BADGLEY FUNDS INC
497, 1998-06-30
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Prospectus


                  BADGLEY FUNDS, INC.
                           
                     P.O. Box 701
           Milwaukee, Wisconsin  53201-0701
                     1-877-BADGLEY

     BADGLEY FUNDS, INC. (the "Corporation") is an open-
end,   diversified,   management  investment   company,
commonly referred to as a mutual fund.  The Corporation
is  currently  comprised of two diversified  series  or
portfolios,  including  the Badgley  Growth  Fund  (the
"Growth  Fund")  and  the Badgley  Balanced  Fund  (the
"Balanced  Fund")  (collectively  referred  to  as  the
"Funds").

     The  Growth Fund's investment objective is to seek
long-term capital appreciation.  The Growth Fund  seeks
to  achieve its investment objective by investing in  a
diversified  portfolio of equity securities  consisting
primarily  of  common  stocks.   The  Balanced   Fund's
investment  objective  is  to  seek  long-term  capital
appreciation  and income.  The Balanced Fund  seeks  to
achieve  its  investment  objective  primarily  through
investments  in  equity securities, principally  common
stocks,  and  through investments in  investment  grade
bonds  and  other fixed income securities.   Each  Fund
seeks to identify common stocks of companies with long-
term  growth potential and hold such securities for  an
extended  period,  which  has the  advantage  of  lower
portfolio turnover and capital gains distributions.

     This  Prospectus contains information  you  should
consider before you invest in one or more of the Funds.
Please  read  it  carefully  and  keep  it  for  future
reference.  A Statement of Additional Information  (the
"SAI")  for  the  Funds, dated June 24, 1998,  contains
further information, is incorporated by reference  into
this Prospectus, and has been filed with the Securities
and  Exchange Commission (the "SEC").  The  SAI,  which
may  be revised from time to time, is available without
charge  upon  request  to  the above-noted  address  or
telephone number.

                 ____________________
                           
     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.

     The date of this Prospectus is June 24, 1998.

<PAGE>
                           
                   TABLE OF CONTENTS
                                               Page No.

INVESTOR EXPENSES                                               1

HIGHLIGHTS                                                      2

INVESTMENT OBJECTIVES AND POLICIES                              4

IMPLEMENTATION OF POLICIES AND RISKS                            5

FUNDAMENTAL INVESTMENT RESTRICTIONS                             8

PRIOR PERFORMANCE OF THE ADVISER                                9

FUND ORGANIZATION AND MANAGEMENT                               12

HOW TO PURCHASE SHARES                                         14

HOW TO REDEEM SHARES                                           16

EXCHANGE PRIVILEGE                                             18

DETERMINATION OF NET ASSET VALUE                               18

DISTRIBUTION AND SHAREHOLDER SERVICING PLAN                    19

INDIVIDUAL RETIREMENT ACCOUNTS                                 19

DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX
TREATMENT                                                      21

YEAR 2000 ISSUE                                                21

FUND PERFORMANCE                                               22

               ______________________________


       No  person  has  been  authorized  to  give  any
information or to make any representations  other  than
those contained in this Prospectus and the SAI, and  if
given or made, such information or representations  may
not  be  relied upon as having been authorized  by  the
Funds.  This Prospectus does not constitute an offer to
sell  securities in any state or jurisdiction in  which
such offering may not lawfully be made.

<PAGE>

                   INVESTOR EXPENSES

     The following information is provided in order  to
help you understand the various costs and expenses that
you,  as an investor in one or more of the Funds,  will
bear directly or indirectly.

          Shareholder Transaction Expenses(1)

  Sales Load Imposed on Purchases                       None
  Sales Load Imposed on Reinvested Dividends            None
  Deferred Sales Load Imposed on Redemptions            None
  Redemption Fees                                       None
  Exchange Fees                                         None

            Annual Fund Operating Expenses
           (after waivers or reimbursements)
        (as a percentage of average net assets)

                                        
                                 Fund
                                        
                        Growth         Balanced
                                                
Management Fees(2)       1.00%            0.90%
Rule 12b-1 Fees(3)       0.25             0.25
Other Expenses(2)        0.25             0.15
Total Operating          1.50%            1.30%
Expenses(2)
____________

(1)In  addition  to  these expenses,  shareholders  who
   choose  to  redeem shares by wire may be  charged  a
   $12 service fee.  See "How to Redeem Shares."
   
 (2)     "Other Expenses" have been estimated  for  the
   current  fiscal year since the Funds did  not  begin
   operations  until  June 24, 1998.   For  the  fiscal
   year  ending  May  31, 1999, the  Funds'  investment
   adviser,   Badgley,  Phelps  and  Bell,  Inc.   (the
   "Adviser"),  has agreed to waive its management  fee
   and/or   reimburse  each  Fund's  respective   other
   expenses to the extent necessary to ensure that  (i)
   the  total  operating expenses (on an annual  basis)
   for  the  Growth  Fund do not exceed  1.50%  of  its
   average  net  assets  and (ii) the  total  operating
   expenses  (on an annual basis) of the Balanced  Fund
   do  not  exceed  1.30%  of its average  net  assets.
   After   such  date,  the  total  operating   expense
   limitations  may  be terminated or  revised  at  any
   time.  Absent these limitations, other expenses  and
   total  operating  expenses for the Growth  Fund  are
   expected  to  be 1.13% and 2.38%, respectively,  and
   other expenses and total operating expenses for  the
   Balanced  Fund are expected to be 1.14%  and  2.29%,
   respectively.    Any  waiver  or  reimbursement   is
   subject to later adjustment to allow the Adviser  to
   recoup  amounts waived or reimbursed to  the  extent
   actual fees and expenses for a period are less  than
   the  expense  limitation  caps,  provided,  however,
   that  the  Adviser shall only be entitled to  recoup
   such  amounts for a period of three years  from  the
   date  such  amount  was waived or  reimbursed.   For
   additional   information   concerning    fees    and
   expenses, see "Fund Organization and Management."
   
(3)See  "Distribution and Shareholder  Servicing  Plan"
   for  detailed information relating to the Rule 12b-1
   distribution  and  shareholder servicing  plan  (the
   "Plan").   Consistent with the National  Association
   of  Securities  Dealers, Inc.'s (the "NASD")  rules,
   Rule  12b-1 fees could cause long-term investors  of
   a  Fund to pay more than the economic equivalent  of
   the  maximum front-end sales charges permitted under
   those same rules.

<PAGE>
   
                        Example
                           
     You  would pay the following expenses on a  $1,000
investment,  assuming (i) a 5% annual return  and  (ii)
redemption at the end of each time period.

       Fund               1 Year      3 Years

       Growth              $15          $47
       Balanced            $13          $41

     The   Example  is  based  on  each  Fund's  "Total
Operating  Expenses"  described  in  the  table  above.
PLEASE   REMEMBER  THAT  THE  EXAMPLE  SHOULD  NOT   BE
CONSIDERED AS REPRESENTATIVE OF PAST OR FUTURE EXPENSES
AND  THAT  ACTUAL EXPENSES MAY BE HIGHER OR LOWER  THAN
THOSE  SHOWN.  The assumption in the Example  of  a  5%
annual  return is required by regulations  of  the  SEC
applicable to all mutual funds.  The assumed 5%  annual
return  is not a prediction of, and does not represent,
the projected or actual performance of a Fund's shares.

                      HIGHLIGHTS
                           
What are the investment objectives and policies of each
of the Funds?

     Each Fund has different investment objectives  and
policies.   The Growth Fund seeks to provide  long-term
capital  appreciation.   The  Balanced  Fund  seeks  to
provide  long-term  capital  appreciation  and   income
(i.e.,  risk-adjusted  total return).   The  investment
policies  of  each Fund are described under "Investment
Objectives and Policies."

     Each  Fund  seeks  to identify  common  stocks  of
companies with long-term growth potential and hold such
securities  for  an  extended  period,  which  has  the
advantage of lower portfolio turnover and capital gains
distributions.

What  types  of  companies/securities  will  the  Funds
invest?

     The   Adviser  intends  to  invest  primarily   in
companies  with medium-to-large market capitalizations.
The  Growth  Fund primarily invests in  common  stocks.
The  Balanced  Fund primarily invests in common  stocks
and  investment  grade  bonds and  other  fixed  income
securities.  Each Fund seeks to identify common  stocks
of  companies  with  the potential  to  grow  revenues,
earnings and dividends in excess of the S&P 500 over  a
three  to five-year time period.  The Adviser generally
purchases  common stocks with a longer-term  investment
horizon,  which  has the advantage of  lower  portfolio
turnover  and capital gains distributions.   Each  Fund
may,  subject  to certain limitations, also  invest  in
foreign  securities, repurchase agreements and illiquid
securities.

     Under  normal  circumstances, the  Funds  will  be
fully  invested (the Growth Fund, in equity  securities
and   the  Balanced  Fund,  in  equity  securities  and
investment   grade   bonds  and  other   fixed   income
securities),  except  that a  limited  portion  of  the
assets  of the Funds (generally not to exceed 15%)  may
be  held in short-term money market securities and cash
pending  investment or to pay redemption  requests  and
expenses of the Funds.  See "Implementation of Policies
and Risks."

What are the potential risks of investing in the Funds?

     The  Funds  are  suitable for long-term  investors
only  and  are not designed as a short-term investment.
The  share  price of each Fund is expected to fluctuate
and  may, at redemption, be worth more or less than the
initial  purchase price.  Investors in either Fund  may
be  exposed, to a greater or lesser extent depending on
the  Fund  and  the  allocation of  Fund  assets  among
investments,   to   market   risks   associated    with
investments  in  common stocks and,  for  the  Balanced
Fund,  of investment grade bonds and other fixed income
securities.  Market risks associated with common stocks
include  the possibility that stock prices  in  general
will decline over short or even extended 

<PAGE>

periods.  This
risk is in addition to the risks inherent in individual
stock  selections.  Market risks associated with  bonds
and   other   fixed  income  investments  include   the
possibility  that bond prices in general  will  decline
when   interest   rates  increase  even   though   such
securities are rated investment grade.  While bonds and
other  fixed income securities normally fluctuate  less
in  price  than common stocks, an increase in  interest
rates will generally cause a decline in prices of these
securities.   In  addition to market  risks  associated
with   bonds   and  other  fixed  income   investments,
individual  issues  of fixed income securities  may  be
subject to credit risk of the issuer.

     Other risks associated with investment in the
Funds include:

       Opportunity Risk:An investment opportunity may be
       missed because the assets necessary to take
       advantage of it are tied up in less advantageous 
       investments.
       
       Management Risk: A strategy used by the Adviser
       may fail to produce the intended result.
       
       Liquidity Risk:  Certain securities may be
       difficult or impossible to sell at the time and price
       that the Funds seek.
       
See "Implementation of Policies and Risks."

Who will be managing my investment?

     Badgley,  Phelps  and Bell, Inc.  (the  "Adviser")
serves as investment adviser to the Funds.  The Adviser
has  been  serving clients since 1966 and, as of  March
31,   1998,  managed  approximately  $1.3  billion  for
individual  and  institutional  clients.   See   "Prior
Performance of the Adviser" and "Fund Organization  and
Management."

What  are  the procedures for purchasing and  redeeming
shares?

     Shares of each Fund are offered at net asset value
per  share.   Shares of each Fund are sold  without  an
initial sales charge.  See "How to Purchase Shares" for
more  details.  In addition, the Funds have  adopted  a
distribution  plan under Rule 12b-1 of  the  Investment
Company Act of 1940, as amended (the "1940 Act"), which
authorizes  each  Fund  to  pay a  distribution  fee of 
0.25%  per annum of its average daily net assets.   The
actual  dollar  amount  of distribution  fees  paid  in
current and future years will depend on the amount of a
Fund's  assets that become subject to such  fees.   See
"Distribution and Shareholder Servicing Plan."

     The  minimum initial investment required  by  each
Fund is $25,000.  The minimum subsequent investment  is
$1,000.   The minimum initial investment for  investors
using  the Automatic Investment Plan is $10,000 with  a
minimum monthly investment of $250.  These minimums may
be  changed  or waived at any time by the  Funds.   See
"How to Purchase Shares."

     Shares  may  be redeemed using either  written  or
telephone redemption procedures at net asset value  per
share  without  the payment of any redemption  charges.
See "How to Redeem Shares."

What  is  the  policy  regarding  dividends  and  other
distributions?

     The   policy   of  each  Fund  is  to   distribute
substantially all net realized capital gains  annually.
Also,  it  is  the policy of the Balanced Fund  to  pay
quarterly  dividends from net investment  income and of  
the Growth Fund to pay annual dividends from net investment 
income.  See "Dividends,   Capital  Gains  Distributions   
and Tax Treatment."

Who should I contact if I have questions?

     General  inquiries  regarding  the  Funds  can  be
directed to either your investment professional or  the
Funds  at the address and telephone number on the front
page of this Prospectus.

<PAGE>

          INVESTMENT OBJECTIVES AND POLICIES
                           
     The  descriptions that follow are designed to help
you  choose  the  Fund that best fits  your  investment
objective.   The investment objective of each  Fund  is
discussed   below   in  connection  with   the   Fund's
investment policies.  Because of the risks inherent  in
investments  in  common stocks, bonds and  other  fixed
income  securities, there can be no  assurance  that  a
Fund  will meet its investment objective or that shares
in a Fund will be worth more than the original purchase
price.   The investment objectives presented below  may
not  be  changed  without shareholder approval.   Other
investment  restrictions  which  may  not  be   changed
without shareholder approval are discussed below  under
"Fundamental Investment Restrictions" and in the SAI.

Growth Fund

     The  Growth Fund's investment objective is to seek
long-term capital appreciation.  The Growth Fund  seeks
to  achieve its investment objective by investing in  a
diversified portfolio of equity securities of companies
with  medium to large capitalizations (i.e.,  companies
with market capitalizations of $2.0 billion or more).

     The  Growth Fund is designed for investors seeking
long-term  capital appreciation, who can  tolerate  the
fluctuations  in portfolio value and other  risks  that
accompany investments in common stocks and other equity-
type  securities.  Under normal market conditions,  the
Growth  Fund  expects to be fully  invested  in  equity
securities, consisting primarily of common stocks.

     The Growth Fund will focus on equity securities of
companies  that  the  Adviser  believes  have  superior
growth   prospects  relative  to  the  S&P   500.    In
identifying equity securities for the Growth Fund,  the
Adviser   will   generally  evaluate  the   fundamental
prospects  for  each company using  both  internal  and
external research.  In compiling its internal research,
the   Adviser  uses  a  number  of  research   sources,
including industry resources, the management of companies
and other institutional  providers.   In   the   research
process,   the  Adviser  reviews  certain   fundamental
attributes  that  it believes a "buy" candidate  should
possess including (i) consistent and predictable growth
characteristics  (revenues,  earnings  and  dividends);
(ii)  low  financial risk which includes low  debt  and
lease  obligations and strong cash flow;  (iii)  market
dominance;  (iv)  significant barriers  to  entry;  (v)
strong management; and (vi) the Adviser's understanding
of the business.  Finally, the Adviser values companies
by  considering the relationship between  the  earnings
per  share  growth rate of a company and its  price  to
earnings  ratio,  and by considering  the  range  of  a
company's historical relative price to earnings ratio.

     The   Adviser  seeks  to  achieve  low   portfolio
turnover   resulting   from   short-term   trading   of
securities.   In  general,  the  Adviser  sells  equity
securities for the Growth Fund in favor of other equity
securities   based  on  three  factors:   deteriorating
fundamentals, overvaluation and changing the  weighting
of a security or a sector.

Balanced Fund

     The  Balanced  Fund's investment objective  is  to
seek  long-term capital appreciation and income  (i.e.,
risk-adjusted total return).  The Balanced  Fund  seeks
to  achieve its investment objective primarily  through
investments  in  equity securities, principally  common
stocks,  and  through investments in  investment  grade
bonds and other fixed income securities.

     The   Balanced  Fund  is  designed  for  investors
seeking  long-term capital appreciation with a moderate
level   of   current  income,  who  can  tolerate   the
fluctuations  in portfolio value and other  risks  that
accompany  equity  investments.  The level  of  current
income  generated by the Balanced Fund is  expected  to
vary from time to time based on the composition of  the
Fund's  assets.  In addition to equity securities,  the
Balanced Fund may invest in investment grade bonds  and
other  fixed income securities including corporate  and
government   securities,  repurchase   agreements   and
mortgage-backed   securities.   Under   normal   market
conditions, the Balanced Fund will invest at least  25%
of  its total assets in fixed income senior securities.
The  Balanced  Fund  will focus  on  intermediate  term
investment  grade bonds with an average dollar-weighted
portfolio  of  three  to  seven-year  maturities   with
individual  maturities ranging from one  to  10  years.
The  Balanced  Fund  will focus on  the  securities  of
companies  with  medium-to-large market capitalizations
with  respect  to equity and corporate debt  securities

<PAGE>

investments.   In selecting equity securities  for  the
Balanced  Fund, the Adviser uses the same methods  used
for the Growth Fund as discussed above.

     
     
         IMPLEMENTATION OF POLICIES AND RISKS
                           
     In  addition  to  the general investment  policies
described  above concerning each Fund,  the  securities
and  investment  techniques which may be  used  by  the
Funds  are  described below.  Some of these  securities
and  investment techniques involve special risks, which
are described below and in the Funds' SAI.

Equity Securities

     The   Funds  will  invest  in  equity  securities,
including  common  stocks and other equity  securities,
although   each  Fund  anticipates  that   its   equity
securities  will  consist primarily of  common  stocks.
Other  equity  securities include depositary  receipts,
warrants   and   other   securities   convertible    or
exchangeable  into  common stock.   Common  stocks  and
other  equity securities generally increase or decrease
in  value  based  on the earnings of a company  and  on
general  industry and market conditions.  A  Fund  that
invests  a  significant amount of its assets in  common
stocks  and other equity securities is likely  to  have
more  fluctuations  in share price  than  a  Fund  that
invests  a significant portion of its assets  in  fixed
income securities.

Fixed Income Securities

     Fixed  Income Securities in General.  The Balanced
Fund  may  invest  a portion of its assets  in  a  wide
variety of fixed income securities, including bonds and
other  debt  securities  and non-convertible  preferred
stocks.   Each Fund may hold a limited portion  of  its
assets  (generally  not  to exceed  15%  of  its  total
assets)  in  short-term money market  securities.   See
"Temporary    Strategies."    Debt    securities    are
obligations  of  the issuer to pay interest  and  repay
principal.   Preferred stocks have rights senior  to  a
company's  common  stock, but  junior  to  a  company's
creditors and, if held by the Balanced Fund as a  fixed
income security, will generally pay a dividend.

     The  value of fixed income securities is  affected
by changes in market interest rates.  If interest rates
increase,   the   value  of  fixed  income   securities
generally  decrease.   Similarly,  if  interest   rates
decrease,   the   value  of  fixed  income   securities
generally  increase.  Shares in the Balanced  Fund  are
likely  to fluctuate in a similar manner.  In  general,
the  longer  the remaining maturity of a  fixed  income
security,  the greater its fluctuations in value  based
on  interest  rate changes.   Longer-term fixed  income
securities generally pay a higher interest  rate.   The
Balanced  Fund  invests in fixed income  securities  of
varying maturities.

     The  value of fixed income securities may also  be
affected  by  changes  in the  credit  quality  of  the
issuer.   Lower-rated fixed income securities generally
pay a higher interest rate.  Although the Balanced Fund
only  invests in investment grade debt securities,  the
value  of these securities may decrease due to  changes
in ratings over time.

     Types  of  Fixed  Income  Securities.   The  fixed
income securities in which the Balanced Fund may invest
include:

          Corporate debt securities, including bonds,
          debentures and notes;
          
          U.S. government securities;
          
          Mortgage and asset-backed securities;
          
          Preferred stocks;
          
          Convertible securities;
          
          Commercial paper (including variable amount
          master demand notes);

<PAGE>
          
          Bank  obligations, such as certificates  of
          deposit,   banker's  acceptances   and   time
          deposits  of  domestic  and  foreign   banks,
          domestic   savings  association   and   their
          subsidiaries  and  branches  (in  amounts  in
          excess  of  the current $100,000 per  account
          insurance  coverage provided by  the  Federal
          Deposit Insurance Corporation); and
          
          Repurchase agreements.
          
     Ratings.  The Balanced Fund will limit investments
in  fixed income securities to those that are rated  at
the time of purchase as at least investment grade by at
least one national rating organization, such as S&P  or
Moody's,  or,  if  unrated, are  determined  to  be  of
equivalent   quality  by  the  Adviser.    Within   the
investment  grade  categories, the Balanced  Fund  will
limit its purchases to the following criteria:

          U.S. government securities;
          
          Bonds or bank obligations rated in one of the
          three  highest categories (e.g., A- or higher
          by S&P);
          
          Short-term notes rated in one  of  the  two
          highest  categories (e.g., SP-2 or higher  by
          S&P);
          
          Commercial   paper  or   short-term   bank
          obligations rated in one of the three highest
          categories (e.g., A-3 or higher by S&P); and
          
          Repurchase agreements involving  investment
          grade fixed income securities.
          
Investment grade fixed income securities are  generally
believed to have a lower degree of credit risk.   If  a
security's  rating falls below the above criteria,  the
Adviser  will determine what action, if any, should  be
taken  to  ensure  compliance with the Balanced  Fund's
investment  objective and to ensure that  the  Balanced
Fund  will at no time have 5% or more of its net assets
invested   in  non-investment  grade  debt  securities.
Additional information concerning securities ratings is
contained in the Appendix to the SAI.

     Government Securities.  U.S. government securities
are  issued or guaranteed by the U.S. government or its
agencies  or  instrumentalities.  These securities  may
have  different  levels  of government  backing.   U.S.
Treasury  obligations, such as Treasury  bills,  notes,
and  bonds  are backed by the full faith and credit  of
the   U.S.  Treasury.   Some  U.S.  government   agency
securities are also backed by the full faith and credit
of  the U.S. Treasury, such as securities issued by the
Government National Mortgage Association (GNMA).  Other
U.S.  government securities may be backed by the  right
of the agency to borrow from the U.S. Treasury, such as
securities issued by the Federal Home Loan Bank, or may
be  backed only by the credit of the agency.  The  U.S.
government and its agencies and instrumentalities  only
guarantee the payment of principal and interest and not
the  market value of the securities.  The market  value
of  U.S. government securities will fluctuate based  on
interest rate changes and other market factors.

     Mortgage-  and Asset-Backed Securities.  Mortgage-
backed securities represent mortgage loans or interests
in  such  loans secured by real property,  and  include
single-  and  multi-class pass-through  securities  and
collateralized  mortgage obligations.   Mortgage-backed
securities are characterized by monthly payments to the
holder of the security, reflecting the monthly payments
made  by  the  borrowers  who received  the  underlying
mortgage  loans.  The payments to the holders of  these
securities  (such  as  the  Balanced  Fund),  like  the
payments  on  the  underlying  loans,  represent   both
principal   and  interest.   Although  the   underlying
mortgage loans are for specified periods of time,  such
as  15 or 30 years, the borrowers can and may pay  them
off  sooner.   Thus,  the holders of  these  securities
frequently   receive  prepayments  of   principal,   in
addition to the principal which is part of the  regular
monthly payment.  A borrower is more likely to prepay a
mortgage  which bears a relatively high interest  rate.
This  means that in times of declining interest  rates,
some  of the Balanced Fund's higher yielding securities
might be converted to cash, and the Balanced Fund  will
be forced to accept lower interest rates when that cash
is   used  to  purchase  additional  securities.    The
increased likelihood of prepayment when interest  rates
decline  also  limits  market  price  appreciation   of
mortgage-backed securities.  If the Balanced Fund  buys
mortgage-related  

<PAGE>

securities  at  a  premium,  mortgage
foreclosures or mortgage prepayments may  result  in  a
loss  to  the  Fund of up to the amount of the  premium
paid  since  only  timely  payment  of  principal   and
interest is guaranteed.

     Asset-backed   securities   have   characteristics
similar  to  mortgage-backed securities.  However,  the
underlying assets are not first-lien mortgage loans  or
interests in these loans, but are assets such as  motor
vehicle  installment sales contracts, other installment
loan  contracts, home equity loans, leases  of  various
types  of property and receivables from credit card  or
other   revolving  credit  arrangements.   Similar   to
mortgage-backed securities, asset-backed securities are
subject  to  prepayment, which may reduce  the  overall
return  to holders (such as the Balanced Fund)  of  the
security.  Asset-backed securities may also be  subject
to  the risks relating to the underlying assets,  which
may be subject to the risk of non-payment, depreciation
or   damage  to  the  underlying  collateral  (such  as
automobiles)  or  certain other factors.   Asset-backed
securities may be supported by non-governmental  credit
enhancements.

     Variable  and Floating Rate Securities.   Variable
and  floating  rate securities provide for  a  periodic
adjustment   of   the  interest  rate   paid   on   the
obligations.   These  obligations  must  provide   that
interest  rates are adjusted periodically  based  on  a
specified   interest   rate  adjustment   index.    The
adjustment intervals may be regular (ranging from daily
to annually) or may be based on certain events (such as
a  change  in the prime rate). The interest rate  on  a
floating rate security is a variable rate which is tied
to  another interest rate, such as a money-market index
or  U.S.  Treasury  bill rate and resets  periodically,
typically  every  six  months.   While  floating   rate
securities  provide the Balanced Fund  with  a  certain
degree  of  protection against rises in interest  rates
because  of  the  interest  rate  reset  feature,   the
Balanced  Fund  will  be  subject  to  any  decline  in
interest rates as well.  The Growth Fund may invest  in
such   securities   as   described   under   "Temporary
Strategies."

     Repurchase  Agreements.  The Funds may enter  into
repurchase  agreements with certain banks and  non-bank
dealers.   In  a repurchase agreement, a  Fund  buys  a
security  at  one price and at the time  of  sale,  the
seller  agrees  to  repurchase  the  obligation  at   a
mutually  agreed  upon time and price  (usually  within
seven  days).  The repurchase agreement determines  the
yield during the purchaser's holding period, while  the
seller's  obligation to repurchase is  secured  by  the
value  of  the underlying security.  A Fund  may  enter
into repurchase agreements with respect to any security
in  which  it may invest.  Repurchase agreements  could
involve  certain  risks in the event of  a  default  or
insolvency   of  the  other  party  to  the  agreement,
including possible delays or restrictions upon a Fund's
ability to dispose of the underlying securities.

