COMMON SENSE TRUST, 485APOS, 1997-12-24

COMMON SENSE TRUST
485APOS, 1997-12-24

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1997

REGISTRATION NOS. 33-11716
811-5018
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A

<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 19 [X]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 19 [X]
</TABLE>

COMMON SENSE TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)
ONE PARKVIEW PLAZA, OAKBROOK TERRACE, ILLINOIS 60181
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
(630) 684-6000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

RONALD A. NYBERG, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
VAN KAMPEN AMERICAN CAPITAL, INC.
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181
(NAME AND ADDRESS OF AGENT FOR SERVICE)

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

COPIES TO:

LEGAL COUNSEL

PFS DISTRIBUTORS, INC.
3120 BRECKINRIDGE BLVD., BLDG. 1200
DULUTH, GEORGIA 30199-0001
(770) 564-6141

CHRISTINA T. SYDOR

SMITH BARNEY MUTUAL FUNDS

MANAGEMENT INC.

388 GREENWICH STREET

NEW YORK, NEW YORK 10013

(212) 816-6474

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

Approximate Date of Proposed Public Offering: As soon as practicable following
effectiveness of this Registration Statement.

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

It is proposed that this filing will become effective:

[ ] immediately upon filing pursuant to paragraph (b)

[X] on February 27, 1998 pursuant to paragraph (b) of Rule 485

[ ] 60 days after filing pursuant to paragraph (a)(i)

[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485.

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Title of Securities Being Registered: Shares of Beneficial Interest, par value
$0.01 per share.

================================================================================
<PAGE> 2

COMMON SENSE TRUST

COMMON SENSE EMERGING GROWTH FUND
COMMON SENSE INTERNATIONAL EQUITY FUND
COMMON SENSE GROWTH FUND
COMMON SENSE GROWTH AND INCOME FUND
COMMON SENSE GOVERNMENT FUND
COMMON SENSE MUNICIPAL BOND FUND
COMMON SENSE MONEY MARKET FUND

CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
FORM N-1A ITEM
PART A PROSPECTUS CAPTION
-------------- ------------------
<C> <S> <C>
1. Cover Page................................. Cover Page
2. Synopsis................................... Prospectus Summary; Expense Synopsis
3. Condensed Financial Information............ Financial Highlights
4. General Description of Registrant.......... The Trust and its Management; Goals and
Investment Policies; Investment Practices
and Risks
5. Management of the Fund..................... The Trust and Its Management
6. Capital Stock and Other Securities......... Alternative Sales Arrangements; The Trust
and Its Management; Redemption of Shares;
Dividends, Distributions and Taxes;
Additional Information
7. Purchase of Securities Being Offered....... Alternative Sales Arrangements; Purchase of
Shares
8. Redemption or Repurchase................... Redemption of Shares
9. Pending Legal Proceedings.................. Inapplicable
</TABLE>

<TABLE>
<CAPTION>
PART B STATEMENT OF ADDITIONAL INFORMATION CAPTION
------ -------------------------------------------
<C> <S> <C>
10. Cover Page................................. Cover Page
11. Table of Contents.......................... Table of Contents
12. General Information and History............ General Information
13. Investment Objectives and Policies......... Goals and Investment Policies; Investment
Restrictions
14. Management of the Fund..................... General Information; Investment Advisory
Agreements
15. Control Persons and Principal Holders of
Securities............................... Trustees and Officers
16. Investment Advisory and Other Services..... Investment Advisory Agreements;
Distributor; Portfolio Transactions and
Brokerage; Other Information
17. Brokerage Allocation and Other Practices... Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities......... See Prospectus under captions Alternative
Sales Arrangements; The Trust and Its
Management; Redemption of Shares;
Dividends, Distributions and Taxes
19. Purchase, Redemption and Pricing of
Securities Being Offered................. Determination of Net Asset Value; Purchase
and Redemption of Shares; Alternative
Sales Arrangements
20. Tax Status................................. Dividends, Distributions and Federal Taxes
21. Underwriters............................... Distributor
22. Calculation of Performance Data............ Fund Performance
23. Financial Statements....................... Report of Independent Accountants;
Financial Statements; Notes to Financial
Statements
</TABLE>

PART C
- -----

Information required to be included in Part C is set forth under the
appropriate item in Part C of this registration statement.
<PAGE> 3

PROSPECTUS DATED FEBRUARY 27, 1998

Concert Investment Series Trust (the "Trust") is a diversified open-end
management investment company which offers shares in seven separate Funds which
are described in this Prospectus. The goals of such Funds are as follows:

Emerging Growth Fund, formerly known as Common Sense II Emerging
Growth Fund (the "Emerging Growth Fund"), seeks capital appreciation by
investing in a portfolio of securities consisting principally of common
stocks of small and medium sized companies considered by Van Kampen
American Capital Asset Management, Inc. to be emerging growth companies.

International Equity Fund, formerly known as Common Sense II
International Equity Fund (the "International Equity Fund"), seeks total
return on its assets from growth of capital and income. The Fund seeks to
achieve its goal by investing at least 65% of its assets in a diversified
portfolio of equity securities of established non-United States issuers.

Growth Fund (the "Growth Fund") seeks capital appreciation through
investments in common stocks and options on common stocks. Any income
realized on its investments will be purely incidental to its goal of
capital appreciation.

Growth and Income Fund (the "Growth and Income Fund") seeks reasonable
growth and income through investments in equity securities that provide
dividend or interest income, including common and preferred stocks and
securities convertible into common or preferred stocks.

Government Fund (the "Government Fund") seeks high current return
consistent with preservation of capital by investing in debt securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.

Municipal Bond Fund (the "Municipal Bond Fund") seeks as high a level
of current interest income exempt from federal income tax as is consistent
with the preservation of capital.

In seeking their respective goals, each Fund may engage in portfolio
management strategies and techniques involving options, futures contracts
and options on futures. See "Goals and Investment Policies."

There is no assurance that each Fund will be successful in achieving
its goals.

EACH FUND, EXCEPT THE INTERNATIONAL EQUITY FUND, WILL NOT PURCHASE ANY
SECURITIES ISSUED BY COMPANIES PRIMARILY ENGAGED IN THE MANUFACTURE OF
ALCOHOL OR TOBACCO.

This Prospectus tells investors briefly the information they should know
before investing in a Fund. Investors should read and retain this Prospectus for
future reference.

A Statement of Additional Information dated the same date as this
Prospectus has been filed with the Securities and Exchange Commission ("SEC"),
contains further information about the Funds and is available along with other
related materials at the SEC's internet web site (http://www.sec.gov). A copy of
the Statement of Additional Information may be obtained without charge by
writing PFS Distributors, Inc., 3100 Breckinridge Blvd., Bldg. 200, Duluth,
Georgia 30199-0001. The Statement of Additional Information is hereby
incorporated in its entirety by reference into this Prospectus. Please call
Customer Service at (800) 544-5445 for information on the Funds.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR STATE REGULATORS NOR HAS THE COMMISSION OR ANY STATE
REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 4

- --------------------------------------------------------------------------------
COMMON SENSE(R) TRUST
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
CUSTODIAN: INVESTMENT ADVISER:
PNC Bank, National Association Smith Barney Mutual Funds Management, Inc.
388 Greenwich Street
SUB-TRANSFER AGENT: New York, New York 10013
PFS Shareholder Services
3100 Breckinridge Blvd., Bldg. 200 DISTRIBUTOR:
Duluth, Georgia 30199-0062 PFS Distributors, Inc.
(800) 544-5445 3100 Breckinridge Blvd., Bldg. 200
(800) 544-7278 Spanish-speaking Representatives Duluth, Georgia 30199-0001
(800) 824-1721 TDD Service for Hearing Impaired
</TABLE>

- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Prospectus Summary................... 2
Expense Synopsis..................... 5
Financial Highlights................. 12
Introduction......................... 22
Goals and Investment Policies........ 22
Investment Practices and Risks....... 28
The Trust and Its Management......... 36
Alternative Sales Arrangements....... 37
Purchase of Shares................... 39
Distribution Plans................... 44
Shareholder Services................. 45
Redemption of Shares................. 48
Dividends, Distributions and Taxes... 49
Performance Information.............. 51
Additional Information............... 52
</TABLE>

NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY ANY FUND, THE ADVISER OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY ANY FUND OR BY THE DISTRIBUTOR TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR ANY FUND TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.

PROSPECTUS SUMMARY

TYPE OF COMPANY. The Trust is a diversified, open-end management investment
company which offers shares of beneficial interest in six separate Funds which
are described in this Prospectus: the Emerging Growth Fund, the International
Equity Fund, the Growth Fund, the Growth and Income Fund, the Government Fund
and the Municipal Bond Fund.

MINIMUM PURCHASE. $250 minimum initial investment and $25 for each subsequent
investment (or less as described under "Purchase of Shares").

GOALS. The Emerging Growth Fund seeks capital appreciation; the International
Equity Fund seeks total return on its assets from growth of capital and income;
the Growth Fund seeks capital appreciation; the Growth and Income Fund seeks
reasonable growth and income; the Government Fund seeks high current return
consistent with preservation of capital; and the Municipal Bond Fund seeks
current interest income exempt from federal income tax. There is, however, no
assurance that any Fund will be successful in achieving its goals.

INVESTMENT POLICIES AND RISKS. The EMERGING GROWTH FUND invests at least 65% of
its total assets in common stocks of small and medium sized companies (less than
$2 billion of market capitalization or annual sales), both domestic and foreign,
considered by the Adviser to be emerging growth companies. The companies in
which the Fund invests may offer greater opportunities for growth of capital
than larger, more established companies, but investments in such companies may
involve special risks. See "Goals and Investment Policies -- Emerging Growth
Fund" and "Investment Practices and Risks -- Foreign Securities." The use of
options, futures contracts and related options may include additional risks. See
"Investment Practices and Risks -- Options, Futures Contracts and Related
Options" and the Statement of Additional Information for a discussion of risk
factors relating to options and futures strategies.

2
<PAGE> 5

The INTERNATIONAL EQUITY FUND invests at least 65% of its assets in a
diversified portfolio of equity securities of established non-United States
issuers. Investing in equity securities of non-United States issuers may subject
the Fund to risks of foreign, political, economic and legal conditions and
developments. See "Goals and Investment Policies -- International Equity Fund,"
"Investment Practices and Risks -- Options, Futures Contracts and Related
Options, Currency Transactions, Interest Rate Transactions and Market Index
Transactions" and the Statement of Additional Information, for a discussion of
risk factors relating to these strategies.

The GROWTH FUND invests principally in common stocks that the investment adviser
believes provide unusually attractive growth opportunities and options on such
common stocks. Any income from these investments will be incidental to the
capital appreciation goal. The Fund may use portfolio management techniques and
strategies involving options, futures contracts and options on futures. The
utilization of options, futures contracts and options on futures contracts may
involve greater than ordinary investment risks and the likelihood of more
volatile price fluctuation. See "Goals and Investment Policies -- Growth Fund,"
"Investment Practices and Risks -- Using Options, Futures Contracts and Related
Options," and the Statement of Additional Information, for a discussion of risk
factors relating to options and futures strategies.

The GROWTH AND INCOME FUND invests principally in common and preferred stocks,
and in securities convertible into common and preferred stocks, that have
provided dividend or interest income to their security holders during the past
twelve months. The Fund may use portfolio management techniques and strategies
involving options, futures contracts and options on futures. The utilization of
options, futures contracts and options on futures contracts may involve greater
than ordinary investment risks and the likelihood of more volatile price
fluctuation. See "Goals and Investment Policies -- Growth and Income Fund,"
"Investment Practices and Risks -- Using Options, Futures Contracts and Related
Options," and the Statement of Additional Information, for a discussion of risk
factors relating to options and futures strategies.

The GOVERNMENT FUND invests in debt securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. The Fund may sell and purchase
options on U.S. Government securities; and purchase and sell interest rate
futures contracts and options on such contracts since such transactions are
entered into for bona fide hedging purposes. The market prices of debt
securities, including U.S. Government securities, generally fluctuate with
changes in interest rates so that the Fund's net asset value can be expected to
decrease as interest rates rise. See "Goals and Investment
Policies -- Government Fund." The Fund may also purchase or sell U.S. Government
securities on a forward commitment basis. See "Investment Practices and
Risks -- Options, Futures Contracts and Related Options" and "Forward
Commitments" and the Statement of Additional Information, for a discussion on
forward commitments and risk factors relating to options and futures strategies.

The MUNICIPAL BOND FUND invests in a diversified portfolio of obligations issued
by states, territories or possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, the
interest from which is exempt from federal income tax ("Municipal Bonds"). The
Fund will not purchase any "private activity bonds" subject to the alternative
minimum tax. See "Goals and Investment Policies -- Municipal Bond Fund." The
Fund invests primarily in long-term Municipal Bonds which tend to produce higher
yields and are subject to greater market fluctuations as a result of changes in
interest rates ("market risk") than Municipal Bonds with shorter maturities and
lower yields. At least 75% of the Fund's total assets will be invested in
Municipal Bonds rated "A" or higher. Lower rated securities are subject to
greater market risks and are also subject to the ability of the issuer to meet
its principal and interest obligations ("credit risk"). The Fund may acquire
stand-by commitments. Stand-by commitments involve an element of risk. See
"Investment Practices and Risks -- Stand-by Commitments." The Fund may seek to
hedge interest rate risk through transactions in listed futures contracts
related to U.S. Government securities, Municipal Bonds or to an index of
Municipal Bonds, and options on such contracts. Any net gains from futures and
options transactions are subject to federal income tax and such transactions may
involve certain risks. See "Investment Practices and Risks -- Options, Futures
Contracts and Related Options" and the Statement of Additional Information for
further discussion. The market prices of debt securities, including Municipal
Bonds, generally fluctuate with changes in interest rates so that the Fund's net
asset value can be expected to decrease as long-term interest rates rise and to
increase as long-term interest rates fall.
3
<PAGE> 6

Under certain market conditions, all Funds may experience a high rate of
portfolio turnover. Higher portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs. See "Investment Practices and
Risks -- Portfolio Turnover."

