingdom. See "Investment Objective and Policies" and "Special Risk
Considerations."

2
<PAGE>

THE COMPANY

The Company 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 the principal underwriter for the Company.
The Fund is a no-load 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 OBJECTIVE AND POLICIES

The Fund has an investment objective 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 objectives 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 notification to shareholders. There is no assurance that the Fund
will achieve its objectives.

The Fund's investment objective is to seek current income consistent with
preservation of capital. The Fund seeks to achieve its objective by investing,
under normal circumstances, at least 80% of its total assets in U.S. Government
obligations. In addition, the Fund may invest up to 20% of its total assets in
other high quality fixed income securities including, but not limited to,
mortgage-backed and asset-backed securities, sovereign obligations of Australia,
Canada, Denmark, France, Germany, Japan, New Zealand and the United Kingdom.
Any fund investments denominated in any foreign currency will be hedged against
fluctuations in value versus the U.S. dollar. See "Limiting Investment Risks".

The agencies and instrumentalities that issue Government Securities include,
among others, Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Farm Credit Banks,
Student Loan Marketing Association and U.S. Maritime Administration.

Securities issued by the U.S. Government differ with respect to maturity and
mode of payment. The modes of payment are coupon paying and capital
appreciation. Coupon paying bonds and notes pay a periodic interest payment,
usually semi-annually, and a final principal payment at maturity. Capital
appreciation bonds and Treasury bills accrue a daily amount of interest income,
and pay a stated face amount at maturity. Most U.S. Government capital
appreciation bonds were created as a result of the separation of coupon paying
bonds into distinct securities representing the periodic

3
<PAGE>

coupon payments and the final principal payments. This is referred to as
"stripping". The separate securities representing a specific payment to be made
by the U.S. Government on a specific date are also called "zero coupon bonds."
Current federal tax law requires the Fund to accrue as income daily a portion of
the original issue discount at which each zero coupon bond was purchased.
Amortization of this discount has the effect of increasing the Fund's income,
although it receives no actual cash payments. The Fund distributes this income
to its shareholders as income dividends and such income is reflected in the
Fund's quoted yield. (See "Investment Policies and Techniques - Zero Coupon
Securities and Discount Obligations").

At any given time, there is a relationship between the yield of the U.S.
Government obligation and its maturity. This is called the "yield curve".
Since Government Securities are assumed to have negligible credit risks, the
main determinant of yield differential between individual securities is
maturity. When the yield curve is such that longer maturities correspond to
higher yields, the yield curve has a positive slope and is referred to as a
"normal" yield curve. At certain times shorter maturities have high yields and
the yield curve is said to be "inverted". Even when the yield curve is "normal"
(i.e. has a positive slope), the relationship between yield and maturity for
some Government Stripped Securities is such that yields increase with maturity
up to some point, and then after peaking, decline so that the longest maturities
are not the highest yielding. This is called a "humped" curve. The highest
yielding point on the yield curve for such securities is referred to as the
"stripper's hump".

U.S. Government securities of the type in which the Fund may invest have
historically involved little risk of principal if held to maturity. The
Government's guarantee of the securities in the Fund, however, does not
guarantee the net asset value of the shares of the fund. There are market risks
inherent in all investments in securities and the value of an investment in the
fund will fluctuate over time. Normally, the value of the Fund's investments
varies inversely with changes in interest rates. For example, as interest rates
rise, the value of the Fund's investments will tend to decline and as interest
rates fall, the value of the Fund's investments will tend to increase. Because
of these factors, the Fund's share value and yield are not guaranteed and will
fluctuate. The magnitude of these fluctuations generally will be greater when
the average maturity of the Fund's portfolio securities is longer.

The Fund is not limited to the maturities of the securities in which it may
invest. Debt securities with longer maturities generally tend to produce higher
yields and are subject to greater market fluctuation as a result of changes in
interest rates than debt securities with shorter maturities.

The Advisor seeks an enhanced fixed income return through the active management
of portfolio duration and sector allocation. Investment decisions are based on
a continual evaluation of the supply and demand for capital, the current and
future shape of the yield curve, underlying trends in the direction of interest
rates and relative value among market sectors. The selection of individual
investment reflects the Advisor's view of relative value within and among market
sectors. The Advisor manages duration and maturity to take advantage of
interest rates and yield curve trends. A minimum of 80% of the Fund's total
assets will be invested in Government Securities.

Up to 20% of the Fund's total assets may be allocated to other fixed income
securities, each of which will be rated AAA by S&P or Aaa by Moody's, or will be
deemed of comparable quality by the Adviser, including: debt obligations issued
or guaranteed by foreign national, provincial, state, municipal or other
governments with taxing authority or by their agencies or instrumentalities of
Australia, Canada, Denmark, France, Germany, Japan, New Zealand and the United
Kingdom; debt obligations of supranational entities; non-U.S. dollar denominated
debt obligations of the U.S. Government; and corporate obligations including
asset-backed securities. Any Fund investment denominated in a foreign currency
will be hedged against fluctuations in value versus the U.S. dollar.

The obligations of foreign governmental entities, including supranational
issuers, have various kinds of government support. Obligations of foreign
governmental entities include obligations, issued or guaranteed by national,
provincial, state or other governments with taxing power or by their agencies.
These obligations may or may not be supported by the full faith and credit of a
foreign government. Supranational entities include international organizations
designated or supported by governmental entities to promote economic
reconstruction or development and international banking institutions and related
government agencies. Examples include the International Bank for Reconstruction
and Development (the World Bank), the European Steel and Coal Community, the
Asian Development Bank and the Inter-American Development Bank. The
governmental agencies, or "stockholders," usually make initial capital
contributions to the supranational entity and in many cases are committed to
make additional capital contributions, if the supranational entity is unable to
repay its borrowings. Each supranational entity's lending activities are
limited to a percentage of its total capital (including "callable capital"
contributed by members at the entity's call), reserves and net income.

4
<PAGE>

INVESTMENT POLICIES AND TECHNIQUES

ZERO COUPON SECURITIES AND DISCOUNT OBLIGATIONS
The Fund may invest in zero coupon securities and a substantial portion of the
Fund's sovereign debt securities may be acquired at a discount. These
investments involve special risk considerations. Zero coupon securities are
debt securities that pay no cash income but are sold at substantial discounts
from their value at maturity. When a zero coupon security is held to maturity,
its entire return, which consists of the amortization of discount, comes from
the difference between its purchase price and its maturity value. This
difference is known at the time of purchase, so that investors holding zero
coupon securities until maturity know at the time of their investment what the
return on their investment will be. Certain zero coupon securities also are
sold at substantial discounts from their maturity value and provide for the
commencement of regular interest payments at a deferred date.

Zero coupon securities and debt securities acquired at a discount are subject to
greater price fluctuations in response to changes in interest rates than are
ordinary interest-paying debt securities with similar maturities; the value of
zero coupon securities and debt securities acquired at a discount appreciates
more during periods of declining interest rates and depreciates more during
periods of rising interest rates. Under current federal income tax law, the
Fund is required to accrue as income each year the value of a portion of the
original issue discount with respect to zero coupon securities and other
securities issued at a discount to the stated redemption price. In addition,
the Fund will elect similar treatment for any market discount with respect to
debt securities acquired at a discount. Accordingly, the Fund may have to
dispose of portfolio securities under disadvantageous circumstances in order to
generate current cash to satisfy certain distribution requirements.

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.

MORTGAGE-RELATED SECURITIES
The Fund may invest all or a portion of the 20% of its total assets not required
to be invested in U.S. Government Obligations in mortgage-related securities.
Mortgage-related securities provide funds for mortgage loans made to residential
homeowners. These include securities which represent interests in pools of
mortgage loans made by lenders such as savings and loan institutions, mortgage
bankers, commercial banks and others. Pools of mortgage loans are assembled for
sale to investors (such as the Fund) by various governmental, government-related
and private organizations. Interests in pools of mortgage-related securities
differ from other forms of debt securities, which normally provide for periodic
payment of interest in fixed amounts with principal payments at maturity or
specified call dates. Instead, these securities provide a monthly payment which
consists of both interest and principal payments. In effect, these payments are
a "pass-through" of the monthly payments made by the individual borrowers on
their residential mortgage loans, net of any fees paid to the issuer or
guarantor of such securities. Prepayments are caused by repayments of principal
resulting from the sale of the underlying residential property, refinancing or
foreclosure, net of fees or costs which may be incurred.

5
<PAGE>

guarantees, including individual loan, title, pool or hazard insurance. There
can be no assurance that the private insurers can meet their obligations under
the policies. The Fund may buy mortgage-related securities without insurance or
guarantees if through an examination of the loan experience and practices of the
poolers the Adviser determines that the securities meet the Fund's investment
criteria. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable.

The Adviser expects that governmental, governmental-related or private entities
may create mortgage loan pools offering pass-through investments in addition to
those described above. The mortgages underlying these securities may be second
mortgages or alternative mortgage instruments, that is, mortgage instruments
whose principal or interest payments may vary or whose terms to maturity may
differ from customary long-term fixed rate mortgages. As new types of
mortgage-related securities are developed and offered to investors, the Adviser
will, consistent with the Fund's investment objective and policies, consider
making investments in such new types of securities. For additional information
regarding mortgage-related securities and the risks associated with investment
in such instruments, see "Additional Information on Portfolio Instruments and
Techniques - Mortgage-Related Securities" in the Statement of Additional
Information.

ASSET-BACKED SECURITIES
The Fund may invest all or a portion of the 20% of its total assets which are
not required to be invested in U.S. Government Obligations in asset-backed
securities. Asset-backed securities represent an undivided ownership interest
in a pool of installment sales contracts and installment loans collateralized
by, among other things, credit card receivables and automobiles. In general,
asset-backed securities and the collateral supporting them are of shorter
maturity than mortgage loans. As a result, investment in these securities
should result in greater price stability for the Fund.

Asset-backed securities are often structured with one or more types of credit
enhancement. For a description of the types of credit enhancement that may
accompany asset-backed securities, see the Statement of Additional Information.
The Fund will not limit its investments to asset-backed securities with credit
enhancements. Although asset-backed securities are not generally traded on a
national securities exchange, such securities are widely traded by brokers and
dealers, and to such extent will not be considered illiquid for the purposes of
the Fund's limitation on investment in illiquid securities.

FOREIGN SECURITIES
The Fund may invest all or a portion of the 20% of its total assets not required
to be invested in U.S. Government Obligations 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 may be affected by changes in
exchange rates. See "Special Risk Considerations."

HEDGING AND OTHER STRATEGIC TRANSACTIONS
The Fund may use, as a portfolio management strategy, cross currency hedges,
interest rate transactions, commodity futures contracts in the form of futures
contracts on securities, securities indices and foreign currencies, and related
options transactions. The Fund also may enter into forward foreign currency
contracts and options transactions to hedge in connection with currency and
interest rate positions and in order to enhance the Fund's income or gain. See
"Special Risk Considerations-Hedging and Other Strategic Transactions."

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 to hedge all
non-dollar investments with the U.S. dollar. 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"). 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.

6
<PAGE>

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
Adviser will monitor the liquidity of such restricted securities under the
supervision of the Board of Directors.

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 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 up to 100% of its assets in
U.S. money market instruments and most or all of the Fund's investments may be
made in the United States and denominated in U.S. dollars.

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. The value of the Fund's fixed income
securities generally fluctuates inversely with interest rate movements and fixed
income securities with longer maturities tend to be subject to increased
volatility. There is no assurance that the Fund will achieve its investment
objectives.

7
<PAGE>

INTEREST RATE FLUCTUATIONS AND CREDIT RISK
The performance of the Fund depends in part on interest rate changes. As
interest rates increase, the value of the fixed income securities held by the
Fund tends to decrease. This effect will be more pronounced with respect to
investments by the Fund in mortgage-related securities, the value of which are
more sensitive to interest rate changes. There is no restriction on the
maturity of the Fund's portfolio or any individual portfolio security, and to
the extent the Fund invests in securities with longer maturities, the volatility
of the Fund in response to changes in interest rates can be expected to be
greater than if the Fund had invested in comparable securities with shorter
maturities. The performance of the Fund will also depend on the quality of its
investments. While U.S. Government securities generally are of high quality,
government securities that are not backed by the full faith and credit of the
U.S. Treasury may be affected by changes in the creditworthiness of the agency
that issued them. Guarantees of principal and interest on obligations that may
be purchased by the Fund are not guarantees of the market value of such
obligations, nor do they extend to the value of shares of the Fund. Other
fixed-income securities in which the Fund may invest, while of investment-grade
quality, may be of lesser credit quality than U.S. Government securities.

SOVEREIGN DEBT SECURITIES
Investing in sovereign debt securities will expose the Fund to the direct or
indirect consequences of political, social or economic changes in the countries
that issue the securities. The ability and willingness of sovereign obligors or
the governmental authorities that control repayment of their external debt to
pay principal and interest on such debt when due may depend on general economic
and political conditions within the relevant country. Additional factors which
may influence the ability or willingness to service debt include, but are not
limited to, a country's cash flow situation, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of its debt
service burden to the economy as a whole, and its government's policy towards
the International Monetary Fund, the World Bank and other international
agencies.

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

HEDGING AND OTHER STRATEGIC TRANSACTIONS
The Fund is authorized to use a variety of investment strategies to hedge
various market risks (such as interest rates, currency exchange rates and broad
or specific market movements), to manage the effective maturity or duration of
debt instruments held by the Fund, or, with respect to certain strategies, to
seek to increase the Fund's income or gain (such investment strategies and
transactions are referred to herein as "Hedging and Other Strategic
Transactions"). Currently, the Fund may use, as portfolio management
strategies, interest rate transactions, commodity futures contracts in the form
of futures contracts on securities, securities indices and foreign currencies,
and related options transactions. The Fund also may enter into forward foreign
currency contracts and options transactions to hedge in connection with currency
and interest rate positions and in order to enhance the Fund's income or gain.

8
<PAGE>

A discussion of the risks associated with Hedging and Other Strategic
Transactions follows below. The markets for certain of these securities are
relatively new and the ability to establish and close out positions is subject
to the maintenance of a liquid market that may not always be available.
Therefore, the Fund does not make any representation as to the availability of
these techniques at this time or at any time in the future. In addition, the
Fund's ability to pursue certain of these strategies may be limited by the
Commodity Exchange Act, as amended, applicable rules and regulations of the
Commodity Futures Trading Commission ("CFTC") thereunder and the federal income
tax requirements applicable to regulated investment companies which are not
operated as commodity pools. To the extent not otherwise restricted by the
Commission, the CFTC, the Internal Revenue Code of 1986, as amended (the "Code")
or its investment objective and policies, the Fund may utilize, without
limitation, Hedging and Other Strategic Transactions. For further information
see "Additional Information on Portfolio Instruments and Techniques - Hedging
and Other Strategic Transactions" and "Additional Information Concerning Taxes"
in the Statement of Additional Information.

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 securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
securities, to facilitate the sale of those securities for investment purposes,
to manage the effective maturity or duration of the Fund's securities or to
establish a position in the derivatives markets as a temporary substitute for
purchasing or selling particular securities. Although the Fund intends to fully
hedge its exposure to foreign currencies versus the U.S. dollar, 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 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. The Fund is not a "commodity pool"
(i.e., a pooled investment vehicle which trades in commodity futures contracts
and options thereon and the operator of which is registered with the Commodity
Futures Trading Commission (the "CFTC")) and Hedging and Other Strategic
Transactions involving futures contracts and options on futures contracts will
be purchased, sold or entered into only for bona fide hedging, and non-hedging
purposes to the extent permitted by CFTC regulations; provided that the Fund may
enter into futures contracts or options thereon for purposes other than bona
fide hedging if immediately thereafter, the sum of the amount of its initial
margin and premiums on open contracts would not exceed 5% of the liquidation
value of the Fund's portfolio; provided further, than 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. A detailed discussion of various
Hedging and Other Strategic Transactions, including applicable regulations of
the CFTC appears in the Statement of Additional Information.

The use of futures and options transactions entails certain special risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related securities position of the
Fund could create the possibility that losses on the hedging instrument are
greater than gains in the value of the Fund's position. In addition, futures
and options markets could be illiquid in some circumstances and certain over-
the-counter options could have no markets. As a result, in certain markets, the
Fund might not be able to close out a transaction without incurring substantial
losses. Although the Fund's use of futures and options transactions for hedging
should tend to minimize the risk of loss due to a decline in the value of the
hedged position, at the same time it will tend to limit any

9
<PAGE>

potential gain to the Fund that might result from an increase in value of the
position. Finally, the daily variation margin requirements for futures
contracts create a greater ongoing potential financial risk than would purchases
of options, in which case the exposure is limited to the cost of the initial
premium.

Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Currency transactions can result in
losses to the Fund if the currency being hedged fluctuates in value to a degree
or in a direction that is not anticipated. 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.

LIMITING INVESTMENT RISKS

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

1. The Fund may (a) borrow in an amount up to 25% of its total
assets (including the amount borrowed), less all liabilities and
indebtedness other than the borrowing and (b) enter into reverse
repurchase agreements.

2. 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 (2) 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% or more of the
shares of the Fund represented at a meeting if the holders of more than 50% of
the

10
<PAGE>

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 Advisory Agreement provides that, as compensation for services, the Adviser
is entitled to receive from the Fund a monthly fee at the annual rate of .40% of
the average daily net assets of the Fund. The investment advisory fee for the
Fund is higher than that paid by most investment companies, but is comparable to
that paid by other investment companies that have strategies focusing on high
yield and international investments.

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 global assets management and offers its clients a complete range
of investments in capital markets throughout the world. The Adviser currently
manages approximately $10 billion in assets and serves as investment adviser to
twenty-one registered investment companies (or portfolios thereof). The
principal business address of the Adviser is 520 Madison Avenue, New York, New
York 10022.

PORTFOLIO MANAGER. Jack D. Burks will serve as the portfolio manager for the
Fund. Mr. Burks is a Managing Director of the Adviser and has been associated
with the Adviser since 1985.

ADMINISTRATOR, TRANSFER AGENT AND CUSTODIAN.
PFPC Inc., an indirect wholly owned subsidiary of PNC Bank Corp., serves as the
Company's adminsitrator. PFPC also provides transfer agency and dividend
disbursing services to the Company. The Bank of New York serves as custodian of
the assets of the Fund. PFPC is entitled to an annual fee calculated daily and
paid monthly which will not exceed .125% of aggregate average daily net assets
of the Company as compensation for its services as administrator. The principal
business address of PFPC is 400 Bellevue Parkway, Wilmington, Delaware 19809.
The principal business address of The Bank of New York is 90 Washington Street,
New York, New York 10286

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, transfer agency, custody, 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

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 Fund shares.

11
<PAGE>

HOW THE COMPANY VALUES ITS SHARES

HOW DISTRIBUTIONS ARE MADE: TAX INFORMATION

DISTRIBUTIONS
The Fund will declare and distribute dividends from net investment income
annually 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 intends to continue to qualify as a regulated investment company under
the Code so that it will not be subject to federal income tax on its earnings
and capital gains that are distributed to its shareholders. In addition, the
Fund intends to comply with the diversification requirements of the Code and
Treasury Regulations in order to maintain the tax-deferred status of the
Accounts.

THE TAX STATUS OF YOUR INVESTMENT IN THE FUND DEPENDS UPON THE FEATURES OF YOUR
POLICY OR CONTRACT. FOR FURTHER INFORMATION, PLEASE REFER TO THE ACCOUNT OR
POLICY PROSPECTUS.

12
<PAGE>

SHAREHOLDER COMMUNICATIONS

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.

COUNSEL AND INDEPENDENT ACCOUNTANTS

13
<PAGE>

PROSPECTUS

THE OFFITBANK VARIABLE INSURANCE FUND, INC. JULY 29, 1998
- --------------------------------------------------------------------------------

OFFITBANK VIF-MORTGAGE SECURITIES FUND

- --------------------------------------------------------------------------------
OFFITBANK VIF-Mortgage Securities Fund (the "Fund") is one of ten separate
non-diversified investment portfolios of the OFFITBANK Variable Insurance Fund,
Inc. (the "Company"), an open-end, management investment company. The Fund's
investment objective is to maximize total return from a combination of current
income and capital appreciation. The Fund will seek to achieve its objective by
investing at least 80% of its total assets in investment grade or comparable
mortgage-related securities issued by the U.S. government, its agencies and
instrumentalities, by private entities in the U.S., and by foreign governments
and governmental and private entities and may invest up to 20% of its total
assets in U.S. Government securities and investment grade or comparable fixed
income securities of foreign issuers.

The investment characteristics of mortgage-related securities differ from
traditional debt securities. These differences may subject the Fund to certain
risks not associated with investments in traditional fixed-income securities.
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 Adviser currently
manages approximately $10 billion in assets principally invested in global fixed
income securities. The address of the Company is 400 Bellevue Parkway,
Wilmington, Delaware 19809. Yield and other information regarding the Fund may
be obtained by calling 1-800-618-9510.

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 July 29, 1998, 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. This Prospectus, the Statement of Addiutional
Information, material incorporated by reference and other information regarding
the Fund is available on the Commission's Website (http://www.sec.gov).

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

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
The Company . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Objective and Policies . . . . . . . . . . . . . 3
Investment Policies and Techniques. . . . . . . . . . . . . 6
Special Risk Considerations . . . . . . . . . . . . . . . . 11
Limiting Investment Risks . . . . . . . . . . . . . . . . . 15
Management. . . . . . . . . . . . . . . . . . . . . . . . . 15
About Your Investment . . . . . . . . . . . . . . . . . . . 16
How the Company Values Its Shares . . . . . . . . . . . . . 16
How Distributions are Made: Tax Information . . . . . . . . 17
Shareholder Communications. . . . . . . . . . . . . . . . . 17
Performance Information . . . . . . . . . . . . . . . . . . 17
Counsel and Independent Accountants . . . . . . . . . . . . 18
Appendix A. . . . . . . . . . . . . . . . . . . . . . . . A-1

<PAGE>

HIGHLIGHTS

INTRODUCTION
OFFITBANK VIF-Mortgage Securities 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 maximize total return from a combination of current income and
capital appreciation.

FUND MANAGEMENT
OFFITBANK, a trust company specializing in global fixed income management,
serves as the Fund's Adviser.

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 will invest at least 80% of its total
assets in mortgage-related securities, which involve certain special risks not
associated with investments in traditional fixed-income securities. See
"Investment Objective and Policies" and "Special Risk Considerations."

2
<PAGE>

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, non-diversified 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 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 policy, the Directors would not materially change
the investment objective of the Fund without shareholder approval. There is no
assurance that the Fund will achieve its objective.

The Fund may utilize many of the same investment techniques and invest in
similar securities as other investment portfolios of the Company. Investors
should note, however, that the Fund will invest its assets in accordance with
its investment objective and policies described below. Accordingly, the Adviser
expects that the Fund's investment portfolios will be distinct, notwithstanding
its ability to invest in comparable instruments.

The investment objective of the Fund is to maximize total return from a
combination of current income and capital appreciation. The Mortgage Securities
Fund seeks to achieve this investment objective by investing at least 80% of the
value of its assets in a diversified portfolio of investment grade or comparable
mortgage-related securities.

Mortgage-related securities are securities that, directly or indirectly,
represent participations in, or are secured by and payable from, loans secured
by residential or commercial property. Mortgage-related securities include
mortgage pass-through securities, adjustable rate mortgage securities,
collateralized mortgage obligations and stripped mortgage-backed securities.
These mortgage-related securities include derivative mortgage securities.

The Fund's primary emphasis will be on mortgage-related securities representing
interests in residential property. Residential mortgage-related securities in
the U.S. fall into three categories: (1) those issued or guaranteed by the U.S.
Government or one of its agencies or instrumentalities, such as GNMA, FNMA and
Federal Home Loan Mortgage Corporation ("FHLMC"); (2) those issued by
non-governmental issuers that represent interests in, or are collateralized by,
mortgage-related securities issued or guaranteed by the U.S. Government or one
of its agencies or instrumentalities; and (3) those issued by non-governmental
issuers that represent an interest in, or are collateralized by, whole mortgage
loans or mortgage-related securities without a government guarantee but usually
with over-collateralization or some other form of private credit enhancement.
Non-governmental issuers referred to in (2) and (3) above include originators of
and investors in mortgage loans, including savings and loan associations,
mortgage bankers, commercial banks, investment banks and special purpose
subsidiaries of the foregoing.

3
<PAGE>

The residential mortgage pass-through securities in which the Fund will invest
provide for the pass-through to investors of their pro-rata share of monthly
payments (including any prepayments) made by the individual borrowers on the
pooled mortgage loans, net of any fees paid to the guarantor of such securities
and the servicer of the underlying mortgage loans. The Fund invests both in
U.S. Government pass-through securities issued by GNMA, FNMA and FHLMC, and in
pass-through securities issued by non-governmental issuers. Each of GNMA, FNMA
and FHLMC guarantee timely distributions of interest to certificate holders.
GNMA and FNMA guarantee timely distributions of scheduled principal. FHLMC
generally guarantees only ultimate collection of principal of the underlying
mortgage loans.

The Fund may also invest in adjustable rate mortgage securities ("ARMS"). ARMS
are pass-through mortgage securities collateralized by residential mortgages
with interest rates that are adjusted from time to time. The adjustments
usually are determined in accordance with a predetermined interest rate index
and may be subject to certain limits. While the values of ARMS, like other debt
securities, generally vary inversely with changes in market interest rates
(increasing in value during periods of declining interest rates and decreasing
in value during periods of increasing interest rates), the values of ARMS should
generally be more resistant to price swings than other debt securities because
the interest rates of ARMS move with market interest rates. The adjustable rate
feature of ARMS will not, however, eliminate fluctuations in the prices of ARMS,
particularly during periods of extreme fluctuations in interest rates. Also,
since many adjustable rate mortgages only reset on an annual basis, it can be
expected that the prices of ARMS will fluctuate to the extent that changes in
prevailing interest rates are not immediately reflected in the interest rates
payable on the underlying adjustable rate mortgages.

Commercial mortgage-related securities are generally multi-class debt or
pass-through securities backed by a mortgage loan or pool of mortgage loans
secured by commercial property, such as industrial and warehouse properties,
office buildings, retail space and shopping malls, multifamily properties and
cooperative apartments, hotels and motels, nursing homes, hospitals and senior
living centers. The commercial loans underlying these securities are generally
not amortizing or not fully amortizing. At their maturity date, repayment of
the remaining principal balance or "balloon" is due and is repaid through the
attainment of an additional loan or the sale of the property. Unlike most
single family residential mortgages, commercial real property loans often
contain provisions which substantially reduce the likelihood that such
securities will be prepaid.

The market for commercial mortgage-related securities developed more recently
and in terms of total outstanding principal amount of issues is relatively small
compared to the market for residential mortgage-related securities. Many of the
risks of investing in commercial mortgage-related securities reflect the risks
of investing in real estate securing the underlying mortgage loans. These risks
reflect the effect of local and other economic conditions such as real estate
markets, the ability of tenants to make loan payments, and the ability of a
property to attract and retain tenants. Commercial mortgage-related securities
may be less liquid and exhibit greater price volatility than other types of
mortgage-related securities.

Mortgage-related securities issued by private issuers in the U.S. may entail
greater risk than mortgage-related securities that are guaranteed by the U.S.
Government, its agencies or instrumentalities. Privately-issued mortgage
securities are issued by private originators of, or investors in, mortgage
loans, including mortgage bankers, commercial banks, investment banks, savings
and loan associations and special purpose subsidiaries of the foregoing. Since
privately-issued mortgage certificates are not guaranteed by an entity having
the credit status of GNMA or FHLMC, such securities generally are structured
with one or more types of credit enhancement. Such credit support falls into
two categories: (1) liquidity protection; and (2) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the pass-through of
payments due on the underlying pool occurs in a timely fashion. Protection
against losses resulting from ultimate default enhances the likelihood of
ultimate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches.

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

Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments sometimes funded from a portion of the
payments on the underlying assets are held in reserve against future losses) and
"over-collateralization" (where the scheduled payments of, or the principal
amount of, the underlying assets exceed those required to make payment of the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue

4
<PAGE>

is generally based on historical information with respect to the level of credit
risk associated with the underlying assets. Delinquency or loss in excess of
that which is anticipated could adversely affect the return on an investment in
such security.

The Fund may invest in collateralized mortgage obligations ("CMOs") issued by
the U.S. entities. CMOs are debt obligations collateralized by mortgage loans
or mortgage pass-through securities. CMOs may be collateralized by GNMA, FNMA
or Freddie Mac Certificates, but also may be collateralized by whole loans or
private pass-throughs (such collateral collectively hereinafter referred to as
"Mortgage Assets"). Multiclass pass-through securities are interests in a trust
composed of Mortgage Assets. Unless the context indicates otherwise, all
references herein to CMOs include multiclass pass-through securities. 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 or accrues 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, payments of principal, including any principal prepayments, on
the Mortgage Assets are applied to the classes of a CMO in the 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. The
Fund has no present intention to invest in CMO residuals.

The Fund may also invest in, among others, parallel pay CMOs and Planned
Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or a final distribution
date but may be retired earlier. PAC Bonds are a type of CMO tranche or series
designated to provide relatively predictable payment of principal provided that
among other things, the actual prepayment experience on the underlying mortgage
loans falls within a predefined range. If the actual prepayment experience on
the underlying mortgage loans is at a rate faster or slower than the predefined
range or if deviations from other assumptions occur, principal payments on the
PAC Bond may be earlier or later than predicted. Because of these features, PAC
Bonds generally are less subject to the risks of prepayment than are other types
of mortgage-related securities.

The Fund may purchase stripped mortgage securities which are derivative
multiclass mortgage securities. Stripped mortgage securities 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. Stripped mortgage securities have greater
volatility than other types of mortgage securities. Although stripped mortgage
securities are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, the market for such
securities has not yet been fully developed. Accordingly, stripped mortgage
securities are generally illiquid and to such extent, together with any other
illiquid investments, will be subject to the Fund's applicable restriction on
investments in illiquid securities.

Stripped mortgage securities 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 stripped mortgage
security will have at least one class receiving only a small portion of the
interest and a larger portion of the principal from the mortgage assets, while
the other class 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 IOs, POs and
other mortgage securities that are purchased at a substantial premium or
discount generally are extremely sensitive not only to changes in prevailing
interest rates but also 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. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities even if the securities have received the
highest rating by a nationally recognized statistical rating organization.

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

5
<PAGE>

policies and restrictions. POs may generate taxable income from the current
accrual of original issue discount, without a corresponding distribution of cash
to the Fund.

Up to 20% of the Fund's total assets may be invested in investment grade or
comparable fixed income securities, including mortgage-related securities of
issuers located in Canada, the United Kingdom, Denmark or other countries which
may develop a mortgage securities market. Any Fund investment denominated in a
foreign currency will be hedged against fluctuations in value versus the U.S.
dollar.

INVESTMENT POLICIES AND TECHNIQUES

GOVERNMENT MORTGAGE-BACKED SECURITIES. The principal governmental (i.e., backed
by the full faith and credit of the United States Government) guarantor of
mortgage-related securities is GNMA. GNMA is a wholly owned United States
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee with the full faith and credit of the United
States Government, the timely payment of principal and interest on securities
issued by institutions approved by GNMA (such as savings and loan institutions,
commercial banks and mortgage bankers) and backed by pools of FHA-insured or
VA-guaranteed mortgages.

Government-related (i.e., not backed by the full faith and credit of the United
States Government) guarantors include FNMA and FHLMC. FNMA and FHLMC are
government-sponsored corporations owned entirely by private stockholders.
Pass-through securities issued by FNMA and FHLMC are guaranteed as to timely
payment of principal and interest by FNMA and FHLMC but are not backed by the
full faith and credit of the United States Government.

The investment characteristics of mortgage-related securities differ from
traditional debt securities. These differences can result in significantly
greater price and yield volatility than is the case with traditional fixed
income securities. The major differences typically include more frequent
interest and principal payments, usually monthly, the adjustability of interest
rates, and the possibility that prepayments of principal may be made at any
time. Prepayment rates are influenced by changes in current interest rates and
a variety of economic, geographic, social and other factors. During periods of
declining interest rates, prepayment rates can be expected to accelerate. Under
certain interest rate and prepayment rate scenarios, the Fund may fail to recoup
fully its investment in mortgage-backed securities (and incur capital losses)
notwithstanding a direct or indirect governmental or agency guarantee. In
general, changes in the rate of prepayments on a mortgage-related security will
change that security's market value and its yield to maturity. When interest
rates fall, high prepayments could force the Fund to reinvest principal at a
time when investment opportunities are not attractive. Thus, mortgage-backed
securities may not be an effective means for the Fund to lock in long-term
interest rates. Conversely, during periods when interest rates rise, slow
prepayments could cause the average life of the security to lengthen and the
value to decline more than anticipated. However, during periods of rising
interest rates, principal repayments by mortgage-backed securities allows the
Fund to reinvest at increased interest rates.

COLLATERALIZED MORTGAGE OBLIGATIONS ("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. 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"). 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.

6
<PAGE>

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 the Fund. In addition, the Staff of the
United States Securities and Exchange Commission (the "SEC") considers privately
issued SMBS to be illiquid securities.

U.S. GOVERNMENT SECURITIES. The Fund may invest in obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as the Government National Mortgage Association ("GNMA") and the
Export-Import Bank of the United States, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal National
Mortgage Association ("FNMA") are supported by the right of the issuer to borrow
from the Treasury; others, such as those of the Student Loan Marketing
Association ("SLMA"), are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Farm Credit Banks or the Federal Home Loan Mortgage Corporation
("FHLMC"), are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government will provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so by law. The Fund will invest in the obligations of such
agencies or instrumentalities only when the Adviser believes that the credit
risk with respect thereto is minimal.

INVESTMENT GRADE FIXED-INCOME SECURITIES. The Fund may invest up to 20% of its
total assets in investment grade or comparable fixed income securities of
foreign issuers. Such investments may include mortgage related securities that
are not U.S. Government Securities, asset backed securities and fixed income
securities that are rated Baa or higher by Moody's or BBB or higher by S&P or
that are of comparable quality in the opinion of the Adviser. Fixed-income
securities rated Baa by Moody's or BBB by S&P are considered investment grade
obligations which lack outstanding investment characteristics and may have
speculative characteristics as well. See Appendix A for the descriptions of
these rating categories.

The ratings of fixed income securities by Moody's and S&P are a generally
accepted barometer of credit risk. They are, however, subject to certain
limitations from an investor's standpoint. The rating of an issuer is heavily
weighted by past developments and dues not necessarily reflect probable future
conditions. There is frequently a lag between the time a rating is assigned and
the time it is updated. In addition, there may be varying degrees of difference
in credit risk of securities within each rating category. See Appendix A for a
description of such ratings.

FOREIGN SECURITIES. The Fund may invest 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 will be affected by changes in
exchange rates. See "Special Risk Considerations."

STRUCTURED PRODUCTS. The Fund may invest in interests in entities organized and
operated solely for the purpose of restructuring the investment characteristics
of certain debt obligations. This type of restructuring involves the deposit
with or purchase by an entity, such as a corporation or trust, of specified
instruments (such as commercial bank loans or Brady Bonds) and the issuance by
that entity of one or more classes of securities ("structured products") backed
by, or representing interests in, the underlying instruments. The cash flow on
the underlying instruments may be apportioned among the newly issued structured
products to create securities with different investment characteristics such as
varying maturities, payment priorities and interest rate provisions, and the
extent of the payments made with respect to structured products is dependent on
the extent of the cash flow on the underlying instruments. The Fund may invest
in structured products which represent derived investment positions based on
relationships among different markets or asset classes.

7
<PAGE>

value of the investment position is determined by movements in the difference
between the prices or interest rates, as the case may be, of the respective
securities or currencies. When the Fund invests in notes linked to the price of
an underlying instrument or currency, the price of the underlying security or
the exchange rate of the currency is determined by a multiple (based on a
formula) of the price of such underlying security or exchange rate of such
currency. Because they are linked to their underlying markets or securities,
investments in structured products generally are subject to greater volatility
than an investment directly in the underlying market or security. Total return
on the structured product is derived by linking return to one or more
characteristics of the underlying instrument. Although the Fund's purchase of
structured products would have a similar economic effect to that of borrowing
against the underlying securities, the purchase will not be deemed to be
leveraged for purposes of the limitations placed on the extent of the Fund's
assets that may be used for borrowing and other leveraging activities.

DEPOSITORY RECEIPTS AND DEPOSITORY SHARES. The Fund may invest in American
Depository Receipts ("ADRs") or other similar securities, such as American
Depository Shares and Global Depository Shares, convertible into securities of
foreign issuers. These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. ADRs are
receipts typically issued by a U.S. bank or trust company evidencing ownership
of the underlying securities. Generally, ADRs in registered form are designed
for use in U.S. securities markets. As a result of the absence of established
securities markets and publicly-owned corporations in certain foreign countries
as well as restrictions on direct investment by foreign entities, the Fund may
be able to invest in such countries solely or primarily through ADRs or similar
securities and government approved investment vehicles. The Adviser expects
that the Fund, to the extent of its investment in ADRs, will invest
predominantly in ADRs sponsored by the underlying issuers. The Fund, however,
may invest in unsponsored ADRs. Issuers of the stock of unsponsored ADRs are
not obligated to disclose material information in the United States and,
therefore, there may not be a correlation between such information and the
market value of such ADRs.

CONVERTIBLE SECURITIES. The Fund may invest in convertible securities. The
convertible securities that may be held by a 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. "Synthetic"convertible securities,
as such term is used herein, are created by combining separate securities which
possess the two principal characteristics of a true convertible security, fixed
income and the right to acquire equity securities. Convertible securities have
several unique investment characteristics such as (1) higher yields than common
stocks, 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.

HEDGING AND OTHER STRATEGIC TRANSACTIONS. The Fund may use, as a portfolio
management strategy, cross currency hedges, interest rate transactions,
commodity futures contracts in the form of futures contracts on securities,
securities indices and foreign currencies, and related options transactions.
The Fund also may enter into forward foreign currency contracts and options
transactions to hedge in connection with currency and interest rate positions
and in order to enhance the Fund's income or gain. See "Special Risk
Considerations - Hedging and Other Strategic Transactions."

LOAN PARTICIPATIONS AND ASSIGNMENTS. The Fund may invest in fixed and floating
rate loans ("Loans") arranged through private negotiations between a foreign
entity and one or more financial institutions ("Lenders"). The majority of the
Fund's investments in Loans in emerging markets is expected to be in the form of
participations ("Participations") in Loans and assignments ("Assignments") of
portions of Loans from third parties. Participations typically will result in
the Fund having a contractual relationship only with the Lender, not with the
borrower government. The Fund will have the right to receive payments of
principal, interest and any fees to which it is entitled only from the Lender
selling the Participation and only upon receipt by the Lender of the payments
from the borrower. In connection with purchasing Participations, the Fund
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the loan ("Loan Agreement"), nor any
rights of set-off against the borrower, and the Fund may not directly benefit
from any collateral supporting the Loan in which it has purchased the
Participation. As a result, the Fund will assume the credit risk of both the
borrower and the Lender that is selling the Participation. In the event of the
insolvency of the Lender selling a Participation, the Fund may be treated as a
general creditor of the Lender and may not benefit from any set-off between the
Lender and the borrower. The Fund will acquire Participations only if the
Lender

8
<PAGE>

interpositioned between the Fund and the borrower is determined by the Adviser
to be creditworthy. Creditworthiness will be judged based on the same credit
analysis performed by the Adviser when purchasing marketable securities. When
the Fund purchases Assignments from Lenders, the Fund will acquire direct rights
against the borrower on the Loan. However, since Assignments are arranged
through private negotiations between potential assignees and potential
assignors, the rights and obligations acquired by the Fund as the purchaser of
an Assignment may differ from, and be more limited than, those held by the
assigning Lender.

The Fund may have difficulty disposing of Assignments and Participations. The
liquidity of such securities is limited and the Fund anticipates that such
securities could be sold only to a limited number of institutional investors.
The lack of a liquid secondary market could have an adverse impact on the value
of such securities and on the Fund's ability to dispose of particular
Assignments or Participations when necessary to meet the Fund's liquidity needs
or in response to a specific economic event, such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary market for
Assignments and Participations also may make it more difficult for the Fund to
assign a value to those securities for purposes of valuing the Fund's portfolio
and calculating its net asset value. The investment of the Fund in illiquid
securities, including Assignments and Participations, is limited to 15% of net
assets. See "Illiquid Securities" below.

ASSET-BACKED SECURITIES. The Fund may invest in asset-backed securities in
accordance with its investment objective and policies. Asset-backed securities
represent an undivided ownership interest in a pool of installment sales
contracts and installment loans collateralized by, among other things, credit
card receivables and automobiles. In general, asset-backed securities and the
collateral supporting them are of shorter maturity than mortgage loans. As a
result, investment in these securities should result in greater price stability
for the Fund.

Asset-backed securities are often structured with one or more types of credit
enhancement. For a description of the types of credit enhancement that may
accompany asset-backed securities, see the Statement of Additional Information.
The Fund will not limit its investments to asset-backed securities with credit
enhancements. Although asset-backed securities are not generally traded on a
national securities exchange, such securities are widely traded by brokers and
dealers, and to such extent will not be considered illiquid for the purposes of
the Fund's limitation on investment in illiquid 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 cash not available for investment or U.S. government
securities or other high quality debt securities 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 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, 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

9
<PAGE>

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.

ZERO COUPON SECURITIES, PAY-IN-KIND BONDS AND DISCOUNT OBLIGATIONS. The Fund
may invest in zero coupon securities and pay-in-kind bonds. These investments
involve special risk considerations. Zero coupon securities are debt securities
that pay no cash income but are sold at substantial discounts from their value
at maturity. When a zero coupon security is held to maturity, its entire
return, which consists of the amortization of discount, comes from the
difference between its purchase price and its maturity value. This difference
is known at the time of purchase, so that investors holding zero coupon
securities until maturity know at the time of their investment what the return
on their investment will be. Certain zero coupon securities also are sold at
substantial discounts from their maturity value and provide for the commencement
of regular interest payments at a deferred date. The Fund also may purchase
pay-in-kind bonds. Pay-in-kind bonds pay all or a portion of their interest in
the form of debt or equity securities. The Fund will only purchase pay-in-kind
bonds that pay all or a portion of their interest in the form of debt
securities. Zero coupon securities and pay-in-kind bonds may be issued by a
wide variety of corporate and governmental issuers.

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 Adviser will monitor the liquidity of
such restricted securities under the supervision of the Board of Directors.

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, 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 in which it invests in addition to the advisory fee paid by the Fund.

10
<PAGE>

SHORT SALES. The Fund may make short sales of securities "against the box." A
short sale is a transaction in which the Fund sells a security it does not own
in anticipation that the market price of that security will decline. In a short
sale "against the box," at the time of sale, the Fund owns or has the immediate
and unconditional right to acquire at no additional cost the identical security.
Short sales against the box are a form of hedging to offset potential declines
in long positions in similar securities.

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 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 (U.S. dollars, foreign
currencies or multinational currency units) and/or invest up to 100% of its
assets in high quality debt securities or money market instruments of U.S. or
foreign issuers, and most or all of the Fund's investments may be made in the
United States and denominated in U.S. dollars.

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) interest rate movements, (2) changes
in the actual and perceived creditworthiness of the issuers of such securities,
(3) changes in any applicable foreign currency exchange rates, (4) social,
economic or political factors, (5) factors affecting the industry in which the
issuer operates, such as competition or technological advances and (6) factors
affecting the issuer directly, such as management changes or labor relations.
There is no assurance that the Fund will achieve its investment objective.

MORTGAGE SECURITIES. The investment characteristics of mortgage-related
securities differ from traditional debt securities. These differences can
result in significantly greater price and yield volatility than is the case with
traditional fixed income securities. The major differences typically include
more frequent interest and principal payments, usually monthly, the
adjustability of interest rates, and the possibility that prepayments of
principal may be made at any time. Prepayment rates are influenced by changes
in current interest rates and a variety of economic, geographic, social and
other factors. During periods of declining interest rates, prepayment rates can
be expected to accelerate. Under certain interest rate and prepayment rate
scenarios, the Fund may fail to recoup fully its investment in mortgage-backed
securities (and incur capital losses) notwithstanding a direct or indirect
governmental or agency guarantee. In general, changes in the rate of
prepayments on a mortgage-related security will change that security's market
value and its yield to maturity. When interest rates fall, high prepayments
could force the Fund to reinvest principal at a time when investment
opportunities are not attractive. Thus, mortgage-backed securities may not be
an effective means for the Fund to lock in long-term interest rates.
Conversely, during periods when interest rates rise, slow prepayments could
cause the average life of the security to lengthen and the value to decline more
than anticipated. However, during periods of rising interest rates, principal
repayments by mortgage-backed securities allows the Fund to reinvest at
increased interest rates.

NON-DIVERSIFIED FUND. The Fund is classified as a "non-diversified" fund under
the 1940 Act, which means that the Fund is not limited by the 1940 Act in the
proportion of its assets that may be invested in the obligations of a single
issuer. Thus, the Fund may invest a greater proportion of its assets in the
securities of a smaller number of issuers and, as a result, will be subject to
greater risk of loss with respect to its portfolio securities as compared to a
diversified fund. The Fund, however, intends to comply with the diversification
requirements imposed by the Internal Revenue Code of 1986, as amended, (the
"Code") applicable to segregated asset accounts underlying variable products
under section 817(h) of the Code and to regulated investment companies under
Subchapter M of the Code.

11
<PAGE>

FOREIGN SECURITIES. The Fund may invest in mortgage-related or other
fixed-income securities of non-U.S. issuers. Investors should recognize that
investing in securities of non-U.S. issuers involves certain risks and special
considerations, including those set forth below, which are not typically
associated with investing in securities of U.S. issuers. Further, certain
investments that the Fund may make, and investment techniques in which they may
engage, involve risks, including those set forth below.

FOREIGN TAXES. The Fund's investment income from foreign issuers may be subject
to non-U.S. withholding taxes, thereby reducing the Fund's net investment
income. For more information about tax risks related to the Fund, see "How
Distributions are Made: Tax Information" below and "Additional Information
Concerning Taxes" in the Statement of Additional Information.

SOCIAL, POLITICAL AND ECONOMIC FACTORS. Some countries in which the Fund may
invest may be subject to a substantially greater degree of social, political and
economic instability than is the case in the United States, Japan and Western
European countries. Such instability may result from, among other things, some
or all of the following: (1) authoritarian governments or military involvement
in political and economic decision-making, and changes in government through
extra-constitutional means; (2) popular unrest associated with demands for
improved political, economic and social conditions; (3) internal insurgencies
and terrorist activities; (4) hostile relations with neighboring countries; and
(5) drug trafficking. Social, political and economic instability could
significantly disrupt the principal financial markets in which the Fund invests
and adversely affect the value of the Fund's assets.

INFLATION. Inflation and rapid fluctuations in inflation rates may have very
negative effects on the economies and securities markets of countries in which
the Fund may invest. In an attempt to control inflation, wage and price
controls have been imposed at times in certain countries.

In addition to the foreign securities listed above, the Fund may also invest in
foreign sovereign debt securities, which involve certain additional risks. See
"Sovereign Debt Securities" below.

HEDGING AND OTHER STRATEGIC TRANSACTIONS. The Fund may be authorized to use a
variety of investment strategies to hedge various market risks (such as interest
rates, currency exchange rates and broad or specific market movements), to
manage the effective maturity or duration of debt instruments held by the Fund,
or, with respect to certain strategies, to seek to increase the Fund's income or
gain (such investment strategies and transactions are referred to herein as
"Hedging and Other Strategic Transactions"). Currently, the Fund may use, as
portfolio management strategies, cross currency hedges, interest rate
transactions, commodity futures contracts in the form of futures contracts on
securities, securities indices and foreign currencies, and related options
transactions. The Fund also may enter into forward foreign currency contracts
and options transactions to hedge in connection with currency and interest rate
positions and in order to enhance the Fund's income or gain.

A discussion of the risks associated with Hedging and Other Strategic
Transactions follows below. The Fund will not be obligated, however, to pursue
any of such strategies and the Fund makes any representation as to the
availability of these techniques at this time or at any time in the future. In
addition, the Fund's ability to pursue certain of these strategies may be
limited by the Commodity Exchange Act, as amended, applicable rules and
regulations of the Commodity Futures Trading Commission ("CFTC") thereunder and
the federal income tax requirements applicable to regulated investment companies
which are not operated as commodity pools. To the extent not otherwise
restricted by the Commission, the CFTC, the Code or its investment objective and
policies, the Fund may utilize, without limitation, Hedging and Other Strategic
Transactions. For further information see "Additional Information on

12
<PAGE>

Portfolio Instruments and Techniques - Hedging and Other Strategic Transactions"
and "Additional Information Concerning Taxes" in the Statement of Additional
Information.