Temporary Strategies

     Prior to investing the proceeds from sales of Fund
shares  and  to  meet ordinary daily  cash  needs,  the
Adviser may hold cash and/or invest all or a portion of
the Funds' assets in money market instruments which are
short-term  fixed income securities issued  by  private
and   governmental   institutions   and   may   include
commercial    paper,   short-term    U.S.    government
securities,     repurchase     agreements,     banker's
acceptances, certificates of deposit, time deposits and
other  short-term fixed-income securities.   All  money
market  instruments  will be rated investment grade  as
defined under "Fixed Income Securities" above.

Foreign Securities and ADRs

     Each  Fund may invest up to 15% of its net  assets
in  American  Depositary  Receipts  ("ADRs"),  European
Depositary   Receipts  ("EDRs")   or   other    foreign
instruments.  ADRs are receipts typically issued  by  a
U.S. bank or trust company evidencing ownership of  the
underlying  foreign  security and denominated  in  U.S.
dollars.   EDRs  are  European  receipts  evidencing  a
similar  arrangement.  Some institutions  issuing  ADRs
may  not  be  sponsored by the issuer.  A non-sponsored
depositary   may  not  provide  the  same   shareholder
information that a sponsored depositary is required  to
provide  under  the contractual arrangements  with  the
issuer,   including   reliable  financial   statements.
Investments  in  securities of foreign issuers  involve
risks which are in addition to the usual risks inherent
in  domestic investments.  In many countries  there  is
less  publicly available information about issuers than
is available in the reports and ratings published about
companies in the United States.  Additionally,  foreign
countries   are  not  subject  to  uniform  accounting,
auditing  and  financial  reporting  standards.   Other
risks   inherent   in   foreign   

<PAGE>

investments   include
expropriation; confiscatory taxation; withholding taxes
on  dividends or interest; less extensive regulation of
foreign brokers, securities markets, and issuers; costs
incurred  in  conversions between currencies;  possible
delays  in  settlement in foreign  securities  markets;
limitations on the use or transfer of assets (including
suspension of the ability to transfer currency  from  a
given country); the difficulty of enforcing obligations
in   other  countries;  diplomatic  developments;   and
political or social instability.  Foreign economies may
differ  favorably or unfavorably from the U.S.  economy
in  various  respects and many foreign  securities  are
less  liquid  and their prices are more  volatile  than
comparable U.S. securities.  From time to time  foreign
securities  may  be  difficult  to  liquidate   rapidly
without   adverse   price   effects.    Certain   costs
attributable  to  foreign investing,  such  as  custody
charges  and brokerage costs, may be higher than  those
attributable to domestic investment.  The  value  of  a
Fund's  assets  denominated in foreign currencies  will
increase or decrease in response to fluctuations in the
value of those foreign currencies relative to the  U.S.
dollar.   Currency exchange rates can  be  volatile  at
times  in response to supply and demand in the currency
exchange  markets, international balances of  payments,
governmental   intervention,  speculation   and   other
political and economic conditions.

Illiquid Securities

     Each  Fund  may invest up to 10% of its respective
net  assets  in  illiquid securities (i.e.,  securities
that are not readily marketable).  For purposes of this
restriction, illiquid securities include, but  are  not
limited  to,  restricted  securities  (securities   the
disposition  of which is restricted under  the  federal
securities laws), repurchase agreements with maturities
in  excess of seven days and other securities that  are
not  readily marketable.  The Board of Directors of the
Corporation,   or  its  delegate,  has   the   ultimate
authority to determine, to the extent permissible under
the  federal  securities  laws,  which  securities  are
liquid or illiquid for purposes of this 10% limitation.
Certain  securities exempt from registration or  issued
in  transactions  exempt  from registration  under  the
Securities Act, such as securities that may  be  resold
to  institutional investors under Rule 144A  under  the
Securities   Act,  may  be  considered   liquid   under
guidelines adopted by the Board of Directors.  However,
a  Fund  may  not invest more than 5% of its respective
net assets in such securities.

Portfolio Turnover

     A  change  in the investments held by  a  Fund  is
known  as  "portfolio  turnover."   Portfolio  turnover
generally  involves some expenses to a Fund,  including
brokerage  commissions  or dealer  mark-ups  and  other
transaction  costs  on  the  sale  of  securities   and
reinvestment  in  other  securities.   Such  sales  may
result  in realization of taxable capital gains.   Each
Fund  seeks to identify equity securities of  companies
with   long-term  growth  potential   and   hold   such
securities  for  an  extended  period,  which  has  the
advantage of lower portfolio turnover and capital gains
distributions.   In  addition, the Balanced  Fund  will
generally  hold  fixed  income securities  (other  than
short-term  money market securities)  for  an  extended
period.   Under normal market conditions, the portfolio
turnover  rate  for  each  Fund  is  expected   to   be
approximately 20% to 30% and generally will not  exceed
50%.

                 FUNDAMENTAL INVESTMENT RESTRICTIONS

     Each  Fund  has  adopted a number  of  fundamental
investment  restrictions,  which  may  not  be  changed
without  approval  by  the  Funds'  shareholders.   The
Funds' other investment policies may be changed by  the
Board  of Directors without shareholder approval.   The
following   is  a  summary  of  some  of   the   Funds'
fundamental investment restrictions:

           Diversification:  Each Fund may  not,  with
          respect  to 75% of its total assets, purchase
          the  securities  of any issuer  (except  U.S.
          government securities) if more than 5% of the
          Fund's total assets would be invested in  the
          securities  of that issuer or the Fund  would
          own  more than 10% of the outstanding  voting
          securities of that issuer.
          
           Limitation on Borrowing:  Each Fund may (i)
          borrow  money  from banks  for  temporary  or
          emergency  purposes (but not for leverage  or
          the  purchase of investments) and  (ii)  make
          other   investments  or   engage   in   other
          transactions permissible under the 1940  Act,
          which  may  involve  a  borrowing,  including
          borrowing    through    reverse    repurchase
          agreements, provided that the 

<PAGE>

          combination  of
          (i)  and (ii) shall not exceed 33 1/3% of the
          value  of  the Fund's total assets (including
          the   amount   borrowed),  less  the   Fund's
          liabilities (other than borrowings).  If  the
          amount  borrowed at any time exceeds 33  1/3%
          of  the  Fund's total assets, the Fund  will,
          within  three days thereafter (not  including
          Sundays,  holidays and any longer permissible
          period),  reduce the amount of the borrowings
          such  that  the borrowings do not  exceed  33
          1/3%  of the Fund's total assets.  Each  Fund
          may  also  borrow from other persons  to  the
          extent permitted by applicable law.
          
           Limitation on Lending:  Each Fund  may  not
          make loans if, as a result, more than 33 1/3%
          of  the Fund's assets would be lent to  other
          persons,  except  through purchases  of  debt
          securities  or  other  debt  instruments   or
          engaging in repurchase agreements.
          
           Limitation on Senior Securities:  Each Fund
          will  not issue senior securities, except  as
          permitted under the 1940 Act.
          
           Limitation on Industry Concentration:  Each
          Fund will not invest 25% or more of its total
          assets in companies in the same industry.
          
     These    fundamental   investment    restrictions,
together  with all of the Funds' fundamental investment
restrictions  and non-fundamental investment  policies,
are described in greater detail in the Funds' SAI.

     
     
           PRIOR PERFORMANCE OF THE ADVISER
                           
     The following table shows the Adviser's historical
performance data for a growth composite and a  balanced
composite  managed  by  the Adviser,  for  the  periods
indicated,  that have investment objectives,  policies,
strategies  and  risks  substantially  similar  to  the
Funds.   The  growth  composite, which  has  investment
objectives,   policies  and  strategies   substantially
similar  to  the  Growth Fund, includes  the  Adviser's
separate  accounts  that are fully discretionary,  tax-
exempt   and  greater  than  $250,000.   The   balanced
composite,  which  has investment objectives,  policies
and  strategies substantially similar to  the  Balanced
Fund, includes the Adviser's separate accounts that are
fully  discretionary, tax-exempt, greater than $250,000
and  have  an  asset  allocation of  approximately  55%
equity   securities,  approximately   40%   bonds   and
approximately  5% cash.  Accounts which  prohibit  full
discretionary   management  are   excluded   from   the
composites.  The separate accounts that are included in
the  Adviser's composites are not subject to  the  same
types of expenses to which the Funds are subject nor to
the    specific   tax   restrictions   and   investment
limitations  imposed  on  the  Funds  by  the  Internal
Revenue  Code of 1986, as amended (the "Code"), and the
1940  Act.   Consequently, the performance results  for
the  Adviser's  composites could  have  been  adversely
affected  if  the  separate accounts  included  in  the
composites  had been regulated as investment  companies
under the federal tax and securities laws.

     The  Adviser's  performance information  has  been
calculated in accordance with recommended standards  of
the  Association for Investment Management and Research
("AIMR").  All returns presented were calculated  on  a
total  return  basis  and  include  all  dividends  and
interest, if any, accrued income, if any, and  realized
and  unrealized gains and losses.  All returns  reflect
the  deduction  of investment advisory fees,  brokerage
commissions, and execution costs paid by the  Adviser's
private accounts without provision for federal or state
income  taxes.   Custodial  fees,  if  any,  were   not
included  in  the calculation.  If custodial  fees  had
been  included,  the Adviser's performance  would  have
been  lower.   Also  excluded  from  the  returns   are
expenses and fees, including the advisory fee, that  an
investor  in the Funds will bear, since the performance
data does not represent the performance of the Funds or
an  investment therein.  If such expenses and fees were
included,  the  Adviser's performance would  have  been
lower.    Cash   and   equivalents  are   included   in
performance   returns.   Total  return  is   calculated
monthly in accordance with the "time-weighted" rate  of
return  method  provided  for by  the  AIMR  standards,
accounted for on a trade-date and accrual basis.   AIMR
standards  for calculation of total return differ  from
the  standards  required by the SEC for calculation  of
average  annual total return.  Principal additions  and
withdrawals  are  weighted  in  computing  the  monthly
returns based on the timing of these transactions.

<PAGE>

     The  following data is provided to illustrate  the
past  performance  of the Adviser in managing  accounts
which  are  substantially  similar  to  the  Funds   as
measured against specified market indices and does  not
represent  the  performance of  the  Funds.   Investors
should  not  consider  this  performance  data  as   an
indication  of the future performance of the  Funds  or
the Adviser.

     
     
          Private Account Performance History
                           
                   Growth Composite
                           
  Year    1st Qtr.      2nd Qtr.      3rd Qtr.      4th Qtr.
                                                           
  1991*    17.1%         0.1%          2.4%           15.6%

  1992     -4.2%         0.1%          4.1%           6.9%
                                                      
  1993     -2.4%        -5.5%          0.5%           4.9%
                                                      
  1994     -3.6%         0.8%          3.2%           0.3%
                                                      
  1995      9.7%         8.1%          6.9%           7.3%
                                                      
  1996      4.9%         6.6%          5.8%           4.3%
                                                      
  1997      0.7%        19.9%          6.2%           4.7%
                                                      
  1998     15.8%                                      
                                                      
                           
                           
                  Balanced Composite
                           
  Year    1st Qtr.      2nd Qtr.      3rd Qtr.     4th Qtr.
                                                          
  1991*    9.6%          0.8%          3.4%           9.9%

  1992    -2.7%          1.8%          4.3%           3.4%
                                                      
  1993     0.6%         -1.9%          1.4%           2.5%
                                                     
  1994    -3.0%          0.1%          1.9%           0.2%
                                                     
  1995     7.2%          6.7%          4.4%           5.6%
                                                     
  1996     2.0%          3.7%          3.9%           3.4%
                                                     
  1997     0.2%         12.1%          4.6%           3.6%
                                                     
  1998     9.5%                                      
                                                     
                           
*  In January 1991, the Adviser commenced management of
   accounts under the Growth and Balanced investment
   objectives, policies and strategies substantially
   similar to the respective Funds.

<PAGE>
                           
                           
         Average Annualized Return in Percent
                           
                   Growth Composite
                           
   Period Ending           Adviser's                  
   March 31, 1998            Growth                  S&P
                           Composite               500(1)
                          Performance
                                                      
          1 Year             54.4%                 48.1%
                                            
          3 Years            33.5%                 32.7%
                                            
          5 Years            21.2%                 22.4%
                                            
   From Inception(2)         20.2%                 21.1%
                                         

                           
                           
(1)  The S&P 500 is an unmanaged index generally
representative of the U.S. stock market.  The index
does not reflect investment management fees, brokerage
commissions and other expenses associated with
investing in equity securities.
                           
(2)  January 1, 1991.
                           
                  Balanced Composite
                           
Period Ending      Adviser's     Lehman Brothers       
March 31, 1998     Balanced      Intermediate          S&P
                   Composite     Govt./Corp. Bond      500
                  Performance    Index; (1)            (2)
                                                       
      1 Year         33.0%            9.7%            48.1%
                                                     
      3 Years        21.2%            8.0%            32.7%
                                                     
      5 Years        14.0%            6.2%            22.4%
                                                     
  From Inception(3)  14.1%            7.8%            21.1%

     
     
(1)       The      Lehman     Brothers     Intermediate
Government/Corporate  Bond  Index  is  a  market  value
weighted  performance  benchmark  for  government   and
corporate fixed-rate debt issues with maturities of one
to  10  years.   The index does not reflect  investment
management  fees,  brokerage  commissions   and   other
expenses associated with investing in debt securities.

(2)   The  S&P  500  is  an unmanaged  index  generally
representative  of  the U.S. stock market.   The  index
does  not reflect investment management fees, brokerage
commissions   and   other  expenses   associated   with
investing in equity securities.

(3)  January 1, 1991.

<PAGE>

           FUND ORGANIZATION AND MANAGEMENT
                           
Organization

     Each  Fund  is  a  series of  common  stock  of  a
corporation, Badgley Funds, Inc. (the "Corporation"), a
Maryland  company incorporated on April 28, 1998.   The
Corporation  is  authorized to issue shares  of  common
stock  in  series  and classes.  Each share  of  common
stock  of  each Fund is entitled to one vote, and  each
share  is  entitled to participate equally in dividends
and  capital  gains  distributions  by  the  respective
series  and  in the individual assets of the respective
Fund in the event of liquidation.  Each Fund bears  its
own  expenses  and the shareholders of each  Fund  have
exclusive  voting rights on matters pertaining  to  the
Fund's Rule 12b-1 plan.  No certificates will be issued
for  shares  held in your account.  You will,  however,
have   full   shareholder   rights.    Generally,   the
Corporation will not hold annual shareholders' meetings
unless  required  by  the 1940  Act  or  Maryland  law.
Shareholders have certain rights, including  the  right
to  call  an annual meeting upon a vote of 10%  of  the
Corporation's  outstanding shares for  the  purpose  of
voting  to remove one or more directors or to  transact
any   other  business.   The  1940  Act  requires   the
Corporation to assist the shareholders in calling  such
a meeting.  As of June 24, 1998, J. Kevin Callaghan and
Steven  C. Phelps each owned a controlling interest  in
the Corporation.

Management

     Under the laws of the State of Maryland, the Board
of  Directors  of  the Corporation is  responsible  for
managing its business and affairs.  The Corporation, on
behalf  of  the  Funds, has entered into an  Investment
Advisory  Agreement with the Adviser  under  which  the
Adviser  manages  each  of the Fund's  investments  and
business  affairs,  subject to the supervision  of  the
Corporation's Board of Directors.

Adviser

     The   Adviser,  1420  Fifth  Avenue,  Suite  4400,
Seattle,  Washington 98101, is a Washington corporation
founded  in 1966.  The Adviser is controlled by several
of   its   officers.   Under  the  Investment  Advisory
Agreement,  the Corporation, on behalf  of  the  Funds,
compensates the Adviser for its management services  at
the  annual rate of 1.00% of the Growth Fund's  average
daily  net  assets  and 0.90% of  the  Balanced  Fund's
average  daily net assets.  The advisory fee is accrued
daily and paid monthly.  For the fiscal year ending May
31,   1999,  the  Adviser  has  agreed  to  waive   its
management  fee  and/or  reimburse  the  Funds'   other
expenses  to  the extent necessary to ensure  that  the
Growth  Fund's total operating expenses (on  an  annual 
basis) do  not  exceed 1.50%  of  its  average daily net 
assets and  that  the Balanced Fund's total operating 
expenses (on an annual basis)  do not  exceed 1.30%  of  
its  average daily net assets.   After  such time,  the  
Adviser  may voluntarily  waive  all  or  a portion of 
its management fee and/or reimburse all or a portion of 
Fund operating expenses.  Any waiver of fees or 
reimbursement of expenses will be made on a monthly basis 
and, with respect to the latter, will be paid  to the Funds  
by  reduction  of the  Adviser's  fee.  Any waivers  or  
reimbursements will  have  the  effect  of lowering  the  
overall expense ratio  for  a  Fund  and increasing its 
overall return to investors at the  time any  such  
amounts were waived and/or reimbursed.   Any such  
waiver  or  reimbursement  is  subject  to  later 
adjustment  during the term of the Investment  Advisory
Agreement to allow the Adviser to recoup amounts waived
or  reimbursed, provided,  however,  that the  Adviser  
shall  only  be entitled  to recoup such amounts for a 
period of  three years   from  the  date  such  amount  
was  waived   or reimbursed.

     Under the Investment Advisory Agreement, not  only
is  the  Adviser  responsible for  management  of  each
Fund's assets, but also for portfolio transactions  and
brokerage.  Please refer to the SAI for  more  details.
The  Adviser  has  no prior experience advising  mutual
funds.

     Portfolio Managers.  The following individuals are
co-managers of the Funds:

     Steven C. Phelps.  President and a Director of the
Adviser, Mr. Phelps graduated Phi Beta Kappa and  magna
cum  laude from Williams College in 1983 with a  degree
in  political  economy and was subsequently  awarded  a
Fulbright  Scholarship at the University of  Frankfurt,
Germany  for  research  on policy  issues  relating  to
international monetary coordination.  Mr. Phelps joined
the  Adviser in 1986 after working for two  years  with

<PAGE>

PACCAR, Inc. as a finance analyst and as an independent
researcher  on  the  economics  of  the  transportation
industry.  Mr. Phelps is a Chartered Financial  Analyst
and a Chartered Investment Counselor.

     Mitzi  W.  Carletti.   Ms.  Carletti  received   a
Bachelor of Arts degree with honors from the University
of  Puget Sound in 1978.  Prior to joining the  Adviser
as  a portfolio manager in 1995, Ms. Carletti worked as
a  senior research analyst at Frank Russell Company,  a
pension fund consulting firm, from 1988 until 1995, and
as  a financial consultant with Merrill Lynch from 1979
to 1988.

     Mark   W.  Broughton.   Mr.  Broughton  earned   a
Bachelor of Science degree in finance and a Masters  of
Business  Administration in finance  and  international
finance/business  economics  from  the  University   of
Southern  California  in 1989 and  1995,  respectively.
Prior  to  joining the Adviser in 1996 as  a  portfolio
manager,  Mr. Broughton worked as a portfolio associate
and  research  analyst at Provident Investment  Counsel
for  over  five  years and as an account specialist  at
State  Street Research & Management for one and a  half
years.   Mr. Broughton is a Chartered Financial Analyst
and a Chartered Investment Counselor.

Custodian, Transfer Agent and Dividend-Disbursing Agent

     Firstar  Trust  Company ("Firstar"),  Mutual  Fund
Services,  Third  Floor,  615  East  Michigan   Street,
Milwaukee,  Wisconsin 53202 acts as custodian  of  each
Fund's   assets  (the  "Custodian")  and  as  dividend-
disbursing agent (the "Dividend-Disbursing Agent")  and
transfer agent for the Funds (the "Transfer Agent").

Administrator

     Pursuant  to  an Administration Agreement  and  an
Accounting  Servicing Agreement, Firstar also  performs
accounting  and  certain compliance and  tax  reporting
functions  for  the Corporation.  For  these  services,
Firstar  receives  from  the Corporation  out-of-pocket
expenses  plus  the  following aggregate  annual  fees,
computed  daily  and  payable monthly,  based  on  each
Fund's aggregate average net assets:

                     Administrative Services Fees

     First $200 million of average net assets      .06 of 1%*       
     Next $500 million of average net assets       .05 of 1%        
     Average net assets in excess of $700 million  .03 of 1%        
     _____________________________
      *  Subject to a minimum  fee  of $30,000 per Fund.

                       Accounting Services Fees
                                   
                                                    Growth Fund   Balanced Fund
                                                               
      First $40 million of average net assets          $22,000        $23,500
      Next $200 million of average net assets        .01 of 1%     .015 of 1%
      Average net assets in excess of $240 million  .005 of 1%      .01 of 1%

Distributor

     Rafferty  Capital  Markets, Inc.,  550  Mamaroneck
Avenue,  Harrison, New York 10528, acts as  distributor
of each Fund's shares (the "Distributor").

Fund Expenses

     Each  Fund  is  responsible for its own  expenses,
including    interest   charges;    taxes;    brokerage
commissions;  organizational  expenses;   expenses   of
registering  or  qualifying shares for  sale  with  the
states and the SEC; expenses of issue, sale, repurchase
or  redemption  of  shares; expenses  of  printing  and
distributing  prospectuses  to  existing  

<PAGE>

shareholders;
charges   of   custodians;  expenses  for   accounting,
administrative,  audit, and legal  services;  fees  for
outside  directors; expenses of fidelity bond  coverage
and   other  insurance;  expenses  of  indemnification;
extraordinary  expenses; and costs of  shareholder  and
director meetings.

                HOW TO PURCHASE SHARES
                           
     Shares  of  the  Funds  may be  purchased  at  the
Offering  Price (as defined below) through  any  dealer
which  has  entered  into a sales  agreement  with  the
Distributor,  in its capacity as principal  underwriter
of  shares  of  the Funds, or through  the  Distributor
directly.  Firstar, the Funds' Transfer Agent, may also
accept purchase applications.

     Payment for Fund shares should be made by check or
money  order  in  U.S. dollars drawn on  a  U.S.  bank,
savings and loan, or credit union.  The minimum initial
investment   in   a   Fund  is   $25,000.    Subsequent
investments of at least $1,000 may be made by  mail  or
by  wire.  For investors using the Automatic Investment
Plan,  as  described below, the minimum  investment  is
$10,000  with  a  minimum monthly investment  of  $250.
These  minimums  can  be  changed  or  waived  by   the
Corporation at any time.  Shareholders will be given at
least  30  days' notice of any increase in the  minimum
dollar amount of subsequent investments.

Offering Price

     Shares of the Funds are sold on a continual  basis
at  the  next  offering price (the  "Offering  Price"),
which  is  the net asset value per share next  computed
following  receipt  of  an order  in  proper  form  (as
described   below   under  "Initial   Investment"   and
"Subsequent  Investment") by a dealer, the  Distributor
or  the Transfer Agent, as the case may be.  Net  asset
value  per  share is calculated once daily  as  of  the
close of trading (currently 4:00 p.m., Eastern Standard
Time)  on each day the New York Stock Exchange ("NYSE")
is open.  See "Determination of Net Asset Value."

Initial Investment - Minimum $25,000

     You  may  purchase Fund shares by  completing  the
enclosed shareholder application and mailing it  and  a
check  or money order payable to "Badgley Funds,  Inc."
to  your  securities  dealer, the  Distributor  or  the
Transfer  Agent,  as  the case  may  be.   The  minimum
initial  investment  is $25,000.   If  mailing  to  the
Distributor  or  Transfer Agent,  please  send  to  the
following address:  Firstar Trust Company, Mutual  Fund
Services, P.O. Box 701, Milwaukee, Wisconsin
53201-0701.  In addition, overnight mail should be sent
to the following address:  Badgley Funds, Inc., Firstar
Trust  Company, Mutual Fund Services, Third Floor,  615
East Michigan Street, Milwaukee, Wisconsin 53202.   The
Corporation  does not consider the U.S. Postal  Service
or  other  independent  delivery  services  to  be  its
agents.   Therefore, deposit in the mail or  with  such
services,  or  receipt  at the  Transfer  Agent's  post
office   box,   of  purchase  applications   does   not
constitute  receipt  by  the  Transfer  Agent  or   the
Corporation.  Do not mail letters by overnight  courier
to the post office box.

     If  the  securities  dealer  you  have  chosen  to
purchase  Fund  shares through has not entered  into  a
sales agreement with the Distributor, such dealer  may,
nevertheless,  offer  to  place  your  order  for   the
purchase  of Fund shares.  Purchases made through  such
dealers  will be effected at the Offering Price.   Such
dealers   may  also  charge  a  transaction   fee,   as
determined  by the dealer.  That fee may be avoided  if
shares  are purchased through a dealer who has  entered
into  a sales agreement with the Distributor or through
the Transfer Agent.

     If  your check does not clear, you will be charged
a  $20  service fee.  You will also be responsible  for
any  losses  suffered by the Corporation as  a  result.
Neither  cash nor third-party checks will be  accepted.
All applications to purchase Fund shares are subject to
acceptance by the Corporation and are not binding until
so  accepted.   The Corporation reserves the  right  to
decline or accept a purchase order application in whole
or in part.

<PAGE>

Wire Purchases

     You  may  also purchase Fund shares by wire.   The
following  instructions should be followed when  wiring
funds  to the Transfer Agent for the purchase  of  Fund
shares:

         Wire to:   Firstar Bank
      ABA Number:   075000022
          
          Credit:   Firstar Trust Company
         Account:   112-952-137
          
  Further Credit:   Badgley Funds, Inc.
                    (shareholder account number)
                    (shareholder name/account registration)

     Please  call 1-877-BADGLEY (1-877-223-4539)  prior
to  wiring any funds to notify the Transfer Agent  that
the  wire  is  coming  and to verify  the  proper  wire
instructions so that the wire is properly applied  when
received.  The Corporation is not responsible  for  the
consequences  of delays resulting from the  banking  or
Federal Reserve wire system.

Telephone Purchases

     The telephone purchase option allows investors  to
make   subsequent  investments  directly  from  a  bank
checking   or   savings  account.   To  establish   the
telephone purchase option on your account, complete the
appropriate  section  in  the shareholder  application.
Only   bank   accounts   held  at  domestic   financial
institutions that are Automated Clearing House  ("ACH")
members  may be used for telephone transactions.   This
option  will become effective approximately 15 business
days after the application form is received by Firstar.
Purchases  must be in amounts of $250 or more  and  may
not  be  used for initial purchases of a Fund's shares.
To  have  Fund  shares purchased at the offering  price
determined at the close of regular trading on  a  given
date, Firstar must receive both your purchase order and
payment  by Electronic Funds Transfer through  the  ACH
system  prior to the close of regular trading  on  such
date.  Most transfers are completed within one business
day.  Subsequent investments may be made by calling  1-
877-BADGLEY (1-877-223-4539).