INVESTMENT ADVISER. Smith Barney Mutual Funds Management, Inc. (the "Adviser")
serves as the investment adviser to the Trust. See "The Trust and Its
Management."

DISTRIBUTOR. PFS Distributors, Inc. (the "Distributor") distributes each Fund's
shares.

ALTERNATIVE SALES ARRANGEMENTS. Each Fund offers two classes of shares to the
public, each with its own sales charge structure: Class A shares and Class B
shares. Each class has distinct advantages and disadvantages for different
investors, and investors may choose the class of shares that best suits their
circumstances and objectives. As of May 20, 1996, all of the previously
outstanding shares of the Growth Fund, the Growth and Income Fund, the
Government Fund and the Municipal Bond Fund were redesignated as Class 1 shares
without any other changes, and Class A and Class B shares were authorized for
issuance. As of May 20, 1996, Class 1 shares were authorized for issuance for
the Emerging Growth Fund and the International Equity Fund. Each Fund offers
Class 1 shares only to accounts of previously established shareholders or
members of a family unit comprising of husband, wife and minor children, and
Class 1 shareholders of other Common Sense Funds exchanging their Class 1 shares
for Class 1 shares of the Fund. Each class of shares represents an interest in
the same portfolio of investments of a Fund. See "Alternative Sales
Arrangements -- Factors for Consideration." For information on redeeming shares
see "Redemption of Shares."

Class A Shares. Class A shares of the Emerging Growth Fund, the International
Equity Fund, the Growth Fund and the Growth and Income Fund are offered at net
asset value per share plus a maximum initial sales charge of 5.00% of the
offering price. Class A shares of the Government Fund and Municipal Bond Fund
are offered at net asset value per share plus a maximum initial sales charge of
4.50%, of the offering price. Investments of $1 million or more are not subject
to any sales charge at the time of purchase, but a contingent deferred sales
charge of 1.00% may be imposed on redemptions made within one year of the
purchase. Each Fund pays an annual service fee at the rate of 0.25% of its
average daily net assets attributable to such class of shares. See "Purchase of
Shares -- Class A Shares" and "Distribution Plans."

Class B Shares. Class B shares of the Emerging Growth Fund, the International
Equity Fund, the Growth Fund and the Growth and Income Fund are offered at net
asset value per share and are subject to a maximum contingent deferred sales
charge of 5.00% of redemption proceeds during the first year, declining each
year thereafter to 0.00% after the fifth year. Class B shares of the Government
Fund and the Municipal Bond Fund are offered at net asset value per share and
are subject to a maximum contingent deferred sales charge of 4.50% of redemption
proceeds during the first year, declining each year thereafter to 0% after the
fifth year. See "Redemption of Shares." Each Fund pays a combined annual
distribution fee and service fee at the rate of 1.00% of its average daily net
assets attributable to such class of shares. See "Purchase of Shares -- Class B
Shares" and "Distribution Plans." Class B shares will convert automatically to
Class A shares eight years after the shareholder's order to purchase was
accepted. See "Alternative Sales Arrangements -- Conversion Feature."

Class 1 Shares. Class 1 shares are offered to the persons described above.
Class 1 shares of the Emerging Growth Fund, the International Equity Fund, the
Growth Fund and the Growth and Income Fund are offered at a sales charge of
8.50% of offering price; Class 1 shares of the Government Fund are offered at a
sales charge of 6.75% of offering price; and Class 1 shares of the Municipal
Bond Fund are offered at a sales charge of 4.75% of offering price. The sales
charge is reduced on investments of $10,000 or more for the Emerging Growth
Fund, the International Equity Fund, the Growth Fund and the Growth and Income
Fund, $25,000 or more for the Government Fund, and $100,000 or more for the
Municipal Bond Fund. See "Purchase of Shares -- Class 1 Shares."

DIVIDENDS AND DISTRIBUTIONS. The Emerging Growth Fund, the International Equity
Fund and the Growth Fund may declare and pay dividends and capital gain
distributions annually. The Growth and Income Fund may declare and pay dividends
quarterly and capital gain distributions annually. Income dividends are declared
each business day and paid monthly for the Government Fund and the Municipal
Bond Fund; any net short-term or long-term capital gains are distributed at
least annually. All dividends and distributions are automatically reinvested in
shares of a Fund at net asset value per share (without a sales charge) unless
payment in cash is requested. See "Dividends, Distributions and Taxes."

This summary is qualified in its entirety by reference to the more
detailed information appearing elsewhere in this Prospectus.
4
<PAGE> 7

- --------------------------------------------------------------------------------
EXPENSE SYNOPSIS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
EMERGING GROWTH FUND
----------------------------------------
CLASS 1 CLASS A CLASS B
SHARES SHARES SHARES
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales load imposed on purchases
(as a percentage of offering price)........... 8.50% 5.00% None
Maximum sales charge imposed on reinvestment of
dividends (as a percentage of offering
price)........................................ None None None
Maximum deferred sales charge (as a percentage
of the lesser of original purchase price or
redemption value)............................. None None 5.00%
Redemption fee.................................. None None None
Exchange fee.................................... None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees................................. 0.65% 0.65% 0.65%
12b-1 fees(a)................................... 0.00% 0.25% 1.00%(b)
Other expenses.................................. -- % -- % -- %
Total fund operating expenses................... -- % -- % -- %
</TABLE>

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

(a) 0.25% for Class A shares and 1.00% for Class B shares. See "Distribution
Plans."

(b) Individual long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted as a
Fund-level expense by NASD Rules.

5
<PAGE> 8

- --------------------------------------------------------------------------------
EXPENSE SYNOPSIS -- (CONTINUED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
---------------------------------
CLASS 1 CLASS A CLASS B
SHARES SHARES SHARES
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales load imposed on purchases
(as a percentage of offering price).................. 8.50% 5.00% None
Maximum sales charge imposed on reinvestment of
dividends (as a percentage of offering price)........ None None None
Maximum deferred sales charge (as a percentage of the
lesser of original purchase price or redemption
value)............................................... None None 5.00%
Redemption fee......................................... None None None
Exchange fee........................................... None None None
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets)
Management fees(a)..................................... 0.00% 0.00% 0.00%
12b-1 fees(b).......................................... 0.00% 0.25% 1.00%(c)
Other expenses(a)...................................... -- % -- % -- %
Total fund operating expenses(a)....................... -- % -- % -- %
</TABLE>

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

(a) After expense reimbursement. In the absence of such expense reimbursement,
management fees and other expenses would be 1.00% and 2.87%, respectively,
for all Classes of shares; total fund operating expenses would be 3.87%,
4.12%, and 4.87%, for Class 1, A, and B shares, respectively.

(b) 0.25% for Class A shares and 1.00% for Class B shares. See "Distribution
Plans."

(c) Individual long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted as a
Fund-level expense by NASD Rules.

6
<PAGE> 9

- --------------------------------------------------------------------------------
EXPENSE SYNOPSIS -- (CONTINUED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
GROWTH FUND
------------------------------------------
CLASS 1 CLASS A CLASS B
SHARES SHARES SHARES
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales load imposed on purchases
(as a percentage of offering price)..... 8.50% 5.50% None
Maximum sales charge imposed on
reinvestment of dividends (as a
percentage of offering price)........... None None None
Maximum deferred sales charge (as a
percentage of the lesser of original
purchase price or redemption value)..... None None 5.00%
Redemption fee............................ None None None
Exchange fee.............................. None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees........................... 0.60% 0.60% 0.60%
12b-1 fees(a)............................. 0.00% 0.25% 1.00%(b)
Other expenses............................ -- -- --
Total fund operating expenses............. -- -- --
</TABLE>

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

(a) 0.25% for Class A shares and 1.00% for Class B shares. See "Distribution
Plans."

(b) Individual long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted as a
Fund-level expense by NASD Rules.

7
<PAGE> 10

- --------------------------------------------------------------------------------
EXPENSE SYNOPSIS -- (CONTINUED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
GROWTH & INCOME FUND
------------------------------------------
CLASS 1 CLASS A CLASS B
SHARES SHARES SHARES
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales load imposed on purchases
(as a percentage of offering price)..... 8.50% 5.50% None
Maximum sales charge on imposed
reinvestment of dividends (as a
percentage of offering price)........... None None None
Maximum deferred sales charge (as a
percentage of the lesser of original
purchase price or redemption value)..... None None 5.00%
Redemption fee............................ None None None
Exchange fee.............................. None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees........................... 0.65% 0.65% 0.65%
12b-1 fees(a)............................. 0.00% 0.25% 1.00%(b)
Other expenses............................ -- -- --
Total fund operating expenses............. -- -- --
</TABLE>

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

(a) 0.25% for Class A shares and 1.00% for Class B shares. See "Distribution
Plans."

(b) Individual long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted as a
Fund-level expense by NASD Rules.

8
<PAGE> 11

- --------------------------------------------------------------------------------
EXPENSE SYNOPSIS -- (CONTINUED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
GOVERNMENT FUND
----------------------------------------
CLASS 1 CLASS A CLASS B
SHARES SHARES SHARES
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales load imposed on purchases
(as a percentage of offering price)........... -- % 4.50% None
Maximum sales charge imposed on reinvestment of
dividends (as a percentage of offering
price)........................................ None None None
Maximum deferred sales charge (as a percentage
of the lesser of original purchase price or
redemption value)............................. None None 4.50%
Redemption fee.................................. None None None
Exchange fee.................................... None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees................................. 0.60% 0.60% 0.60%
12b-1 fees(a)................................... 0.00% 0.25% 1.00%(b)
Other expenses.................................. -- % -- % -- %
Total fund operating expenses................... -- % -- % -- %
</TABLE>

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

(a) 0.25% for Class A shares and 1.00% for Class B shares. See "Distribution
Plans."

(b) Individual long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted as a
Fund-level expense by NASD Rules.

9
<PAGE> 12

- --------------------------------------------------------------------------------
EXPENSE SYNOPSIS -- (CONTINUED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
MUNICIPAL BOND FUND
----------------------------------------
CLASS 1 CLASS A CLASS B
SHARES SHARES SHARES
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales load imposed on purchases
(as a percentage of offering price)........... 4.75% 4.50% None
Maximum sales charge imposed on reinvestment of
dividends (as a percentage of offering
price)........................................ None None None
Maximum deferred sales charge (as a percentage
of the lesser of original purchase price or
redemption value)............................. None None 4.50%
Redemption fee.................................. None None None
Exchange fee.................................... None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees................................. 0.60% 0.60% 0.60%
12b-1 fees(a)................................... 0.00% 0.25% 1.00% (b)
Other expenses.................................. -- % -- % -- %
Total fund operating expenses................... -- % -- % -- %
</TABLE>

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

(a) 0.25% for Class A shares and 1.00% for Class B shares. See "Distribution
Plans."

(b) Individual long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted as a
Fund-level expense by NASD Rules.

10
<PAGE> 13

- --------------------------------------------------------------------------------
EXPENSE SYNOPSIS -- (CONTINUED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
EMERGING GROWTH INTERNATIONAL EQUITY
---------------------------- ----------------------------
ONE THREE FIVE TEN ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (i) total fund operating expenses as
reflected in the synopsis, (ii) a 5% annual return and (iii) redemption at the end of each time period:
Class 1.......................................
Class A.......................................
Class B....................................... * *
You would pay the following expenses on the same $1,000 investment assuming no redemption at the end of each
time period:
Class 1.......................................
Class A.......................................
Class B....................................... * *

<CAPTION>
GROWTH GROWTH & INCOME
---------------------------- ----------------------------
ONE THREE FIVE TEN ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
- -------------------------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (i) total fund operating expenses as
reflected in the synopsis, (ii) a 5% annual return and (iii) redemption at the end of each time period:
Class 1.......................................
Class A.......................................
Class B....................................... * *
You would pay the following expenses on the same $1,000 investment assuming no redemption at the end of each
time period:
Class 1.......................................
Class A.......................................
Class B....................................... * *

<CAPTION>
GOVERNMENT MUNICIPAL BOND
---------------------------- ----------------------------
ONE THREE FIVE TEN ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
- -------------------------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (i) total fund operating expenses as
reflected in the synopsis, (ii) a 5% annual return and (iii) redemption at the end of each time period:
Class 1.......................................
Class A.......................................
Class B....................................... * *
You would pay the following expenses on the same $1,000 investment assuming no redemption at the end of each
time period:
Class 1.......................................
Class A.......................................
Class B....................................... * *
</TABLE>

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

* Based on conversion to Class A shares after eight years.

The purpose of the foregoing table is to assist the investor in
understanding the various costs and expenses that an investor in any Fund will
bear directly or indirectly. The "Example" reflects expenses based on the
"Annual Fund Operating Expenses" table as shown herein carried out to future
years and is included to provide a means for the investor to compare expense
levels of funds with different fee structures over varying investment periods.
To facilitate such comparison, all funds are required by the SEC to utilize a
5.00% annual return assumption. Class B shares acquired through the exchange
privilege are subject to the contingent deferred sales charge schedule relating
to the Class B shares of the Fund from which the purchase of Class B shares was
originally made. Accordingly, future expenses as projected could be lower than
those determined in the tables herein if the investor's Class B shares were
exchanged from a fund with a lower contingent deferred sales charge. THE
INFORMATION CONTAINED IN THE ABOVE TABLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. For a more complete description of such costs and
expenses, see "Purchase of Shares," "The Trust and Its Management" and
"Redemption of Shares."

11
<PAGE> 14

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

FINANCIAL HIGHLIGHTS (SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST
OUTSTANDING THROUGHOUT EACH OF THE PERIODS INDICATED)

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

The following information has been audited by the Trust's independent
auditors, Ernst & Young LLP, whose report thereon was unqualified. This
information should be read in conjunction with the related financial statements
and notes thereto included in the Statement of Additional Information.