IN GENERAL. Subject to the constraints described above, the Fund may (if and to
the extent so authorized) purchase and sell (or write) exchange-listed and
over-the-counter put and call options on securities, index futures contracts,
financial futures contracts and fixed income indices and other financial
instruments, and enter into financial futures contracts, interest rate
transactions and currency transactions (collectively, these transactions are
referred to in this Prospectus as "Hedging and Other Strategic Transactions").
The Fund's interest rate transactions may take the form of swaps, caps, floors
and collars, and 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 securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
securities, to facilitate the sale of those securities for investment purposes,
to manage the effective maturity or duration of the Fund's securities or to
establish a position in the derivatives markets as a temporary substitute for
purchasing or selling particular securities. 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 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. The Fund is not a "commodity pool" (i.e., a pooled investment
vehicle which trades in commodity futures contracts and options thereon and the
operator of which is registered with the Commodity Futures Trading Commission
(the "CFTC")) and Hedging and Other Strategic Transactions involving futures
contracts and options on futures contracts will be purchased, sold or entered
into only for bona fide hedging, and non-hedging purposes to the extent
permitted by CFTC regulations; provided that the Fund may enter into futures
contracts or options thereon for purposes other than bona fide hedging if
immediately thereafter, the sum of the amount of its initial margin and premiums
on open contracts would not exceed 5% of the liquidation value of the Fund's
portfolio; provided further, than 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 use of certain Hedging and Other Strategic
Transactions will require that the Fund segregate cash, U.S. government
securities or other liquid high grade debt obligations to the extent the Fund's
obligations are not otherwise "covered" through ownership of the underlying
security, financial instrument or currency. A detailed discussion of various
Hedging and Other Strategic Transactions, including applicable regulations of
the CFTC and the requirement to segregate assets with respect to these
transactions, appears in the Statement of Additional Information.

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
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. Use of put and call options could
result in losses to the Fund, force the sale or purchase of portfolio securities
at inopportune times or for prices higher than (in the case of put options) or
lower than (in the case of call options) current market values, or cause the
Fund to hold a security it might otherwise sell.

13
<PAGE>

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.

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.

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

14
<PAGE>

a put option on the same futures contract or forward contract with a strike
price as high or higher than the price of the contract held. Other Hedging and
Other Strategic Transactions may also be offset in combinations. If the
offsetting transaction terminates at the time of or after the primary
transaction, no segregation is required, but if it terminates prior to that
time, assets equal to any remaining obligation would need to be segregated.

LIMITING INVESTMENT RISKS

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

2. 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 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 its total assets.

3. 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 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 (2) and the restrictions on illiquid investments
described in (3) 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

INVESTMENT ADVISER. OFFITBANK provides investment advisory services to the Fund
pursuant to an Investment Advisory Agreement with the Company (the "Advisory
Agreement"). Subject to such policies as the Company's Board of Directors may
determine, the Adviser makes investment decisions for the Fund.

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 .90% 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 approximately $10 billion in assets and serves as
investment adviser to twenty-one other registered investment companies (or
portfolios thereof). The principal address of the Adviser is 520 Madison
Avenue, New York, New York 10022.

PORTFOLIO MANAGER. Jack D. Burks will serve as the portfolio manager for the
Fund. Mr. Burks is a Managing Director of the Adviser and has been associated
with the Adviser since 1985.

ADMINISTRATOR, TRANSFER AGENT AND CUSTODIAN. PFPC Inc., an indirect, wholly
owned subsidiary of PNC Bank Corp., serves as the Company's administrator. PFPC
also provides transfer agency and dividend disbursing services to the Company.
The Bank of

15
<PAGE>

New York serves as custodian of the assets of the Fund. PFPC is entitled to an
annual fee calculated daily and paid monthly which will not exceed .125% of
aggregate average daily net assets of the Company as compensation for its
services as administrator. The Bank of New York serves as custodian of the
assets of the Fund. The principal business address of PFPC is 400 Bellevue
Parkway, Wilmington, Delaware 19809. The principal business address of The Bank
of New York is 90 Washington Street, New York, New York 10286.

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, transfer agency, custody, 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 Advisor or
Administrator.

ABOUT YOUR INVESTMENT

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
of the Company on the basis of their respective net asset values.

HOW THE COMPANY VALUES ITS SHARES

16
<PAGE>

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.

THE TAX STATUS OF YOUR INVESTMENT IN THE FUND DEPENDS UPON THE FEATURES OF YOUR
POLICY OR CONTRACT. FOR FURTHER INFORMATION, PLEASE REFER TO THE ACCOUNT OR
POLICY PROSPECTUS.

SHAREHOLDER COMMUNICATIONS

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 slightly higher than the yield because of the compounding
effect of this assumed reinvestment.

17
<PAGE>

Morgan Stanley Capital International Europe, Australia, Far East Index or Morgan
Stanley Capital International World Index. 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, KIPLINGER'S, 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.

COUNSEL AND INDEPENDENT ACCOUNTANTS

18
<PAGE>

APPENDIX A

RATINGS

The following is a description of certain ratings of Standard & Poor's
Ratings Group ("S&P"), Moody's Investors Service, Inc. ("Moody's"), and Duff &
Phelps Credit Rating Co. ("D&P") that are applicable to certain obligations in
which the Fund may invest.

COMMERCIAL PAPER RATINGS

"C" - Obligations are currently vulnerable to nonpayment and are
dependent on favorable business, financial, and economic conditions for the
obligor to meet its financial obligation.

A-1

<PAGE>

"Not Prime" - Issuers do not fall within any of the Prime rating
categories.

"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.

"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.

"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.

CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS

The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:

"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.

"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.

A-2
<PAGE>

"CC" - An obligation rated "CC" is currently highly vulnerable to
non-payment.

"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.

PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.

The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:

Con. (---) - Bonds for which the security depends upon the completion
of some

A-3
<PAGE>

act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.

Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, Baa1, Ba1 and B1.

The following summarizes the long-term debt ratings used by D&P for
corporate and municipal long-term debt:

"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.

"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.

"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.

A-4
<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.

A-5

<PAGE>

PROSPECTUS
The OFFITBANK Variable Insurance Fund, Inc. July 29, 1998
- --------------------------------------------------------------------------------

OFFITBANK VIF-Latin America Equity Fund

- --------------------------------------------------------------------------------
OFFITBANK VIF-Latin America Equity Fund (the "Fund") is one of ten separate
non-diversified investment portfolios of the OFFITBANK Variable Insurance Fund,
Inc. (the "Company"), an open-end, management investment company. The Fund's
investment objective is capital appreciation. Investment income is a secondary
objective of the Fund. The Fund will seek to achieve its objective by investing
primarily in equity securities of Latin American issuers. Under normal
circumstances, the Fund will invest at least 80% of its total assets in equity
securities of Latin American issuers and may invest up to 20% of its total
assets in debt securities (including convertible debt securities) of Latin
American issuers. The Fund's investments may be denominated in any currency,
including U.S. dollars. All or a portion of the debt securities in which the
Fund may invest may be unrated or rated below investment grade.

THE FUND'S INVESTMENTS ARE CONSIDERED SPECULATIVE AND ARE SUBJECT TO CERTAIN
RISKS, INCLUDING INVESTMENT RISKS ASSOCIATED WITH INVESTING IN SECURITIES OF
LATIN AMERICAN ISSUERS. THE FUND MAY ENGAGE IN CURRENCY HEDGING TRANSACTIONS
WHICH ARE SUBJECT TO RISKS THAT ARE DIFFERENT FROM RISKS RELATED TO OTHER
PORTFOLIO TRANSACTIONS. 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 Adviser currently
manages approximately $10 billion in assets principally invested in global fixed
income securities. The address of the Company is 400 Bellevue Parkway,
Wilmington, Delaware 19809. Yield and other information regarding the Fund may
be obtained by calling 1-800-618-9510.

Investors are advised that (i) the Company is not authorized to engage in the
business of banking and (ii) 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.
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.

<TABLE>
<CAPTION>
What You Need To Know
---------------------

<S> <C> <C> <C>
Highlights. . . . . . . . . . . . . . . . 2 About Your Investment . . . . . . . . . . . . . 20
The Company . . . . . . . . . . . . . . . 3 How the Company Values Its Shares . . . . . . . 20
Investment Objective and Policies . . . . 3 How Distributions are Made: Tax Information . . 21
Investment Policies and Techniques. . . . 4 Shareholder Communications. . . . . . . . . . . 21
Special Risk Considerations . . . . . . .11 Performance Information . . . . . . . . . . . . 21
Limiting Investment Risks . . . . . . . .18 Counsel and Independent Accountants . . . . . . 22
Management. . . . . . . . . . . . . . . .19 Appendix A. . . . . . . . . . . . . . . . . . . A-1
</TABLE>

<PAGE>

HIGHLIGHTS

INTRODUCTION
OFFITBANK VIF-Latin America 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
objective is to achieve capital appreciation. The Fund will seek to achieve its
objective by investing primarily in equity securities of Latin American issuers.

FUND MANAGEMENT
OFFITBANK, a trust company specializing in global fixed income management,
serves as the Fund's Adviser.

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 will invest at least 80% of its total
assets in equity securities of Latin American issuers and may invest up to 20%
of its total assets in high-risk debt securities of Latin American issuers.
Such investments are considered speculative and are subject to certain special
risks. See "Investment Objective and Policies" and "Special Risk
Considerations."

2
<PAGE>

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, non-diversified 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 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 policy, the Directors would not materially change
the investment objective of the Fund without shareholder approval. There is no
assurance that the Fund will achieve its objective.

The Latin America Equity Fund's investment objective is capital appreciation.
Investment income is a secondary objective of the Fund. The Fund will seek to
achieve its objective by investing, under normal market conditions, at least 80%
of its total assets in equity securities of Latin American issuers, as defined
below. Up to 20% of the Fund's total assets may be invested in debt securities
(including convertible debt securities) of Latin American issuers.

The Latin America Equity Fund is actively managed to seek to benefit from
investment opportunities deriving from long-term improving economic and
political conditions and other positive trends and developments in Latin
American countries. The Fund's equity strategy is "top down" oriented seeking
to invest in those countries that offer the best economic growth perspectives.
Stock selection is designed to identify companies in high growth industries that
are attractively valued based on their future earnings potential. Accordingly,
the Fund is intended primarily for long-term investors and should not be
considered as a vehicle for trading purposes. The Adviser believes that the
continuation of a long-term international trend encouraging greater market
orientation and economic growth may result in local or international political,
economic or financial developments that could benefit the capital markets in
Latin American countries.

For purposes of this Prospectus, Latin American issuers are: (i) companies
organized under the laws of a Latin American country; (ii) companies whose
securities are principally traded in Latin American countries; (iii)
subsidiaries of companies described in clause (i) or (ii) above that issue debt
securities guaranteed by, or securities payable with (or convertible into) the
stock of companies described in clause (i) or (ii); (iv) companies that derive
at

3
<PAGE>

least 50% of their revenues from either goods produced or services performed in
Latin America or sales made in Latin America; and (v) the government of any
Latin American country and its agencies and instrumentalities and any public
sector entity fully or partly owned by any such government, agency or
instrumentality. For purposes of this Prospectus, "Latin America" currently
consists of the countries of Argentina, the Bahamas, Barbados, Belize, Bolivia,
Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El
Salvador, French Guiana, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico,
the Netherlands Antilles, Nicaragua, Panama, Paraguay, Peru, Suriname, Trinidad
and Tobago, Uruguay and Venezuela.

The Fund's assets will be allocated among the countries in Latin America in
accordance with the Adviser's judgment as to where the best investment
opportunities exist. The Fund is not limited with respect to the proportion of
its total assets that may be invested in the securities of issuers located in
any one Latin American country.

The governments of some Latin American countries, to varying degrees, have been
engaged in programs of selling part or all of their stakes in government-owned
or government-controlled enterprises ("privatizations"). The Adviser believes
that privatizations may offer investors opportunities for significant capital
appreciation and intends to invest assets of the Fund in privatizations in
appropriate circumstances. The ability of foreign persons, such as the Fund, to
participate in privatizations in certain Latin American countries may be limited
by local law, or the terms on which the Fund may be permitted to participate may
be less advantageous than those for local investors. There can be no assurance
that privatization programs will continue or be successful.

In selecting equity investments for the Fund, the Adviser seeks to identify and
invest in companies it believes offer potential for long-term capital
appreciation. In evaluating prospective investments, the Adviser will utilize
internal financial, economic and credit analysis resources as well as
information obtained from other sources. In selecting industries and companies
for investment, the Adviser will consider factors such as overall growth
prospects, competitive position in domestic and export markets, technology,
research and development, productivity, labor costs, raw material costs and
sources, profit margins, return on investment, capital resources, government
regulation and management.

Up to 20% of the total assets of the Fund may be invested at any one time in
debt securities of Latin American issuers. In selecting particular debt
securities for the Fund, the Adviser intends to consider the same factors as for
the Emerging Markets Fund. All or a substantial amount of debt securities in
which the Fund may invest will be high yield, high risk debt securities which
are unrated and comparable in quality to debt securities rated below investment
grade (i.e., rated BB or lower by S&P and D&P, or Ba or lower by Moody's, or if
unrated, of comparable quality as determined by the Adviser). See Appendix A to
this Prospectus for a description of ratings of S&P, Moody's and D&P.
Investments in high yield, high risk debt securities are considered to be
speculative and involve comparatively greater risks, including price volatility
and the risk of default in the timely payment of interest and principal, than
investment grade securities or securities of comparable value. Some of such
investments may be non-performing securities or securities in default when
purchased. See "Special Risk Considerations-High Yield Securities."

INVESTMENT POLICIES AND TECHNIQUES

FOREIGN SECURITIES. The Fund will invest 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 will be affected by changes in
exchange rates. See "Special Risk Considerations."

4
<PAGE>

coupon rates that vary inversely at a multiple of a designated floating rate
(which typically is determined by reference to an index rate, but may also be
determined through a dutch auction or a remarketing agent) (the "reference
rate"). As an example, inverse floaters may constitute a class of
collateralized mortgage obligations with a coupon rate that moves inversely to a
designated index, such as LIBOR (London Interbank Offered Rate) or the Cost of
Funds Index. Any rise in the reference rate of an inverse floater (as a
consequence of an increase in interest rates) causes a drop in the coupon rate
while any drop in the reference rate of an inverse floater causes an increase in
the coupon rate. A spread trade is an investment position relating to a
difference in the prices or interest rates of two securities or currencies where
the value of the investment position is determined by movements in the
difference between the prices or interest rates, as the case may be, of the
respective securities or currencies. When the Fund invests in notes linked to
the price of an underlying instrument or currency, the price of the underlying
security or the exchange rate of the currency is determined by a multiple (based
on a formula) of the price of such underlying security or exchange rate of such
currency. Because they are linked to their underlying markets or securities,
investments in structured products generally are subject to greater volatility
than an investment directly in the underlying market or security. Total return
on the structured product is derived by linking return to one or more
characteristics of the underlying instrument. Although the Fund's purchase of
structured products would have a similar economic effect to that of borrowing
against the underlying securities, the purchase will not be deemed to be
leveraged for purposes of the limitations placed on the extent of the Fund's
assets that may be used for borrowing and other leveraging activities.

BRADY BONDS. The Fund may invest in "Brady Bonds" which are debt securities
issued or guaranteed by foreign governments in exchange for existing external
commercial bank indebtedness under a plan announced by former U.S. Treasury
Secretary Nicholas F. Brady in 1989. To date, over $160 billion (face amount)
of Brady Bonds have been issued by the governments of Argentina, Brazil, Costa
Rica, Mexico, Nigeria, the Philippines, Uruguay and Venezuela, the largest
proportion having been issued by Argentina, Brazil, Mexico and Venezuela. Brady
Bonds have been issued only recently, and accordingly, they do not have a long
payment history. Brady Bonds may be collateralized or uncollateralized, are
issued in various currencies (primarily the U.S. dollar) and are actively traded
in the over-the-counter secondary market.

The Fund may invest in either collateralized or uncollateralized Brady Bonds.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed rate par
bonds or floating rate discount bonds, are collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Interest payments on such bonds generally are collateralized by cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's rolling interest payments based
on the applicable interest rate at that time and is adjusted at regular
intervals thereafter. Brady Bonds which have been issued to date are rated BB
or B by S&P or Ba or B by Moody's or, in cases in which a rating by S&P or
Moody's has not been assigned, are generally considered by the Adviser to be of
comparable quality.

5
<PAGE>

CONVERTIBLE SECURITIES
GENERAL. The Fund may invest in traditional convertible securities and
synthetic convertible securities. Set forth below is additional information
concerning traditional convertible securities and "synthetic" convertible
securities.

Convertible securities are issued and traded in a number of securities markets.
It is expected that ordinarily a substantial portion of the convertible
securities held by the 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. The 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 the 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.

SYNTHETIC CONVERTIBLE SECURITIES. "Synthetic" convertible securities are
created by combining separate securities that possess the two principal
characteristics of a true convertible security, I.E., fixed income
("fixed-income component") and the right to acquire equity securities
("convertibility component"). The fixed-income component is achieved by
investing in nonconvertible fixed income securities such as nonconvertible
bonds, preferred stocks and money market instruments. The convertibility
component is achieved by investing in warrants, exchanges or NASDAQ listed call
options or stock index call options granting the holder the right to purchase a
specified quantity of securities within a specified period of time at a
specified price or to receive cash in the case of stock index options.

A warrant is an instrument issued by a corporation that gives a holder the right
to subscribe to a specified amount of capital stock at a set price for a
specified period of time. Warrants involve the risk that the price of the
security underlying the warrant may not exceed the exercise price of the warrant
and the warrant may expire without any value. See "Special Risk Considerations
- - Hedging and Other Strategic Transactions" below for a discussion of put and
call options.

6
<PAGE>

value" of a synthetic convertible security is the sum of the values of its
fixed-income component and its convertibility component. For this reason, the
values of a synthetic convertible security and a traditional convertible
security will respond differently to market fluctuations.

More flexibility is possible in the assembly of a synthetic convertible security
than in the purchase of a convertible security. Synthetic convertible
securities may be selected where the two components represent one issuer or are
issued by a single issuer, thus making the synthetic convertible security
similar to a traditional convertible security. Alternatively, the character of
a synthetic convertible security allows the combination of components
representing distinct issuers which will be used when the Adviser believes that
such a combination would better promote the Fund's investment objective. A
synthetic convertible security also is a more flexible investment in that its
two components may be purchased or sold separately. For example, the Fund may
purchase a warrant for inclusion in a synthetic convertible security but
temporarily hold short-term investments while postponing the purchase of a
corresponding bond pending development of more favorable market conditions.

A holder of a synthetic convertible security faces the risk of a decline in the
price of the stock or the level of the index involved in the convertibility
component, causing a decline in the value of the call option or warrant. Should
the price of the stock fall below the exercise price and remain there throughout
the exercise period, the entire amount paid for the call option or warrant would
be lost. Since a synthetic convertible security includes the fixed-income
component as well, the holder of a synthetic convertible security also faces the
risk that interest rates will rise, causing a decline in the value of the
fixed-income instrument.

The Fund may have difficulty disposing of Assignments and Participations. The
liquidity of such securities is limited and the Fund anticipates that such
securities could be sold only to a limited number of institutional investors.
The lack of a liquid secondary market could have an adverse impact on the value
of such securities and on the Fund's ability to dispose of particular
Assignments or Participations when necessary to meet the Fund's liquidity needs
or in response to a specific economic event, such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary market for
Assignments and Participations also may make it more difficult for the Fund to
assign a value to those securities for purposes of valuing the Fund's portfolio
and calculating its net asset value. The investment of the Fund in illiquid
securities, including Assignments and Participations, is limited to 15% of net
assets. See "Illiquid Securities" below.

7
<PAGE>

MORTGAGE-RELATED SECURITIES. The Fund may invest in mortgage-related
securities, consistent with its investment objective and policies, that provide
funds for mortgage loans made to residential homeowners. These include
securities which represent interests in pools of mortgage loans made by lenders
such as savings and loan institutions, mortgage bankers, commercial banks and
others. Pools of mortgage loans are assembled for sale to investors (such as
the Fund) by various governmental, government-related and private organizations.
Interests in pools of mortgage-related securities differ from other forms of
debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a "pass-through"
of the monthly payments made by the individual borrowers on their residential
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Prepayments are caused by repayments of principal resulting from
the sale of the underlying residential property, refinancing or foreclosure, net
of fees or costs which may be incurred.

The Adviser expects that governmental, governmental-related or private entities
may create mortgage loan pools offering pass-through investments in addition to
those described above. The mortgages underlying these securities may be second
mortgages or alternative mortgage instruments, that is, mortgage instruments
whose principal or interest payments may vary or whose terms to maturity may
differ from customary long-term fixed rate mortgages. As new types of
mortgage-related securities are developed and offered to investors, the Adviser
will, consistent with the Fund's investment objective and policies, consider
making investments in such new types of securities. For additional information
regarding mortgage-related securities and the risks associated with investment
in such instruments, see "Additional Information on Portfolio Instruments -
Mortgage-Related Securities" in the Statement of Additional Information.

Asset-backed securities are often structured with one or more types of credit
enhancement. For a description of the types of credit enhancement that may
accompany asset-backed securities, see the Statement of Additional Information.
The Fund will not limit its investments to asset-backed securities with credit
enhancements. Although asset-backed securities are not generally traded on a
national securities exchange, such securities are widely traded by brokers and
dealers, and to such extent will not be considered illiquid for the purposes of
the Fund's limitation on investment in illiquid securities.

8
<PAGE>

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 cash not available for
investment or U.S. government securities or other high quality debt securities
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 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, 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.

9
<PAGE>

dispose of portfolio securities under disadvantageous circumstances in order to
generate current cash to satisfy certain distribution requirements.

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 Adviser will monitor the liquidity of
such restricted securities under the supervision of the Board of Directors.

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 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 (U.S. dollars, foreign
currencies or multinational currency units) and/or invest up to 100% of its
assets in high quality debt securities or money market instruments of U.S. or
foreign issuers, and most or all of the Fund's investments may be made in the
United States and denominated in U.S. dollars.

10
<PAGE>

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) interest rate movements, (2) changes in the actual
and perceived creditworthiness of the issuers of such securities, (3) changes in
any applicable foreign currency exchange rates, (4) social, economic or
political factors, (5) factors affecting the industry in which the issuer
operates, such as competition or technological advances and (6) factors
affecting the issuer directly, such as management changes or labor relations.
There is no assurance that the Fund will achieve its investment objective.

NON-DIVERSIFIED FUND
The Fund is classified as a "non-diversified" fund under the 1940 Act, which
means that the Fund is not limited by the 1940 Act in the proportion of its
assets that may be invested in the obligations of a single issuer. Thus, the
Fund may invest a greater proportion of its assets in the securities of a
smaller number of issuers and, as a result, will be subject to greater risk of
loss with respect to its portfolio securities as compared to a diversified fund.
The Fund, however, intends to comply with the diversification requirements
imposed by the Internal Revenue Code of 1986, as amended, (the "Code")
applicable to segregated asset accounts underlying variable products under
section 817(h) of the Code and to regulated investment companies under
Subchapter M of the Code.

FOREIGN SECURITIES
The Fund will invest in the securities of non-U.S. issuers. Investors should
recognize that investing in securities of non-U.S. issuers involves certain
risks and special considerations, including those set forth below, which are not
typically associated with investing in securities of U.S. issuers. Further,
certain investments that the Fund may make, and investment techniques in which
they may engage, involve risks, including those set forth below.

SOCIAL, POLITICAL AND ECONOMIC FACTORS. Many countries in which the Fund will
invest may be subject to a substantially greater degree of social, political and
economic instability than is the case in the United States, Japan and Western
European countries. Such instability may result from, among other things, some
or all of the following: (1) authoritarian governments or military involvement
in political and economic decision-making, and changes in government through
extra-constitutional means; (2) popular unrest associated with demands for
improved political, economic and social conditions; (3) internal insurgencies
and terrorist activities; (4) hostile relations with neighboring countries; and
(5) drug trafficking. Social, political and economic instability could
significantly disrupt the principal financial markets in which the Fund invests
and adversely affect the value of the Fund's assets.

Individual foreign economies in general may differ favorably or unfavorably and
significantly from the U.S. economy in such respects as the rate of growth of
gross domestic product or gross national product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, structural
unemployment and balance of payments position. Governments of many of these
countries have exercised and continue to exercise substantial influence over
many aspects of the private sector. In some cases, the government owns or
controls many companies, including some of the largest in the country.
Accordingly, government actions in the future could have a significant effect on
economic conditions in many countries, including emerging market countries,
which could affect private sector companies and the Fund, and on market
conditions, prices and yields of securities in the Fund's portfolio. There may
be the possibility of nationalization or expropriation of assets, or future
confiscatory levels of taxation affecting the Fund. In the event of
nationalization, expropriation or other confiscation, the Fund may not be fairly
compensated for its loss and could lose its entire investment in the country
involved.

11
<PAGE>

interests. As a result of investment restrictions, the Fund may, in certain
countries (such as Mexico) invest through intermediary vehicles or trusts. In
addition, the repatriation of both investment income and capital from some of
these countries requires governmental approval and if there is a deterioration
in a country's balance of payments or for other reasons, a country may impose
temporary restrictions on foreign capital remittances abroad. Even where there
is no outright restriction on repatriation of capital, the mechanics of
repatriation may affect certain aspects of the operation of the Fund.

The Fund could be adversely affected by delays in, or a refusal to grant any
required governmental approval for repatriation of capital, as well as by the
application to the Fund of any restrictions on investments. If, because of
restrictions on repatriation or conversion, the Fund were unable to distribute
substantially all of its net investment income and long-term capital gains
within applicable time periods, the Fund could be subject to U.S. federal income
and excise taxes which would not otherwise be incurred and may cease to qualify
for the favorable tax treatment afforded to regulated investment companies under
the Code, in which case it would become subject to U.S. federal income tax on
all of its income and gains.

CURRENCY FLUCTUATIONS. Because the Fund may invest in the securities of foreign
issuers which are denominated in foreign currencies, the strength or weakness of
the U.S. dollar against such foreign currencies will account for part of the
Fund's investment performance. A decline in the value of any particular
currency against the U.S. dollar will cause a decline in the U.S. dollar value
of the Fund's holdings of securities denominated in such currency and,
therefore, will cause an overall decline in the Fund's net asset value and any
net investment income and capital gains to be distributed in U.S. dollars to
shareholders of the Fund.

MARKET CHARACTERISTICS; DIFFERENCES IN SECURITIES MARKETS. The securities
markets in many countries, and in emerging markets in particular, generally have
substantially less volume than the New York Stock Exchange, and equity
securities of most companies listed on such markets may be less liquid and more
volatile than equity securities of U.S. companies of comparable size. Some of
the stock exchanges outside of the United States and in emerging market
countries, to the extent that established securities markets even exist, are in
the earlier stages of their development. A high proportion of the shares of
many foreign companies may be held by a limited number of persons, which may
limit the number of shares available for investment by the Fund. A limited
number of issuers in most, if not all, of these securities markets may represent
a disproportionately large percentage of market capitalization and trading
volume. In addition, the application of certain 1940 Act provisions may limit
the Fund's ability to invest in certain non-U.S. issuers and to participate in
public offerings in these countries. The limited liquidity of certain non-U.S.
securities markets may also affect the Fund's ability to acquire or dispose of
securities at the price and time it wishes to do so.

12
<PAGE>

markets or such securities. Accordingly, each of these markets and companies
may be subject to greater influence by adverse events generally affecting the
market, and by large investors trading significant blocks of securities, than is
usual in the United States. To the extent that any of these countries
experiences rapid increases in its money supply and investment in equity
securities for speculative purposes, the equity securities traded in any such
country may trade at price-earning multiples higher than those of comparable
companies trading on securities markets in the United States, which may not be
sustainable. In addition, risks due to the lack of modern technology, the lack
of a sufficient capital base to expand business operations, the possibility of
permanent or temporary termination of trading, and greater spreads between bid
and ask prices may exist in such markets.

Trading practices in certain foreign securities markets are also significantly
different from those in the United States. Brokerage commissions and other
transaction costs on the securities exchanges in many countries are generally
higher than in the United States. In addition, securities settlements and
clearance procedures in certain countries, and, in particular, in emerging
market countries, are less developed and less reliable than those in the United
States and the Fund may be subject to delays or other material difficulties and
could experience a loss if a counterparty defaults. Delays in settlement could
result in temporary periods when assets of the Fund are uninvested and no return
is earned thereon. The inability of the Fund to make intended security
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. The inability to dispose of a portfolio security due
to settlement problems could result either in losses to the Fund due to
subsequent declines in the value of such portfolio security or, if the Fund has
entered into a contract to sell the security, could result in possible liability
to the purchaser.

NON-U.S. SUBCUSTODIANS. Rules adopted under the 1940 Act permit the Fund to
maintain its non-U.S. securities and cash in the custody of certain eligible
non-U.S. banks and securities depositories. Certain banks in non-U.S. countries
may not be eligible subcustodians for the Fund, in which event the Fund may be
precluded from purchasing securities in which it would otherwise invest, and
other banks that are eligible subcustodians may be recently organized or
otherwise lack extensive operating experience. At present, custody arrangements
complying with the requirements of the Commission are available in each of the
countries in which the Adviser intends to invest. In certain countries in which
the Fund may make investments, there may be legal restrictions or limitations on
the ability of the Fund to recover assets held in custody by subcustodians in
the event of the bankruptcy of the subcustodian.

In addition to the foreign securities listed above, the Fund may also invest in
foreign sovereign debt securities, which involve certain additional risks. See
"Sovereign Debt Securities" below.

13
<PAGE>

FOREIGN TAXES. The Fund's investment income from foreign issuers may be subject
to non-U.S. withholding taxes, thereby reducing the Fund's net investment
income. For more information about tax risks related to the Fund, see "How
Distributions are Made: Tax Information" below and "Additional Information
Concerning Taxes" in the Statement of Additional Information.

HIGH YIELD SECURITIES
GENERAL. The Fund may invest in high yield, high risk debt securities, commonly
referred to as "junk bonds." Securities rated below investment grade and
comparable unrated securities offer yields that fluctuate over time, but
generally are superior to the yields offered by higher rated securities.
However, securities rated below investment grade also involve greater risks than
higher rated securities. Under rating agency guidelines, medium- and
lower-rated securities and comparable unrated securities will likely have some
quality and protective characteristics that are outweighed by large
uncertainties or major risk exposures to adverse conditions. Certain of the
debt securities in which the Fund may invest may have, or be considered
comparable to securities having, the lowest ratings for non-subordinated debt
instruments assigned by Moody's, S&P or D&P (i.e., rated C by Moody's or CCC or
lower by S&P or D&P). Under rating agency guidelines, these securities are
considered to have extremely poor prospects of ever attaining any real
investment standing, to have a current identifiable vulnerability to default, to
be unlikely to have the capacity to pay interest and repay principal when due in
the event of adverse business, financial or economic conditions, and/or to be in
default or not current in the payment of interest or principal. Such securities
are considered speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. Unrated
securities deemed comparable to these lower- and lowest-rated securities will
have similar characteristics. Accordingly, it is possible that these types of
factors could, in certain instances, reduce the value of securities held by the
Fund with a commensurate effect on the value of their respective shares.
Therefore, an investment in the Fund should not be considered as a complete
investment program for all investors.

14
<PAGE>

methods of financing available to them, so that their ability to service their
debt obligations during an economic downturn or during sustained periods of
rising interest rates may be impaired. The risk of loss due to default in
payment of interest or principal by such issuers is significantly greater than
with investment grade securities because such securities generally are unsecured
and frequently are subordinated to the prior payment of senior indebtedness.

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

15
<PAGE>

the restructuring of such obligations and to extend further loans to their
issuers. There can be no assurance that the Brady Bonds and other foreign
sovereign debt securities in which the Fund may invest will not be subject to
similar defaults or restructuring arrangements which may adversely affect the
value of such investments. Furthermore, certain participants in the secondary
market for such debt may be directly involved in negotiating the terms of these
arrangements and may therefore have access to information not available to other
market participants.

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 securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
securities, to facilitate the sale of those securities for investment purposes,
to manage the effective maturity or duration of the Fund's securities or to
establish a position in the derivatives markets as a temporary substitute for
purchasing or selling particular securities. 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 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. The Fund is not a "commodity pool" (i.e., a pooled investment
vehicle which trades in commodity futures contracts and options thereon and the
operator of which is registered with the Commodity Futures Trading Commission
(the "CFTC")) and Hedging and Other Strategic Transactions involving futures
contracts and options on futures contracts will be purchased, sold or entered
into only for bona fide hedging, and non-hedging purposes to the extent
permitted by CFTC regulations; provided that the Fund may enter into futures
contracts or options thereon for purposes other than bona fide hedging if
immediately thereafter, the sum of the amount of its initial margin and premiums
on open contracts would not exceed 5% of the liquidation value of the Fund's
portfolio; provided further, than 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

16
<PAGE>

the 5% limitation. The use of certain Hedging and Other Strategic Transactions
will require that the Fund segregate cash, U.S. government securities or other
liquid high grade debt obligations to the extent the Fund's obligations are not
otherwise "covered" through ownership of the underlying security, financial
instrument or currency. A detailed discussion of various Hedging and Other
Strategic Transactions, including applicable regulations of the CFTC and the
requirement to segregate assets with respect to these transactions, appears in
the Statement of Additional Information.

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
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. Use of put and call options could
result in losses to the Fund, force the sale or purchase of portfolio securities
at inopportune times or for prices higher than (in the case of put options) or
lower than (in the case of call options) current market values, or cause the
Fund to hold a security it might otherwise sell.

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.

USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Use of many Hedging and Other
Strategic Transactions by the

17
<PAGE>

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

LIMITING INVESTMENT RISKS

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

2. The Fund may not borrow money (except that it may enter into reverse
repurchase agreements) except

18
<PAGE>

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 its total
assets.

3. 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.

MANAGEMENT

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 approximately $10 billion in assets and serves as
investment adviser to twenty-one other registered investment companies (or
portfolios thereof). The principal address of the Advisor is 520 Madison
Avenue, New York, New York 10022.

PORTFOLIO MANAGER. Richard M. Johnston will serve as the portfolio manager for
the Fund. Mr. Johnston is a Managing Director of the Adviser and has been
director of Latin American Investments since 1992. From 1988 to 1992, Mr.
Johnston was Vice President, International Corporate Finance, at Salomon
Brothers Inc.

ADMINISTRATOR, TRANSFER AGENT AND CUSTODIAN
PFPC Inc., an indirect, wholly owned subsidiary of PNC Bank Corp., serves as the
Company's administrator. PFPC also provides transfer agency and dividend
disbursing services to the Company. The Bank of New York serves as custodian of
the assets of the Fund. PFPC is entitled to an annual fee, calculated daily and
paid monthly which will not exceed .125% of aggregate average daily net assets
of the Company as compensation for its services. The principal business address
of PFPC is 400 Bellevue Parkway, Wilmington, Delaware 19809. The principal
business address of The Bank of New York is 90 Washington Street, New York, New
York 10286.

19
<PAGE>

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,
transfer agency, custody, 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

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.

HOW THE COMPANY VALUES ITS SHARES

20
<PAGE>

or securities with similar characteristics.

HOW DISTRIBUTIONS ARE MADE: TAX INFORMATION

TAX MATTERS
The Fund intends to continue to qualify as a regulated investment company
under the Internal Revenue Code of 1986, as amended (the "Code") so that it
will not be subject to federal income tax on its earnings and capital gains
that are distributed to its shareholders. In addition, the Fund intends to
comply with the diversification requirements of the Code and Treasury
Regulations in order to maintain the tax-deferred status of the Accounts.

THE TAX STATUS OF YOUR INVESTMENT IN THE FUND DEPENDS UPON THE FEATURES OF YOUR
POLICY OR CONTRACT. FOR FURTHER INFORMATION, PLEASE REFER TO THE ACCOUNT OR
POLICY PROSPECTUS.

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. Contract and Policy Owners may obtain
information about their investment on any business day by calling tol-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' accounts.

PERFORMANCE INFORMATION

21
<PAGE>

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 slightly 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 indices of performance, including, but not
limited to, Value Line Composite, Lehman Brothers Bond, Government Corporate,
Corporate and Aggregate Indices, Merrill Lynch Government & Agency and
Intermediate Agency Indices, Morgan Stanley Capital International Europe,
Australia, Far East Index or Morgan Stanley Capital International World Index.
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, KIPLINGER'S, MORNINGSTAR,
MUTUAL FUND VALUES, U.S.A. TODAY OR THE NEW YORK TIMES or other industry or
financial publications.

COUNSEL AND INDEPENDENT ACCOUNTANTS

22
<PAGE>

APPENDIX A
RATINGS

COMMERCIAL PAPER RATINGS

"C" - Obligations are currently vulnerable to nonpayment and are
dependent on favorable business, financial, and economic conditions for the
obligor to meet its financial obligation.

A-1
<PAGE>

"Not Prime" - Issuers do not fall within any of the Prime rating
categories.

"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.

"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.

"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.

CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS

The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:

"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.

"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.

A-2
<PAGE>

"CC" - An obligation rated "CC" is currently highly vulnerable to
non-payment.

"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.

PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.

The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:

A-3
<PAGE>

Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, Baa1, Ba1 and B1.

The following summarizes the long-term debt ratings used by D&P for
corporate and municipal long-term debt:

"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.

"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.

"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.

A-4
<PAGE>

<PAGE>

PROSPECTUS
THE OFFITBANK VARIABLE INSURANCE FUND, INC. JULY 29, 1998
- --------------------------------------------------------------------------------

OFFITBANK VIF-CVO GREATER CHINA FUND

- --------------------------------------------------------------------------------
OFFITBANK VIF-CVO Greater China Fund (the "Fund") is one of ten separate
non-diversified 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 and income generation
from investment in publicly-traded equity securities of companies which, in the
opinion of the Adviser, will benefit from the economic development and growth of
the People's Republic of China, Hong Kong, Taiwan and Singapore (collectively
the "Greater China Region"). Under normal circumstances, the Fund will invest
at least 65% of its total assets in equity securities (i) traded in securities
markets located in the Greater China Region, or (ii) issued by companies whose
business significantly relates to the Greater China Region (as measured by
assets, revenues, or profit). See "The Fund's Investment Objectives and
Policies."

THE FUND'S INVESTMENTS ARE CONSIDERED SPECULATIVE AND ARE SUBJECT TO CERTAIN
RISKS, INCLUDING INVESTMENT RISKS ASSOCIATED WITH MAKING INVESTMENTS IN
COUNTRIES OPERATING IN THE GREATER CHINA REGION. THE FUND MAY ENGAGE IN
CURRENCY HEDGING TRANSACTIONS WHICH ARE SUBJECT TO RISKS THAT ARE DIFFERENT FROM
RISKS RELATED TO OTHER PORTFOLIO TRANSACTIONS. SEE "SPECIAL RISK
CONSIDERATIONS." THERE CAN BE NO ASSURANCE THAT THE FUND'S INVESTMENT OBJECTIVE
WILL BE ACHIEVED.
CVO Greater China Partners, L.P. serves as the Fund's investment adviser (the
"Adviser"). The Adviser's key investment professionals are based in San
Francisco. The Adviser is controlled by its two general partners: OFFITBANK
Greater China, Inc., a New York Corporation established in 1994 as a
wholly-owned subsidiary of OFFITBANK, a New York State chartered trust company
("OFFITBANK"), and ChinaVest Public Equities, LLC, a California Limited
Liability Corporation established in 1995 as a wholly-owned subsidiary of
ChinaVest Financial Services, Ltd., a Cayman Islands corporation ("ChinaVest,
Ltd."). OFFITBANK currently manages approximately $10 billion in assets and
serves as investment adviser to sixteen registered investment companies (or
portfolios thereof). The address of the Company is 400 Bellevue Parkway,
Wilmington, Delaware 19809. 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 July 29, 1998, 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. This Prospectus, the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund is
available on the Commission's Website (http://www.sec.gov).

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

<TABLE>
<CAPTION>
WHAT YOU NEED TO KNOW
---------------------
<S> <C> <C> <C>
Highlights . . . . . . . . . . . . . . . . . . . . . . 2 Shareholder Communications. . . . . . . . 27
The Company. . . . . . . . . . . . . . . . . . . . . . 3 Performance Information . . . . . . . . . 27
Investment Objective and Policies. . . . . . . . . . . 3 Counsel and Independent Accountants . . . 28
Investment Policies and Techniques . . . . . . . . . . 5 Appendix A. . . . . . . . . . . . . . . . A-1
Investment in the Greater China Region . . . . . . . . 6 Appendix B. . . . . . . . . . . . . . . . B-1
Special Risk Considerations. . . . . . . . . . . . . . 12
Special Risks of Certain Fund Investments. . . . . . . 17
Special Investment Techniques. . . . . . . . . . . . . 19
Limiting Investment Risks. . . . . . . . . . . . . . . 24
Management . . . . . . . . . . . . . . . . . . . 24
About Your Investment. . . . . . . . . . . . . . 26
How the Company Values Its Shares. . . . . . . . 26
How Distributions are Made: Tax Information. . . 26
</TABLE>

<PAGE>
HIGHLIGHTS

INTRODUCTION
OFFITBANK VIF-CVO Greater China 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 and income generation from
investment in publicly-traded equity securities of companies which, in the
opinion of the Adviser, will benefit from the economic development and growth of
the Greater China Region.

FUND MANAGEMENT
CVO Greater China Partners, L.P. serves as the Fund's Adviser. The Adviser is
controlled by its two general partners: OFFITBANK Greater China, Inc., a
wholly-owned subsidiary of OFFITBANK, a New York State chartered trust company,
and ChinaVest Public Equities, LLC, a wholly-owned subsidiary of ChinaVest
Financial Services, Ltd., a Cayman Islands corporation.

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 will invest at least 65% of its total
assets in equity securities of the Greater China Region which are considered
speculative and are subject to special risks. In addition, certain of the
Fund's potential investment and management techniques entail special risks. See
"Investment Objective and Policies" and "Special Risk Considerations".

2
<PAGE>
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, non-diversified
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 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 policy, the Directors would
not materially change the investment objective of the Fund without shareholder
approval. There is no assurance that the Fund will achieve its objective.

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 Fund may utilize many of the same investment techniques and invest
in similar securities as other investment portfolios of the Company. Investors
should note, however, that the Fund will invest its assets in accordance with
its investment objective and policies described below. Accordingly, the Adviser
expects that the Fund's investment portfolios will be distinct, notwithstanding
its ability to invest in comparable instruments.

The Fund's investment objective is to achieve capital appreciation and
income generation from investment in publicly-traded equity securities of
companies which, in the opinion of the Adviser, will benefit from the economic
development and growth of the People's Republic of China, Hong Kong, Taiwan and
Singapore (collectively, the "Greater China Region"). More specifically, under
normal market conditions and subject to temporary defensive investments (as
defined below), at least 65% of the Fund's total assets will be invested in
equity securities (i) traded in securities markets located in the Greater China
Region, or (ii) issued by companies whose business significantly relates to the
Greater China Region (as measured by assets, revenues or profit). The
securities issued by such companies may be listed on stock markets in countries
outside the Greater China Region. The investment objective of the Fund is
fundamental and may not be changed without the affirmative vote of a majority of
the Shares of the Fund. See "Management of the Fund" for further information.
In addition, investments in issuers doing business in the Greater China Region
involve possible risks not typically associated with issuers in the United
States. See "Special Risk Considerations" for further information. There is no
assurance that the investment objective of the Fund will be achieved.

The Fund seeks to achieve its investment objective through investing
in a selected and managed portfolio consisting primarily of publicly-traded
equity securities of companies that operate in the Greater China Region. The
decisions of the Adviser as to which specific publicly-traded securities will be
acquired by the Fund will be based on a general strategy of selecting those
issuers which it believes will show a high rate of capital appreciation in
future years. See "Special Risk Considerations."

3
<PAGE>

The Fund will, under normal market conditions and subject to temporary
defensive investments (as defined below), invest at least 65% of its total
assets in publicly-traded equity securities issued by companies (1) whose
securities are principally traded in a Greater China Region country, or (2)
having at least 50% of their assets in one or more Greater China Region
countries or (3) that have derived at least 50% of their gross revenues or
profits from providing goods or services to or from within one or more Greater
China Region countries. Such securities are referred to in this Prospectus as
"Greater China Investments." Greater China Investments are typically, but not
necessarily, listed on stock exchanges or traded in the over-the-counter market
in countries in the Greater China Region. The principal offices of the issuers
of Greater China Investments may be located outside the Greater China Region.
The Fund may invest up to 90% of its total assets in the securities of issuers
whose equity securities are either (1) traded in securities markets located in a
single country in the Greater China Region, or (2) issued by companies whose
business principally relates to a single country in the Greater China Region.
During the first six months of the Fund's operations, the Fund may not achieve
its investment objective. The Fund expects during the first 18 months of its
operations to invest more than 50% of its total assets in issuers whose equity
securities are listed in Hong Kong, Singapore and Taiwan, but has not identified
any other market in which it currently intends to invest to this extent. After
the Fund's initial investments in the Greater China Region are established, the
Fund will not invest more than 10% of its total assets in any country outside
the Greater China Region, except for temporary defensive investment purposes and
investments in obligations issued or guaranteed by the U.S. Government or any of
its agencies or instrumentalities. The Fund expects to achieve its 65%
investment objective within six months after the Fund commences operations.

Equity securities, for purposes of the 65% policy, will be limited to
common and preferred stocks; direct equity interests in trusts, partnerships,
joint ventures and other unincorporated entities or enterprises; special classes
of shares available only to foreign persons in such markets as restrict the
ownership of certain classes of equity to nationals or residents of the country;
convertible preferred stocks; depository receipts for any of the foregoing;
listed country funds, i.e., investment funds investing in publicly-traded stock,
where the investment fund is either open-ended or itself trades in public
markets; stock options and warrants to purchase stock; stock index futures; and
convertible debt instruments. Within the confines of the 65% investment policy,
stock options and warrants to purchase stock may comprise more than 5% of such
investment.

Equity securities will be considered "publicly-traded" for purposes of
the 65% policy if the exchanges or over-the-counter markets on which the Fund
may purchase securities in the Greater China Region provide sufficiently liquid
markets so that the securities acquired by the Fund on such markets need not be
considered illiquid securities. Such exchanges currently include: People's
Republic of China-The Shanghai Securities Exchange and The Shenzhen Stock
Exchange; Hong Kong-The Stock Exchange of Hong Kong Limited; Taiwan-The Taiwan
Stock Exchange Corp.; and Singapore-The Singapore Stock Exchange, Stock Exchange
of Singapore Dealing and Automated Quotations Board ("SESDAQ") and Central Limit
Order Board International ("CLOB"). As of the date of this Prospectus, the
People's Republic of China is planning to establish a new stock exchange in
Beijing.

In addition to its investments in equity securities, the Portfolio may
invest up to 35% of its net assets in other types of transactions described
below under "Special Investment Techniques." These types of transactions will
be used for hedging and other secondary and supplemental investment objectives,
including income generation. See "Special Investment Techniques."

In general, the Fund's Board of Directors have established as a
nonfundamental policy that the Fund may not purchase the securities of any one
issuer (other than obligations issued or guaranteed by the U.S. Government or
any of its agencies or instrumentalities) if, as a result of such purchase (1)
more than 25% of the total assets of the Fund (taken at current value) would be
invested in the securities of such issuer, or (2) the Fund would hold more than
10% of the outstanding voting securities of such issuer. It is a fundamental
policy that the Fund may not purchase any security if, as a result of such
purchase, 25% or more of the total assets of the Fund (taken at current value)
would be invested in the securities of issuers having their principal business
activities in the same industry (the electric, gas and telephone utility
industries being treated as separate industries for the purpose of this
restriction); provided that there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities.

It is a fundamental policy of the Fund that it will not invest more
than 5% of its total assets in any listed country fund, nor more than 10% of its
total assets in all listed country funds taken together; and that the Fund's
investment in any listed country fund will not exceed 3% of that fund's total
assets. Listed country funds are intended to be used primarily for
Taiwan-related investments, until Taiwanese foreign investment restrictions are
liberalized. The Fund's investments in listed country funds will be subject to
advisory and other fees set by its sponsor, in addition to the advisory and
other fees payable by the Fund.

4
<PAGE>

It is a fundamental policy of the Fund that it will not invest more
than 5% of its net assets in convertible debt securities which are less than
investment grade. A security is investment grade if it is rated BBB or above by
Standard & Poor's Ratings Group or Baa or above by Moody's Investors Service,
Inc. or determined to be of comparable quality in the sole discretion of the
Adviser. Securities rated BBB or Baa have speculative characteristics. The
Fund will dispose of any security or instrument that, subsequent to its
acquisition by the Fund, is rated (or determined by the Adviser to be of
comparable quality to) below investment grade in an orderly manner, if the
Fund's total holdings in below investment grade debt would otherwise exceed 5%
of its net assets. The Fund's primary purpose in investing in convertible debt,
whether or not investment grade, will be to participate in the value of the
equity security underlying the conversion right.

Other fundamental and nonfundamental investment limitation policies of
the Fund are described in "Investment Limitations" in the Statement of
Additional Information.

INVESTMENT POLICIES AND TECHNIQUES

DEPOSITORY RECEIPTS. In achieving the 65% investment policy, the Fund
may hold equity securities of foreign issuers in the form of sponsored or
unsponsored American Depository Receipts ("ADRs"), American Depository Shares
("ADSs") and Global Depository Receipts ("GDRs"), or other securities
convertible into securities of eligible issuers. ADRs and ADSs typically are
issued by an American bank or trust company which evidences ownership of
underlying securities issued by a foreign corporation. Unsponsored depository
receipts may not present material information to potential investors because
such information is unavailable. GDRs are receipts issued by foreign banks and
trust companies that evidence ownership of either foreign or U.S. securities.
Generally, ADRs and ADSs in registered form are designed for use in U.S.
securities markets and GDRs in bearer form are designed for use in securities
markets outside the U.S.