Automatic Investment Plan - Minimum $10,000

     The  Automatic Investment Plan ("AIP") allows  you
to  make regular, systematic investments in one or more
of  the  Funds from your bank checking or NOW  account.
The  minimum initial investment for investors using the
AIP  is  $10,000.  To establish the AIP,  complete  the
appropriate  section  in  the shareholder  application.
Under certain circumstances (such as discontinuation of
the  AIP before a Fund's minimum initial investment  is
reached), the Corporation reserves the right  to  close
the  investor's account.  Prior to closing any  account
for  failure  to reach the minimum initial  investment,
the  Corporation will give the investor written  notice
and  60 days in which to reinstate the AIP or otherwise
reach  the  minimum  initial  investment.   You  should
consider your financial ability to continue in the  AIP
until  the  minimum initial investment  amount  is  met
because  the  Corporation has the  right  to  close  an
investor's  account for failure to  reach  the  minimum
initial  investment.  Such closing may occur in periods
of declining share prices.

     Under  the  AIP,  you may choose to  make  monthly
investments on the days of your choosing (or  the  next
business    day   thereafter)   from   your   financial
institution  in amounts of $250 or more.  There  is  no
service  fee for participating in the AIP.  However,  a
service  fee  of  $20 will be deducted from  your  Fund
account for any AIP purchase that does not clear due to
insufficient  funds  or,  if  prior  to  notifying  the
Corporation  in  writing  or  by  telephone   of   your
intention  to terminate the plan, you close  your  bank
account  or in any manner prevent withdrawal  of  funds
from  the designated checking or NOW account.  You  can
set up the AIP with any financial institution that is a
member of ACH.

<PAGE>

     The AIP is a method of using dollar cost averaging
which is an investment strategy that involves investing
a  fixed  amount  of money at a regular time  interval.
However, a program of regular investment cannot  ensure
a  profit  or  protect  against a loss  from  declining
markets.  By always investing the same amount, you will
be  purchasing more shares when the price  is  low  and
fewer  shares  when the price is high.   Since  such  a
program  involves continuous investment  regardless  of
fluctuating  share  values, you  should  consider  your
financial  ability  to  continue  the  program  through
periods of low share price levels.

Subsequent Investments - Minimum $1,000

     Additions to your account may be made by  mail  or
by  wire.   Any subsequent investment must  be  for  at
least  $1,000.  When making an additional  purchase  by
mail,  enclose a check payable to "Badgley Funds, Inc."
and  the  Additional Investment Form  provided  on  the
lower  portion of your account statement.  To  make  an
additional  purchase by wire, please call 1-877-BADGLEY
(1-877-223-4539) for complete wiring instructions.

                 HOW TO REDEEM SHARES
                           
In General

     Investors may request redemption of part or all of
their  Fund  shares at any time at the next  determined
net  asset  value.   See "Determination  of  Net  Asset
Value."   No  redemption request will become  effective
until  a redemption request is received in proper  form
(as  described  below) by Firstar.  An investor  should
contact  Firstar  for  further  information  concerning
redemption  of  Fund shares.  The Corporation  normally
will  mail  your redemption proceeds the next  business
day  and, in any event, no later than seven days  after
receipt   of  a  redemption  request  in  good   order.
However,  when a purchase has been made by  check,  the
Corporation  may  hold payment on  redemption  proceeds
until  it  is reasonably satisfied that the  check  has
cleared, which may take up to 12 days.

     Redemptions  may also be made through  brokers  or
dealers.  Such redemptions will be effected at the  net
asset  value  next  determined  after  receipt  by  the
Corporation  of  the broker or dealer's instruction  to
redeem  shares.  Some brokers or dealers may  charge  a
fee in connection with such redemptions.

     Investors   who  have  an  Individual   Retirement
Account  ("IRA")  must  indicate  on  their  redemption
requests  whether or not federal income tax  should  be
withheld.   Redemption  requests  failing  to  make  an
election will be subject to withholding.

     Your  account may be terminated by the Corporation
on not less than 30 days' notice if, at the time of any
redemption of shares in your account, the value of  the
remaining  shares in the account falls  below  $25,000.
Upon any such termination, a check for the proceeds  of
redemption will be sent to you within seven days of the
redemption.

Written Redemption

     For  most  redemption requests, an  investor  need
only furnish a written, unconditional request to redeem
his  or  her shares at net asset value to the  Transfer
Agent:  Firstar Trust Company, P.O. Box 701, Milwaukee,
Wisconsin 53201-0701.  Overnight mail should be sent to
Badgley Funds, Inc., Firstar Trust Company, Mutual Fund
Services,  Third  Floor,  615  East  Michigan   Street,
Milwaukee,  Wisconsin 53202.  Requests  for  redemption
must   (i)   be  signed  exactly  as  the  shares   are
registered, including the signature of each owner,  and
(ii)  specify the number of shares or dollar amount  to
be  redeemed.   Redemption  proceeds  made  by  written
redemption  request may also be wired to  a  commercial
bank   that   you  have  authorized  on  your   account
application.  The Transfer Agent will charge  a  $12.00
service   fee   for   wire  transactions.    Additional
documentation   may  be  requested  from  corporations,
executors, administrators, trustees, guardians,  agents
or   attorneys-in-fact.   The  Corporation   does   not
consider  the U.S. Postal Service or other  independent
delivery services to be its agents.  Therefore, deposit
in  the  mail or with such services, or receipt at  the
Transfer Agent's post office box of redemption requests
does  not  constitute receipt by the Transfer Agent  or
the  Corporation.   Do  not mail letters  by  overnight
courier to the post office box.  Any 

<PAGE>

written redemption
requests  received  within 15  days  after  an  address
change must be accompanied by a signature guarantee.

Telephone Redemption

     Shares  of  the  Funds  may also  be  redeemed  by
calling    the    Transfer   Agent   at   1-877-BADGLEY
(1-877-223-4539).  Redemption requests by telephone are
available   for   redemptions  of   $1,000   or   more.
Redemption  requests for less than $1,000  must  be  in
writing.   In  order  to  utilize  this  procedure,  an
investor  must have previously elected this  option  in
writing,  which  election  will  be  reflected  in  the
records  of  the  Transfer Agent,  and  the  redemption
proceeds  must  be mailed directly to the  investor  or
transmitted to the investor's predesignated account via
wire   or  ACH  transfer.   Funds  sent  via  ACH   are
automatically  credited to your  account  within  three
business  days.  There is currently no charge for  this
service.   To  change the designated  account,  send  a
written  request  with signature(s) guaranteed  to  the
Transfer  Agent.   To  change  the  address,  call  the
Transfer   Agent  or  send  a  written   request   with
signature(s)   guaranteed  to   the   Transfer   Agent.
Additional   documentation  may   be   requested   from
corporations,   executors,  administrators,   trustees,
guardians,  agents or attorneys-in-fact.  No  telephone
redemption requests will be allowed within 15  days  of
such  a change.  The Corporation reserves the right  to
limit  the  number  of  telephone  redemptions  by   an
investor.  Once made, telephone redemptions may not  be
modified or canceled.

     The  Transfer Agent will use reasonable procedures
to  ensure that instructions received by telephone  are
genuine.   These procedures may include requiring  some
form  of  personal identification prior to acting  upon
telephone     instructions,    recording     telephonic
transactions  and/or  sending written  confirmation  of
such  transactions  to investors.  Assuming  procedures
such  as  the  above  have been followed,  neither  the
Corporation nor the Transfer Agent will be  liable  for
any   loss,  cost,  or  expense  for  acting  upon   an
investor's   instructions  or  for   any   unauthorized
telephone  redemption.   The Corporation  reserves  the
right  to refuse a telephone redemption request  if  so
advised.

Systematic Withdrawal Plan

     You  may  set up automatic withdrawals  from  your
account  at regular intervals.  To begin distributions,
you  must  have an initial balance of $10,000  in  your
account  and  withdraw at least $250 per  payment.   To
establish  the systematic withdrawal plan ("SWP"),  you
must   complete   the  appropriate   section   in   the
shareholder application.  Redemptions will  take  place
on  a  monthly, quarterly, semi-annual or annual  basis
(or  the  following business day) as indicated on  your
shareholder  application.  You may vary the  amount  or
frequency   of   withdrawal  payments  or   temporarily
discontinue  them by calling 1-877-BADGLEY  (1-877-223-
4539).  Depending upon the size of the account and  the
withdrawals  requested  (and fluctuations  in  the  net
asset  value  of the shares redeemed), redemptions  for
the  purpose of satisfying such withdrawals may  reduce
or  even exhaust your account.  If the amount remaining
in  your  account  is not sufficient  to  meet  a  plan
payment, the remaining amount will be redeemed and  the
SWP will be terminated.

Signature Guarantees

     Signature   guarantees  are  required   for:   (i)
redemption requests to be mailed or wired to  a  person
other than the registered owner(s) of the shares;  (ii)
redemption requests to be mailed or wired to other than
the  address  that  appears of  record  and  (iii)  any
redemption  request  if a change of  address  has  been
received  by  the Corporation or Transfer Agent  within
the  last  15  days.   A  signature  guarantee  may  be
obtained  from  any eligible guarantor institution,  as
defined by the SEC.  These institutions include  banks,
saving  associations, credit unions,  brokerage  firms,
and others.  Please note that a notary public stamp  or
seal is not acceptable.

                  EXCHANGE PRIVILEGE
                           
Fund to Fund Exchange

     You  may exchange your shares in a Fund for shares
in  any  other Fund of the Corporation at any  time  by
written  request or by telephone exchange if  you  have
authorized    this   privilege   in   the   shareholder
application.   

<PAGE>

Exchange  requests  are  available   for
exchanges  of $1,000 or more.  The value of the  shares
to  be  exchanged  and the price of  the  shares  being
purchased  will be the net asset value next  determined
after  receipt of instructions for exchange.  No  sales
charge  is imposed on exchanges between Funds; however,
a  $5  service  fee will be charged for each  telephone
exchange request (no charge is imposed with respect  to
written  exchange requests).  Exchange requests  should
be  directed to:  Firstar Trust Company, P.O. Box  701,
Milwaukee, Wisconsin 53201-0701.  For exchange requests
delivered  in  person  or  by  overnight  mail,  please
deliver  to Badgley Funds, Inc., Firstar Trust Company,
Mutual  Fund  Services, Third Floor, 615 East  Michigan
Street,  Milwaukee,  Wisconsin  53202.   To  effect   a
telephone   exchange,   you  may   call   1-877-BADGLEY
(1-877-223-4539).  Exchange requests may be subject  to
limitations,  including  those relating  to  frequency,
that  may  be established from time to time  to  ensure
that  such  exchanges  are not disadvantageous  to  the
Funds or their investors.  The Corporation reserves the
right  to  modify  or terminate the exchange  privilege
upon  60 days' written notice to each shareholder prior
to  the modification or termination taking effect.  The
exchange  privilege is only available in  states  where
the securities are registered.

Money Market Exchange

     As  a service to our shareholders, the Corporation
has  established a program whereby our shareholders can
exchange  shares of any one of the Funds for shares  of
the  Firstar Money Market Funds (the "Firstar  Funds").
Exchange requests are available for exchanges of $1,000
or  more.   The Firstar Funds are no-load money  market
funds  managed by an affiliate of Firstar.  The Firstar
Funds  are unrelated to the Corporation or any  of  the
Funds.  However, the Distributor may be compensated  by
the  Firstar  Funds for servicing and related  services
provided   in   connection  with  exchanges   made   by
shareholders of the Funds.  This exchange privilege  is
a convenient way to buy shares in money market funds in
order  to respond to changes in your goals or in market
conditions.  Before exchanging into the Firstar  Funds,
please  read  the applicable prospectus, which  may  be
obtained by calling 1-877-BADGLEY (1-877-223-4539).  As
noted  above,  there is no charge for written  exchange
requests.   Firstar will, however, charge a  $5.00  fee
for  each exchange transaction that is executed via the
telephone.

     An  exchange  from one Fund to another,  including
the  Firstar Funds, is treated the same as an  ordinary
sale  and purchase for federal income tax purposes  and
you  will  realize a capital gain or loss.  An exchange
is not a tax-free transaction.

           DETERMINATION OF NET ASSET VALUE
                           
     The net asset value per share is determined as  of
the  close  of  trading (generally  4:00  p.m.  Eastern
Standard  Time)  on  each day  the  NYSE  is  open  for
business.  Purchase orders received or shares  tendered
for  redemption on a day the NYSE is open for  trading,
prior  to  the  close of trading on that day,  will  be
valued  as  of  the  close  of  trading  on  that  day.
Applications  for purchase of shares and  requests  for
redemption  of  shares  received  after  the  close  of
trading  on the NYSE will be valued as of the close  of
trading on the next day the NYSE is open.  A Fund's net
asset  value may not be calculated on days during which
the  Fund receives no orders to purchase shares and  no
shares are tendered for redemption.  Net asset value is
calculated  by taking the fair value of a Fund's  total
assets,  including interest or dividends  accrued,  but
not  yet  collected, less all liabilities, and dividing
by the total number of shares outstanding.  The result,
rounded to the nearest cent, is the net asset value per
share.

     In  determining  net  asset  value,  expenses  are
accrued  and  applied  daily and securities  and  other
assets  for  which market quotations are available  are
valued at market value.  Common stocks and other equity-
type  securities are valued at the last sales price  on
the  national  securities exchange or NASDAQ  on  which
such   securities   are  primarily   traded;   however,
securities traded on a national securities exchange  or
NASDAQ for which there were no transactions on a  given
day, and securities not listed on a national securities
exchange  or NASDAQ, are valued at the average  of  the
most   recent  bid  and  asked  prices.   Fixed  income
securities  are  valued  by  a  pricing  service   that
utilizes  electronic  data  processing  techniques   to
determine values for normal institutional-sized trading
units of fixed income securities without regard to sale
or  bid  prices when such values are believed  to  more
accurately  reflect  the  fair  market  value  of  such
securities;  otherwise, actual sale or bid  prices  are
used.   Any securities or other assets for which market
quotations are not readily available are valued at fair
value  as  determined in good faith  by  the  Board  of
Directors  of the Corporation.  The Board of  Directors
may  approve the use of pricing services to assist  the

<PAGE>

Funds  in the determination of net asset value.   Fixed
income  securities having remaining  maturities  of  60
days or less when purchased are generally valued by the
amortized cost method.  Under this method of valuation,
a  security is initially valued at its acquisition cost
and,  thereafter,  amortization  of  any  discount   or
premium  is assumed each day, regardless of the  impact
of  fluctuating interest rates on the market  value  of
the security.

      DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
                           
     The  Corporation, on behalf of each of the  Funds,
has  adopted  a plan pursuant to Rule 12b-1  under  the
1940 Act (the "12b-1 Plan"), which authorizes it to pay
the   Distributor   a  distribution   and   shareholder
servicing fee of 0.25% of each Fund's average daily net
assets (computed on an annual basis).  All or a portion
of  the fee may be used by the Distributor to pay costs
of  printing  reports  and prospectuses  for  potential
investors  and  the  costs of  other  distribution  and
shareholder servicing expenses.  Under the terms of the
12b-1  Plan, the Distributor is authorized to, in turn,
pay  all  or  a  portion of this fee to any  securities
dealer, financial institution or any other person  (the
"Recipient") who renders assistance in distributing  or
promoting  the  sale of Fund shares,  or  who  provides
certain  shareholder  services  to  Fund  shareholders,
pursuant   to   a   written  agreement  (the   "Related
Agreement").  Payments under the 12b-1 Plan  are  based
upon   a   percentage  of  average  daily  net   assets
attributable  to each Fund regardless  of  the  amounts
actually  paid  or expenses actually  incurred  by  the
Distributor,  however, in no event, may  such  payments
exceed  the  maximum allowable fee.  It is,  therefore,
possible that the Distributor may realize a profit in a
particular year as a result of these payments.  The 12b-
1 Plan has the effect of increasing the Fund's expenses
from  what  they  would otherwise  be.   The  Board  of
Directors   reviews   each  Fund's   distribution   and
shareholder  servicing fee payments in connection  with
their  determination as to the continuance of the 12b-1
Plan.

     The  12b-1  Plan, including a form of the  Related
Agreement, has been unanimously approved by a  majority
of  the  Board of Directors of the Corporation, and  of
the  members  of  the  Board who  are  not  "interested
persons" of the Corporation as defined in the 1940  Act
and  who  have no direct or indirect financial interest
in  the  operation  of the 12b-1 Plan  or  any  related
agreements   (the  "Disinterested  Directors")   voting
separately.  The 12b-1 Plan, and any Related  Agreement
which  is entered into, will continue in effect  for  a
period  of  more  than one year only  so  long  as  its
continuance is specifically approved at least  annually
by  a vote of a majority of the Corporation's Board  of
Directors and of the Disinterested Directors,  cast  in
person at a meeting called for the purpose of voting on
the 12b-1 Plan or the Related Agreement, as applicable.
In  addition, the 12b-1 Plan and any Related  Agreement
may  be terminated with respect to either or both Funds
at  any time, without penalty, by vote of a majority of
the  outstanding  voting securities of  the  applicable
Fund,  or  by  vote  of  a  majority  of  Disinterested
Directors (on not more than 60 days' written notice  in
the case of the Related Agreement only). Payment of the
distribution  and shareholder servicing fee  is  to  be
made monthly.  The Distributor will provide reports  to
the  Board  of  Directors  of the  Corporation  of  all
recipients of payments made (and the purposes for which
amounts were paid) pursuant to the 12b-1 Plan.

            INDIVIDUAL RETIREMENT ACCOUNTS
                           
     Individuals may establish their own tax-sheltered
IRAs.  The Fund offers two types of IRAs, including the
Traditional IRA, that can be adopted by executing the
appropriate Internal Revenue Service ("IRS") Form.
     
Traditional IRA
     
     In a Traditional IRA, amounts contributed to the
IRA may be tax deductible at the time of contribution
depending on whether the investor is an "active
participant" in an employer-sponsored retirement plan
and the investor's income.  Distributions from a
Traditional IRA will be taxed at distribution except to
the extent that the distribution represents a return of
the investor's own contributions for which the investor
did not claim (or was not eligible to claim) a
deduction.  Distributions prior to age 59-1/2 may be
subject to an additional 10% tax applicable to certain
premature distributions.  Distributions must commence
by April 1 following the calendar year in which the
investor attains age 70-1/2.  Failure to begin
distributions by this date (or distributions that do
not equal certain minimum thresholds) may result in
adverse tax consequences.

<PAGE>
     
Roth IRA
     
     In a Roth IRA (sometimes known as the American
Dream IRA), amounts contributed to the IRA are taxed at
the time of contribution, but distributions from the
IRA are not subject to tax if the investor has held the
IRA for certain minimum periods of time (generally,
until age 59-1/2).  Investors whose income exceeds
certain limits are ineligible to contribute to a Roth
IRA.  Distributions that do not satisfy the
requirements for tax-free withdrawal are subject to
income taxes (and possibly penalty taxes) to the extent
that the distribution exceeds the investor's
contributions to the IRA.  The minimum distribution
rules applicable to Traditional IRAs do not apply
during the lifetime of the investor.  Following the
death of the investor, certain minimum distribution
rules apply.
     
     For Traditional and Roth IRAs, the maximum annual
contribution generally is equal to the lesser of $2,000
or 100% of the investor's compensation (earned income).
An individual may also contribute to a Traditional IRA
or Roth IRA on behalf of his or her spouse provided
that the individual has sufficient compensation (earned
income).  Contributions to a Traditional IRA reduce the
allowable contributions under a Roth IRA, and
contributions to a Roth IRA reduce the allowable
contribution to a Traditional IRA.
     
Simplified Employee Pension Plan
     
     A Traditional IRA may also be used in conjunction
with a Simplified Employee Pension Plan ("SEP-IRA").  A
SEP-IRA is established through execution of Form 5305-
SEP together with a Traditional IRA established for
each eligible employee.  Generally, a SEP-IRA allows an
employer (including a self-employed individual) to
purchase shares with tax deductible contributions not
exceeding annually for any one participant 15% of
compensation (disregarding for this purpose
compensation in excess of $160,000 per year).  The
$160,000 compensation limit applies for 1998 and is
adjusted periodically for cost of living increases.  A
number of special rules apply to SEP Plans, including a
requirement that contributions generally be made on
behalf of all employees of the employer (including for
this purpose a sole proprietorship or partnership) who
satisfy certain minimum participation requirements.
     
SIMPLE IRA
     
     An IRA may also be used in connection with a
SIMPLE Plan established by the investor's employer (or
by a self-employed individual).  When this is done, the
IRA is known as a SIMPLE IRA, although it is similar to
a Traditional IRA with the exceptions described below.
Under a SIMPLE Plan, the investor may elect to have his
or her employer make salary reduction contributions of
up to $6,000 per year to the SIMPLE IRA.  The $6,000
limit applies for 1998 and is adjusted periodically for 
cost of living increases.  In addition, the employer will 
contribute certain amounts to the investor's SIMPLE IRA, 
either as a matching contribution to those participants 
who make salary reduction contributions or as a non-elective
contribution to all eligible participants whether or
not making salary reduction contributions.  A number of
special rules apply to SIMPLE Plans, including (1) a
SIMPLE Plan generally is available only to employers
with fewer than 100 employees; (2) contributions must
be made on behalf of all employees of the employer
(other than bargaining unit employees) who satisfy
certain minimum participation requirements; (3)
contributions are made to a special SIMPLE IRA that is
separate and apart from the other IRAs of employees;
(4) the distribution excise tax (if otherwise
applicable) is increased to 25% on withdrawals during
the first two years of participation in a SIMPLE IRA;
and (5) amounts withdrawn during the first two years of
participation may be rolled over tax-free only into
another SIMPLE IRA (and not to a Traditional IRA or to
a Roth IRA).  A SIMPLE IRA is established by executing
Form 5304-SIMPLE together with an IRA established for
each eligible employee.
     
     Under current IRS regulations, all IRA applicants
must be furnished a disclosure statement containing
information specified by the IRS.  Applicants generally
have the right to revoke their account within seven
days after receiving the disclosure statement and
obtain a full refund of their contributions.  The
custodian may, in its discretion, hold the initial
contribution uninvested until the expiration of the
seven-day revocation period.  The Custodian does not
anticipate that it will exercise its discretion but
reserves the right to do so.

<PAGE>
     
    DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX
                       TREATMENT
                           
     The  Corporation intends to qualify for  treatment
as a "Regulated Investment Company" under Subchapter  M
of  the Internal Revenue Code of 1986, as amended  (the
"Code"),  and, if so qualified, will not be liable  for
federal  income  taxes  to  the  extent  earnings   are
distributed  on a timely basis.  However,  for  federal
income  tax purposes, all dividends paid by  the  Funds
and  distributions  of net realized short-term  capital
gains are taxable as ordinary income whether reinvested
or received in cash unless you are exempt from taxation
or entitled to a tax deferral.  Distributions paid by a
Fund from net realized long-term capital gains, whether
received  in  cash or reinvested in additional  shares,
are  taxable  as  a  capital gain.   The  capital  gain
holding period is determined by the length of time  the
Fund  has held the security and not the length of  time
you  have  held  shares  in the  Fund.   Investors  are
informed  annually as to the amount and nature  of  all
dividends and capital gains paid during the prior year.
Such capital gains and dividends may also be subject to
state  or local taxes.  If you are not required to  pay
taxes on your income, you are generally not required to
pay federal income taxes on the amounts distributed  to
you.

     The  corporation intends to pay dividends from net
investment income for the Growth Fund annually and  for
the  Balanced Fund quarterly and to distribute  capital
gains,  if any, at least annually.  When a dividend  or
capital  gain is distributed, a Fund's net asset  value
decreases  by  the  amount  of  the  payment.   If  you
purchase shares shortly before a distribution, you will
be  subject  to income taxes on the distribution,  even
though   the  value  of  your  investment  (plus   cash
received, if any) remains the same.  All dividends  and
capital  gains  distributions  will  automatically   be
reinvested  in  additional  Fund  shares  at  the  then
prevailing   net   asset  value  unless   an   investor
specifically requests that either dividends or  capital
gains  or both be paid in cash.  An investor may change
an   election   by   telephone,  subject   to   certain
limitations,  by calling the Transfer Agent  at  1-877-
BADGLEY (1-877-223-4539).

     Investors  requesting  to  have  dividends  and/or
capital  gains  paid in cash may choose  to  have  such
amounts  mailed  or sent via electronic funds  transfer
("EFT").  Transfers via EFT generally take up to  three
business days to reach the investor's bank account.

     If an investor elects to receive distributions and
dividends  by check and the post office cannot  deliver
such  check, or if such check remains uncashed for  six
months,  a  Fund  reserves the right  to  reinvest  the
distribution check in the shareholder's account at  the
Fund's  then current net asset value per share  and  to
reinvest all subsequent distributions in shares of  the
Fund.

     If  you  do not furnish the Corporation with  your
correct    social   security   number    or    taxpayer
identification number, the Corporation is  required  by
federal  law to withhold federal income tax  from  your
distributions and redemption proceeds at a rate of 31%.

     This   section  is  not  intended  to  be  a  full
discussion of federal income tax laws and the effect of
such  laws on you.  There may be other federal,  state,
or  local tax considerations applicable to a particular
investor.   You  are  urged to  consult  your  own  tax
advisor.

                    YEAR 2000 ISSUE
                           
     The Funds' operations depend on the seamless
functioning of computer systems in the financial
service industry, including those of the Adviser and
Firstar.  Many computer software systems in use today
cannot properly process date-related information after
December 31, 1999 because of the method by which dates
are encoded and calculated.  This failure, commonly
referred to as the "Year 2000 Issue," could adversely
affect the handling of security trades, pricing and
account servicing for the Funds.

     The Adviser has made compliance with the Year 2000
Issue a high priority and is taking steps that it
believes are reasonably designed to address the Year
2000 Issue with respect to its computer systems.  The
Adviser has also been informed that comparable steps
are being taken by the Funds' other major service
providers.  The 

<PAGE>

Adviser does not currently anticipate
that the Year 2000 Issue will have a material impact on
its ability to continue to fulfill its duties as
investment adviser to the Funds.