<TABLE>
<CAPTION>
EMERGING GROWTH FUND
------------------------------------------------------------------------------
CLASS 1 SHARES CLASS A SHARES
------------------------------ ---------------------------------------------
FEBRUARY 21, 1995
(COMMENCEMENT OF
YEAR AUGUST 8, 1996 YEAR YEAR INVESTMENT
ENDED (COMMENCEMENT OF ENDED ENDED OPERATIONS) TO
OCTOBER 31, DISTRIBUTION) TO OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 OCTOBER 31, 1996 1997 1996 1995(D)
----------- ---------------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................ $17.890 $ 15.12 $ 11.81
------- ------ ------- ------- ------
Net Investment Loss............... (.015) (.178) (.24)
Net Realized and Unrealized Gain
on Securities................... .718 3.632 3.55
------- ------ ------- ------- ------
Total from Investment Operations... .703 3.454 3.31
------- ------ ------- ------- ------
Net Asset Value, End of the
Period............................ $18.593 $18.574 $ 15.12
======= ====== ======= ======= ======
Total Return(a).................... 3.91%** 22.82% 28.11%**(c)
Net Assets at End of the Period (In
millions)......................... $ 0.7 $ 51.5 $ 15.9
Ratio of Expenses to Average Net
Assets*........................... 1.74% 2.21% 2.75%
Ratio of Net Investment Loss to
Average Net Assets*............... (1.09%) (1.52%) (1.65%)
Portfolio Turnover................. 80% 80% 83%**
Average Commission Paid Per Equity
Share Traded(b)................... $ .0498 $ .0498 --
Ratio of Expenses to Average Net
Assets 1.74% 2.21% 3.37%
Ratio of Net Investment Loss to
Average Net Assets (1.09%) (1.52%) (2.27%)

<CAPTION>
EMERGING GROWTH FUND
---------------------------------------------
CLASS B SHARES
---------------------------------------------
FEBRUARY 21, 1995
(COMMENCEMENT OF
YEAR YEAR INVESTMENT
ENDED ENDED OPERATIONS) TO
OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1995(D)
----------- ----------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................ $ 15.04 $ 11.81
------- ------- ------
Net Investment Loss............... (.270) (.35)
Net Realized and Unrealized Gain
on Securities................... 3.569 3.58
------- ------- ------
Total from Investment Operations... 3.299 3.23
------- ------- ------
Net Asset Value, End of the
Period............................ $18.339 $ 15.04
======= ======= ======
Total Return(a).................... 21.94% 27.43%**(c)
Net Assets at End of the Period (In
millions)......................... $ 39.1 $ 10.8
Ratio of Expenses to Average Net
Assets*........................... 2.96% 3.49%
Ratio of Net Investment Loss to
Average Net Assets*............... (2.27%) (2.45%)
Portfolio Turnover................. 80% 83%**
Average Commission Paid Per Equity
Share Traded(b)................... $ .0498 --
Ratio of Expenses to Average Net
Assets 2.96% 4.11%
Ratio of Net Investment Loss to
Average Net Assets (2.27%) (3.07%)
</TABLE>

** Non-annualized

(a) Total return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.

(b) Represents the average brokerage commissions paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.

(c) Total return from March 17, 1995 (date the Fund's investment strategy was
implemented) through October 31, 1995 without annualization.

(d) Based on average month-end shares outstanding

12
<PAGE> 15

<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
------------------------------------------------------------------------------
CLASS 1 SHARES CLASS A SHARES
------------------------------ ---------------------------------------------
FEBRUARY 21, 1995
AUGUST 8, 1996 (COMMENCEMENT OF
YEAR (COMMENCEMENT OF YEAR YEAR INVESTMENT
ENDED DISTRIBUTION) TO ENDED ENDED OPERATIONS) TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996(D) 1997 1996 1995(D)
----------- ---------------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................ $ 16.00 $ 13.86 $ 11.81
------- ------ ------- ------- ------
Net Investment Loss............... (.028) (.189) (.14)
Net Realized and Unrealized Gain
on Securities................... .545 2.872 2.19
------- ------ ------- ------- ------
Total from Investment Operations... .517 2.683 2.05
------- ------ ------- ------- ------
Net Asset Value, End of the
Period............................ $16.517 $16.543 $ 13.86
======= ====== ======= ======= ======
Total Return(a).................... 3.25%** 19.34% 16.28%**(c)
Net Assets at End of the Period (In
millions)......................... $ .2 $ 10.4 $ 6.6
Ratio of Expenses to Average Net
Assets*........................... 2.50% 2.75% 3.64%
Ratio of Net Investment Loss to
Average Net Assets*............... (1.31%) (1.56%) (1.40%)
Portfolio Turnover................. 78% 78% 17%**
Average Commission Paid Per Equity
Share Traded(b)................... $ .0314 $ .0314 --
* If certain expenses had not been waived or reimbursed by the Adviser, total return would have been lower and the
ratios would have been as follows:
Ratio of Expenses to Average Net
Assets............................ 3.87% 4.12% 5.97%
Ratio of Net Investment Loss to
Average Net Assets................ (2.67%) (2.92%) (3.73%)

<CAPTION>
INTERNATIONAL EQUITY FUND
---------------------------------------------
CLASS B SHARES
---------------------------------------------
FEBRUARY 21, 1995
(COMMENCEMENT OF
YEAR YEAR INVESTMENT
ENDED ENDED OPERATIONS) TO
OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1995(D)
----------- ----------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................ $ 13.79 $ 11.81
------- ------- ------
Net Investment Loss............... (.254) (.21)
Net Realized and Unrealized Gain
on Securities................... 2.828 2.19
------- ------- ------
Total from Investment Operations... 2.574 1.98
------- ------- ------
Net Asset Value, End of the
Period............................ $16.364 $ 13.79
======= ======= ======
Total Return(a).................... 18.64% 15.69%**(c)
Net Assets at End of the Period (In
millions)......................... $ 8.0 $ 2.7
Ratio of Expenses to Average Net
Assets*........................... 3.50% 4.33%
Ratio of Net Investment Loss to
Average Net Assets*............... (2.31%) (2.80%)
Portfolio Turnover................. 78% 17%**
Average Commission Paid Per Equity
Share Traded(b)................... $ .0314 --
* If certain expenses had not been waived or reimbursed by the Adviser, total return would have been lower and the
ratios would have been as follows:
Ratio of Expenses to Average Net
Assets............................ 4.87% 6.67%
Ratio of Net Investment Loss to
Average Net Assets................ (3.67%) (5.13%)
</TABLE>

** Non-annualized

(a) Total return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.

(c) Total return from March 17, 1995 (date the Fund's investment strategy was
implemented) through October 31, 1995 without annualization.

(d) Based on average month-end shares outstanding

13
<PAGE> 16

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS 1 SHARES -- YEAR ENDED OCTOBER 31,
GROWTH FUND ---------------------------------------------------------------
- ----------- 1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................ $ 17.46 $ 15.31 $ 16.26 $ 16.02 $ 15.47
-------- -------- -------- -------- -------- --------
Net Investment Income............. .187 .16 .13 .116 .13
Net Realized and Unrealized
Gain/Loss on Securities......... 2.916 3.18 .2075 2.0065 1.3925
-------- -------- -------- -------- -------- --------
Total from Investment Operations.... 3.103 3.34 .3375 2.1225 1.5225
-------- -------- -------- -------- -------- --------
Less:
Distributions from Net Investment
Income.......................... .183 .155 .1125 .115 .17
Distributions from and in Excess
of Net Realized Gain on
Securities...................... 2.403 1.035 1.175 1.7675 .8025
-------- -------- -------- -------- -------- --------
Total Distributions................. 2.586 1.19 1.2875 1.8825 .9725
-------- -------- -------- -------- -------- --------
Net Asset Value, End of the
Period............................ $ 17.977 $ 17.46 $ 15.31 $ 16.26 $ 16.02
======== ======== ======== ======== ======== ========
Total Return(a)..................... 19.94% 24.01% 2.04% 14.27% 9.83%
Net Assets at End of the Period (In
millions)......................... $3,005.2 $2,611.5 $2,169.9 $2,065.7 $1,648.0
Ratio of Expenses to Average Net
Assets............................ % .93% 1.00% 1.09% 1.14% 1.18%
Ratio of Net Investment Income to
Average Net Assets................ % 1.08% 1.04% .89% .80% .91%
Portfolio turnover.................. % 202% 230% 164% 166% 134%
Average Commission Paid Per Equity
Share Traded(b)................... $ .0602 -- -- -- --

<CAPTION>
CLASS 1 SHARES -- YEAR ENDED OCTOBER 31,
GROWTH FUND -----------------------------------------
- ----------- 1991 1990 1989 1988
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $ 11.26 $ 13.15 $ 10.81 $ 9.37
-------- -------- -------- --------
Net Investment Income............ .19 .205 .19 .10
Net Realized and Unrealized
Gain/Loss on Securities........ 4.2425 (1.25) 2.26 1.435
-------- -------- -------- --------
Total from Investment Operations... 4.4325 (1.045) 2.45 1.535
-------- -------- -------- --------
Less:
Distributions from Net Investment
Income......................... .2225 .2025 .11 --
Distributions from and in Excess
of Net Realized Gain on
Securities..................... -- .6425 -- .095
-------- -------- -------- --------
Total Distributions................ .2225 .845 .11 .095
-------- -------- -------- --------
Net Asset Value, End of the
Period........................... $ 15.47 $ 11.26 $ 13.15 $ 10.81
======== ======== ======== ========
Total Return(a).................... 39.90% (8.73%) 22.90% 16.51%
Net Assets at End of the Period (In
millions)........................ $1,311.5 $ 866.1 $ 767.8 $ 492.2
Ratio of Expenses to Average Net
Assets........................... 1.26% 1.53% 1.63% 1.93%
Ratio of Net Investment Income to
Average Net Assets............... 1.44% 1.79% 1.75% 1.30%
Portfolio turnover................. 100% 99% 101% 63%
Average Commission Paid Per Equity
Share Traded(b).................. -- -- -- --
</TABLE>

(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

(b) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.

14
<PAGE> 17

<TABLE>
<CAPTION>
GROWTH FUND CLASS A SHARES CLASS B SHARES
- ----------- --------------------------------------- ---------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996(c) OCTOBER 31, 1997 OCTOBER 31, 1996(c)
---------------- ------------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period... $16.630 $16.630
------- ------- ------- -------
Net Investment Income.................... .017 (.011)
Net Realized and Unrealized Gain on
Securities............................. 1.312 1.309
------- ------- ------- -------
Total from Investment Operations........... 1.329 1.298
------- ------- ------- -------
Net Asset Value, End of the Period......... $17.959 $17.928
======= ======= ======= =======
Total Return(a)............................ 8.00%* 7.82%*
Net Assets at End of the Period (In
millions)................................ $49.3 $74.1
Ratio of Expenses to Average Net Assets.... 1.17% 1.93%
Ratio of Net Investment Income/Loss to
Average Net Assets....................... .46% (.29%)
Portfolio Turnover......................... 202% 202%
Average Commission Paid Per Equity Share
Traded(b)................................ $.0602 $.0602
</TABLE>

* Non-Annualized
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
(c) Class A and Class B shares commenced distribution on August 8, 1996.

15
<PAGE> 18

<TABLE>
<CAPTION>
GROWTH AND INCOME FUND CLASS 1 SHARES -- YEAR ENDED OCTOBER 31,
---------------------- ---------------------------------------------------------------
1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.......... $16.95 $15.77 $17.13 $15.54 $14.70
-------- -------- -------- -------- -------- --------
Net Investment Income........................... .308 .36 .29 .29 .275
Net Realized and Unrealized Gain/Loss on
Securities.................................... 2.943 2.715 (.2125) 1.8775 1.2875
-------- -------- -------- -------- -------- --------
Total From Investment Operations.................. 3.251 3.075 .0775 2.1675 1.5625
-------- -------- -------- -------- -------- --------
Less:
Distributions from Net Investment Income........ .340 .30 .275 .2775 .295
Distributions from Net Realized Gain on
Securities.................................... 1.755 1.595 1.1625 .30 .4275
-------- -------- -------- -------- -------- --------
Total Distributions............................... 2.095 1.895 1.4375 .5775 .7225
-------- -------- -------- -------- -------- --------
Net Asset Value, End of the Period................ $18.106 $16.95 $15.77 $17.13 $15.54
======== ======== ======== ======== ======== ========
Total Return(a)................................... 20.58% 22.45% .51% 14.13% 10.85%
Net assets at End of the Period (In millions)..... $942.9 $828.3 $712.9 $712.4 $591.0
Ratio of Expenses to Average Net Assets........... .91% .96% 1.02% 1.05% 1.09%
Ratio of Net Investment Income to Average Net
Assets.......................................... 1.78% 2.27% 1.84% 1.76% 1.84%
Portfolio Turnover................................ 121% 117% 88% 51% 32%
Average Commission Paid per Equity Share
Traded(b)....................................... $ .056 -- -- -- --

<CAPTION>
GROWTH AND INCOME FUND CLASS 1 SHARES -- YEAR ENDED OCTOBER 31,
---------------------- -------------------------------------------
1991 1990 1989 1988
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.......... $11.49 $12.51 $10.49 $9.84
-------- -------- -------- ----------
Net Investment Income........................... .305 .305 .31 .27
Net Realized and Unrealized Gain/Loss on
Securities.................................... 3.2225 (.9975) 2.00 .655
-------- -------- -------- ----------
Total From Investment Operations.................. 3.5275 (.6925) 2.31 .925
-------- -------- -------- ----------
Less:
Distributions from Net Investment Income........ .3175 .325 .29 .24
Distributions from Net Realized Gain on
Securities.................................... -- .0025 -- .035
-------- -------- -------- ----------
Total Distributions............................... .3175 .3275 .29 .275
-------- -------- -------- ----------
Net Asset Value, End of the Period................ $14.70 $11.49 $12.51 $10.49
======== ======== ======== ==========
Total Return(a)................................... 31.68% (5.84%) 22.38% 9.55%
Net assets at End of the Period (In millions)..... $499.6 $366.6 $278.4 $168.0
Ratio of Expenses to Average Net Assets........... 1.14% 1.37% 1.39% 1.57%
Ratio of Net Investment Income to Average Net
Assets.......................................... 2.29% 2.55% 2.81% 3.04%
Portfolio Turnover................................ 42% 48% 26% 64%
Average Commission Paid per Equity Share
Traded(b)....................................... -- -- -- --
</TABLE>

(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

16
<PAGE> 19

<TABLE>
<CAPTION>
GROWTH & INCOME FUND CLASS A SHARES CLASS B SHARES
- -------------------- ------------------------------------------ ----------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996(c) OCTOBER 31, 1997 OCTOBER 31, 1996(c)
---------------- ------------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period......................... $17.190 $17.190
------- ------- ------- -------
Net Investment Income.......... .071 .042
Net Realized and Unrealized
Gain on Securities........... .906 .899
------- ------- ------- -------
Total from Investment
Operations..................... .977 .941
------- ------- ------- -------
Less Distributions from Net
Investment Income.............. .062 .044
Net Asset Value, End of the
Period......................... $18.105 $18.087
======= ======= ======= =======
Total Return(a).................. 5.72%* 5.49%*
Net Assets at End of the Period
(In millions).................. $32.5 $52.1
Ratio of Expenses to Average Net
Assets......................... 1.16% 1.91%
Ratio of Net Investment Income to
Average Net Assets............. 1.78% 1.05%
Portfolio Turnover............... 121% 121%
Average Commission Paid Per
Equity Share Traded(b)......... $.056 $.056
</TABLE>

* Non-Annualized
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable.
(c) Class A and Class B shares commenced distribution on August 8, 1996.