Depository receipts may not necessarily be denominated in the same
currency as the underlying securities into which they may be converted. The
value of an ADR, ADS and GDR will fluctuate with the value of the underlying
security and changes in exchange rates, and involve risks associated with
investing in foreign securities. There may be less information available about
foreign issuers of an unsponsored ADR, ADS or GDR.

For purposes of the Fund's investment policies, the Fund's investments
in ADRs, ADSs, and GDRs will be deemed to be investments in the underlying
equity securities representing securities of foreign issuers into which they may
be converted.

CONVERTIBLE DEBT INSTRUMENTS. The 65% investment policy also
includes debt instruments convertible into equity securities. Although the
Fund will purchase such convertible debt securities primarily on account of
the underlying equity securities, the value of the Fund's holding could also
be significantly affected by changes in market interest rates and the
issuer's credit standing. A significant portion of any convertible debt
holdings are expected to consist of instruments originally issued in the
Euroconvertible market. Euroconvertibles may be denominated in U.S. dollars,
but may also be denominated in European or other currencies. If a
Euroconvertible is denominated in a non-U.S. currency, the value of the
Fund's holding, expressed in U.S. dollars, could also be significantly
affected by changes in currency conversion rates.

ILLIQUID INVESTMENTS. The Fund will not invest more than 15% of the
value of its net assets in illiquid investments. Illiquid investments are
assets which may not be sold or disposed of by the Fund in the ordinary course
of business within seven days at approximately the value that the Fund has
valued the investment. See "Special Risks of Certain Fund Investments-Illiquid
and Restricted Securities." Securities that can be sold within seven days of
their acquisition are generally not deemed illiquid for purposes of this
limitation, irrespective of any legal or contractual restrictions on resale.
See "Special Risks of Certain Fund Investments-Illiquid and Restricted
Securities."

REPURCHASE AGREEMENTS. Under a repurchase agreement the Fund buys a
security from a bank or broker-dealer at one price and simultaneously promises
to sell that same security back to the seller at a higher price. The repurchase
date is usually within seven days of the original purchase date. The Fund may
enter into repurchase agreements with respect to its permitted investments with
counterparties that it deems creditworthy. The seller under a repurchase
agreement will be required to maintain the value of the securities subject to
the agreement at not less than the repurchase price. Default by the seller
would expose the Fund to possible loss because of adverse market action or delay
in connection with the disposition of the underlying obligations. For purposes
of the 15% limitation that applies to illiquid investments, repurchase
agreements which mature in more than seven days will be

5
<PAGE>

considered illiquid securities. Repurchase agreements are deemed to be loans
under the Investment Company Act of 1940, as amended (the "1940 Act").

TEMPORARY DEFENSIVE INVESTMENTS. The Fund's policy is that it may,
for temporary defensive purposes and during the initial structuring of the
Fund's portfolio, invest up to 100% of its total assets in debt securities of
foreign companies (including companies that are not operating in the Greater
China Region), United States companies, foreign governments and the U.S.
Government (and their respective agencies, instrumentalities, political
subdivisions and authorities), as well as in money market instruments
denominated in U.S. dollars or a foreign currency. These money market
instruments include, but are not limited to, negotiable or short-term deposits
with domestic or foreign banks with net worth of at least $50 million; high
quality commercial paper, and repurchase agreements maturing within seven days
with domestic or foreign dealers, banks and other financial institutions deemed
to be creditworthy under guidelines approved by the Board of Directors of the
Fund. The commercial paper in which the Fund may invest will, at the time of
purchase, be rated P-1 or better by Moody's or A-1 or better by S&P or, if
unrated, will be of comparable high quality as determined by the Adviser.

OTHER INVESTMENTS. For descriptions about other types of investments
that the Fund may invest in and the risks related to those investments, see
"Special Investment Techniques," "Risks Associated with the Fund-Special Risks
of Certain Fund Investments" and "Additional Information on Portfolio
Instruments" in the Statement of Additional Information.

PORTFOLIO TURNOVER. It is the policy of the Fund to seek capital
appreciation. The Fund will effect portfolio transactions without regard to its
holding period if, in the judgment of the Adviser, such transactions are
advisable. It is anticipated that the turnover rate will be under 300% during
the first fiscal year which will reflect initial structuring of the Fund's
portfolio and that, thereafter, the annual rate for Greater China Investments
and other investments is generally expected to be under 100%, consistent with
the turnover rates of similar funds. In the event that the turnover rate
exceeds 100%, there is an increased likelihood of short term capital gains and
losses and increased transaction costs for the Fund.

INVESTMENT IN THE GREATER CHINA REGION

THE FOLLOWING IS A GENERAL DISCUSSION OF THE ECONOMIES IN WHICH THE
FUND PRINCIPALLY INVESTS. There can be no assurance that the Fund will be able
to capitalize on the factors described herein. Securities markets in the Greater
China Region are smaller and offer fewer investment alternatives than the equity
securities markets in Europe and the United States. Opinions expressed herein
are the good faith opinions of the Adviser. Unless otherwise indicated, all
amounts are expressed in United States dollars.

PEOPLE'S REPUBLIC OF CHINA

For many centuries, China's economy was largely closed, by geography
as well as by government policy, to the outside world. (As used in this section,
"China@ refers to the People's Republic of China.) Large-scale foreign
involvement in China's economy began during the middle of the 19th century and
was curtailed after 1949 when the Communist government barred foreign
investment. China's trade with foreign nations began to develop rapidly again
after 1978 when Deng Xiaoping launched the process of economic reform and
modernization. By 1997, total foreign capital committed to investments in China
reached US$178 billion and China's total trade approached $325 billion, ranked
tenth in the world. Economic reform in China, designed to replace
Communist-style central planning with the market mechanism, has proceeded
largely by trial and error aimed at achieving the fastest possible change with
the minimum social dislocation. Two forces drive these policy initiatives. The
first is the need to create jobs for a workforce that is expanding by 30-50
million a year, according to some estimates. The second is the need to
restructure money-losing state industries and to pump capital into those
enterprises that have the potential to be internationally competitive.

The reform process has not always been even. The general direction,
however, has tended to be towards greater openness and increased
decentralization of economic decision-making. As a result, according to some
estimates, as much as two-thirds of the economy is now outside direct state
ownership and control, which compares favorably with a number of western
European economies.

China's broad economic policy is currently set out, more in terms of
ambition than of prescription, in two

6
<PAGE>

overlapping plans, the 20-Year Plan (1981-2000) and the current Five-Year
Economic Plan (1996-2000). The 20-Year Plan calls for an average 7% growth in
GNP over the entire 20-year period. In the 1980's, China's growth rates averaged
9.4% p.a.. This was surpassed between 1991 and 1995, when 10.5% growth p.a. was
achieved. China's GDP, while still rapid, has slowed for the last few years,
falling from 11.8% in 1994, to 10.2% (1995), 9.6% (1996) and 8.8% in 1997. To
put this into perspective, in 1993 the World Bank projected that given these
growth rates for China, on a purchasing power parity basis China would overtake
the United States as the world's largest economy early in the next century.

China's program of economic reforms has evolved under the leadership
of Deng Xiaoping and his political allies. While there is a broad base of
support for these reforms within the country's political elite, China lacks a
tested institutionalized framework for political succession and, thus, the
possibility exists that, although the political transition upon Deng's death has
been relatively smooth, there could still be significant changes in economic,
trade and investment policies.

FOREIGN INVESTMENT IN CHINA. To attract foreign investment, China set
up four Special Economic Zones in 1978 (Shenzhen, Shantou and Zhuhai in
Guangdong Province, and Xiamen in Fujian Province). Hainan Island, which itself
is a province, became the fifth Special Economic Zone in 1988. Each zone was
created to provide special investment incentives and tax concessions to foreign
investors. Other areas of China near coastal cities and border zones have been
designated as eligible for investment incentives. These policies reflect a
consensus in China's government that China should continue to open its economy
to the world economy.

The contracted value of foreign investment in China was approximately
US$178 billion in 1997, an increase of 34% from 1996. Hong Kong accounted for
around 50% of this total at the end of 1996. Exports from China continue to rise
strongly, with the 1997 total rising 20.9% to US$182.7 billion, although, like
other developing countries, China's economy remains vulnerable to global
economic conditions as well as the potential for trade friction over market
access, protection of intellectual property and human rights. Imports into China
are also expected to rise. See "Risks Associated with the Fund--Foreign
Investment Restrictions."

SECURITIES MARKETS. Two stock exchanges are officially recognized in
China-The Shanghai Securities Exchange which opened in December 1990 and The
Shenzhen Stock Exchange which opened in July 1991. Two types of shares are
traded on both exchanges: `A' shares which can be traded only by resident
Chinese and `B' shares which can be traded only by individuals and corporations
not resident in China. As of the date of this Prospectus, a new Beijing stock
exchange was being planned by the Chinese government, although there is no
assurance that such an exchange will ever be established.

On the Shanghai exchange, all "B" Shares are denominated in Chinese
renminbi ("RMB") but all transactions in "B" Shares must be settled in U.S.
dollars, and all distributions made on "B" Shares are payable in U.S. dollars
(the exchange rate being the weighted average exchange rate for the U.S. dollar
as published by the Shanghai Foreign Exchange Adjustment Centre).

On the Shenzhen exchange, the purchase and sale prices for "B" Shares
are quoted in Hong Kong dollars. Dividends and other lawful revenue derived
from "B" Shares are calculated in RMB and are payable in Hong Kong dollars, the
rate of exchange being the average rate published by the Shenzhen Foreign
Exchange Adjustment Centre.

Although the Chinese authorities have stated that full convertibility
of the RMB will occur by the year 2000, RMB are not freely convertible now. The
exchange rate of RMB against foreign currencies is regulated and published daily
by the State Administration of Exchange Control ("SAEC"). Over the last decade,
the RMB has been steadily revalued downward relative to the U.S. dollar, with
major adjustments made in the past few years including a devaluation of more
than 30% to RMB8.7 to US$1.0 in January 1994. In 1986, to address the foreign
exchange problems of foreign investors, China began establishing Foreign
Exchange Adjustment Centres, also referred to as "swap centers." These swap
centers provide an official forum where foreign investment enterprises may
engage in mutual adjustment of their foreign exchange surpluses and shortfalls
under the supervision and control of SAEC. Trading of RMB and foreign
currencies at the swap centers is conducted at a rate determined by supply and
demand rather than at an official exchange rate. Such market exchange rates can
be highly volatile and are subject to sharp fluctuations depending on market
conditions.

7
<PAGE>

No exchange control approval is required for the Fund to acquire "B"
shares listed on stock exchanges. Dividends and capital gains from the sale of
securities purchased by the Fund in listed companies in China's securities
markets may be remitted outside China, subject to payment of any relevant taxes.
See "Tax Information" for more details.

Laws relating to companies limited by shares and regulations regarding
the issuing of shares by equity joint ventures have not vet been developed on a
national basis, although a provisional code of regulations was promulgated by
the national government in April 1993. The Shenzhen municipality issued
regulations in April 1993 relating to joint stock companies, and since then the
Shanghai municipality has also issued similar regulations. Regulations
governing the trading of securities on both the Shenzhen and the Shanghai stock
exchanges have been issued by each municipality. The China Securities
Regulatory Commission, a national agency, also participates in the regulatory
development process. Future national legislation, including a proposed
permanent securities law to replace the provisional code of regulations, may
materially affect trade policy and the operation of China's securities markets.

As of February 29, 1996, there were 188 companies listed on The
Shanghai Securities Exchange, of which 36 were "B" Shares. The total market
capitalization of the "B" Shares at that date (which includes equities and
bonds) was approximately US$1,474 million.

As of February 29, 1996, there were 130 companies listed on The
Shenzhen Stock Exchange, of which 34 were "B" Shares. The total market
capitalization of the "B" Shares at that date was approximately US$869 million.

Certain market and market capitalization risks related to investments
in the stock exchanges in China are described in "Special Risk Considerations."
See Appendix B for more information about economic performance results and the
historical performance of stock markets in China.

HONG KONG

Hong Kong's economy has been linked to China's since the establishment
of the colony in 1841. Hong Kong is China's largest trade partner.

The structure of Hong Kong's economy has changed significantly over
the last two decades as the service sector outpaced manufacturing. During the
1980s this process gained momentum. With land and labor costs rising, Hong Kong
manufacturers began shifting production out of the Territory into southern China
such that by the early 1990s, according to some estimates, more than 90% of
manufacturing companies had China operations. As a result, roughly half of the
jobs in the Hong Kong manufacturing sector were lost, with the slack being taken
up by the burgeoning service sector. Estimates now put the number employed in
China by Hong Kong manufacturers at more than 3 million. A second consequence of
this transition was the growth in scale and sophistication of Hong Kong
manufacturers as compared to the 1970s or early 1980s.

CHINA'S INVESTMENTS IN HONG KONG. There has been considerable growth
in investment from China into Hong Kong during the last five years. Chinese
investment in Hong Kong typically involves the purchase of stakes in existing
companies. This has traditionally been in the banking and import/export sectors,
but investment in property, manufacturing and infrastructure projects has also
increased. As China has become the manufacturing capital for Hong Kong
companies, Hong Kong is the primary funding center for the development of China
through direct investment, syndicated loans, commercial paper and share
issuances in Hong Kong by Chinese companies.

CHINA'S RESUMPTION OF SOVEREIGNTY. On June 30, 1997, Hong Kong became a
Special Administrative Region ("SAR") of China. Under the Joint Declaration and
Chinese law implementing certain accords (the "Basic Law"), the current social
and economic systems in Hong Kong will remain unchanged for at least 50 years,
and Hong Kong enjoys a high degree of autonomy except in foreign and defense
affairs. The SAR, led by the Chief Executive, CH Tung, who was selected by the
Chinese appointed Provisional legislature in late 1996, has been vested with
executive, legislative and judicial powers. Laws in force under British rule
(pre-handover) amended by the SAR legislature, remain in force except to the
extent that they contravene the Basic Law or Chinese constitutional law. China
may not levy taxes on the SAR, the Hong Kong dollar remains fully convertible
and Hong Kong remains a free port. Under the Basic Law, Hong Kong's current
social freedoms, including freedoms of speech, press and assembly, travel and
religion, are not to be affected.

8
<PAGE>

The successful and peaceful transfer of Hong Kong to Chinese
sovereignty on June 30, 1997 accomplished a long-desired goal of the Chinese
authorities, and while there have been minor problems post handover, the SAR
continues to be ruled according to the precepts of the Basic Law. On July 1,
1997, the Chinese leadership carried out the pledge made during their
disagreement with the previous British administration and disbanded the
Legislative Council ("Legco") which was comprised of a majority of
popularly-elected Democratic Party legislators. In their place, the Chinese
leadership appointed hand-picked legislators to the Legco. The Chinese
leadership has made clear that its intention is to replace the Chinese-selected
legislators in May, 1998 with a new council elected partially by geographic, and
partially by functional constituencies. Ultimately. the Chinese leadership's
announced intention is to have a majority of the legislators elected by popular
voting by the time of the third round of Legco elections in 2002.

SECURITIES MARKETS. The Stock Exchange of Hong Kong Ltd. ("HKSE") was
formed by merging four existing Hong Kong stock exchanges and commenced trading
in April 1986. The HKSE is now the second largest stock market in Asia as
measured by market capitalization. As of January 31, 1996, 543 companies and
1,010 securities were listed on the HKSE. Market capitalization as of the same
date was approximately HK$2,677,394 million, an increase of approximately 14%
from December 31, 1995.

The HKSE is regulated by the Hong Kong Securities and Futures
Commission ("HKSFC"), which was established in May 1989 as an autonomous
statutory body external to the civil service. The HKSFC administers securities
laws and ordinances governing the protection of investors, disclosure of
interests and insider transactions. In addition, the HKSE promulgates its own
rules governing share trading and disclosure of information to shareholders and
investors. Companies listed on the HKSE must enter into an agreement with the
exchange to provide interim and annual accountings to their shareholders.

The total number of listed companies on the HKSE as of January 31,
1996 was 543, compared to 529 at the beginning of 1995. Average daily turnover
on the HKSE for January 1996 was HK$7,086 million compared with HK$3,424 million
from July 1995 to December 1995, and HK$3,268 million from January 1995 to June
1995.

Hong Kong has no regulations governing foreign investment or exchange
control within its borders. Investors in Hong Kong markets therefore have great
flexibility in the repatriation of profits and deployment of capital.

Certain market and market capitalization risks related to investments
in the Hong Kong stock market are described in "Special Risk Considerations."
See Appendix B for more information about economic performance results and
historical performance of stock markets in Hong Kong.

TAIWAN

Occupied by the Japanese for fifty years (1895-1945), Taiwan was
briefly reunified with China after the end of the Second World War, and since
1949 has been controlled by the Nationalist party, the Kuomintang (KMT), led
initially by Chiang Kai Shek. Following the death of his son, Chiang Ching Kuo
in 1988, the regime has experienced a rapid liberalization with the KMT now led
by a native Taiwanese, Lee Tung Hsui, who was elected as President in a
democratic election in November 1996 and with the opposition Democratic People's
Party (DPP) controlling the majority of the municipal authorities, including the
capital, Taipei, since elections in November 1997.

Between 1960 and 1997, Taiwan's GDP has grown from less than $2
billion to $293.59 billion. This economic growth has been accompanied by a
transformation of domestic production from labor intensive to capital intensive
industries during the past two decades. As was the case with Hong Kong, rising
land and labor costs during the 1980s gradually compelled more Taiwan
manufacturers to look abroad for resources. The effective relaxation at the end
of the decade of the barriers to doing business in China brought a dramatic
increase in investment flows, and in 1995, official Taiwanese government figures
showed direct investment in China of $1.09 billion, while unofficial investment
is estimated to be five times higher. Taiwanese companies should continue to be
attracted to invest in China because of the links of language and culture, the
comparatively low costs of land and labor and the less rigid environmental
rules.

9
<PAGE>

Although relations between China and Taiwan began improving during the
1980s, significant problems persist and are likely to continue to prove
disruptive. Taiwan has nonetheless become a significant investor in China and
trade between China and Taiwan totaled $21 billion in 1995. The Taiwan
government has announced that it will have proposals for direct cross-straits
communications prepared in one year. The primary obstacle to greater investment
between the two countries has been the prohibition by the Taiwanese authorities
of direct investment in China.

Relations between China and Taiwan began deteriorating in 1995, as a
result of increasing political sentiment among Taiwan voters in favor of
renouncing any claim to the mainland and declaring Taiwan a fully independent
nation, and as a result of the United States' decision to grant the President of
Taiwan, Lee Teng-Hsui, a visa to visit the United States. Chinese missile tests
and other military exercises near Taiwan during Taiwan's Presidential election
in early 1996 reflect the increased level of tensions between Taiwan and China.
Since the reelection of Lee Teng-Hsui at the end of 1996, relations between the
two countries have stabilized, with indications in early 1998, that, following
the successful handover of Hong Kong to China in June 1997, a similar pattern of
"one country, two systems" would be followed by the new Chinese leadership led
by President Jaing Zemin.

SECURITIES MARKETS. The Taiwan Stock Exchange (the "TSE"), the sole
stock exchange in Taiwan, is owned by government controlled enterprises and
private banks. Many listed companies on the TSE invest indirectly in China,
primarily in the textiles, food and rubber industries. Currently, a company
cannot apply for listing on the TSE unless it has conducted business in Taiwan
for a minimum of five years.

In 1968, the Securities and Exchange Law was enacted and the TSE has
been regulated since that time by the Taiwan Securities and Exchange Commission
(the "TSEC") which is supervised by the Ministry of Finance. The Central Bank
of China is also responsible for supervising certain aspects of the Taiwan
securities market. Certain risks related to market volatility in Taiwan and
market capitalization in Taiwan are described in "Special Risk Considerations."

After falling 79.5% from 12,450 to 2,750 between February and October,
1990, the TSE Index then stabilized between 3,000 and 6,000 for the next two
years, before rising from 3,130 to 7,184 over the course of the two years ending
on December 31, 1994. Since then, the Index has fallen back to approximately
4,500, primarily due to the effect of increased tension between Taiwan and China
on investor confidence. The effect of this sharp fall and the strong growth in
the earnings of export-related companies, particularly electronics and
petrochemicals, has been to reduce the valuation of the market from over 35
times earnings in 1991-92 to a forecast 11.5 times for 1996. This is the lowest
valuation that the TSE Index has reached since 1988.

FOREIGN INVESTMENT RESTRICTIONS. Foreign investors were not permitted
to invest directly in securities listed on the TSE until 1990. Currently,
qualified foreign institutional investors (QFIIs) must meet certain guidelines
promulgated by the TSEC and must be approved by the TSEC, the Ministry of
Finance and the Central Bank of China to be permitted to invest in TSE listed
securities. QFIIs must meet the following conditions (among others):

a) Banks must be ranked amongst the top 1,000 banks in the free
world (in terms of total assets);

b) Insurance companies must have been in business for last least
three years with total funds under management of at least $300
million;

c) Fund management companies must also have been in business for at
least three years with at least $200 million under management;

d) Securities firms must have a net worth of over $100 million and
be experienced in international securities.

10
<PAGE>

The Managers are taking action to enable the Fund to invest directly
in TSE listed companies, either as a QFII or as a non-QFII using a registered
securities brokerage house. The Fund intends to make Taiwan-related investments
in global depository receipts ("GDRs"), Euro-Convertible Bonds ("ECBs") and
listed beneficiary certificates ("LBCs") that represent, or are convertible
into, shares of Taiwan-based corporations. GDRs are generally described under
"Investment Policies and Techniques-Depository Receipts." Since 1992, fifteen
TSE listed companies have offered their shares in the form of GDRs to foreign
investors. Euro-Convertible Bonds and Preferred Shares are described under
"Investment Policies and Techniques-Convertible Debt Instruments." Since 1989,
thirty-three TSE-listed companies have issued ECBs, which have been convertible
into underlying shares since July 1995. The TSEC has also agreed to permit the
listing on the TSE of Taiwan Depository Receipts which will represent the shares
of foreign issuers. There are no Taiwan registration requirements that apply to
foreign investors who seek to make direct investments in GDRs or ECBs offered by
TSE-listed companies.

LBCs are certificates which represent the shares of closed-end funds
which, subject to TSEC and TSE approval, may be listed on the TSE. LBCs are
issued only by 15 securities investment trust companies in Taiwan for purposes
of investing in securities listed on the TSE. LBCs are traded on the TSE in the
same manner as other TSE-listed securities. As of September 30, 1994, there
were 21 closed-end funds for which LBCs are traded. Each closed-end fund may
invest in the securities of issuers who are engaged in various types of
businesses or industries in Taiwan. Certain registration requirements apply
before foreign investors may invest in LBCS. The Fund is currently pursuing
registration in Taiwan to qualify for trading in LBCs that are listed on the
TSE. If the Fund qualifies for trading in LBCs, such trading would be included
within the Fund's 65% investment policy. See "The Fund's Investment Objectives
and Policies." The Fund's purchase of LBCs will result in the duplication of
management fees and certain other expenses.

On February 29, 1996, the Taiwan government's cabinet approved a stock
market liberalization measure allowing foreign individual investors to
participate in the Taiwanese domestic stock market, effective March 8, 1996.
The maximum investment by all foreign investors in any listed firm would be
increased to 20% of the firm's total listed shares from the existing 15%.

Over time, the restrictions on investment in Taiwan may ease further
to permit greater and more flexible investment in securities listed on the TSE.
Certain market and market capitalization risks related to investments in the TSE
are described in "Special Risk Considerations." See Appendix B for more
information about economic performance results of Taiwan and the historical
performance of the TSE.

SINGAPORE

Singapore became an island colony of Great Britain in the early 1800s
and achieved independence in 1960. Its population of 3 million is comprised of
77.5% Chinese, 14.2% Malay and 8.3% Indian and other groups. With foreign
exchange reserves of $70.7 billion (December 1997), Singapore has the highest
level of foreign exchange reserves per capita in the world. As the regional
trading center for the South East Asian region, Singapore has enjoyed a period
of strong growth over the last five years, averaging 8.6% annual compound growth
in gross domestic product (GDP), with the result that GDP per capita is
estimated to have exceeded $30,897 at the end of 1997, classifying Singapore as
an "advanced developing nation" under the OECD classification scheme.

Singapore has used its large foreign exchange reserves to invest in
various regional projects, including a number in China, where its $2 billion in
pledged investment in 1995 made it the fifth largest foreign investor. Its
Suzhou industrial township near Shanghai has already attracted $1.4 billion of
investment.

SECURITIES MARKETS. Formal trading of investment securities began
in the late nineteenth century and the Singapore Stockbrokers' Association
was incorporated in 1930. The Stock Exchange of Singapore (SES) was
incorporated in 1973. The SES is now the seventh largest stock market in
Asia, after Japan, Hong Kong, Malaysia, Thailand, Korea and Taiwan, with a
market capitalization at January 31, 1996, of S$226.3 billion, an increase of
approximately 10% from the previous year. From January 1, 1995 to December
31, 1995, there were 20 new listings of companies on the SES. Average
monthly turnover on the SES for 1995 was S$83,866 million, compared with
S$123,520 million in 1994. As of December 31, 1995, 248 companies were
listed on the SES (212 Singaporean and 36 foreign), and a total of 495
securities. Another 46 were listed on the second market, known as the Stock
Exchange of Singapore Dealing and Automated Quotations Board (SESDAQ), which
had a market capitalization of S$4.18 billion at December 31, 1995.

11
<PAGE>
There is also the Central Limit Order Board International (CLOB), an
electronic over-the-counter order matching system which was established after
the separation of the Singapore and Kuala Lumpur Stock Exchanges on January 2,
1990, primarily to enable Malaysian shares to continue to be traded freely in
Singapore. As of December 31, 1995, there were 10 Hong Kong, 112 Malaysian and
7 other international stocks traded on CLOB.

Foreign investors in Singapore are restricted by ministerial
limitations from owning more than 49% of any strategic Singaporean company, or
more than 40% of any Singaporean bank. This has led to a two tier share holding
structure, with domestic and foreign registered shares, trading at different
prices, with a premium for foreign registered shares. There are no restrictions
on investment and remittances and no foreign exchange controls, although 27%
corporate tax is deducted from the gross dividends payable.

HISTORY. Singapore was a British colony until it obtained internal
self-government in 1959. In 1963, it joined the federation of Malaya, Sabah and
Sarawak to form Malaysia. It became a fully independent and sovereign state on
August 9, 1965 when it separated from Malaysia.

The post World War II history of Singapore until independence in 1965
was marked by a growing anticolonial movement, struggles between the communists
and non-communists within this movement to shape the future of the island's
merger with Malaysia, and the political and communal problems which were
associated with it and the confrontation with Indonesia (1963-66).

The non-communists in the People's Action Party (PAP), led by Lee Kuan
Yew, were able to prevail over the communists and their supporters by 1963, and
the government was able to focus on the tasks of economic and social development
and nation-building.

Singapore's racially mixed population reflects its key strategic
location in the Straits of Johore, which provided the base flow of traffic for
Singapore's initial shipping and entrepot businesses. Today's modem
service-based and high-technology economy can be traced back to the vision of
Lee Kuan Yew, who as Prime Minister (1959-91) and Senior Minister (1991 onwards)
implemented a process of encouraging inbound investment and upgrading the skills
base of the population, which has resulted in Singapore achieving "advanced
developing nation" status. See Appendix B for more information about economic
performance results of Singapore and the historical performance of the SES.

SPECIAL RISK CONSIDERATIONS

THE FUND IS INTENDED FOR LONG-TERM INVESTORS WHO CAN ACCEPT THE RISKS
ASSOCIATED WITH INVESTING PRIMARILY IN GREATER CHINA INVESTMENTS AS WELL AS THE
SPECULATIVE RISKS ASSOCIATED WITH INVESTMENTS DENOMINATED IN FOREIGN CURRENCIES.
The Fund's net asset value will fluctuate as the market value of its portfolio
positions and its net currency exposure changes. In addition, certain of the
Fund's potential investment and management techniques entail special risks.
These techniques include Hedging and Other Strategic Transactions and other
investments which are described below in "Special Investment Techniques" and
"Additional Information on Portfolio Instruments" and "Hedging and Other
Strategic Transactions" in the Statement of Additional Information. There is no
assurance that the Fund will achieve any of its investment objectives.

1. CURRENCY FLUCTUATION

Since the Fund will invest a substantial portion of its assets in the
securities of foreign issuers which are denominated in foreign currencies or the
currency of a single foreign country, the strength or weakness of the U.S.
dollar against such foreign currencies will account for part of the Fund's
investment performance. More than 50% of the Fund's total assets, adjusted to
reflect currency transactions and positions, may be denominated in any single
currency. A decline in the value of a particular foreign currency against the
U.S. dollar will cause a decline in the U.S. dollar value of the Fund's holding
of securities denominated in such currency and may cause an overall decline in
the Fund's net asset value and any net investment income and capital gains to be
distributed in U.S. dollars to shareholders of the Fund.

The rate of exchange between the U.S. dollar and other currencies is
determined by many factors including the supply and demand for particular
currencies, central bank efforts to support currencies, the movement of interest
rates and other economic and financial conditions affecting the world economy.

12
<PAGE>

Although the Fund values its assets daily in terms of U.S. dollars,
the Fund does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. The Fund may do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference ("spread") between the prices at which they purchase and sell
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to sell the same currency to the same dealer.

2. FOREIGN SECURITIES

The Fund will invest in securities of foreign issuers. Investing in
securities issued by foreign companies involves considerations and possible
risks not typically associated with investing in securities issued by U.S.
companies. The values of foreign investments are affected by changes in currency
rates or exchange control regulations, application of foreign tax laws,
including withholding taxes, changes in governmental administration or changes
in economic or monetary policy (in this country or abroad) or changed
circumstances in dealings between nations. Costs are incurred in connection with
conversions between various currencies. In addition, foreign brokerage
commissions, and for funds holding foreign securities, the custodial fees are
generally higher than for funds holding domestic securities, and foreign
securities markets may be less liquid, more volatile and less subject to
governmental supervision than in the United States. Investments in foreign
issuers could be affected by other factors not present in the United States,
including expropriation, confiscatory taxation, currency blockage, lack of
uniform accounting and auditing standards, less publicly available information
about the foreign issuer and potential difficulties in enforcing contractual
obligations and judgments. Transactions in foreign securities markets (including
Greater China Region markets) are subject to settlement and delivery risks and
delays that are greater than those in U.S. markets. The failure by a
counterparty in a foreign securities market (including Greater China Region
markets) to pay for or deliver securities purchased or sold by the Fund in a
timely manner may result in financial loss to the Fund. See "People's Republic
of China--Securities Markets," "Hong Kong--Securities Markets,"
"Taiwan--Securities Markets" and "Singapore--Securities Markets" under the
previous section entitled "The Fund's Investments in the Greater China Region."

3. SECURITIES MARKETS IN THE GREATER CHINA REGION ARE VOLATILE

Since the Fund will invest at least 65% of its total assets in Greater
China Investments, its investment performance will be especially affected by
events affecting companies that issue Greater China Investments. The value and
liquidity of Greater China Investments may be affected favorably or unfavorably
by political, economic, fiscal, regulatory or other developments in the Greater
China Region or neighboring regions. The extent of economic development,
political stability and market depth of different countries in the Greater China
Region varies widely. In general, fewer securities are available for trading and
the trading volume on stock exchanges in the Greater China Region are lighter
than for stock exchanges in the U.S. and the market capitalization of individual
issuers and the market as a whole is smaller. Moreover, foreigners investing in
Greater China Region securities markets, such as the Fund, may be subject to
investment restrictions that restrict the availability of securities to
foreigners in such markets, which can lead to higher investment costs for
foreigners.

China is comparatively underdeveloped when compared to other countries
in the Greater China Region. Greater China Investments typically involve greater
potential for gain or loss than investments in securities of issuers in
developed countries. In comparison to the United States and other developed
countries, developing countries may have relatively unstable governments and
economies based on only a few industries. Given the Fund's investments, the Fund
will likely be particularly sensitive to changes in China's economy as the
result of a reversal of economic liberalization, political unrest or changes in
China's trading status.

The securities markets in the Greater China Region are substantially
smaller, less liquid and more volatile than the major securities markets in the
United States. A high proportion of the shares of many issuers may be held by a
limited number of persons and financial institutions, which may limit the number
of shares available for investment by the Fund. A limited number of issuers in
the Greater China Region securities markets may represent a disproportionately
large percentage of market capitalization and trading value compared to United
States securities markets. The limited liquidity of securities markets in the
Greater China Region may also affect the Fund's ability to

13
<PAGE>

acquire or dispose of securities at the price and time it wishes to do so.
Accordingly, during periods of rising securities prices in the more illiquid
Greater China Regions securities markets, the Fund's ability to participate
fully in such price increases may be limited because the Fund cannot invest more
than 15% of its net assets in illiquid securities. Conversely, the Fund's
inability to dispose fully and promptly of positions in declining markets may
cause the Fund's net asset value to decline as the value of the unsold positions
is marked to lower prices. In addition, Greater China Region securities markets
are susceptible to being influenced by large investors trading significant
blocks of securities.

The Chinese, Hong Kong, Taiwan and Singapore stock markets are
undergoing a period of growth and change which may result in trading volatility
and difficulties in the settlement and recording of transactions, and in
interpreting and applying the relevant law and regulations. In particular, the
securities industry in China is not well developed. China has no securities laws
of national applicability. The existing national code of regulations is new, and
provisional only. The municipal securities regulations adopted by Shanghai and
Shenzhen municipalities are also new, as are their respective securities
exchanges. The regulatory roles of the China Securities Regulatory Commission
and the two municipal governments are not well-established. Given the
still-developing nature of China's securities markets, changes in regulatory
policy can materially affect securities prices. In addition, Chinese
stockbrokers and other intermediaries may not perform as well as their
counterparts in the United States and other more developed securities markets.
The prices at which the Fund may acquire investments may be affected by trading
by persons with material non-public information and by securities transactions
by brokers in anticipation of transactions by the Fund in particular securities.

If the Fund commenced operations at this time, the Fund would not be
able to acquire possession of securities listed on stock exchanges in China
directly because it is not possible to arrange for physical custody of such
securities with the Fund's custodian outside China.

For more information about securities markets in the Greater China
Region, including the limitations imposed upon foreign investors such as the
Fund, see "Greater China Region Securities Markets and Foreign Investment
Limitations" in the Statement of Additional Information.

4. THE GREATER CHINA REGION IS EXPERIENCING IMPORTANT ECONOMIC AND
POLITICAL EVOLUTION

The Fund will invest in Greater China Region countries with emerging
economies and securities markets. Political and economic structures in many of
such countries may be undergoing significant evolution and rapid development,
and such countries may lack the social, political and economic stability
characteristic of the United States. Certain of such countries may have in the
past failed to recognize private property rights and have at times nationalized
or expropriated the assets of private companies. As a result, the risks
described above, including the risks of nationalization or expropriation of
assets, may be heightened. In addition, unanticipated political or social
developments may affect the values of the Fund's investments in those countries
and the availability to the Fund of additional investments in those countries.

ECONOMIES OF COUNTRIES IN THE GREATER CHINA REGION MAY DIFFER
FAVORABLY OR UNFAVORABLY FROM THE U.S. ECONOMY IN SUCH RESPECTS AS RATE OF
GROWTH OF GROSS NATIONAL PRODUCT, RATE OF INFLATION, CAPITAL REINVESTMENT,
RESOURCE SELF-SUFFICIENCY AND BALANCE OF PAYMENTS POSITION. As export-driven
economies, the economies of countries in the Greater China Region are affected
by developments in the economies of their principal trading partners. Revocation
by the United States of China's "Most Favored Nation" trading status, which the
U.S. President and Congress have reconsidered annually, would adversely affect
the trade and economic development of China and Hong Kong. In addition, Hong
Kong, Taiwan and Singapore have limited natural resources, resulting in
dependence on foreign sources for certain raw materials and economic
vulnerability to global fluctuations of price and supply.

14
<PAGE>

5. CHINA'S LEGAL SYSTEM IS NOT WELL DEVELOPED

Governmental actions in China can have a significant effect on the
economic conditions in the Greater China Region, which could adversely affect
the value and liquidity of the Fund's investments. Although the Chinese
government has recently begun to institute economic reform policies, there can
be no assurances that it will continue to pursue such policies or, if it does,
that such policies will succeed. China does not have a comprehensive system of
laws, although substantial changes have occurred in this regard in recent years.
The corporate form of organization has only recently been permitted in China and
national regulations governing corporations were introduced only in May 1992.
Prior to the introduction of such regulations Shanghai had adopted a set of
corporate regulations applicable to corporations located or listed in Shanghai,
and the relationship between the two sets of regulations is not clear.
Consequently, until a firmer legal basis is provided, even such fundamental
corporate law principles as the limited liability status of Chinese issuers and
their authority to issue shares remain open to question.

Laws regarding fiduciary duties of officers and directors and the
protection of shareholders are not well developed. China's judiciary is
relatively inexperienced in enforcing the laws that exist, leading to a
higher-than-usual degree of uncertainty as to the outcome of any litigation.
Even where adequate law exists in China, it may be impossible to obtain swift
and equitable enforcement of such law, or to obtain enforcement of the judgment
by a court of another jurisdiction. The bankruptcy laws pertaining to state
enterprises have rarely been used and are untried in regard to an enterprise
with foreign shareholders, and there can be no assurance that such shareholders,
including the Fund, would be able to realize the value of the assets of the
enterprise or receive payment in convertible currency. As the Chinese legal
system develops, the promulgation of new laws, changes to existing laws and the
preemption of local laws by national laws may adversely affect foreign
investors, including the Fund. The uncertainties faced by foreign investors in
China are exacerbated by the fact that many laws, regulations and decrees of
China are not publicly available, but merely circulated internally.

The Communist Party in China has in the past refused to recognize
private property rights and has nationalized or expropriated the assets of
private companies. However, during the 1990's the Chinese government has
increasingly encouraged private ownership of property and has recognized foreign
ownership of certain property located in China. In addition, although China does
not currently place limitations on repatriation of profits or currency with
respect to the acquisition or sale of "B" shares listed on its stock exchanges
(subject to the payment of any relevant taxes), any such limitations on
repatriation may result in a downward market trend in China that could adversely
effect the Fund's portfolio.

6. FOREIGN INVESTMENT RESTRICTIONS

Securities markets in the Greater China Region are smaller and offer
fewer investment alternatives than the equity securities markets in Europe and
the United States. Certain countries in the Greater China Region prohibit or
impose substantial restrictions on investments in their capital markets,
particularly their equity markets, by foreign entities such as the Fund. 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.

Taiwan restricts foreign ownership of the shares of publicly-listed
companies to 30% and also limits the total amount that may be invested in
Taiwanese securities to $5 million for individuals and $20 million for corporate
entities unless, the foreign investment institutions have conducted business for
at least 3 years and have under their management at least $300 million in assets
prior to being eligible to acquire ownership of TSE-traded shares. See "The
Fund's Investments in the Greater China Region--Taiwan--Foreign Investment
Restrictions." Taiwan has limited repatriation of profits by private companies.
For example, ROC companies are allowed to repatriate up to $3 billion raised
abroad from issues of GDRs and overseas corporate bonds. Moreover, the national
policies of Taiwan may restrict investment opportunities in issuers or
industries deemed sensitive to national interests.

Taiwan requires governmental approval for the repatriation of
investment income, capital or the proceeds of securities sales by foreign
investors. The Fund could be adversely affected by delays in, or a refusal to
grant, any

15
<PAGE>

required governmental approval for repatriation, as well as by the application
to it of other restrictions on investments.

7. 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 which the Fund will hold
will not be registered with the Securities and Exchange Commission ("SEC"), 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 the Fund than is available concerning U.S. issuers. In
addition, where public information is available, it may be less reliable than
such information regarding 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.

8. FOREIGN TAXES

The Fund's investment income from foreign issuers may be subject to
non-U.S. withholding taxes, thereby reducing the Fund's net investment income.
For more information about tax risks related to the Fund, see "How Distributions
are Made: Tax Information" and "Additional Information Concerning Taxes" in the
Statement of Additional Information.

9. PORTFOLIO TURNOVER

The Fund will not trade in securities with the intention of generating
short-term profits, but may effect portfolio transactions without regard to the
length of time a security is held if, in the judgment of the Adviser, such
transactions are advisable in light of a change in circumstances of a particular
company or within a particular industry, or in general market, economic or
political conditions. Accordingly, the Fund may engage in short-term trading
under such circumstances. Under normal market conditions, the annual portfolio
turnover rate is expected to be under 100%. (An annual turnover rate of 100%
occurs, for example, when all of such securities held by the Fund are replaced
in a period of one year.) A high rate of portfolio turnover (100% or more)
involves correspondingly greater expenses than a lower rate, which expenses must
be borne directly by the Fund, and indirectly by the Fund and its shareholders.
However, short-term trading may cause the portfolio turnover rate to exceed the
100% target. High portfolio turnover also may result in the realization of
substantial net short-term capital gains. To the extent net capital gains are
realized, any distributions derived from such gains on securities held for less
than one year are taxable at ordinary income rates for federal income tax
purposes. See " How Distributions are Made: Tax Information."

10. CERTAIN INVESTMENT POLICIES

The Fund has adopted certain fundamental investment restrictions and
policies which are explained in "The Fund's Investment Objective and Policies"
and "Investment Limitations" in the Statement of Additional Information which,
as described more fully in those sections, may not be changed unless authorized
by a shareholder vote and as permitted by law. These investment restrictions may
prevent the Fund from broadening its portfolio to include other types of
investments in the Greater China Region that may generate greater total returns.
Among these fundamental restrictions, the Fund may not: (1) borrow money except
from banks or through reverse repurchase agreements and in an amount not
exceeding 10% of its total assets; or (2) invest more than 25% of its total
assets in the securities of any one issuer, other than U.S. Government
securities or, acquire more than 10% of the outstanding voting securities of any
one issuer. Except with respect to the Fund's borrowing limitation, investment
restrictions are considered at the time of acquisition of assets; the sale of
portfolio assets is not required in the event of a subsequent change in
circumstances. As a matter of fundamental policy the Fund will invest less than
25% of its total assets in

16
<PAGE>

the securities, other than U.S. Government securities, of issuers in any one
industry. However, the Fund is permitted to invest 50% or more of its total
assets in (i) the securities of issuers located in the People's Republic of
China, Hong Kong, Taiwan or Singapore and (ii) assets denominated in the
currency of any one country.

Except for the nonfundamental investment restrictions and policies
identified above and in the Statement of Additional Information, the investment
objectives and policies of the Fund are fundamental and accordingly may not be
changed by the Board of Directors of the Fund without obtaining the majority
approval of the shareholders of the Fund. See "Management of the Fund" for
further information. If any such changes were made, the Fund might have
investment objectives different from the objectives which an investor considered
appropriate at the time the investor became a shareholder in the Fund. As a
matter of fundamental policy, the Fund will not (i) borrow for leverage purposes
or purchase any securities if, at the time of such purchase, permitted borrowing
exceed 10% of the value of the Fund's total assets, as the case may be, (ii)
invest more than 15% of its net assets in unmarketable securities,
over-the-counter options (and the segregated assets required to cover such
options are illiquid while such options are owned by the Fund), repurchase
agreements maturing in more than seven days and other illiquid securities, or
(iii) 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 speculative
positions in futures contracts or 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. See "Special Investment Techniques"
for more information about futures contracts and options.

SPECIAL RISKS OF CERTAIN FUND INVESTMENTS

LENDING OF FUND SECURITIES. The Fund may seek to earn income by
lending portfolio securities to broker-dealers or other institutional borrowers.
Such loans will be against collateral consisting of cash or securities which is
equal at all times to at least 100% of the value of the securities loaned. The
Fund may make loans which are short-term (nine months or less) or long-term.
During the existence of a loan, the Fund will continue to receive the equivalent
of the interest or dividends paid by the issuer on the securities loaned and
will also receive a fee, on all or a portion of the interest on investment of
the collateral, if any. However, the Fund may at the same time pay a
transaction fee to such borrowers. Opportunities to engage in the lending of
equity securities listed in Greater China Region securities markets are
restricted. For example, Hong Kong permits such lending subject to a 14 day
limit on the lending period. As with other extensions of credit there are risks
of delay in recovery or even loss of rights in the securities loaned if the
borrower of the securities fails financially. However, the loans will be made
only to organizations deemed by the Adviser to be of good standing and when, in
the judgment of the Adviser, the consideration which can be earned from
securities loans of this type justifies the attendant risk. The financial
condition of the borrower will be monitored by the Adviser on an ongoing basis.
If the Adviser decides to make securities loans, it is intended that the value
of the securities loaned would not exceed one-third of the Fund's total assets.

ILLIQUID AND RESTRICTED SECURITIES. The Fund may invest up to 15% of
its net assets in illiquid securities, including repurchase agreements with
maturities in excess of seven days. See "The Fund's Investment Objectives and
Policies." Generally, the Fund's Board of Directors has the ultimate
responsibility for determining whether specific securities (including, without
limitation, Rule 144A securities as described below) 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
Board's guidelines take into account a number of factors in reaching liquidity
decisions, including, but not limited to: (1) the frequency of trading in the
security; (2) the number of dealers who make quotes for the security; (3) the
number of dealers who have undertaken to make a market in the security; (4) the
number of other potential purchasers; and (5) 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 Adviser will monitor the
liquidity of securities in each Fund's portfolio and report periodically on such
decisions to the Board of Directors.

As one of many potential types of illiquid investments, the Fund may
purchase securities that are not registered under the Securities Act of 1933, as
amended (the "Act"), which can be sold to qualified institutional buyers in
accordance with Rule 144A under the Act ("Rule 144A securities"). Investing in
Rule 144A securities could have the effect of increasing the Fund's illiquidity
to the extent that qualified institutional buyers become, for a time,
uninterested in purchasing these securities. If a particular investment in Rule
144A securities is not determined to have a readily available trading market,
such investment will be included within the 15% limitation

17
<PAGE>

on investment in illiquid securities. The maximum percentage of Fund assets
that may be invested in liquid Rule 144A securities (i.e., those not included
within the 15% limitation) at any time is 20%.

The sale of restricted securities generally requires more time and may
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.

HEDGING AND OTHER STRATEGIC TRANSACTIONS. Within the Greater China
Region as well as domestic and other foreign markets, the Fund may be authorized
to use a variety of Hedging and Other Strategic Transactions as described in
"Special Investment Techniques" below and "Additional Information on Portfolio
Instruments and Techniques-Hedging and Other Strategic Transactions" in the
Statement of Additional Information. These investment strategies are used by
the Fund to hedge various market risks (such as currency exchange rates,
interest rates, and broad or specific market movements) to seek to reduce the
volatility of the Fund's portfolio or to seek to increase the Fund's income. No
more than 35% of the Fund's net assets (taking into account the Fund's net
position in a specific investment) may be used in connection with these types of
transactions.

Subject to the limitations described above, the Fund may purchase and
sell (or write) Hedging and Other Strategic Transactions in its attempts to
protect against possible changes in the market value of securities held or to be
purchased by the Fund resulting from securities markets or currency exchange
rate fluctuations, or to protect the Fund's unrealized gains in the value of its
securities. The Fund may use any or all types of Hedging and Other Strategic
Transactions which it is authorized to use at any time, and such use will based
on many variables, including market conditions. Such transactions are subject
to political, economic and legal risks similar to those applicable to investment
in foreign securities described under "Foreign Securities" above.

The ability of the Fund to use Hedging and Other Strategic
Transactions successfully will depend on, in addition to the factors described
above, the Adviser's ability to predict pertinent market movements, and the
accuracy of such predictions cannot be assured. The skills needed to accurately
predict such market movements are different from those needed to select the
Fund's securities. Moreover, the use of options and futures by the Fund may
fail as hedging techniques in cases where the price movements of the securities
underlying the options and futures do not follow the price movements of the
portfolio securities subject to the hedge. Other risks associated with Hedging
and Other Strategic Transactions are described in "Additional Information on
Portfolio Instruments and Techniques-Hedging and Other Strategic Transactions"
in the Statement of Additional Information.

Hedging and Other Strategic Transactions have special risks associated
with them which are different from the risks associated with investments in
securities, including possible default by the counterparty to the transaction,
illiquidity and, to the extent the 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 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 without value, 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.

18
<PAGE>

not match the securities market and foreign currency fluctuations intended to be
hedged; (3) market risk that an incorrect prediction of securities prices or
exchange rates may cause the Fund to perform less well than if such positions
had not been entered into; and (4) skills different from those needed to select
Fund securities. The Fund's use of put and call options could result in losses
to the Fund, force the sale or purchase of portfolio securities at inopportune
times or for prices higher than (in the case of put options) or lower than (in
the case of call options) current market values, or cause the Fund to hold a
security it might otherwise sell.

Futures and options markets could be illiquid in some circumstances
and certain over-the-counter options could have no markets. As a result, in
certain markets, the Fund might not be able to close out a transaction without
incurring substantial losses. Although the Fund's use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time it will tend to
limit any potential gain to the Fund that might result from an increase in value
of the position. Finally, the daily variation margin requirements for futures
contracts create a greater ongoing potential financial risk than would purchases
of options, in which case the exposure is limited to the cost of the initial
premium.

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.