                   FUND PERFORMANCE
                           
     The  Funds  may  from time to time  compare  their
respective   investment  results  to  various   passive
indices or other mutual funds and cite such comparisons
in  reports  to  shareholders,  sales  literature,  and
advertisements.   The  results  may  be  calculated  on
several  bases, including yield, average  annual  total
return, total return, and cumulative total return.

     Yield is an annualized figure, which means that it
is  assumed that a Fund generates the same level of net
investment  income over a one-year  period.   A  Fund's
yield  is a measure of the net investment incurred  per
share  earned  by  the Fund over a  specific  one-month
period  and is shown as a percentage of the  net  asset
value of the Fund's shares at the end of the period.

     Average  annual  total  return  and  total  return
figures   measure   both  the  net  investment   income
generated  by,  and  the effect  of  any  realized  and
unrealized   appreciation  or  depreciation   of,   the
underlying  investments  in a  Fund  over  a  specified
period  of  time,  assuming  the  reinvestment  of  all
dividends  and  distributions.   Average  annual  total
return  figures are annualized and therefore  represent
the average annual percentage change over the specified
period.   Total  return figures are not annualized  and
represent  the  aggregate percentage  or  dollar  value
change over the period.  Cumulative total return simply
reflects  a Fund's performance over a stated period  of
time.

<PAGE>

DIRECTORS

J. Kevin Callaghan
Steven C. Phelps
Frank S. Bayley
Madelyn B. Smith

PRINCIPAL OFFICERS

Otis P. Heald III (Tres), President
Lisa P. Guzman, Treasurer and Secretary

INVESTMENT ADVISER

Badgley, Phelps and Bell, Inc.
1420 Fifth Avenue, Suite 4400
Seattle, Washington  98101

CUSTODIAN, ADMINISTRATOR,
TRANSFER AGENT AND DIVIDEND-
DISBURSING AGENT

Firstar Trust Company
Mutual Fund Services
Third Floor
615 E. Michigan Street
Milwaukee, Wisconsin  53202

DISTRIBUTOR

Rafferty Capital Markets, Inc.
550 Mamaroneck Avenue
Harrison, New York 10528

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP
100 East Wisconsin Avenue, Suite 1500
Milwaukee, Wisconsin  53202

LEGAL COUNSEL

Godfrey & Kahn, S.C.
780 N. Water Street
Milwaukee, Wisconsin  53202

<PAGE>

          STATEMENT OF ADDITIONAL INFORMATION
                           
                  BADGLEY FUNDS, INC.
                  Badgley Growth Fund
                 Badgley Balanced Fund
                           
                     P.O. Box 701
            Milwaukee, Wisconsin 53201-0701
                     1-877-BADGLEY


     This Statement of Additional Information is not  a
prospectus and should be read in conjunction  with  the
Prospectus   of   the   BADGLEY   FUNDS,   INC.    (the
"Corporation"), including the Badgley Growth Fund  (the
"Growth  Fund")  and  the Badgley  Balanced  Fund  (the
"Balanced  Fund"),  each a diversified  series  of  the
Corporation  (hereinafter collectively referred  to  as
the  "Funds"),  dated June 24, 1998.   The  Prospectus,
which  may  be revised from time to time, is  available
without  charge upon request to the above-noted address
or telephone number.


 This Statement of Additional Information is dated June 24, 1998.

<PAGE>

                       TABLE OF CONTENTS

                                                         Page No.


INVESTMENT RESTRICTIONS                                      3

INVESTMENT POLICIES AND TECHNIQUES                           4

DIRECTORS AND OFFICERS                                       20

PRINCIPAL SHAREHOLDERS                                       22

INVESTMENT ADVISER                                           22

FUND TRANSACTIONS AND BROKERAGE                              23

CUSTODIAN                                                    24

TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT                 24

DISTRIBUTOR AND PLAN OF DISTRIBUTION                         24

TAXES                                                        25

DETERMINATION OF NET ASSET VALUE                             25

SHAREHOLDER MEETINGS                                         26

PERFORMANCE INFORMATION                                      26

INDEPENDENT ACCOUNTANTS                                      27

FINANCIAL STATEMENTS                                         27

APPENDIX                                                     A-1


     No   person  has  been  authorized  to  give   any
information or to make any representations  other  than
those   contained  in  this  Statement  of   Additional
Information and the Prospectus dated June 24, 1998, and
if  given  or made, such information or representations
may not be relied upon as having been authorized by the
Funds.   This Statement of Additional Information  does
not constitute an offer to sell securities in any state
or jurisdiction in which such offering may not lawfully
be made.

<PAGE>

                INVESTMENT RESTRICTIONS
                           
     The investment objective of the Growth Fund is  to
seek  long-term  capital appreciation.  The  investment
objective  of  the Balanced Fund is to  seek  long-term
capital  appreciation  and income (i.e.,  risk-adjusted
total  return).   The Funds' investment objectives  and
policies  are  described in detail  in  the  Prospectus
under the caption "Investment Objectives and Policies."
The  following  are  the Funds' fundamental  investment
restrictions   which   cannot   be   changed    without
shareholder approval.

Each Fund:

1.   May  not  with respect to 75% of its total assets,
     purchase  the  securities of  any  issuer  (except
     securities  issued  or  guaranteed  by  the   U.S.
     government  or  its agencies or instrumentalities)
     if,  as  a result, (i) more than 5% of the  Fund's
     total  assets would be invested in the  securities
     of  that issuer, or (ii) the Fund would hold  more
     than  10% of the outstanding voting securities  of
     that issuer.
     
2.   May  (i) borrow money from banks for temporary  or
     emergency purposes (but not for leveraging or  the
     purchase  of  investments)  and  (ii)  make  other
     investments   or  engage  in  other   transactions
     permissible  under the Investment Company  Act  of
     1940,  as  amended  (the "1940  Act"),  which  may
     involve  a borrowing, including borrowing  through
     reverse  repurchase agreements, provided that  the
     combination  of (i) and (ii) shall not  exceed  33
     1/3%  of  the  value  of the Fund's  total  assets
     (including  the amount borrowed), less the  Fund's
     liabilities  (other  than  borrowings).   If   the
     amount borrowed at any time exceeds 33 1/3% of the
     Fund's  total assets, the Fund will, within  three
     days  thereafter (not including Sundays,  holidays
     and  any  longer permissible period),  reduce  the
     amount  of the borrowings such that the borrowings
     do  not exceed 33 1/3% of the Fund's total assets.
     Each Fund may also borrow money from other persons
     to the extent permitted by applicable law.
     
3.   May   not  issue  senior  securities,  except   as
     permitted under the 1940 Act.
     
4.   May  not act as an underwriter of another issuer's
     securities, except to the extent that the Fund may
     be  deemed to be an underwriter within the meaning
     of  the  Securities Act of 1933, as  amended  (the
     "Securities Act"), in connection with the purchase
     and sale of portfolio securities.
     
5.   May  not  purchase  or  sell physical  commodities
     unless  acquired  as  a  result  of  ownership  of
     securities  or other instruments (but  this  shall
     not  prevent the Fund from purchasing  or  selling
     options,  futures  contracts, or other  derivative
     instruments,  or from investing in  securities  or
     other instruments backed by physical commodities).
     
6.   May  not make loans if, as a result, more than  33
     1/3%  of the Fund's total assets would be lent  to
     other  persons,  except through (i)  purchases  of
     debt securities or other debt instruments, or (ii)
     engaging in repurchase agreements.
     
7.   May  not purchase the securities of any issuer if,
     as  a  result,  more than 25% of the Fund's  total
     assets  would  be  invested in the  securities  of
     issuers,  the  principal  business  activities  of
     which are in the same industry.
     
8.   May  not  purchase  or  sell  real  estate  unless
     acquired as a result of ownership of securities or
     other instruments (but this shall not prohibit the
     Fund  from  purchasing  or selling  securities  or
     other  instruments  backed by real  estate  or  of
     issuers engaged in real estate activities).
     
     In   addition  to  the  non-fundamental  operating
policies set forth in the Prospectus, the following are
each  Fund's  non-fundamental operating policies  which
may  be  changed  by  the Board  of  Directors  without
shareholder approval.

<PAGE>

Each Fund may not:

1.   Sell securities short, unless the Fund owns or has
     the  right to obtain securities equivalent in kind
     and amount to the securities sold short, or unless
     it  covers  such  short sale as  required  by  the
     current rules and positions of the Securities  and
     Exchange Commission (the "SEC") or its staff,  and
     provided  that  transactions in  options,  futures
     contracts, options on futures contracts, or  other
     derivative   instruments   are   not   deemed   to
     constitute selling securities short.
     
2.   Purchase  securities on margin,  except  that  the
     Fund  may  obtain such short-term credits  as  are
     necessary  for the clearance of transactions;  and
     provided  that margin deposits in connection  with
     futures  contracts, options on futures  contracts,
     or   other   derivative  instruments   shall   not
     constitute purchasing securities on margin.
     
3.   Invest  in illiquid securities if, as a result  of
     such  investment, more than 10% of its net  assets
     would be invested in illiquid securities.
     
4.   Purchase  securities of other investment companies
     except  in  compliance  with  the  1940  Act   and
     applicable state law.
     
5.   Engage   in   futures   or  options   on   futures
     transactions which are impermissible  pursuant  to
     Rule  4.5  under the Commodity Exchange  Act  (the
     "CEA") and, in accordance with Rule 4.5, will  use
     futures or options on futures transactions  solely
     for  bona  fide hedging transactions  (within  the
     meaning of the CEA), provided, however,  that  the
     Fund   may,  in  addition  to  bona  fide  hedging
     transactions, use futures and options  on  futures
     transactions if the aggregate initial  margin  and
     premiums  required  to establish  such  positions,
     less   the  amount  by  which  any  such   options
     positions are in the money (within the meaning  of
     the  CEA),  do  not exceed 5% of  the  Fund's  net
     assets.
     
6.   Make  any  loans, except through (i) purchases  of
     debt securities or other debt instruments, or (ii)
     engaging in repurchase agreements.
     
7.   Borrow  money except from banks or through reverse
     repurchase  agreements or mortgage  dollar  rolls,
     and   will  not  purchase  securities  when   bank
     borrowings exceed 5% of its total assets.
     
     Except  for the fundamental investment limitations
listed above and each Fund's investment objective,  the
other  investment policies described in the  Prospectus
and  this Statement of Additional Information  are  not
fundamental  and  may be changed with approval  of  the
Corporation's   Board  of  Directors.    Unless   noted
otherwise, if a percentage restriction is adhered to at
the time of investment, a later increase or decrease in
percentage resulting from a change in the Fund's assets
(i.e., due to cash inflows or redemptions) or in market
value  of the investment or the Fund's assets will  not
constitute a violation of that restriction.

               INVESTMENT POLICIES AND TECHNIQUES

     The    following   information   supplements   the
discussion   of   the  Funds'  investment   objectives,
policies,  and  techniques that are  described  in  the
Prospectus  under  the captions "Investment  Objectives
and  Policies"  and  "Implementation  of  Policies  and
Risks."

Illiquid Securities

     Each  Fund  may invest up to 10% of its respective
net  assets  in  illiquid securities (i.e.,  securities
that are not readily marketable).  For purposes of this
restriction, illiquid securities include, but  are  not
limited  to,  restricted  securities  (securities   the
disposition  of which is restricted under  the  federal
securities laws), repurchase agreements with maturities
in  excess of seven days, and other securities that are
not  readily marketable.  The Board of Directors of the
Corporation,   or  its  delegate,  has   the   ultimate
authority to determine, to the extent permissible under
the  federal  securities  laws,  which  securities  are
liquid or illiquid for purposes of this 10% limitation.
Certain  securities exempt from registration or  issued
in  transactions  exempt  from registration  under  the
Securities Act, such as securities that may  be  resold
to  institutional investors under Rule 144A  under  the
Securities   Act,  may  be  

<PAGE>

considered   liquid   under
guidelines  adopted  by the Board of  Directors.   Each
Fund  may invest up to 5% of its respective net  assets
in  such  securities.  However, investing in securities
which  may  be resold pursuant to Rule 144A  under  the
Securities Act could have the effect of increasing  the
level  of  a  Fund's  illiquidity to  the  extent  that
institutional   investors   become,   for    a    time,
uninterested in purchasing such securities.

     The  Board  of  Directors  has  delegated  to  the
Adviser  the day-to-day determination of the  liquidity
of any security, although it has retained oversight and
ultimate   responsibility  for   such   determinations.
Although no definitive liquidity criteria are used, the
Board of Directors has directed the Adviser to look  to
such  factors  as (i) the nature of the  market  for  a
security  (including the institutional  private  resale
market), (ii) the terms of certain securities or  other
instruments  allowing for the disposition  to  a  third
party  or  the issuer thereof (e.g., certain repurchase
obligations   and   demand  instruments),   (iii)   the
availability of market quotations (e.g., for securities
quoted   in   the  PORTAL  system),  and   (iv)   other
permissible relevant factors.

     Restricted   securities  may  be  sold   only   in
privately  negotiated  transactions  or  in  a   public
offering with respect to which a registration statement
is   in   effect  under  the  Securities  Act.    Where
registration  is required, a Fund may be  obligated  to
pay  all  or  part of the registration expenses  and  a
considerable period may elapse between the time of  the
decision to sell and the time the Fund may be permitted
to  sell  a  security  under an effective  registration
statement.   If,  during such a period, adverse  market
conditions  were to develop, the Fund  might  obtain  a
less favorable price than that which prevailed when  it
decided to sell.  Restricted securities will be  priced
at  fair value as determined in good faith by the Board
of   Directors.    If,  through  the  appreciation   of
restricted   securities   or   the   depreciation    of
unrestricted securities, a Fund should be in a position
where more than 10% of the value of its net assets  are
invested  in illiquid securities, including  restricted
securities which are not readily marketable (except for
Rule  144A  securities  deemed  to  be  liquid  by  the
Adviser), the affected Fund will take such steps as  is
deemed advisable, if any, to protect liquidity.

Convertible Securities

     Each  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 specified 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
normally  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   unique    investment
characteristics in that they generally (i) have  higher
yields  than  common  stocks,  but  lower  yields  than
comparable  non-convertible securities, (ii)  are  less
subject  to  fluctuation in value than  the  underlying
stock since they have fixed income characteristics, and
(iii) provide the potential for capital appreciation if
the   market  price  of  the  underlying  common  stock
increases.   A convertible security may 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, the Fund will be required to
permit  the  issuer to redeem the security, convert  it
into the underlying common stock, or sell it to a third
party.    The   Adviser  will  limit   investments   in
convertible debt securities to those that are rated  at
the  time  of purchase as investment grade by at  least
one  national  rating  organization,  such  as  S&P  or
Moody's,  or,  if  unrated, are  determined  to  be  of
equivalent quality by the Adviser.  With respect to the
Balanced  Fund's investments in convertible securities,
the  Balanced  Fund will only include that  portion  of
convertible   senior  securities  with   fixed   income
characteristics in computing whether the Balanced  Fund
has  at  least 25% of its total assets in fixed  income
convertible securities.

Temporary Strategies

     Prior to investing the proceeds from sale of  Fund
shares  and  to  meet ordinary daily  cash  needs,  the
Adviser may hold cash and/or invest all or a portion of
the  Fund's  assets in money market instruments,  which
are  short-term  fixed  income  securities  issued   by
private  and governmental institutions and may  include
commercial    paper,   short-term    U.S.    government
securities,     repurchase     agreements,     banker's
acceptances, certificates of deposit, time deposits and
other  short-term fixed-income securities.   All  money
market instruments will be rated investment-grade.

<PAGE>

Variable- or Floating-Rate Securities

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

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

     Variable-rate  demand notes include master  demand
notes  which  are obligations that permit the  Balanced
Fund  to  invest fluctuating amounts, which may  change
daily  without penalty, pursuant to direct arrangements
between the Balanced Fund, as lender, and the borrower.
The  interest rates on these notes fluctuate from  time
to time.  The issuer of such obligations normally has a
corresponding right, after a given period, to prepay in
its  discretion the outstanding principal amount of the
obligations  plus  accrued interest  upon  a  specified
number   of  days'  notice  to  the  holders  of   such
obligations.   The  interest rate  on  a  floating-rate
demand  obligation  is based on a known  lending  rate,
such   as   a  bank's  prime  rate,  and  is   adjusted
automatically  each time such rate  is  adjusted.   The
interest  rate on a variable-rate demand obligation  is
adjusted    automatically   at   specified   intervals.
Frequently, such obligations are secured by letters  of
credit or other credit support arrangements provided by
banks.   Because  these obligations are direct  lending
arrangements between the lender and borrower, it is not
contemplated  that such instruments will  generally  be
traded.    There   generally  is  not  an   established
secondary  market for these obligations, although  they
are  redeemable at face value.  Accordingly, where  the
obligations  are not secured by letters  of  credit  or
other  credit support arrangements, the Balanced Fund's
right  to  redeem is dependent on the  ability  of  the
borrower to pay principal and interest on demand.  Such
obligations  frequently are not rated by credit  rating
agencies  and, if not so rated, the Balanced  Fund  may
invest  in them only if the Adviser determines that  at
the  time  of  investment  other  obligations  are   of
comparable  quality to the other obligations  in  which
the Balanced Fund may invest.

     The Balanced Fund will not invest more than 10% of
its  net  assets in variable- and floating-rate  demand
obligations that are not readily marketable (a variable-
or floating-rate demand obligation that may be disposed
of  on  not more than seven days notice will be  deemed
readily  marketable  and will not be  subject  to  this
limitation).   See "Investment Policies and  Techniques
- --  Illiquid Securities" and "Investment Restrictions."
In   addition,   each   variable-   and   floating-rate
obligation  must  meet the credit quality  requirements
applicable  to  all the Balanced Fund's investments  at
the time of purchase.  When determining whether such an
obligation  meets  the Balanced Fund's  credit  quality
requirements, the Balanced Fund may look to the  credit
quality  of the financial guarantor providing a  letter
of  credit  or  other credit support arrangement.   The
Growth  Fund may invest in such securities as described
under "Temporary Strategies."

Mortgage- and Asset-Backed Securities

     Mortgage-backed  securities  represent  direct  or
indirect  participations in,  or  are  secured  by  and
payable  from, mortgage loans secured by real property,
and   include   single-  and  multi-class  pass-through
securities  and  collateralized  mortgage  obligations.
Such  securities  may be issued or guaranteed  by  U.S.
government agencies or instrumentalities, such  as  the
Government  National  Mortgage  Association   and   the
Federal  National Mortgage Association, or  by  private
issuers,   generally  originators  and   investors   in
mortgage   loans,   including   savings   associations,
mortgage bankers, commercial banks, investment bankers,
and  special  purpose entities (collectively,  "private
lenders").    Mortgage-backed  securities   issued   by
private  lenders may be supported by pools of  mortgage
loans  or  other  mortgage-backed securities  that  are
guaranteed,  directly  or  indirectly,  by   the   U.S.
government or one 

<PAGE>

of its agencies or instrumentalities,
or   they   may  be  issued  without  any  governmental
guarantee  of the underlying mortgage assets  but  with
some form of non-governmental credit enhancement.

     Asset-backed     securities    have     structural
characteristics similar to mortgage-backed  securities.
Asset-backed  debt  obligations  represent  direct   or
indirect  participations in,  or  are  secured  by  and
payable  from, assets such as motor vehicle installment
sales contracts, other installment loan contracts, home
equity loans, leases of various types of property,  and
receivables from credit card or other revolving  credit
arrangements.  The credit quality of most  asset-backed
securities  depends primarily on the credit quality  of
the  assets  underlying such securities, how  well  the
entity  issuing  the  security is  insulated  from  the
credit  risk of the originator or any other  affiliated
entities,  and  the amount and quality  of  any  credit
enhancement    of   the   securities.    Payments    or
distributions of principal and interest on asset-backed
debt  obligations  may be supported by non-governmental
credit   enhancements  including  letters  of   credit,
reserve funds, overcollateralization, and guarantees by
third  parties.  The market for privately issued asset-
backed debt obligations is smaller and less liquid than
the  market  for  government sponsored  mortgage-backed
securities.

     The  rate  of  principal payment on mortgage-  and
asset-backed securities generally depends on  the  rate
of principal payments received on the underlying assets
which  in turn may be effected by a variety of economic
and  other  factors.  As a result,  the  yield  on  any
mortgage-  and  asset-backed security is  difficult  to
predict with precision and actual yield to maturity may
be more or less than the anticipated yield to maturity.
The yield characteristics of mortgage- and asset-backed
securities  differ  from  those  of  traditional   debt
securities.  Among the principal differences  are  that
interest   and   principal  payments  are   made   more
frequently  on  mortgage- and asset-backed  securities,
usually  monthly, and that principal may be prepaid  at
any time because the underlying mortgage loans or other
assets  generally may be prepaid at  any  time.   As  a
result, if the Balanced Fund purchases these securities
at  a  premium, a prepayment rate that is  faster  than
expected  will  reduce  yield  to  maturity,  while   a
prepayment rate that is slower than expected will  have
the   opposite  effect  of  increasing  the  yield   to
maturity.   Conversely, if the Balanced Fund  purchases
these securities at a discount, a prepayment rate  that
is   faster  than  expected  will  increase  yield   to
maturity,  while a prepayment rate that is slower  than
expected  will  reduce yield to maturity.   Accelerated
prepayments  on  securities purchased by  the  Balanced
Fund  at  a  premium  also impose a  risk  of  loss  of
principal  because the premium may not have been  fully
amortized at the time the principal is prepaid in full.

     While  many  mortgage- and asset-backed securities
are  issued with only one class of security,  many  are
issued  in  more  than one class, each  with  different
payment  terms.   Multiple class mortgage-  and  asset-
backed  securities  are issued for  two  main  reasons.
First,  multiple classes may be used  as  a  method  of
providing   credit  support.   This   is   accomplished
typically through creation of one or more classes whose
right  to  payments on the security is made subordinate
to the right to such payments of the remaining class or
classes.   Second,  multiple  classes  may  permit  the
issuance  of  securities with payment  terms,  interest
rates,  or  other characteristics differing  both  from
those  of  each other and from those of the  underlying
assets.  Examples include so-called "strips" (mortgage-
and  asset-backed securities entitling  the  holder  to
disproportionate   interests  with   respect   to   the
allocation  of  interest and principal  of  the  assets
backing  the  security), and securities with  class  or
classes   having   characteristics  which   mimic   the
characteristics   of  non-mortgage-   or   asset-backed
securities,  such  as  floating interest  rates  (i.e.,
interest  rates  which adjust as a specified  benchmark
changes) or scheduled amortization of principal.

     Mortgage-  and asset-backed securities  backed  by
assets, other than as described above, or in which  the
payment  streams on the underlying assets are allocated
in a manner different than those described above may be
issued in the future.  The Balanced Fund may invest  in
such   securities  if  such  investment  is   otherwise
consistent with its investment objectives, policies and
restrictions.

Repurchase Agreements

     The  Funds  may  enter into repurchase  agreements
with   certain  banks  or  non-bank  dealers.    In   a
repurchase  agreement, a Fund buys a  security  at  one
price,  and at the time of sale, the seller  agrees  to
repurchase  the  obligation at a mutually  agreed  upon
time  and  price  (usually  within  seven  days).   The
repurchase  agreement, thereby,  determines  the  yield
during  the  purchaser's  holding  period,  while   the
seller's  obligation to repurchase is  

<PAGE>

secured  by  the
value  of  the  underlying security.  The Adviser  will
monitor,  on  an  ongoing  basis,  the  value  of   the
underlying  securities to ensure that the value  always
equals  or  exceeds the repurchase price  plus  accrued
interest.  Repurchase agreements could involve  certain
risks  in the event of a default or insolvency  of  the
other party to the agreement, including possible delays
or restrictions upon a Fund's ability to dispose of the
underlying    securities.    Although   no   definitive
creditworthiness criteria are used, the Adviser reviews
the  creditworthiness of the banks and non-bank dealers
with  which  the Funds enter into repurchase agreements
to evaluate those risks.

Reverse Repurchase Agreements

     The Funds may, with respect to up to 5% of its net
assets, engage in reverse repurchase agreements.  In  a
reverse  repurchase  agreement, a  Fund  would  sell  a
security and enter into an agreement to repurchase  the
security at a specified future date and price.  A  Fund
generally  retains the right to interest and  principal
payments  on the security.  Since a Fund receives  cash
upon  entering into a reverse repurchase agreement,  it
may  be  considered  a  borrowing.   When  required  by
guidelines  of  the  SEC,  the  Fund  will  set   aside
permissible  liquid assets in a segregated  account  to
secure its obligations to repurchase the security.

Derivative Instruments

     In General.  Although it does not currently intend
to  engage  in derivative transactions, each  Fund  may
invest  up  to  5%  of  its respective  net  assets  in
derivative instruments.  Derivative instruments may  be
used  for  any lawful purpose consistent with a  Fund's
investment objective such as hedging or managing  risk,
but  not  for speculation.  Derivative instruments  are
commonly  defined  to include securities  or  contracts
whose  value depend on (or "derive" from) the value  of
one   or   more   other  assets,  such  as  securities,
currencies,  or commodities.  These "other assets"  are
commonly referred to as "underlying assets."

     A  derivative instrument generally consists of, is
based  upon,  or  exhibits characteristics  similar  to
options  or  forward  contracts.  Options  and  forward
contracts  are  considered to be  the  basic  "building
blocks"  of  derivatives.  For  example,  forward-based
derivatives include forward contracts, swap  contracts,
as   well  as  exchange-traded  futures.   Option-based
derivatives  include  privately  negotiated,  over-the-
counter (OTC) options (including caps, floors, collars,
and options on forward and swap contracts) and exchange-
traded   options   on  futures.    Diverse   types   of
derivatives  may  be  created by combining  options  or
forward  contracts in different ways, and  by  applying
these structures to a wide range of underlying assets.

     An option is a contract in which the "holder" (the
buyer)  pays  a certain amount (the "premium")  to  the
"writer" (the seller) to obtain the right, but not  the
obligation,  to buy from the writer (in  a  "call")  or
sell to the writer (in a "put") a specific asset at  an
agreed  upon  price at or before a certain  time.   The
holder pays the premium at inception and has no further
financial  obligation.  The holder of  an  option-based
derivative   generally  will  benefit  from   favorable
movements in the price of the underlying asset  but  is
not  exposed  to  corresponding losses due  to  adverse
movements  in the value of the underlying  asset.   The
writer  of  an  option-based derivative generally  will
receive  fees or premiums but generally is  exposed  to
losses  due  to changes in the value of the  underlying
asset.