17
<PAGE> 20

<TABLE>
<CAPTION>
CLASS 1 SHARES -- YEAR ENDED OCTOBER 31,
GOVERNMENT FUND ----------------------------------------------------------------------------------------------
- --------------- 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------ ------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period......................... $10.67 $9.99 $11.80 $11.56 $11.47 $10.79 $11.46 $11.13 $11.08
------- ------- ------- ------ ------ ------ ------ ------ ------ --------
Net Investment Income.......... .701 .70 .69 .7616 .86 .905 .955 1.03 .94
Net Realized and Unrealized
Gain/Loss on Securities...... (.247) .6779 (1.358) .4249 .1639 .6788 (.4421) .3274 .0436
------- ------- ------- ------ ------ ------ ------ ------ ------ --------
Total from Investment
Operations..................... .454 1.3779 (.668) 1.1865 1.0239 1.5838 .5129 1.3574 .9836
------- ------- ------- ------ ------ ------ ------ ------ ------ --------
Less:
Distributions from and in
excess of Net Investment
Income....................... .718 .6979 .6878 .7615 .8639 .9038 .9579 1.0274 .9336
Distributions from and in
excess of Net Realized Gain
on Securities................ -0- -0- .4542 .185 .07 -0- .225 -0- -0-
------- ------- ------- ------ ------ ------ ------ ------ ------ --------
Total Distributions.............. .718 .6979 1.142 .9465 .9339 .9038 1.1829 1.0274 .9336
------- ------- ------- ------ ------ ------ ------ ------ ------ --------
Net Asset Value, End of Period... $10.406 $10.67 $9.99 $11.80 $11.56 $11.47 $10.79 $11.46 $11.13
======= ======= ======= ====== ====== ====== ====== ====== ====== ========
Total Return(a).................. 4.58% 14.27% (5.45%) 10.55% 9.32% 15.16% 4.94% 12.87% 9.20%
Net Assets at End of the Period
(In millions).................. $287.4 $329.0 $335.0 $370.2 $282.0 $189.0 $140.9 $101.0 $70.6
Ratios of Expenses to Average Net
Assets......................... .84% .83% .89% .89% .95% .96% 1.09% 1.20% 1.44%
Ratio of Net Investment Income to
Average Net Assets............. 6.79% 6.84% 7.06% 7.35% 7.46% 8.15% 8.78% 9.29% 8.55%
Portfolio Turnover............... 276% 214% 256% 218% 112% 39% 28% 29% 51%
</TABLE>

(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

18
<PAGE> 21

<TABLE>
<CAPTION>
GOVERNMENT FUND CLASS A SHARES CLASS B SHARES
- --------------- ------------------------------------------ ------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996(b) OCTOBER 31, 1997 OCTOBER 1996(b)
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................... $ 10.32 $ 10.32
------- ------- ------- -------
Net Investment Income................ .152 .137
Net Realized and Unrealized Gain on
Securities......................... .090 .090
------- ------- ------- -------
Total from Investment Operations....... .242 .227
Less Distributions from and in Excess
of Net Investment Income............. .151 .136
------- ------- ------- -------
Net Asset Value, End of the Period..... $10.411 $10.411
======= ======= ======= =======
Total Return(a)........................ 2.36%* 2.18%*
Net Assets at End of the Period (In
millions)............................ $ 11.1 $ 13.9
Ratio of Expenses to Average Net
Assets............................... 1.09% 1.84%
Ratio of Net Investment Income to
Average Net Assets................... 6.50% 5.74%
Portfolio Turnover..................... 276% 276%
</TABLE>

* Non-Annualized
(a) Total return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(b) Class A and Class B shares commenced distribution on August 8, 1996.

19
<PAGE> 22

<TABLE>
<CAPTION>
MUNICIPAL BOND FUND CLASS 1 SHARES -- YEAR ENDED OCTOBER 31,
- ------------------- ------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988(b)
------- ------ ------ ------- ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................. $13.77 $12.89 $ 14.07 $13.03 $12.84 $12.18 $12.37 $12.26 $11.91
------- ------ ------ ------- ------ ------ ------ ------ ------ ------
Net Investment Income.............. .704 .74 .71 .728 .725 .76 .76 .77 .19
Net Realized and Unrealized
Gain/Loss on Securities.......... .111 .867 (1.182) 1.038 .2175 .648 (.185) .10 .315
------- ------ ------ ------- ------ ------ ------ ------ ------ ------
Total from Investment Operations..... .815 1.607 (.472) 1.766 .9425 1.408 .575 .87 .505
------- ------ ------ ------- ------ ------ ------ ------ ------ ------
Less:
Distributions from Net Investment
Income........................... .713 .727 .708 .726 .7525 .748 .765 .76 .155
Distributions from and in Excess of
Net Realized Gain on
Securities....................... .043 .000 .000 .000 .000 .000 .000 .000 .000
------- ------ ------ ------- ------ ------ ------ ------ ------ ------
Total Distributions.................. .756 .727 .708 .726 .7525 .748 .765 .76 .155
------- ------ ------ ------- ------ ------ ------ ------ ------ ------
Net Asset Value, End of the Period... $3.829 $13.77 $ 12.89 $14.07 $13.03 $12.84 $12.18 $12.37 $12.26
======= ====== ====== ======= ====== ====== ====== ====== ====== ======
Total Return(a)...................... 6.09% 12.72% (3.38%) 13.84% 7.57% 11.79% 4.77% 7.31% 4.26%*
Net Assets at End of the Period (In
millions).......................... $118.7 $119.1 $ 112.1 $ 95.9 $ 60.3 $ 42.5 $ 37.1 $ 24.7 $ 6.4
Ratio of Expenses to Average Net
Assets............................. 1.05% .96% .99% .96% 1.14% 1.15% 1.25% 1.25% 1.91%
Ratio of Net Investment Income to
Average Net Assets................. 5.13% 5.58% 5.27% 5.29% 5.56% 6.08% 6.21% 6.28% 5.55%
Portfolio Turnover................... 80% 49% 4% 4% 6% 1% 4% 0% 5%*
</TABLE>

* Non-Annualized

(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

(b) Fund commenced investment operations on July 13, 1988.

20
<PAGE> 23

<TABLE>
<CAPTION>
MUNICIPAL BOND FUND CLASS A SHARES CLASS B SHARES
- ------------------- ------------------------------------------ ------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996(B) OCTOBER 31, 1997 OCTOBER 31, 1996(B)
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................... $13.780 $13.780
------- ------- ------- -------
Net Investment Income.................. .106 .091
Net Realized and Unrealized Gain on
Securities......................... .045 .038
------- ------- ------- -------
Total from Investment Operations....... .151 .129
Less Distributions from and in Excess
of Net Investment Income............. .104 .087
------- ------- ------- -------
Net Asset Value, End of the Period..... $13.827 $13.822
======= ======= ======= =======
Total Return(a)........................ 1.12%* .93%*
Net Assets at End of the Period (In
millions)............................ $ 2.1 $ 0.7
Ratio of Expenses to Average Net
Assets............................... 1.30% 2.05%
Ratio of Net Investment Income to
Average Net Assets................... 4.82% 4.06%
Portfolio Turnover..................... 80% 80%
</TABLE>

21
<PAGE> 24

- --------------------------------------------------------------------------------
INTRODUCTION
- --------------------------------------------------------------------------------

The Trust is a duly organized Massachusetts business trust with six
separate Funds which are described in this Prospectus. Each Fund has separate
assets and liabilities and a separate net asset value per share. Shares of a
Fund represent an interest only in the assets of that Fund. Since market risks
are inherent in all securities to varying degrees, assurance cannot be given
that the goal of any of the Funds will be met.

- --------------------------------------------------------------------------------
GOALS AND INVESTMENT POLICIES
- --------------------------------------------------------------------------------

Although each Fund of the Trust has a different goal which it pursues
through separate investment policies described below, each Fund, except the
International Equity Fund, will not purchase any securities issued by any
company primarily engaged in the manufacture of alcohol or tobacco. The
differences in goals and investment policies among the Funds can be expected to
affect the return of each Fund and the degree of market and financial risk to
which each Fund is subject. The goal and investment policies, the percentage
limitations, and the kinds of securities in which each Fund may invest are
generally not fundamental policies and may be changed by the Trustees, unless
expressly governed by those limitations as described under "Investment Practices
and Risks" which can be changed only by action of the shareholders.

EMERGING GROWTH FUND

The goal of the Emerging Growth Fund is to seek capital appreciation by
investing in a portfolio of securities consisting principally of common stocks
of small and medium sized companies considered by the Adviser to be emerging
growth companies. Any ordinary income received from portfolio securities is
entirely incidental. There can, of course, be no assurance that the objective of
capital appreciation will be realized; therefore, full consideration should be
given to the risks inherent in the investment techniques that the Adviser may
use to achieve such objective.

Under normal conditions, the Fund invests at least 65% of its total assets
in common stocks of small and medium sized companies, both domestic and foreign,
in the early stages of their life cycle that the Adviser believes have the
potential to become major enterprises. Investments in such companies may offer
greater opportunities for growth of capital than larger, more established
companies, but also may involve certain special risks. Emerging growth companies
often have limited product lines, markets, or financial resources, and they may
be dependent upon one or a few key people for management. The securities of such
companies may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general. While the Fund will invest primarily in common stocks, to a limited
extent, it may invest in other securities such as preferred stocks, convertible
securities and warrants.

The Fund does not limit its investment to any single group or type of
security. The Fund may also invest in special situations involving new
management, special products and techniques, unusual developments, mergers or
liquidations. Investments in unseasoned companies and special situations often
involve much greater risks than are inherent in ordinary investments, because
securities of such companies may be more likely to experience unexpected
fluctuations in price.

The Fund's primary approach is to seek what the Adviser believes to be
unusually attractive growth investments on an individual company basis. The Fund
may invest in securities that have above average volatility of price movement.
Because prices of common stocks and other securities fluctuate, the value of an
investment in the Fund will vary based upon the Fund's investment performance.
The Fund attempts to reduce overall exposure to risk from declines in securities
prices by spreading its investments over many different companies in a variety
of industries. There is, however, no assurance that the Fund will be successful
in achieving its objective.

The Fund may hold a portion of its assets in high grade short-term debt
securities and high grade corporate or government bonds in order to provide
liquidity. Such investments may be increased by the Fund up to 100% of its
assets, when deemed appropriate by the Adviser for temporary defensive purposes.
Short-term investments may include repurchase agreements with banks or
broker-dealers. See "Investment Practices and Risks -- Repurchase Agreements."
The Fund may invest up to 20% of its total assets in securities of foreign
issuers. See "Investment Practices and Risks -- Securities of Foreign Issuers."

INTERNATIONAL EQUITY FUND

The goal of the International Equity Fund is to seek total return on its
assets from growth of capital and income. The Fund seeks to achieve its goal by
investing at least 65% of its assets in a diversified portfolio of equity
securities of established non-United States issuers.

Under normal market conditions, the Fund invests at least 65% of its total
assets in a diversified portfolio of equity securities consisting of dividend
and non-dividend paying common stock, preferred stock, convertible debt and
rights and

22
<PAGE> 25

warrants to such securities and up to 35% of the Fund's assets in bonds, notes
and debt securities (consisting of securities issued in the Eurocurrency markets
or obligations of the United States or foreign governments and their political
subdivisions) of established non-United States issuers. Investments may be made
for capital appreciation or for income or any combination of both for the
purpose of achieving a higher overall return than might otherwise be obtained
solely from investing for growth of capital or for income. There is no
limitation on the percentage or amount of the Fund's assets which may be
invested for growth or income and, therefore, from time to time the investment
emphasis may be placed solely or primarily on growth of capital or solely or
primarily on income.

In seeking to achieve its goal, the Fund presently expects to invest its
assets primarily in common stocks of established non-United States companies
which in the opinion of the Adviser have potential for growth of capital.
However, there is no requirement that the Fund invest exclusively in common
stocks or other equity securities and, if deemed advisable, the Fund may invest
up to 35% of its assets in bonds, notes and other debt securities (including
securities issued in the Eurocurrency markets or obligations of the United
States or foreign governments and their political subdivisions). When the
Adviser believes that the return on debt securities will equal or exceed the
return on common stocks, the Fund may, in seeking its goal of total return,
substantially increase its holdings (up to a maximum of 35% of its assets) in
such debt securities. In determining whether the Fund will be invested for
capital appreciation or for income or any combination of both, the Adviser
regularly analyzes a broad range of international equity and fixed income
markets in order to assess the degree of risk and level of return that can be
expected from each market.