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. In China, the use of Hedging and
Other Strategic Transactions is in the early stages of development and these
transactions are not well regulated, exposing investors to greater risk of loss
than other types of securities investments in China. 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.

See "Additional Information on Portfolio Instruments and Techniques"
in the Statement of Additional Information for a discussion of risks associated
with other investments of the Fund.

SPECIAL INVESTMENT TECHNIQUES

IN ADDITION TO ITS INVESTMENTS IN EQUITY SECURITIES, THE FUND INTENDS TO
USE ACTIVE MANAGEMENT TECHNIQUES IN SELECTING OTHER FORMS OF INVESTMENTS. The
Fund will be authorized to use a variety of investment strategies within the
U.S. and the Greater China Region for hedging and other purposes, including
income generation. These investment strategies include the writing and the
purchase and sale of options on securities and indices, futures contracts and
options on futures, warrants, forward foreign currency exchange contracts, short
sales, options on currency, and currency swaps (collectively, these transactions
are referred to herein as "Hedging and Other Strategic Transactions"). The Fund
may invest up to 35% of its total assets in Hedging and Other Strategic
Transactions and no more than 35% of the Fund's total assets will be at risk
with respect to such transactions. This limit is not a fundamental policy of
the Fund and may be changed by the Fund's Board of Directors without shareholder
approval. When Hedging and Other Strategic Transactions are conducted outside
the U.S., these transactions will operate in a similar manner as in U.S.
securities markets but with greater risk. See "Special Risk
Considerations-Risks of Hedging and Other Strategic Transactions Outside the
United States." For general information about risks associated with Hedging and
Other Strategic Transactions, see "Special Risk Considerations-Special Risks of
Certain Fund Investments" above and "Additional Information on Portfolio
Instruments and Techniques-Hedging and Other Strategic Transactions" in the
Statement of Additional Information.

CURRENCY TRANSACTIONS. The 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 options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional difference

19
<PAGE>

among two or more currencies. The Fund may enter into currency transactions
only with counterparties that are deemed creditworthy by the Adviser.

Generally, the 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 nonspeculative
purposes, including transaction hedging and position hedging. Transaction
hedging is entering into a currency transaction with respect to specific assets
or liabilities of the 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. The 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.

The 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, the Fund may also
engage in proxy hedging (i.e. using a hedging vehicle relating to a currency
whose fluctuations are tied closely to the currency to be hedged).

Currency transactions are subject to risks different from other
portfolio transactions, as discussed below under "Special Risk
Considerations-Special Risks of Certain Fund Investments." If the Fund enters
into a currency hedging transaction, the Fund will comply with the asset
segregation requirements described below under "Special Investment
Techniques-Use of Segregated and Other Special Accounts." See "Additional
Information on Portfolio Instruments and Techniques-Hedging and Other Strategic
Transactions" in the Statement of Additional Information for information about
other types of currency transactions that the Fund may engage in.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase up
to 10% of its net assets in securities on a when-issued or delayed delivery
basis. Securities purchased on a when-issued or delayed delivery basis are
purchased for delivery beyond the normal settlement date at a stated price and
yield. No income accrues to the purchaser of a security on a when-issued or
delayed delivery basis prior to delivery. Such securities are recorded as an
asset and are subject to changes in value based upon changes in the value of the
security prior to delivery. Purchasing a security on a when-issued or delayed
delivery basis may involve the risk that the market price at the time of
delivery may be lower than the agreed upon purchase price, in which case there
could be an unrealized loss at the time of delivery. The Fund will only make
commitments to purchase securities on a when-issued or delayed delivery basis
with the intention of actually acquiring the securities, but may sell them
before the settlement date if it is deemed advisable. The Fund will establish a
segregated account in which it will maintain liquid assets in an amount at least
equal in value to the Fund's commitments to purchase securities on a when-issued
or delayed delivery basis. If the value of these assets declines, the Fund will
place additional liquid assets in the account on a daily basis so that the value
of the assets in the account is equal to the amount of such commitments.

OPTIONS ON SECURITIES AND SECURITIES INDICES. The Fund may purchase
and sell options that are traded on United States and foreign markets. The
ability to terminate over-the-counter options is more limited than with
exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The Fund
will treat purchased over-the-counter options and assets used to cover written
over-the-counter options as illiquid securities until such time as the staff of
the Securities and Exchange Commission changes its current position on such
treatment.

The writing and purchase of options is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. In the event of unanticipated
changes in securities prices, the Fund may recognize a loss of the premium on an
option it has purchased to the extent that the option cannot be profitably
exercised before its expiration. The successful use of options for hedging
purposes depends in part on the ability of the Adviser to predict future price
fluctuations and the degree of correlation between the options and securities
markets. The Fund pays brokerage commissions or spreads in connection with its
options transactions. The writing of options could significantly increase the
Fund's portfolio turnover rate.

There is no assurance that a liquid secondary market on an options
exchange will exist for any particular exchange-traded option or at any
particular time. If the Fund is unable to effect a closing purchase transaction
with respect to covered options it has written, the Fund will not be able to
sell the underlying securities or dispose of

20
<PAGE>

assets held in a segregated account until the options expire or are exercised.
Similarly, if the Fund is unable to effect a closing sale transaction with
respect to options it has purchased, it would have to exercise the options in
order to realize any profit and will incur transaction costs upon the purchase
or sale of underlying securities.

GENERAL CHARACTERISTICS OF OPTIONS. Put options and call options
typically have similar structural characteristics and operational mechanics
regardless of the underlying instrument on which they are purchased or sold.
Thus, the following general discussion relates to each of the particular types
of options discussed in greater detail below. In addition, many transactions
involving options require segregation of Fund assets in special accounts, as
described below under "Use of Segregated and Other Special Accounts." The
maximum percentage of Fund assets that may be invested in futures and/or options
at any time is 10%.

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, currency or other instrument at the exercise price. The
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. The Fund's purchase of a call option on a
security, financial futures contract, currency or other instrument might be
intended to protect the 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" type 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 typically issued by a regulated
intermediary. Exchange-listed options, with certain exceptions, generally
settle by physical delivery of the underlying security or currency. In the
future, cash settlement may become available. Frequently, rather than taking or
making delivery of the underlying instrument through the process of exercising
the option, listed options are closed by entering into offsetting purchase or
sale transactions that do not result in ownership of the new option.

The Fund's inability to close out its position as a purchaser or
seller of an 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 on certain options; (2) restrictions on transactions imposed by the
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 exchange; (5) inadequacy of the facilities of an exchange 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.

If the 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. The Fund may purchase and sell call options on
securities that are traded on U.S. and foreign securities exchanges, and on
securities indices, currencies and futures contracts. All call options sold by
the 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 the Fund will receive the option premium to help
protect it against a loss, a call sold by the Fund will expose the 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.

The 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, the Fund's investment objective and the restrictions set forth
herein.

21
<PAGE>

The Fund may purchase and sell put options on securities (whether or
not it holds the securities in its portfolio), securities indices, currencies
and futures contracts. In selling put options, the 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. The 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 the 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.

The 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 the Fund to
deposit with a financial intermediary, as security for its obligations, an
amount of cash or other specified assets ("initial margin") that initially is
from 1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets ("variation margin") may be required
to be deposited thereafter daily as the mark-to-market value of the futures
contract fluctuates. The purchase of an option on a financial futures contract
involves payment of a premium for the option without any further obligation on
the part of the Fund. If the 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.

The Fund will not 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 contract 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."

COMBINED TRANSACTIONS. The 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 combination of futures, options, currency and interest
rate transactions 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 the 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,

SHORT SALES "AGAINST THE BOX". The Fund may from time to time sell
securities short "against the box." If the Fund enters into a short sale
against the box, it will be required to set aside securities equivalent in kind
and amount to the securities sold short (or securities convertible or
exchangeable into such securities if the conversion or exchange occurs without
the payment of any additional consideration) and will be required to hold such
securities while the short sale is outstanding. The Fund will incur transaction
costs, including interest expense, in connection with opening, maintaining and
closing short sales against the box. If the Fund engages in any short sales
against the box, it will incur the risk that the security sold short will
appreciate in value after the sale, with the result that the Fund will lose the
benefit of any such appreciation.

SHORT SALES. The Fund may enter into short sales with respect to
stocks underlying its security holdings. For example, if the Adviser
anticipates a decline in the price of the stock underlying a security that the
Fund holds, it may sell the stock short. If the stock price subsequently
declines, the proceeds of the short sale could be expected to offset all or a
portion of the effect of the stock's decline in value.

The Fund's obligation to replace the securities borrowed in connection
with a short sale will be secured by

22
<PAGE>

collateral deposited with the broker that consists of up to 10% of the Fund's
net asset value in cash, U.S. government securities or other liquid high grade
debt obligations. In addition, the Fund will place up to 10% of the Fund's net
asset value in a segregated account with its custodian, or designated
subcustodian, an amount of cash, U.S. government securities or other liquid high
grade debt obligations equal to the difference, if any, between (1) the market
value of the securities sold at the time that they were sold short, and (2) any
cash, U.S. government securities or other liquid high grade debt obligations
deposited as collateral with the broker in connection with such short sale (not
including the proceeds of the short sale). The maximum percentage of the Fund's
net assets that will be, when added together, (1) deposited as collateral for
the obligation to replace securities borrowed to effect short sales, and (2)
allocated to segregated accounts in connection with short sales will be 20% of
the Fund's net assets.

Until it replaces the borrowed securities, the Fund will maintain the
segregated account daily at a level so that (1) the amount deposited in the
account plus the amount deposited with the broker (not including the proceeds of
the short sale) will equal 100% of the current market value of the securities
sold short, and (2) the amount deposited in the account plus the amount
deposited with the broker (not including the proceeds from the short sale) will
not be less than the market value of the securities at the time that they were
sold short. A lesser amount of assets may be set aside by the Fund if it owns
certain types of instruments, such as a call option, on the securities sold
short that would effectively cover the short sale.

Short sales by the Fund involve certain special risk consideration
from purchase of a security because losses from short sales may be unlimited,
whereas losses from purchases are limited to the total amount invested.

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

Hedging and Other Strategic Transactions may be covered by means other
than those described above when consistent with applicable regulatory policies.
The Fund may also enter into offsetting transactions so that its combined
position, coupled with any segregated assets, equals its net outstanding
obligation in related options and Hedging and Other Strategic Transactions. The
Fund could purchase a put option, for example, if the strike price of that
option is the same or higher than the strike price of a put option sold by the
Fund. Moreover, instead of segregating assets if it holds a futures contract or
forward contract, the Fund could purchase a put option on the same futures
contract or forward contract with a strike price as high or higher than the
price of the contract held. Other Hedging and Other Strategic Transactions may
also be offset in combinations. If the offsetting transaction terminates at the
time of or after the primary transaction, no segregation is required, but if it
terminates prior to that time, assets equal to any remaining obligation would
need to be segregated.

23
<PAGE>

The Fund will engage in transactions in futures contracts and options
only to the extent such transactions are consistent with the requirements of the
Internal Revenue Code of 1986, as amended, for maintaining the qualification of
the Fund as a regulated investment company for Federal income tax purposes.

WARRANTS OR RIGHTS. Warrants or rights may be acquired be the 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. Unless they
become detached and traded, warrants or rights acquired by the Fund in units or
attached to securities will be deemed to be without value for purposes of the
35% restriction on the Fund's investments in Hedging and Other Strategic
Transactions.

LIMITING INVESTMENT RISKS

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

2. 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 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 its
total assets.

3. 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 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 (2) and the restrictions on illiquid investments
described in (3) 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% or more 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

INVESTMENT ADVISER
CVO Greater China Partners, L.P. (the "Adviser") provides day-to-day
management of the Fund's portfolio and renders investment advisory services to
the Fund pursuant to an Advisory Agreement with the Fund (the "Advisory
Agreement"). Subject to such policies as the Fund's Board of Directors may
determine, the Adviser makes investment decisions for the Fund. The Fund does
not have an operating history, and the Adviser has not had any prior experience
advising an investment company. The Advisory Agreement provides that as
compensation for services, the Adviser is entitled to receive from the Fund a
monthly fee at the annual rate of 1.25% of the average daily net assets of the
Fund.

The Adviser is a Delaware limited partnership formed in September 1994
to serve as the investment adviser to the Fund. The Adviser's key investment
team consists of experienced investment professionals based in San Francisco.
The Adviser's principal business is the rendering of discretionary investment
management services to the Fund. The Adviser's principal business address is
520 Madison Avenue, New York, NY 10022.

24
<PAGE>

CONTROL OF THE ADVISER. The Adviser is controlled by its two general
partners: OFFITBANK Greater China, Inc., a New York corporation established in
August 1994 as a wholly-owned subsidiary of OFFITBANK, a New York State
chartered trust company ("OFFITBANK"), and ChinaVest Public Equities, LLC, a
California limited liability corporation established in January 1995 as a
wholly-owned subsidiary of ChinaVest Financial Services, Ltd., a Cayman Islands
corporation ("ChinaVest Ltd.").

Under its charter, OFFITBANK 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. OFFITBANK's
principal business is the rendering of discretionary investment management
services to high net worth individuals and family groups, foundations,
endowments and corporations. OFFITBANK specializes in global fixed income asset
management and offers its clients a complete range of fixed income investments
in capital markets throughout the world. OFFITBANK currently manages
approximately $10 billion in assets and serves as investment adviser to fifteen
registered investment companies (or portfolios thereof). The principal business
address of OFFITBANK is 520 Madison Avenue, New York, New York 10022.

The ChinaVest investment management group based in Hong Kong (the
"ChinaVest Group") was organized in 1985. The ChinaVest Group has ten years of
experience in managing private equity investments and shares certain common
control persons with ChinaVest Public Equities, LLC. The ChinaVest Group
currently manages approximately $300 million in assets. The ChinaVest Group and
ChinaVest Public Equities, LLC have no previous experience as investment adviser
to a registered investment company. The ChinaVest Group is represented by
ChinaVest, Inc., whose principal business address is 160 Sansome Street, 18th
Floor, San Francisco, California 94104.

See "Management of the Fund" in the Statement of Additional
Information for more information about the directors and officers of the general
partners of the Adviser.

PORTFOLIO MANAGERS
The Fund's portfolio managers are Gavin B. Graham and John C. Wong, who
have held such responsibilities since March 1, 1996. From 1993 to 1995 Mr.
Graham was the Senior Investment Officer for Citibank Global Asset Management
(Asia) Ltd. in Hong Kong. Prior to that, from 1991 to 1993, he was the
Investment Director and a shareholder of Connaught Investments Ltd., also based
in Hong Kong. From 1994 to 1996, Mr. Wong was with Crosby Securities marketing
and selling Asian securities to North American institutions. From 1992 to 1994
Mr. Wong was with Lehman Brothers in its mortgage-backed securities department.
Both Mr. Graham and Mr. Wong are principals of the Adviser.

ADMINISTRATOR, TRANSFER AGENT AND CUSTODIAN
PFPC Inc., an indirect, wholly owned subsidiary of PNC Bank Corp., serves
as the Company's administrator. PFPC also provides transfer agency and dividend
disbursing services to the Company. The Bank of New York serves as custodian of
the assets of the Fund. PFPC is entitled to an annual fee calculated daily and
paid monthly which will not exceed .125% of aggregate daily net assets of the
Company as compensation for its services as administrator. The principal
business address of PFPC is 400 Bellevue Parkway, Wilmington, Delaware 19809.
The principal business address of The Bank of New York is 90 Washington Street,
New York, New York 10286.

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

25
<PAGE>

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 Fund shares.

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 Commission determines that
trading thereon is restricted, or for any period during which an emergency (as
determined by the Commission) 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 Commission 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 of the Company
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 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
as well as 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 intends to continue to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code") , so
that it will not be subject to federal income tax on its earnings and capital
gains that are distributed to its shareholders. In addition, the Fund
intends to comply with the diversification requirements of the Code and
Treasury Regulations in order to maintain the tax-deferred status of the
Accounts.

26
<PAGE>

or Policies may be subject to ordinary income tax plus a 10% penalty tax if made
before age 59 1/2.

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, administrative or judicial action. As the foregoing
discussion is for general information only, a prospective investor should also
review the more detailed discussion of federal income tax considerations that is
contained in the Statement of Additional Information. In addition, each
prospective investor should consult with his own tax adviser as to the tax
consequences of investments in the Fund, including the application of state and
local taxes which may differ from the federal income tax consequences described
above.

THE TAX STATUS OF YOUR INVESTMENT IN THE FUND DEPENDS UPON THE FEATURES OF YOUR
POLICY OR CONTRACT. FOR FURTHER INFORMATION, PLEASE REFER TO THE ACCOUNT OR
POLICY PROSPECTUS.

SHAREHOLDER COMMUNICATIONS

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 slightly 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 indices of performance, including, but not
limited to, Value Line Composite, Lehman Brothers Bond, Government Corporate,
Corporate and Aggregate Indices, Merrill Lynch Government & Agency and
Intermediate Agency Indices, Morgan Stanley Capital International Europe,
Australia, Far East Index or Morgan Stanley Capital International World Index.
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, KIPLINGER'S, 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

27
<PAGE>

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 AND INDEPENDENT ACCOUNTANTS

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

28
<PAGE>
APPENDIX A
RATINGS

COMMERCIAL PAPER RATINGS

"C" - Obligations are currently vulnerable to nonpayment and are
dependent on favorable business, financial, and economic conditions for the
obligor to meet its financial obligation.

A-1
<PAGE>

"Not Prime" - Issuers do not fall within any of the Prime rating
categories.

"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.

"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.

"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.

CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS

The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:

"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.

"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.

A-2
<PAGE>

"CC" - An obligation rated "CC" is currently highly vulnerable to
non-payment.

"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.

PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.

The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:

A-3
<PAGE>

margins of protection may not be as large as in "Aaa" securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than in
"Aaa" securities.

Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, Baa1, Ba1 and B1.

The following summarizes the long-term debt ratings used by D&P for
corporate and municipal long-term debt:

"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.

"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.

"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.

A-4
<PAGE>

categories.

A-5
<PAGE>

APPENDIX B
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION AND RISK FACTORS WITH RESPECT TO
GREATER CHINA REGION COUNTRIES

The following information describes certain economic and political
developments related to the operation of the securities markets in the People's
Republic of China ("China"), Hong Kong, Taiwan, and Singapore has been extracted
from various government and private publications. The Fund and the Fund's Board
of Directors make no representation as to the accuracy of the information, nor
has the Fund or the Fund's Board of Directors attempted to verify any of it.

PEOPLE'S REPUBLIC OF CHINA

DEMOGRAPHICS AND GOVERNMENT

China's population, estimated at 1.2 billion, is the highest of any country
in the world and represents one-fifth of the human race. The most populated
sections of China are located in the north eastern half of the country where
flatter terrain and proximity to the coast and major river basins provide more
abundant resources for the cultivation of the land. The country is divided in 23
provinces, three municipalities (Beijing, Shanghai and Tianjin) and five
autonomous regions. The capital and political center of China is Beijing.
Shanghai is the largest city and is also the main commercial and financial hub.

The Chinese state originated as far back as the second millennium B.C.
Although initially quasi-feudal in nature, gradually a highly centralized,
bureaucratic system evolved, which came to characterize the Chinese political
structure and which still influences the nature and style of administration
today. In the traditional Chinese polity, the emperor was the font of authority
and sovereignty. A succession of indigenous and invader dynasties reigned until
1911 when the last dynasty collapsed. A period of political instability and
civil war ensued as the Kuomintang (Nationalist Party) first attempted to wrest
control over the country from regional warlords, then battled the emerging
Chinese Communist Party. Although this conflict eased in the face of Japanese
invasion in the 1930s, the Chinese Community Party was better able to move into
the vacuum created by Japan's surrender in 1945. Over the next four years the
Communists defeated the Kuomintang forces, who subsequently fled to Taiwan. The
Communist Party established the People's Republic of China in 1949.

For much of the next three decades the Communist government tended to veer
back and forth from rather pragmatic state socialist plans of the Russian style
to grandiose crash programs, such as the "Great Leap Forward," which not only
fell far short of its goal of jump-starting the economy into modernity but cost
millions of lives in the resulting famine. In 1966 the "Cultural Revolution"
began as a limited campaign within the party leadership but soon mushroomed out
of control, at times disrupting the economy and occasionally breaking into
virtual civil war. Quite apart from the economic damage and human suffering, the
Cultural Revolution undermined the prestige and, therefore, the authority of the
Communist Party, which has had an impact on the formulation and authority of
policy ever since.

Two years after the official end of the Cultural Revolution in 1976, the
surviving members of the Party establishment led by Deng Xiaoping, launched the
country on the path to economic reform. Although the resulting economic
transition has not always been even or free of social dislocations--as evidenced
by the student demonstrations in 1986 and 1989--reform has begun to deliver
rising living standards and a better quality of life to large parts of the
country. Despite the forceful suppression of political dissent in 1989 at
Tiananmen Square, the government has not backed away from continued economic
reform, but instead has steadily expanded the horizon to include the
establishment of securities markets, privatization of state enterprises, reform
of the banking sector and a progressive opening of the economy to foreign
investment.

In the 15th Communist Party Congress ("CPC") in October 1997, China's new
leaders led by Jiang Zemin pledged to maintain economic reforms launched by Deng
Xiaoping, who died in February 1997. The banking sector, where currently
approximately 20% of its assets are non-performing is a key sector, which the
new leaders

B-1
<PAGE>

have already started to introduce reform measures. In January 1998, the
governor of the People's Bank of China ("PBOC"), announced a series of measures
to improve the country's banking sector. This included closing many of its
provincial branches and setting up regional headquarters to enhance its
authority and supervision. These measures were aimed to make the PBOC more like
the Federal Reserve Bank in the United States, which would make it more
independent from the municipal and provincial government. In addition, banks
were also made more accountable for the loans they made, which was designed to
improve their loan portfolio and ultimately reduce the percentage of bad loans
Chinese banks have in their loan books.

China currently has diplomatic ties with approximately 140 nations. It is a
charter member of the United Nations and is seeking admission to the World Trade
Organization.

THE CHINESE ECONOMY

China established a centrally planned economy in 1949. In 1978 the
government implemented an economic reform program to create a more mixed economy
by opening it to limited foreign investment. Currently these economic reforms
allow managers of enterprises in China more autonomy in carrying on business,
including the planning of production, marketing, use of funds and employment of
staff.

The current economy in China consists of three sectors: state, cooperative,
and private. The state sector, though decreasing from 76% of GNP in 1980 to
approximately 50% in 1991, continues to constitute the largest share of the
economy. In recent years, however, the economy has been significantly
restructured through the abolition of the commune system in rural areas and the
relaxing of government authority in the day-to-day operations in both
agricultural and industrial enterprises. Although there has been a progressive
lifting of price controls, the government still sets the prices for a number of
essential goods which it controls and distributes; but any goods produced by
suppliers of government-controlled goods above the quotas that are set by the
state may be sold at floating prices, negotiated prices or free prices. As the
government assumes more of a regulatory and supervisory role and less of a
direct management role, market forces have been allowed to operate. This has
resulted in increased productivity and rising incomes.

Over the past decade, China has achieved annual growth in real gross
national product (GNP) averaging 9%. GNP in 1991 had increased to over 2.5 times
the GNP in 1980. However, as is to be expected in such a high growth
environment, there have been wide swings in the annual growth rates, with major
booms in 1984 and 1988, for example; and "growth recessions" in 1981 and 1989.
In 1988, the Chinese Government instituted an austerity program which slowed the
Chinese economy in the following year. However, growth rates increased after
1989, achieving 5.2% in 1990 and 7% in 1991, as compared to only 3.9% in 1989.

China's economic policy is set out in two overlapping plans, the 20-Year
Plan (1981-2000) and the current Five-Year Economic Plan (1996-2000). China's
first Five-Year Economic Plan was set forth in 1953 to stimulate economic growth
and development. Currently, China is in its third year of its eighth Five-Year
Economic Plan.

The 20-Year Plan calls for an average 7% growth in GNP over the entire
20-year period; the initial decade was to be a period of reorganization, with
the second decade one of rapid economic progress. The 7% mark was exceeded in
the initial decade, with growth rates averaging 9.4%. The second decade growth,
thus far, is in step with the desired growth of the 20-Year Plan. The previous
Five-Year Economic Plan called for 6% annual growth, starting in 1991; this
however, was surpassed with 10.5% growth being achieved between 1991 and 1995.

B-2
<PAGE>

The following table sets forth selected data regarding the Chinese economy.

<TABLE>
<CAPTION>
MAJOR ECONOMIC INDICATORS

1990 1991 1992 1993 1994 1995 1996 1997
----- ----- ----- ----- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Domestic Product (% annual real growth) 3.9 8.0 13.6 13.4 11.8 10.5 9.7 8.8

Per Capita GDP (U.S. $) 289.0 312.0 372.0 460.0 435.0 576.0 666.0 768
Industrial Production (% annual growth) 6.0 14.2 27.5 21.1 17.6 13.4 13.1 11.7
Inflation (retail price index, % annual growth) 2.1 3.0 5.4 13.2 21.7 14.8 6.1 0.7

Money Supply (M1, % annual growth) 28.9 27.6 30.3 21.6 26.8 16.8 18.9 22.0
Government Budget Surplus/Deficit (U.S. $ billion) (2.7) (3.9) (4.7) (5.1) (6.7) (7.0) (6.6) (6.4)
Exports (U.S. $ billion) 62.1 71.9 85.1 92.0 121.0 148.8 151.1 182.7
(% annual growth) 17.9 15.8 18.3 8.0 31.9 22.9 1.5 21
Imports (U.S. $ billion) 53.3 68.8 80.6 104.0 115.6 132.1 138.8 142.3
(% annual growth) (9.8) 191.5 26.4 29.0 11.3 14.2 5.1 2.5
Trade Balance (U.S. $ billion) 8.6 8.1 4.4 (12.2) 5.3 16.7 12.2 40.4
Exchange Rate (average RMB/U.S. $) 5.22 5.43 5.75 5.76 8.62 8.35 8.31 8.33
</TABLE>

- ---------------
* Translated at the respective exchange rate for each year shown in the table.

Sources: China Statistical Yearbook, State Statistical Bureau of the People's
Republic of China, Baring Securities, ABN AMRO, Asia Securities.

FINANCIAL REGULATION

The Ministry of Finance is responsible for overseeing state finances and
the collection of revenue and taxation. The banking system is managed by China's
central bank, the People's Bank of China ("PBOC"). The PBOC, like the Ministry
of Finance, is a state administrative body under the leadership of the State
Council. Its primary functions include the formulation of national financial
regulations and policies; the issuance of currency and regulation of its
circulation; the coordination and implementation of credit plans; overseeing the
establishment and operation of financial institutions and financial markets,
including stock exchanges; administration of China's foreign exchange and gold
reserves and adjustment of exchange rates against foreign currencies; and
administration of China's securities markets.

FOREIGN TRADE

As a result of the economic reforms commenced in 1978, China's foreign
trade has grown considerably in value, range of products and number of trading
partners. A major goal of China's trade policy is to increase the percentage of
manufactured goods in the country's total exports. Gradual progress has been
made in recent years with the aid of the imported foreign technology. China's
trade balance has fluctuated over the last five years. In 1997 China's foreign
trade yielded a foreign trade surplus of US $40.4 billion, with exports of US
$182.7 billion in 1997 representing an increase of 21% over 1996. Exports were
US $151 billion in 1996, an increase of 1.5% over 1995. Imports reached US
$142.3 billion by the end of 1997, representing a 2.5% increase over 1996. For
1996, imports stood at US $138.8 billion, an increase of 5.1% over the 1995
figure.

Total trade for 1997 was approximately US $325 billion representing an
12.1% increase over 1996. In 1996 total trade stood at US $289.9 billion up 3.2%
over 1995. From 1990 through 1992 and 1994 to 1995, China experienced trade
surpluses. In contrast, the country experienced trade deficits of $7.8 billion
and $6.6

B-3
<PAGE>

billion, respectively, in 1988 and 1989.

Hong Kong is the leading destination for Chinese exports, accounting for
over 40% of total export volume. Hong Kong is also a major re-export center for
Chinese goods. Other large export markets for China include Japan, the United
States, and Germany. Over the past few years, China's imports have continued to
expand and diversify. Hong Kong, Japan and the United States are China's top
three suppliers. Other major suppliers include Germany and Italy.

EXCHANGE RATE AND FOREIGN EXCHANGE CONTROL

There is centralized control and unified management of foreign exchange in
China. The State Administration of Exchange Control (the "SAEC") is responsible
for matters relating to foreign exchange administration, while the Bank of China
(the "BOC") is in charge of foreign exchange operations. Cooperating closely
with the BOC, the SAEC fixes the official daily exchange rate of RMB against
major foreign currencies.

There is only one type of monetary instrument in China today, the RMB. In
the past, a second type of instrument, called a Foreign Exchange Certificate
("FE") was also used, but has been withdrawn from circulation by the government.
The RMB is the official currency in China and is currently not convertible into
foreign exchange unless converted with express written authorization from the
SAEC.

While foreign investment enterprises are able to remit from China any
profits earned in foreign exchange, RMB earnings within China cannot be freely
converted into foreign exchange except at the foreign exchange adjustment
("swap") centers established by the SAEC. In order to provide some relief from
the controls imposed by the earlier foreign exchange legislation, the State
Council promulgated on January 15, 1986 the "Regulations Concerning the Balance
of Foreign Exchange Income and Expenditure of Chinese-Foreign Equity Joint
Ventures," which provide for a number of mechanisms to allow foreign investment
enterprises to balance their foreign exchange income and expenditure. These
mechanisms include the sale of joint venture products within China for foreign
exchange, the export of products purchased with RMB from Chinese enterprises to
generate foreign exchange, short-term loans and the swapping of RMB for foreign
exchange with other foreign investment enterprises and Chinese enterprises,
among others.

The exchange rate fluctuates from time to time and from swap center to swap
center depending on supply and demand. The RMB has been devalued progressively
in recent years, depreciating by almost 70% against the U.S. dollar between 1981
and 1990. During the 1990s, this general trend of depreciation has continued.

SECURITIES MARKETS

Prior to 1949, China had established rudimentary forms of securities
exchanges in Beijing, Shanghai and Tianjin. When the Chinese communist party
assumed power in 1949, China's securities markets were closed and all securities
were abolished. The Beijing, Shanghai and Tianjin securities exchanges reopened
briefly in 1950 and 1949, respectively, but were closed again in 1952.
Securities markets were nonexistent in China until the early 1980s when they
reemerged in various cities following initiation of China's economic reform
program in 1978. There currently are two officially recognized exchanges in
China, the Shanghai Securities Exchange ("SHSE"), which commenced trading on
December 19, 1990, and the Shenzhen Stock Exchange ("SZSE"), which commenced
trading on July 3, 1991. A number of organized securities markets exist in other
cities in China, but these are primarily over-the-counter markets. Initially,
shares on both exchanges were made available only to Chinese investors and were
traded only in RMB, thus avoiding the issues of repatriation of profits and the
remittance of foreign currency that would arise with the participation of
foreign investors in the market. Recently, however, these issues have been
addressed in legislation concerning a special class of shares, commonly referred
to as "B" shares, which are denominated in RMB and are offered exclusively for
investment by foreign investors and such other investors as the authorities may
approve. The first issues of "B" shares were listed and traded on the SHSE on
February 21, 1992, and on the SZSE on February 28, 1992.

B-4
<PAGE>

REGULATION AND OPERATION OF THE CHINESE SECURITIES MARKETS

Prior to the establishment of the SHSE and SZSE, trading of securities in
China was conducted in over-the-counter ("OTC") markets in a number of major
cities, including Shanghai, Chongqing, Wuhan, Guangzhou and Shenyang. The OTC
markets have no fixed location for trading; transactions are negotiated by
telephone or similar means. The SHSE and SZSE confine trading of listed shares
to the two exchanges, while unlisted stocks continue to be traded in the OTC
markets. In addition to the two exchanges and the OTC markets, a nationwide
computer system for trading of treasury bills and bonds, the Securities Trading
Automated Quotations System ("STAQ"), commenced operations on December 5, 1990
and currently links 54 licensed trading corporations in 16 cities.

Currently, trading of treasury bills constitutes the majority of the
activity in the Chinese securities markets, while trading of equity securities
constitutes only a small portion of the trading activity. The OTC markets trade
only treasury bills and equity securities that are not listed on the SHSE or the
SZSE. The SHSE and the SZSE trade both treasury bills and shares of listed
companies. Shares are divided into four types based on the type of entity
holding them: (1) State shares held by designated State entities on behalf of
the State; (2) shares held by Chinese corporations; (3) shares held by Chinese
individuals; and (4) shares held by foreign investors. The first three
categories are generally referred to as "A" shares. The fourth category is
referred to as "B" shares. State shares cannot be sold or transferred without
the approval of the State asset administrative departments. "A" shares are
quoted and traded in RMB, while "B" shares are quoted in RMB but traded in
foreign currencies (currently Hong Kong dollars and U.S. dollars).

China has not yet promulgated a national securities law. Although the State
Council has promulgated interim Regulations for Administration of Enterprise
Bonds, these regulations apply only to bonds issued by State-owned enterprises.
At the local level, however, many cities and provinces have promulgated
securities rules and regulations.

The PBOC, China's central bank, is authorized to regulate stocks, bonds and
other negotiable instruments and administer China's financial markets, and it
exercises this authority through its local branches. The State Commission for
Restructuring the Economic System has, in practice, assumed the principal role
of formulating policies for the development of the securities markets. In
addition, the Stock Exchange Executive Council, a nongovernmental organization,
plays an important advisory role in the formulation of a regulatory framework
for the national securities markets. During the 1990s, this general trend of
depreciation has continued although in late 1996 and 1997, the RMB actually
appreciated against the US dollar.

CORPORATE LAW IN CHINA

There is no national legislative framework in China providing for
regulations governing joint stock companies. However, there have been in force
in Shenzhen since February 1992 the Provisional Rules for Joint Stock Companies
in Shenzhen (the "Shenzhen Provisional Rules"). The Shenzhen Provisional Rules
include provisions governing the formation of Shenzhen joint stock companies,
issuance of shares and debentures, ownership and dealings in shares, reduction
of capital, shareholders' rights and obligations, meetings and resolutions,
directors, financial accounting, distribution and liquidation. More recently,
the Provisional Regulations for Shanghai Municipality Joint Stock Limited
Companies came into force on June 1, 1992, covering broadly the same areas as
the Shenzhen Provisional Rules.

SHENZHEN STOCK EXCHANGE

The SZSE was established in April 1991, and officially opened in July 1991.
As of December 31, 1997, 399 companies had shares listed on the SZSE, of which
354 also had "B" shares listed. Prices of "A" shares were subject to a price
fluctuation limit, but all such limits have been removed except for the Shenzhen
Champaign Company. The Shenzhen authorities have established a regulatory fund,
funded from proceeds of new issues of "A" shares, to buy and sell shares on the
open market in an attempt to minimize fluctuations of the prices of "A" shares.
In the issuance of "A" shares by the first company to which this regulatory fund
was introduced, an amount equal to 5% of the aggregate "A" share premium was
required to be paid into the fund. It is expected that a similar percentage will
be required for future new issues.

B-5
<PAGE>

MARKET INDEX. The performance of the "B" shares on SZSE is measured by the
Shenzhen Stock Exchange B Index. The Index stood at 111.87 on December 31, 1992,
and at 141.44 on December 31, 1993. Since December 31, 1993 the Index has
declined to 98.97 on December 31, 1997 before rising to 145.48 on December 31,
1996 and subsequently fell again to 98.97 on December 31, 1997. This fluctuation
reflects the volatility of the market accentuated by the credit tightening
policy in China and its subsequent relaxation and the illiquidity of the market.

MEMBERSHIP. The SZSE operates on a membership system. Membership is
restricted to securities institutions approved by PBOC. As of February 29, 1996,
there were 554 members admitted to SZSE and on December 31, 1994 there were 550
members, consisting of banks, finance companies, securities companies, insurance
companies and trust and investment companies. All are either Shenzhen local
companies or Shenzhen branches of national companies. Securities institutions in
Shenzhen may join the Joint Meeting of Shenzhen Securities Institutions, whether
or not they are members of the SZSE. This self-governing organization was formed
in August of 1990 to facilitate communication among securities institutions and
to strengthen self-discipline among members.

REGULATION. The SZSE is regulated by the PBOC, Shenzhen Special Economic
Zone Branch and the local government in Shenzhen. The Shenzhen Municipal
People's Government promulgated the Provisional Measures of Shenzhen
Municipality for Administration of the Issue and Trading of Shares (the "SZSE
Measures"), which became effective on June 15, 1991 and govern the establishment
of the SZSE and the issuance and trading of shares in Shenzhen. The issuance and
trading of "B" shares in Shenzhen are governed by the Provisional Measures of
Shenzhen Municipality for Administration of Special Renminbi-denominated Shares,
which became effective on December 16, 1991. These measures are supplemented by
a set of Detailed Implementing Rules which also became effective on December 16,
1991. In addition, Provisional Rules of Shenzhen Municipality for Registration
of Special Renminbi-denominated Shares were promulgated by the Shenzhen
Securities Registrars Co., Ltd. on January 29, 1992, and Operating Rules of the
Shenzhen Securities Exchange for Trading and Clearing of "B" shares were
promulgated by the SZSE on January 31 1992. These rules provide detailed
regulations relating to the issuance, trading, settlement and registration of
"B" shares.

NEW ISSUES AND LISTING CRITERIA. Shares of local Shenzhen companies may
either be listed on the SZSE or traded on the OTC markets. In accordance with
the SZSE Measures and the Shenzhen Provisional Rules, an issuer must meet the
following requirements when making a public share issue: (i) it must have
obtained prior approval from the relevant authorities to be and have been
established as or converted into a joint stock company; (ii) its production and
operations must comply with Shenzhen's industrial policies; (iii) it must have a
good financial and business record and net assets of at least RMB 10 million;
(iv) for the year prior to applying for authorization to issue shares, the value
of its net tangible assets must have accounted to no less than 25% of its gross
tangible assets; (v) its promoters must subscribe for at least RMB 5 million
worth of shares, representing no less than 35% of its total share capital; (vi)
the number of shares to be issued to the public, i.e., investors other than
specially designated individuals, must be equal to at least 25% of its total
share capital; (vii) it must have a minimum of 800 shareholders following the
issue; (viii) within three years prior to the proposed issue neither the company
nor its promoters may have any record of illegal activities or activities
counter to the public interest; and (ix) the shares subscribed by the employees
of the company cannot exceed 10% of the shares issued to the public and such
shares are not assignable for a period of one year, thereafter, assignment of
such shares may not exceed 10% of the shareholder's holding during any half year
period.

All public share issues must be handled by securities distributors. Issues
of over RMB 30 million must be distributed by a syndicate made up of at least
three members. Issues of over RMB 50 million must be distributed by a syndicate
made up of at least five members.

In order to qualify for listing on the SZSE, companies must meet additional
requirements which are more stringent than those for public share issues. Such
additional requirements include: (i) the total par value of shares of common
stock actually issued must be more than RMB 20 million; (ii) there must have
been a minimum return on capital of more than 10% in the year preceding listing
and more than 8% over the two years prior to the year preceding the listing;
(iii) the number of registered shareholders must exceed 1,000, and the total
number of shares held by shareholders holding less than 0.5% of the company's
shares must account for more than 25% of the total

B-6
<PAGE>

paid-up share capital; (iv) the company must have a continuous record of making
profits and must have a business record of more than three years; and (v) for
the year prior to applying for listing, the value of the net tangible assets
must have accounted for more than 38% of its gross tangible assets and there
must be no accumulated losses.

Application for a public share issue must be made to the PBOC, Shenzhen
Special Economic Zone Branch. Application for listing on the SZSE must be made
to the PBOC, Shenzhen Special Economic Zone Branch and the SZSE. A company's
prospectus for initial share issue must be published in a newspaper or other
publication approved by the PBOC, Shenzhen Special Economic Zone Branch, ten
days prior to the scheduled issuance date, which must include: (i) the name and
domicile of the company; (ii) the scope of the company's production and
business; (iii) resumes of the promoters or directors and the managers; (iv) the
reason for and purpose of the share issue; (v) the total amount, class(es) and
number of shares to be issued, and the par value and selling price of each
share; (vi) the method of issue; (vii) the investors to whom the issue is
marketed; (viii) the name(s) of the securities distributor(s), the total value
of the shares to be distributed and the method of distribution; (ix) details of
the company's history and conditions for future development, its main business
and financial situation, and the total amount and composition of its assets and
liabilities; and (x) a certified profit forecast.

A company applying for a further issue of shares must satisfy the relevant
authorities that the following conditions have been met: (i) its business record
since the time of the last issue must have been good, and its utilization of
capital must be above average in its line of business; (ii) not less than one
year must have elapsed since its last share issue; (iii) the amount of shares it
is applying to issue must not exceed the amount of its existing shares; (iv) its
application of the proceeds of the issue must conform to the industrial Policies
of Shenzhen; and (v) the issue will be beneficial to the healthy development of
the Shenzhen securities markets. Applications for approval to issue shares for
the purpose of attracting foreign investment are not bound by (ii) and (iii).

For a discussion of recent developments in the securities markets in China,
see "The Fund's Investments in the Greater China Region--People's Republic of
China--Securities Markets" in the Prospectus.

NEW ISSUES CRITERIA FOR "B" SHARES IN SHENZHEN. A company wishing to issue
"B" shares in Shenzhen must comply with the following requirements: (i) it must
fulfill the issue requirements specified in the SZSE Measures, (ii) it must
obtain written consent from the relevant department of the State to utilize
foreign investment or to transform into a foreign investment enterprise, and its
use of proceeds from the "B" share issue must conform to the laws and
regulations of the State concerning the administration of foreign investment;
(iii) it must have a stable, adequate source of foreign exchange revenue
(sufficient to pay out the "B" share dividends and bonuses for each year); (iv)
the percentage of "B" shares (including promoters' share holdings) to the total
shares of the company must not exceed the upper limit set by the PBOC, Shenzhen
Special Economic Zone Branch; and (v) the company must have a business record of
three years or more, or have received special permission from the PBOC, Shenzhen
Special Economic Zone Branch. (Companies in high technology industries or other
special industries are not bound by this restriction.)

Subscription for "B" shares is carried out through authorized securities
institutions within Shenzhen Municipality. These institutions may arrange for
the participation of overseas securities institutions approved by the PBOC,
Shenzhen Special Economic Zone Branch. The holding by any foreign investor of
"B" shares of a joint stock company accounting for more than 5% of such
company's total shares must be reported to the PBOC, Shenzhen Special Economic
Zone Branch. Domestic securities institutions are not allowed to trade "B"
shares for their own accounts unless approved BY the PBOC, Shenzhen Special
Economic Zone Branch.

The issuance of "B" shares through a syndicate underwriting on behalf of
the issuer must be managed by at least one authorized domestic securities
institution. The issue price of "B" shares may not be lower than the issue price
of "A" shares of the same company. During the distribution period, distributors
must sell the shares at the same pre-determined price.

An issuer may request private placement of its "B" shares with institutions
outside China with which it has close business connections, provided that such
institutions are approved by the PBOC, Shenzhen Special Economic Zone Branch and
the number of shares privately placed with them does not exceed 15% of the total
number of "B" shares in such issue.

B-7
<PAGE>

REPORTING REQUIREMENTS. Within 60 days following the end of each half of
the fiscal year, an issuer is required to submit an interim financial report,
reviewed and approved by an accounting firm, or its annual financial report,
audited by an accounting firm, to the PBOC, Shenzhen Special Economic Zone
Branch and to publish the same in a newspaper or other publication approved by
the PBOC, Shenzhen Special Economic Zone Branch. Such financial reports must
also be submitted to the SZSE if the issuer's securities are already listed on
the SZSE.

INSIDER TRADING RESTRICTIONS. All persons are prohibited from using
insider information when engaging in the purchase or sale of securities.

SHANGHAI SECURITIES EXCHANGE

The SHSE was established on November 26, 1990 and officially opened on
December 19, 1990. Trading began on the SHSE during the later part of 1991.
Prior to the establishment of SHSE, an active OTC market in local stocks and
bonds existed in Shanghai.

MARKET INDEX. The performance of the "B" shares on the SHSE is measured by
the Shanghai Stock Exchange B Index. This Index stood at 66.22 on December 31,
1992, and at 103.15 on December 31, 1993, before falling to 47.69 on December
31, 1995. It then rose to 67.03 on December 31, 1996 and subsequently fell again
to 55.88 on December 31, 1997. This fall reflects the volatility of the market
accentuated by the credit tightening policy in China and its relaxation and the
illiquidity of the market.

MEMBERSHIP. The SHSE operates on a membership system. Membership is
restricted to securities institutions approved by the PBOC. As of December 31,
1997, there were 422 members admitted to the SHSE, 50 of which are foreign
institutions. The SHSE members are comprised of securities companies, insurance
companies, trust and investment companies and open credit cooperatives. Members
of the SHSE must join the Securities Trade Association, which is a
self-governing trade organization whose articles of association specify such
matters as the purpose, nature, conditions for membership, rights and
obligations of members and accounting of the Association. The SHSE members may
be classified as (1) members who trade for others' accounts; (2) members who
trade for their own accounts only; or (3) members who trade both for their
clients and for their own accounts. No member may buy or sell any listed
securities outside the SHSE without permission.

REGULATION. The SHSE is regulated by the local branch of the PBOC and the
local government in Shanghai. The Shanghai Municipal People's Government adopted
the Measures of Shanghai Municipality for Administration of the Trading of
Securities (the "SHSE Measures"), which came into effect on December 1, 1990 and
govern the establishment of the SHSE and the issuance and trading of securities
in Shanghai. In November of 1991, special regulations contained in the Measures
of Shanghai Municipality for the Administration of Special Renminbi-denominated
Shares and their Detailed Implementing Rules were promulgated by the PBOC and
the Shanghai Municipal People's Government relating to the issue of "B" shares
in Shanghai. Special rules for the trading and settlement of "B" shares were
also enacted in February 1992.

NEW ISSUES AND LISTED CRITERIA. To issue new securities, an issuer must
file an application with the PBOC, Shanghai Branch, along with the issuer's
articles of association, a prospectus to be used in offering the securities
which meets the requirements of the SHSE Measures and other related documents.
Issues of shares, or bonds of a value of RMB 10 million or more, must be
distributed by a securities institution, unless otherwise provided by the State
or placed privately. Issues with a total distribution value of RMB 30 million or
more must be jointly distributed by a distribution syndicate formed and led by a
securities company. Distribution of securities includes the underwriting of
securities and the placement of securities by an agent.

Under the SHSE Measures, an issuer which intends to issue its shares must
submit: (i) the consent from the relevant authorities as to the establishment or
restructuring of the enterprise as a joint stock company; (ii) in the case of a
newly-established joint stock company, an investment certificate evidencing that
its organizers have subscribed for not less than 30% of the total amount of
shares; (iii) in the case of State-owned enterprise being restructured as a
joint stock company, a confirmation of asset valuation issued by the
Administration for State Assets with a report on the conclusions from the asset
valuation issued by the relevant asset valuation agency, or, in the case of a
non-State-
B-8
<PAGE>

owned enterprise being restructured as a joint stock company, a report on the
conclusions from the asset valuation issued by an accounting firm and a
registered accountant of that firm; (iv) in the case of an existing joint stock
company issuing shares in order to increase its capital, financial statements of
continuous profits during at least the preceding two years and the preceding
quarter of the current year, certified by an accounting firm and a certified
accountant of that firm, and a shareholders' resolution authorizing the issue;
and (v) an application for share issue to the PBOC, Shanghai Branch, along with
its articles of association, the prospectus to be used for the share issue, a
distribution contract entered into with a securities distributor and, if the
shares are to be issued to raise funds for fixed asset investment, the approval
document(s) from the relevant administrative department(s). In addition, where
the issuer also intends to list shares on the SHSE, it must submit (i) an
application for the listing of and permission to deal in securities; (ii) a
report on the listing of the securities; (iii) consent from at least one
securities house to assist in the trading of the securities; and (iv) financial
statements of continuous profits for at least two years, certified by an
accounting firm and a registered accountant of that firm.

For a discussion of recent developments in the securities markets in China,
see "The Fund's Investments in the Greater China Region--People's Republic of
China--Securities Markets" in the Prospectus.

NEW ISSUES AND LISTING CRITERIA FOR "B" SHARES ON THE SHSE. A company
wishing to issue "B" shares to be listed on the SHSE must comply with the
following requirements: (i) it must be an approved joint stock company which has
been registered with the relevant State authority or whose establishment has
been approved and has met all the listing requirements set forth in the SHSE
Measures; (ii) the proceeds from the issuance of the "B" shares must be used in
accordance with State policies and regulations on the administration of foreign
investment; (iii) it must have a stable, adequate source of foreign exchange
revenue (i.e., sufficient to pay out the "B" share dividends); and (iv) the
percentage of "B" shares among the total shares of a former state-owned
enterprise reorganized as a joint stock company must not exceed the upper limit
set by the PBOC, Shanghai Branch.