     A  forward  is  a sales contract between  a  buyer
(holding the "long" position) and a seller (holding the
"short"  position) for an asset with delivery  deferred
until  a future date.  The buyer agrees to pay a  fixed
price  at the agreed future date and the seller  agrees
to deliver the asset.  The seller hopes that the market
price on the delivery date is less than the agreed upon
price,  while  the buyer hopes for the  contrary.   The
change in value of a forward-based derivative generally
is  roughly proportional to the change in value of  the
underlying asset.

     Hedging.  A Fund may use derivative instruments to
protect against possible adverse changes in the  market
value  of securities held in, or are anticipated to  be
held in, the Fund's portfolio.  Derivatives may also be
used   by   a  Fund  to  "lock-in"  its  realized   but
unrecognized  gains  in  the  value  of  its  portfolio
securities.   Hedging strategies,  if  successful,  can
reduce   the  risk  of  loss  by  wholly  or  partially
offsetting  the  negative effect of  unfavorable  price
movements  in  the investments being hedged.   However,
hedging strategies can also reduce the opportunity  for
gain  by  offsetting the positive effect  of  favorable
price movements in the hedged investments.

<PAGE>

     Managing  Risk.   A Fund may also  use  derivative
instruments   to  manage  the  risks  of   the   Fund's
portfolio.  Risk management strategies include, but are
not  limited  to,  facilitating the sale  of  portfolio
securities, managing the effective maturity or duration
of debt obligations in a Fund's portfolio, establishing
a  position  in the derivatives markets as a substitute
for  buying or selling certain securities, or  creating
or  altering exposure to certain asset classes, such as
equity,  debt,  and  foreign securities.   The  use  of
derivative  instruments may provide a  less  expensive,
more  expedient or more specifically focused way for  a
Fund  to  invest  than "traditional" securities  (i.e.,
stocks or bonds) would.

     Exchange    or   OTC   Derivatives.     Derivative
instruments  may be exchange-traded or  traded  in  OTC
transactions  between private parties.  Exchange-traded
derivatives   are  standardized  options  and   futures
contracts  traded  in an auction  on  the  floor  of  a
regulated  exchange.  Exchange contracts are  generally
liquid.  The exchange clearinghouse is the counterparty
of  every  contract.  Thus, each holder of an  exchange
contract  bears  the credit risk of  the  clearinghouse
(and  has the benefit of its financial strength) rather
than  that  of  a  particular counterparty.   Over-the-
counter  transactions are subject to additional  risks,
such  as  the  credit risk of the counterparty  to  the
instrument,  and  are less liquid than  exchange-traded
derivatives  since they often can only  be  closed  out
with the other party to the transaction.

     Risks  and  Special Considerations.   The  use  of
derivative  instruments  involves  risks  and   special
considerations as described below.  Risks pertaining to
particular derivative instruments are described in  the
sections that follow.

     (1)  Market Risk.  The primary risk of derivatives
is  the  same  as  the  risk of the underlying  assets;
namely, that the value of the underlying asset  may  go
up  or  down.   Adverse movements in the  value  of  an
underlying   asset  can  expose  a  Fund   to   losses.
Derivative instruments may include elements of leverage
and,  accordingly, the fluctuation of the value of  the
derivative  instrument in relation  to  the  underlying
asset   may  be  magnified.   The  successful  use   of
derivative  instruments  depends  upon  a  variety   of
factors, particularly the Adviser's ability to  predict
movements   of   the   securities,   currencies,    and
commodities  markets, which requires  different  skills
than  predicting  changes in the prices  of  individual
securities.   There  can  be  no  assurance  that   any
particular  strategy adopted will succeed.  A  decision
to  engage in a derivative transaction will reflect the
Adviser's judgment that the derivative transaction will
provide value to the Fund and its shareholders  and  is
consistent   with  the  Fund's  objectives,  investment
limitations, and operating policies.  In making such  a
judgment,  the  Adviser will analyze the  benefits  and
risks  of the derivative transaction and weigh them  in
the   context  of  the  Fund's  entire  portfolio   and
investment objective.

     (2)   Credit Risk.  A Fund will be subject to  the
risk  that  a loss may be sustained by the  Fund  as  a
result of the failure of a counterparty to comply  with
the terms of a derivative instrument.  The counterparty
risk  for  exchange-traded  derivative  instruments  is
generally  less  than for privately-negotiated  or  OTC
derivative  instruments,  since  generally  a  clearing
agency,  which  is the issuer or counterparty  to  each
exchange-traded  instrument, provides  a  guarantee  of
performance.    For  privately-negotiated  instruments,
there is no similar clearing agency guarantee.  In  all
transactions,  a  Fund  will bear  the  risk  that  the
counterparty will default, and this could result  in  a
loss   of   the  expected  benefit  of  the  derivative
transaction and possibly other losses to the  Fund.   A
Fund   will   enter  into  transactions  in  derivative
instruments  only with counterparties that the  Adviser
reasonably believes are capable of performing under the
contract.

     (3)    Correlation   Risk.   When   a   derivative
transaction   is  used  to  completely  hedge   another
position,  changes in the market value of the  combined
position  (the derivative instrument plus the  position
being  hedged)  result  from an  imperfect  correlation
between  the  price movements of the  two  instruments.
With  a  perfect  hedge,  the  value  of  the  combined
position remains unchanged for any change in the  price
of  the underlying asset.  With an imperfect hedge, the
value  of  the derivative instrument and its hedge  are
not perfectly correlated.  Correlation risk is the risk
that  there might be imperfect correlation, or even  no
correlation,  between price movements of an  instrument
and  price movements of investments being hedged.   For
example,  if the value of a derivative instrument  used
in a short hedge (such as writing a call option, buying
a  put option, or selling a futures contract) increased
by  less  than  the  decline in  value  of  the  hedged
investments,   the   hedge  would  not   be   perfectly
correlated.  Such a lack of correlation might occur due
to  factors  unrelated to the value of the  investments
being hedged, such as 

<PAGE>

speculative or other pressures on
the markets in which these instruments are traded.  The
effectiveness  of hedges using instruments  on  indices
will  depend,  in  part, on the degree  of  correlation
between   price  movements  in  the  index  and   price
movements in the investments being hedged.

     (4)  Liquidity Risk.  Derivatives are also subject
to  liquidity risk.  Liquidity risk is the risk that  a
derivative  instrument cannot be sold, closed  out,  or
replaced  quickly at or very close to  its  fundamental
value.   Generally, exchange contracts are very  liquid
because  the exchange clearinghouse is the counterparty
of  every  contract.  OTC transactions are less  liquid
than  exchange-traded derivatives since they often  can
only  be  closed  out  with  the  other  party  to  the
transaction.   A Fund might be required  by  applicable
regulatory  requirement to maintain assets as  "cover,"
maintain   segregated  accounts,  and/or  make   margin
payments   when   it  takes  positions  in   derivative
instruments  involving  obligations  to  third  parties
(i.e., instruments other than purchased options).  If a
Fund  is  unable  to  close out its positions  in  such
instruments,  it  might  be  required  to  continue  to
maintain  such assets or accounts or make such payments
until the position expired, matured, or is closed  out.
The  requirements might impair a Fund's ability to sell
a  portfolio security or make an investment at  a  time
when  it  would otherwise be favorable  to  do  so,  or
require  that the Fund sell a portfolio security  at  a
disadvantageous  time.  A Fund's  ability  to  sell  or
close  out  a  position  in  an  instrument  prior   to
expiration  or maturity depends on the existence  of  a
liquid  secondary market or, in the absence of  such  a
market, the ability and willingness of the counterparty
to  enter  into a transaction closing out the position.
Therefore,  there is no assurance that any  derivatives
position can be sold or closed out at a time and  price
that is favorable to a Fund.

     (5)   Legal Risk.  Legal risk is the risk of  loss
caused  by  the  legal unenforceability  of  a  party's
obligations  under  the  derivative.   While  a   party
seeking   price  certainty  agrees  to  surrender   the
potential  upside in exchange for downside  protection,
the  party  taking the risk is looking for  a  positive
payoff.   Despite this voluntary assumption of risk,  a
counterparty  that  has  lost  money  in  a  derivative
transaction  may  try  to avoid payment  by  exploiting
various  legal  uncertainties about certain  derivative
products.

     (6)     Systemic   or   "Interconnection"    Risk.
Interconnection risk is the risk that a  disruption  in
the  financial markets will cause difficulties for  all
market  participants.  In other words, a disruption  in
one  market will spill over into other markets, perhaps
creating a chain reaction.  Much of the OTC derivatives
market  takes  place among the OTC dealers  themselves,
thus  creating a large interconnected web of  financial
obligations.    This  interconnectedness   raises   the
possibility  that a default by one large  dealer  could
create  losses  for other dealers and  destabilize  the
entire market for OTC derivative instruments.

     General   Limitations.   The  use  of   derivative
instruments is subject to applicable regulations of the
SEC,  the  several options and futures  exchanges  upon
which  they  may  be traded, and the Commodity  Futures
Trading Commission ("CFTC").

     The  Corporation has filed a notice of eligibility
for   exclusion  from  the  definition  of   the   term
"commodity  pool  operator"  with  the  CFTC  and   the
National Futures Association, which regulate trading in
the  futures markets.  In accordance with Rule  4.5  of
the   regulations  under  the  CEA,   the   notice   of
eligibility for the Funds includes representations that
each  Fund  will  use  futures  contracts  and  related
options  solely  for bona fide hedging purposes  within
the  meaning of CFTC regulations, provided that a  Fund
may  hold  other  positions in  futures  contracts  and
related  options that do not qualify  as  a  bona  fide
hedging  position  if  the  aggregate  initial   margin
deposits  and  premiums  required  to  establish  these
positions,  less the amount by which any  such  futures
contracts  and related options positions  are  "in  the
money," do not exceed 5% of the Fund's net assets.   To
the  extent  the  Fund  were to  engage  in  derivative
transactions,  it  will limit such transactions  to  no
more than 5% of its net assets.

     The  SEC  has identified certain trading practices
involving  derivative  instruments  that  involve   the
potential  for leveraging a Fund's assets in  a  manner
that  raises  issues under the 1940 Act.  In  order  to
limit  the  potential for the leveraging  of  a  Fund's
assets,  as  defined under the 1940 Act,  the  SEC  has
stated  that a Fund may use coverage or the segregation
of  a  Fund's  assets.  The Funds will also  set  aside
permissible  liquid  assets in a  segregated  custodial
account   if  required  to  do  so  by  SEC  and   CFTC
regulations.   Assets  used  as  cover  or  held  in  a
segregated  account cannot be sold while the derivative
position is open, unless they are replaced with similar

<PAGE>

assets.  As a result, the commitment of a large portion
of  a Fund's assets to segregated accounts could impede
portfolio  management  or the Fund's  ability  to  meet
redemption requests or other current obligations.

     In  some  cases a Fund may be required to maintain
or  limit  exposure  to a specified percentage  of  its
assets  to  a  particular asset class.  In such  cases,
when a Fund uses a derivative instrument to increase or
decrease exposure to an asset class and is required  by
applicable SEC guidelines to set aside liquid assets in
a  segregated  account to secure its obligations  under
the  derivative  instruments, the  Adviser  may,  where
reasonable  in  light  of  the  circumstances,  measure
compliance with the applicable percentage by  reference
to  the nature of the economic exposure created through
the  use  of  the  derivative  instrument  and  not  by
reference  to  the nature of the exposure arising  from
the  assets set aside in the segregated account (unless
another   interpretation  is  specified  by  applicable
regulatory requirements).

     Options.   A  Fund may use options for any  lawful
purpose consistent with the Fund's investment objective
such   as   hedging  or  managing  risk  but  not   for
speculation.   An  option is a contract  in  which  the
"holder"  (the  buyer)  pays  a  certain  amount   (the
"premium")  to the "writer" (the seller) to obtain  the
right,  but not the obligation, to buy from the  writer
(in  a  "call") or sell to the writer (in  a  "put")  a
specific  asset  at an agreed upon price  (the  "strike
price" or "exercise price") at or before a certain time
(the  "expiration date").  The holder pays the  premium
at  inception and has no further financial  obligation.
The  holder  of  an option will benefit from  favorable
movements in the price of the underlying asset  but  is
not  exposed  to  corresponding losses due  to  adverse
movements  in the value of the underlying  asset.   The
writer  of an option will receive fees or premiums  but
is exposed to losses due to changes in the value of the
underlying asset.  A Fund may purchase (buy)  or  write
(sell)  put  and  call  options  on  assets,  such   as
securities,  currencies, commodities,  and  indices  of
debt  and  equity securities ("underlying assets")  and
enter  into closing transactions with respect  to  such
options  to  terminate an existing  position.   Options
used  by the Funds may include European, American,  and
Bermuda  style  options.  If an option  is  exercisable
only  at maturity, it is a "European" option; if it  is
also exercisable prior to maturity, it is an "American"
option.  If it is exercisable only at certain times, it
is a "Bermuda" option.

     Each Fund may purchase (buy) and write (sell)  put
and  call  options and enter into closing  transactions
with  respect to such options to terminate an  existing
position.   The purchase of call options  serves  as  a
long hedge, and the purchase of put options serves as a
short hedge.  Writing put or call options can enable  a
Fund  to enhance income by reason of the premiums  paid
by the purchaser of such options.  Writing call options
serves as a limited short hedge because declines in the
value  of the hedged investment would be offset to  the
extent  of the premium received for writing the option.
However, if the security appreciates to a price  higher
than  the exercise price of the call option, it can  be
expected that the option will be exercised and the Fund
will be obligated to sell the security at less than its
market  value  or  will be obligated  to  purchase  the
security  at  a price greater than that  at  which  the
security  must  be  sold under the option.   All  or  a
portion  of  any assets used as cover for  OTC  options
written by a Fund would be considered illiquid  to  the
extent   described  under  "Investment   Policies   and
Techniques  Illiquid Securities."  Writing put  options
serves as a limited long hedge because increases in the
value  of the hedged investment would be offset to  the
extent  of the premium received for writing the option.
However,  if the security depreciates to a price  lower
than  the exercise price of the put option, it  can  be
expected that the put option will be exercised and  the
Fund will be obligated to purchase the security at more
than its market value.

     The  value  of  an option position  will  reflect,
among other things, the historical price volatility  of
the underlying investment, the current market value  of
the  underlying  investment, the time  remaining  until
expiration, the relationship of the exercise  price  to
the  market  price  of the underlying  investment,  and
general market conditions.

     A  Fund  may  effectively terminate its  right  or
obligation under an option by entering into  a  closing
transaction.   For  example, a Fund may  terminate  its
obligation  under  a  call or put option  that  it  had
written  by purchasing an identical call or put option;
this  is  known  as  a  closing  purchase  transaction.
Conversely, a Fund may terminate a position in a put or
call  option  it had purchased by writing an  identical
put  or  call  option; this is known as a closing  sale
transaction.   Closing transactions permit  a  Fund  to
realize  the  profit or limit the  loss  on  an  option
position prior to its exercise or expiration.

<PAGE>

     The  Funds  may  purchase or write both  exchange-
traded  and  OTC options.  Exchange-traded options  are
issued  by a clearing organization affiliated with  the
exchange on which the option is listed that, in effect,
guarantees  completion of every exchange-traded  option
transaction.   In contrast, OTC options  are  contracts
between  a  Fund and the other party to the transaction
("counterparty")  (usually a  securities  dealer  or  a
bank)  with no clearing organization guarantee.   Thus,
when  a  Fund  purchases or writes an  OTC  option,  it
relies on the counterparty to make or take delivery  of
the  underlying investment upon exercise of the option.
Failure  by the counterparty to do so would  result  in
the loss of any premium paid by the Fund as well as the
loss of any expected benefit of the transaction.

     A  Fund's  ability  to  establish  and  close  out
positions  in  exchange-listed options depends  on  the
existence  of  a liquid market.  Each Fund  intends  to
purchase  or  write only those exchange-traded  options
for  which  there  appears to  be  a  liquid  secondary
market.  However, there can be no assurance that such a
market  will  exist  at any particular  time.   Closing
transactions  can  be  made for  OTC  options  only  by
negotiating  directly with the counterparty,  or  by  a
transaction in the secondary market if any such  market
exists.  Although each Fund will enter into OTC options
only  with  counterparties  that  are  expected  to  be
capable of entering into closing transactions with  the
Funds,  there  is no assurance that the Funds  will  in
fact  be able to close out an OTC option at a favorable
price  prior to expiration.  In the event of insolvency
of  the  counterparty, a Fund might be unable to  close
out  an  OTC option position at any time prior  to  its
expiration.  If a Fund were unable to effect a  closing
transaction  for an option it had purchased,  it  would
have to exercise the option to realize any profit.

     The  Funds  may engage in options transactions  on
indices  in  much  the same manner as  the  options  on
securities  discussed above, except the  index  options
may  serve  as a hedge against overall fluctuations  in
the securities market in general.

     The  writing and purchasing of options is a highly
specialized    activity   that   involves    investment
techniques  and  risks different from those  associated
with   ordinary   portfolio  securities   transactions.
Imperfect   correlation   between   the   options   and
securities  markets may detract from the  effectiveness
of attempted hedging.

     Spread   Transactions.   A  Fund  may  use  spread
transactions for any lawful purpose consistent with the
Fund's investment objective such as hedging or managing
risk,  but  not for speculation.  A Fund  may  purchase
covered  spread options from securities dealers.   Such
covered  spread  options  are not  presently  exchange-
listed  or exchange-traded.  The purchase of  a  spread
option  gives  a  Fund the right to  put,  or  sell,  a
security that it owns at a fixed dollar spread or fixed
yield  spread in relationship to another security  that
the  Fund  does  not  own,  but  which  is  used  as  a
benchmark.   The  risk to a Fund in purchasing  covered
spread options is the cost of the premium paid for  the
spread  option and any transaction costs.  In addition,
there is no assurance that closing transactions will be
available.  The purchase of spread options will be used
to protect a Fund against adverse changes in prevailing
credit  quality spreads, i.e., the yield spread between
high   quality  and  lower  quality  securities.   Such
protection  is  only provided during the  life  of  the
spread option.

     Futures   Contracts.   A  Fund  may  use   futures
contracts  for any lawful purpose consistent  with  the
Fund's   investment  objective  such  as  hedging   and
managing  risk  but not for speculation.   A  Fund  may
enter  into futures contracts, including interest rate,
index,  and  currency  futures.   Each  Fund  may  also
purchase  put and call options, and write  covered  put
and call options, on futures in which it is allowed  to
invest.   The  purchase  of  futures  or  call  options
thereon  can  serve as a long hedge, and  the  sale  of
futures  or  the  purchase of put options  thereon  can
serve  as a short hedge.  Writing covered call  options
on  futures  contracts can serve  as  a  limited  short
hedge,  and  writing  covered put  options  on  futures
contracts  can serve as a limited long hedge,  using  a
strategy  similar  to  that used  for  writing  covered
options  in securities.  The Funds' hedging may include
purchases of futures as an offset against the effect of
expected  increases  in  currency  exchange  rates  and
securities  prices and sales of futures  as  an  offset
against  the  effect of expected declines  in  currency
exchange rates and securities prices.

     To  the extent required by regulatory authorities,
the  Funds  may enter into futures contracts  that  are
traded   on   national  futures   exchanges   and   are
standardized   as  to  maturity  date  and   underlying
financial  instrument.  Futures exchanges  and  trading
are  regulated  under the CEA by  the  CFTC.   Although
techniques  other than sales and purchases  of  futures
contracts could be used to reduce a Fund's exposure  to
market, currency, or interest rate 

<PAGE>

fluctuations, a Fund
may  be able to hedge its exposure more effectively and
perhaps   at   a  lower  cost  through  using   futures
contracts.

     An interest rate futures contract provides for the
future sale by one party and purchase by another  party
of   a   specified  amount  of  a  specific   financial
instrument  (e.g.,  debt security) or  currency  for  a
specified price at a designated date, time, and  place.
An  index futures contract is an agreement pursuant  to
which the parties agree to take or make delivery of  an
amount  of  cash  equal to the difference  between  the
value of the index at the close of the last trading day
of  the  contract  and the price  at  which  the  index
futures  contract was originally written.   Transaction
costs are incurred when a futures contract is bought or
sold and margin deposits must be maintained.  A futures
contract  may be satisfied by delivery or purchase,  as
the  case may be, of the instrument or the currency  or
by  payment  of  the change in the cash  value  of  the
index.  More commonly, futures contracts are closed out
prior  to  delivery  by  entering  into  an  offsetting
transaction  in a matching futures contract.   Although
the  value of an index might be a function of the value
of  certain specified securities, no physical  delivery
of   those  securities  is  made.   If  the  offsetting
purchase price is less than the original sale price,  a
Fund realizes a gain; if it is more, a Fund realizes  a
loss.  Conversely, if the offsetting sale price is more
than  the  original purchase price, a Fund  realizes  a
gain;  if  it  is less, a Fund realizes  a  loss.   The
transaction  costs  must  also  be  included  in  these
calculations.  There can be no assurance, however, that
a  Fund  will  be  able  to enter  into  an  offsetting
transaction  with  respect  to  a  particular   futures
contract  at a particular time.  If a Fund is not  able
to  enter into an offsetting transaction, the Fund will
continue to be required to maintain the margin deposits
on the futures contract.

     No  price is paid by a Fund upon entering  into  a
futures  contract.   Instead, at  the  inception  of  a
futures  contract, a Fund is required to deposit  in  a
segregated account with its custodian, in the  name  of
the  futures  broker through whom the  transaction  was
effected,  "initial margin," consisting of  cash,  U.S.
government securities or other liquid, high-grade  debt
obligations,  in an amount generally equal  to  10%  or
less  of  the  contract value.   Margin  must  also  be
deposited  when  writing a call  or  put  option  on  a
futures   contract,  in  accordance   with   applicable
exchange    rules.    Unlike   margin   in   securities
transaction,  initial margin on futures contracts  does
not  represent a borrowing, but rather is in the nature
of  a  performance bond or good-faith deposit  that  is
returned   to  a  Fund  at  the  termination   of   the
transaction  if all contractual obligations  have  been
satisfied.   Under  certain  circumstances,   such   as
periods  of high volatility, a Fund may be required  by
an exchange to increase the level of its initial margin
payment,  and  initial  margin  requirements  might  be
increased generally in the future by regulatory action.

     Subsequent "variation margin" payments are made to
and  from the futures broker daily as the value of  the
futures position varies, a process known as "marking to
market."   Variation margin does not involve borrowing,
but  rather represents a daily settlement of  a  Fund's
obligations to or from a futures broker.  When  a  Fund
purchases an option on a future, the premium paid  plus
transaction costs is all that is at risk.  In contrast,
when  a  Fund purchases or sells a futures contract  or
writes  a call or put option thereon, it is subject  to
daily  variation margin calls that could be substantial
in the event of adverse price movements.  If a Fund has
insufficient  cash  to  meet  daily  variation   margin
requirements,  it might need to sell  securities  at  a
time  when  such sales are disadvantageous.  Purchasers
and sellers of futures positions and options on futures
can  enter  into  offsetting  closing  transactions  by
selling  or  purchasing,  respectively,  an  instrument
identical to the instrument held or written.  Positions
in futures and options on futures may be closed only on
an exchange or board of trade that provides a secondary
market.    The  Funds  intend  to  enter  into  futures
transactions only on exchanges or boards of trade where
there   appears  to  be  a  liquid  secondary   market.
However,  there can be no assurance that such a  market
will  exist  for a particular contract at a  particular
time.

     Under certain circumstances, futures exchanges may
establish daily limits on the amount that the price  of
a  future or option on a futures contract can vary from
the previous day's settlement price; once that limit is
reached,  no  trades may be made that day  at  a  price
beyond  the  limit.  Daily price limits  do  not  limit
potential losses because prices could move to the daily
limit  for several consecutive days with little  or  no
trading,  thereby preventing liquidation of unfavorable
positions.

     If  a  Fund were unable to liquidate a futures  or
option  on  a  futures  contract position  due  to  the
absence  of a liquid secondary market or the imposition
of  price  limits,  it could incur substantial  losses.
The  Fund  would 

<PAGE>

continue to be subject to market  risk
with  respect to the position.  In addition, except  in
the  case of purchased options, the Fund would continue
to  be required to make daily variation margin payments
and  might  be required to maintain the position  being
hedged  by the future or option or to maintain  certain
liquid securities in a segregated account.

     Certain  characteristics  of  the  futures  market
might increase the risk that movements in the prices of
futures contracts or options on futures contracts might
not correlate perfectly with movements in the prices of
the   investments  being  hedged.   For  example,   all
participants  in  the futures and  options  on  futures
contracts markets are subject to daily variation margin
calls  and  might be compelled to liquidate futures  or
options on futures contracts positions whose prices are
moving  unfavorably to avoid being subject  to  further
calls.   These  liquidations could increase  the  price
volatility  of the instruments and distort  the  normal
price  relationship between the futures or options  and
the  investments  being hedged.  Also, because  initial
margin deposit requirements in the futures markets  are
less onerous than margin requirements in the securities
markets,  there  might  be increased  participation  by
speculators  in the future markets.  This participation
also  might  cause  temporary  price  distortions.   In
addition,  activities  of large  traders  in  both  the
futures  and  securities markets  involving  arbitrage,
"program  trading,"  and  other  investment  strategies
might result in temporary price distortions.

     Foreign  Currencies.  The Funds may  purchase  and
sell  foreign  currency on a spot basis,  and  may  use
currency-related   derivatives  instruments   such   as
options  on  foreign  currencies,  futures  on  foreign
currencies,  options on futures on  foreign  currencies
and forward currency contracts (i.e., an obligation  to
purchase  or  sell a specific currency at  a  specified
future date, which may be any fixed number of days from
the  contract  date agreed upon by the  parties,  at  a
price  set  at the time the contract is entered  into).
The  Funds may use these instruments for hedging or any
other  lawful purpose consistent with their  respective
investment  objectives, including transaction  hedging,
anticipatory hedging, cross hedging, proxy hedging, and
position  hedging.  The Funds' use of  currency-related
derivative  instruments will be directly related  to  a
Fund's current or anticipated portfolio securities, and
the  Funds  may  engage  in transactions  in  currency-
related  derivative instruments as a means  to  protect
against  some or all of the effects of adverse  changes
in  foreign currency exchange rates on their  portfolio
investments.  In general, if the currency  in  which  a
portfolio investment is denominated appreciates against
the  U.S. dollar, the dollar value of the security will
increase.   Conversely, a decline in the exchange  rate
of the currency would adversely effect the value of the
portfolio investment expressed in U.S. dollars.