The Fund will generally invest its assets broadly among countries and will
normally have represented in the portfolio business activities in not less than
three different foreign countries. Except as stated below, the Fund will invest
at least 65% of its assets in companies organized or governments located in any
area of the world other than the United States, such as the Far East (e.g.,
Japan, Hong Kong, Singapore, Malaysia), Western Europe (e.g., United Kingdom,
Germany, The Netherlands, France, Italy, Switzerland), Eastern Europe (e.g.,
Hungary, Poland, The Czech Republic and the countries of the former Soviet
Union), Central and South America (e.g., Mexico, Chile and Venezuela),
Australia, Canada and such other areas and countries as the Adviser may
determine from time to time. Allocation of the Fund's investments will depend
upon the relative attractiveness of the international markets and particular
issuers. Concentration of the Fund's assets in one or a few countries or
currencies will subject the Fund to greater risks than if the Fund's assets were
not geographically concentrated.

Under unusual economic or market conditions as determined by the Adviser,
for defensive purposes the Fund may temporarily invest all or a major portion of
its assets in U.S. Government securities or in debt or equity securities of
companies incorporated in and having their principal business activities in the
United States. To the extent the Fund's assets are invested for temporary
defensive purposes, such assets will not be invested in a manner designed to
achieve the Fund's investment goal.

In determining the appropriate distribution of investments among various
countries and geographic regions, the Adviser ordinarily considers the following
factors: prospects for relative economic growth between countries; expected
levels of inflation; government policies influencing business conditions; the
outlook for currency relationships; and the range of individual investment
opportunities available to international investors. In the future, if any other
relevant factors arise they will also be considered. In analyzing companies for
investment, the Adviser ordinarily looks for one or more of the following
characteristics: an above-average earnings growth per share; high return on
invested capital; healthy balance sheet; sound financial and accounting policies
and overall financial strength; strong competitive advantages; effective
research and product development and marketing; efficient service; pricing
flexibility; strength of management; and general operating characteristics which
will enable the company to compete successfully in its market place. Ordinarily,
the Adviser will not view a company as being sufficiently well established to be
considered for inclusion in the Fund's portfolio's unless the company, together
with any predecessors, has been operating for at least three fiscal years.
However, the Fund may invest up to 5% of its assets in such "unseasoned"
issuers.

It is expected that portfolio securities will ordinarily be traded on a
stock exchange or other market in the country in which the issuer is principally
based, but may also be traded on markets in other countries including, in many
cases, the United States securities exchanges and over-the-counter markets.

To the extent that the Fund's assets are not otherwise invested as
described above, the assets may be held in cash, in any currency, or invested in
United States as well as foreign high quality money market instruments and
equivalents.

GROWTH FUND

The goal of the Growth Fund is to seek capital appreciation through
investments in common stocks and options on common stocks. Any income realized
on its investments will be purely incidental to its goal of capital
appreciation.

23
<PAGE> 26

believes either: (1) experienced above-average and consistent long-term growth
of earnings and have excellent prospects for outstanding future growth in
earnings; (2) are presently experiencing or expected to have a material increase
in profits and sales; (3) are undervalued either in that such securities are
selling at prices that do not reflect the current market value of its securities
and there is reason to expect realization of this potential in the form of
increased equity values or that the potential improving prospects of the
security is not reflected in the price of the security; (4) will experience a
fundamental change in structure that potentially may result in higher earnings;
or (5) will produce new products, new services or new processes. The Fund may
invest in options and other securities that have above average volatility of
price movement. Because prices of common stocks, options and other investments
fluctuate, the value of an investment in the Fund will vary based upon the
Fund's investment performance. The Fund attempts to reduce overall exposure to
risk from declines in securities prices by spreading its investments over many
different companies in a variety of industries and by using stock index options
and stock index futures and options thereon, as discussed in the Statement of
Additional Information. There is no assurance that the Fund will be successful
in achieving its goal.

The Fund may hold a portion of its assets in high grade short-term debt
securities and high grade corporate or government bonds in order to provide
liquidity. The amount of assets the Fund may hold for liquidity purposes is
based on market conditions and the need to meet redemption requests. Such
investments may be increased by the Fund, up to 100% of its assets, when deemed
appropriate by the Adviser for temporary defensive purposes. A description of
the ratings of commercial paper and bonds is contained in the Appendix to the
Statement of Additional Information. Short-term investments may include
repurchase agreements with banks or broker-dealers. See "Investment Practices
and Risks -- Repurchase Agreements."

Certain policies of the Fund, such as purchasing and selling options on
stocks, purchasing options on stock indices and purchasing stock index futures
contracts and options thereon involve inherently greater investment risk and
could result in more volatile price fluctuations. Options, futures contracts and
related options are described in "Investment Practices and Risks -- Options,
Futures Contracts and Related Options" and the Statement of Additional
Information. The Fund may also invest up to 20% of its total assets in
securities of foreign issuers and in investment companies. See "Investment
Practices and Risks -- Securities of Foreign Issuers" and "Investment in
Investment Companies." Since the Fund may take substantial risks in seeking its
goal of capital appreciation, it is not suitable for investors unable or
unwilling to assume such risks.

GROWTH AND INCOME FUND

The goal of the Growth and Income Fund is to seek reasonable growth and
income through investments in equity securities that provide dividend or
interest income, including common and preferred stocks and securities
convertible into common and preferred stocks.

Portfolio securities are selected by the Adviser using an investment
research process blending traditional security analysis and quantitative
security selection techniques. Such process includes focusing on securities of
companies that the Adviser believes either: (1) experienced above-average and
consistent long-term growth of earnings and have excellent prospects for
outstanding future growth in earnings; (2) are presently experiencing or
expected to have a material increase in profits and sales; (3) are undervalued
either in that such securities are selling at prices that do not reflect the
current market value of its securities and there is reason to expect realization
of this potential in the form of increased equity values or that the potential
improving prospects of the security is not reflected in the price of the
security; (4) will experience a fundamental change in structure that potentially
may result in higher earnings; or (5) will produce new products, new services or
new processes. In general, the Fund intends to invest primarily in securities
that have yielded a dividend or interest income to security holders within the
past twelve months; however, it may invest in non-income producing investments
held for anticipated increase in value. There is no assurance that the Fund will
be successful in achieving its goal.

Convertible securities rank senior to common stocks in a corporation's
capital structure. They are consequently of higher quality and entail less risk
than the corporation's common stock, although the extent to which such risk is
reduced depends in large measure upon the degree to which the convertible
security sells above its value as fixed income security. The Fund may purchase
convertible securities rated Ba or lower by Moody's or BB or lower by S&P or in
non-rated securities considered by the Adviser to be of comparable quality.
Although the Fund selects these securities primarily on the basis of their
equity characteristics, investors should be aware that debt securities rated in
these categories are considered high risk securities; the rating agencies
consider them speculative, and payment of interest and principal is not
considered well assured. To the extent that such convertible securities are
acquired by the Fund, there is a greater risk as to the timely payment of the
principal of, and timely payment of interest or dividends on, such securities
than in the case of higher rated convertible securities.

Although the portfolio turnover rate will not be considered a limiting
factor, the Fund does not intend to engage in trading directed at realizing
short-term profits. Nevertheless, changes in the portfolio will be made promptly
when determined to be advisable by reason of developments not foreseen at the
time of the investment decision, and usually without reference to the length of
time the security has been held.

24
<PAGE> 27

and the need to meet redemption requests. Such investments may be increased by
the Fund, up to 100% of its assets, when deemed appropriate by the Adviser for
temporary defensive purposes. Short-term investments may include repurchase
agreements with banks or broker-dealers. See "Investment Practices and Risks --
Repurchase Agreements." The Fund may also invest up to 20% of its total assets
in securities of foreign issuers and in investment companies. See "Investment
Practices and Risks -- Securities of Foreign Issuers" and "Investment in
Investment Companies." The Fund may engage in portfolio management strategies
and techniques involving options, futures contracts and options on futures.
Options, futures contracts and related options are described in "Investment
Practices and Risks -- Options, Futures Contracts and Related Options" and the
Statement of Additional Information.

GOVERNMENT FUND

The goal of the Government Fund is to seek high current return consistent
with preservation of capital. The Fund invests primarily in debt securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
In order to hedge against changes in interest rates, the Fund may purchase or
sell options on U.S. Government securities and engage in transactions involving
interest rate futures contracts and options on such contracts. See "Investment
Practices and Risks -- Options, Futures Contracts and Related Options" and the
Statement of Additional Information for further discussion. The Fund may invest
in repurchase agreements fully collateralized by U.S. Government securities. The
Fund may also purchase or sell U.S. Government securities on a forward
commitment basis. See "Investment Practices and Risks -- Repurchase Agreements"
and "Forward Commitments." The Fund is not designed for investors seeking
long-term capital appreciation. Shares of the Fund are not insured or guaranteed
by the U.S. Government, its agencies or instrumentalities or by any other person
or entity. There is no assurance that the Fund will be successful in achieving
its goal.

The Fund may also engage in transactions involving obligations issued or
guaranteed by U.S. Government agencies and instrumentalities which are supported
by any of the following: (a) the full faith and credit of the U.S. Government
(such as Government National Mortgage Association ("GNMA" Certificates), (b) the
right of the issuer to borrow an amount limited to a specific line of credit
from the U.S. Government, (c) discretionary authority of the U.S. Government
agency or instrumentality, or (d) the credit of the instrumentality. Agencies
and instrumentalities include, but are not limited to: Federal Land Banks,
Farmers Home Administration, Central Bank for Cooperatives, Federal Intermediate
Credit Banks, Federal Home Loan Banks and Federal National Mortgage Association.
The Fund expects in any event that at all times at least 80% of its assets will
be invested in U.S. Government securities.

Securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities include: (1) U.S. Treasury obligations, which differ in their
interest rates, maturities and times of issuance: U.S. Treasury bills (maturity
of one year or less), U.S. Treasury notes (maturity of one to ten years), and
U.S. Treasury bonds (generally maturities of greater than ten years), including
the principal components or the interest components issued by the U.S.
Government under the Separate Trading of Registered Interest and Principal of
Securities program (i.e., "STRIPS"), all of which are backed by the full faith
and credit of the United States; and (2) obligations issued or guaranteed by
U.S. Government agencies or instrumentalities, including government guaranteed
mortgage-related securities, some of which are backed by the full faith and
credit of the U.S. Treasury, some of which are supported by the right of the
issue to borrow from the U.S. Government and some of which are backed only by
the credit of the issuer itself.

Mortgage loans made by banks, savings and loan institutions, and other
lenders are often assembled into pools, which are issued or guaranteed by an
agency or instrumentality of the U.S. Government, though not necessarily by the
U.S. Government itself. Interests in such pools are what this Prospectus calls
"mortgage-related securities."

Mortgage-related securities include, but are not limited to, obligations
issued or guaranteed by the Government National Mortgage Association ("GNMA"),
the Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). GNMA is a wholly owned corporate instrumentality
of the United States whose securities and guarantees are backed by the full
faith and credit of the United States. FNMA, a federally chartered and
privately-owned corporation, and FHLMC, a federal corporation, are
instrumentalities of the United States. The securities and guarantees of FNMA
and FHLMC are not backed, directly or indirectly, by the full faith and credit
of the United States. Although the Secretary of the Treasury of the United
States has discretionary authority to lend FNMA up to $2.25 billion outstanding
at any time, neither the United States nor any agency thereof is obligated to
finance FNMA's or FHLMC's operations or to assist FNMA or FHLMC in any other
manner. Securities of FNMA and FHLMC include those issued in principal only or
interest only components.

Mortgage-related securities are characterized by monthly payments to the
holder, reflecting the monthly payments made by the borrowers who received the
underlying mortgage loans. The payments to the securityholders (such as the
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 20 or 30 years, the borrowers can, and typically do, pay them off
sooner. Thus, the securityholders 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 rate
of interest. This means that in times of declining interest rates, some of the
Fund's higher yielding securities might be converted to cash, and the Fund will
be forced

25
<PAGE> 28

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-related securities. If the
Fund buys mortgage-related 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.

In general, the prices of debt securities vary inversely with interest
rates. If interest rates rise, debt security prices generally fall; if interest
rates fall, debt security prices generally rise. In addition, for a given change
in interest rates, longer-maturity debt securities fluctuate more in price
(gaining or losing more in value) than shorter-maturity debt securities, and
generally offer higher yields than shorter-maturity debt securities, all other
factors, including credit quality, being equal. This potential for a decline in
prices of debt securities due to rising interest rates is referred to herein as
"market risk." While the Fund has no policy limiting the maturities of the debt
securities in which it may invest, the Adviser seeks to moderate market risk by
generally maintaining a portfolio duration within a range of approximately four
to six years. Duration is a measure of the expected life of a debt security that
was developed as a more precise alternative to the concept of "term to
maturity." Duration incorporates a debt security's yield, coupon interest
payments, final maturity and call features into one measure.

Traditionally a debt security's "term to maturity" has been used as a proxy
for the sensitivity of the security's price to changes in interest rates (which
is the "interest rate risk" or "price volatility" of the security). However,
"term to maturity" measures only the time until a debt security provides its
final payment taking no account of the pattern of the security's payments of
interest or principal prior to maturity. Duration measures the length of the
time interval between the present and the time when the interest and principal
payments are scheduled to be received (or in the case of a callable bond,
expected to be received), weighing them by the present value of the cash to be
received at each future point in time. In general, the lower the coupon rate of
interest or the longer the maturity, or the lower the yield-to-maturity of a
debt security, the longer its duration; conversely, the higher the coupon rate
of interest, the shorter the maturity or the higher the yield-to-maturity of a
debt security, the shorter its duration.