Subscription for "B" shares is carried out through approved securities
institutions. Approved domestic securities institutions may arrange for
participation by foreign securities institutions approved by the PBOC, Shanghai
Branch. Approval by the Shanghai Branch of the PBOC is required for the
subscription by a single investor for "B" shares which exceed 5% of the total
issued share capital of a company. In addition, "B" share trading must be
carried out by approved securities institutions and be processed through a
domestic securities house which is in the business of dealing in "B" shares.
Every investor dealing in "B" shares must open a "B" share securities account
with the SHSE. Domestic securities dealing organizations may open such "B" share
securities accounts on behalf of individuals and institutional investors outside
of China. Domestic securities institutions may not engage in "B" share business
for their own account.

The issuance of "B" shares in Shanghai may be through a public offering or
a private placement. A public offering must be conducted on behalf of the issuer
by an approved securities institution. The issuance of "B" shares through a
distribution syndicate must be managed by a domestic securities institution. The
prospectus for an issue of "B" shares must be published in a newspaper or other
publication approved by and on dates designated by the PBOC, Shanghai Branch.

REPORTING REQUIREMENTS. Once securities are approved for listing on the
SHSE, the issuer must publish the report on the listing of the securities and
certified financial statements showing continuous profits for at least two years
preceding the listing. Issuers of listed securities are required to submit
interim financial reports to the PBOC, Shanghai Branch in the middle of each
fiscal year. Issuers of securities traded on the OTC markets or the SHSE are
required to submit certified financial reports at the end of each fiscal year.
Such reports are required to be submitted within 45 days after the end of the
relevant period.

Within 15 days after the occurrence of any of the following situations, an
issuer of securities must submit a status report to the PBOC, Shanghai Branch,
and the SHSE if the securities of such issuer are listed on the SHSE: (i) the
conclusion with another party of a contract or agreement that will have a
material effect on the assets or liabilities of the enterprise or the rights and
interests of its shareholders; (ii) a major change in the business items or
forms of business of the enterprise; (iii) the making of a decision on a major
or relatively long-term investment; (iv) the incurring of major debts or losses;
(v) major losses of the assets of the enterprise; (vi) a major change in the
production or business environment; (vii) a change in the members of the board
of directors or senior management

B-9
<PAGE>

personnel; (viii) a change in the share holdings of shareholders who hold 5% or
more of the total amount of shares or a change in the share holdings in the
company of the members of the board of directors or senior management personnel;
(ix) involvement in a major lawsuit; (x) the making of such major policy
decisions as on merger, consolidation, etc.; and (xi) commencement of
liquidation or bankruptcy reorganization.

The trading and registration of transfer of registered shares will be
suspended 10 days before each announced date for payment of dividends or bonuses
or the issuance of new shares. Under the SHSE Measures, if the transfer
registration procedures are not completed within the specified time limits, the
dividends, bonuses and newly issued shares will be issued to the persons in
whose name the securities were registered at the time of such distribution or
issuance.

INSIDER TRADING RESTRICTIONS. Certain persons involved in the issuance of
shares, such as relevant personnel of the PBOC, Shanghai Branch, who are
involved in securities administration, management personnel of the SHSE,
personnel of a securities house who are directly connected with the issue and
trading of shares and other insiders connected with the issue and trading of
shares are prohibited from trading, directly or indirectly, for their own
account.

TRADING AND REGULATION OF SHARES

TRADING OF "B" SHARES ON THE SZSE. Trading on the SZSE is conducted in
blocks of 2,000 shares. Trading in "B" shares may only be conducted between
non-Chinese investors. Investors outside China must trade "B" Shares through
approved foreign brokers who in turn instruct approved Shenzhen brokers who
actually effect trades on the SZSE. All trades must be transacted on the trading
floor; no off-market transactions are allowed. Trading on the SZSE is carried
out through a computerized automatic matching system which effects each
transaction based on price and time priority. Investors subscribing for or
buying "B" shares are required to produce their individual or corporate
identification documents, while individual investors must also pay a deposit
equal to 60% of the market price of the shares to be bought.

Commissions for transactions in B shares are fixed at 0.6% of the purchase
price. A stamp duty of 0.3% of the purchase price is also payable. In addition,
the SZSE imposes a transaction levy of 01% of the actual transaction amount. A
share transfer registration fee of 0.3% of the face value of the "B" shares
transferred is also payable by the buyer to the Official registrar of the "B"
shares. Certain other fees may also be payable to the clearing and settlement
bank and foreign brokers for their services.

Any single investor holding "B" shares amounting to more than 5% of the
total share capital of an issuer must rep on such holding to the PBOC, Shenzhen
Special Economic Zone Branch. Short selling of "B" shares is prohibited. Newly
purchased "B" shares may not be sold before the settlement and registration
procedures for their purchase are completed.

TRADING OF "B" SHARES ON THE SHSE. In Shanghai, "B" shares are traded in
blocks having a total face value of RMB 1,000. "B" shares may only be traded
between non-Chinese investors. Investors outside of China must trade "B" shares
through approved foreign brokers who instruct approved Shanghai brokers who then
actually effect trades on the SHSE. All trades must be transacted on the trading
floor; no off-market transactions are allowed.

Brokerage commissions for "B" share transactions are fixed at 0.6% of the
total amount of the transaction, with reduced rates of 0.5%, for transactions
with a value of RMB 500,000 and 0.4% with a value exceeding RMB 5,000,000. A
stamp duty of 0.3% of the amount of the transaction is also charged. The SHSE
also levies a transaction fee on securities dealers equal to 0.03% of the amount
of the transaction. A transfer fee of 0.1% of the face value of the shares
transferred is also payable by the investor. Certain other fees may also be
payable to the banks appointed to coordinate primary and secondary clearing and
settlement and to foreign brokers for their services. Fees are calculated in
renminbi and payable in U.S. dollars.

Any single investor (individual or institutional) purchasing "B" shares of
an amount exceeding 5% of the issuer's total share capital must obtain approval
for such purchase from the PBOC. Newly purchased "B" shares cannot be sold
before the transfer procedures for their purchase are completed.

B-10
<PAGE>

Trading in "B" shares is executed using an automatic book-entry transfer
system. Orders are matched automatically by computer by price and time priority.
Market and trading information is transmitted through telecommunication links by
an international information agency from the SHSE to overseas countries on a
real time basis.

CLEARING AND SETTLEMENT OF "B" SHARES. In both Shenzhen and Shanghai,
clearing and settlement of "B" share transactions are effected on the third day
after the trade date. All clearing and settlement of "B" shares are effected in
a scrip less manner, through a book-entry clearinghouse system. No such
certificates are issued to investors. Cash settlement is effected on a broker to
broker, transaction by transaction basis.

All "B" share prices and all dividends, bonuses and other income on "B"
shares are calculated in RMB but paid in foreign currency (Hong Kong dollars or
U.S. dollars). RMB amounts are converted to Hong Kong dollars or U.S.A. dollars
at the weekly weighted average conversion rate as quoted by the Shanghai Foreign
Exchange Transaction Center or the Shenzhen Foreign Exchange Adjustment Center
(with the exception of share sale prices in Shenzhen which are converted at the
prior working day's Conversion rate).

HONG KONG

Hong Kong became an island colony of Great Britain in 1841. Since that
time, Hong Kong remains China's largest trade partner and its leading foreign
investor. In 1995, the value of trade between Hong Kong and China exceeded
HK$1,239 billion, representing a 15% increase over 1994. In 1994, visible trade
between Hong Kong and China exceeded HK$1,077 billion, representing a 15%
increase over 1993.

The structure of Hong Kong's economy has changed significantly over the
last two decades as the services sector outpaced manufacturing. Large numbers of
Hong Kong based companies have set up factories in the southern province of
China, where it is estimated that Hong Kong companies employ up to 3 million
resident Chinese workers.

CHINA'S INVESTMENTS IN HONG KONG

There has been considerable growth in Chinese investment in Hong Kong in
the last five years. Chinese investment in Hong Kong typically involves the
purchase of stakes in existing companies. Most of Hong Kong's manufacturing
investment has been in Guangdong Province, and more than 3 million workers are
now estimated to be employed in the Province by Hong Kong companies. 1994
figures reflect the extent to which Southeast China, and Guangdong Province in
particular, is ahead of the rest of the country in economic performance. Its
industrial output grew by over 32% during 1994; exports increased by more than
73% during 1994 following a 46% growth in 1993. In 1994 Guangdong Province
accounted for some 39% of total exports and for more than 9.4% of GDP although
having only 5.5% of the population.

In an effort to accommodate the colony's infrastructure to the sustained
15% annual trade growth with southern China, the Hong Kong government in 1989
unveiled PADS, the Port and Airport Development Strategy. The project, initially
estimated to cost $21 billion, is designed to allow Hong Kong's cargo handling
capacity to increase by four times between 1998 and 2011 and its air traffic
handling capacity to increase from 15 million passengers in 1998 to 50 million
in 2011. In September 1991, Hong Kong and China concluded the Sino-British
Memorandum of Understanding, providing a framework for the PADS project. The
project is currently scheduled to be completed by 1998.

FOREIGN INVESTMENT RESTRICTIONS

There are no regulations governing foreign investment in Hong Kong. There
are no exchange control regulations and investors have total flexibility in the
movement of capital and the repatriation of profits. Funds invested in Hong Kong
can be repatriated at will; dividends and interest are freely remittable.

B-11
<PAGE>

HONG KONG SECURITIES MARKETS

Formal trading of investment securities was established in Hong Kong in
1891 when the Association of Stockbrokers in Hong Kong was formed. It was
renamed the Hong Kong Stock Exchange in 1914. In 1969, the Far East Exchange was
formed, followed by the Kam Ngan Stock Exchange in 1971 and the Kowloon Stock
Exchange in 1972. These four exchanges merged to form The Stock Exchange of Hong
Kong Ltd. ("Hong Kong Stock Exchange" or "HKSE"), which commenced trading on
April 2, 1986.

The HKSE is now the second largest stock market in Asia, behind only that
of Japan. As of December 31, 1997, 658 companies and over 1,533 securities
(including warrants and other derivative instruments) were listed on the HKSE.
Market capitalization as of the same date was approximately HK$3,203 billion, an
decrease of approximately 7.85% from the previous year. Average daily turnover
on the HKSE for 1997 was HK$15.5 billion compared with HK$5.6 billion for 1996.

In addition to an active stock market, Hong Kong has an active foreign
exchange market, an interbank money market, a large gold bullion market and a
futures exchange. Hong Kong is also one of the major Asian centers to venture
capital businesses, many of such businesses having their Asian head office in
Hong Kong.

The table below sets out selected data on the Hong Kong Stock Exchange to
each year since 1986, including the value to securities traded during each year,
and the number of companies and securities listed and the total market
capitalization as of December 31 of each year.

<TABLE>
<CAPTION>
SELECTED DATA ON THE HKSE

YEAR (H.K. $ (U.S. $ LISTED LISTED (H.K. $ (U.S. $
---- MILLION) MILLION) COMPANIES SECURITIES MILLION) MILLION)
------- -------- --------- ---------- ------- --------
VALUE OF SECURITIES TRADED DECEMBER 31 MARKET CAPITALIZATION
-------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
1986 123,128 15,786 253 335 419,281 53,754
1987 371,406 47,616 276 412 419,612 53,796
1988 199,481 25,574 304 479 580,378 74,446
1989 299,147 38,352 298 479 605,010 77,565
1990 288,715 37,015 299 520 650,410 83,386
1991 334,104 42,834 357 597 1,052,012 134,873
1992 700,577 90,569 413 749 1,332,184 172,221
1993 1,222,675 156,753 477 891 2,975,379 381,459
1994 1,137,414 145,822 529 1,006 2,085,182 267,331
1995 826,801 106,000 542 1,033 2,348,310 301,065
1996 1,400,000 180,645 585 1,000 3,476,000 449,000,000
1997 3,875,000 500,000 658 1,533 3,203,000 414,000,000
</TABLE>

- ----------------
Source: HKSE.

MARKET PERFORMANCE. The Hang Seng Index is the most widely followed
indicator of stock price performance in Hong Kong. The Hang Seng Index is an
arithmetic index based on the securities of 33 companies, weighted by their
respective market capitalizations, and is thus strongly influenced by large
capitalization stocks.

B-12
<PAGE>

The following table sets out high, low and end of year close for the Hang
Seng Index for each year since 1986.

HANG SENG INDEX

YEAR HIGH LOW YEAR-END % CHANGE
---- ----- --- --------- FROM PRIOR
PERIOD-END
----------
<S> <C> <C> <C> <C>
1986 2,568.3 1,559.4 2,568.3 --
1987 3,949.7 1,894.7 2,302.8 (10.3)
1988 2,772.5 2,223.0 2,687.4 16.7
1989 3,309.6 2,093.6 2,836.5 5.5
1990 3,559.9 2,736.6 3,024.6 6.6
1991 4,297.3 2,984.0 4,297.3 42.1
1992 6,447.1 4,301.8 5,512.4 28.3
1993 11,888.4 5,437.0 11,888.4 115.7
1994 12,201.1 7,702.8 8,191.0 (31.1)
1995 10,173.4 6,967.9 10,173.4 23.0
1996 13,531.0 10,204.9 13,451.5 33.5
1997 16,673.3 9,059.9 10,722.8 (20.3)
</TABLE>

- ---------------
Source: HKSE.

The Hong Kong stock market can be volatile and is sensitive both to
developments in China and to the strength of other world markets. As an example,
in 1989, the Hang Seng Index rose to 3,310 in May from its previous year-end
level of 2,687, but fell to 2,094 in early June following the events at
Tiananmen Square. The Hang Seng Index gradually climbed in subsequent months,
but fell by 181 points on October 13, 1989 (approximately 6.5%) following a
substantial fall in the U.S. stock market, and at the year end closed at a level
of 2,837. The Hang Seng Index rose to as high as 16,673 on August 7, 1997
following the handover of Hong Kong to China, but sank to as low as 8,121 on
January 12, 1998 as the Southeast Asian and Korean economic and financial crisis
shook confidence throughout the region.

TRADING. Trading on the HKSE is conducted through a computerized system to
convey bid and asked prices for securities. Trades are then effected on a
matched trade basis directly between buyers and sellers. All securities are
traded in board lots. The HKSE utilizes the Central Clearing Automated
Settlement System for 90% of the settlement of its executed trades. The
remaining 10% of trade settlement is settled by the delivery of physical stock
certificates. For most companies a board lot is 1,000 shares, although board
lots can vary in size from 100 to 5,000 shares. Odd lots are traded separately,
usually at a small discount to the board lot prices. Share certificates in board
lots, together with transfer deed, must be delivered on the day following the
transaction. Payment is due against delivery. As of June 1995, a brokerage
commission of not less than 0.25% (with a minimum of H.K. $50) is standard, and
trades are subject to a transaction levy of 0.013% payable equally to the HKSE
and the Hong Kong Securities and Futures Commission (the "SFC") and a special
levy of 0.03%. The Hong Kong government charges (i) an ad valorum stamp duty of
H.K. $1.50 per HK $1,000 value of transaction, and (ii) a transfer deed stamp
duty of HK$5, payable by the seller on each new transfer deed issued in
connection with securities sold. A transfer fee of HK$2 per board lot of shares
is payable by the purchaser of securities for each new certificate issued.
Finally, effective July 1, 1994, a trade tariff of HK$0.50 is levied on each
HKSE transaction.

REGULATION AND SUPERVISION. The SFC was established by the Hong Kong
government in May 1989 as an autonomous statutory body outside the civil service
which provides a general regulatory framework for the securities and futures
industries. The SFC administers certain elements of Hong Kong securities law
including those ordinances governing the protection of investors, disclosure of
interests and insider dealing.

The governing authority of the Hong Kong Stock Exchange is its Council,
which is comprised of 30 members. The Council is responsible for formulating
policies and oversees the operations of the HKSE through standing committees.
Eighteen Council members are representatives of the brokerage firms in Hong
Kong, nine are

B-13
<PAGE>

representatives of investment and merchant banking firms and two are appointed
by the Hong Kong government. The chief executive officer of the HKSE serves on
the Council on an ex-officio basis.

The HKSE promulgates its own rules governing share trading and disclosure
of information to shareholders and investors. Companies listed on the HKSE enter
into a listing agreement with the exchange which includes provisions requiring
that listed companies send interim and annual accounts to shareholders. In
addition, the Hong Kong Code on Takeovers and Mergers (used by the SFC) provides
guidelines for companies and their advisers contemplating, or becoming involved
in, takeovers and mergers.

TAIWAN

DEMOGRAPHICS AND GOVERNMENT.

Taiwan is located approximately 90 miles east of the People's Republic of
China (for purposes of this section only, the "PRC"), 340 miles northeast of
Hong Kong. The island encompasses an area of approximately 13,900 square miles
with a total population estimated at 20.9 million as of December 31, 1993. With
an average of approximately 1,498 people per square mile, Taiwan is among the
most densely populated countries in the world. The largest cities are Taipei, in
the north, with over 2.7 million people, and Kaohsiung, in the south, with over
1.37 million people. Mandarin is the official language.

The Republic of China ("ROC") was established in 1912 by the Kuomintang
(Nationalist Party) (the "KMT") in mainland China and remained there until 1949
when General Chiang Kai-Shek, the elected president at that time, moved the ROC
administration to Taiwan. Since that time, the ROC has maintained that it is the
sole legitimate government of all of mainland China, Taiwan and Mongolia, while
the PRC has also asserted the same claim.

The KMT is currently headed by Lee Teng-Hui, who was elected President and
Chairman in 1988. He was re-elected in March 1990 and again in March 1996 for
another term as President. Taiwan maintains formal diplomatic relations with 30
countries. Taiwan is not a member of the United Nations and various other
international organizations, but is a member of the Asian Development Bank.
Taiwan has applied to rejoin the General Agreement of Tariffs and Trade
("GATT"), from which it withdrew in 1950. Taiwan joined the Asia-Pacific
Economic Cooperation group ("APEC") in November 1991. In August 1993,
disaffected members of the KMT created a new political party called the Chinese
New Party which seeks to return Taiwan to full membership in the international
community. Opposing political parties whose platforms are consistent with the
ROC constitution are officially recognized in Taiwan.

The United States Congress passed the Taiwan Relations Act in 1979 to
establish a new framework for U.S./Taiwan relations and since that time the U.S.
remains Taiwan's largest trading partner. Taiwan enjoyed a cumulative trade
surplus of US $7.9 billion and US $6.3 billion with the U.S. in 1993 and 1994,
respectively.

ECONOMIC DEVELOPMENT. Taiwan's economic growth has been strong from 1984
to 1994, never falling below 5% during that period. In the 1990's, GNP growth
rates were 7.2%, 6.2%, 6.0%, 5.9%, 5.7% and 6.17% in 1991, 1992, 1993, 1994,
1995, and 1996 and 1997 respectively. Domestic demand has increased in recent
years, although Taiwan's exports also continue to grow, reaching 10.3% in 1993
and 8.6% in 1994.

B-14
<PAGE>

The following table provides details of the overall economic performance of
Taiwan from 1987 to 1995.

TSE
TRADE MARKET
GDP SURPLUS TSE CAPITAL
EXCHANGE RATE GROWTH (US $ YEAR-END (US $
AV. US $ (%) CPI BILL.) P/E CLOSING BILL.)
------------- ------ --- ------- --- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1987 31.85 12.7 0.5 18.7 28.7 2,339 48.45
1988 28.57 7.8 1.3 11.0 68.9 5,119 120.1
1989 26.41 8.2 4.4 14.0 92.0 9,624 240.0
1990 26.39 5.4 4.1 12.5 33.0 4,530 112.4
1991 25.50 7.6 3.6 13.3 28.0 4,601 123.7
1992 25.20 6.8 4.5 9.5 30.1 3,377 100.1
1993 26.50 6.3 2.9 7.9 39.7 6,071 194.1
1994 26.45 6.5 4.1 11.9 33.5 7,125 247.0
1995 26.44 6.1 3.7 11.0 19.5 5,159 192.0
1996 27.49 5.71 3.07 3.57 28.27 6933 266.35
1997 32.55 6.72 0.9 7.64 27.04 8187 300.98
</TABLE>

The major sources of Gross Domestic Product ("GDP") have been
manufacturing, commerce, finance, insurance, real estate and business services
and government services, which together accounted for roughly 76% of GDP in
1994. During the past decade, the most significant trends in the composition of
GDP have been (1) the decline in the agricultural and construction sectors as
percentages of the total economy, and (2) the growth until 1989 in the relative
importance of manufacturing and services.

The New Taiwan Dollar ("NT") is the official currency in Taiwan. Taiwan's
favorable trade balance and increased foreign exchange reserves since 1984 have
caused appreciation of the NT. In 1987, the NT appreciated approximately 24.4%
against the U.S. Dollar, and further appreciated by 8.1% between 1988 and 1994.
Taiwan's exports to the U.S. have continued at high levels during this period,
in part because the appreciation of the NT has been at relatively lower levels
than the appreciation of the Japanese yen against the U.S. Dollar.

Unemployment in Taiwan remained low in the 1990's, with average rates below
2% in the early 1990's, before rising to almost 3% in 1996.

In 1994, the Taiwan government began exerting all efforts toward the
development of the "Ten Emerging industries": telecommunications, information,
consumer electronics, semiconductors, precision machinery and automation,
aerospace, advanced materials, fine chemicals and pharmaceutical, health care,
and pollution control. The production value of these 10 industries in projected
to rise from US $27.3 billion in 1992 to US $94.2 billion in 2000. These 10
industries accounted for 15.5% of all industrial production in 1992 and are
projected to reach 29.4% in 2000.

In 1995, the Taiwan government offered a blueprint for Asia-Pacific
Regional Operations Center. Development plans have been set for six specific
operations centers, including manufacturing center, sea transportation center,
air transportation center, financial center, telecommunications center and media
center. The key areas of macroeconomics adjustments to reach these goals
include: (1) liberalizing trade and investment to lower tariffs, remove
non-tariff trade barriers, and open up the service industry; (2) reducing entry
and exit restrictions on personnel to allow foreign professionals and
specialists to engage in short-term stay and work in Taiwan; (3) easing
restrictions on capital movement to liberalize foreign exchange control in
stages; and (4) establishing a modern legal environment for the information
society. This includes allowing free circulation of information and the use of
government information, protecting intellectual property rights, and preventing
computer crimes.

TAIWAN'S INVESTMENTS IN MAINLAND CHINA AND HONG KONG

Indirect trade between Taiwan and mainland China has increased
significantly during the 1990s, despite Taiwan's policy of no official contact
with the PRC. In 1991, trade between Taiwan and PRC (primarily through

B-15
<PAGE>

Hong Kong) increased 44% from the previous year, to US $14.4 billion. In 1992,
there was a 19.4% increase over the 1991 figure, and in 1993, trade increased
14.8% to approximately US $20.2 billion. In 1994, trade increased 15.2% over the
1993 figure. In 1991, Taiwan established new procedures pursuant to which Taiwan
investors may register proposed investments in the mainland with the Ministry of
Economic Affairs, thereby making such Taiwan investments legally recognized in
China.

TAIWAN SECURITIES MARKETS

The TSE, Taiwan's only stock exchange, is a corporation owned 61% by
private banks and enterprises and 39% by government-operated banks and
enterprises. Selection of the TSE's top management is influenced by Taiwan
Securities and Exchange Commission ("Taiwan SEC"), which also monitors the TSE's
operations. The TSE commenced operations in 1962 with 18 listed companies. At
December 31, 1993, the aggregate market value of listed equity securities was
approximately US $223.2 billion with 313 listed companies. Debt securities are
traded in the TSE but remain small in terms of trading volume. Currently, there
are no foreign companies listed on the TSE.

Under current regulations applicable to foreign investment funds, the Fund
is not permitted to invest directly in any securities listed on the TSE. The
Fund intends to invest in Taiwan corporations by obtaining ownership interests
in global depository receipts and listed beneficiary certificates representing
shares in such corporations.

NEW SECURITIES INSTRUMENTS. The instruments traded on the Taiwan
securities market have primarily been limited to common stock and bonds.
However, recent legislative revisions and the present attitude of the Taiwan SEC
regarding liberalization of the securities regulations have encouraged some
innovation. For example, in February 1988, a TSE-listed company issued bonds
exchangeable into shares of another TSE-listed company in which it owned common
shares. This was the first offering of a convertible security by a company
listed on the TSE. The same company has made an offering of preferred shares
which are convertible into common shares. The Taiwan SEC is revising the
relevant laws to expedite the process for converting Eurodollar bonds into
common shares of the issuer in the future. More than twenty TSE-listed companies
have issued domestic convertible bonds and the government is now considering
revising the relevant laws to expedite the process for converting Eurodollar
bonds into shares of the issuer. Another example of innovation is the use of
Global Depository Receipts ("GDRs") in raising capital. (For a general
discussion of GDRs, see "The Fund's Investment Objectives and
Policies--Depository Receipts" in the Prospectus.) The Taiwan SEC has also
agreed to permit the listing on the TSE of depositary receipts which would
represent shares of foreign issuers. Nine TSE-listed companies had issued GDRs
before 1994. In addition, the Taiwan SEC established a domestic futures market
in 1994, but the trading volume is relatively small now.

LISTED BENEFICIARY CERTIFICATES. Listed Beneficiary Certificates ("LBCs")
are certificates which represent the shares of closed-end funds which, subject
to Taiwan SEC and TSE approval, may be listed on the TSE. LBC are issued only by
15 securities investment trust companies in Taiwan for purposes of investing in
securities listed on the TSE. Two new securities investment trust companies had
been approved by the Taiwan SEC in 1995, and two other new securities investment
trust companies are applying for approval by the Taiwan SEC now. LBCs are traded
on the TSE in the same manner as other TSE-listed securities.

OVER-THE-COUNTER MARKET. The Taiwan SEC helped to establish an
over-the-counter market in Taiwan in September 1982. The Fund does not intend to
invest in this market.

MECHANICS OF TRADING ON THE TSE

PRICE AND VOLUME LIMITS. In order to reduce market volatility, the TSE has
placed limits on large volume transactions and on the range of daily price
movements. Complex restrictions are imposed on transactions which include 500
trading lots or more. These restrictions are not expected to have a substantial
impact on the Fund. Currently, fluctuations in price are restricted to 7% above
and below the previous day's closing price in the case of stocks and 5% in the
case of bonds. Over the last few years, the restriction on stock price movements
has fluctuated, moving from 5% to 3% following the 1987 market crash, then back
to 5% and finally, in September 1989, from 5% to the current level of 7%.
Authorities have mentioned that the limits on stock price movements may be
further relaxed or abolished entirely.

B-16
<PAGE>

Delivery and settlement are handled by the computerized TSE Clearing
Department. Sales of stock by brokers and traders are offset by purchases of the
same issue on the same day so that only net balances of stock are delivered and
only net balances of cash are computed and paid. The TSE has introduced a
certificate depositary system, operated by Taiwan Central Depositary Co., Ltd.,
which was established in November 1989.

COMMISSIONS AND TRANSACTION TAX. On July 1, 1990, brokerage commissions
for stocks were reduced by 0.0075% to 0.1425%. The TSE takes 5% of the
commissions earned by brokerage firms on stock transactions. Commissions on bond
transactions remain at 0.1%. A securities transaction tax of 0.3% of the
transaction price for stocks an 0.1% for bonds and LBCs is levied on the seller.

REGULATORY ENVIRONMENT

In 1983, the first fund permitting foreigners to invest in Taiwan
securities was approved. In 1986, approval was granted to three additional
foreign funds which raised a total of approximately US $75 million.

A major amendment (the "Amendment") of the Securities and Exchange Law was
enacted in January 1988 and resulted in significant changes to practices in the
securities industry. The Amendment was part of a government effort to make
securities supervision in Taiwan similar to that of advanced financial markets
and to modernize the securities markets to meet the growing need of investors.

The securities transactions tax was lowered on February 1, 1993 and
securities transactions are now taxed at a rate of 0.3% for stocks and 0.1% for
bonds and listed mutual fund shares, in both cases payable by the seller. The
Ministry of Finance announced in December 1993 that it was considering the
possibility of reimposing the capital gains tax but has not changed its position
as of August 31, 1995. Any reimposition is subject to legislative approval and
it cannot be predicted when or whether the Legislature will grant such approval.

On December 28, 1990, the Executive Yuan of Taiwan approved guidelines
drafted by the Taiwan SEC which allow direct investment in Taiwan securities by
certain qualified foreign institutional investors, subject to certain
restrictions. For a discussion of these guidelines, see "The Fund's Investments
in the Greater China Region--Taiwan--Foreign Investment Restrictions." At August
31, 1995, QFII had bought over NT$100 billion of Taiwan SEC listed securities.

In April 1992, the Taiwan SEC promulgated regulations permitting Taiwan
listed companies, upon approval by the Taiwan SEC, to sponsor the issue and sale
to foreigners of depositary receipts evidencing shares of such companies. The
approval by the Taiwan SEC will be granted in respect of a fixed number of
depositary receipts which, except in connection with stock dividends and
distributions and the exercise of pre-emptive rights by existing depositary
receipt holders in the event of capital increases for cash, may not be increased
without separate Taiwan SEC approval. The Taiwan SEC has also agreed to permit
the listing on the TSE of Taiwan depositary receipts which would represent
shares of foreign issuers.

FINANCIAL REPORTING

Since 1983, the Taiwan SEC, which administers the financial reporting
system, and the TSE have taken steps to improve the quality of financial
reporting and of internal financial controls in Taiwan-based companies.

The Securities and Exchange Law imposes criminal liability on accountants
who are knowingly involved in the preparation of fraudulent financial reports.
The Taiwan SEC promulgated regulations in July 1983 requiring that financial
reports of listed companies be audited by accounting firms consisting of at
least three certified public accountants and be signed by at least two certified
public accountants, and establishing standards for audit and budget systems of
listed companies.

The Amendment, in an effort to improve further financial reporting
standards, established a new financial reporting system for corporate issuers.
Under this system, issuers are subject to more extensive disclosure requirements
than they have been in the past. For example, companies listed on the TSE are
required to submit

B-17
<PAGE>

audited semi-annual and annual financial reports and first and third quarter
financial reports that have significant impact on the financial condition of the
issuer.

SINGAPORE

Singapore had a population of only a few hundred Malays in 1819 when Sir
Thomas Stamford Raffles obtained a grant of land from the local Malay chief to
establish a new port. In 1826, Singapore was joined with Penang and Malacca to
form the Straits Settlements, which were ruled as a part of British India until
1867, when they became a separate colony. The city grew in importance and
prosperity and was chosen as the main stronghold of British power in the Far
East in 1922. A large naval base was built on the north side of the island,
partly to protect Malaya. However, the Japanese invasion of Malaya in 1941 came
overland and the surrender of Singapore to the Japanese in February, 1942 was
one of the greatest defeats of allied arms during the Second World War.
Singapore was occupied by the Japanese until August, 1945.

Singapore became an island colony of Great Britain in the early 1800s and
achieved independence in 1960. Its population of 3 million is comprised of 77.5%
Chinese, 14.2% Malay and 8.3% Indian and other groups. With foreign exchange
reserves of $66.8 billion (September 1995), Singapore has the highest level of
foreign exchange reserves per capita in the world. As the regional trading
center for the South East Asian region, Singapore has enjoyed a period of strong
growth over the last five years, averaging 8.6% annual compound growth in gross
domestic product (GDP), with the result that GDP per capita is estimated to have
exceeded $27,000 at the end of 1995, classifying Singapore as an "advanced
developing nation" under the OECD classification scheme.

Singapore has used its large foreign exchange reserves to invest in various
regional projects, including a number in China, where its $2 billion in pledged
investment in 1995 made it the fifth largest foreign investor. Its Suzhou
industrial township near Shanghai has already attracted $1.4 billion of
investment.

SECURITIES MARKETS

Formal trading of investment securities began in the late nineteenth
century and the Singapore Stockbroker's Association was incorporated in 1930.
The Stock Exchange of Singapore (SES) was incorporated in 1973. The SES is now
the fourth largest stock market in Asia, after Japan, Hong Kong, Malaysia,
Thailand, Korea and Taiwan, with a market capitalization at December 1997 of
S$329 billion. Average monthly turnover on the SES for 1997 was S$7,213
million. As of December 31, 1997, 294 companies were listed on the SES. Another
62 were listed on the second market, known as the Stock Exchange of Singapore
Dealing and Automated Quotations Board (SESDAQ), which had a market
capitalization of S$3.17 billion at December 1997.

There is also the Central Limit Order Board International (CLOB), an
electronic over-the-counter order matching system which was established after
the separation of the Singapore and Kuala Lumpur Stock Exchanges on 2nd January,
1990, primarily to enable Malaysian shares to continue to be traded freely in
Singapore. As of December 31, 1997, there were 910 Hong Kong, 112 Malaysian and
7 other international stocks traded on CLOB.

FOREIGN INVESTMENT RESTRICTIONS

Foreign investors in Singapore are restricted by ministerial limitations
from owning more than 49% of any strategic Singaporean company, or more than 40%
of any Singaporean bank. This has led to a two tier share holding structure,
with domestic and foreign registered shares, trading at different prices, with a
premium for foreign registered shares. There are no restrictions on investment
and remittances and no foreign exchange controls, although 27% corporate tax is
deducted from the gross dividends payable.

SINGAPORE SECURITIES MARKET

Formal trading of investment securities began in the late nineteenth
century and the Singapore Stockbrokers' Association was incorporated in 1930.
The Stock Exchange of Singapore (SES) was incorporated on the 24th May,

B-18
<PAGE>

1973. The SES is now the fourth largest stock market in Asia, after Japan, Hong
Kong and Taiwan, with a market capitalization at December 31 1997 of S$329
billion. There were 20 new listings of companies on the main board and 15 new
companies listed on SESDAQ in 1997.

The table below sets out selected data on the Singapore Stock Exchange in
each year since 1990, including the average monthly value and volume of
securities traded during each year, and the number of companies listed and the
total market capitalization as of December 31st each year.

SELECT STATISTICS

1990 1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
NO. OF COMPANIES LISTED . . . . . . 172 183 188 205 238 248 264 294
Market Capitalization (S$bn). . . . 59.8 77.7 80.3 213.4 195.5 209.4 209.13 329
Turnover Volume (m). . . . . . . . 18,487 15,557 13,904 66,398 45,540 33,919 68,244 47,136
Value (S$m) . . . . . . . . . . . . 36,756 30,549 29,444 127,797 123,520 83,866 61,699 110,448

SESDAQ Market Cap (S$m) . . . . . . 409.2 528.8 1,032.4 3,833.0 3,228.3 4,178.9 4,290.0 3166
SES Turnover Volume (m) . . . . . . 116.9 167.9 526.1 2,304.7 1,704.0 5,323.3 1,942.5 4,870
</TABLE>

MARKET PERFORMANCE

The Straits Times Index (STI) is the most widely followed indicator of
stock price performance in Singapore. The STI is an arithmetic index based on 30
companies, weighted by their respective market capitalizations, and is thus
strongly influenced by large capitalization stocks.

The movements of the STI and other indices over the last eight years (as of
December 31 each year) are as follows:

<TABLE>
<CAPTION>
MARKET PERFORMANCE

1990 1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STI Index
High 1,607.12 1,565.58 1,545.92 2,426.85 2,471.90 2,287.58 2,493.71 2,271.88
Low 1,101.77 1,149.08 1,310.95 1,531.11 2,036.80 1,903.80 2,038.84 1497.03
Close 1,154.48 1,490.70 1,524.40 2,425.68 2,239.56 2,266.54 2,216.79 1529.84
OCBC 30 362.48 464.37 452.56 638.53 552.07 585.17 584.62 493.78
DBS 50 434.40 432.22 420.26 623.22 534.25 560.98 555.09 467.44
SESDAQ Index 69.36 61.74 53.17 154.15 80.30 100.26 92.35 62.95
</TABLE>

TRADING

Trading on the SES is conducted through a computerized book based system to
convey bid and offer prices for securities affected by changes in book entries
in securities accounts that shareholders maintain with the Central Depositary
Pte Ltd., the SES' automated electronic central depositary. Trades are then
effected on a matched basis between buyers and sellers. Payment is against
delivery, and must be settled within 5 business days of the transaction.
Brokerage commission is on a sliding scale, starting at 1.00% for bargains of
less than $250,000, and falling gradually to 0.30% for those above S$1,500,000.
Brokerage on the CLOB International is negotiable subject to a minimum of 0.5%.
In addition, trades are subject to a transaction levy of 0.5% payable to the
SES, subject to a maximum of S$100. Finally, the Singaporean government charges
a stamp duty of .05% of the transaction price, and there is a Goods and Services
Tax (GST) of 3% on brokerage and clearing fees.

The SES is regulated by the Securities Industry Act of 1986 and supervised
through a set of rules and

B-19
<PAGE>

regulations enforced by the 9-member Stock Exchange Committee.

B-20
<PAGE>

<PAGE>

PROSPECTUS
THE OFFITBANK VARIABLE INSURANCE FUND, INC. JULY 29, 1998

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

OFFITBANK VIF-GLOBAL CONVERTIBLE FUND

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

OFFITBANK VIF-Global Convertible Fund (the "Fund") is one of ten separate
non-diversified investment portfolios of the OFFITBANK Variable Insurance Fund,
Inc. (the "Company"), an open-end, management investment company. The Fund's
investment objective is to maximize total return from a combination of capital
appreciation and investment income. The Fund will seek to achieve its objective
by investing primarily in an internationally diversified portfolio of
convertible debt securities, convertible preferred stocks and "synthetic"
convertible securities consisting of a combination of debt securities or
preferred stock and warrants or options. Under normal circumstances, the Fund
will invest at least 65% of its total assets in traditional convertible
securities and may invest up to 35% of its total assets in synthetic convertible
securities. The Fund's investments may be denominated in any currency,
including U.S. dollars. All or a portion of the Fund's total assets may be
invested in below investment grade debt securities.

THE FUND MAY INVEST ALL OR A PORTION OF ITS ASSETS IN HIGH YIELD, HIGH RISK
CORPORATE DEBT SECURITIES AND SOVEREIGN DEBT OBLIGATIONS WHICH ARE CONSIDERED
SPECULATIVE AND SUBJECT TO CERTAIN RISKS. 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 Adviser currently
manages approximately $10 billion in assets principally invested in global fixed
income securities. The address of the Company is 400 Bellevue Parkway,
Wilmington, Delaware 19809. 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 July 29, 1998, 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. This Prospectus, the Statement of Additional Information,
material incorporated by reference and other information regarding the Fund is
available at the Commission's Website (http://www.sec.gov).

INVESTORS ARE ADVISED THAT (i) THE COMPANY IS NOT AUTHORIZED TO ENGAGE IN THE
BUSINESS OF BANKING AND (ii) 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.
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
---------------------

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Highlights. . . . . . . . . . . . . . . . 2 How the Company Values Its Shares . . . . . . . . .20
The Company . . . . . . . . . . . . . . . 3 How Distributions are Made: Tax Information . . . .21
Investment Objective and Policies . . . . 3 Shareholder Communications. . . . . . . . . . . . .21
Investment Policies and Techniques. . . . 4 Performance Information . . . . . . . . . . . . . .22
Special Risk Considerations . . . . . . . 9 Counsel and Independent Accountants . . . . . . . .22
Limiting Investment Risks . . . . . . . .19 Appendix A . . . . . . . . . . . . . . . . . . . A-1
Management. . . . . . . . . . . . . . . .19
About Your Investment . . . . . . . . . .20
</TABLE>

<PAGE>

HIGHLIGHTS

INTRODUCTION
OFFITBANK VIF-Global Convertible 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 seek high current income with capital appreciation as a
secondary objective.

FUND MANAGEMENT
OFFITBANK, a New York State chartered trust company serves as the Fund's
Adviser.

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 invests at least 65% of its total
assets in traditional convertible securities and may invest up to 35% of its
total assets in synthetic convertible securities. See "Investment Objective and
Policies" and "Special Risk Considerations."

2
<PAGE>

THE COMPANY

The Company 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, non-diversified 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 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 policy, the Directors would not materially change
the investment objective of the Fund without shareholder approval. There is no
assurance that the Fund will achieve its objective.

The investment objective of the Fund is to maximize total return from a
combination of capital appreciation and investment income. The Fund will seek
to achieve its objective by investing primarily in an internationally
diversified portfolio of convertible debt securities, convertible preferred
stocks and "synthetic" convertible securities consisting of a combination of
debt securities or preferred stock and warrants or options. Under normal
circumstances, the Fund will invest at least 65% of its total assets in
traditional convertible securities and may invest up to 35% of its total assets
in synthetic convertible securities. The Fund's investments may be denominated
in any currency, including U.S. dollars. All or a portion of the Fund's total
assets may be invested in below investment grade debt securities.

In evaluating proposed investments the Adviser will seek to maximize the total
return on the Fund's portfolio in terms of U.S. dollars. In this regard, the
Adviser will consider factors that relate both to various securities markets and
to specific securities traded in those markets. In evaluating markets, the
Adviser will consider such factors as the condition and growth potential of
various economies and securities markets, currency and taxation factors
(including the applicability and rate of withholding taxes) and other pertinent
financial, social, national and political factors. In analyzing convertible
securities, the Adviser will consider both the yield on the convertible security
and the potential capital appreciation that is offered by the underlying common
stock. There can be no assurance that the Fund will achieve its investment
objective.

The convertible securities to 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

3
<PAGE>

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. "Synthetic" convertible
securities, as such term is used herein, are created by combining separate
securities which possess the two principal characteristics of a true convertible
security, fixed income and the right to acquire equity securities. See "Special
Risk Considerations - Convertible Securities" below for additional information
concerning traditional convertible securities and synthetic convertible
securities eligible for purchase by the Fund.

The Fund believes that the characteristics of convertible securities make them
appropriate investments for an investment company seeking a high total return
from capital appreciation and investment income. These characteristics include
the potential for capital appreciation as the value of the underlying common
stock increases, the relatively high yield received from dividend or interest
payments as compared to common stock dividends and decreased risks of decline in
value relative to the underlying common stock due to their fixed income nature.
As a result of the conversion feature, however, the interest rate or dividend
preference on a convertible security is generally less than would be the case if
the securities were issued in nonconvertible form.

Although the Fund may invest in securities denominated in any currency that are
convertible into common stocks of companies located throughout the world, it is
expected that a majority of its assets will be invested in securities
denominated in U.S. dollars, currencies of Pacific Basin countries and
currencies of Western European countries and convertible into equity securities
of United States, Pacific Basin or Western European corporations. To the extent
the Fund acquires synthetic convertible securities, it is expected that the debt
securities or preferred stock will principally be denominated in U.S. dollars,
Pacific Basin currencies or Western European currencies and the warrants or
options will principally be exercisable to purchase equity securities of U.S.,
Pacific Basin or Western European issuers.

Under normal circumstances, the Fund may invest up to 20% of its total assets in
other types of securities including equity securities and nonconvertible debt
securities of U.S. and non-U.S. issuers.

The Fund has established no rating criteria for the debt securities in which it
may invest and such securities may not be rated at all for creditworthiness.
Securities rated in the medium to lower rating categories of nationally
recognized statistical rating organizations and unrated securities of comparable
quality are predominantly speculative with respect to the capacity to pay
interest and repay principal in accordance with the terms of the security and
generally involve a greater volatility of price and risk of default than
securities in higher rating categories. See "Special Risk Considerations - High
Yield Securities." In purchasing such securities, the Fund will rely on the
Adviser's judgment, analysis and experience in evaluating the creditworthiness
of an issuer of such securities. The Adviser will take into consideration,
among other things, the issuer's financial resources, its sensitivity to
economic conditions and trends, its operating history, the quality of the
issuer's management and regulatory matters. The Fund does not intend to
purchase debt securities that are in default or which the Adviser believes will
be in default. See Appendix A to this Prospectus for a description of ratings
of Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc.
("Moody's") and Duff & Phelps Credit Rating Co. ("D&P").

The Fund will generally be managed in a style similar to OFFITBANK Global
Convertible Fund. This other OFFITBANK fund may, however, employ different
investment practices and may invest in securities different from those in which
the Fund, as its counterpart, invests, and, as such, may not have an identical
portfolio or experience identical investment results.

INVESTMENT POLICIES AND TECHNIQUES

4
<PAGE>

instruments may be apportioned among the newly issued structured products to
create securities with different investment characteristics such as varying
maturities, payment priorities and interest rate provisions, and the extent of
the payments made with respect to structured products is dependent on the extent
of the cash flow on the underlying instruments. The Fund may invest in
structured products which represent derived investment positions based on
relationships among different markets or asset classes.

The Fund may also invest in other types of structured products, including among
others, inverse floaters, spread trades and notes linked by a formula to the
price of an underlying instrument or currency. Inverse floaters have coupon
rates that vary inversely at a multiple of a designated floating rate (which
typically is determined by reference to an index rate, but may also be
determined through a dutch auction or a remarketing agent) (the "reference
rate"). As an example, inverse floaters may constitute a class of
collateralized mortgage obligations with a coupon rate that moves inversely to a
designated index, such as LIBOR (London Interbank Offered Rate) or the Cost of
Funds Index. Any rise in the reference rate of an inverse floater (as a
consequence of an increase in interest rates) causes a drop in the coupon rate
while any drop in the reference rate of an inverse floater causes an increase in
the coupon rate. A spread trade is an investment position relating to a
difference in the prices or interest rates of two securities or currencies where
the value of the investment position is determined by movements in the
difference between the prices or interest rates, as the case may be, of the
respective securities or currencies. When the Fund invests in notes linked to
the price of an underlying instrument or currency, the price of the underlying
security or the exchange rate of the currency is determined by a multiple (based
on a formula) of the price of such underlying security or exchange rate of such
currency. Because they are linked to their underlying markets or securities,
investments in structured products generally are subject to greater volatility
than an investment directly in the underlying market or security. Total return
on the structured product is derived by linking return to one or more
characteristics of the underlying instrument. Although the Fund's purchase of
structured products would have a similar economic effect to that of borrowing
against the underlying securities, the purchase will not be deemed to be
leveraged for purposes of the limitations placed on the extent of the Fund's
assets that may be used for borrowing and other leveraging activities.

5
<PAGE>

on such bonds generally are collateralized by cash or securities in an amount
that, in the case of fixed rate bonds, is equal to at least one year of rolling
interest payments or, in the case of floating rate bonds, initially is equal to
at least one year's rolling interest payments based on the applicable interest
rate at that time and is adjusted at regular intervals thereafter. Brady Bonds
which have been issued to date are rated BB or B by S&P or Ba or B by Moody's
or, in cases in which a rating by S&P or Moody's has not been assigned, are
generally considered by the Adviser to be of comparable quality.

The Fund may have difficulty disposing of Assignments and Participations. The
liquidity of such securities is limited and the Fund anticipates that such
securities could be sold only to a limited number of institutional investors.
The lack of a liquid secondary market could have an adverse impact on the value
of such securities and on the Fund's ability to dispose of particular
Assignments or Participations when necessary to meet the Fund's liquidity needs
or in response to a specific economic event, such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary market for
Assignments and Participations also may make it more difficult for the Fund to
assign a value to those securities for purposes of valuing the Fund's portfolio
and calculating its net asset value. The investment of the Fund in illiquid
securities, including Assignments and Participations, is limited to 15% of net
assets. See "Illiquid Securities" below.

6
<PAGE>

The Adviser expects that governmental, governmental-related or private entities
may create mortgage loan pools offering pass-through investments in addition to
those described above. The mortgages underlying these securities may be second
mortgages or alternative mortgage instruments, that is, mortgage instruments
whose principal or interest payments may vary or whose terms to maturity may
differ from customary long-term fixed rate mortgages. As new types of
mortgage-related securities are developed and offered to investors, the Adviser
will, consistent with the Fund's investment objective and policies, consider
making investments in such new types of securities. For additional information
regarding mortgage-related securities and the risks associated with investment
in such instruments, see "Additional Information on Portfolio Instruments -
Mortgage-Related Securities" in the Statement of Additional Information.

Asset-backed securities are often structured with one or more types of credit
enhancement. For a description of the types of credit enhancement that may
accompany asset-backed securities, see the Statement of Additional Information.
The Fund will not limit its investments to asset-backed securities with credit
enhancements. Although asset-backed securities are not generally traded on a
national securities exchange, such securities are widely traded by brokers and
dealers, and to such extent will not be considered illiquid for the purposes of
the Fund's limitation on investment in illiquid 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 cash not available for investment or U.S. government
securities or other high quality debt securities 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 forward contract
price or the Fund may purchase a put option permitting the Fund to sell the

7
<PAGE>

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, 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.

8
<PAGE>
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 Adviser will monitor the liquidity of
such restricted securities under the supervision of the Board of Directors.

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 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 (U.S. dollars, foreign
currencies or multinational currency units) and/or invest up to 100% of its
assets in high quality debt securities or money market instruments of U.S. or
foreign issuers, and most or all of the Fund's investments may be made in the
United States and denominated in U.S. dollars.

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) interest rate movements, (2) changes in the actual
and perceived creditworthiness of the issuers of such securities, (3) changes in
any applicable foreign currency exchange rates, (4) social, economic or
political factors, (5) factors affecting the industry in which the issuer
operates, such as competition or technological advances and (6) factors
affecting the issuer directly, such as management changes or labor relations.
There is no assurance that the Fund will achieve its investment objective.

9
<PAGE>

CONVERTIBLE SECURITIES
GENERAL. Under normal market circumstances, the Fund will invest at least 65%
of its total assets in traditional convertible securities and synthetic
convertible securities. Set forth below is additional information concerning
traditional convertible securities and "synthetic" 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 the Fund will invest a substantial portion of its
assets in the U.S. market and the Euromarket where convertible bonds have been
primarily denominated in U.S. dollars, it is expected that ordinarily a
substantial portion of the convertible securities held by the 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. The 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.