     For  example,  a  Fund might use  currency-related
derivative instruments to "lock in" a U.S. dollar price
for  a portfolio investment, thereby enabling the  Fund
to  protect  itself against a possible  loss  resulting
from an adverse change in the relationship between  the
U.S. dollar and the subject foreign currency during the
period  between the date the security is  purchased  or
sold and the date on which payment is made or received.
A  Fund  also  might  use  currency-related  derivative
instruments when the Adviser believes that one currency
may  experience a substantial movement against  another
currency,  including the U.S. dollar, and  it  may  use
currency-related derivative instruments to sell or  buy
the    amount   of   the   former   foreign   currency,
approximating  the value of some or all of  the  Fund's
portfolio   securities  denominated  in  such   foreign
currency.  Alternatively, where appropriate, a Fund may
use  currency-related derivative instruments  to  hedge
all  or  part of its foreign currency exposure  through
the  use  of a basket of currencies or a proxy currency
where  such currency or currencies act as an  effective
proxy  for  other currencies.  The use of  this  basket
hedging  technique may be more efficient and economical
than   using   separate   currency-related   derivative
instruments  for  each currency exposure  held  by  the
Fund.     Furthermore,   currency-related    derivative
instruments  may  be  used  for  short  hedges  --  for
example, a Fund may sell a forward currency contract to
lock in the U.S. dollar equivalent of the proceeds from
the  anticipated  sale of a security denominated  in  a
foreign currency.

     In  addition,  a  Fund may use a  currency-related
derivative  instrument  to shift  exposure  to  foreign
currency  fluctuations  from  one  foreign  country  to
another foreign country where the Adviser believes that
the foreign currency exposure purchased will appreciate
relative to the U.S. dollar and thus better protect the
Fund  against  the  expected  decline  in  the  foreign
currency  exposure sold.  For example, if a  Fund  owns
securities  denominated in a foreign currency  and  the
Adviser  believes that currency will decline, it  might
enter  into  a forward contract to sell an  appropriate
amount  of the first foreign currency, with payment  to
be  made  in a second foreign currency that the Adviser
believes  would  better protect the  Fund  against  the
decline in the first security than would a U.S.  dollar


<PAGE>

exposure.   Hedging transactions that use  two  foreign
currencies are sometimes referred to as "cross hedges."
The   effective  use  of  currency-related   derivative
instruments  by  a Fund in a cross hedge  is  dependent
upon  a correlation between price movements of the  two
currency   instruments  and  the  underlying   security
involved,  and the use of two currencies magnifies  the
risk that movements in the price of one instrument  may
not  correlate  or may correlate unfavorably  with  the
foreign   currency  being  hedged.   Such  a  lack   of
correlation might occur due to factors unrelated to the
value  of  the currency instruments used or investments
being hedged, such as speculative or other pressures on
the markets in which these instruments are traded.

     A Fund also might seek to hedge against changes in
the  value  of  a particular currency when  no  hedging
instruments  on  that currency are  available  or  such
hedging  instruments  are more expensive  than  certain
other hedging instruments.  In such cases, the Fund may
hedge  against  price  movements in  that  currency  by
entering   into   transactions  using  currency-related
derivative instruments on another foreign currency or a
basket  of currencies, the values of which the  Adviser
believes   will   have  a  high  degree   of   positive
correlation to the value of the currency being  hedged.
The  risk  that movements in the price of  the  hedging
instrument will not correlate perfectly with  movements
in  the price of the currency being hedged is magnified
when this strategy is used.

     The use of currency-related derivative instruments
by  a  Fund involves a number of risks.  The  value  of
currency-related derivative instruments depends on  the
value  of the underlying currency relative to the  U.S.
dollar.     Because   foreign   currency   transactions
occurring   in  the  interbank  market  might   involve
substantially larger amounts than those involved in the
use  of  such derivative instruments, a Fund  could  be
disadvantaged by having to deal in the odd  lot  market
(generally consisting of transactions of less  than  $1
million)  for  the  underlying  foreign  currencies  at
prices  that  are less favorable than  for  round  lots
(generally  consisting of transactions of greater  than
$1 million).

     There  is  no  systematic reporting of  last  sale
information   for   currencies   or   any    regulatory
requirement  that quotations available through  dealers
or  other market sources be firm or revised on a timely
basis.     Quotation    information    generally     is
representative  of  very  large  transactions  in   the
interbank  market  and thus might not  reflect  odd-lot
transactions where rates might be less favorable.   The
interbank  market in foreign currencies  is  a  global,
round-the-clock market.  To the extent the U.S. options
or futures markets are closed while the markets for the
underlying  currencies remain open,  significant  price
and  rate  movements might take place in the underlying
markets that cannot be reflected in the markets for the
derivative instruments until they re-open.

     Settlement  of  transactions  in  currency-related
derivative instruments might be required to take  place
within  the  country  issuing the underlying  currency.
Thus,  a  Fund  might be required  to  accept  or  make
delivery   of   the  underlying  foreign  currency   in
accordance   with  any  U.S.  or  foreign   regulations
regarding   the   maintenance   of   foreign    banking
arrangements by U.S. residents and might be required to
pay  any  fees, taxes and charges associated with  such
delivery assessed in the issuing country.

     When a Fund engages in a transaction in a currency-
related  derivative  instrument,  it  relies   on   the
counterparty to make or take delivery of the underlying
currency  at the maturity of the contract or  otherwise
complete  the contract.  In other words, the Fund  will
be subject to the risk that it may sustain a loss as  a
result  of  the failure of the counterparty  to  comply
with  the  terms of the transaction.  The  counterparty
risk  for exchange-traded instruments is generally less
than   for   privately-negotiated   or   OTC   currency
instruments,  since generally a clearing agency,  which
is  the  issuer  or  counterparty to  each  instrument,
provides  a  guarantee of performance.  For  privately-
negotiated  instruments, there is no  similar  clearing
agency  guarantee.  In all transactions, the Fund  will
bear  the risk that the counterparty will default,  and
this could result in a loss of the expected benefit  of
the  transaction and possibly other losses to the Fund.
The  Funds  will enter into transactions  in  currency-
related derivative instruments only with counterparties
that  the  Adviser reasonably believes are  capable  of
performing under the contract.

     Purchasers   and   sellers   of   currency-related
derivative   instruments  may  enter  into   offsetting
closing   transactions   by  selling   or   purchasing,
respectively, an instrument identical to the instrument
purchased or sold.  Secondary markets generally do  not
exist  for forward currency contracts, with the  result
that  closing transactions generally can  be  made  for
forward currency contracts only by negotiating directly
with the counterparty.  Thus, 

<PAGE>

there can be no assurance
that  a  Fund  will, in fact, be able to  close  out  a
forward  currency  contract  (or  any  other  currency-
related  derivative instrument) at  a  time  and  price
favorable  to the Fund.  In addition, in the  event  of
insolvency of the counterparty, a Fund might be  unable
to  close  out a forward currency contract at any  time
prior  to  maturity.  In the case of an exchange-traded
instrument,  a Fund will be able to close the  position
out only on an exchange which provides a market for the
instruments.   The ability to establish and  close  out
positions  on an exchange is subject to the maintenance
of  a liquid market, and there can be no assurance that
a  liquid market will exist for any instrument  at  any
specific  time.   In the case of a privately-negotiated
instrument, a Fund will be able to realize the value of
the   instrument  only  by  entering  into  a   closing
transaction  with the issuer or finding a  third  party
buyer  for the instrument.  While the Funds will  enter
into   privately-negotiated  transactions   only   with
entities  who  are expected to be capable  of  entering
into  a  closing transaction, there can be no assurance
that  the  Funds will, in fact, be able to  enter  into
such closing transactions.

     The    precise    matching   of   currency-related
derivative  instrument amounts and  the  value  of  the
portfolio  securities involved generally  will  not  be
possible because the value of such securities, measured
in the foreign currency, will change after the currency-
related   derivative  instrument  position   has   been
established.   Thus, a Fund might need to  purchase  or
sell foreign currencies in the spot (cash) market.  The
projection  of short-term currency market movements  is
extremely difficult, and the successful execution of  a
short-term hedging strategy is highly uncertain.

     Permissible foreign currency options will  include
options  traded primarily in the OTC market.   Although
options  on foreign currencies are traded primarily  in
the  OTC  market, the Funds will normally  purchase  or
sell  OTC  options on foreign currency  only  when  the
Adviser  reasonably believes a liquid secondary  market
will  exist  for  a particular option at  any  specific
time.

     There  will be a cost to the Funds of engaging  in
transactions in currency-related derivative instruments
that  will  vary with factors such as the  contract  or
currency  involved, the length of the  contract  period
and  the  market  conditions then prevailing.   A  Fund
using  these  instruments may have  to  pay  a  fee  or
commission  or,  in  cases where  the  instruments  are
entered  into  on  a principal basis, foreign  exchange
dealers  or other counterparties will realize a  profit
based  on the difference ("spread") between the  prices
at   which   they   are  buying  and  selling   various
currencies.  Thus, for example, 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 resell that currency to the dealer.

     When  required  by the SEC guidelines,  the  Funds
will  set aside permissible liquid assets in segregated
accounts  or otherwise cover their respective potential
obligations    under    currency-related    derivatives
instruments.  To the extent a Fund's assets are so  set
aside,  they  cannot  be sold while  the  corresponding
currency  position  is open, unless they  are  replaced
with  similar assets.  As a result, if a large  portion
of  a Fund's assets are so set aside, this could impede
portfolio  management  or the Fund's  ability  to  meet
redemption requests or other current obligations.

     The  Adviser's decision to engage in a transaction
in  a particular currency-related derivative instrument
will   reflect   the   Adviser's  judgment   that   the
transaction  will  provide value to the  Fund  and  its
shareholders   and  is  consistent  with   the   Fund's
objectives  and policies.  In making such  a  judgment,
the  Adviser will analyze the benefits and risks of the
transaction and weigh them in the context of the Fund's
entire portfolio and objectives.  The effectiveness  of
any   transaction  in  a  currency-related   derivative
instrument  is  dependent  on  a  variety  of  factors,
including   the   Adviser's  skill  in  analyzing   and
predicting  currency  values  and  upon  a  correlation
between price movements of the currency instrument  and
the  underlying  security.  There  might  be  imperfect
correlation,  or  even  no correlation,  between  price
movements  of  an  instrument and  price  movements  of
investments  being hedged.  Such a lack of  correlation
might  occur due to factors unrelated to the  value  of
the  investments being hedged, such as  speculative  or
other   pressures  on  the  markets  in   which   these
instruments are traded.  In addition, a Fund's  use  of
currency-related  derivative  instruments   is   always
subject to the risk that the currency in question could
be devalued by the foreign government.  In such a case,
any  long currency positions would decline in value and
could  adversely affect any hedging position maintained
by the Fund.

<PAGE>

     The  Funds' dealing in currency-related derivative
instruments   will   generally  be   limited   to   the
transactions  described  above.   However,  the   Funds
reserve  the  right to use currency-related derivatives
instruments for different purposes and under  different
circumstances.  Of course, the Funds are  not  required
to  use  currency-related derivatives  instruments  and
will  not  do  so  unless  deemed  appropriate  by  the
Adviser.  It should also be realized that use of  these
instruments  does  not eliminate, or  protect  against,
price  movements  in  the Funds'  securities  that  are
attributable  to  other  (i.e.,  non-currency  related)
causes.   Moreover,  while the use of  currency-related
derivatives instruments may reduce the risk of loss due
to  a decline in the value of a hedged currency, at the
same  time the use of these instruments tends to  limit
any potential gain which may result from an increase in
the value of that currency.

     Swap   Agreements.   The  Funds  may  enter   into
interest rate, securities index, commodity, or security
and  currency  exchange rate swap  agreements  for  any
lawful  purpose consistent with each Fund's  investment
objective,  such  as for the purpose of  attempting  to
obtain  or  preserve  a particular  desired  return  or
spread at a lower cost to the Fund than if the Fund had
invested  directly in an instrument that  yielded  that
desired  return  or spread.  The Funds may  also  enter
into  swaps in order to protect against an increase  in
the  price of, or the currency exchange rate applicable
to,  securities  that the particular  Fund  anticipates
purchasing at a later date.  Swap agreements  are  two-
party contracts entered into primarily by institutional
investors  for  periods ranging from  a  few  weeks  to
several  years.  In a standard "swap" transaction,  two
parties agree to exchange the returns (or differentials
in  rates  of return) earned or realized on  particular
predetermined  investments or instruments.   The  gross
returns  to  be  exchanged  or  "swapped"  between  the
parties  are  calculated with respect  to  a  "notional
amount," i.e., the return on or increase in value of  a
particular  dollar  amount  invested  at  a  particular
interest rate, in a particular foreign currency, or  in
a  "basket"  of  securities representing  a  particular
index.  Swap agreements may include interest rate caps,
under  which, in return for a premium, one party agrees
to  make  payments  to the other  to  the  extent  that
interest  rates  exceed  a specified  rate,  or  "cap;"
interest  rate  floors, under which, in  return  for  a
premium, one party agrees to make payments to the other
to  the  extent  that  interest  rates  fall  below   a
specified level, or "floor;" and interest rate collars,
under  which a party sells a cap and purchases a floor,
or  vice versa, in an attempt to protect itself against
interest  rate  movements exceeding  given  minimum  or
maximum levels.

     The "notional amount" of the swap agreement is the
agreed upon basis for calculating the obligations  that
the  parties  to  a  swap  agreement  have  agreed   to
exchange.  Under most swap agreements entered into by a
Fund, the obligations of the parties would be exchanged
on  a  "net  basis."  Consequently, a Fund's obligation
(or  rights)  under a swap agreement will generally  be
equal  only  to the net amount to be paid  or  received
under the agreement based on the relative values of the
positions held by each party to the agreement (the "net
amount").   A Fund's obligation under a swap  agreement
will  be accrued daily (offset against amounts owed  to
the  Fund) and any accrued but unpaid net amounts  owed
to   a  swap  counterparty  will  be  covered  by   the
maintenance   of   a   segregated   account   generally
consisting of liquid assets.

     Whether  a Fund's use of swap agreements  will  be
successful in furthering its investment objective  will
depend,  in  part, on the Adviser's ability to  predict
correctly  whether  certain types  of  investments  are
likely   to   produce   greater  returns   than   other
investments.  Swap agreements may be considered  to  be
illiquid.  Moreover, a Fund bears the risk of  loss  of
the  amount  expected  to  be  received  under  a  swap
agreement in the event of the default or bankruptcy  of
a  swap  agreement counterparty.  Certain  restrictions
imposed  on the Funds by the Internal Revenue Code  may
limit  the Funds' ability to use swap agreements.   The
swaps market is largely unregulated.

     The  Funds  will enter swap agreements  only  with
counterparties that the Adviser reasonably believes are
capable  of  performing under the swap agreements.   If
there  is  a  default  by the other  party  to  such  a
transaction,  a  Fund  will  have  to   rely   on   its
contractual   remedies  (which  may   be   limited   by
bankruptcy, insolvency or similar laws) pursuant to the
agreements related to the transaction.

     Additional  Derivative Instruments and Strategies.
In   addition   to   the  derivative  instruments   and
strategies  described  above, the  Adviser  expects  to
discover  additional derivative instruments  and  other
hedging or risk management techniques.  The Adviser may
utilize these new derivative instruments and techniques
to  the  extent that they are consistent with a  Fund's
investment  objective  and  permitted  by  the   Fund's
investment   limitations,   operating   policies,   and
applicable regulatory authorities.

<PAGE>

Depositary Receipts

     Each  Fund  may  invest in foreign  securities  by
purchasing  depositary  receipts,  including   American
Depositary  Receipts  ("ADRs") and European  Depositary
Receipts ("EDRs") or other securities convertible  into
securities  or  issuers  based  in  foreign  countries.
These securities may not necessarily be denominated  in
the same currency as the securities into which they may
be converted.  Generally, ADRs, in registered form, are
denominated in U.S. dollars and are designed for use in
the  U.S.  securities markets, while  EDRs,  in  bearer
form,  may be denominated in other currencies  and  are
designed for use in European securities markets.   ADRs
are  receipts typically issued by a U.S. Bank or  trust
company   evidencing  ownership   of   the   underlying
securities.   EDRs are European receipts  evidencing  a
similar   arrangement.   For  purposes  of   a   Fund's
investment policies, ADRs and EDRs are deemed  to  have
the  same  classification as the underlying  securities
they  represent.   Thus,  an ADR  or  EDR  representing
ownership  of  common stock will be treated  as  common
stock.

     ADR   facilities  may  be  established  as  either
"unsponsored" or "sponsored."  While ADRs issued  under
these  two  types  of facilities are in  some  respects
similar,  there are distinctions between them  relating
to  the  rights and obligations of ADR holders and  the
practices of market participants.  For example, a  non-
sponsored   depositary  may  not   provide   the   same
shareholder information that a sponsored depositary  is
required  to provide under its contractual arrangements
with   the   issuer,   including   reliable   financial
statements.    Under  the  terms  of   most   sponsored
arrangements, depositories agree to distribute  notices
of shareholder meetings and voting instructions, and to
provide    shareholder   communications    and    other
information  to the ADR holders at the request  of  the
issuer of the deposited securities.

Foreign Investment Companies

     The  Funds  may  invest, to a limited  extent,  in
foreign investment companies.  Some of the countries in
which the Funds invest may not permit direct investment
by  outside  investors.  Investments in such  countries
may  only  be  permitted  through  foreign  government-
approved or -authorized investment vehicles, which  may
include  other investment companies.  In  addition,  it
may be less expensive and more expedient for a Fund  to
invest  in  a foreign investment company in  a  country
which  permits  direct  foreign investment.   Investing
through  such vehicles may involve frequent or  layered
fees  or expenses and may also be subject to limitation
under  the  1940 Act.  Under the 1940 Act, a  Fund  may
invest up to 10% of its total assets in shares of other
investment  companies and up to 5% of its total  assets
in any one investment company as long as the investment
does not represent more than 3% of the voting stock  of
the  acquired  investment company.  The  Funds  do  not
intend  to invest in such investment companies  unless,
in  the judgment of the Adviser, the potential benefits
of   such  investments  justify  the  payment  of   any
associated fees and expenses.

High-Yield (High-Risk) Securities

     In  General.   The Balanced Fund  will  invest  in
fixed  income securities rated at the time of  purchase
as at lease investment grade by at least one nationally
recognized  statistical rating organization ("NRSROs"),
such  as S&P or Moody's.  If a security's rating  falls
below the ratings criteria set forth in the Prospectus,
the  Adviser will determine what action, if any, should
be  taken to ensure compliance with the Balanced Fund's
investment  objective and to ensure that  the  Balanced
Fund  will at no time have 5% or more of its net assets
invested in non-investment grade debt securities.  Non-
investment   grade  debt  obligations   ("lower-quality
securities") include (1) bonds rated as  low  as  C  by
S&P,  Moody's  and comparable ratings of other  NRSROs;
(2)  commercial paper rated as low as  C  by  S&P,  Not
Prime  by  Moody's  and  comparable  ratings  of  other
NRSROs;  and (3) unrated debt obligations of comparable
quality.   Lower-quality  securities,  while  generally
offering higher yields than investment grade securities
with   similar   maturities,  involve  greater   risks,
including  the  possibility of default  or  bankruptcy.
They  are  regarded as predominantly  speculative  with
respect  to  the issuer's capacity to pay interest  and
repay  principal.   The special risk considerations  in
connection  with  investments in these  securities  are
discussed   below.   Refer  to  the  Appendix   for   a
description of the securities ratings.

     Effect  of  Interest Rates and  Economic  Changes.
The   lower-quality  and  comparable  unrated  security
market  is relatively new and its growth has paralleled
a  long  economic expansion.  As a result,  it  is  not
clear   how  

<PAGE>

this  market  may  withstand  a  prolonged
recession or economic downturn.  Such conditions  could
severely  disrupt  the market for and adversely  affect
the value of such securities.

     All    interest-bearing    securities    typically
experience appreciation when interest rates decline and
depreciation  when  interest rates  rise.   The  market
value   of   lower-quality   and   comparable   unrated
securities   tend   to  reflect  individual   corporate
developments  to a greater extent than do higher  rated
securities.   As a result, they generally involve  more
credit   risks  than  securities  in  the  higher-rated
categories.  During an economic downturn or a sustained
period  of  rising  interest  rates,  highly  leveraged
issuers   of   lower-quality  and  comparable   unrated
securities may experience financial stress and may  not
have   sufficient  revenues  to  meet   their   payment
obligations.  The issuer's ability to service its  debt
obligations may also be adversely affected by  specific
corporate developments, the issuer's inability to  meet
specific   projected   business   forecasts   or    the
unavailability of additional financing.   The  risk  of
loss due to default by an issuer of these securities is
significantly  greater  than  issuers  of  higher-rated
securities   because  such  securities  are   generally
unsecured   and   are  often  subordinated   to   other
creditors.   Further, if the issuer of a  lower-quality
or  comparable unrated security defaulted, the Balanced
Fund  might incur additional expenses to seek recovery.
Periods of economic uncertainty and changes would  also
generally result in increased volatility in the  market
prices  of  these securities and thus in  the  Balanced
Fund's net asset value.

     As previously stated, the value of a lower-quality
or  comparable  unrated security  will  decrease  in  a
rising  interest rate market and accordingly,  so  will
the  Balanced Fund's net asset value.  If the  Balanced
Fund  experiences unexpected net redemptions in such  a
market, it may be forced to liquidate a portion of  its
portfolio securities without regard to their investment
merits.   Due to the limited liquidity of lower-quality
and  comparable  unrated securities (discussed  below),
the  Balanced  Fund  may be forced to  liquidate  these
securities  as  a  substantial  discount.    Any   such
liquidation would force the Balanced Fund to  sell  the
more liquid portion of its portfolio.

     Payment    Expectations.     Lower-quality     and
comparable   unrated   securities   typically   contain
redemption, call or prepayment provisions which  permit
the   issuer   of   such  securities  containing   such
provisions   to,   at   its  discretion,   redeem   the
securities.  During periods of falling interest  rates,
issuers  of  these securities are likely to  redeem  or
prepay  the  securities and refinance  them  with  debt
securities  with a lower interest rate.  To the  extent
an  issuer  is  able  to refinance the  securities,  or
otherwise  redeem them, the Balanced Fund may  have  to
replace  the securities with a lower yielding security,
which  would result in a lower return for the  Balanced
Fund.

     Credit  Ratings.  Credit ratings issued by  credit
rating agencies are designed to evaluate the safety  of
principal  and  interest payments of rated  securities.
They do not, however, evaluate the market value risk of
lower-quality securities and, therefore, may not  fully
reflect  the true risks of an investment.  In addition,
credit  rating  agencies may or  may  not  make  timely
changes  in a rating to reflect changes in the  economy
or  in  the  condition of the issuer  that  affect  the
market  value  of  the security.  Consequently,  credit
ratings  are  used only as a preliminary  indicator  of
investment  quality.  Investments in lower-quality  and
comparable  unrated obligations will be more  dependent
on the Adviser's credit analysis than would be the case
with  investments in investment-grade debt obligations.
The   Adviser  employs  its  own  credit  research  and
analysis,  which  includes a study  of  existing  debt,
capital structure, ability to service debt and  to  pay
dividends,   the  issuer's  sensitivity   to   economic
conditions, its operating history and the current trend
of  earnings.   The  Adviser continually  monitors  the
investments  in  the  Balanced  Fund's  portfolio   and
carefully evaluates whether to dispose of or to  retain
lower-quality  and comparable unrated securities  whose
credit ratings or credit quality may have changed.

     Liquidity  and Valuation.  The Balanced  Fund  may
have difficulty disposing of certain lower-quality  and
comparable unrated securities because there  may  be  a
thin  trading market for such securities.  Because  not
all  dealers maintain markets in all lower-quality  and
comparable  unrated securities, there is no established
retail  secondary market for many of these  securities.
The  Balanced  Fund  anticipates that  such  securities
could  be  sold only to a limited number of dealers  or
institutional  investors.  To the  extent  a  secondary
trading  market  does  exist, it is  generally  not  as
liquid   as   the  secondary  market  for  higher-rated
securities.  The lack of a liquid secondary market  may
have  an  adverse  impact on the market  price  of  the
security.  As a result, the Balanced Fund's asset value
and  ability to dispose of particular securities,  when
necessary  to meet the Balanced Fund's liquidity  needs
or  in  response to a specific economic event,  may  be
impacted.   The lack of a liquid secondary  market  for
certain 

<PAGE>

securities may also make it more difficult  for
the  Balanced Fund to obtain accurate market quotations
for  purposes of valuing the Balanced Fund's portfolio.
Market quotations are generally available on many lower-
quality  and  comparable unrated  issues  only  from  a
limited  number  of  dealers and  may  not  necessarily
represent  firm  bids  of such dealers  or  prices  for
actual  sales.   During periods of  thin  trading,  the
spread  between  bid  and asked  prices  is  likely  to
increase significantly.  In addition, adverse publicity
and  investor  perceptions, whether  or  not  based  on
fundamental  analysis,  may  decrease  the  values  and
liquidity  of  lower-quality  and  comparable   unrated
securities, especially in a thinly traded market.

     Legislation.   Legislation may  be  adopted,  from
time  to  time,  designed to limit the use  of  certain
lower-quality  and  comparable  unrated  securities  by
certain  issuers.  It is anticipated that if additional
legislation  is enacted or proposed, it  could  have  a
material  affect on the value of these  securities  and
the  existence  of a secondary trading market  for  the
securities.

Warrants

     Each  Fund may invest in warrants, valued  at  the
lower  of cost or market value, if, after giving effect
thereto,  not  more than 5% of its net assets  will  be
invested  in  warrants other than warrants acquired  in
units  or  attached to other securities.  Warrants  are
options  to  purchase equity securities at  a  specific
price  for  a  specific period of time.   They  do  not
represent  ownership  of the securities  but  only  the
right  to  buy them.  Investing in warrants  is  purely
speculative in that they have no voting rights, pay  no
dividends and have no rights with respect to the assets
of  the  corporation issuing them.   In  addition,  the
value of a warrant does not necessarily change with the
value  of  the  underlying securities,  and  a  warrant
ceases  to have value if it is not exercised  prior  to
its expiration date.

Short Sales Against the Box

     Each  Fund  may sell securities short against  the
box  to hedge unrealized gains on portfolio securities.
Selling  securities  short  against  the  box  involves
selling a security that a Fund owns or has the right to
acquire,  for  delivery  at a  specified  date  in  the
future.   If a Fund sells securities short against  the
box, it may protect unrealized gains, but will lose the
opportunity to profit on such securities if  the  price
rises.