With respect to some securities, there are some situations where even the
standard duration calculation does not properly reflect the interest rate
exposure of a security. In these and other similar situations, the Adviser will
use more sophisticated analytical techniques that incorporate the economic life
of a security into the determination of its interest rate exposure. At October
31, 1996, the average maturity of the debt securities owned by the Fund, as
adjusted for investments in options, futures contracts and related options, was
approximately 11.9 years and the duration of the portfolio was approximately 5.1
years. The duration is likely to vary from time to time as the Adviser pursues
its strategy of striving to maintain an active balance between seeking to
maximize income and endeavoring to maintain the value of the Fund's capital.
Thus, the objective of providing high current return consistent with
preservation of capital to shareholders is tempered by seeking to avoid undue
market risk and thus provide reasonable total return as well as high distributed
return. There is, of course, no assurance that the Adviser will be successful in
achieving such results for the Fund.

The Fund generally purchases debt securities at a premium over the
principal or face value in order to obtain higher current income. The amount of
any premium declines during the term of the security to zero at maturity. Such
decline generally is reflected in the market price of the security and thus in
the Fund's net asset value. Any such decline is realized for accounting purposes
as a capital loss at maturity or upon resale. Prior to maturity or resale, such
decline in value could be offset, in whole or part, or increased by changes in
the value of the security due to changes in interest rate levels.

The principal reason for selling call or put options is to obtain, through
the receipt of premiums, a greater return than would be realized on the
underlying securities alone. By selling options, the Fund reduces its potential
for capital appreciation on debt securities if interest rates decline. Thus, if
market prices of debt securities increase, the Fund would receive a lower total
return from its optioned positions than it would have received if the options
had not been sold. The purpose of selling options is intended to improve the
Fund's total return and not to "enhance" monthly distributions. During periods
when the Fund has capital loss carry forwards any capital gains generated from
such transactions will be retained in the Fund. See "Investment Practices and
Risks -- Options, Futures Contracts and Related Options," "Dividends,
Distributions and Taxes" and the Statement of Additional Information for further
discussion.

The purchase and sale of options may result in a high portfolio turnover
rate. The Fund's turnover rate is shown in the table of Financial Highlights.
See "Investment Practices and Risks -- Portfolio Turnover."

MUNICIPAL BOND FUND

The goal of the Municipal Bond Fund is to seek as high a level of current
interest income exempt from federal income tax as is consistent with the
preservation of capital. Because the value of and yield on Municipal Bonds
fluctuate, there can be no assurance that the Fund's goal will be achieved.

The Fund seeks to achieve its objective by investing in a diversified
portfolio of obligations issued by or on behalf of states, territories or
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, the interest from which,
in the opinion of bond counsel for the issuer, is exempt from federal income
tax. See "Municipal Bonds." It is a fundamental policy of the Fund under normal
conditions to invest at least 80% of its assets in

26
<PAGE> 29

Municipal Bonds which are considered tax-exempt. The Fund does not independently
evaluate the tax-exempt status of the Municipal Bonds in which it invests. The
Fund invests principally in Municipal Bonds rated at the time of purchase within
the three highest grades assigned by Moody's or S&P. Ratings at the time of
purchase determine which securities may be acquired, and a subsequent reduction
in rating does not require the Fund to dispose of a security. At least 75% of
the Fund's total assets will be invested in Municipal Bonds rated "A" or higher.
The Fund may invest up to 25% of its total assets in Municipal Bonds rated "Baa"
by Moody's or "BBB" by S&P or any non-rated Municipal Bonds having
characteristics similar to Municipal Bonds rated "Baa" or "BBB." Municipal Bonds
rated BBB or Baa may have speculative characteristics so that changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than in the case of higher
grade Municipal Bonds. The market prices of Municipal Bonds generally fluctuate
with changes in interest rates so that the value of investments in such
securities can be expected to decrease as interest rates rise and increase as
interest rates fall. Because investment in lower rated securities involves
greater investment risks, achievement of the Fund's goal may be more dependent
on the Adviser's credit analysis than would be the case if the Fund invested
only in higher rated securities. Non-rated Municipal Bonds are not necessarily
of lower quality than rated Municipal Bonds, but the market for rated Municipal
Bonds is often broader. The Fund may seek to hedge against changes in interest
rates through transactions in listed futures contracts related to U.S.
Government securities, Municipal Bonds or to an index of Municipal Bonds, and
options on such contracts. See the Statement of Additional Information for
discussion of futures contracts and options.

On a temporary basis, due to market conditions or pending investment in
Municipal Bonds, the Fund may invest up to 100% of its assets in "Temporary
Investments" consisting of short-term municipal notes rated MIG 1 through MIG 4
by Moody's or SP-1 or SP-2 by S&P; tax-exempt commercial paper rated P-1 or P-2
in the case of Moody's or A-1 or A-2 by S&P; securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities; corporate bonds and
debentures; certificates of deposit and bankers' acceptances of domestic banks
with assets of $500 million or more and having deposits insured by the Federal
Deposit Insurance Corporation; commercial paper and repurchase agreements. The
income on corporate bonds and debentures, certificates of deposit and bankers'
acceptances, commercial paper and repurchase agreements is taxable. See the
Appendix in the Statement of Additional Information for discussion of ratings of
commercial paper and bonds.

The Fund may invest up to 10% of its net assets in illiquid securities
which include Municipal Bonds issued in limited placements under which the Fund
represents that it is purchasing for investment purposes only, repurchase
agreements maturing in more than seven days and other securities subject to
legal or contractual restrictions on resale. Municipal Bonds acquired in limited
placements generally may be resold only in a privately negotiated transaction to
one or more other institutional investors. Restricted securities are generally
purchased at a discount from the market price of unrestricted securities of the
same issuer. Investments in restricted securities are not readily marketable
without some time delay. A Fund position in restricted securities might
adversely affect the liquidity and marketability of such securities. Such
limitation could result in the Fund's inability to realize a favorable price
upon disposition, and in some cases might make disposition of such securities at
the time desired by the Fund impossible. The 10% limitation applies at the time
the purchase commitment is made. See "Investment Practices and
Risks -- Repurchase Agreements."

Variations in the quality and maturity of the Fund's portfolio investments
can be expected to affect the Fund's yield and the degree of market and
financial risk to which the Fund is subject. Generally, Municipal Bonds with
longer maturities tend to produce higher yields and are subject to greater
market fluctuations as a result of changes in interest rates than Municipal
Bonds with shorter maturities and lower yields. The market value of Municipal
Bonds generally rises when interest rates decline and falls when interest rates
rise. Generally lower rated Municipal Bonds provide a higher yield than higher
rated Municipal Bonds of similar maturity but are subject to greater market and
financial risk. The Fund is not limited as to the maturities of the Municipal
Bonds in which it invests. Such securities may have remaining maturities of up
to 30 years or more.

MUNICIPAL BONDS. Municipal Bonds include debt obligations of a state,
territory or a possession of the United States and the District of Columbia and
their political subdivisions, agencies and instrumentalities issued to obtain
funds for various public purposes, including the construction of a wide range of
public facilities such as airports, highways, bridges, schools, hospitals,
housing, mass transportation, streets and water and sewer works. Other public
purposes for which Municipal Bonds may be issued include refunding outstanding
obligations, obtaining funds for general operating expenses and obtaining funds
to lend to other public institutions and facilities. Certain types of Municipal
Bonds are issued to obtain funding for privately operated facilities.

Many new issues of Municipal Bonds are sold on a "when issued" basis. While
the Fund has ownership rights to the bonds, the Fund does not have to pay for
them until they are delivered, normally 15 to 45 days later. To meet that
payment obligation, the Fund sets aside with the custodian sufficient cash or
high grade securities equal to the amount that will be due. When the Fund
engages in when-issued and delayed delivery transactions, the Fund relies on the
buyer or seller, as the case may be, to consummate the trade. Failure of the
buyer or seller to do so may result in the Fund missing the opportunity of
obtaining a price considered to be advantageous. See "Investment Practices and
Risks -- Delayed Delivery and When-Issued Securities."

The yields of Municipal Bonds depend on, among other things, general money
market conditions, general conditions of the Municipal Bond market, size of a
particular offering, the maturity of the obligation and rating of the issue. The
ratings of

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Moody's and S&P represent their opinions of the quality of the Municipal Bonds
they undertake to rate. It should be emphasized, however, that ratings are
general and are not absolute standards of quality. Consequently, Municipal Bonds
with the same maturity, coupon and rating may have different yields while
Municipal Bonds of the same maturity and coupon with different ratings may have
the same yield. A description of the ratings is included in the Statement of
Additional Information.

Among the various types of Municipal Bonds are general obligation bonds,
revenue or special obligation bonds, industrial development bonds, pollution
control bonds, variable rate demand notes, and short-term tax-exempt municipal
obligations such as tax anticipation notes.

General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or
facility -- tolls from a toll-bridge, for example. Industrial development
revenue bonds are a specific type of revenue bond backed by the credit and
security of a private user. The Fund's ability to achieve its goal depends to a
great extent on the ability of these various issuers to meet their scheduled
payments of principal and interest.

The Fund considers investments in Municipal Bonds not to be subject to
concentration policies and may invest a relatively high percentage of its assets
in Municipal Bonds issued by entities having similar characteristics. The
issuers may be located in the same geographic area or may pay their interest
obligations from revenue of similar projects such as hospitals, utility systems
and housing finance agencies. This may make the Fund's investments more
susceptible to similar economic, political or regulatory occurrences. As the
similarity in issuers increases, the potential for fluctuation in the Fund's per
share net asset value also increases. The Fund may invest more than 25% of its
total assets in industrial development revenue bonds, but it does not intend to
invest more than 25% of its assets in industrial development revenue bonds
issued for companies in the same industry or state. Sizeable investments in such
obligations could involve an increased risk to the Fund should any of such
issuers of any such related projects or facilities experience financial
difficulties.

From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Bonds. It may be expected that similar proposals may be
introduced in the future. If any such proposals were to be enacted, the ability
of the Fund to pay "exempt-interest" dividends may be adversely affected and the
Fund would re-evaluate its investment objective and policies and consider
changes in its structure.

TAX LEGISLATION. Interest on certain "private-activity bonds" issued after
August 7, 1986, is an item of tax preference subject to the alternative minimum
tax on individuals and corporations. THE TRUST WILL NOT PURCHASE ANY PRIVATE
ACTIVITY BONDS SUBJECT TO THE ALTERNATIVE MINIMUM TAX.

The Omnibus Budget Reconciliation Act of 1993, which was signed into law on
August 10, 1993, included certain provisions intended to prevent the conversion
of ordinary income into capital gain. One such provision affects tax-exempt
securities by requiring that gains on certain debt instruments purchased at a
market discount be treated as ordinary income to the extent of the accrued
market discount. The law extends this treatment to market discount bonds issued
before July 18, 1984 and to tax-exempt bonds, if the bonds are acquired after
April 30, 1993. Such bonds were exempt from the market discount rules under
prior law.

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INVESTMENT PRACTICES AND RISKS
- --------------------------------------------------------------------------------

REPURCHASE AGREEMENTS (ALL FUNDS). Each Fund may enter into repurchase
agreements with broker-dealers or domestic banks. A repurchase agreement is a
short-term investment in which the purchaser (e.g., the Fund) acquires ownership
of a debt security and the seller agrees to repurchase the obligation at a
future time and set price, thereby determining the yield during the purchaser's
holding period. Repurchase agreements involve certain risks in the event of a
default by the other party. No Fund will invest in repurchase agreements
maturing in more than seven days if any such investment, together with any other
illiquid securities held by such Fund, exceeds in the case of the Emerging
Growth Fund and the International Equity Fund, 15% of the value of the Fund's
net assets and, in the case of the Growth Fund, the Growth and Income Fund, the
Government Fund, and the Municipal Bond Fund 10% of the value of the Fund's net
assets. The International Equity Fund may enter into repurchase agreements of up
to 25% of its assets but the Fund currently does not expect that it will enter
into repurchase agreements on more than 5% of its assets. See the Statement of
Additional Information.

For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that certain funds advised or subadvised by the Adviser or
its affiliates would otherwise invest separately into a joint account. The cash
in the joint account is then invested in repurchase agreements and the funds
that contributed to the joint account share pro rata in the net revenue
generated. The Adviser believes that the joint account produces efficiencies and
economies of scale that may contribute to reduced transaction costs, higher
returns, higher quality investments and greater diversity of investments for a
Fund than would be available to a Fund investing separately. The manner in which
the joint account is managed is subject to conditions set forth in an SEC
exemptive order authorizing this practice, which conditions are designed to
ensure the fair administration of the joint account and to protect the amounts
in that account.

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ADJUSTING INVESTMENT EXPOSURE (ALL FUNDS). The Funds can use various
techniques to increase or decrease their exposure to changing security prices,
interest rates, commodity prices, or other factors that affect security values.
These techniques may involve derivative securities such as options, futures
contracts, swaps, and forward commitments, all as discussed more fully below.

OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS (ALL FUNDS). The Funds
expect to utilize options, futures contracts and options thereon in several
different ways, depending upon the status of a Fund's portfolio and the
Adviser's expectations concerning the securities markets.

For example, in times of stable or rising security prices, a Fund generally
seeks to obtain maximum exposure to the securities markets, i.e., to be "fully
invested." Nevertheless, even when a Fund is fully invested, prudent management
requires that at least a small portion of assets be available as cash to honor
redemption requests and for other short-term needs. A Fund may also have cash on
hand that has not yet been invested. The portion of a Fund's assets that is
invested in cash equivalents does not fluctuate with security market prices, so
that, in times of rising market prices, a Fund may underperform the market in
proportion to the amount of cash equivalents in its portfolio. By purchasing
futures contracts, however, a Fund can compensate for the cash portion of its
assets and obtain equivalent performance to investing 100% of its assets in
equity securities.

If the Adviser forecasts a market decline, a Fund may take a defensive
position, reducing its exposure to the securities markets by increasing its cash
position. By selling futures contracts instead of portfolio securities, a
similar result can be achieved to the extent that the performance of the futures
contracts correlates to the performance of a Fund's portfolio securities. Sale
of futures contracts could frequently be accomplished more rapidly and at less
cost than the actual sale of securities. Once the desired hedged position has
been effected, a Fund could then liquidate securities in a more deliberate
manner, reducing its futures position simultaneously to maintain the desired
balance, or it could maintain the hedged position.