10
<PAGE>

NASDAQ listed call options or stock index call options granting the holder the
right to purchase a specified quantity of securities within a specified period
of time at a specified price or to receive cash in the case of stock index
options.

A warrant is an instrument issued by a corporation that gives a holder the right
to subscribe to a specified amount of capital stock at a set price for a
specified period of time. Warrants involve the risk that the price of the
security underlying the warrant may not exceed the exercise price of the warrant
and the warrant may expire without any value. See "Hedging and Other Strategic
Transactions" below for a discussion of call options and stock index call
options.

A synthetic convertible security differs from a traditional convertible security
in several respects. Unlike a traditional convertible security, which is a
single security having a unitary market value, a synthetic convertible security
is comprised of two or more separate securities, each with its own market value.
Therefore, the "market value" of a synthetic convertible security is the sum of
the values of its fixed-income component and its convertibility component. For
this reason, the values of a synthetic convertible security and a traditional
convertible security will respond differently to market fluctuations.

FOREIGN SECURITIES
The Fund may be invested in the securities of non-U.S. issuers. Investors
should recognize that investing in securities of non-U.S. issuers involves
certain risks and special considerations, including those set forth below, which
are not typically associated with investing in securities of U.S. issuers.
Further, certain investments that the Fund may make, and investment techniques
in which they may engage, involve risks, including those set forth below.

Individual foreign economies in general may differ favorably or unfavorably and
significantly from the U.S. economy in such respects as the rate of growth of
gross domestic product or gross national product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, structural
unemployment and balance of payments position. Governments of many of these
countries have exercised and continue to exercise substantial influence over
many aspects of the private sector. In some cases, the government owns or
controls many companies, including some of the largest in the country.
Accordingly, government actions in the future could have a significant effect on
economic conditions in many countries, including emerging market countries,
which could affect private sector companies and the Fund, and on market
conditions, prices and yields of securities in the Fund's

11
<PAGE>

portfolio. There may be the possibility of nationalization or expropriation of
assets, or future confiscatory levels of taxation affecting the Fund. In the
event of nationalization, expropriation or other confiscation, the Fund may not
be fairly compensated for its loss and could lose its entire investment in the
country involved.

INVESTMENT AND REPATRIATION RESTRICTIONS. Investment by the Fund in non-U.S.
issuers may be restricted or controlled to varying degrees. These restrictions
may limit or preclude investment in certain of such issuers or countries and may
increase the costs and expenses of the Fund. For example, certain countries
require governmental approval prior to investments by foreign persons in the
country or in a particular company or industry sector or limit investment by
foreign persons to only a specific class of securities of a company which may
have less advantageous terms (including price) than securities of the company
available for purchases by nationals. Certain countries may also restrict or
prohibit investment opportunities in issuers or industries deemed important to
national interests. As a result of investment restrictions, the Fund may, in
certain countries (such as Mexico) invest through intermediary vehicles or
trusts. In addition, the repatriation of both investment income and capital
from some of these countries requires governmental approval and if there is a
deterioration in a country's balance of payments or for other reasons, a country
may impose temporary restrictions on foreign capital remittances abroad. Even
where there is no outright restriction on repatriation of capital, the mechanics
of repatriation may affect certain aspects of the operation of the Fund.

The Fund could be adversely affected by delays in, or a refusal to grant any
required governmental approval for repatriation of capital, as well as by the
application to the Fund of any restrictions on investments. If, because of
restrictions on repatriation or conversion, the Fund were unable to distribute
substantially all of its net investment income and long-term capital gains
within applicable time periods, the Fund could be subject to U.S. federal income
and excise taxes which would not otherwise be incurred and may cease to qualify
for the favorable tax treatment afforded to regulated investment companies under
the Code, in which case it would become subject to U.S. federal income tax on
all of its income and gains.

MARKET CHARACTERISTICS; DIFFERENCES IN SECURITIES MARKETS. The securities
markets in many countries, and in emerging markets in particular, generally have
substantially less volume than the New York Stock Exchange, and equity
securities of most companies listed on such markets may be less liquid and more
volatile than equity securities of U.S. companies of comparable size. Some of
the stock exchanges outside of the United States and in emerging market
countries, to the extent that established securities markets even exist, are in
the earlier stages of their development. A high proportion of the shares of
many foreign companies may be held by a limited number of persons, which may
limit the number of shares available for investment by the Fund. A limited
number of issuers in most, if not all, of these securities markets may represent
a disproportionately large percentage of market capitalization and trading
volume. In addition, the application of certain 1940 Act provisions may limit
the Fund's

12
<PAGE>

ability to invest in certain non-U.S. issuers and to participate in public
offerings in these countries. The limited liquidity of certain non-U.S.
securities markets may also affect the Fund's ability to acquire or dispose of
securities at the price and time it wishes to do so.

Trading practices in certain foreign securities markets are also significantly
different from those in the United States. Brokerage commissions and other
transaction costs on the securities exchanges in many countries are generally
higher than in the United States. In addition, securities settlements and
clearance procedures in certain countries, and, in particular, in emerging
market countries, are less developed and less reliable than those in the United
States and the Fund may be subject to delays or other material difficulties and
could experience a loss if a counterparty defaults. Delays in settlement could
result in temporary periods when assets of the Fund are uninvested and no return
is earned thereon. The inability of the Fund to make intended security
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. The inability to dispose of a portfolio security due
to settlement problems could result either in losses to the Fund due to
subsequent declines in the value of such portfolio security or, if the Fund has
entered into a contract to sell the security, could result in possible liability
to the purchaser.

NON-U.S. SUBCUSTODIANS. Rules adopted under the 1940 Act permit the Fund to
maintain its non-U.S. securities and cash in the custody of certain eligible
non-U.S. banks and securities depositories. Certain banks in non-U.S. countries
may not be eligible subcustodians for the Fund, in which event the Fund may be
precluded from purchasing securities in which it would otherwise invest, and
other banks that are eligible subcustodians may be recently organized or
otherwise lack extensive operating experience. At present, custody arrangements
complying with the requirements of the Securities and Exchange Commission (the
"Commission") are available in each of the countries in which the Adviser
intends to invest. In certain countries in which the Fund may make investments,
there may be legal restrictions or limitations on the ability of the Fund to
recover assets held in custody by subcustodians in the event of the bankruptcy
of the subcustodian.

13
<PAGE>

that certain assets and liabilities be restated on the issuer's balance sheet in
order to express items in terms of currency of constant purchasing power.
Inflation accounting may indirectly generate losses or profits. Consequently,
financial data may be materially affected by restatements for inflation and may
not accurately reflect the real condition of those issuers and securities
markets. Moreover, substantially less information may be publicly available
about non-U.S. issuers than is available about U.S. issuers.

In addition to the foreign securities listed above, the Fund may also invest in
foreign sovereign debt securities, which involve certain additional risks. See
"Sovereign Debt Securities" below.

FOREIGN TAXES. The Fund's investment income from foreign issuers may be subject
to non-U.S. withholding taxes, thereby reducing the Fund's net investment
income. For more information about tax risks related to the Fund, see "How
Distributions are Made: Tax Information" below and "Additional Information
Concerning Taxes" in the Statement of Additional Information.

HIGH YIELD SECURITIES
GENERAL. The Fund may invest all or a portion of its total assets in high
yield, high risk debt securities, commonly referred to as "junk bonds."
Securities rated below investment grade and comparable unrated securities offer
yields that fluctuate over time, but generally are superior to the yields
offered by higher rated securities. However, securities rated below investment
grade also involve greater risks than higher rated securities. Under rating
agency guidelines, medium- and lower-rated securities and comparable unrated
securities will likely have some quality and protective characteristics that are
outweighed by large uncertainties or major risk exposures to adverse conditions.
Certain of the debt securities in which the Fund may invest may have, or be
considered comparable to securities having, the lowest ratings for
non-subordinated debt instruments assigned by Moody's, S&P or D&P (i.e., rated C
by Moody's or CCC or lower by S&P or D&P). Under rating agency guidelines,
these securities are considered to have extremely poor prospects of ever
attaining any real investment standing, to have a current identifiable
vulnerability to default, to be unlikely to have the capacity to pay interest
and repay principal when due in the event of adverse business, financial or
economic conditions, and/or to be in default or not current in the payment of
interest or principal. Such securities are considered speculative with respect
to the issuer's capacity to pay interest and repay principal in accordance with
the terms of the obligations. Unrated securities deemed comparable to these
lower- and lowest-rated securities will have similar characteristics.
Accordingly, it is possible that these types of factors could, in certain
instances, reduce the value of securities held by the Fund with a commensurate
effect on the value of their respective shares. Therefore, an investment in the
Fund should not be considered as a complete investment program for all
investors.

14
<PAGE>

difference in credit risk of securities within each rating category. See
Appendix A to this Prospectus for a description of such ratings.

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

15
<PAGE>

16
<PAGE>

and Hedging and Other Strategic Transactions involving futures contracts and
options on futures contracts will be purchased, sold or entered into only for
bona fide hedging, and non-hedging purposes to the extent permitted by CFTC
regulations; provided that the Fund may enter into futures contracts or options
thereon for purposes other than bona fide hedging if immediately thereafter, the
sum of the amount of its initial margin and premiums on open contracts would not
exceed 5% of the liquidation value of the Fund's portfolio; provided further,
than 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
use of certain Hedging and Other Strategic Transactions will require that the
Fund segregate cash, U.S. government securities or other liquid high grade debt
obligations to the extent the Fund's obligations are not otherwise "covered"
through ownership of the underlying security, financial instrument or currency.
A detailed discussion of various Hedging and Other Strategic Transactions,
including applicable regulations of the CFTC and the requirement to segregate
assets with respect to these transactions, appears in the Statement of
Additional Information.

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
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. Use of put and call options could
result in losses to the Fund, force the sale or purchase of portfolio securities
at inopportune times or for prices higher than (in the case of put options) or
lower than (in the case of call options) current market values, or cause the
Fund to hold a security it might otherwise sell.

17
<PAGE>

(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.

18
<PAGE>

LIMITING INVESTMENT RISKS

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

2. 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 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 its
total assets.

3. 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 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 (2) 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% or more 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 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 approximately $10 billion in assets and serves as
investment adviser to twenty-one other registered investment companies (or
portfolios thereof). The principal address of the Adviser is 520 Madison
Avenue, New York, New York 10022.

PORTFOLIO MANAGER. Dr. Wallace Mathai-Davis will serve as the portfolio manager
for the Fund. Dr. Mathai-Davis is a Managing Director of the Adviser and has
been associated with the Adviser since 1986.

19
<PAGE>

monthly which will not exceed .125% of aggregate average daily net assets of the
Company as compensation for its services as administrator. The principal
address of PFPC is 400 Bellevue Parkway, Wilmington, Delaware 19809. The
principal business address of The Bank of New York is 90 Washington Street, New
York, New York 10286.

ABOUT YOUR INVESTMENT

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.

HOW THE COMPANY VALUES ITS SHARES

20
<PAGE>

HOW DISTRIBUTIONS ARE MADE: TAX INFORMATION

TAX MATTERS
The Fund intends to continue to qualify as a regulated investment company
under the Internal Revenue Code of 1986, as amended (the "Code") so that it
will not be subject to federal income tax on its earnings and capital gains
that are distributed to its shareholders. In addition, the Fund intends to
comply with the diversification requirements of the Code and Treasury
Regulations in order to maintain the tax-deferred status of the Accounts.

THE TAX STATUS OF YOUR INVESTMENT IN THE FUND DEPENDS UPON THE FEATURES OF YOUR
POLICY OR CONTRACT. FOR FURTHER INFORMATION, PLEASE REFER TO THE ACCOUNT OR
POLICY PROSPECTUS.

SHAREHOLDER COMMUNICATIONS

21
<PAGE>

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 slightly 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 indices of performance, including, but not
limited to, Value Line Composite, Lehman Brothers Bond, Government Corporate,
Corporate and Aggregate Indices, Merrill Lynch Government & Agency and
Intermediate Agency Indices, Morgan Stanley Capital International Europe,
Australia, Far East Index or Morgan Stanley Capital International World Index.
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, KIPLINGER'S, MORNINGSTAR,
MUTUAL FUND VALUES, U.S.A. TODAY OR THE NEW YORK TIMES or other industry or
financial publications.

COUNSEL AND INDEPENDENT ACCOUNTANTS

22
<PAGE>

APPENDIX A
RATINGS

The following is a description of certain ratings of Standard & Poor's Ratings
Group ("S&P"), Moody's Investors Service, Inc. ("Moody's"), and Duff & Phelps
Credit Rating Co. ("D&P") that are applicable to certain obligations in which
the Fund may invest.

COMMERCIAL PAPER RATINGS

"C" - Obligations are currently vulnerable to nonpayment and are
dependent on favorable business, financial, and economic conditions for the
obligor to meet its financial obligation.

A-1
<PAGE>

characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.

"Not Prime" - Issuers do not fall within any of the Prime rating
categories.

"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.

"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.

"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.

CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS

The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:

"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.

"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.

A-2
<PAGE>

to meet its financial commitment on the obligation is still strong.

"CC" - An obligation rated "CC" is currently highly vulnerable to
non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.

PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.

The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:

A-3
<PAGE>

Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, Baa1, Ba1 and B1.

The following summarizes the long-term debt ratings used by D&P for
corporate and municipal long-term debt:

"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.

"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.

"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.

A-4
<PAGE>

categories.

A-5

<PAGE>

THE OFFITBANK VARIABLE INSURANCE FUND, INC.

400 Bellevue Parkway
Wilmington, Delaware 19809
(800) 618-9510

STATEMENT OF ADDITIONAL INFORMATION

July 29, 1998

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, LLC ("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

<TABLE>
PAGE
----
<S> <C>
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
AND TECHNIQUES. . . . . . . . . . . . . . . . . . . . . . . . . . 3
ADDITIONAL RISK CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . 17
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . 20
MANAGEMENT OF THE FUNDS. . . . . . . . . . . . . . . . . . . . . . . . 21
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . 30
PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . 32
REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . 32
PERFORMANCE CALCULATIONS . . . . . . . . . . . . . . . . . . . . . . . 32
ADDITIONAL INFORMATION CONCERNING TAXES. . . . . . . . . . . . . . . . 34
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . 35
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . 36
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 39
- --------------------------------------------------------------------------------
</TABLE>

2
<PAGE>

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
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,

3
<PAGE>

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 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.

4
<PAGE>

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: (1)
liquidity protection and (2) 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. 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

5
<PAGE>

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.

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.

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.

6
<PAGE>

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 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,

7
<PAGE>

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 (1) the full faith
and credit of the U.S. Treasury (e.g., direct pass-through certificates of the
Government National Mortgage Association), (2) the limited authority of the
issuer or guarantor to borrow from the U.S. Treasury (e.g., obligations of
Federal Home Loan Banks) or (3) 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 a 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 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.

8
<PAGE>

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.

9
<PAGE>

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.

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.

10
<PAGE>

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

11
<PAGE>

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. 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

12
<PAGE>

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 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

13
<PAGE>

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
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

14
<PAGE>

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

15
<PAGE>

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 relatively liquid.

16
<PAGE>

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.

17
<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

18
<PAGE>

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. 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 a Fund is authorized to invest in securities of foreign
issuers, the Fund's net investment income from foreign issuers may be subject to
non-U.S. withholding taxes thereby reducing the 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 requires more time and
results 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: (1) the frequency of trading in the security; (2) the number of
dealers who make quotes for the security; (3) the number of dealers who have
undertaken to make a market in the security; (4) the number of other potential
purchasers; and (5) 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.

19
<PAGE>

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;

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

20
<PAGE>

(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 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.

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.

21
<PAGE>

NAME, ADDRESS AND AGE POSITION(S) PRINCIPAL
- --------------------- HELD WITH OCCUPATION(S)
THE COMPANY PAST 5 YEARS
----------- ------------
<S> <C> <C>
Morris W. Offit, 61* Chairman of the President and Director,
OFFITBANK Board, President OFFITBANK (1983 - present);
520 Madison Avenue and Director Chairman of the Board,
New York, NY 10022 President and Director of The
OFFITBANK Investment Fund,
Inc.; Chairman of the Board,
President and Director of CVO
Greater China Fund, Inc.

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

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

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

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

Vincent M. Rella, 45 Assistant Managing Director, OFFITBANK
OFFITBANK Treasurer (1997 to present); Controller,
520 Madison Avenue OFFITBANK
New York, NY 10022 (1986 - present)

22
<PAGE>

Stephen M. Wynne, 43 Assistant Chairman of PFPC Trustee &
PFPC Inc. Treasurer Custodial Services Ltd. (since
400 Bellevue Parkway 1995); Executive Vice President
Wilmington, DE 19809 and Chief Accounting Officer
(since 1993) and Senior Vice
President and Chief Accounting
Officer (from 1991 to 1993) of
PFPC Inc.; Executive Vice
President (from 1993 to 1995) of
PFPC International.

David D. Marky, 32 Assistant Vice President and Director of
PFPC Inc. Treasurer Accounting (since 1996) of PFPC
103 Bellevue Parkway Inc.; Assistant Vice President
Wilmington, DE 19809 and Accounting Conversion Manager
(since 1992) of PFPC Inc.

Gary M. Gardner, 47 Assistant Chief Counsel (since 1994) of
PFPC Inc. Secretary PFPC Inc.; Associate General
400 Bellevue Parkway Counsel (from 1992 to 1994) of
Wilmington, DE 19809 The Boston Company, Inc.

David C. Lebisky, 26 Assistant Regulatory Administrator (since
PFPC Inc. Secretary 1996) of PFPC Inc.; Legal
400 Bellevue Parkway Assistant(1994 to 1996) with the
Wilmington, DE 19809 law firm of Drinker Biddle &
Reath; BA Candidate (1990 to
1994) LaSalle University.
</TABLE>
- -------------------
*"Interested person" as defined in the 1940 Act.

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.

23
<PAGE>

ESTIMATED DIRECTOR COMPENSATION
(FOR CALENDAR YEAR 1998)

<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM
AGGREGATE BENEFITS ESTIMATED REGISTRANT AND
COMPENSATION ACCRUED AS ANNUAL FUND COMPLEX*
FROM PART OF FUND BENEFITS UPON PAID TO
NAME OF PERSON REGISTRANT EXPENSES RETIREMENT DIRECTORS
-------------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Morris W. Offit $0 0 N/A $0

Edward J. Landau $5,500 0 N/A $28,500

The Very Reverend $5,500 0 N/A $28,500
James Parks Morton
</TABLE>

* For this purpose, the "Fund Complex" consists of all other regulated
investment companies advised by OFFITBANK.

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 average daily net assets, 0.40% of U.S. Government Fund's
average daily net assets 0.85% of the first

24
<PAGE>

$200,000,000 and 0.75% on amounts in excess thereof of VIF-High Yield Fund's
average daily net assets, 0.90% of the first $200,000,000 and 0.80% on amounts
in excess thereof of VIF-Emerging Markets 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 fiscal year ended March 31, 1998, the Adviser earned fees of $239,489 and
waived fees of $77,746 for the High Yield Fund, and earned and waived fees of
$49,468 and $10,796 for the Emerging Markets and Small Cap Funds, respectively.
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.

The Advisory Agreement was approved by the Company's Board of Directors for an
initial two year period and, unless sooner terminated, the Advisory Agreement
will continue in effect as to a particular Fund 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, LLC ("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 is located at 599 Lexington Avenue, New York, N.Y. 10022.
As of June 30, 1998, DJ Greene had investment management authority with respect
to approximately $2 billion of assets for pension, profit sharing, endowment and
individual accounts. DJ Greene consists of fifteen principals and a staff of
twenty-three 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.

25
<PAGE>

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 assets. 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. For the
fiscal year ended March 31, 1998, DJ Greene earned and waived fees of $10,934.

The DJ Greene Agreement was approved by the Company's Board of Directors for an
initial two year period. Unless sooner terminated, the Advisory Agreement will
continue in effect with respect to the Company 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 June 30, 1998, Rockefeller & Co. managed
approximately $4.3 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.

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

26
<PAGE>

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%. For
the fiscal year ended March 31, 1998, OFFITBANK earned and waived fees of
$10,976 with respect to the U.S. Small Cap Fund. Accordingly, Rockefeller & Co.
received no fees for the fiscal year ended March 31, 1998.

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

27
<PAGE>

services.

If the Adviser, DJ Greene or Rockefeller & Co. 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.

DISTRIBUTOR

OFFIT Funds Distributor, Inc., (the "Distributor"), a wholly-owned subsidiary of
Provident Distributors, Inc., with its principal office at Four Falls Corporate
Center, 6th Floor, West Conshohocken, Pennsylvania 19428-2961, 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, TRANSFER AGENCY AND CUSTODY SERVICES

PFPC Inc. ("PFPC"), an indirect, wholly owned subsidiary of PNC Bank Corp.
performs administrative and fund accounting services for the Company, and is
responsible for certain clerical, record keeping and bookkeeping services,
except those performed by OFFITBANK, DJ Greene, Rockefeller & Co. or by The
Chase Manhattan Bank, N.A. ("Chase") or The Bank of New York ("BONY") in their
capacity as custodians of the Company. PFPC has no role in determining the
investment polices of the Company or which securities are to be purchased or
sold by the Funds. The services provided by PFPC include regulatory compliance,
assistance in the preparation and filing of post-effective amendments to the
Company's registration statement with the Commission, preparation of annual,
semi-annual and other reports to shareholders and the Commission, filing of
federal and state income tax returns, preparation of financial and management
reports, preparation of board meeting materials, preparation and filing of blue
sky registrations and monitoring compliance with the amounts and conditions of
each state's qualification. For the administrative and fund accounting services
PFPC provides to the Company, PFPC is paid an annual fee calculated daily and
paid monthly which is expected to

28
<PAGE>

approximately .125% of net assets. From time to time, the Administrator may
waive all or a portion of its fees.

From January 1, 1997 to June 1, 1998, BISYS Fund Service Limited Partnership
("BISYS") served as the Company's administrator. Prior to January 1, 1997,
Furman Selz LLC ("Furman Selz") served as the Company's administrator. Pursuant
to an administration agreement with the Company, for the fiscal year ended March
31, 1998, BISYS was entitled to fees of $42,263 and waived fees of $23,302 for
the High Yield Fund and earned and waived fees of $8,245, $2,050 and $1,619 for
the Emerging Markets, Value Equity and U.S. Small Cap Funds, respectively.
Pursuant to a fund accounting agreement with the Company, for the fiscal year
ended March 31, 1998, BISYS also earned fees of $32,308, $30,000, $30,154 and
$30,685 for the High Yield, Emerging Markets, Value Equity and U.S. Small Cap
Funds, respectively. 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. Pursuant to an
administration agreement with the Company, for the period from April 1, 1996 to
December 31, 1996, Furman Selz earned and waived fees of $6,710 for the High
Yield Fund and for the period from August 26, 1996 to December 31, 1996, earned
and waived fees of $1,005 for the Emerging Markets Fund. For its accounting
services, Furman Selz earned fees of $22,500 with respect to the High Yield Fund
for the period April 1, 1996 to December 31, 1996 and $7,500 with respect to the
Emerging Markets Fund for the period August 26, 1996 to December 31, 1996.

PFPC also 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, PFPC has agreed, among other
things, to: (1) process shareholder purchase and redemption orders; (2) issue
periodic statements to shareholders; (3) process transfers, exchanges and
dividend payments; and (4) maintain all shareholder records for each account in
the Company. From January 1, 1997 to June 1, 1998, BISYS Fund Services Limited
Partnership ("BISYS") served as the Company's transfer agent. Prior to January
1, 1997 Furman Selz served as the Company's transfer agent.

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: (1) maintain a segregated account or accounts in the name of each Fund; (2)
hold and disburse portfolio securities on account of each Fund; (3) collect and
receive all income and other payments and distributions on account of each
Fund's portfolio securities; (4) respond to correspondence relating to its
duties; and (5) make periodic reports to the Company's Board of 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.

29
<PAGE>

BONY is entitled to receive such compensation from the Funds as may be agreed
upon from time to time.

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: (1)
maintain a segregated account or accounts in the name of each Fund; (2) hold and
disburse portfolio securities on account of each Fund; (3) collect and receive
all income and other payments and distributions on account of each Fund's
portfolio securities; (4) respond to correspondence relating to its duties; and
(5) 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.

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 and PFPC 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 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.

30
<PAGE>

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.

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.

31
<PAGE>

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%. For the fiscal year ended March 31,
1998 the turnover rates for the High Yield, Emerging Markets, Value Equity and
U.S. Small Cap Funds were 32%, 53%, 33% and 51%, respectively.

PURCHASE OF SHARES

The Company reserves the right, in its sole discretion, to suspend the offering
of shares of each of its Funds and 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
(1) 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,
(2) 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
(3) 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 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

32
<PAGE>

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:

n
P (1+T) = ERV

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:

6
Yield = 2 [ (a-b +1) - 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.

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 for the fiscal year ended March 31, 1998
and for the period from April 1, 1996 (inception) to March 31, 1997 was 14.84%
and 11.90%, respectively. The total return of the Emerging Markets Fund for the
fiscal year ended March 31, 1998 and for the period from August 28, 1996
(inception) to March 31, 1997 was 11.26%

33
<PAGE>

and 8.29%, respectively. The total return of the Value Equity and U.S. Small
Cap Funds for the period from April 11, 1997 (inception) to March 31, 1998 was
49.40% and 41.40%, respectively.

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 Fund's Prospectuses 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 Prospectuses are not intended as substitutes for careful tax planning.

Each Fund intends to qualify as a "regulated investment company" ("RIC") under
the Internal Revenue Code of 1986, as amended (the "Code"). If so qualified, a
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
a Fund distributes annually to the separate accounts its ordinary income and
capital gain net income, in the manner prescribed in the Code, it also will not
be subject to the 4% federal excise tax otherwise applicable to a RIC 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 a
Fund are not currently taxable when left to accumulate within a variable annuity
contact or variable life insurance policy.

34
<PAGE>

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 life insurance policies, such holders
should consult the prospectuses used in connection with the issuance of the
particular contract or policy.

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 (Washington's Birthday), Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. 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.

If any securities held by a Fund are restricted as to resale, their fair value
will be determined in

35
<PAGE>

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% or more 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% or more of the

36
<PAGE>

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 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

PricewaterhouseCoopers LLP serves as the independent accountants for the
Company. PricewaterhouseCoopers 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.

As of June 30, 1998, 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

37
<PAGE>

listed below owned of record more than five percent of the following Portfolios:

<TABLE>
<CAPTION>
Shares of % of
Shareholder Portfolio Owned Portfolio Owned
----------- --------------- ---------------
<S> <C> <C>
EMERGING MARKETS FUND:
CM Life 532,309 86%
c/o Continuum
301 West 11th Street
Kansas City, MO 64105-1634

Security Equity Life Insurance Company 86,918 14%
84 Business Park Drive
Armonk, NY 10504-1711

HIGH YIELD FUND:
CM Life 2,896,017 72%
c/o Continuum
301 West 11th Street
Kansas City, MO 64105-1634

Security Equity Life Insurance Company 1,124,295 28%
84 Business Park Drive
Armonk, NY 10504-1711

DJG VALUE EQUITY FUND:
Security Equity Life Insurance Company 144,118 100%
84 Business Park Drive
Armonk, NY 10504-1711

U.S. SMALL CAP FUND:
Security Equity Life Insurance Company 107,980 100%*
84 Business Park Drive
Armonk, NY 10504-1711
</TABLE>

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

38
<PAGE>

* May be deemed to "control" the Fund as that term is defined under the 1940
Act.

FINANCIAL STATEMENTS

The audited financial statements for the Company and the notes thereto for the
fiscal year ended March 31, 1998 are incorporated herein by reference to the
Company's Annual Report to Shareholders dated March 31, 1998. The March 31,
1998 financial statements are incorporated herein in reliance upon the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
such firm as experts in auditing and accounting. Additional copies of the
Annual Report may be obtained at no charge by telephoning the Company at the
telephone number appearing on the front page of this Statement of Additional
Information.

39
<PAGE>

THE OFFITBANK VARIABLE INSURANCE FUND, INC.

400 Bellevue Parkway
Wilmington, Delaware 19809
(800) 618-9510

STATEMENT OF ADDITIONAL INFORMATION

July 29, 1998

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 OFFITBANK VIF-High Yield Fund, OFFITBANK
VIF-Emerging Markets Fund, OFFITBANK - DJG Value Equity Fund, OFFITBANK VIF-U.S.
Government Securities Fund, OFFITBANK VIF-U.S. Small Cap Fund, OFFITBANK
VIF-Global Convertible Fund Income Fund, OFFITBANK VIF-Total Return Fund,
OFFITBANK VIF-Latin America Equity Fund, OFFITBANK VIF-CVO Greater China Fund,
and OFFITBANK VIF-Mortgage Securities Fund. This Statement of Additional
Information sets forth information about the Company applicable to the following
portfolios only: OFFITBANK VIF-Latin America Equity Fund, OFFITBANK VIF-CVO
Greater China Fund, and OFFITBANK VIF-Mortgage Securities Fund (individually, a
"Fund", and collectively, the "Funds").

This Statement of Additional Information is not a prospectus and is only
authorized for distribution when preceded or accompanied by the Company's
Prospectus dated July 29, 1998 (the "Prospectus"). This Statement of Additional
Information contains additional information to that set forth in the Prospectus
and should be read in conjunction with the Prospectus, additional copies of
which may be obtained without charge by writing or calling the Company at the
address and telephone number set forth above.

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
AND TECHNIQUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
ADDITIONAL RISK CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . 16
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
MANAGEMENT OF THE FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
PERFORMANCE CALCULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ADDITIONAL INFORMATION CONCERNING TAXES. . . . . . . . . . . . . . . . . . . 29
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . 32
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>

<PAGE>

ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS AND
TECHNIQUES

The OFFITBANK VIF-Latin America Equity Fund's primary investment objective is
capital appreciation. A secondary investment objective of the Fund is current
income. The Fund will seek to achieve its objective by investing primarily in
equity securities of Latin American issuers.

The OFFITBANK VIF-Mortgage Securities Fund's primary investment objective is to
maximize total return from a combination of current income and capital
appreciation. The Fund will seek to achieve its objective by investing at least
80% of the value of its assets in investment grade or comparable
mortgage-related securities issued by the U.S. Government, its agencies and
instrumentalities, by private entities in the U.S., and by foreign governments
and governmental and private entities.

The OFFITBANK VIF-CVO Greater China Fund's investment objective is to achieve
capital appreciation and income generation. The Fund will seek to achieve its
objective by investing primarily in publicly-traded equity securities of
companies which, in the opinion of the Adviser, will benefit from the economic
development and growth of the People's Republic of China, Hong Kong, Taiwan and
Singapore (collectively, the "Greater China Region").

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 each Fund's Prospectus. The
following discussion of investment policies supplements the discussion of
investment objectives and policies set forth in the 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. A Fund will enter into
repurchase agreements only with dealers, domestic banks or recognized financial
institutions which, in the opinion of the investment adviser of the Fund (the
"Adviser") based on guidelines established by the Company's Board of Directors,
present minimal credit risks. The Adviser to each Fund 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, a Fund may incur costs and experience time delays in connection with
the disposition of the underlying securities.

3
<PAGE>

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 reverse repurchase agreements 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 the Fund under the 1940 Act.

DOLLAR ROLL TRANSACTIONS

If and to the extent authorized to do so, in order to enhance portfolio returns
and manage prepayment risks, 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 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.

4
<PAGE>

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: (1)
liquidity protection; and (2) 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. A Fund 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

If and to the extent authorized to do so, each Fund may invest in
mortgage-backed securities. Mortgage-backed securities are securities that
represent participations in, or are secured by and payable from, loans secured
by real property.

5
<PAGE>

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.

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

DEPOSITORY RECEIPTS

6
<PAGE>

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
a Fund's investment policies, such 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

If and to the extent authorized to do so, warrants or rights may be acquired by
each 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, the Mortgage Securities Fund and
the Latin America Equity Fund may make secured loans of portfolio securities
amounting to not more than 30% of each Fund's total assets. The CVO Greater
China Fund may make secured loans of portfolio securities amounting to not more
than 1/3 of its total assets. 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 the Fund's investment program and by regulatory agencies and approved by
the Company's Board of Directors. While the securities loan is outstanding, the
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. The Fund has a right to call each loan
and obtain the securities on five business days' notice. To the extent
applicable, the 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. Opportunities to engage in the lending of equity securities listed in
Greater China Region securities markets are restricted. For example, Hong Kong
permits such lending subject to a 14 day limit on the lending period. 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 unless, in the judgment of
the Adviser, the consideration to be earned from such loans would justify the
risk.

7
<PAGE>

UNITED STATES GOVERNMENT OBLIGATIONS

In addition to the U.S. Treasury obligations described above, a 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.

BANK OBLIGATIONS

Subject to the investment limitations described in the Prospectus, bank
obligations that may be purchased by a 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 banker's 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 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

8
<PAGE>

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.

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 a 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 the 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.

A Fund will not purchase securities which the Adviser to the Fund 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 the Fund's investments. In the event unforeseen
exchange controls or foreign withholding taxes are imposed with respect to a
Fund's investments, the effect may be to reduce the income received by the Fund
on such investments.

BORROWING

Each Fund is authorized to borrow money from banks for temporary or emergency
purposes, denominated in any currency in an amount up to 10% of its total assets
(including the amount borrowed).

HEDGING AND OTHER STRATEGIC TRANSACTIONS

9
<PAGE>

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 the 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.

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

10
<PAGE>

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.

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, each 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 the 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

11
<PAGE>

requirements described below for so long as the call is outstanding. Even
though the Fund will receive the option premium to help protect it against loss,
a call sold by the Fund will expose the 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, the Fund's investment objective and the restrictions set forth
herein.

If and to the extent authorized to do so, each 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, the 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, each 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 the 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 the Fund to deposit with a
financial intermediary, as security for its obligations, an amount of cash or
other specified assets ("initial margin") that initially is from 1% to 10% of
the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets ("variation margin") may be required to be deposited
thereafter daily as the mark-to-market value of the futures contract fluctuates.
The purchase of an option on a financial futures contract involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the 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.

12
<PAGE>

A Fund will not 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,
the 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

13
<PAGE>

Except as provided in the Prospectus, a 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 the 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.

Each 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, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the
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 the 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.

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 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.

14
<PAGE>

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. A 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 the 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 the Fund may be obligated to pay. Interest rate swaps involve the
exchange by the 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, the 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. No
Fund will enter into any swap, cap, floor, collar or other derivative
transaction unless the Counterparty is deemed creditworthy by the Adviser. If a
Counterparty defaults, the 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 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.

15
<PAGE>

investment). Such determination will govern whether a swap will be deemed
within the 15% restriction on investments in securities that are not readily
marketable.

Each 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

ADDITIONAL RISK CONSIDERATIONS

POLITICAL AND ECONOMIC RISKS

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 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. The Funds could be adversely affected by delays in, or a

16
<PAGE>

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 the Funds 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
the Funds 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 the Fund are uninvested and no return
is earned thereon. The inability of any Fund to make intended security purchases
due to settlement problems could cause the Fund to miss attractive
opportunities. Inability to dispose of a portfolio security due to settlement
problems either could result in losses to the 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

A Fund's net investment income from foreign issuers may be subject to non-U.S.
withholding taxes thereby reducing the Fund's net investment income. See
"Additional Information Concerning Taxes".

17
<PAGE>

ILLIQUID SECURITIES

Each Fund may invest up to 15% of its net assets in illiquid securities. See
"Special Risks of Certain Fund Investments" 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 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 Adviser to each Fund will monitor the liquidity of
securities in that 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
the 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;

(2) make loans, except that the Fund may: (a) purchase and hold debt
instruments (including bonds, debentures or other obligations and
certificates of deposit and bankers' acceptances); (b) invest in
loans and participations in accordance with its investment
objectives and policies; (c) make loans of portfolio securities;
and (d) 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 the
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);

18
<PAGE>

(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 the 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 the 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; the 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 or short positions in stocks owned
by the Fund);

(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
not more than 5% of the 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.

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

19
<PAGE>

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
- --------------------- ----------- ------------
<S> <C> <C>
Morris W. Offit, 61* Chairman of the President and Director,
OFFITBANK Board, President and OFFITBANK (1983 -
520 Madison Avenue Director present). Chairman of
New York, NY 10022 the Board, President and
Director of The OFFITBANK
Investment Fund, Inc.

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

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

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

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

20
<PAGE>

Vincent M. Rella, 45 Assistant Treasurer Managing Director,
OFFITBANK OFFITBANK (1997 to
520 Madison Avenue present); Controller,
New York, NY 10022 OFFITBANK
(1986 - present)

Stephen M. Wynne, 43 Assistant Treasurer Chairman of PFPC Trustee
PFPC Inc. & Custodial Services Ltd.
400 Bellevue Parkway (since 1995); Executive
Wilmington, DE 19809 Vice President and Chief
Accounting Officer (since
1993) and Senior Vice
President and Chief
Accounting Officer (from
1991 to 1993) of PFPC
Inc.; Executive Vice
President (from 1993 to
1995) of PFPC
International.

David D. Marky, 32 Assistant Treasurer Vice President and
PFPC Inc. Director of Accounting
103 Bellevue Parkway g(since 1996) of PFPC
Wilmington, DE 19809 Inc., Assistant Vice
President and Accounting
Conversion Manager (since
1992) of PFPC Inc.

Gary M. Gardner, 47 Assistant Secretary Chief Counsel (since
PFPC Inc. 1994) of PFPC Inc.;
400 Bellevue Parkway Associate General Counsel
Wilmington, DE 19809 (from 1992 to 1994) of
The Boston Company, Inc.

David C. Lebisky, 26 Assistant Secretary Regulatory Administrator
PFPC Inc. (since 1996) of PFPC
400 Bellevue Parkway Inc.; Legal Assistant
Wilmington, DE 19809 (1994 to 1996) with the
law firm of Drinker
Biddle & Reath; BA
Candidate (1990 to 1994)
Lasalle University.
</TABLE>

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

21
<PAGE>

ESTIMATED DIRECTOR COMPENSATION
(FOR CALENDAR YEAR 1998)

<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM REGISTRANT
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL AND FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX* PAID TO
NAME OF PERSON FROM REGISTRANT EXPENSES RETIREMENT DIRECTORS
- -------------- --------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Morris W. Offit $0 0 N/A $0

Edward J. Landau $5,500 0 N/A $28,500

The Very Reverend James $5,500 0 N/A $28,500
Parks Morton
</TABLE>

* For this purpose, the "Fund Complex" consists of all other regulated
investment companies advised by OFFITBANK.

INVESTMENT ADVISER

CVO Greater China Partners, L.P. serves as investment adviser to the OFFITBANK
VIF-CVO Greater China Fund. OFFITBANK serves as investment adviser to the
OFFITBANK VIF-Latin America Equity Fund and the OFFITBANK VIF-Mortgage
Securities Fund. As the term is hereinafter used, "Adviser" shall refer to the
investment adviser to each Fund, respectively.

OFFITBANK

OFFITBANK, a New York State chartered trust company, acts as investment adviser
to OFFITBANK VIF-Latin America Equity Fund and OFFITBANK VIF-Mortgage Securities
Fund. The advisory agreement (the "Advisory Agreement") between the Adviser and
the Funds provides that the Adviser shall manage the operations of the Funds,
subject to policy established by the Board of Directors of the Company. Pursuant
to the Advisory Agreement, the Adviser manages the Funds' 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 .90% of
each 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 Fund will not be required to
reimburse the Adviser for any advisory fees waived.

22
<PAGE>

The Advisory Agreement was approved by the Company's Board of Directors for an
initial two year period and, unless sooner terminated, will continue in effect
with respect to a particular Fund 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 the 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.

CVO GREATER CHINA PARTNERS, L.P.

CVO Greater China Partners, L.P. provides day-to-day management of the OFFITBANK
VIF- CVO Greater China Fund's portfolio and renders investment advisory services
to the Fund pursuant to an Advisory Agreement with the Fund (the "Advisory
Agreement"). Subject to such policies as the Fund's Board of Directors may
determine, the Adviser makes investment decisions for the Fund. The Advisory
Agreement provides that as compensation for services, the Adviser is entitled to
receive from the Fund a monthly fee at the annual rate of 1.25% of the average
daily net assets of the Fund.

The Adviser is a Delaware limited partnership formed in September 1994. The
Adviser's key investment team consists of experienced investment professionals
based in San Francisco. The Adviser's principal business is the rendering of
discretionary investment management services to the Fund. The Adviser's
principal business address is 520 Madison Avenue, New York, NY 10022.

CONTROL OF THE ADVISER. The Adviser is controlled by its two general partners:
OFFITBANK Greater China, Inc., a New York corporation established in August 1994
as a wholly-owned subsidiary of OFFITBANK, a New York State chartered trust
company ("OFFITBANK"), and ChinaVest Public Equities, LLC, a California limited
liability corporation established in January 1995 as a wholly-owned subsidiary
of ChinaVest Financial Services, Ltd., a Cayman Islands corporation ("ChinaVest
Ltd.").

The ChinaVest investment management group based in Hong Kong (the "ChinaVest
Group") was organized in 1985. The ChinaVest Group has ten years of experience
in managing private equity investments and shares certain common control persons
with ChinaVest Public Equities, LLC. The ChinaVest Group currently manages
approximately $300 million in assets. The ChinaVest Group is represented by
ChinaVest, Inc., whose principal business address is 160 Sansome Street, 18th
Floor, San Francisco, California 94104.

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

23
<PAGE>

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.

If the Adviser were prohibited from performing the services described in any
Prospectus with respect to any Fund, it is expected that the Company's Board of
Directors would recommend to such 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.

DISTRIBUTOR

24
<PAGE>

ADMINISTRATION, TRANSFER AGENCY AND CUSTODY SERVICES

PFPC Inc. ("PFPC"), an indirect, wholly owned subsidiary of PNC Bank Corp.,
performs administrative and fund accounting services for the Company, and is
responsible for certain clerical, record keeping and bookkeeping services,
except those performed by OFFITBANK, CVO Greater China Partners, L.P. or by The
Bank of New York ("BONY") in its capacity as custodian of the Company. PFPC has
no role in determining the investment policies of the Company or which
securities are to be purchased or sold by the Funds. The services provided by
PFPC as Administrator include regulatory compliance, assistance in the
preparation and filing of post-effective amendments to the Company's
registration statement with the Commission, preparation of annual, semi-annual
and other reports to shareholders and the Commission, filing of federal and
state income tax returns, preparation of financial and management reports,
preparation of board meeting materials, preparation and filing of blue sky
registrations and monitoring compliance with the amounts and conditions of each
state's qualification. For the administrative and fund accounting services PFPC
provides to the Company, PFPC is paid an annual fee calculated daily and paid
monthly which is expected to approximate .125% of net assets. From time to
time, the Administrator may waive all or a portion of its fees.

In addition to the services provided by PFPC to the Fund as Administrator, PFPC
also provides transfer agency and dividend disbursing services to the Fund
pursuant to a separate agreement.

BONY serves as the Company's custodian pursuant to a custodian agreement (the
"Custodian Agreement") with the Company. BONY is located at 90 Washington
Street, New York, New York 10286. Under the Custodian Agreement, BONY has agreed
to: (1) maintain a segregated account or accounts in the name of each Fund; (2)
hold and disburse portfolio securities on account of each Fund; (3) collect and
receive all income and other payments and distributions on account of each
Fund's portfolio securities; (4) respond to correspondence relating to its
duties; and (5) make periodic reports to the Company's Board of Directors
concerning each Fund's operations. The Custodian is authorized under the
Custodian Agreement to select one or more banks or trust companies to serve as
sub-custodian on behalf of a Fund, provided that the Custodian remains
responsible for the performance of all of its duties under the Custodian
Agreement. The Custodian is entitled to receive such compensation from each Fund
as may be agreed upon from time to time.

OTHER INFORMATION CONCERNING FEES AND EXPENSES

All or part of the fees payable by each Fund to the organizations retained to
provide services for the Fund may be waived from time to time in order to
increase the Fund's net investment income available for distribution to
shareholders.

Except as otherwise noted, OFFITBANK and PFPC pay 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; advisory and administration fees;

25
<PAGE>

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
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 policy established
by the Company's Board of Directors, the Adviser is primarily responsible for
the Company's portfolio decisions and the placing of the Company's portfolio
transactions.

Portfolio securities normally will be purchased or sold from or to dealers
serving as market makers for the securities at a net price, which may include
dealer spreads and underwriting commissions. 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 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 expected to be 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.

26
<PAGE>

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 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.

PURCHASE OF SHARES

The Company reserves the right, in its sole discretion, to suspend the offering
of shares of its Funds and 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
(1) 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,
(2) 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 the Fund to
dispose of securities owned by it, or fairly to determine the value of its
assets, and (3) 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 the 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 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 the Fund be accompanied by
certain standardized performance information computed as required by the SEC. An
explanation of the SEC methods for computing performance follows.

TOTAL RETURN

27
<PAGE>

n
P (1+T) = 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, each 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:

6
Yield = 2 [ (a-b +1) - 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.

Performance information presented for a Fund should not be compared directly
with performance

28
<PAGE>

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.

ADDITIONAL INFORMATION CONCERNING TAXES

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

Each Fund intends to qualify as a "regulated investment company" ("RIC") under
the Internal Revenue Code of 1986, as amended (the "Code"). If so qualified, a
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
a Fund distributes annually to the separate accounts its ordinary income and
capital gain net income, in the manner prescribed in the Code, it also will not
be subject to the 4% federal excise tax otherwise applicable to a RIC 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 a Fund are not currently taxable when left to accumulate within a variable
annuity contract or variable life insurance policy.

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 Fund 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 life insurance policies, such holders
should consult the prospectus used in connection with the issuance of the
particular contract or policy.

29
<PAGE>

FOREIGN TAX CREDITS

Dividends, interest and gains received by a Fund from foreign sources may give
rise to withholding and other taxes imposed by foreign countries. If a Fund
qualifies as a regulated investment company, if certain distribution
requirements are satisfied and if more than 50% of the value of the Fund's total
assets at the close of any taxable year consists of stocks or securities of
foreign corporations, the Fund may make an election for U.S. Federal income tax
purposes, to treat any foreign country's income or withholding taxes paid by the
Fund that can be treated as taxes on income under U.S. income tax principles, as
paid by its shareholders. In the absence of such an election, the Fund would
deduct such foreign taxes in computing the amount of its distributable income.

ADDITIONAL TAX INFORMATION APPLICABLE TO OFFITBANK VIF-CVO GREATER CHINA FUND

TAXES IMPOSED BY CHINA

INCOME TAXES. Under the Income Tax Law of the People's Republic of China
Concerning Foreign Investment Enterprises and Foreign Enterprises, which took
effect on July 1, 1991, the Fund's income from dividends and profit
distributions of companies in China will be subject to a 20% income tax.
Pursuant to regulations issued by the State Council in 1984, the income tax rate
is reduced to 10% on income received from sources in Shanghai, Shenzhen, Zhuhai,
Xiamen, Shantou and the 14 special coastal port cities. Accordingly, if the "B"
shares listed on the Shanghai or Shenzhen stock exchanges are issued by
companies established in Shanghai, Shenzhen, Zhuhai, Xiamen, Shantou or the 14
special coastal port cities, the income tax levied on income earned by overseas
investors (who have not set up offices in China) from such sources will be
reduced to 10%. Effective August 1, 1993, dividends from "B" shares of
companies are temporarily exempt from income tax.

Any gains (whether of a capital or trading nature) realized by the Fund from the
sale of any "B" shares are temporarily not subject to any income tax in China
based on tax regulations issued in August 1993.

TRANSFER TAXES AND FEES. The acquisition or sale by the Fund of "B" shares in a
Chinese company listed on the Shenzhen Stock Exchange is subject to a 0.3% stamp
tax and up to a 0.7% broker's commission on both the buyer and seller. The 0.7%
broker's commission will be reduced to 0.5% and 0.4%, respectively, if the
transaction value exceeds RMB 500," and RMB 5,000,000, respectively. For the
Shenzhen Stock Exchange, a purchaser of "B" shares is also subject to a transfer
registration fee levied at 0.3% of the transaction amount of the "B" shares
traded. For the Shanghai Stock Exchange, a transaction fee of 0.1% of the
actual transaction amount is levied. Clearing fees are handled in accordance
with the relevant regulations of the clearing bank based upon the actual amount
cleared. As of August 1, 1994, bank clearance charges were approximately US$42
in Shanghai, and ranged from HK$185 to HK$625 in Shenzhen.

30
<PAGE>

TAXES IMPOSED BY HONG KONG

TAXATION OF THE FUND. The Fund will be subject to Hong Kong profits tax if (i)
it carries on business in Hong Kong, and (ii) its profits are derived from a
Hong Kong source. Profits or capital gains derived from the sale of share or
other securities of, or dividends received from, companies listed on stock
exchanges outside Hong Kong are not subject to Hong Kong profits tax.

Transfers of shares of Hong Kong companies require the payment of a stamp duty
of 0.3% on the amount of the transfer, comprised of a 0.15% stamp duty on the
purchaser and a 0.15% stamp duty on the seller.