                DIRECTORS AND OFFICERS
                           
     The  directors  and officers of  the  Corporation,
together   with  information  as  to  their   principal
business  occupations during the last five  years,  and
other information, are shown below.  Each director  who
is  deemed  an "interested person," as defined  in  the
1940 Act, is indicated by an asterisk.

     *J. Kevin Callaghan, a Director and Co-Chairman of
the Corporation.

     Mr.  Callaghan, 40 years old, received a  Bachelor
of  Arts  degree  in  economics and  finance  from  the
University  of Puget Sound in 1981.  Mr. Callaghan  has
been  with  the Adviser since 1983 and is  currently  a
portfolio manager with the Adviser.

     *Steven  C. Phelps, a Director and Co-Chairman  of
the Corporation.

     Mr.  Phelps,  37  years old, graduated  magna  cum
laude  from Williams College in 1983 with a  degree  in
political   economy   and  was  awarded   a   Fulbright
Scholarship  at  the University of Frankfurt,  Germany.
Mr. Phelps joined the Adviser in 1986 after working for
two  years  with  PACCAR, Inc. as  an  analyst  in  the
treasury department of the finance subsidiary and as an
independent  researcher in the field of  transportation
economics.  Mr. Phelps is a Chartered Financial Analyst
and a Chartered Investment Counselor.

     Frank S. Bayley, a Director of the Corporation.

     Mr.  Bayley,  58 years old, earned a  Bachelor  of
Arts  degree  and a law degree from Harvard University.
Mr.  Bayley  has been a partner with the  law  firm  of
Baker  &  McKenzie  since 1986.  Mr. Bayley  serves  as
director  

<PAGE>

and co-chairman of C. D. Stimson  Company,  a
private  investment company.  In addition,  Mr.  Bayley
has been a Trustee of AIM Global Mutual Funds (formerly
GT Global Mutual Funds) since 1985.

     Madelyn B. Smith, a Director of the Corporation.

     Ms.  Smith,  67 years old, received a Bachelor  of
Arts degree from the University of Puget Sound in 1970.
Prior  to retiring, Ms. Smith worked as an analyst  and
portfolio  manager with the Frank Russell Company  from
1971 to 1997.

     Otis  P.  Heald  III  (Tres),  President  of   the
Corporation.

     Mr.  Heald,  33  years old, earned a  Bachelor  of
Science  degree  in finance and real  estate  from  San
Francisco  State University in 1989 and a  Master's  of
Business  Administration in finance from the University
of  Southern California in 1995.  Prior to joining  the
Adviser as a portfolio manager in 1996, Mr. Heald was a
portfolio  manager  and  securities  analyst  at  Wells
Fargo/First Interstate Capital Management.   Mr.  Heald
worked  as  a credit analyst and commercial lender  for
four  years  before entering the investment  management
industry.

     Lisa  P.  Guzman, Treasurer and Secretary  of  the
Corporation.

     Ms.  Guzman,  43 years old, graduated with  honors
from  the  University  of Washington  in  1977  with  a
Bachelor  of  Arts  degree and from the  University  of
Puget  Sound  in  1983  with  a  Master's  of  Business
Administration.  Prior to joining the Adviser in  1990,
Ms.  Guzman  worked for 12 years at PACCAR,  Inc.,  the
last   four  years  as  cash  manager  of  its  finance
subsidiary.

     The  address  for  Messrs. Callaghan,  Phelps  and
Heald and Ms. Guzman is Badgley, Phelps and Bell, Inc.,
1420  Fifth  Avenue,  Suite 4400, Seattle,  Washington,
98101.  The address for Mr. Bayley is Baker & McKenzie,
Two  Embarcadero  Center, 24th  Floor,  San  Francisco,
California  94111.   The address for  Ms.  Smith  is  9
Forest Glen Drive SW, Tacoma, Washington 98498.

     As  of June 9, 1998, officers and directors of the
Corporation beneficially owned 10,000 shares of  common
stock  or  100%  of the Growth Fund's then  outstanding
shares and 100% of the Balanced Fund's then outstanding
shares.  Directors and officers of the Corporation  who
are    also   officers,   directors,   employees,    or
shareholders  of  the  Adviser  do  not   receive   any
remuneration  from  any of the  Funds  for  serving  as
directors or officers.

     The  following table provides information relating
to  annual compensation to be paid to directors of  the
Corporation for their services as such (1):

     Name            Cash             Other            
                 Compensation(2)   Compensation        Total
                      (2)             
                                                 
J. Kevin Callaghan   $  0              $0              $ 0

Steven C. Phelps     $  0              $0              $ 0

Frank S. Bayley      $1,000            $0              $1,000
                                                  
Madelyn B. Smith     $1,000            $0              $1,000

All   directors      $2,000            $0              $2,000
as a group
(4 persons)

____________________

(1)  The amounts indicated are estimates of amounts to
be paid by the Corporation.

<PAGE>

(2)  Each director who is not deemed an "interested
person" as defined in the 1940 Act, will receive $250
for each Board of Directors meeting attended by such
person and reasonable expenses incurred in connection
therewith.  The Board anticipates holding four meetings
during fiscal 1999.  Thus, each disinterested director
is entitled to up to $1,000 during such time period
from the Corporation, plus reasonable expenses.

                PRINCIPAL SHAREHOLDERS
                           
     As  of June 9, 1998, the following person owned of
record  or is known by the Corporation to own of record
or beneficially 5% or more of the outstanding shares of
each Fund:

     Name and Address          Fund      No. Shares  Percentage

     J. Kevin Callaghan    Growth Fund      2,500       50%
                           Balanced Fund    2,500       50%

     Steven C. Phelps      Growth Fund      2,500       50%
                           Balanced Fund    2,500       50%

     Based  on  the  foregoing, as  of  June  9,  1998,
Messrs.  Callaghan and Phelps each owned a  controlling
interest  in  the  Corporation.   Shareholders  with  a
controlling interest could effect the outcome of  proxy
voting   or   the  direction  of  management   of   the
Corporation.

                  INVESTMENT ADVISER
                           
     Badgley, Phelps and Bell, Inc. (the "Adviser")  is
the  investment adviser to the Funds.  The  Adviser  is
controlled by several of its officers and directors.

     The  investment  advisory  agreement  between  the
Corporation and the Adviser dated as of June  23,  1998
(the  "Advisory Agreement") has an initial term of  two
years   and  thereafter  is  required  to  be  approved
annually  by  the Board of Directors of the Corporation
or  by  vote  of  a  majority of  each  of  the  Fund's
outstanding voting securities (as defined in  the  1940
Act).  Each annual renewal must also be approved by the
vote  of a majority of the Corporation's directors  who
are not parties to the Advisory Agreement or interested
persons  of any such party, cast in person at a meeting
called for the purpose of voting on such approval.  The
Advisory  Agreement  was  approved  by  the  Board   of
Directors,  including a majority of  the  disinterested
directors   on  June  23,  1998  and  by  the   initial
shareholders  of  each  Fund on  June  23,  1998.   The
Advisory Agreement is terminable without penalty, on 60
days'  written notice by the Board of Directors of  the
Corporation,  by  vote of a majority  of  each  of  the
Fund's outstanding voting securities or by the Adviser,
and  will terminate automatically in the event  of  its
assignment.

     Under  the  terms of the Advisory  Agreement,  the
Adviser  manages  the Funds' investments  and  business
affairs,   subject   to   the   supervision   of    the
Corporation's Board of Directors.  At its expense,  the
Adviser provides office space and all necessary  office
facilities,  equipment and personnel for  managing  the
investments  of  the  Funds.  As compensation  for  its
services,  the Growth Fund pays the Adviser  an  annual
management  fee  of  1.00% of  its  average  daily  net
assets,  and  the  Balanced Fund pays  the  Adviser  an
annual management fee of 0.90% of its average daily net
assets.   The  advisory fee is accrued daily  and  paid
monthly.  The organizational expenses of each Fund were
advanced by the Adviser and will be reimbursed  by  the
Funds over a period of not more than 60 months.

     The  Adviser  has agreed that for the fiscal  year
ending  May  31,  1999,  the  Adviser  will  waive  its
management  fee  and/or reimburse the Fund's  operating
expenses to the extent necessary to ensure that (i) the
total  operating expenses (on an annual basis) for  the
Growth  Fund do not exceed 1.50% of average  daily  net
assets,  and (ii) the total operating expenses  (on  an
annual basis) for the Balanced Fund do not exceed 1.30%
of  the average daily net assets.  After such date, the
Adviser may from time to time voluntarily waive all  or
a  portion  of its fee and/or absorb expenses  for  the
Funds.   Any  waiver of fees or absorption of  expenses
will  be  made on a monthly basis and, with respect  to
the  latter, will be paid to the Funds by reduction  of
the  Adviser's  fee.   Any  such  waiver/absorption  is
subject  to  later adjustment during the  term  of  the
Advisory  Agreement to allow Adviser to 

<PAGE>

recoup  amounts
waived/absorbed, provided,  however,  that, the Adviser  
shall  only  be entitled to recoup such amounts for a 
maximum period of three  years  from the date such amount 
was  waived  or reimbursed.

            FUND TRANSACTIONS AND BROKERAGE
                           
     Under the Advisory Agreement, the Adviser, in  its
capacity  as  portfolio  manager,  is  responsible  for
decisions to buy and sell securities for the Funds  and
for  the  placement of the Funds' securities  business,
the  negotiation of the commissions to be paid on  such
transactions and the allocation of portfolio  brokerage
business.   The  Adviser  seeks  to  obtain  the   best
execution  at  the best security price  available  with
respect  to  each transaction.  The best price  to  the
Funds  means the best net price without regard  to  the
mix  between purchase or sale price and commission,  if
any.   While  the Adviser seeks reasonably  competitive
commission rates, the Funds do not necessarily pay  the
lowest  available commission.  Brokerage  will  not  be
allocated based on the sale of a Fund's shares.

     Section  28(e) of the Securities Exchange  Act  of
1934,   as  amended,  ("Section  28(e)"),  permits   an
investment  adviser,  under certain  circumstances,  to
cause an account to pay a broker or dealer who supplies
brokerage  and  research  services  a  commission   for
effecting  a  transaction in excess of  the  amount  of
commission another broker or dealer would have  charged
for  effecting the transaction.  Brokerage and research
services include (a) furnishing advice as to the  value
of   securities,   the   advisability   of   investing,
purchasing  or selling securities and the  availability
of  securities or purchasers or sellers of  securities;
(b) furnishing analyses and reports concerning issuers,
industries,  securities, economic factors  and  trends,
portfolio strategy and the performance of accounts; and
(c)  effecting  securities transactions and  performing
functions   incidental  thereto  (such  as   clearance,
settlement, and custody).

     In  selecting  brokers  or  dealers,  the  Adviser
considers  investment and market information and  other
research,  such as economic, securities and performance
measurement  research  provided  by  such  brokers   or
dealers  and  the quality and reliability of  brokerage
services,  including execution capability,  performance
and   financial   responsibility.    Accordingly,   the
commissions charged by any such broker or dealer may be
greater  than the amount another firm might  charge  if
the Adviser determines in good faith that the amount of
such commissions is reasonable in relation to the value
of  the  research  information and  brokerage  services
provided  by such broker or dealer to the  Funds.   The
Adviser believes that the research information received
in  this  manner  provides the Funds with  benefits  by
supplementing the research otherwise available  to  the
Funds.  Such higher commissions will not be paid by the
Funds  unless (a) the Adviser determines in good  faith
that  the  amount  is  reasonable in  relation  to  the
services in terms of the particular transaction  or  in
terms  of  the Adviser's overall responsibilities  with
respect  to  the accounts, including the Funds,  as  to
which  it  exercises  investment discretion;  (b)  such
payment  is  made in compliance with the provisions  of
Section  28(e) and other applicable state  and  federal
laws;  and (c) in the opinion of the Adviser, the total
commissions  paid  by the Funds will be  reasonable  in
relation  to  the benefits to the Funds over  the  long
term.

     The  Adviser  places  portfolio  transactions  for
other   advisory  accounts  managed  by  the   Adviser.
Research services furnished by firms through which  the
Funds effect their securities transactions may be  used
by  the  Adviser in servicing all of its accounts;  not
all  of  such  services may be used by the  Adviser  in
connection with the Funds.  The Adviser believes it  is
not  possible  to measure separately the benefits  from
research  services  to each of the accounts  (including
the  Funds)  managed  by it.  Because  the  volume  and
nature  of  the trading activities of the accounts  are
not  uniform,  the amount of commissions in  excess  of
those  charged by another broker paid by  each  account
for   brokerage  and  research  services   will   vary.
However,  the Adviser believes such costs to the  Funds
will  not  be disproportionate to the benefits received
by  the Funds on a continuing basis.  The Adviser seeks
to  allocate portfolio transactions equitably  whenever
concurrent  decisions  are made  to  purchase  or  sell
securities  by the Funds and another advisory  account.
In  some  cases, this procedure could have  an  adverse
effect  on  the  price  or  the  amount  of  securities
available  to  the  Funds.  In making such  allocations
between  a Fund and other advisory accounts,  the  main
factors  considered by the Adviser are  the  respective
investment  objectives, the relative size of  portfolio
holdings  of  the  same or comparable  securities,  the
availability  of cash for investment and  the  size  of
investment commitments generally held.

<PAGE>

     Each  Fund  anticipates that its annual  portfolio
turnover  rate will not exceed 50%, and is expected  to
be  between 20% and 30%.  The annual portfolio turnover
rate indicates changes in a Fund's securities holdings;
for  instance, a rate of 100% would result if  all  the
securities  in a portfolio (excluding securities  whose
maturities at acquisition were one year or less) at the
beginning of an annual period had been replaced by  the
end  of  the period.  The turnover rate may  vary  from
year  to  year, as well as within a year,  and  may  be
affected  by  portfolio sales necessary  to  meet  cash
requirements for redemptions of a Fund's shares.

                       CUSTODIAN
                           
     As  custodian of the Funds' assets, Firstar  Trust
Company ("Firstar"), Mutual Fund Services, Third Floor,
615  East Michigan Street, Milwaukee, Wisconsin  53202,
has  custody of all securities and cash of  each  Fund,
delivers  and receives payment for portfolio securities
sold,   receives  and  pays  for  portfolio  securities
purchased,   collects  income  from   investments   and
performs  other duties, all as directed by the officers
of the Corporation.

     TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
                           
     Firstar  also acts as transfer agent and dividend-
disbursing agent for the Funds.  Firstar is compensated
based on an annual fee per open account of $14 (subject
to  a minimum annual fee of $16,250 per Fund) plus out-
of-pocket  expenses,  such  as  postage  and   printing
expenses in connection with shareholder communications.
Firstar  also receives an annual fee per closed account
of $14.

         DISTRIBUTOR AND PLAN OF DISTRIBUTION
                           
Distributor

     Under a distribution agreement dated June 23, 1998
(the   "Distribution  Agreement"),   Rafferty   Capital
Markets,  Inc.  (the "Distributor") acts  as  principal
distributor  of  the Funds' shares.   The  Distribution
Agreement  provides that the Distributor will  use  its
best  efforts  to distribute the Funds'  shares,  which
shares  are  offered for sale by the Funds continuously
at  net asset value per share without the imposition of
a   sales  charge.   Pursuant  to  the  terms  of   the
Distribution Agreement, the Distributor bears the costs
of  printing prospectuses and shareholder reports which
are  used  for selling purposes, as well as advertising
and any other costs attributable to the distribution of
Fund shares.  All or a portion of the distribution  and
shareholder   servicing  fee  may  be   used   by   the
Distributor to pay such expenses under the distribution
and shareholder servicing plan discussed below.

Distribution and Shareholder Servicing Plan

     The  Corporation,  on behalf  of  the  Funds,  has
adopted  a plan pursuant to Rule 12b-1 under  the  1940
Act  (the "12b-1 Plan"), which requires it to  pay  the
Distributor,   in   its  capacity  as   the   principal
distributor   of   Fund  shares,  a  distribution   and
shareholder  servicing fee of 0.25% per annum  of  each
Fund's  average daily net assets.  Under the  terms  of
the  12b-1 Plan, the Distributor is authorized  to,  in
turn,  pay  all  or  a  portion  of  this  fee  to  any
securities dealer, financial institution or  any  other
person  (the  "Recipient") who  renders  assistance  in
distributing or promoting the sale of Fund  shares,  or
who  provides  certain  shareholder  services  to  Fund
shareholders,  pursuant  to a  written  agreement  (the
"Related  Agreement").  Payments under the  12b-1  Plan
are  based upon a percentage of average daily net units
attributable  to each Fund regardless  of  the  amounts
actually  paid  or expenses actually  incurred  by  the
Distributor,  however, in no event, may  such  payments
exceed  the  maximum allowable fee.  It is,  therefore,
possible that the Distributor may realize a profit in a
particular year as a result of these payments.  The 12b-
1 Plan has the effect of increasing the Fund's expenses
from what they would otherwise be.

Anticipated Benefits to the Funds

     The  Board of Directors considered various factors
in  connection with its decision to approve  the  12b-1
Plan,  including:   (a) the nature and  causes  of  the
circumstances which make implementation  of  the  12b-1
Plan  necessary and appropriate; (b) the way  in  which
the  12b-1  Plan  would  address  those  circumstances,
including   the   nature  and   potential   amount   of
expenditures;   (c)  the  nature  of  the   anticipated
benefits; (d) the merits of possible 

<PAGE>

alternative  plans
or  pricing  structures; (e) the  relationship  of  the
12b-1  Plan to other distribution efforts of the Funds;
and  (f) the possible benefits of the 12b-1 Plan to any
other person relative to those of the Funds.

     Based upon its review of the foregoing factors and
the  material  presented to it, and  in  light  of  its
fiduciary duties under relevant state law and the  1940
Act, the Board of Directors determined, in the exercise
of  its  business  judgment, that the  12b-1  Plan  was
reasonably  likely  to  benefit  the  Funds  and  their
respective  shareholders in at  least  one  or  several
potential ways.  Specifically, the Board concluded that
the  Distributor  and  any Recipients  operating  under
Related Agreements would have little or no incentive to
incur  promotional expenses on behalf of a  Fund  if  a
12b-1  Plan  were not in place to reimburse them,  thus
making the adoption of such 12b-1 Plan important to the
initial success and thereafter, continued viability  of
the  Funds.  In addition, the Board determined that the
payment  of  distribution fees to these persons  should
motivate  them to provide an enhanced level of  service
to  Fund  shareholders, which would, of course, benefit
such  shareholders.  Finally, the adoption of the 12b-1
Plan would help to increase net assets under management
in  a  relatively  short  amount  of  time,  given  the
marketing  efforts on the part of the  Distributor  and
Recipients to sell Fund shares, which should result  in
certain economies of scale.

     While  there  is no assurance that the expenditure
of  Fund assets to finance distribution of Fund  shares
will  have  the  anticipated  results,  the  Board   of
Directors  believes  there is a  reasonable  likelihood
that  one  or  more of such benefits will  result,  and
since  the  Board will be in a position to monitor  the
distribution and shareholder servicing expenses of  the
Funds, it will be able to evaluate the benefit of  such
expenditures in deciding whether to continue the  12b-1
Plan.

                         TAXES
                           
     Each Fund will be treated as a separate entity for
federal income tax purposes since the Tax Reform Act of
1986  requires that all portfolios of a series fund  be
treated  as  separate taxpayers.   As  indicated  under
"Dividends,  Capital  Gains  Distributions,   and   Tax
Treatment"  in  the Prospectus, each  Fund  intends  to
qualify  annually  as a "regulated investment  company"
under  the  Code.  This qualification does not  involve
government   supervision  of  the   Funds'   management
practices or policies.

     A  dividend from net investment income or  capital
gain  distribution received shortly after the  purchase
of  shares reduces the net asset value of shares by the
amount of the dividend or distribution and, although in
effect  a return of capital, will be subject to  income
taxes.   Net gains on sales of securities when realized
and  distributed are taxable as capital gains.  If  the
net  asset  value  of  shares  were  reduced  below   a
shareholder's cost by distribution of gains realized on
sales  of  securities,  such distribution  would  be  a
return  of  investment  although taxable  as  indicated
above.

           DETERMINATION OF NET ASSET VALUE
                           
     As  set  forth  in the Prospectus under  the  same
caption, the net asset value of each of the Funds  will
be  determined as of the close of trading on  each  day
the  New  York Stock Exchange (the "NYSE") is open  for
trading.  The Funds do not determine net asset value on
days the NYSE is closed and at other times described in
the  Prospectus.  The NYSE is closed on New Year's Day,
Martin  Luther  King,  Jr. Day, President's  Day,  Good
Friday,  Memorial  Day, Independence  Day,  Labor  Day,
Thanksgiving  Day and Christmas Day.  Additionally,  if
any of the aforementioned holidays falls on a Saturday,
the  NYSE will not be open for trading on the preceding
Friday  and  when such holiday falls on a  Sunday,  the
NYSE  will  not  be open for trading on the  succeeding
Monday, unless unusual business conditions exist,  such
as  the  ending  of a monthly or the yearly  accounting
period.

                 SHAREHOLDER MEETINGS
                           
     Maryland   law   permits   registered   investment
companies, such as the Corporation, to operate  without
an  annual  meeting  of  shareholders  under  specified
circumstances if an annual meeting is not  required  by
the   1940  Act.   The  Corporation  has  adopted   the
appropriate  provisions in its Bylaws and may,  at  its
discretion, not hold an annual meeting in any  year  in
which  the election of directors is not required to  be
acted   on   by  shareholders  under  the   1940   Act.
Shareholders  have the right to call an annual  meeting
upon  a  vote  of 10% of the Corporation's  

<PAGE>

outstanding
shares  for  purposes of voting to remove one  or  more
disinterested  directors  or  to  transact  any   other
business.   The  1940 Act requires the  Corporation  to
assist the shareholders in calling such a meeting.

                PERFORMANCE INFORMATION
                           
     As  described in the "Fund Performance" section of
the    Funds'   Prospectus,   the   Funds'   historical
performance  or  return may be shown  in  the  form  of
various  performance figures.  The  Funds'  performance
figures  are based upon historical results and are  not
necessarily   representative  of  future   performance.
Factors   affecting  the  Funds'  performance   include
general  market  conditions,  operating  expenses,  and
investment management.

Total Return

     The  average annual total return of each  Fund  is
computed by finding the average annual compounded rates
of  return  over  the  periods that  would  equate  the
initial amount invested to the ending redeemable value,
according to the following formula:

                     P(1+T)n = ERV
                         
          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 periods
                      at the end of the stated periods.

Performance  for  a specific period  is  calculated  by
first  taking  an  investment (assumed  to  be  $1,000)
("initial investment") in a Fund's shares on the  first
day  of the period and computing the "ending value"  of
that  investment at the end of the period.   The  total
return percentage is then determined by subtracting the
initial  investment from the ending value and  dividing
the  remainder by the initial investment and expressing
the  result  as a percentage.  The calculation  assumes
that  all income and capital gains dividends paid by  a
Fund have been reinvested at the net asset value of the
Fund  on  the  reinvestment dates  during  the  period.
Total  return may also be shown as the increased dollar
value of the hypothetical investment over the period.

     Cumulative  total  return  represents  the  simple
change  in value of an investment over a stated  period
and  may  be  quoted as a percentage  or  as  a  dollar
amount.   Total returns may be broken down  into  their
components  of  income and capital  (including  capital
gains   and  changes  in  share  price)  in  order   to
illustrate  the relationship between these factors  and
their contributions to total return.

Yield

     Yield   is   computed   in   accordance   with   a
standardized  method prescribed by rules  of  the  SEC.
Under  that method, the current yield quotation  for  a
Fund  is  based on a one month or 30-day  period.   The
yield is computed by dividing the net investment income
per  share earned during the 30-day or one month period
by the maximum offering price per share on the last day
of the period, according to the following formula:

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

     Where:  a  =   dividends and interest earned during the period.
             b  =    expenses accrued for the period (net of reimbursements).
             c  =    the average daily number of shares outstanding during  
                     the period that were entitled to receive dividends.
             d  =    the maximum offering price per share on the last day of 
                     the period.

<PAGE>

Comparisons

     From  time  to time, in marketing and  other  Fund
literature,  the Funds' performance may be compared  to
the performance of other mutual funds in general or  to
the  performance  of particular types of  mutual  funds
with   similar   investment  goals,   as   tracked   by
independent  organizations.  Among these organizations,
Lipper  Analytical Services, Inc. ("Lipper"), a  widely
used independent research firm which ranks mutual funds
by  overall  performance,  investment  objectives,  and
assets,  may be cited.  Lipper performance figures  are
based  on  changes in net asset value, with all  income
and   capital   gains   dividends   reinvested.    Such
calculations  do not include the effect  of  any  sales
charges  imposed  by other funds.  The  Funds  will  be
compared  to  Lipper's appropriate fund category,  that
is, by fund objective and portfolio holdings.

     The Funds' performance may also be compared to the
performance of other mutual funds by Morningstar,  Inc.
("Morningstar"),  which ranks funds  on  the  basis  of
historical   risk  and  total  return.    Morningstar's
rankings  range from five stars (highest) to  one  star
(lowest) and represent Morningstar's assessment of  the
historical risk level and total return of a fund  as  a
weighted   average  for  3,  5  and  10  year  periods.
Rankings are not absolute or necessarily predictive  of
future performance.

     Evaluations   of   Fund   performance   made    by
independent  sources may also be used in advertisements
concerning   the  Funds,  including  reprints   of   or
selections  from,  editorials  or  articles  about  the
Funds.  Sources for Fund performance and articles about
the  Funds  may  include publications  such  as  Money,
Forbes,  Kiplinger's, Financial World,  Business  Week,
U.S.  News  and World Report, the Wall Street  Journal,
Barron's and a variety of investment newsletters.

     The  Funds may compare their performance to a wide
variety  of indices and measures of inflation including
the  Standard & Poor's Index of 500 Stocks, the  NASDAQ
Over-the-Counter  Composite  Index,  the  Russell  2500
Index  and the Lehman Aggregate Bond Index.  There  are
differences  and  similarities between the  investments
that  the  Funds  may  purchase  for  their  respective
portfolios  and  the  investments  measured  by   these
indices.

                INDEPENDENT ACCOUNTANTS
                           
     Price  Waterhouse LLP, 100 East Wisconsin  Avenue,
Suite  1500,  Milwaukee, Wisconsin  53202,  independent
accountants  for  the Funds, audit and  report  on  the
Funds' financial statements.