As an alternative to selling futures contracts, a Fund can purchase puts
(or futures puts) to hedge the portfolio's risk in a declining market. Since the
value of a put increases as the index declines below a specified level, the
portfolio's value is protected against a market decline to the degree the
performance of the index correlates with the performance of a Fund's investment
portfolio. If the market remains stable or advances, a Fund can refrain from
exercising the put and its portfolio will participate in the advance, having
incurred only the premium cost for the put.

In many cases, a Fund could achieve results similar to those available from
options and futures contracts without investing in the options and futures
markets. For example, instead of hedging portfolio securities it owned with
options and futures contracts, the Fund could sell the securities and invest the
proceeds in money market instruments. In other cases, however, the options and
futures markets provide investment or risk management opportunities that are not
available from direct investments in securities. In addition, some strategies
can be implemented with greater ease and at lower cost by utilizing the options
and futures markets.

The International Equity Fund may enter into futures contracts and options
for non-hedging purposes, subject to applicable law. Such transactions may be
considered a form of speculation.

POTENTIAL RISKS OF OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. The
purchase and sale of options and futures contracts involve risks different from
those involved with direct investments in underlying securities. While
utilization of options, futures contracts and similar instruments may be
advantageous to a Fund, if the Adviser is not successful in employing such
instruments in managing a Fund's investments, a Fund's performance will be worse
than if a Fund did not make such investments. In addition, a Fund would pay
commissions and other costs in connection with such investments, which may
increase a Fund's expenses and reduce its return.

Each Fund other than the Municipal Bond Fund may write or purchase options
in privately negotiated transactions ("OTC Options") as well as listed options.
OTC Options can be closed out only by agreement with the other party to the
transaction. Any OTC Option purchased by a Fund will be considered an illiquid
security. Any OTC Option written by a Fund will be with a qualified dealer
pursuant to an agreement under which the Fund may repurchase the option at a
formula price. Such options will be considered illiquid to the extent that the
formula price exceeds the intrinsic value of the option. Each Fund other than
the International Equity Fund may not purchase or sell futures contracts or
related options for which the aggregate initial margin and premiums exceed 5% of
the fair market value of the Fund's assets. The International Equity Fund may
enter into transactions in futures contracts and options on futures contracts
only (i) for bona fide hedging purposes (as defined in the regulations of the
Commodity Futures Trading Commission (the "CFTC")), or (ii) for non-hedging
purposes provided that the aggregate initial margin and premiums on such
non-hedging positions does not exceed 5% of the liquidation value of the Fund's
assets.

In order to prevent leverage in connection with the purchase of futures
contracts thereon by the Fund, an amount of cash, cash equivalents or liquid
securities equal to the market value of the obligation under the futures
contracts (less any related margin deposits) will be maintained in a segregated
account with the Custodian. The Growth Fund, the Growth and Income Fund, the
Government Fund and the Municipal Bond Fund may not invest more than 10% of
their net assets in illiquid securities and repurchase agreements which have a
maturity of longer than seven days; the Emerging Growth Fund and the

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International Equity Fund are limited to 15% of their net assets. The successful
use of futures and options is dependent upon the ability of the Adviser to
predict changes in interest rates. The daily deposit requirements in futures
contracts create an ongoing greater potential financial risk than do option
purchase transactions, where the exposure is limited to the cost of the premium
for the option. Transactions in futures and options on futures for non-hedging
purposes involve greater risks and could result in losses which are not offset
by gains on other portfolio assets. A more complete discussion of the potential
risks involved in transactions involving options or futures contracts and
related options, is contained in the Statement of Additional Information.

SPECIAL RISKS ASSOCIATED WITH FUTURES TRANSACTIONS (ALL FUNDS). There are
several risks connected with the use of futures contracts as a hedging device.
These include the risk of imperfect correlation between movements in the price
of the futures contracts and of the underlying securities, the risk of market
distortion, the illiquidity risk and the risk of error in anticipating price
movement.

CURRENCY TRANSACTIONS (INTERNATIONAL EQUITY FUND). In order to protect the
dollar equivalent value of its portfolio securities against declines resulting
from currency value fluctuations and changes in interest rate or other market
changes, the Fund may enter into the following hedging transactions: forward
foreign currency contracts, interest rate and currency swaps and various futures
contracts and related options contracts. The Fund will enter into various
currency transactions, i.e., forward foreign currency contracts, currency swaps,
foreign currency or currency index futures contracts and put and call options on
such contracts or on currencies. A forward foreign currency contract involves an
obligation to purchase or sell a specific currency for a set price at a future
date. A currency swap is an arrangement whereby each party exchanges one
currency for another on a particular date and agrees to reverse the exchange on
a later date at a specific exchange rate. Forward foreign currency contracts and
currency swaps are established in the interbank market conducted directly
between currency traders (usually large commercial banks or other financial
institutions) on behalf of their customers. Futures contracts are similar to
forward contracts except that they are traded on an organized exchange and the
obligations thereunder may be offset by taking an equal but opposite position to
the original contract, with profit or loss determined by the relative prices
between the opening and offsetting positions. The Fund may enter into these
currency contracts and swaps in primarily the following circumstances to "lock
in" the U.S. dollar equivalent price of a security the Fund is contemplating to
buy or sell that is denominated in a non-U.S. currency; or to protect against a
decline against the U.S. dollar of the currency of a particular country to which
the Fund has exposure. The Fund may seek to achieve the same economic result by
using from time to time for such hedging a currency different from the one of
the given portfolio security as long as, in the view of the Adviser, such
currency is essentially correlated to the currency of the relevant portfolio
security based on historic and expected exchange rate patterns.

INTEREST RATE TRANSACTIONS (INTERNATIONAL EQUITY FUND). The Fund will enter
into various interest rate transactions (i.e., futures contracts in various
financial instruments and interest rate related indices, put and call options on
such futures contracts and on such financial instruments and interest rate
swaps). The Fund will enter into these transactions primarily to "lock-in" a
return or spread on a particular investment or portion of its portfolio and to
protect against any increase in the price of securities the Fund anticipates
purchasing at a later date. Interest rate swaps involve the exchange by the Fund
with another party of their respective commitment to pay or receive interest
(e.g., an exchange of floating rate payments for fixed rate payments). The Fund
will not enter into an interest rate swap transaction in which its interest
commitment is greater or measured differently than the interest receivable on
specific portfolio securities. Interest rate swaps may be combined with currency
swaps to take advantage of rate differentials in different markets on the same
or similar securities.

MARKET INDEX TRANSACTIONS (INTERNATIONAL EQUITY FUND). The Fund may enter
into various market index contracts (i.e., index futures contracts on particular
non-U.S. securities markets or industry segments and related put and call
options). These contracts are used primarily to protect the value of the Fund's
securities against a decline in a particular market or industry in which it is
invested.

POTENTIAL RISKS OF CURRENCY TRANSACTIONS, INTEREST RATE TRANSACTIONS AND
MARKET INDEX TRANSACTIONS (INTERNATIONAL EQUITY FUND). The Fund will engage in
these transactions primarily as a means to hedge risks associated with
management of its portfolio. All of the foregoing transactions present certain
risks. In particular, the variable degree of correlation between price movements
of futures contracts and dollar equivalent price movements in the currency or
security being hedged creates the possibility that losses on the hedge may be
greater than gains in the value of the Fund's securities. In addition, these
instruments may not be liquid in all circumstances and are generally closed out
by entering into offsetting transactions rather than by disposing of the Fund's
obligations. As a result, in volatile markets, the Fund may not be able to close
out a transaction without incurring losses. Although the contemplated use of
these contracts should tend to minimize the risk of loss due to a decline in the
value of the hedged currency or security, at the same time they tend to limit
any potential gain which might result from an increase in the value of such
currency or security.

With respect to interest rate swaps, the Fund recognizes that such
arrangements are relatively illiquid and will include the principal amount of
the obligations owed to it under a swap as an illiquid security for purposes of
the Fund's investment restrictions except to the extent a third party (such as a
large commercial bank) has guaranteed the Fund's ability to offset the swap at
any time.

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SECURITIES OF FOREIGN ISSUERS (ALL FUNDS EXCEPT GOVERNMENT FUND AND
MUNICIPAL BOND FUND). The International Equity Fund invests at least 65% of its
total assets in the equity securities of foreign issuers and the Emerging Growth
Fund, the Growth Fund and the Growth and Income Fund may invest up to 20% of the
value of their total assets in securities of foreign governments and companies
of developed and emerging markets countries.

Investments in securities of foreign entities and securities denominated in
foreign currencies involve risks not typically involved in domestic investment,
including fluctuations in foreign exchange rates, future foreign political and
economic developments, and the possible imposition of exchange controls or other
foreign or United States governmental laws or restrictions applicable to such
investments. Since each Fund may invest in securities denominated or quoted in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates may affect the value of investments in the portfolio and the accrued
income and unrealized appreciation or depreciation of investments. Changes in
foreign currency rates relative to the U.S. dollar will affect the U.S. dollar
value of the Fund's assets denominated in that currency and the Fund's yield on
such assets.

Each Fund may also purchase foreign securities in the form of American
Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs") or other
securities representing underlying shares of foreign companies. ADRs are
publicly traded on exchanges or over-the-counter in the United States and are
issued through "sponsored" or "unsponsored" arrangements. In a sponsored ADR
arrangement, the foreign issuer assumes the obligation to pay some or all of the
depositary's transaction fees, whereas under an unsponsored arrangement, the
foreign issuer assumes no obligation and the depositary's transaction fees are
paid by the ADR holders. In addition, less information is available in the
United States about an unsponsored ADR than about a sponsored ADR, and the
financial information about a company may not be as reliable for an unsponsored
ADR as it is for a sponsored ADR. Each Fund may invest in ADRs through both
sponsored and unsponsored arrangements. For further information on ADRs and
EDRs, investors should refer to the Statement of Additional Information.

With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments which could affect investment in those countries.
There may be less publicly available information about a foreign security than
about a United States security, and foreign entities may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to those of United States entities. In addition, certain foreign
investments made by the Fund may be subject to foreign withholding taxes, which
would reduce the Fund's total return on such investments and the amounts
available for distributions by the Fund to its shareholders. See "Dividends,
Distributions and Taxes." Foreign financial markets, while growing in volume,
have, for the most part, substantially less volume than United States markets,
and securities of many foreign companies are less liquid and their prices more
volatile than securities of comparable domestic companies. The foreign markets
also have different clearance and settlement procedures, and in certain markets
there have been times when settlements have been unable to keep pace with the
volume of securities transactions making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when assets
of the Fund are not invested and no return is earned thereon. The inability of
each Fund to make intended security purchases due to settlement problems could
cause the Fund to miss attractive investment opportunities. Inability to dispose
of portfolio securities due to settlement problems could result either in losses
to the Fund due to subsequent declines in value of the portfolio security or, if
the Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser. Costs associated with transactions in
foreign securities, including custodial costs and foreign brokerage commissions,
are generally higher than with transactions in United States securities. In
addition, each Fund will incur cost in connection with conversions between
various currencies. There is generally less government supervision and
regulation of exchanges, financial institutions and issuers in foreign countries
than there are in the United States. These risks may be intensified in the case
of investments in developing or emerging markets. In many developing markets,
there is less government supervision and regulation of business and industry
practices, stock exchanges, brokers and listed companies than in the United
States. The foreign securities markets of many of the countries in which the
Fund may invest may also be smaller, less liquid, and subject to greater price
volatility than those in the United States. Finally, in the event of a default
on any such foreign debt obligations, it may be more difficult for the Fund to
obtain or to enforce a judgment against the issuers of such securities.

The Emerging Growth Fund, the International Equity Fund, the Growth Fund
and the Growth and Income Fund may invest in the securities of developing
countries. A developing country generally is considered to be a country that is
in the initial stages of its industrialization cycle. Investing in the equity
and fixed-income markets of developing countries involves exposure to economic
structures that are generally less diverse and mature, and to political systems
that can be expected to have less stability, than those of developed countries.
Historical experience indicates that the markets of developing countries have
been more volatile than the markets of the more mature economies of developed
countries; however, such markets often have provided higher rates of return to
investors.

One or more of the risks discussed above could affect adversely the economy
of a developing market or a Fund's investments in such a market. In Eastern
Europe, for example, upon the accession to power of Communist regimes in the
past, the governments of a number of Eastern European countries expropriated a
large amount of property. The claims of many property owners against those
governments were never finally settled. There can be no assurance that any
investments that the Fund might make in such emerging markets would not be
expropriated, nationalized or otherwise confiscated at some time in

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the future. In such an event, the Fund could lose its entire investment in the
market involved. Moreover, changes in the leadership or policies of such markets
could halt the expansion or reverse the liberalization of foreign investment
policies now occurring in certain of these markets and adversely affect existing
investment opportunities.

FORWARD COMMITMENTS (GOVERNMENT FUND). The Fund may purchase or sell U.S.
Government securities on a "when-issued" or "delayed delivery" basis ("Forward
Commitments"). These transactions occur when securities are purchased or sold by
the Fund with payment and delivery taking place in the future, frequently a
month or more after such transactions. The price is fixed on the date of the
commitment, and the seller continues to accrue interest on the securities
covered by the Forward Commitment until delivery and payment take place. At the
time of settlement, the market value of the securities may be more or less than
the purchase or sale price.

The Fund may either settle a Forward Commitment by taking delivery of the
securities or may either resell or repurchase a Forward Commitment on or before
the settlement date in which event the Fund may reinvest the proceeds in another
Forward Commitment. The Fund's use of Forward Commitments may increase its
overall investment exposure and thus its potential for gain or loss. When
engaging in Forward Commitments, the Fund relies on the other party to complete
the transaction; should the other party fail to do so, the Fund might lose a
purchase or sale opportunity that could be more advantageous than alternative
opportunities at the time of the failure.

The Fund maintains a segregated account (which is marked to market daily)
of cash, U.S. Government securities or the security covered by the Forward
Commitment with the Fund's Custodian in an aggregate amount equal to the amount
of its commitment as long as the obligation to purchase or sell continues.