TAXATION OF SHAREHOLDERS. There is no tax in Hong Kong on capital gains arising
from the sale by an investor of shares of the Fund. However, for certain
investors (principally share traders, financial institutions and insurance
companies carrying on business in Hong Kong), such gains may be considered to be
part of the investor's normal business profits and in such circumstances will be
subject to Hong Kong profits tax at the rate of 16.5% for corporations and 15%
for individuals as of August 1, 1994.

Dividends which the Fund pays to its shareholders are not taxable in Hong Kong
(whether through withholding or otherwise) under current legislation and
practice.

TAXES IMPOSED BY TAIWAN

Under the Income Tax Law of Taiwan, dividend and interest income received by the
Fund from sources within Taiwan will be subject to income withholding tax. The
rate of withholding tax applicable to interest payments to a non-Taiwan resident
recipient is 20%. The rates of withholding tax applicable to dividend payments
to a non-Taiwan individual and a non-Taiwan corporate entity are 35% and 25%,
respectively. However, the rate of withholding tax applicable to dividend
payments to a qualified foreign institutional investor approved by the TSEC or a
non-resident investor approved by the Investment Commission of the Ministry of
Economic Affairs is 20%. Stock dividends are subject to an income tax which is
payable on receipt or. in certain cases, on disposal of the stock dividends.
Securities received as stock dividends will be treated for the purposes of the
capital gains income tax described below in the same way as other securities
held. Transactions in securities are not currently subject to any capital gains
tax, but there can be no assurance that a capital gains tax will not be imposed
in the future or that the Fund will continue to be exempt from such tax.

Profits on sales of Fund shares effected by non-resident foreigners wholly
outside Taiwan will not be subject to Taiwan income tax. However, on any sale
of stock effected in Taiwan, a securities transaction tax is payable by the
seller of such stock at the rate of 0.3% of the transaction stock price.

31
<PAGE>

TAXES IMPOSED BY SINGAPORE

The corporate income tax rate in Singapore is currently 26%. Under the Income
Tax Law of Singapore, dividends received by the Fund from sources in Singapore
are not subject to withholding tax, but interest received by the Fund will be
subject to a 15% withholding tax.

There is no tax on capital gains. Where there is a series of transactions, the
tax authorities may take the view that a business is being carried on and may
attempt to assess the gains as trading profits of the corporation. However, the
government of Singapore has incentives for securities companies, trust companies
and fund managers, which include tax exemptions or concessionary tax rates of
10% for qualifying income.

DETERMINATION OF NET ASSET VALUE

The Company values the shares of the Funds 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.
Day, President's Day (Washington's Birthday), Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. 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 the 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.

32
<PAGE>

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.

Each Fund may invest in foreign securities, and as a result, the calculation of
a 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 the 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

Each share of any Fund of the Company is entitled to such dividends and
distributions out of the

33
<PAGE>

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 each 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 Fund, of
any general assets not belonging to the 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

PricewaterhouseCoopers LLP serves as the independent accountants for the
Company. PricewaterhouseCoopers 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 the Funds.

OTHER INFORMATION

34
<PAGE>
THE OFFITBANK VARIABLE INSURANCE FUND, INC.

400 Bellevue Parkway
Wilmington, Delaware 19809
(800) 618-9510

STATEMENT OF ADDITIONAL INFORMATION

July 29, 1998

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 OFFITBANK VIF-High Yield Fund, OFFITBANK
VIF-Emerging Markets Fund, DJG Value Equity Fund, OFFITBANK VIF-U.S. Government
Securities Fund, OFFITBANK VIF-U.S. Small Cap Fund, OFFITBANK VIF-Global
Convertible Fund Income Fund, OFFITBANK VIF-Total Return Fund, OFFTIBANK
VIF-Latin America Equity Fund, OFFITBANK VIF-CVO Greater China Fund and
OFFITBANK VIF - Mortgage Securities Fund. This Statement of Additional
Information sets forth information about the Company applicable to the following
portfolio only: OFFITBANK VIF-Total Return Fund ( the "Total Return Fund").

This Statement of Additional Information is NOT a prospectus and is only
authorized for distribution when preceded or accompanied by the Company's
Prospectus dated July 29, 1998 (the "Prospectus"). This Statement of Additional
Information contains additional information to that set forth in the Prospectus
and should be read in conjunction with the Prospectus, additional copies of
which may be obtained without charge by writing or calling the Company at the
address and telephone number set forth above.

<PAGE>

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

TABLE OF CONTENTS

PAGE
----
<S> <C>
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
AND TECHNIQUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ADDITIONAL RISK CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . 16
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 18
MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . 20
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 25
PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
PERFORMANCE CALCULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 27
ADDITIONAL INFORMATION CONCERNING TAXES . . . . . . . . . . . . . . . . . . 28
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . 29
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
- --------------------------------------------------------------------------------
</TABLE>

<PAGE>

ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS AND
TECHNIQUES

The Total Return Fund's investment objective is to maximize total return from a
combination of capital appreciation and current income. The Total Return Fund
will seek to achieve its objective by investing primarily in a diversified
portfolio of fixed-income securities of varying maturities and by giving
OFFITBANK, the Fund's investment adviser (the "Adviser"), broad discretion to
deploy the Total Return Fund's assets among certain segments of the fixed-income
market that the Adviser believes will best contribute to the achievement of the
Total Return Fund's objective. The Total Return Fund may invest directly in the
markets and securities described is this prospectus, or indirectly through
investing in the other investment portfolios of the OFFITBANK Investment Fund,
Inc. and the Company, including the OFFITBANK U.S. Government Securities Fund
(the "U.S. Government Securities Fund"), the OFFITBANK Mortgage Securities Fund
(the "Mortgage Securities Fund"), the OFFITBANK VIF-High Yield Fund (the "High
Yield Fund") and the OFFITBANK VIF-Emerging Markets Fund (the "Emerging Markets
Fund" and collectively with the Total Return Fund, U.S. Government Securities
Fund, Mortgage Securities Fund and High Yield Fund, the "Funds" and each
individually, a "Fund").

There can be no assurance that the Total Return Fund will achieve its objective.
The principal features of the Total Return 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 the Prospectus.

REPURCHASE AGREEMENTS

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 (the "Adviser") based on guidelines established by the Company's Board
of Directors, present minimal credit risks. The 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, the Fund may incur costs and experience time
delays in connection with the disposition of the underlying securities.

REVERSE REPURCHASE AGREEMENTS

Each Fund may enter into reverse repurchase agreements. A reverse repurchase
agreement is a borrowing transaction in which the 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 the Funds enter into reverse
repurchase agreements as described in the Prospectus, they will place in a
segregated

3
<PAGE>

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 the Funds under the 1940 Act.

DOLLAR ROLL TRANSACTIONS

In order to enhance portfolio returns and manage prepayment risks, a Fund may
engage in dollar roll transactions with respect to mortgage securities issued by
GNMA, FNMA and FHLMC. In a dollar roll transaction, the 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, the 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 the Fund exceeding the yield on the sold security. When the
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

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 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.

4
<PAGE>

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: (1)
liquidity protection; and (2) 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"). 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. 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

5
<PAGE>

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.

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.

DEPOSITORY RECEIPTS

The Funds, except the U.S. Government Securities and Mortgage Securities Funds,
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 the Fund's investment policies, the 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.

6
<PAGE>

WARRANTS OR RIGHTS

Warrants or rights may be acquired by Funds, except the U.S. Government
Securities and Mortgage Securities Funds, 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, a Fund may make secured loans of
portfolio securities amounting to not more than 30% of its total assets.
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 the Fund's investment program
and by regulatory agencies and approved by the Company's Board of Directors.
While the securities loan is outstanding, the 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.
The Fund has a right to call each loan and obtain the securities on five
business days' notice. To the extent applicable, the 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 unless, in the judgment of the Adviser, the consideration
to be earned from such loans would justify the risk.

UNITED STATES GOVERNMENT OBLIGATIONS

Each Fund will 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, the Funds 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,

7
<PAGE>

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.

BANK OBLIGATIONS

As stated in the Prospectus, bank obligations that may be purchased by the Funds
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 banker's 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 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.

8
<PAGE>

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 a 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 a 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.

The Funds will not purchase securities which the 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 the Funds' investments. In the event unforeseen exchange controls or
foreign withholding taxes are imposed with respect to the Funds' investments,
the effect may be to reduce the income received by the Funds on such
investments.

HEDGING AND OTHER STRATEGIC TRANSACTIONS

9
<PAGE>

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.

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

10
<PAGE>

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.

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 the Fund will expose the 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.

11
<PAGE>

GENERAL CHARACTERISTICS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES

If and to the extent authorized to do so, a Fund may purchase and sell call and
put options on securities indices and other financial indices. In so doing, the
Fund can achieve many of the same objectives it would achieve through the sale
or purchase of options on individual securities

12
<PAGE>

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

CURRENCY TRANSACTIONS

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

Except as provided in this Prospectus, a 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.

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

13
<PAGE>

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.

COMBINED TRANSACTIONS

If and to the extent authorized to do so, a 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 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

A Fund may be authorized to enter into interest rate, currency and index swaps,
the purchase or sale of related caps, floors and collars. A 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. A 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 the 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

14
<PAGE>

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.

EURODOLLAR INSTRUMENTS

If and to the extent authorized to do so, a 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

15
<PAGE>

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

ILLIQUID SECURITIES

A 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 requires more time and results 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 Adviser takes into account a
number of factors in reaching liquidity decisions, including, but not limited
to: (1) the frequency of trading in the security; (2) the number of dealers who
make quotes for the security; (3) the number of dealers who have undertaken to
make a market in the security; (4) the number of other potential purchasers; and
(5) 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 Adviser will monitor the liquidity of securities in each Fund's
portfolio and report periodically on such decisions to the Board of Directors.

FOREIGN INVESTMENT RESTRICTIONS

16
<PAGE>

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

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. 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.

17
<PAGE>

NON-U.S. WITHHOLDING TAXES

The Fund's net investment income from foreign issuers may be subject to non-U.S.
withholding taxes thereby reducing the Fund's net investment income. See
"Additional Information Concerning Taxes."

INVESTMENT LIMITATIONS

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

18
<PAGE>

(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;

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

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

19
<PAGE>

MANAGEMENT OF THE FUND

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

<S> <C> <C>
Morris W. Offit, 61* Chairman of the President and Director,
OFFITBANK Board, President OFFITBANK (1983 - present).
520 Madison Avenue and Director Chairman of the Board,
New York, NY 10022 President and Director of The
OFFITBANK Investment Fund,
Inc.

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

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

20
<PAGE>

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

Vincent M. Rella, 45 Assistant Treasurer Managing Director, OFFITBANK
OFFITBANK (1997 to present); Controller,
520 Madison Avenue OFFITBANK
New York, NY 10022 (1986 - present)

Stephen M. Wynne, 43 Assistant Treasurer Chairman of PFPC Trustee &
PFPC Inc. Custodial Services Ltd. (since
400 Bellevue Parkway 1995); Executive Vice
Wilmington, DE 19809 President and Chief Accounting
Officer (since 1993) and
Senior Vice President and
Chief Accounting Officer (from
1991 to 1993) of PFPC Inc.;
Executive Vice President (from
1993 to 1995) of PFPC
International.

David D. Marky, 32 Assistant Treasurer Vice President and Director of
PFPC Inc. Accounting (since 1996) of
103 Bellevue Parkway PFPC Inc.; Assistant Vice
Wilmington, DE 19809 President and Accounting
Conversion Manager (since 1992)
of PFPC Inc.

Gary M. Gardner, 47 Assistant Secretary Chief Counsel (since 1994) of
PFPC Inc. PFPC Inc.; Associate General
400 Bellevue Parkway Counsel (from 1992 to 1994) of
Wilmington, DE 19809 The Boston Company, Inc.

David C. Lebisky, 26 Assistant Secretary Regulatory Administrator
PFPC Inc. (since 1996) of PFPC Inc.;
400 Bellevue Parkway Legal Assistant (1994 to 1996)
Wilmington, DE 19809 with the law firm of Drinker
Biddle & Reath; BA Candidate
(1990 to 1994) LaSalle
University.
</TABLE>

21
<PAGE>

ESTIMATED DIRECTOR COMPENSATION
(FOR CALENDAR YEAR 1998)

TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM
AGGREGATE BENEFITS ESTIMATED REGISTRANT AND
COMPENSATION ACCRUED AS ANNUAL FUND COMPLEX*
FROM PART OF FUND BENEFITS UPON PAID TO
NAME OF PERSON REGISTRANT EXPENSES RETIREMENT DIRECTORS
-------------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C>
Morris W. Offit $0 $0 N/A $0

Edward J. Landau $5,500 $0 N/A $28,500

The Very Reverend $5,500 $0 N/A $28,500
James Parks Morton
</TABLE>

* For this purpose, the "Fund Complex" consists of all other regulated
investment companies advised by OFFITBANK.

INVESTMENT ADVISER

The Company has retained OFFITBANK, a New York State chartered trust company, to
act as its investment adviser (the "Adviser"). 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 policy
established by the Board of Directors of the Company. Pursuant to the Advisory
Agreement, 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.

22
<PAGE>

Return Fund is only with respect to that portion of the Fund's assets invested
directly in stocks, bonds, and other instruments. The Adviser will waive its
fee with respect to the portion of the Total Return Fund's assets invested in
the underlying funds. To the extent that the Total Return Fund invests in the
underlying funds, the Fund will indirectly bear a pro rata share of fees and
expenses incurred by the underlying funds and the investment returns of the
Total Return Fund will be net of the expenses of the underlying funds.

The investment advisory agreements for the underlying funds provide that, as
compensation for services, the Adviser is entitled to receive from each
underlying fund a monthly fee at the following annual rates based upon the
average daily net assets of the underlying fund: 0.85% for the first
$200,000,000 of assets and 0.75% for amounts in excess thereof in the case of
the High Yield Fund, 0.90% for the first $200,000,000 of assets and 0.80% for
amounts in excess thereof in the case of the Emerging Markets Fund, and 0.35% of
the average daily net assets of the U.S. Government Securities and Mortgage
Securities Funds. The investment advisory fee for each underlying fund is
higher than that paid by most investment companies, but is comparable to that
paid by other investment companies that have strategies focusing on high yield
and international investments.

The Advisory Agreement was approved by the Company's Board of Directors for an
initial two year period and unless sooner terminated, the Advisory Agreement
will continue in effect with respect to the Company from year to year
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.

REGULATORY MATTERS

23
<PAGE>

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 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.

DISTRIBUTOR

OFFIT Funds Distributor, Inc., (the "Distributor"), a wholly-owned subsidiary of
Provident Distributors, Inc. with its principal office Four Falls Corporate
Center, 6th Floor, West Conshohocken, Pennsylvania 19428-2961, 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.

ADMINISTRATION, TRANSFER AGENCY AND CUSTODY SERVICES

PFPC Inc. ("PFPC"), an indirect, wholly owned subsidiary of PNC Bank Corp.,
performs administrative and fund accounting services for the Company, and is
responsible for certain clerical, record keeping and bookkeeping services,
except those performed by OFFITBANK or by The Bank of New York ("BONY") in its
capacity as custodian of the Fund. PFPC has no role in determining the
investment policies of the Company or which securities are to be purchased or
sold by the Funds. The services provided by PFPC as Administrator include
regulatory compliance, assistance in the preparation and filing of
post-effective amendments to the Company's registration statement with the
Commission, preparation of annual, semi-annual and other reports to shareholders
and the Commission, filing of federal and state income tax returns, preparation
of financial and management reports, preparation of board meeting materials,
preparation and filing of blue sky registrations and monitoring compliance with
the amounts and conditions of each state's qualification. For the
administrative and fund accounting services

24
<PAGE>

PFPC provides to the Company, PFPC is paid an annual fee calculated daily and
paid monthly which is expected to approximate .125% of net assets. From time to
time, the Administrator may waive all or a portion of its fees.

In addition to the services provided by PFPC to the Fund as Administrator, PFPC
also provides transfer agency and dividend disbursing services to the Fund
pursuant to a separate agreement.

OTHER INFORMATION CONCERNING FEES AND EXPENSES

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

PORTFOLIO TRANSACTIONS

25
<PAGE>

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 expected to be 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.

Investment decisions for the Company are made independently from those for other
funds and accounts advised or managed by the Adviser. 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 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.

26
<PAGE>

PURCHASE OF SHARES

REDEMPTION OF SHARES

PERFORMANCE CALCULATIONS

The Company may from time to time quote various performance figures to
illustrate the past performance 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 accompanied by
certain standardized performance information computed as required by the SEC. An
explanation of the SEC methods for computing performance follows.

TOTAL RETURN

27
<PAGE>

n
P (1+T) = ERV

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

6
Yield = 2 [ ( a-b +1) - 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.

28
<PAGE>

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 the Fund and its
shareholders. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussions here and in the
Prospectus are not intended as substitutes for careful tax planning.

The Fund intends to qualify as a "regulated investment company" ("RIC") under
the Internal Revenue Code of 1986, as amended (the "Code"). If so qualified,
the 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
the Fund distributes annually to the separate accounts its ordinary income and
capital gain net income, in the manner prescribed in the Code, it also will not
be subject to the 4% federal excise tax otherwise applicable to the RIC 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 contract or variable life insurance policy.

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. The 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.

29
<PAGE>

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.
Day, President's Day (Washington's Birthday), Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. 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.

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 the 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.

30
<PAGE>

The Funds will invest in foreign securities, and as a result, the calculation of
the Funds' 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

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.

31
<PAGE>

INDEPENDENT ACCOUNTANTS

PricewaterhouseCoopers LLP serves as the independent accountants for the
Company. PricewaterhouseCoopers 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 the Funds.

OTHER INFORMATION

FINANCIAL STATEMENTS

The audited financial statements for the OFFITBANK U.S. Government Securities
Fund and the OFFITBANK Mortgage Securities Fund for the period ended December
31, 1997 are incorporated herein by reference to the Annual Report to
Shareholders of the OFFITBANK Investment Fund, Inc. dated December 31, 1997.

The audited financial statements for the OFFITBANK VIF-Emerging Markets Fund and
the OFFITBANK VIF-High Yield Fund for the period ended March 31, 1998 are
incorporated herein by reference to the Company's Annual Report to Shareholders
dated March 31, 1998. The December 31, 1997 and March 31, 1998 financial
statements are incorporated herein in reliance upon the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
such firm as experts in auditing and accounting.

<PAGE>
PART C
OTHER INFORMATION

Item 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements:

(1) Included in the Prospectus:

(a) OFFITBANK VIF - Total Return Fund:

Audited Financial Highlights for the period July 1, 1997
through December 31, 1997 for the OFFITBANK U.S.
Government Securities Fund and the OFFITBANK Mortgage
Securities Fund.

Audited Financial Highlights for the year ended March 31,
1998 for the OFFITBANK VIF - Emerging Markets Fund and for
the OFFITBANK VIF - High Yield Fund.

(b) OFFITBANK VIF - High Yield Fund:

Audited Financial Highlights for the year ended March 31,
1998.

(d) DJG Value Equity Fund:

Audited Financial Highlights for the period from April 11,
1997 through March 31, 1998.

(e) OFFITBANK VIF - U.S. Small Cap Fund:

Audited Financial Highlights for the period from April 11,
1997 through March 31, 1998.

Included in the Statement of Additional Information:

Audited Financial Statements, including notes thereto and the
Report of PricewaterhouseCoopers LLP with respect to the
OFFITBANK U.S. Government Securities Fund series and OFFITBANK
Mortgage Securities Fund Series of the OFFITBANK Investment
Fund, Inc. are incorporated herein by reference to the Annual
Report to Shareholders the OFFITBANK Investment Fund, Inc. for
the Fiscal Year ended December 31, 1997 which was filed with
and accepted by the U.S. Securities and Exchange Commission
via EDGAR on Form N-30D on February 26, 1998 (accession number
0001047469-98-007721); and

Audited Financial Statements, including notes thereto and the
Report of PricewaterhouseCoopers LLP with respect to the
OFFITBANK VIF - Emerging Markets Fund series, OFFITBANK VIF -
High Yield Fund series, DJG Value Equity Fund series and
OFFITBANK VIF - U.S. Small Cap Fund series of the Registrant are
incorporated herein by reference to Registrant's Annual Report to
Shareholders for the Fiscal Year ended March 31, 1998, which was
filed with and accepted by the U.S. Securities and Exchange
Commission via EDGAR on Form N-30D on May 21, 1998 (Accession
Number 0001047469-98-021461):

(2) All required Financial Statements are included in Parts A and B
hereof. All other Financial Statements and Schedules are
inapplicable.

(b) Exhibits:

<PAGE>

EXHIBIT
NUMBER DESCRIPTION
------ -----------

Ex-99.B1(a) -- Registrant's Articles of Incorporation (2)
Ex-99.B1(b) -- Registrant's Articles of Amendment (2)
Ex-99.B2 -- Registrant's Amended and Restated By-Laws (2)
Ex-99.B3 -- None.
Ex-99.B4 -- Form of Specimen Share Certificates (2)
Ex-99.B5(a) -- Advisory Agreement between Registrant and OFFITBANK (2)
Ex-99.B5(b) -- Investment Advisory Agreement between the Registrant
and David J. Greene and Company (4)
Ex-99.B5(c) -- Investment Management Agreement between OFFITBANK, the
Registrant and Rockefeller & Co. Inc. (4)
EX-99.B5(d) -- Form of Investment Advisory Agreement between the
Registrant and CVO Greater China Partners, L.P. (8)
Ex-99.B6 -- Distribution Agreement between Registrant and OFFIT
Funds Distributor, Inc. (7)
Ex-99.B7 -- None.
Ex-99.B8(a) -- Form of Custodian Agreement between Registrant and The
Chase Manhattan Bank, N.A. (1)
EX-99.B8(b) -- Custody Agreement between Registrant and The Bank of
New York (3)
Ex-99.B9(a) -- Administration and Accounting Services Agreement
between Registrant and PFPC Inc. (7)
Ex-99.B9(b) -- Transfer Agency Agreement between Registrant and PFPC
Inc. (7)
Ex-99.B9(c) -- Participation Agreement among OFFITBANK Variable
Insurance Funds, Inc., OFFIT Funds Distributor, Inc.,
OFFITBANK, C.M. Life Insurance Company, Connecticut
Mutual Life Insurance Company and Connecticut Mutual
Financial Services, L.L.C. (2)
Ex-99.B9(d) -- Participation Agreement among OFFITBANK Variable
Insurance Funds, Inc., OFFIT Funds Distributor, Inc.,
OFFITBANK and Security Equity Life Insurance
Company (2)
Ex-99.B10 -- Opinion of Kramer, Levin, Naftalis, Nessen, Kamin &
Frankel (2)
Ex-99.B11(a) -- Consent of Kramer, Levin, Naftalis & Frankel (7)
Ex-99.B11(b) -- Consent of PricewaterhouseCoopers LLP (7)
Ex-99.B12 -- None.
Ex-99.B13 -- Purchase Agreement between Registrant and OFFIT Funds
Distributor, Inc. (2)
Ex-99.B14 -- None.
Ex-99.B15 -- None.
Ex-99.B16 -- Schedules for computation of performance quotation for
the VIF-U.S. Small Cap Fund and DJG Value Equity Fund.
(5)
Ex-B. P of A -- Powers of Attorney (2)
Ex-27 -- Financial Data Schedules (7)

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

(1) Filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1 on March
6, 1995 and incorporated herein by reference.
(2) Filed as an Exhibit to Registrant's Post-Effective Amendment No. 6 filed
electronically

<PAGE>

on January 31, 1997, accession number 0000922423-97-000053 and incorporated
herein by reference.
(3) Filed as an Exhibit to Registrant's Post-Effective Amendment No. 7 filed
electronically on February 13, 1997, accession number 0000922423-97-000090
and incorporated herein by reference.
(4) Filed as an Exhibit to Registrant's Post-Effective Amendment No. 9 filed
electronically on July 29, 1997, accession number 0000922423-97-000638 and
incorporated herein by reference.
(5) Filed as an Exhibit to Registrant's Post-Effective Amendment No. 10 filed
electronically on October 29, 1997, accession number 0000922423-97-000893
and incorporated herein by reference.
(6) Filed as Exhibit to Registrant's Post-Effective Amendment No. 11 filed
electronically on January 21, 1998, accession number 0000922423-98-000049
and incorporated herein by reference.
(7) Filed herewith.
(8) To be filed by amendment.

Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

Not Applicable

Item 26. NUMBER OF HOLDERS OF SECURITIES AS OF JUNE 30, 1998

OFFITBANK VIF-High Yield Fund 3

OFFITBANK VIF-Emerging Markets Fund 3

OFFITBANK VIF-Total Return Fund 0

OFFITBANK VIF-Global Convertible Fund 0

OFFITBANK VIF-U.S. Government Securities Fund 0

OFFITBANK VIF-U.S. Small Cap Fund 1

DJG Value Equity Fund 1

OFFITBANK VIF-Latin American Equity Fund 0

OFFITBANK VIF-CVO Greater China Fund 0

OFFITBANK VIF-Mortgage Securities Fund 0

Item 27. INDEMNIFICATION

Reference is made to Article VII of Registrant's Articles of Incorporation
(filed as an Exhibit to Registrant's Post-Effective Amendment No. 6 filed
electronically on January 31, 1997, accession number 0000922423-97-000053 and
incorporated herein by reference) and Article VIII

<PAGE>

of Registrant's Amended and Restated By-Laws (filed as an Exhibit to
Registrant's Post-Effective Amendment No. 6 filed electronically on January 31,
1997, accession number 0000922423-97-000053 and incorporated herein by
reference).

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, Registrant understands that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of Registrant in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

The Adviser provides a wide range of asset management services to
individuals, institutions and retirement benefit plans.

To the knowledge of Registrant, none of the Directors or executive officers
of the Adviser except those described below, are or have been, at any time
during the past two years, engaged in any other business, profession, vocation
or employment of a substantial nature.

PRINCIPAL OCCUPATION OR
OTHER EMPLOYMENT OF A
POSITION WITH SUBSTANTIAL NATURE DURING
NAME OFFITBANK THE PAST TWO YEARS
- ---- ------------- -------------------------
H. Furlong Baldwin Director Chairman of the Board,
Mercantile Safe Deposit & Mercantile Bankshares
Trust Co.
Two Hopkins Plaza
Baltimore, MD 21201

Morris, W. Offit, C.F.A. Director Chairman of the Board
OFFITBANK OFFITBANK
520 Madison Avenue
New York, N.Y. 10022

Marchese Alessandro Director Private Investor
di Montezemolo
200 Murray Place
Southampton, N.Y. 11969

David I. Margolis Director Chairman of the
Coltec Industries Inc. Executive Committee,

<PAGE>

430 Park Avenue Coltec Industries Inc.
New York, N.Y. 10022

Harvey M. Meyerhoff Director Chairman of the Board,
Magna Holdings, Inc. Magna Holdings, Inc.
25 South Charles Street
Suite 2100
Baltimore, M.D. 21201

George Randolph Packard Director U.S. - Japan Foundation
U.S. - Japan Foundation
145 East 32nd Street, 12th Floor
New York, NY 10016

Edward V. Regan Director President, The Jerome
280 Park Avenue Levy Economics Institute
38th floor of Bard College
New York, N.Y. 10017

B. Lance Sauerteig Director Private Investor
130 Edgehill Road
New Haven, CT 06511

Ricardo Steinbruch Director
Grupo Vichuna
Rua Itacolomi 412
Higilenopolis
Sao Paolo, S.P. Brazil
01239-020

Item 29. PRINCIPAL UNDERWRITERS

(a) In addition to Registrant, OFFIT Funds Distributor, Inc.
currently acts as distributor for The OFFITBANK Investment Fund, Inc. and
The CVO Greater China Fund, Inc.

(b) The information required by this Item 29(b) with respect to each
director, officer or partner of OFFIT Funds Distributor, Inc. is
incorporated by reference to Schedule A of Form BD filed by OFFIT Funds
Distributor, Inc. pursuant to the Securities Exchange Act of 1934 (SEC File
No. 8-46960).

Item 30. LOCATION OF ACCOUNTS AND RECORDS

All accounts, books and other documents required to be maintained by
Section 31(a) of

<PAGE>

the Investment Company Act of 1940, as amended, and the rules thereunder will be
maintained at the offices of:

(1) The OFFITBANK Variable Insurance Fund, Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
(Records relating to the Company)

(2) OFFITBANK
520 Madison Avenue
New York, New York 10022
(advisory records)

(3) OFFIT Funds Distributor, Inc.
Four Falls Corporate Center
6th Floor
West Conshohocken, Pennsylvania 19428-2961
(records of principal underwriter)

(4) Rockefeller & Co., Inc.
30 Rockefeller Plaza
New York, New York 10112
(records relating to its functions as investment
subadviser for OFFITBANK VIF-U.S. Small Cap Fund only)

(5) David J. Greene & Company
599 Lexington Avenue
New York, New York 10022
(records relating to its functions as investment
adviser for DJG Value Equity Fund only)

(6) CVO Greater China Partners, L.P.
520 Madison Avenue
New York, New York 10022
(records relating to its functions as investment
adviser for OFFITBANK VIF-CVO Greater China Fund only)

Item 31. MANAGEMENT SERVICES

Not applicable.

Item 32. UNDERTAKINGS

(a) Not Applicable

(b) None.

(c) The Registrant undertakes to furnish each person to whom a
prospectus is delivered, a copy of the Registrant's latest

<PAGE>

annual report to shareholders which will include the
information required by item 5A, upon request and without charge.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all the requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned thereunto duly authorized, in the City of New
York, and State of New York, on the 29th day of July, 1998.

THE OFFITBANK VARIABLE INSURANCE FUND, INC.

By /s/ Morris W. Offit
-----------------------------
Morris W. Offit, President

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to its Registration Statement has been signed below by the
following persons in the capacities indicated and on the 29th day of July, 1998.

SIGNATURE TITLE
- --------- -----

/s/ Morris W. Offit Director, Chairman of
- ------------------- the Board and President
Morris W. Offit (Principal Executive Officer)

/s/Edward J. Landau Director
- -------------------
Edward J. Landau

/s/ The Very Reverend James Parks Morton
- ----------------------------------------
The Very Reverend James Parks Morton Director

/s/Wallace Mathai-Davis
- -----------------------
Wallace Mathai-Davis Secretary and Treasurer

<PAGE>

THE OFFITBANK VARIABLE INSURANCE FUND, INC.

INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------

EX-99.B6 Distribution Agreement between Registrant and OFFIT Funds
Distributor, Inc.

EX-99.B9(a) Administration and Accounting Services Agreement between
Registrant and PFPC Inc.

EX-99.B9(b) Transfer Agency Agreement between Registrant and PFPC Inc.

EX-99.B11(a) Consent of Kramer, Levin, Naftalis & Frankel

EX-99.B11(b) Consent of PricewaterhouseCoopers LLP

EX-27 Financial Data Schedules

<PAGE>

DISTRIBUTION AGREEMENT

This Distribution Agreement is made as of March 19, 1998 between The
OFFITBANK Variable Insurance Fund, Inc., a Maryland corporation (herein called
the "Company"), and OFFIT Funds Distributor, Inc. (herein called "Distributor"),
a wholly-owned subsidiary of Provident Distributors, Inc.

WHEREAS, the Company is an open-end, management investment company and is
so registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and

WHEREAS, the Company will offer and maintain multiple investment portfolios
as specified in its Registration Statement on Form N-1A (each individually a
"Fund" and collectively the "Funds"); and

WHEREAS, the Company desires to retain Distributor as distributor for the
Funds to provide for the sale, distribution and redemption of shares of common
stock of the Funds (herein collectively called "Shares"), and Distributor is
willing to render such services;

NOW, THEREFORE, in consideration of the premises and mutual covenants set
forth herein the parties hereto agree as follows:

I. DELIVERY OF DOCUMENTS

The Company has delivered to Distributor copies of each of the following
documents and shall deliver to it all future amendments and supplements
thereto, if any:

(a) The Company's Charter and all amendments thereto (such Charter, as
presently in effect and as it shall from time to time be amended,
herein called the "Company's Charter");

(b) Bylaws of the Company (such Bylaws, as presently in effect and as they
shall from time to time be amended, herein called the "Bylaws");

(d) The Company's registration statement under the Securities Act of 1933,
as amended (the "1933 Act"), and the 1940 Act, on Form N-1A as filed
with the Securities and Exchange Commission (the "Commission")
relating to the Shares, and all subsequent amendments thereto (said
registration statement, as presently in effect and as amended or
supplemented from time to time, is herein called the "Registration
Statement");

(e) Notification of Registration of the Company under the 1940 Act on Form
N-8A as

<PAGE>

filed with the Commission; and

(f) Prospectuses and statements of additional information of the Company
and of the Funds (such prospectuses and statements of additional
information, as presently in effect and as they shall from time to
time be amended and supplemented, herein called individually the
"Prospectus" and collectively the "Prospectuses").

II. DISTRIBUTION

1. APPOINTMENT OF DISTRIBUTOR.

The Company hereby appoints Distributor as distributor of the Funds' Shares
and Distributor hereby accepts such appointment and agrees to render the
services and duties set forth in this Section II. The Distributor shall
for all purposes herein be deemed to be an independent contractor and
shall, unless otherwise expressly provided herein or authorized by the
Board of Directors of the Company from time to time, have no authority to
act for or represent the Company in any way or otherwise be deemed its
agent. The services furnished by the Distributor hereunder are not deemed
exclusive, and the Distributor shall be free to furnish similar services to
others so long as its services under this agreement are not impaired
thereby.

2. SERVICES AND DUTIES.

(a) The Company agrees to sell through Distributor, as agent, from
time to time during the term of this Agreement, Shares of the
Funds upon the terms and at the current offering price as
described in the applicable Prospectus. Distributor shall act
only on its own behalf as principal in making agreements for the
sale and redemption of Shares, and shall sell Shares only at the
offering price thereof as set forth in the applicable Prospectus.
Distributor shall devote its best efforts to effect sales of
Shares of each of the Funds, but shall not be obligated to sell
any certain number of Shares.

(b) In all matters relating to the sale and redemption of Shares,
Distributor shall act in conformity with the Company's Charter,
Bylaws and Prospectuses and with the instructions and directions
of the Board of Directors of the Company, and shall conform to
and comply with the requirements of the 1933 Act, the 1940 Act,
the regulations of the NASD Regulation, Inc. and all other
applicable federal or state laws and regulations. In connection
with such sales, Distributor acknowledges and agrees that it is
not authorized to provide any information or make any
representations other than as contained in the Company's
Registration Statement and Prospectuses and any sales literature
specifically approved by the Company. The Company shall furnish
from time to time, for use in connection with the sale of the
Shares, such information with respect to

2
<PAGE>

the Funds and the Shares as Distributor may reasonably request.

(c) Except to the extent permitted by a plan adopted by the Company
under Rule 12b-1 of the 1940 Act, Distributor shall bear the cost
of (i) printing and distributing any Prospectus (including any
supplement thereto), and (ii) preparing, printing and
distributing any literature, advertisement or material which is
primarily intended to result in the sale of the Shares; provided,
however, that Distributor shall not be obligated to bear the
expenses incurred by the Company in connection with (1) the
preparation and printing of any supplement or amendment to any
Registration Statement or Prospectus necessary for the continued
effective registration of the Shares under the 1933 Act or any
state securities laws; and (2) the printing and distribution of
any Prospectus, supplement or amendment thereto for existing
shareholders of the Fund described therein.

(d) The Company, or any agent of the Company designated in writing by
the Company, shall be promptly advised of all purchase orders for
Shares received by the Distributor.

(e) The Distributor shall provide the services of certain persons who
may be appointed as officers of the Company by the Company=s
Board of Directors.

(f) It is understood that certain expenses to be incurred in
connection with the shares may be paid as provided in a
shareholder service plan or similar plan adopted by the Company.
The Distributor agrees to be responsible for the operation of
such plan in accordance with the terms thereof.

(g) The Company shall have the right at any time to inspect the
records of the Company (including work papers and other related
documents) in the possession of the Distributor.

3. SALES AND REDEMPTIONS.

(a) Shares of the Company are to be sold by the Distributor to
shareholders at the offering price as set forth in the
Prospectuses then in effect.

(b) The Company shall pay all costs and expenses in connection with
the registration of the Shares under the 1933 Act, and all
expenses in connection with maintaining facilities for the issue
and transfer of the Shares and for supplying information, prices
and other data to be furnished by the Company hereunder, and all
expenses in connection with preparing, printing and distributing
the Prospectuses except as set forth in subsection 2(c) of
Section II hereof or in any other agreement entered into by the
Company.

3
<PAGE>

(c) The Company shall execute all documents, furnish all information
and otherwise take all actions which may be reasonably necessary
in the discretion of the Company=s officers in connection with
the qualification of the Shares for sale in such states as
Distributor may designate to the Company and the Company may
approve, and the Company shall pay all filing fees which may be
incurred in connection with such qualification. Distributor
shall pay all expenses connected with its qualification as a
dealer under state or federal laws and, except as otherwise
specifically provided in this Agreement, all other expenses
incurred by Distributor in connection with the sale of the Shares
as contemplated in this Agreement.

(d) Any of the outstanding Shares of the Company may be tendered for
redemption at any time, and the Company agrees to repurchase or
redeem the Shares so tendered in accordance with the Company=s
Charter, Bylaws and Prospectuses. The price to be paid to redeem
or repurchase the Shares shall be equal to the net asset value
per Share determined as set forth in the applicable Prospectus
(the "redemption price"). All payments by the Company hereunder
shall be made in the manner set forth in Section 3(e) below.

(e) The proceeds of any redemption of shares shall be paid by the
Company (or its agent) in accordance with the applicable
provisions of the applicable Prospectus.

(f) The Company shall have the right to suspend the sale of Shares of
any Fund at any time in response to conditions in the securities
markets or otherwise, and to suspend the redemption of Shares of
any Fund at any time as permitted by the 1940 Act or the rules of
the Commission (the "Rules").

(g) The Company reserves the right to reject in its discretion any
order for Shares.

III. LIMITATIONS OF LIABILITY

Distributor shall not be liable for any error of judgement or mistake of
law or for any loss suffered by the Company or any Fund in connection with
the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or negligence on its part in the performance
of its duties or from reckless disregard by it of its obligations and
duties under this Agreement.

IV. CONFIDENTIALITY

Distributor shall treat confidentially and as proprietary information of
the Company all

4
<PAGE>

records and other information relative to the Company and the Funds and
prior or present shareholders or those persons or entities who respond to
Distributor's inquiries concerning investment in the Company, and shall not
use such records and information for any purpose other than the performance
of its responsibilities and duties hereunder or under any other agreement
with the Company, except after prior notification to and approval in
writing by the Company, which approval shall not be unreasonably withheld
and may not be withheld where Distributor may be exposed to civil or
criminal contempt proceedings for failure to comply, when Distributor is
requested to divulge such information by duly constituted authorities, or
when Distributor is so requested by the Company.

V. INDEMNIFICATION

1. COMPANY REPRESENTATIONS.

The Company represents and warrants to Distributor that (a) it is duly
organized as a Maryland corporation and is and at all times will
remain duly authorized to enter into and perform this Agreement, and
(b) at all times the Registration Statement and Prospectuses will in
all material respects conform to the applicable requirements of the
1933 Act and the Rules and will not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that
no representation or warranty in this subsection shall apply to
statements or omissions made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of and
with respect to Distributor expressly for use in the Registration
Statement or Prospectuses.

2. DISTRIBUTOR REPRESENTATIONS.

Distributor represents and warrants to the Company that (a) it is duly
organized as a Delaware corporation and is and at all times will
remain duly authorized and licensed to carry out its services as
contemplated herein (b) at all times any written information furnished
to the Company by or on behalf of Distributor expressly for use in the
Registration Statement or Prospectuses will not include any untrue
statement of material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading
and (d) Distributor is at all times during the term of this Agreement
a registered broker-dealer under the Securities Exchange Act of 1934.

3. COMPANY INDEMNIFICATION.

The Company shall indemnify, defend and hold harmless Distributor, its
several officers and directors, and any person who controls
Distributor within the

5
<PAGE>

meaning of Section 15 of the 1933 Act, from and against any losses,
claims, damages or liabilities, joint or several, to which any of them
may become subject under the 1933 Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of, or are based upon, any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement, the Prospectuses or any application or other
document executed by or on behalf of the Company, or arise out of, or
are based upon, information furnished by or on behalf of the Company
filed in any state in order to qualify the Shares under the securities
or blue sky laws thereof ("Blue Sky Applications"), or arise out of,
or are based upon, the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and shall reimburse Distributor,
its several officers and partners, and any person who controls
Distributor within the meaning of Section 15 of the 1933 Act, for any
legal or other expenses reasonably incurred by any of them in
investigating, defending or preparing to defend any such action,
proceeding or claim; provided, however, that the Company shall not be
liable in any case to the extent that such loss, claim, damage or
liability arises out of, or is based upon, any untrue statement,
alleged untrue statement, or omission or alleged omission made or
information in the Registration Statement, the Prospectuses, any Blue
Sky Application or any application or other document executed by or on
behalf of the Company in reliance upon and in conformity with written
information furnished to the Company by or on behalf of and with
respect to Distributor specifically for inclusion therein.

The Company shall not indemnify any person pursuant to this subsection
3 of Section V hereof unless the court or other body before which the
proceeding was brought has rendered a final decision on the merits
that such person was not liable by reason of his willful misfeasance,
bad faith or negligence in the performance of his duties, or his
reckless disregard of obligations and duties, under this Agreement
("disabling conduct") or, in the absence of such a decision, a
reasonable determination (based upon a review of the facts) that such
person was not liable by reason of disabling conduct has been made by
the vote of a majority of a quorum of directors of the Company who are
neither "interested persons" of the Company (as defined in the 1940
Act) nor parties to the proceeding, or by an independent legal counsel
in a written opinion.

Each Fund shall advance attorneys' fees and other expenses incurred by
any person in defending any claim, demand, action or suit which is the
subject of a claim for indemnification pursuant to this subsection 3
of Section V hereof, so long as:

(a) such person shall undertake to repay all such advances unless it
is ultimately determined that he is entitled to indemnification
hereunder; and

6
<PAGE>
(b) such person shall provide security for such undertaking, or the
Fund shall be insured against losses arising by reason of any
lawful advances, or a majority of a quorum of the disinterested,
non-party directors of the Company (or an independent legal
counsel in a written opinion) shall determine based on a review
of readily available facts (as opposed to a full trial-type
inquiry) that there is reason to believe that such person
ultimately will be found entitled to indemnification hereunder.

4. DISTRIBUTOR INDEMNIFICATION

Distributor shall indemnify, defend and hold harmless the Company,
each Fund, the Company's several officers and directors and any person
who controls the Company or any Fund within the meaning of Section 15
of the 1933 Act, from and against any losses, claims, damages or
liabilities, joint or several, to which any of them may become subject
under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof)
arise out of, or are based upon, any breach of its representations and
warranties in subsection 2 of Section V or its agreements in
subsection 2 of the Section II hereof, or which arise out of, or are
based upon, any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, the
Prospectuses, or any application or other document executed by or on
behalf of the Company, or arise out of, or are based upon information
furnished by the Distributor filed in any Blue Sky Application, or
arise out of, or are based upon, the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, which
statement or omission was made in reliance upon and in conformity with
information furnished to the Company or any of its several officers
and directors by or on behalf of and with respect to Distributor
specifically for inclusion therein, and shall reimburse the Company,
each Fund, the Company=s several officers and directors, and any
person who controls the Company or any Fund within the meaning of
Section 15 of the 1933 Act, for any legal or other expenses reasonable
incurred by any of them in investigating, defending or preparing to
defend any such action, proceeding or claim.

5. GENERAL INDEMNITY PROVISIONS.

No indemnifying party shall be liable under its indemnity agreement
contained in subsection 3 or 4 of Section V hereof with respect to any
claim made against such indemnifying party unless the indemnified
party shall have notified the indemnifying party in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the
indemnified party (or after the indemnified party shall have received
notice of such service on any designated agent), but failure to notify
the indemnifying party of any such claim shall not relieve it from any
liability which it may otherwise have to the indemnified party. The
indemnifying party shall be

7
<PAGE>

entitled to participate at its own expense in the defense or, if it so
elects, to assume the defense of any suit brought to enforce any such
liability, and if the indemnifying party elects to assume the defense,
such defense shall be conducted by counsel chosen by it and reasonably
satisfactory to the indemnified party. In the event the indemnifying
party elects to assume the defense of any such suit and retain such
counsel, the indemnified party shall bear the fees and expenses of any
additional counsel retained by the indemnified party.

VI. DURATION AND TERMINATION

This Agreement shall become effective as of the date hereof and, unless
sooner terminated as provided herein, shall continue in effect with
respect to each Fund until February 27, 2000. Thereafter, if not
terminated, this Agreement shall continue automatically for successive
terms of one year, provided that such continuance is specifically
approved at least annually (a) by a vote of a majority of those members
of the Board of Directors of the Company who are not parties to this
Agreement or "interested persons" of any such party, cast in person at a
meeting called for the purpose of voting on such approval, and (b) by the
Board of Directors of the Company or by vote of a "majority of the
outstanding voting securities" of the Funds as to which the Agreement is
effective; provided, however, that this Agreement may be terminated by
the Company at any time, without the payment of any penalty, by vote of a
majority of the entire Board of Directors of the Company or by a vote of
a "majority of the outstanding voting securities" of such Funds on sixty
(60) days' prior written notice to Distributor, or by Distributor at any
time, without the payment of any penalty, on ninety (90) days' prior
written notice to the Company. This Agreement shall automatically and
immediately terminate in the event of its "assignment". As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meanings as such
terms have in the 1940 Act. Any documents, records or work papers
prepared by Distributor on behalf of the Company in order to maintain the
regulatory records of the Funds shall become the property of the Company.
In the event of termination, Distributor shall promptly, upon written
request, turn over such documents, records or work papers to the Company.

VII. AMENDMENT OF THIS AGREEMENT

No provision of this Agreement may be changed, waived, discharged or
terminated except by an instrument in writing signed by the party against
whom an enforcement of the change, waiver, discharge or termination is
sought.

VIII. NOTICES

Notices of any kind to be given to the Company hereunder by Distributor
shall be in writing and shall be duly given if mailed or delivered to the
Company at:

8
<PAGE>

The OFFITBANK Variable Insurance Fund, Inc.
c/o OFFITBANK
520 Madison Avenue, 27th floor
New York, NY 10022
Attention: Stephen Brent Wells

or such other address or to such individual as shall be so specified by the
one party to the other party.

Notices of any kind to be given to Distributor hereunder by the Company
shall be in writing and shall be duly given if mailed or delivered to
Distributor at:

Monroe Haegele
Provident Distributors, Inc.
Four Falls Corporate Center, 6th Floor
West Conshohocken, PA 19428-2961

or such other address or to such individual as shall be so specified by the
one party to the other party.

IX. MISCELLANEOUS

The obligations of each Fund under this Agreement shall be the several (and
not joint or joint and several) obligations of each Fund. The captions in
this Agreement are included for convenience of reference only and in no way
define or delimit any of the provisions hereof or otherwise affect their
construction or effect. If any provision of the Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby. Subject to the provisions
of Section VI hereof, this Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
shall be governed by Delaware law (without regard to principles of
conflicts of law); provided, however, that nothing herein shall be
construed in a manner inconsistent with the 1940 Act or any rule or
regulation of the Commission thereunder. This Agreement may be executed in
two or more parts which together shall constitute a single agreement.

9
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.

The OFFITBANK Variable Insurance Fund, Inc.

By: /s/ Stephen Brent Wells
------------------------------

Provident Distributors, Inc.

By: /s/ Monroe J. Haegele
------------------------------
Chief Executive Officer

<PAGE>

ADMINISTRATION AND ACCOUNTING SERVICES AGREEMENT

THIS AGREEMENT is made as of February 27, 1998 by and between The OFFITBANK
Variable Insurance Fund, Inc., a Maryland corporation (the "Fund"), and PFPC
INC., a Delaware corporation ("PFPC"), which is an indirect wholly owned
subsidiary of PNC Bank Corp.

W I T N E S S E T H :

WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and

WHEREAS, the Fund wishes to retain PFPC to provide administration and
accounting services to its investment portfolios listed on Exhibit A attached
hereto and made a part hereof, as such Exhibit A may be amended from time to
time (each a "Portfolio"), and PFPC wishes to furnish such services.

NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and intending to be legally bound hereby the parties hereto
agree as follows:

1. DEFINITIONS. AS USED IN THIS AGREEMENT:

(a) "1933 ACT" means the Securities Act of 1933, as amended.

(b) "1934 ACT" means the Securities Exchange Act of 1934, as amended.

(c) "AUTHORIZED PERSON" means any officer of the Fund and any other
person duly authorized by the Fund's Board of Directors to give Oral
Instructions and Written Instructions on behalf of the Fund and listed
on the Authorized Persons Appendix attached hereto and made a part
hereof or any amendment thereto as may be received by PFPC. An
Authorized Person's scope of authority may be limited by the Fund by
setting forth such limitation in the Authorized Persons Appendix.

(d) "CEA" means the Commodities Exchange Act, as amended.

(e) "ORAL INSTRUCTIONS" mean oral instructions received by PFPC from an
Authorized Person or from a person reasonably believed by PFPC to be
an Authorized Person.

(f) "SEC" means the Securities and Exchange Commission.

(g) "SECURITIES LAWS" means the 1933 Act, the 1934 Act, the 1940 Act and
the CEA.