                 FINANCIAL STATEMENTS
                           
     The  following financial statements of each of the
Funds are contained herein:

          (a)  Report of Independent Accountants.

          (b)  Statement of Assets and Liabilities.

          (c)  Notes to the Financial Statement.
          
<PAGE>   
   
           REPORT OF INDEPENDENT ACCOUNTANTS
                           
                           
   To the Shareholder and Board of Directors of
     Badgley Funds, Inc.
   
   In our opinion, the accompanying statement of
   assets and liabilities presents fairly, in all
   material respects, the financial position of each
   of the portfolios of Badgley Funds, Inc. (the
   "Funds") at June 10, 1998, in conformity with
   generally accepted accounting principles.  This
   financial statement is the responsibility of the
   Fund's management; our responsibility is to express
   an opinion on this financial statement based on our
   audits.  We conducted our audits of this financial
   statement in accordance with generally accepted
   auditing standards which require that we plan and
   perform the audit to obtain reasonable assurance
   about whether the financial statement is free of
   material misstatement.  An audit includes
   examining, on a test basis, evidence supporting the
   amounts and disclosures in the financial statement,
   assessing the accounting principles used and
   significant estimates made by management, and
   evaluating the overall financial statement
   presentation.  We believe that our audits provide a
   reasonable basis for the opinion expressed above.
   
   
   
   
   
   Price Waterhouse LLP
   Milwaukee, Wisconsin
   June 10, 1998

<PAGE>
   
                  Badgley Funds, Inc.
          Statement of Assets and Liabilities
                     June 10, 1998



                                       Badgley      Badgley
                                       Growth      Balanced
                                        Fund         Fund
ASSETS

Cash                               $   50,000   $   50,000
Unamortized organization expenses      23,754       23,754

    Total Assets                       73,754       73,754

LIABILITIES

Accrued expenses                       23,754       23,754

    Total Liabilities                  23,754       23,754

NET ASSETS                         $   50,000   $   50,000

Capital shares, $0.01 par value; 
 indefinite shares authorized per 
 portfolio                              5,000        5,000

Net asset value, offering and 
 redemption price per share 
 (net assets/shares outstanding)    $   10.00    $   10.00

   The accompanying notes to the financial statement
        are an integral part of this statement.

<PAGE>
                           
                  Badgley Funds, Inc.
           Notes to the Financial Statement
                     June 10, 1998


1.   Organization
  
  Badgley Funds, Inc. (the "Corporation") was
  organized as a Maryland company incorporated on
  April 28, 1998 and is registered under the
  Investment Company Act of 1940, as amended (the
  "1940 Act") as an open-end, diversified, management
  investment company, commonly referred to as a mutual
  fund.  The Corporation is currently comprised of two
  diversified series or portfolios, including the
  Badgley Growth Fund (the "Growth Fund") and the
  Badgley Balanced Fund (the "Balanced Fund")
  (collectively referred to as the "Funds").  The
  Funds have had no operations other than those
  relating to organizational matters, including the
  sale of 5,000 shares for cash in the amount of
  $50,000 of each of the Growth Fund and the Balanced
  Fund to capitalize the Funds, which were sold to
  Badgley, Phelps and Bell, Inc. (the "Adviser") on
  June 9, 1998.
  
2.   Significant Accounting Policies

  (a)  Organization Costs
     Costs incurred by the Corporation in connection
     with the organization, registration and the
     initial public offering of shares, are being
     deferred and amortized over the period of
     benefit, but not to exceed sixty months from the
     Corporation's commencement of operations.  These
     costs were advanced by the Adviser and will be
     reimbursed by the Corporation.  The proceeds of
     any redemption of the initial shares by the
     original shareholder will be reduced by a pro-
     rata portion of any then unamortized
     organizational expenses in the same proportion as
     the number of initial shares being redeemed bears
     to the number of initial shares outstanding at
     the time of such redemption.
     
  (b)  Federal Income Taxes
     Each Fund intends to comply with the requirements
     of the Internal Revenue Code necessary to qualify
     as a regulated investment company and to make the
     requisite distributions of income and capital
     gains to their shareholders sufficient to relieve
     it from all or substantially all Federal income
     taxes.
     
3.   Investment Adviser

  The Corporation has an Investment Advisory Agreement
  (the "Agreement") with the Adviser, with whom
  certain officers and Directors of the Corporation
  are affiliated, to furnish investment advisory
  services to the Funds.  Under the terms of the
  Agreement, the Corporation, on behalf of the Funds,
  compensates the Adviser for its management services
  at the annual rate of 1.00% of the Growth Fund's
  average daily net assets and 0.90% of the Balanced
  Fund's average daily net assets.  The advisory fee
  is accrued daily and paid monthly.
  
  For the fiscal year ending June 30, 1999, the
  Adviser has agreed to waive its management fee
  and/or reimburse the Funds' other expenses to the
  extent necessary to ensure that the Growth Fund's
  total operating expenses do not exceed 1.50% of its
  average daily net assets and that the Balanced
  Fund's total operating expenses do not exceed 1.30%
  of its average daily net assets.  Any such waiver or

<PAGE>

  reimbursement is subject to later adjustment during
  the term of the Agreement to allow the Adviser to
  recoup amounts waived or reimbursed to the extent
  actual fees and expenses for a period are less than
  the expense limitation caps, provided, however, that
  the Adviser shall only be entitled to recoup such
  amounts for a period of three years from the date
  such amount was waived or reimbursed.
  
4.     Distribution and Shareholder Servicing Plan

  The Corporation, on behalf of each of the Funds, has
  adopted a plan pursuant to Rule 12b-1 under the 1940
  Act (the "12b-1 Plan"), which authorizes it to pay
  Rafferty Capital Markets, Inc. (the "Distributor") a
  distribution and shareholder servicing fee of 0.25%
  of each Fund's average daily net assets (computed on
  an annual basis).  All or a portion of the fee may
  be used by the Distributor to pay costs of printing
  reports and prospectuses for potential investors and
  the costs of other distribution and shareholder
  servicing expenses.

<PAGE>

                       APPENDIX
                           
                  SHORT-TERM RATINGS
                           
   Standard & Poor's Short-Term Debt Credit Ratings


     A  Standard  & Poor's credit rating is  a  current
opinion  of  the  creditworthiness of an  obligor  with
respect  to a specific financial obligation, a specific
class  of financial obligations or a specific financial
program.     It    takes    into   consideration    the
creditworthiness of guarantors, insurers or other forms
of  credit enhancement on the obligation and takes into
account  the  currency  in  which  the  obligation   is
denominated.  The credit rating is not a recommendation
to  purchase,  sell  or  hold a  financial  obligation,
inasmuch  as it does not comment as to market price  or
suitability for a particular investor.

     Credit  ratings  are based on current  information
furnished  by  the obligors or obtained by  Standard  &
Poor's   from  other  sources  it  considers  reliable.
Standard  &  Poor's  does  not  perform  an  audit   in
connection with any credit rating and may, on occasion,
rely   on  unaudited  financial  information.    Credit
ratings  may  be changed, suspended or withdrawn  as  a
result  of  changes  in,  or  unavailability  of,  such
information, or based on other circumstances.

     Short-term ratings are generally assigned to those
obligations  considered  short-term  in  the   relevant
market.    In   the  U.S.,  for  example,  that   means
obligations with an original maturity of no  more  than
365   days_including  commercial   paper.    Short-term
ratings  are also used to indicate the creditworthiness
of an obligor with respect to put features on long-term
obligations.  The result is a dual rating, in which the
short-term   rating  addresses  the  put  feature,   in
addition to the usual long-term rating.

     Ratings   are   graded  into  several  categories,
ranging  from `A-1' for the highest quality obligations
to  `D'  for  the  lowest.   These  categories  are  as
follows:

     A-1  A  short-term obligation rated `A-1' is rated
          in the highest category by Standard & Poor's.
          The  obligor's capacity to meet its financial
          commitment  on  the  obligation  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  A   short-term  obligation  rated   `A-2'  is
          somewhat  more  susceptible  to  the  adverse
          effects  of  changes  in  circumstances   and
          economic   conditions  than  obligations   in
          higher   rating  categories.   However,   the
          obligor's  capacity  to  meet  its  financial
          commitment on the obligation is satisfactory.
          
     A-3  A  short-term obligation rated `A-3' 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.
          
     B    A short-term obligation rated `B' is 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    A   short-term   obligation  rated   `C'   is
          currently  vulnerable to  nonpayment  and  is
          dependent  upon favorable business, financial
          and  economic conditions for the  obligor  to
          meet   its   financial  commitment   on   the
          obligation.
          
     D    A  short-term  obligation  rated  `D'  is  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 Standard
          &  Poor's believes that such payments will be
          made  during  such  

<PAGE>

          grace  period.   The  `D'
          rating also will 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 Short-Term Debt Ratings
                           
     Moody's  short-term debt ratings are  opinions  of
the  ability of issuers to repay punctually senior debt
obligations.   These  obligations  have   an   original
maturity  not  exceeding  one year,  unless  explicitly
noted.     Moody's    ratings   are    opinions,    not
recommendations to buy or sell, and their  accuracy  is
not guaranteed.

     Moody's  employs the following three designations,
all  judged  to  be investment grade, to  indicate  the
relative repayment ability of rated issuers:

PRIME-1   Issuers   rated   `Prime-1'  (or   supporting
          institutions)  have  a superior  ability  for
          repayment    of   senior   short-term    debt
          obligations.   Prime-1 repaying 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.
            
            Well-established access to a range of financial
            markets and assured sources of alternate liquidity.
            
PRIME-2   Issuers   rated   `Prime-2'  (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.
          
PRIME-3   Issuers   rated   `Prime-3'  (or   supporting
          institutions) have an acceptable ability  for
          repayment  of  senior short-term 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 rated `Not Prime' do not fall  within
          any of the Prime rating categories.
          
Fitch IBCA International Short-Term Debt Credit Ratings
                           
     Fitch IBCA's international debt credit ratings are
applied  to  the spectrum of corporate, structured  and
public   finance.   They  cover  sovereign   (including
supranational   and  subnational),   financial,   bank,
insurance   and  other  corporate  entities   and   the
securities they issue, as well as municipal  and  other
public   finance   entities,   securities   backed   by
receivables    or    other   financial    assets    and
counterparties.  When applied to an entity, these short-
term  ratings assess its general creditworthiness on  a
senior  basis.   When  applied to specific  issues  and
programs, these ratings take into account the  relative
preferential position of the holder of the security and
reflect  the terms, conditions and covenants  attaching
to that security.

     International credit ratings assess  the  capacity
to meet foreign currency or local currency commitments.
Both  "foreign  currency" and "local currency"  ratings
are  internationally comparable assessments.  The local
currency  rating  measures the probability  of  payment
within  the  relevant  sovereign state's  currency  and
jurisdiction 

<PAGE>

and therefore, unlike the foreign currency
rating,  does  not take account of the  possibility  of
foreign   exchange  controls  limiting  transfer   into
foreign currency.

     A  short-term  rating has a time horizon  of  less
than  12  months for most obligations, or up  to  three
years  for  U.S.  public finance securities,  and  thus
places  greater emphasis on the liquidity necessary  to
meet financial commitments in a timely manner.

     F-1  Highest   credit  quality.    Indicates   the
          strongest  capacity  for  timely  payment  of
          financial commitments; may have an added  "+"
          to  denote  any  exceptionally strong  credit
          feature.
          
     F-2  Good credit quality.  A satisfactory capacity
          for  timely payment of financial commitments,
          but  the margin of safety is not as great  as
          in the case of the higher ratings.
          
     F-3  Fair credit quality.  The capacity for timely
          payment of financial commitments is adequate;
          however,  near  term  adverse  changes  could
          result   in  a  reduction  to  non-investment
          grade.
          
     B    Speculative.   Minimal  capacity  for  timely
          payment   of   financial  commitments,   plus
          vulnerability to near term adverse changes in
          financial and economic conditions.
          
     C    High   default  risk.   Default  is  a   real
          possibility.  Capacity for meeting  financial
          commitments   is   solely  reliant   upon   a
          sustained,  favorable business  and  economic
          environment.
          
     D    Default.  Denotes actual or imminent  payment
          default.
          
      Duff & Phelps, Inc. Short-Term Debt Ratings
                           
     Duff  &  Phelps  Credit Ratings'  short-term  debt
ratings are consistent with the rating criteria used by
money  market participants.  The ratings apply  to  all
obligations   with  maturities  of  under   one   year,
including  commercial paper, the uninsured  portion  of
certificates  of deposit, unsecured bank loans,  master
notes,  bankers  acceptances,  irrevocable  letters  of
credit and current maturities of long-term debt.  Asset-
backed commercial paper is also rated according to this
scale.

     Emphasis  is placed on liquidity which is  defined
as  not  only cash from operations, but also access  to
alternative  sources of funds including  trade  credit,
bank  lines  and  the  capital markets.   An  important
consideration is the level of an obligor's reliance  on
short-term funds on an ongoing basis.

     The distinguishing feature of Duff & Phelps Credit
Ratings'  short-term debt ratings is the refinement  of
the  traditional `1' category.  The majority of  short-
term debt issuers carry the highest rating, yet quality
differences  exist within that tier.  As a consequence,
Duff & Phelps Credit Rating has incorporated gradations
of  `1+'  (one  plus) and `1-` (one  minus)  to  assist
investors in recognizing those differences.

     These ratings are recognized by the SEC for broker-
dealer  requirements, specifically capital  computation
guidelines.   These  ratings meet Department  of  Labor
ERISA  guidelines governing pension and profit  sharing
investments.   State  regulators  also  recognize   the
ratings  of  Duff & Phelps Credit Rating for  insurance
company investment portfolios.

Rating Scale:  Definition

          High Grade

D-1+      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       Very high certainty of timely payment.
          Liquidity factors are excellent and supported
          by good fundamental protection factors.  Risk
          factors are minor.

<PAGE>
          
D-1-      High certainty of timely payment.  Liquidity
          factors are strong and supported by good
          fundamental protection factors.  Risk factors
          are very small.
          
             Good Grade
     
D-2       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.
          
             Satisfactory Grade
     
D-3       Satisfactory liquidity and other protection
          factors qualify issue as to investment grade.
          Risk factors are larger and subject to more
          variation. Nevertheless, timely payment is
          expected.
          
             Non-investment Grade
     
D-4       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.
          
             Default
     
D-5       Issuer failed to meet scheduled principal
          and/or interest payments.
          
                   LONG-TERM RATINGS
                           
    Standard & Poor's Long-Term Debt Credit Ratings
                           
     A  Standard  & Poor's credit rating is  a  current
opinion  of  the  creditworthiness of an  obligor  with
respect  to a specific financial obligation, a specific
class  of financial obligations or a specific financial
program.     It    takes    into   consideration    the
creditworthiness of guarantors, insurers or other forms
of  credit enhancement on the obligation and takes into
account  the  currency  in  which  the  obligation   is
denominated.  The credit rating is not a recommendation
to  purchase,  sell  or  hold a  financial  obligation,
inasmuch  as it does not comment as to market price  or
suitability for a particular investor.

     Credit  ratings  are based on current  information
furnished  by  the obligors or obtained by  Standard  &
Poor's   from  other  sources  it  considers  reliable.
Standard  &  Poor's  does  not  perform  an  audit   in
connection with any credit rating and may, on occasion,
rely   on  unaudited  financial  information.    Credit
ratings  may  be changed, suspended or withdrawn  as  a
result  of  changes  in,  or  unavailability  of,  such
information, or based on other circumstances.

     Credit  ratings are based, in varying degrees,  on
the  following  considerations:   (1)   likelihood   of
payment_capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance
with  the terms of the obligation;  (2)  nature of  and
provisions  of  the  obligation;  and  (3)   protection
afforded  by, and relative position of, the  obligation
in  the  event of bankruptcy, reorganization  or  other
arrangement under the laws of bankruptcy and other laws
affecting creditors' rights.

     The  rating definitions are expressed in terms  of
default   risk.   As  such,  they  pertain  to   senior
obligations  of  an  entity.   Junior  obligations  are
typically  rated  lower  than  senior  obligations,  to
reflect  the  lower  priority  in  bankruptcy.    (Such
differentiation applies when an entity has both  senior
and  subordinated  obligations, secured  and  unsecured
obligations,  or operating company and holding  company
obligations.) Accordingly, in the case of junior  debt,
the  rating  may not conform exactly with the  category
definition.

     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.

<PAGE>
          
     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.
          
     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.
          
     Obligations rated `BB', `B', `CCC, `CC',  and  `C'
are   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   An  obligation rated `BB' is LESS  VULNERABLE
          to  nonpayment 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    An obligation rated `B' is MORE VULNERABLE to
          nonpayment 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  An   obligation  rated  `CCC'  is   CURRENTLY
          VULNERABLE  to nonpayment, 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 nonpayment.
          
     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.   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  Standard  &
          Poor's  believes that such payments  will  be
          made  during  such  grace  period.   The  `D'
          rating also will be used upon the filing of a
          bankruptcy  petition  or  the  taking  of   a
          similar  action if payments on an  obligation
          are jeopardized.
          
     Plus  (+) or minus (_):  The ratings from `AA'  to
`CCC'  may  be modified by the addition of  a  plus  or
minus  sign to show relative standing within the  major
rating categories.

            Moody's Long-Term Debt Ratings
                           
     Aaa  Bonds which are rated `Aaa' are judged to  be
          of the best quality.  They carry the smallest
          degree  of  investment risk and are generally
          referred   to  as  "gilt  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.
          
     Aa   Bonds  which are rated `Aa' are judged to  be
          of  high  quality by all standards.  Together
          with  the  Aaa group they comprise  what  are
          generally  known as high-grade  bonds.   They
          are  rated lower 

<PAGE>

          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 risk  appear
          somewhat larger than Aaa securities.

          
     A    Bonds  which  are  rated  `A'  possess   many
          favorable investment attributes and are to be
          considered as upper-medium-grade obligations.
          Factors  giving  security  to  principal  and
          interest   are   considered   adequate,   but
          elements  may  be  present  which  suggest  a
          susceptibility to impairment some time in the
          future.
          
     Baa  Bonds which are rated `Baa' 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   Bonds which are rated `Ba' are judged to have
          speculative elements; their future cannot  be
          considered   as  well-assured.    Often   the
          protection of interest and principal payments
          may  be  very moderate, and thereby not  well
          safeguarded  during both good and  bad  times
          over  the  future.  Uncertainty  of  position
          characterizes bonds in this class.
          
     B    Bonds  which  are  rated `B'  generally  lack
          characteristics of the desirable  investment.
          Assurance of interest and principal  payments
          or  of  maintenance  of other  terms  of  the
          contract over any long period of time may  be
          small.
          
     Caa  Bonds  which  are  rated `Caa'  are  of  poor
          standing.   Such issues may be in default  or
          there may be present elements of danger  with
          respect to principal or interest.
          
     Ca   Bonds   which   are  rated   `Ca'   represent
          obligations which are speculative in  a  high
          degree.  Such issues are often in default  or
          have other marked shortcomings.
          
     C    Bonds  which  are rated `C'  are  the  lowest
          rated class of bonds, and issues so rated can
          be   regarded   as   having  extremely   poor
          prospects   of   ever  attaining   any   real
          investment standing.
          
      Moody's applies numerical modifiers 1, 2 and 3 in
each  generic  rating classification from `Aa'  through
`B.'   The  modifier  1 indicates that  the  obligation
ranks in the higher end of its generic rating category;
the  modifier 2 indicates a mid-range ranking; and  the
modifier 3 indicates a ranking in the lower end of that
generic rating category.

Fitch IBCA International Long-Term Debt Credit Ratings
                           
     Fitch IBCA's international debt credit ratings are
applied  to  the spectrum of corporate, structured  and
public   finance.   They  cover  sovereign   (including
supranational   and  subnational),   financial,   bank,
insurance   and  other  corporate  entities   and   the
securities they issue, as well as municipal  and  other
public   finance   entities,   securities   backed   by
receivables    or    other   financial    assets    and
counterparties.  When applied to an entity, these long-
term  ratings assess its general creditworthiness on  a
senior  basis.   When  applied to specific  issues  and
programs, these ratings take into account the  relative
preferential position of the holder of the security and
reflect  the terms, conditions and covenants  attaching
to that security.

     International credit ratings assess  the  capacity
to meet foreign currency or local currency commitments.
Both  "foreign  currency" and "local currency"  ratings
are  internationally comparable assessments.  The local
currency  rating  measures the probability  of  payment
within  the  relevant  sovereign state's  currency  and
jurisdiction and therefore, unlike the foreign currency
rating,  does  not take account of the  possibility  of
foreign   exchange  controls  limiting  transfer   into
foreign currency.

<PAGE>

                   Investment Grade
                           
     AAA       Highest  credit quality.  `AAA'  ratings
               denote  the lowest expectation of credit
               risk.  They are assigned only in case of
               exceptionally strong capacity for timely
               payment of financial commitments.   This
               capacity  is  highly  unlikely   to   be
               adversely    affected   by   foreseeable
               events.
               
     AA        Very  high credit quality.  `AA' ratings
               denote  a very low expectation of credit
               risk.    They   indicate   very   strong
               capacity for timely payment of financial
               commitments.   This  capacity   is   not
               significantly vulnerable to  foreseeable
               events.
               
     A         High credit quality.  `A' ratings denote
               a  low expectation of credit risk.   The
               capacity for timely payment of financial
               commitments is considered strong.   This
               capacity  may,  nevertheless,  be   more
               vulnerable  to  changes in circumstances
               or  in  economic conditions than is  the
               case for higher ratings.
               
     BBB       Good   credit  quality.   `BBB'  ratings
               indicate that there is currently  a  low
               expectation   of   credit   risk.    The
               capacity for timely payment of financial
               commitments is considered adequate,  but
               adverse changes in circumstances and  in
               economic  conditions are more likely  to
               impair  this  capacity.   This  is   the
               lowest investment grade category.
               
                   Speculative Grade
                           
     BB        Speculative.  `BB' ratings indicate that
               there  is  a possibility of credit  risk
               developing, particularly as  the  result
               of  adverse  economic change over  time;
               however,     business    or    financial
               alternatives may be available  to  allow
               financial commitments to be met.
               
     B         Highly    speculative.    `B'    ratings
               indicate that significant credit risk is
               present, but a limited margin of  safety
               remains.    Financial  commitments   are
               currently  being met; however,  capacity
               for continued payment is contingent upon
               a   sustained,  favorable  business  and
               economic environment.
               
     CCC, CC, C      High default risk.  Default  is  a
               real  possibility.  Capacity for meeting
               financial commitments is solely  reliant
               upon  sustained, favorable  business  or
               economic  developments.  A  `CC'  rating
               indicates  that  default  of  some  kind
               appears  probable.  `C'  ratings  signal
               imminent default.
               
     DDD, DD and   D    Default.   Securities  are  not
               meeting  current  obligations  and   are
               extremely speculative.  `DDD' designates
               the  highest  potential for recovery  of
               amounts  outstanding on  any  securities
               involved.   For  U.S.  corporates,   for
               example,    `DD'   indicates    expected
               recovery   of   50%  -   90%   of   such
               outstandings,   and   `D'   the   lowest
               recovery potential, i.e. below 50%.
               
      Duff & Phelps, Inc. Long-Term Debt Ratings
                           
     These  ratings represent a summary opinion of  the
issuer's   long-term   fundamental   quality.    Rating
determination is based on qualitative and  quantitative
factors  which may vary according to the basic economic
and financial characteristics of each industry and each
issuer.  Important considerations are vulnerability  to
economic  cycles  as  well as  risks  related  to  such
factors  as competition, government action, regulation,
technological   obsolescence,   demand   shifts,   cost
structure  and  management depth  and  expertise.   The
projected viability of the obligor at the trough of the
cycle is a critical determination.

     Each rating also takes into account the legal form
of   the   security   (e.g.,  first   mortgage   bonds,
subordinated debt, preferred stock, etc.).  The  extent
of  rating  dispersion  among the  various  classes  of
securities  is determined by several factors  including
relative  weightings of the different security  classes
in  the  capital structure, the overall credit strength
of the issuer and the nature of covenant protection.

<PAGE>

     The  Credit Rating Committee formally reviews  all
ratings   once   per  quarter  (more   frequently,   if
necessary).   Ratings of `BBB-` and higher fall  within
the  definition  of  investment  grade  securities,  as
defined  by bank and insurance supervisory authorities.
Structured finance issues, including real estate, asset-
backed  and mortgage-backed financings, use  this  same
rating  scale.   Duff  &  Phelps Credit  Rating  claims
paying  ability ratings of insurance companies use  the
same  scale with minor modification in the definitions.
Thus,  an  investor can compare the credit  quality  of
investment    alternatives   across   industries    and
structural types.  A "Cash Flow Rating" (as  noted  for
specific   ratings)  addresses  the   likelihood   that
aggregate  principal and interest will equal or  exceed
the rated amount under appropriate stress conditions.

Rating Scale   Definition



AAA       Highest credit quality.  The risk factors are
          negligible, being only slightly more
          than for risk-free U.S. Treasury debt.


AA+        High credit quality.  Protection factors are
           strong.  Risk is modest but may
AA         vary  slightly from time to time because  of
           economic conditions.
AA-


A+         Protection factors are average but adequate.
           However, risk factors are more
A          variable and greater in periods of  economic
           stress.
A-


BBB+       Below-average protection factors  but  still
           considered sufficient for prudent
BBB        investment.  Considerable variability in risk
           during economic cycles.
BBB-


BB+        Below investment grade but deemed likely  to
           meet obligations when due.
BB         Present  or prospective financial protection
           factors fluctuate according to
BB-        industry  conditions  or  company  fortunes.
           Overall quality may move up or
           down frequently within this category.


B+         Below  investment grade and possessing  risk
           that obligations will not be met
B          when due.  Financial protection factors will
           fluctuate widely according to
B-         economic cycles, industry conditions  and/or
           company fortunes.  Potential
           exists  for frequent changes in  the  rating
           within this category or into a higher
           or lower rating grade.


CCC        Well  below  investment  grade  securities.
           Considerable uncertainty exists as to
           timely  payment  of principal,  interest  or
           preferred dividends.
           Protection factors are narrow and risk can be
           substantial with unfavorable
           economic/industry  conditions,  and/or  with
           unfavorable company developments.


DD         Defaulted debt obligations.  Issuer failed to
           meet scheduled principal and/or
           interest payments.

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DP        Preferred stock with dividend arrearages.




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