(h) "SHARES" mean the shares of beneficial interest of any series or
class of the Fund.

(i) "WRITTEN INSTRUCTIONS" mean written instructions signed by an
Authorized Person

<PAGE>

and received by PFPC. The instructions, which shall be timely
relative to the action requested, may be delivered by hand, mail,
tested telegram, cable, telex, electronic transmission or facsimile
sending device.

2. APPOINTMENT. The Fund hereby appoints PFPC to provide administration and
accounting services to the each of the Portfolios, in accordance with the
terms set forth in this Agreement. PFPC accepts such appointment and
agrees to furnish such services.

3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable, will
provide PFPC with the following:

(a) certified or authenticated copies of the resolutions of the Fund's
Board of Directors, approving the appointment of PFPC or its
affiliates to provide services to each Portfolio and approving this
Agreement;

(b) a copy of Fund's most recent effective registration statement;

(d) a copy of the distribution agreement with respect to Shares
representing an interest in a Portfolio;

(e) a copy of any additional administration agreement with respect to a
Portfolio;

(f) a copy of any shareholder servicing agreement made in respect of the
Fund or a Portfolio; and

(g) copies (certified or authenticated, where applicable) of any and all
amendments or supplements to the foregoing.

4. COMPLIANCE WITH RULES AND REGULATIONS.

PFPC undertakes to comply with all applicable requirements of the
Securities Laws, and any laws, rules and regulations of governmental
authorities having jurisdiction with respect to the duties to be performed
by PFPC hereunder. Except as specifically set forth herein, PFPC assumes
no responsibility for such compliance by the Fund or any Portfolio.

5. YEAR 2000 COMPLIANCE.

PFPC represents and warrants that the electronic data processing systems
and programs that it uses in connection with the provision of services
hereunder will be year 2000 compliant prior to 1999.

6. INSTRUCTIONS.

2
<PAGE>

(a) Unless otherwise provided in this Agreement, PFPC shall act only upon
Oral Instructions and Written Instructions.

(b) PFPC shall be entitled to rely upon any Oral Instructions and Written
Instructions it receives from an Authorized Person (or from a person
reasonably believed by PFPC to be an Authorized Person) pursuant to
this Agreement. PFPC may assume that any Oral Instruction or Written
Instruction received hereunder is not in any way inconsistent with the
provisions of organizational documents or this Agreement or of any
vote, resolution or proceeding of the Fund's Board of Directors or of
the Fund's shareholders, unless and until PFPC receives Written
Instructions to the contrary.

(c) The Fund agrees to forward to PFPC Written Instructions confirming
Oral Instructions (except where such Oral Instructions are given by
PFPC or its affiliates) so that PFPC receives the Written Instructions
by the close of business on the same day that such Oral Instructions
are received. The fact that such confirming Written Instructions are
not received by PFPC shall in no way invalidate the transactions or
enforceability of the transactions authorized by the Oral
Instructions. Where Oral Instructions or Written Instructions
reasonably appear to have been received from an Authorized Person,
PFPC shall incur no liability to the Fund in acting upon such Oral
Instructions or Written Instructions provided that PFPC's actions
comply with the other provisions of this Agreement.

7. RIGHT TO RECEIVE ADVICE.

(a) ADVICE OF THE FUND. If PFPC is in doubt as to any action it should or
should not take, PFPC may request directions or advice, including Oral
Instructions or Written Instructions, from the Fund.

(b) ADVICE OF COUNSEL. If PFPC shall be in doubt as to any question of
law pertaining to any action it should or should not take, PFPC may
request advice at its own cost from such counsel of its own choosing
(who may be counsel for the Fund, the Fund's investment adviser or
PFPC, at the option of PFPC).

(c) CONFLICTING ADVICE. In the event of a conflict between directions,
advice or Oral Instructions or Written Instructions PFPC receives from
the Fund and the advice PFPC receives from counsel, PFPC may rely upon
and follow the advice of counsel. In the event PFPC so relies on the
advice of counsel, PFPC remains liable for any action or omission on
the part of PFPC which constitutes willful misfeasance, bad faith,
gross negligence or reckless disregard by PFPC of any duties,
obligations or responsibilities set forth in this Agreement.

(d) PROTECTION OF PFPC. PFPC shall be protected in any action it takes or
does not take in reliance upon directions, advice or Oral Instructions
or Written

3
<PAGE>

Instructions it receives from the Fund or from counsel and which PFPC
believes, in good faith, to be consistent with those directions,
advice and Oral Instructions or Written Instructions. Nothing in this
section shall be construed so as to impose an obligation upon PFPC (i)
to seek such directions, advice or Oral Instructions or Written
Instructions, or (ii) to act in accordance with such directions,
advice or Oral Instructions or Written Instructions unless, under the
terms of other provisions of this Agreement, the same is a condition
of PFPC's properly taking or not taking such action. Nothing in this
subsection shall excuse PFPC when an action or omission on the part of
PFPC constitutes willful misfeasance, bad faith, gross negligence or
reckless disregard by PFPC of any duties, obligations or
responsibilities set forth in this Agreement.

8. RECORDS; VISITS.

(a) The books and records pertaining to the Fund and the Portfolios which
are in the possession or under the control of PFPC shall be the
property of the Fund. Such books and records shall be prepared and
maintained as required by the 1940 Act and other applicable securities
laws, rules and regulations. The Fund and Authorized Persons shall
have access to such books and records at all times during PFPC's
normal business hours. Upon the reasonable request of the Fund,
copies of any such books and records shall be provided by PFPC to the
Fund or to an Authorized Person, at the Fund's expense.

(b) PFPC shall keep the following records:

(i) all books and records with respect to each Portfolio's books
of account;

(ii) records of each Portfolio's securities transactions; and

(iii) all other books and records as PFPC is required to maintain
pursuant to Rules 31a-1 and 31a-2 of the 1940 Act in
connection with the services provided hereunder.

9. CONFIDENTIALITY. PFPC agrees to keep confidential all records of the Fund
and information relating to the Fund and its shareholders, unless the
release of such records or information is otherwise consented to, in
writing, by the Fund. The Fund agrees that such consent shall not be
unreasonably withheld and may not be withheld where PFPC may be exposed to
civil or criminal contempt proceedings or when required to divulge such
information or records to duly constituted authorities.

10. LIAISON WITH ACCOUNTANTS. PFPC shall act as liaison with the Fund's
independent public accountants and shall provide account analyses, fiscal
year summaries, and other audit-related schedules with respect to each
Portfolio. PFPC shall take all reasonable action in the performance of its
duties under this Agreement to assure that the necessary information is
made available to such accountants for the expression of their opinion, as

4
<PAGE>

required by the Fund.

11. DISASTER RECOVERY. PFPC shall enter into and shall maintain in effect with
appropriate parties one or more agreements making reasonable provisions for
emergency use of electronic data processing equipment to the extent
appropriate equipment is available. In the event of equipment failures,
PFPC shall, at no additional expense to the Fund, take reasonable steps to
minimize service interruptions. PFPC shall have no liability with respect
to the loss of data or service interruptions caused by equipment failure,
provided such loss or interruption is not caused by PFPC's own willful
misfeasance, bad faith, gross negligence or reckless disregard of its
duties or obligations under this Agreement.

12. COMPENSATION. As compensation for services rendered by PFPC during the
term of this Agreement, the Fund, on behalf of each Portfolio, will pay to
PFPC a fee or fees as may be agreed to in writing by the Fund and PFPC.

13. EXPENSES. PFPC shall furnish at its own expense personnel necessary to
perform its obligations under this Agreement. PFPC shall also provide the
items which it is obligated to provide under this Agreement, and shall pay
all compensation, if any, of officers or Directors of the Fund who are
affiliated persons of PFPC or any affiliated corporation of PFPC.

14. INDEMNIFICATION. The Fund, on behalf of each Portfolio, agrees to
indemnify and hold harmless PFPC and its affiliates from all taxes,
charges, expenses, assessments, claims and liabilities (including, without
limitation, liabilities arising under the Securities Laws and any state or
foreign securities and blue sky laws, and amendments thereto), and
expenses, including (without limitation) attorneys' fees and disbursements
arising directly or indirectly from any action or omission to act which
PFPC takes (i) at the request or on the direction of or in reliance on the
advice of the Fund or (ii) upon Oral Instructions or Written Instructions.
Neither PFPC, nor any of its affiliates, shall be indemnified against any
liability (or any expenses incident to such liability) arising out of
PFPC's or its affiliates own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties and obligations under this
Agreement. Any amounts payable by the Fund hereunder shall be satisfied
only against the relevant Portfolio's assets and not against the assets of
any other investment portfolio of the Fund.

15. RESPONSIBILITY OF PFPC.

(a) PFPC shall be under no duty to take any action on behalf of the Fund
or any Portfolio except as specifically set forth herein or as may be
specifically agreed to by PFPC in writing. PFPC shall be obligated to
exercise care and diligence in the performance of its duties
hereunder, to act in good faith and to use its best efforts, within
reasonable limits, in performing services provided for under this
Agreement. PFPC shall be liable for any damages arising out of PFPC's
failure to perform its duties under this Agreement to the extent such
damages arise out of PFPC's willful misfeasance, bad faith, gross
negligence or reckless disregard of

5
<PAGE>

such duties, and PFPC shall indemnify and hold harmless the Fund and
each Portfolio from such damages.

(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PFPC shall not be liable for losses
beyond its control, provided that PFPC has acted in accordance with
the standard of care set forth above; and (ii) PFPC shall not be
liable for (A) the validity or invalidity or authority or lack thereof
of any Oral Instruction or Written Instruction, notice or other
instrument which conforms to the applicable requirements of this
Agreement, and which PFPC reasonably believes to be genuine; or (B)
subject to Section 11, delays or errors or loss of data occurring by
reason of circumstances beyond PFPC's control, including acts of civil
or military authority, national emergencies, labor difficulties, fire,
flood, catastrophe, acts of God, insurrection, war, riots or failure
of the mails, transportation, communication or power supply.

(c) Notwithstanding anything in this Agreement to the contrary, neither
PFPC nor its affiliates shall be liable to the Fund or to any
Portfolio for any consequential, special or indirect losses or damages
which the Fund or any Portfolio may incur or suffer by or as a
consequence of PFPC's or any affiliates' performance of the services
provided hereunder, whether or not the likelihood of such losses or
damages was known by PFPC or its affiliates.

16. DESCRIPTION OF ACCOUNTING SERVICES ON A CONTINUOUS BASIS.

PFPC will perform the following accounting services with respect to each
Portfolio:

(i) Journalize investment, capital share and income and expense
activities;

(ii) Verify investment buy/sell trade tickets when received from
the investment adviser for a Portfolio (the "Adviser") and
transmit trades to the Fund's custodian (the "Custodian") for
proper settlement;

(iii) Maintain individual ledgers for investment securities;

(iv) Maintain historical tax lots for each security;

(v) Reconcile cash and investment balances of the Fund with the
Custodian, and provide the Adviser with the beginning cash
balance available for investment purposes;

(vi) Update the cash availability throughout the day as required
by the Adviser;

(vii) Post to and prepare the Statement of Assets and Liabilities
and the Statement of Operations;

6
<PAGE>

(viii) Calculate various contractual expenses (E.G., advisory and
custody fees);

(ix) Calculate performance data of the Portfolios for
dissemination to information services covering the investment
company industry;

(x) Monitor the expense accruals and notify an officer of the
Fund of any proposed adjustments;

(xi) Control all disbursements and authorize such disbursements
upon Written Instructions;

(xii) Calculate capital gains and losses;

(xiii) Determine net income;

(xiv) Obtain security market quotes from independent pricing
services approved by the Adviser, or if such quotes are
unavailable, then obtain such prices from the Adviser, and in
either case calculate the market value of each Portfolio's
Investments;

(xv) Transmit or mail a copy of the daily portfolio valuation to
the Adviser;

(xvi) Compute net asset value;

(xvii) As appropriate, compute yields, total return, expense ratios,
portfolio turnover rate, and, if required, portfolio average
dollar-weighted maturity; and

(xviii) Prepare a monthly financial statement, which will include the
following items:

Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Cash Statement
Schedule of Capital Gains and Losses.

17. DESCRIPTION OF ADMINISTRATION SERVICES ON A CONTINUOUS BASIS.

PFPC will perform the following administration services with respect to
each Portfolio:

(i) Prepare quarterly broker security transactions summaries;

(ii) Prepare monthly security transaction listings;

7
<PAGE>

(iii) Supply various normal and customary Portfolio and Fund
statistical data as requested on an ongoing basis;

(iv) Prepare for execution and file the Fund's Federal and state
tax returns;

(v) Prepare and file the Fund's semi-annual reports with the SEC
on Form N-SAR;

(vi) Prepare and file with the SEC the Fund's annual, semi-annual,
and quarterly shareholder reports;

(vii) Prepare, coordinate with Fund Counsel and file with the SEC
Post-Effective Amendments to the Fund's Registration
Statement, prepare reports to the Fund's shareholders of
record and the SEC including the preparation and filing of
Notices pursuant to Rule 24f-2 and assist in preparation of
notices of Annual or Special Meetings of Shareholders and
Proxy materials relating to such meetings;

(viii) Monitor each Portfolio's status as a regulated investment
company under Sub-chapter M of the Internal Revenue Code of
1986, as amended;

(ix) Supervise the Fund's transfer agent with respect to the
payment of dividends and other distributions to Shareholders;

(x) Assist with the layout and printing of publicly disseminated
prospectuses and assist with and coordinate layout and
printing of the Fund's semi-annual and annual reports to
shareholders;

(xi) Provide individuals reasonably acceptable to the Fund's Board
of Directors to serve as Anon-policy making@ officers of the
Fund, who will be responsible for the administration of
certain of the Fund's affairs as determined by the Fund's
Board of Directors;

(xii) Advise the Fund and its Board of Directors on matters
concerning the Fund and its affairs;

(xiii) Obtain and maintain fidelity bonds and directors and
officers/errors and omissions insurance policies for the Fund
in accordance with the requirements of Rules 17g-1 and
17d-1(d)(7) under the 1940 Act as such bonds and policies are
approved by the Fund's Board of Directors;

(xiv) Furnish advice and recommendations with respect to other
aspects of the business and affairs of the Portfolios as the
Fund and PFPC shall determine desirable;

8
<PAGE>

(xv) Assist in monitoring and developing compliance procedures for
the Adviser of each Portfolio which will include, among other
matters, procedures to monitor compliance with each
Portfolio's investment objective, policies, restrictions, tax
matters and applicable laws and regulations;

(xvi) Provide consultation with Fund counsel and the Fund;

(xvii) Coordinate contractual relationships and communications
between the Fund and its contractual service providers;

(xviii) Monitor and maintain the Fund's compliance with the amounts
and conditions of each state qualification; and

(xix) Review for regulatory compliance and coordinate the filing
with the NASD of the sales literature (e.g. advertisements,
brochures and shareholder communications) with respect to each
of the Portfolios.

18. DURATION AND TERMINATION. This Agreement shall continue until terminated
by the Fund on sixty (60) days' prior written notice to PFPC, or by PFPC on
one hundred twenty (120) days prior written notice to the Fund.

19. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex
or facsimile sending device. If notice is sent by confirming telegram,
cable, telex or facsimile sending device, it shall be deemed to have been
given immediately. If notice is sent by first-class mail, it shall be
deemed to have been given three days after it has been mailed. If notice
is sent by messenger, it shall be deemed to have been given on the day it
is delivered. Notices shall be addressed (a) if to PFPC, at 400 Bellevue
Parkway, Wilmington, Delaware 19809; (b) if to the Fund, at 520 Madison
Avenue, 27th Floor, New York, New York, 10022, Attn: Vincent M. Rella; or
(c) if to neither of the foregoing, at such other address as shall have
been provided by like notice to the sender of any such notice or other
communication by the other party.

20. AMENDMENTS. This Agreement, or any term thereof, may be changed or waived
only by written amendment, signed by the party against whom enforcement of
such change or waiver is sought.

21. DELEGATION; ASSIGNMENT. PFPC may assign its rights and delegate its duties
hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PFPC gives the
Fund one hundred twenty (120) days' prior written notice; (ii) the delegate
(or assignee) agrees with PFPC and the Fund to comply with all relevant
provisions of the 1940 Act; and (iii) PFPC and such delegate (or assignee)
promptly provide such information as the Fund may request, and respond to

9
<PAGE>

such questions as the Fund may ask, relative to the delegation (or
assignment), including (without limitation) the capabilities of the
delegate (or assignee).

22. COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.

23. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.

24. MISCELLANEOUS.

(a) ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements
and understandings relating to the subject matter hereof, provided
that the parties may embody in one or more separate documents their
agreement, if any, with respect to delegated duties and Oral
Instructions.

(b) CAPTIONS. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.

(c) GOVERNING LAW. This Agreement shall be deemed to be a contract made
in Delaware and governed by Delaware law, without regard to principles
of conflicts of law.

(d) PARTIAL INVALIDITY. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.

(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.

(f) FACSIMILE SIGNATURES. The facsimile signature of any party to this
Agreement shall constitute the valid and binding execution hereof by
such party.

10
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.

PFPC INC.

By: /s/ Clayton H. Burton
------------------------------------------

Title: Executive Vice President
---------------------------------------

The OFFITBANK Variable Insurance Fund, Inc.

By: /s/ Vincent M. Rella
------------------------------------------

Title: Assistant Treasurer
---------------------------------------

11
<PAGE>

EXHIBIT A

THIS EXHIBIT A, dated as of February 27, 1998, is Exhibit A to that certain
Administration and Accounting Services Agreement dated as of February 27, 1998
between PFPC Inc. and The OFFITBANK Variable Insurance Fund, Inc.

PORTFOLIOS

DJG Value Equity Fund
OFFITBANK VIF - U.S. Government Securities Fund
OFFITBANK VIF - U.S. Small Cap Fund
OFFITBANK VIF - High Yield Fund
OFFITBANK VIF - Emerging Markets Fund
OFFITBANK VIF - Global Convertible Fund
OFFITBANK VIF - Total Return Fund
OFFITBANK VIF - Latin America Fund
OFFITBANK VIF - CVO Greater China Fund
OFFITBANK VIF - Mortgage Securities Fund

12
<PAGE>

AUTHORIZED PERSONS APPENDIX

NAME (TYPE) SIGNATURE

Morris W. Offit /s/ Morris W. Offit
---------------------------------

Dr. Wallace Mathai-Davis /s/ Dr. Wallace Mathai-Davis
---------------------------------

Stephen Brent Wells /s/ Stephen Brent Wells
---------------------------------

Vincent M. Rella /s/ Vincent M. Rella
---------------------------------

Gary M. Gardner /s/ Gary M. Gardner
---------------------------------

Stephen M. Wynne /s/ Stephen M. Wynne
---------------------------------

David D. Marky /s/ David D. Marky
---------------------------------

David C. Lebisky /s/ David C. Lebisky
---------------------------------

David J. Castaldi /s/ David J. Castaldi
---------------------------------

J. Barry Clause /s/ J. Barry Clause
---------------------------------

Diane K. Thai /s/ Diane K. Thai
---------------------------------

Matthew C. Pierce /s/ Matthew C. Pierce
---------------------------------

<PAGE>

TRANSFER AGENCY SERVICES AGREEMENT

THIS AGREEMENT is made as of February 27, 1998 by and between PFPC INC., a
Delaware corporation ("PFPC"), and The OFFITBANK Variable Insurance Fund, Inc.,
a Maryland corporation (the "Fund").

W I T N E S S E T H:

WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and

WHEREAS, the Fund wishes to retain PFPC to serve as transfer agent,
registrar, dividend disbursing agent and shareholder servicing agent to its
investment portfolios listed on Exhibit A attached hereto and made a part
hereof, as such Exhibit A may be amended from time to time (each a "Portfolio"),
and PFPC wishes to furnish such services.

NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:

1. DEFINITIONS. AS USED IN THIS AGREEMENT:

(a) "1933 ACT" means the Securities Act of 1933, as amended.

(b) "1934 ACT" means the Securities Exchange Act of 1934, as amended.

(c) "AUTHORIZED PERSON" means any officer of the Fund and any other
person duly authorized by the Fund's Board of Directors to give Oral
Instructions and Written Instructions on behalf of the Fund and
listed on the Authorized Persons Appendix attached hereto and made a
part hereof or any amendment thereto as may be received by PFPC. An
Authorized Person's scope of authority may be limited by the Fund by
setting forth such limitation in the Authorized Persons Appendix.

(d) "CEA" means the Commodities Exchange Act, as amended.

(e) "ORAL INSTRUCTIONS" mean oral instructions received by PFPC from an
Authorized Person or from a person reasonably believed by PFPC to be
an Authorized Person.

(f) "SEC" means the Securities and Exchange Commission.

(g) "SECURITIES LAWS" mean the 1933 Act, the 1934 Act, the 1940 Act and
the CEA.

(h) "SHARES" mean the shares of beneficial interest of any series or
class of the Fund.
<PAGE>

(i) "WRITTEN INSTRUCTIONS" mean written instructions signed by an
Authorized Person and received by PFPC. The instructions, which
shall be timely relative to the action requested, may be delivered
by hand, mail, tested telegram, cable, telex, electronic
transmission or facsimile sending device.

2. APPOINTMENT. The Fund hereby appoints PFPC to serve as transfer agent,
registrar, dividend disbursing agent and shareholder servicing agent to
each of the Portfolios in accordance with the terms set forth in this
Agreement. PFPC accepts such appointment and agrees to furnish such
services.

3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable, will
provide PFPC with the following:

(a) Certified or authenticated copies of the resolutions of the Fund's
Board of Directors, approving the appointment of PFPC or its
affiliates to provide services to each Portfolio and approving this
Agreement;

(b) A copy of the Fund's most recent effective registration statement;

(d) A copy of the distribution agreement with respect to Shares
representing an interest in a Portfolio;

(e) A copy of any additional administration agreement with respect to a
Portfolio;

(f) A copy of any shareholder servicing agreement made in respect of
the Fund or a Portfolio; and

(g) Copies (certified or authenticated where applicable) of any and all
amendments or supplements to the foregoing.

4. COMPLIANCE WITH RULES AND REGULATIONS. PFPC undertakes to comply with all
applicable requirements of the Securities Laws and any laws, rules and
regulations of governmental authorities having jurisdiction with respect to
the duties to be performed by PFPC hereunder. Except as specifically set
forth herein, PFPC assumes no responsibility for such compliance by the
Fund or any Portfolio.

5. YEAR 2000 COMPLIANCE.

PFPC represents and warrants that the electronic data processing systems
and programs that it uses in connection with the provision of services
hereunder will be year 2000 compliant prior to 1999.

2
<PAGE>

6. INSTRUCTIONS.

(a) Unless otherwise provided in this Agreement, PFPC shall act only
upon Oral Instructions and Written Instructions.

(b) PFPC shall be entitled to rely upon any Oral Instructions and
Written Instructions it receives from an Authorized Person (or from
a person reasonably believed by PFPC to be an Authorized Person)
pursuant to this Agreement. PFPC may assume that any Oral
Instruction or Written Instruction received hereunder is not in any
way inconsistent with the provisions of organizational documents or
this Agreement or of any vote, resolution or proceeding of the
Fund's Board of Directors or of the Fund's shareholders, unless and
until PFPC receives Written Instructions to the contrary.

(c) The Fund agrees to forward to PFPC Written Instructions confirming
Oral Instructions so that PFPC receives the Written Instructions by
the close of business on the same day that such Oral Instructions
are received. The fact that such confirming Written Instructions
are not received by PFPC shall in no way invalidate the transactions
or enforceability of the transactions authorized by the Oral
Instructions. Where Oral Instructions or Written Instructions
reasonably appear to have been received from an Authorized Person,
PFPC shall incur no liability to the Fund in acting upon such Oral
Instructions or Written Instructions provided that PFPC's actions
comply with the other provisions of this Agreement.

7. RIGHT TO RECEIVE ADVICE.

(a) ADVICE OF THE FUND. If PFPC is in doubt as to any action it should
or should not take, PFPC may request directions or advice, including
Oral Instructions or Written Instructions, from the Fund.

(c) CONFLICTING ADVICE. In the event of a conflict between directions,
advice or Oral Instructions or Written Instructions PFPC receives
from the Fund, and the advice it receives from counsel, PFPC may
rely upon and follow the advice of counsel. In the event PFPC so
relies on the advice of counsel, PFPC remains liable for any action
or omission on the part of PFPC which constitutes willful
misfeasance, bad faith, gross negligence or reckless disregard by
PFPC of any duties, obligations or responsibilities set forth in
this Agreement.

(d) PROTECTION OF PFPC. PFPC shall be protected in any action it takes
or does not take in reliance upon directions, advice or Oral
Instructions or Written

3
<PAGE>

Instructions it receives from the Fund or from counsel and which
PFPC believes, in good faith, to be consistent with those
directions, advice or Oral Instructions or Written Instructions.
Nothing in this section shall be construed so as to impose an
obligation upon PFPC (i) to seek such directions, advice or Oral
Instructions or Written Instructions, or (ii) to act in accordance
with such directions, advice or Oral Instructions or Written
Instructions unless, under the terms of other provisions of this
Agreement, the same is a condition of PFPC's properly taking or not
taking such action. Nothing in this subsection shall excuse PFPC
when an action or omission on the part of PFPC constitutes willful
misfeasance, bad faith, gross negligence or reckless disregard by
PFPC of any duties, obligations or responsibilities set forth in
this Agreement.

8. RECORDS; VISITS. The books and records pertaining to the Fund, which are
in the possession or under the control of PFPC, shall be the property of
the Fund. Such books and records shall be prepared and maintained as
required by the 1940 Act and other applicable securities laws, rules and
regulations. The Fund and Authorized Persons shall have access to such
books and records at all times during PFPC's normal business hours. Upon
the reasonable request of the Fund, copies of any such books and records
shall be provided by PFPC to the Fund or to an Authorized Person, at the
Fund's expense.

10. COOPERATION WITH ACCOUNTANTS. PFPC shall cooperate with the Fund's
independent public accountants and shall take all reasonable actions in the
performance of its obligations under this Agreement to ensure that the
necessary information is made available to such accountants for the
expression of their opinion, as required by the Fund.

4
<PAGE>

13. INDEMNIFICATION. The Fund, on behalf of each Portfolio, agrees to
indemnify and hold harmless PFPC and its affiliates from all taxes,
charges, expenses, assessments, claims and liabilities (including, without
limitation, liabilities arising under the Securities Laws and any state and
foreign securities and blue sky laws, and amendments thereto), and
expenses, including (without limitation) attorneys' fees and disbursements,
arising directly or indirectly from (i) any action or omission to act which
PFPC takes (a) at the request or on the direction of or in reliance on the
advice of the Fund or (b) upon Oral Instructions or Written Instructions or
(ii) the acceptance, processing and/or negotiation of checks or other
methods utilized for the purchase of Shares. Neither PFPC, nor any of its
affiliates, shall be indemnified against any liability (or any expenses
incident to such liability) arising out of PFPC's or its affiliates' own
willful misfeasance, bad faith, gross negligence or reckless disregard of
its duties and obligations under this Agreement. Any amounts payable by
the Fund hereunder shall be satisfied only against the relevant Portfolio's
assets and not against the assets of any other investment portfolio of the
Fund.

14. RESPONSIBILITY OF PFPC.

(a) PFPC shall be under no duty to take any action on behalf of the Fund
except as specifically set forth herein or as may be specifically
agreed to by PFPC in writing. PFPC shall be obligated to exercise
care and diligence in the performance of its duties hereunder, to
act in good faith and to use its best efforts, within reasonable
limits, in performing services provided for under this Agreement.
PFPC shall be liable for any damages arising out of PFPC's failure
to perform its duties under this Agreement to the extent such
damages arise out of PFPC's willful misfeasance, bad faith, gross
negligence or reckless disregard of such duties, and PFPC shall
indemnify and hold harmless the Fund and each Portfolio from such
damages.

(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PFPC, shall not be liable for
losses beyond its control, provided that PFPC has acted in
accordance with the standard of care set forth above; and (ii) PFPC
shall not be under any duty or obligation to inquire into and shall
not be liable for (A) the validity or invalidity or authority or
lack thereof of any Oral Instruction or Written Instruction, notice
or other instrument which conforms to the applicable requirements of
this Agreement, and which PFPC reasonably believes to be genuine; or
(B) subject to Section 11, delays or errors or loss of data
occurring by reason of circumstances beyond PFPC's control,
including acts of civil or military authority, national emergencies,
labor difficulties, fire, flood, catastrophe, acts of God,
insurrection, war, riots or failure of the mails, transportation,
communication or power supply.

(c) Notwithstanding anything in this Agreement to the contrary, neither
PFPC nor its affiliates shall be liable to the Fund for any
consequential, special or indirect losses or damages which the Fund
may incur or suffer by or as a consequence of PFPC's or its
affiliates' performance of the services provided hereunder, whether

5
<PAGE>

or not the likelihood of such losses or damages was known by PFPC or
its affiliates.

15. DESCRIPTION OF SERVICES.

(a) SERVICES PROVIDED ON AN ONGOING BASIS, IF APPLICABLE.

(i) Calculate 12b-1 payments;

(ii) Maintain proper shareholder registrations;

(iii) Review new applications and correspond with shareholders to
complete or correct information;

(iv) Direct payment processing of checks or wires;

(v) Prepare and certify stockholder lists in conjunction with
proxy solicitations;

(vi) Countersign share certificates;

(vii) Prepare and mail to shareholders confirmation of activity;

(viii) Provide toll-free lines for direct shareholder use, plus
customer liaison staff for on-line inquiry response;

(ix) Mail duplicate confirmations to broker-dealers of their
clients' activity, whether executed through the broker-dealer
or directly with PFPC;

(x) Provide periodic shareholder lists and statistics to
the Fund;

(xi) Provide detailed data for underwriter/broker confirmations;

(xii) Prepare periodic mailing of year-end tax and statement
information;

(xiii) Notify on a timely basis the investment adviser, accounting
agent, and custodian of fund activity; and

(xiv) Perform other participating broker-dealer shareholder services
as may be agreed upon from time to time.

(b) SERVICES PROVIDED BY PFPC UNDER ORAL INSTRUCTIONS OR WRITTEN
INSTRUCTIONS.

(i) Accept and post daily Fund purchases and redemptions;

(ii) Accept, post and perform shareholder transfers and exchanges;

6
<PAGE>

(iii) Pay dividends and other distributions;

(iv) Solicit and tabulate proxies; and

(v) Issue and cancel certificates (when requested in writing by
the shareholder).

(c) PURCHASE OF SHARES. PFPC shall issue and credit an account of an
investor, in the manner described in the Fund's prospectus, once it
receives:

(i) A purchase order;

(ii) Proper information to establish a shareholder account; and

(iii) Confirmation of receipt or crediting of funds for such order
to the Fund's custodian.

(d) REDEMPTION OF SHARES. PFPC shall redeem Shares only if that function
is properly authorized by the certificate of incorporation or
resolution of the Fund's Board of Directors. Shares shall be redeemed
and payment therefor shall be made in accordance with the Fund's
prospectus, when the recordholder tenders Shares in proper form and
directs the method of redemption. If the recordholder has not
directed that redemption proceeds be wired, when the Custodian
provides PFPC with funds, the redemption check shall be sent to and
made payable to the recordholder, unless:

(i) the surrendered certificate is drawn to the order of an
assignee or holder and transfer authorization is signed by
the recordholder; or

(ii) Transfer authorizations are signed by the recordholder when
Shares are held in book-entry form.

When a broker-dealer notifies PFPC of a redemption desired by a customer,
and the Custodian provides PFPC with funds, PFPC shall prepare and send the
redemption check to the broker-dealer and made payable to the broker-dealer
on behalf of its customer.

(e) DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. PFPC shall receive proper
authorization of dividends and capital gain distributions, typically
in the form of a resolution of the Fund's Board of Directors
authorizing their declaration and payment. PFPC shall issue
dividends and capital gain distributions declared by the Fund in
Shares, or, upon shareholder election, pay such dividends and capital
gain distributions in cash, if provided for in the Fund's prospectus.
Such issuance or payment, as well as payments upon redemption as
described above, shall be made after deduction and payment of the
required amount of funds to be withheld

7
<PAGE>

in accordance with any applicable tax laws or other laws, rules or
regulations. PFPC shall mail to the Fund's shareholders such tax
forms and other information, or permissible substitute notice,
relating to dividends and capital gain distributions paid by the Fund
as are required to be filed and mailed by applicable law, rule or
regulation. PFPC shall prepare, maintain and file with the IRS and
other appropriate taxing authorities reports relating to all dividends
above a stipulated amount paid by the Fund to its shareholders as
required by tax or other law, rule or regulation.

(f) SHAREHOLDER ACCOUNT SERVICES.

(i) PFPC may arrange, in accordance with the prospectus, for
issuance of Shares obtained through:

- Any pre-authorized check plan; and
- Direct purchases through broker wire orders, checks and
applications.

(ii) PFPC may arrange, in accordance with the prospectus, for a
shareholder's:

- Exchange of Shares for shares of another fund with which the
Fund has exchange privileges;

- Automatic redemption from an account where that shareholder
participates in a automatic redemption plan; and/or

- Redemption of Shares from an account with a checkwriting
privilege.

(g) COMMUNICATIONS TO SHAREHOLDERS. Upon Written Instructions, PFPC shall
mail all communications by the Fund to its shareholders, including:

(i) Reports to shareholders;

(ii) Confirmations of purchases and sales of Fund shares;

(iii) Monthly or quarterly statements;

(iv) Dividend and distribution notices;

(v) Proxy material; and

(vi) Tax form information.

In addition, PFPC will receive and tabulate the proxy cards for the
meetings of the Fund's shareholders.

8
<PAGE>

(h) RECORDS. PFPC shall maintain records of the accounts for each
shareholder showing the following information:

(i) Name, address and United States Tax Identification or Social
Security number;

(ii) Number and class of Shares held and number and class of Shares
for which certificates, if any, have been issued, including
certificate numbers and denominations;

(iii) Historical information regarding the account of each
shareholder, including dividends and distributions paid and the
date and price for all transactions on a shareholder's
account;

(iv) Any stop or restraining order placed against a shareholder's
account;

(v) Any correspondence relating to the current maintenance of a
shareholder's account;

(vi) Information with respect to withholdings; and

(vii) Any information required in order for the transfer agent to
perform any calculations contemplated or required by this
Agreement.

(i) LOST OR STOLEN CERTIFICATES. PFPC shall place a stop notice against
any certificate reported to be lost or stolen and comply with all
applicable federal regulatory requirements for reporting such loss or
alleged misappropriation. A new certificate shall be registered and
issued only upon:

(i) The shareholder's pledge of a lost instrument bond or such
other appropriate indemnity bond issued by a surety company
approved by PFPC; and

(ii) Completion of a release and indemnification agreement signed by
the shareholder to protect PFPC and its affiliates.

(j) SHAREHOLDER INSPECTION OF STOCK RECORDS. Upon a request from any
Fund shareholder to inspect stock records, PFPC will notify the Fund
and the Fund will issue instructions granting or denying each such
request. Unless PFPC has acted contrary to the Fund's instructions,
the Fund agrees and does hereby, release PFPC from any liability for
refusal of permission for a particular shareholder to inspect the
Fund's stock records.

(k) WITHDRAWAL OF SHARES AND CANCELLATION OF CERTIFICATES. Upon receipt
of Written Instructions, PFPC shall cancel outstanding certificates
surrendered by the Fund

9
<PAGE>

to reduce the total amount of outstanding shares by the number of
shares surrendered by the Fund.

16. DURATION AND TERMINATION. This Agreement shall continue until terminated
by the Fund on sixty (60) days' prior written notice to PFPC, or by PFPC on
one hundred twenty (120) days prior written notice to the Fund.

17. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex
or facsimile sending device. Notices shall be addressed (a) if to PFPC, at
400 Bellevue Parkway, Wilmington, Delaware 19809; (b) if to the Fund, at
520 Madison Avenue, 27th Floor, New York, New York, 10022, Attn: Vincent M.
Rella or (c) if to neither of the foregoing, at such other address as shall
have been given by like notice to the sender of any such notice or other
communication by the other party. If notice is sent by confirming
telegram, cable, telex or facsimile sending device, it shall be deemed to
have been given immediately. If notice is sent by first-class mail, it
shall be deemed to have been given three days after it has been mailed. If
notice is sent by messenger, it shall be deemed to have been given on the
day it is delivered.

18. AMENDMENTS. This Agreement, or any term thereof, may be changed or waived
only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.

19. DELEGATION; ASSIGNMENT. PFPC may assign its rights and delegate its duties
hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PFPC gives the
Fund one hundred twenty (120) days' prior written notice; (ii) the
delegate (or assignee) agrees with PFPC and the Fund to comply with all
relevant provisions of the 1940 Act; and (iii) PFPC and such delegate (or
assignee) promptly provide such information as the Fund may request, and
respond to such questions as the Fund may ask, relative to the delegation
(or assignment), including (without limitation) the capabilities of the
delegate (or assignee).

20. COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.

21. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.

22. MISCELLANEOUS.

10
<PAGE>

to delegated duties and Oral Instructions.

(b) CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of
the provisions hereof or otherwise affect their construction or
effect.

(c) GOVERNING LAW. This Agreement shall be deemed to be a contract made
in Delaware and governed by Delaware law, without regard to
principles of conflicts of law.

(d) PARTIAL INVALIDITY. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected
thereby.

(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.

(f) FACSIMILE SIGNATURES. The facsimile signature of any party to this
Agreement shall constitute the valid and binding execution hereof by
such party.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.

PFPC INC.

By: /s/ Clayton H. Burton
----------------------------------

Title: Executive Vice President
-------------------------------

The OFFITBANK Investment Fund, Inc.

By: /s/ Vincent M. Rella
----------------------------------

Title: Assistant Treasurer
-------------------------------

11
<PAGE>

EXHIBIT A

THIS EXHIBIT A, dated as of February 27, 1998, is Exhibit A to that certain
Transfer Agency Services Agreement dated as of February 27, 1998 between PFPC
Inc. and The OFFITBANK Variable Insurance Fund, Inc.

PORTFOLIOS

12
<PAGE>

AUTHORIZED PERSONS APPENDIX

NAME (Type) SIGNATURE

Morris W. Offit /s/ Morris W. Offit
--------------------------------

Dr. Wallace Mathai-Davis /s/ Dr. Wallace Mathai-Davis
--------------------------------

Stephen Brent Wells /s/ Stephen Brent Wells
--------------------------------

Vincent M. Rella /s/ Vincent M. Rella
--------------------------------

Gary M. Gardner /s/ Gary M. Gardner
--------------------------------

Stephen M. Wynne /s/ Stephen M. Wynne
--------------------------------

David D. Marky /s/ David D. Marky
--------------------------------

David C. Lebisky /s/ David C. Lebisky
--------------------------------

Jody I. Thomas /s/ Jody I. Thomas
--------------------------------

Tammy L. DeStafney /s/ Tammy L. DeStafney
--------------------------------

Julia A. Moore /s/ Julia A. Moore
--------------------------------

<PAGE>
[LETTERHEAD]

July 29, 1998

OFFITBANK Variable Insurance Fund, Inc.
400 Bellevue Parkway
Wilmington, DE 19809

Re: OFFITBANK Variable Insurance Fund, Inc.
Post-Effective Amendment No. 12
Registration No. 33-81748, 811-8640
----------------------------------------

Dear Gentlemen/Ladies:

We hereby consent to the reference of our firm as Counsel in this
Post-Effective Amendment No. 12 to the Registration Statement on Form N-1A.

Very truly yours,

/s/ Kramer, Levin, Naftalis & Frankel

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectuses and
Statements of Additional Information constituting parts of this Post-Effective
Amendment No. 12 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated May 8, 1998, relating to the financial
statements and financial highlights appearing in the March 31, 1998 Annual
Report to Shareholders of The OFFITBANK Variable Insurance Fund, Inc., and our
report dated February 16, 1998, relating to the financial statements and
financial highlights appearing in the December 31, 1997 Annual Report to
Shareholders of The OFFITBANK Investment Fund, Inc., which are incorporated by
reference into the Registration Statement. We also consent to the references to
us under the headings "Independent Accountants" and "Financial Statements" in
such Statements of Additional Information and to the references to us under the
headings "Counsel And Independent Accountants" in the Prospectuses for OFFITBANK
VIF-High Yield Fund, OFFITBANK VIF-Emerging Markets Fund, DJG Value Equity Fund,
OFFITBANK VIF-U.S. Small Cap Fund, OFFITBANK VIF-Global Convertible Fund,
OFFITBANK VIF-U.S. Government Securities Fund, OFFITBANK VIF-Mortgage Securities
Fund, OFFITBANK VIF-Total Return Fund, OFFITBANK VIF-Latin America Equity Fund,
and OFFITBANK VIF-CVO Greater China Fund and the headings "Financial Highlights"
and "Counsel And Independent Accountants" in the Prospectuses for OFFITBANK
VIF-High Yield Fund, OFFITBANK VIF-Emerging Markets Fund, DJG Value Equity Fund,
OFFITBANK VIF-U.S. Small Cap Fund, and OFFITBANK VIF-Total Return Fund, each of
which also constitutes part of this Registration Statement.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
July 29, 1998

<PAGE>
<ARTICLE> 6
<CIK> 0000927289
<NAME> THE OFFITBANK INVESTMENT FUND, INC.
<SERIES>
<NUMBER> 01
<NAME> OFFITBANK U.S. GOVERNMENT SECURITIES FUND

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 3873195
<INVESTMENTS-AT-VALUE> 3903688
<RECEIVABLES> 76948
<ASSETS-OTHER> 19400
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4000036
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 45360
<TOTAL-LIABILITIES> 45360
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39199328
<SHARES-COMMON-STOCK> 388932
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4855
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 30493
<NET-ASSETS> 3954676
<DIVIDEND-INCOME> 958
<INTEREST-INCOME> 59760
<OTHER-INCOME> 0
<EXPENSES-NET> 5202
<NET-INVESTMENT-INCOME> 55516
<REALIZED-GAINS-CURRENT> 13802
<APPREC-INCREASE-CURRENT> 30493
<NET-CHANGE-FROM-OPS> 99811
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 59456
<DISTRIBUTIONS-OF-GAINS> 5280
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 391245
<NUMBER-OF-SHARES-REDEEMED> 6827
<SHARES-REINVESTED> 4514
<NET-CHANGE-IN-ASSETS> 3954676
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3596
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 46674
<AVERAGE-NET-ASSETS> 2083054
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .27
<PER-SHARE-GAIN-APPREC> .19
<PER-SHARE-DIVIDEND> .28
<PER-SHARE-DISTRIBUTIONS> .01
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.17
<EXPENSE-RATIO> .50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000927289
<NAME> THE OFFITBANK INVESTMENT FUND, INC.
<SERIES>
<NUMBER> 02
<NAME> OFFITBANK MORTGAGE SECURITIES FUND

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 16869697
<INVESTMENTS-AT-VALUE> 16948395
<RECEIVABLES> 183879
<ASSETS-OTHER> 23464
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17155738
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 118319
<TOTAL-LIABILITIES> 118319
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16907889
<SHARES-COMMON-STOCK> 1675581
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 19449
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 27956
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 82125
<NET-ASSETS> 17037419
<DIVIDEND-INCOME> 4975
<INTEREST-INCOME> 359692
<OTHER-INCOME> 0
<EXPENSES-NET> 28845
<NET-INVESTMENT-INCOME> 335822
<REALIZED-GAINS-CURRENT> 117606
<APPREC-INCREASE-CURRENT> 82125
<NET-CHANGE-FROM-OPS> 535553
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 349453
<DISTRIBUTIONS-OF-GAINS> 58364
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1647704
<NUMBER-OF-SHARES-REDEEMED> 2458
<SHARES-REINVESTED> 30335
<NET-CHANGE-IN-ASSETS> 17037419
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 20098
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 78855
<AVERAGE-NET-ASSETS> 11554521
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .29
<PER-SHARE-GAIN-APPREC> .22
<PER-SHARE-DIVIDEND> .30
<PER-SHARE-DISTRIBUTIONS> .04
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.17
<EXPENSE-RATIO> .50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000927289
<NAME> OFFITBANK (VIF)
<SERIES>
<NUMBER> 01
<NAME> VIF-HIGH YIELD FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> MAR-31-1997
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 29828296
<INVESTMENTS-AT-VALUE> 31168866
<RECEIVABLES> 731132
<ASSETS-OTHER> 44673
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 31944671
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 269705
<TOTAL-LIABILITIES> 269705
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 30092400
<SHARES-COMMON-STOCK> 2880068
<SHARES-COMMON-PRIOR> 2420680
<ACCUMULATED-NII-CURRENT> 42172
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 199824
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1340570
<NET-ASSETS> 31674966
<DIVIDEND-INCOME> 19959
<INTEREST-INCOME> 2552527
<OTHER-INCOME> 0
<EXPENSES-NET> 324029
<NET-INVESTMENT-INCOME> 2248457
<REALIZED-GAINS-CURRENT> 199824
<APPREC-INCREASE-CURRENT> 1342036
<NET-CHANGE-FROM-OPS> 3790317
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2248457
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 608193
<NUMBER-OF-SHARES-REDEEMED> 338000
<SHARES-REINVESTED> 189195
<NET-CHANGE-IN-ASSETS> 6560826
<ACCUMULATED-NII-PRIOR> 8755
<ACCUMULATED-GAINS-PRIOR> 24669
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 239489
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 435364
<AVERAGE-NET-ASSETS> 28190717
<PER-SHARE-NAV-BEGIN> 10.37
<PER-SHARE-NII> .86
<PER-SHARE-GAIN-APPREC> .63
<PER-SHARE-DIVIDEND> .86
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.00
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000927289
<NAME> OFFITBANK (VIF)
<SERIES>
<NUMBER> 02
<NAME> VIF-EMERGING MARKETS FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> MAR-31-1997
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 5575988
<INVESTMENTS-AT-VALUE> 5688523
<RECEIVABLES> 158543
<ASSETS-OTHER> 95178
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5942244
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 162712
<TOTAL-LIABILITIES> 162712
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5573308
<SHARES-COMMON-STOCK> 547786
<SHARES-COMMON-PRIOR> 421874
<ACCUMULATED-NII-CURRENT> 33147
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 52829
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 120248
<NET-ASSETS> 5779532
<DIVIDEND-INCOME> 1206
<INTEREST-INCOME> 536223
<OTHER-INCOME> 0
<EXPENSES-NET> 82446
<NET-INVESTMENT-INCOME> 454983
<REALIZED-GAINS-CURRENT> 6403
<APPREC-INCREASE-CURRENT> 69906
<NET-CHANGE-FROM-OPS> 588892
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 464998
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 97067
<NUMBER-OF-SHARES-REDEEMED> 3135
<SHARES-REINVESTED> 31980
<NET-CHANGE-IN-ASSETS> 1433930
<ACCUMULATED-NII-PRIOR> 11824
<ACCUMULATED-GAINS-PRIOR> 10660
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 49468
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 146363
<AVERAGE-NET-ASSETS> 5504801
<PER-SHARE-NAV-BEGIN> 10.30
<PER-SHARE-NII> .86
<PER-SHARE-GAIN-APPREC> .27
<PER-SHARE-DIVIDEND> .88
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.55
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000927289
<NAME> OFFITBANK (VIF)
<SERIES>
<NUMBER> 03
<NAME> DJG VALUE EQUITY FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-11-1997
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 1560759
<INVESTMENTS-AT-VALUE> 002811
<RECEIVABLES> 33130
<ASSETS-OTHER> 7435
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2043376
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25493
<TOTAL-LIABILITIES> 25493
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1451854
<SHARES-COMMON-STOCK> 135111
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 3898
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 120079
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 442052
<NET-ASSETS> 2017883
<DIVIDEND-INCOME> 19228
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 17091
<NET-INVESTMENT-INCOME> 2137
<REALIZED-GAINS-CURRENT> 120079
<APPREC-INCREASE-CURRENT> 442052
<NET-CHANGE-FROM-OPS> 564268
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 136577
<NUMBER-OF-SHARES-REDEEMED> 1466
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2017883
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10934
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 69810
<AVERAGE-NET-ASSETS> 1410996
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> 4.92
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.94
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000927289
<NAME> OFFITBANK (VIF)
<SERIES>
<NUMBER> 04
<NAME> VIF-U.S. SMALL CAP FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-11-1997
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 1162214
<INVESTMENTS-AT-VALUE> 1399365
<RECEIVABLES> 17592
<ASSETS-OTHER> 7903
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1424860
<PAYABLE-FOR-SECURITIES> 3330
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27250
<TOTAL-LIABILITIES> 30580
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1037693
<SHARES-COMMON-STOCK> 98603
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 119423
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 237164
<NET-ASSETS> 1394280
<DIVIDEND-INCOME> 7682
<INTEREST-INCOME> 451
<OTHER-INCOME> 0
<EXPENSES-NET> 16201
<NET-INVESTMENT-INCOME> (8068)
<REALIZED-GAINS-CURRENT> 125730
<APPREC-INCREASE-CURRENT> 237164
<NET-CHANGE-FROM-OPS> 354826
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 99803
<NUMBER-OF-SHARES-REDEEMED> 1200
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1394280
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10796
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 72339
<AVERAGE-NET-ASSETS> 1113944
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.08)
<PER-SHARE-GAIN-APPREC> 4.22
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.14
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>