LOANS OF PORTFOLIO SECURITIES (ALL FUNDS). Each Fund may lend portfolio
securities to unaffiliated brokers, dealers and financial institutions provided
that (a) immediately after any such loan, the value of the securities loaned
does not exceed 10% of the total value of that Fund's assets (15% in the case of
the Emerging Growth Fund and the International Equity Fund), and (b) any
securities loan is collateralized in accordance with applicable regulatory
requirements. The Adviser believes the risk of loss on such transactions is
slight, because, if a borrower was to default for any reason, the collateral
should satisfy the obligation. See the Statement of Additional Information.

VARIABLE RATE DEMAND NOTES (MUNICIPAL BOND FUND). The Fund may invest in
variable rate demand notes ("VRDNs") which are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and which are
subject to an unconditional right of demand to receive payment of the principal
balance plus accrued interest either at any time or at specified intervals not
exceeding one year and in either case upon no more than seven days' notice. The
interest rates are adjustable at intervals ranging from daily ("floating rate")
to up to one year to some prevailing market rate for similar investments, such
adjustment formula being calculated to maintain the market value of the VRDN at
approximately the par value of the VRDN upon the adjustment date. The
adjustments are typically based upon the prime rate of a bank or some other
appropriate interest rate adjustment index.

The Fund may also invest in VRDNs in the form of participation interests
("Participating VRDNs") in variable rate tax-exempt obligations held by a
financial institution, typically a commercial bank ("institution").
Participating VRDNs provide the Fund with a specified undivided interest (up to
100%) in the underlying obligation and the right to demand payment of the unpaid
principal balance plus accrued interest on the Participating VRDNs from the
institution upon a specified number of days' notice, not to exceed seven days.
The Fund has an undivided interest in the underlying obligation and thus
participates on the same basis as the institution in such obligation except that
the institution typically retains fees out of the interest paid on the
obligation for servicing the obligation and issuing the repurchase commitment.

STAND-BY COMMITMENTS (MUNICIPAL BOND FUND). The Fund may acquire stand-by
commitments with respect to Municipal Bonds held by it. Under a stand-by
commitment, a bank or dealer from which Municipal Bonds are acquired agrees to
purchase from the Fund, at the Fund's option, the Municipal Bonds at a specified
price. Such commitments are sometimes called "liquidity puts."

The amount payable to the Fund upon its exercise of a stand-by commitment
is normally (i) the Fund's acquisition cost of the Municipal Bonds (excluding
any accrued interest which the Fund paid on their acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the securities, plus (ii) all interest accrued
on the securities since the last interest payment date during that period.
Stand-by commitments generally can be acquired when the remaining maturity of
the underlying Municipal Bonds is not greater than one year, and are exercisable
by the Fund at any time before the maturity of such obligations.

The Fund's right to exercise stand-by commitments is unconditional and
unqualified. A stand-by commitment generally is not transferable by the Fund,
although the Fund can sell the underlying Municipal Bonds to a third party at
any time.

The Fund expects that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments

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held in the Fund will not exceed one-half of one percent of the value of the
Fund's total assets calculated immediately after each stand-by commitment is
acquired. The Fund intends to enter into stand-by commitments only with banks
and dealers which, in the Adviser's opinion, present minimal credit risks.

The Fund would acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The acquisition of a stand-by commitment would not affect the
valuation of the underlying Municipal Bonds which would continue to be valued in
accordance with the method of valuation employed by the Fund. Stand-by
commitments acquired by the Fund would be valued at zero in determining net
asset value. Where the Fund paid any consideration directly or indirectly for a
stand-by commitment, the cost would be reflected as unrealized depreciation for
the period during which the commitment was held by the Fund.

DELAYED DELIVERY AND WHEN-ISSUED SECURITIES (MUNICIPAL BOND
FUND). Municipal Bonds may at times be purchased or sold on a "delayed
delivery" or a "when-issued" basis. These transactions arise when securities are
purchased or sold by the Fund with payment and delivery taking place in the
future, often a month or more after the purchase. The payment obligation and the
interest rate are each fixed at the time the Fund enters into the commitment.
The Fund will only make commitments to purchase such securities with the
intention of actually acquiring the securities, but the Fund may sell these
securities prior to settlement date if it is deemed advisable. Purchasing
Municipal Bonds on a when-issued basis involves the risk that the yields
available in the market when the delivery takes place may actually be higher
than those obtained in the transaction itself; if yields so increase, the value
of the when-issued obligation will generally decrease. The Fund maintains a
separate account at its custodian bank consisting of cash or liquid securities
(valued on a daily basis) equal at all times to the amount of any when-issued
commitment.

RESTRICTED SECURITIES (ALL FUNDS). The Emerging Growth Fund and the
International Equity Fund may each invest up to 15% of their net assets in
restricted securities and other illiquid assets and the Growth Fund, the Growth
and Income Fund, the Government Fund and the Municipal Bond Fund may each invest
up to 5% of their net assets. As used herein, restricted securities are those
that have been sold in the United States without registration under the
Securities Act of 1933 and are thus subject to restrictions on resale. Excluded
from the limitation, however, are any restricted securities which are eligible
for resale pursuant to Rule 144A under the Securities Act of 1933 and which have
been determined to be liquid by the Trustees or by the Adviser pursuant to
board-approved guidelines. The determination of liquidity is based on the volume
of reported trading in the institutional secondary market for each security.
This investment practice could have the effect of increasing the level of
illiquidity in each Fund to the extent that qualified institutional buyers
become for a time uninterested in purchasing these restricted securities. These
difficulties and delays could result in a Fund's inability to realize a
favorable price upon disposition of restricted securities, and in some cases
might make disposition of such securities at the time desired by the Fund
impossible. Since market quotations are not readily available for restricted
securities, such securities will be valued by a method that the Trustees believe
accurately reflects fair value.

Notwithstanding the foregoing, due to various state regulations, the
Emerging Growth Fund and the International Equity Fund will not invest more than
10% of each Fund's net assets in restricted securities; restricted securities
eligible for resale pursuant to Rule 144A are not included within this
limitation. In the event that the Funds' shares cease to be qualified under the
laws of such states or if such regulations are amended or otherwise cease to be
operative, the Funds would not be subject to this 10% restriction.

PORTFOLIO TURNOVER (ALL FUNDS). Each Fund may purchase or sell securities
without regard to the length of time the security has been held and thus may
experience a high rate of portfolio turnover. A 100% turnover rate would occur,
for example, if all the securities in a portfolio were replaced in a period of
one year. Under certain market conditions, the Growth Fund and the Government
Fund may experience a high rate of portfolio turnover. This may occur, for
example, if the Fund writes a substantial number of covered call options and the
market prices of the underlying securities appreciate. The rate of portfolio
turnover is not a limiting factor when the Adviser deems it desirable to
purchase or sell securities or to engage in options transactions. The annual
turnover rates of the Growth Fund, the Government Fund and the Municipal Bond
Fund are not expected to exceed 400%; and the annual turnover rates of the
Emerging Growth Fund, the International Equity Fund and the Growth and Income
Fund are not expected to exceed 100%. High portfolio turnover involves
correspondingly greater transaction costs, including any brokerage commissions,
which are borne directly by the respective Fund and may increase the recognition
of short-term, rather than long-term, capital gains if securities are held for
one year or less and may be subject to applicable income taxes. See "Dividends,
Distributions and Taxes."

PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES (ALL FUNDS). The Adviser is
responsible for the placement of orders for the purchase and sale of portfolio
securities for the Trust and the negotiation of brokerage commissions on such
transactions. Brokerage firms are selected on the basis of their professional
capability for the type of transaction and the value and quality of execution
services rendered on a continuous basis. Brokerage firms are selected on the
basis of their professional capability for the type of transaction and the value
and quality of execution services rendered on a continuing basis. Orders may be
directed to any broker including, to the extent and in the manner permitted by
applicable law, Smith Barney, Inc. ("Smith Barney") and Robinson Humphrey, Inc.
("Robinson Humphrey"). Smith Barney and Robinson Humphrey may be considered
affiliated persons of the Distributor because they are each an indirect
subsidiary of Travelers Group Inc. ("Travelers"). With respect to

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<PAGE> 36

the International Equity Fund, Smith Barney and Robinson Humphrey are subject to
SEC regulations which state that to effect any such transaction, the
commissions, fees or other remuneration received by Smith Barney and Robinson
Humphrey must be reasonable and fair compared to the commissions, fees or other
remuneration paid to other brokers in connection with comparable transactions
involving similar securities, futures or options on futures being purchased or
sold on an exchange during a comparable period of time. This standard would
allow Smith Barney and Robinson Humphrey to receive no more than the
remuneration that would be expected to be received by an unaffiliated broker in
a commensurate arms-length transaction. Furthermore, the Trustees of the Trust,
including a majority of the Trustees who are not "interested" Trustees, have
adopted procedures that are reasonably designed to provide that any commissions,
fees or other remuneration paid to Smith Barney and Robinson Humphrey on behalf
of the International Equity Fund are consistent with the foregoing standard.
Brokerage transactions with Smith Barney and Robinson Humphrey are also subject
to such fiduciary standards as may be imposed upon Smith Barney and Robinson
Humphrey by applicable law. U.S. Government securities in which the Trust
invests are traded in the over-the-counter market. Such securities are generally
traded on a net basis with a dealer acting as principal for its own account
without a stated commission, although the prices of the securities usually
include a profit to the dealer. It is the policy of the Trust to seek to obtain
the best net results taking into account such factors as price (including the
applicable dealer spread), the size, type and difficulty of the transaction
involved, the firm's general execution and operational facilities, the firm's
risk in positioning the securities involved, and the provision of supplemental
investment research by the firm. While the Trust seeks reasonably competitive
spreads, the Trust will not necessarily be paying the lowest spread available.
Brokerage commissions are paid on transactions in listed options, futures
contracts and options thereon. The Adviser is authorized to place portfolio
transactions with broker-dealers participating in the distribution of shares of
the Trust if it reasonably believes that the quality of the execution and any
commission are comparable to that available from other qualified firms. The
Adviser is authorized to pay higher commissions to brokerage firms that provide
it with investment and research information than to firms which do not provide
such service if they determine that such commissions are reasonable in relation
to the overall services provided. The information received may be used by the
Adviser in managing the assets of other advisory accounts managed by the Adviser
as well as in the management of the assets of the Trust.

SHORT SALES AGAINST THE BOX (EMERGING GROWTH FUND, INTERNATIONAL EQUITY
FUND, GROWTH FUND AND GROWTH AND INCOME FUND). Each Fund may from time to time
make short sales of securities it owns or has the right to acquire through
conversion or exchange of other securities it owns. A short sale is "against the
box" to the extent that the Fund contemporaneously owns or has the right to
obtain at no added cost securities identical to those sold short. In a short
sale, the Fund does not immediately deliver the securities sold and does not
receive the proceeds from the sale. The Fund is said to have a short position in
the securities sold until it delivers the securities sold, at which time it
receives the proceeds of the sale. The Fund may not make short sales or maintain
a short position if to do so would cause more than 25% of its total assets,
taken at market value, to be held as collateral for such sales.

To secure its obligation to deliver the securities sold short, the Fund
will deposit in escrow in a separate account with its Custodian an equal amount
of the securities sold short or securities convertible into or exchangeable for
such securities. The Fund may close out a short position by purchasing and
delivering an equal amount of the securities sold short, rather than by
delivering securities already held by the Fund, because the Fund may want to
continue to receive interest and dividend payments on securities in its
portfolio that are convertible into the securities sold short. However, the Fund
will not purchase and deliver new securities to satisfy its short order if such
purchase and sale would cause the Fund to derive more than 30% of its gross
income from the sale of securities held for less than three months.

LEVERAGE (INTERNATIONAL EQUITY FUND). The Fund may borrow from banks, on a
secured or unsecured basis, up to 25% of the value of its assets. If the Fund
borrows and uses the proceeds to make additional investments, income and
appreciation from such investments will improve its performance if they exceed
the associated borrowing costs but impair its performance if they are less than
such borrowing costs. This speculative factor is known as "leverage."

Leverage creates an opportunity for increased returns to shareholders of
the Fund but, at the same time, creates special risk considerations. For
example, leverage may exaggerate changes in the net asset value of the Fund's
shares and in the Fund's yield. Although the principal or stated value of such
borrowings will be fixed, the Fund's assets may change in value during the time
the borrowing is outstanding. Leverage will create interest or dividend expenses
for the Fund which can exceed the income from the assets retained. To the extent
the income or other gain derived from securities purchased with borrowed funds
exceed the interest or dividends the Fund will have to pay in respect thereof,
the Fund's net income or other gain will be greater than if leverage had not
been used. Conversely, if the income or other gain from the incremental assets
is not sufficient to cover the cost of leverage, the net income or other gain of
the Fund will be less than if leverage had not been used. If the amount of
income from the incremental securities is insufficient to cover the cost of
borrowing, securities might have to be liquidated to obtain required funds.
Depending on market or other conditions, such liquidations could be
disadvantageous to the Fund.

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INVESTMENT RESTRICTIONS

RESTRICTIONS APPLICABLE TO ALL OF THE FUNDS. Each Fund has adopted certain
restrictions which may not be changed without approval by a vote of a majority
of the outstanding voting shares of such Fund (as defined by the Investment
Company Act of 1940, as amended (the "1940 Act")). The percentage limitations
need only be met at the time the investment is made or other relevant action
taken. These restrictions provide, among other things, that a Fund may not:

1. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except obligations of the U.S. Government, its
agencies or instrumentalities and repurchase agreements secured thereby), or
purchase more than 10% of the outstanding voting securities of any one issuer.
Neither limitation shall apply to the acquisition of shares of other open-end
investment companies by the Emerging Growth Fund, the International Equity Fund,
the Growth Fund, the Growth and Income Fund and the Municipal Bond Fund to the
extent permitted by rule or order of the SEC exempting them from the limitations
imposed by Section 12(d)(1) of the 1940 Act;

2. Invest more than 25% of the value of its total assets in securities of
issuers in any particular industry; provided, however, that with respect to the
Emerging Growth Fund, the International Equity Fund, the Growth Fund, the Growth
and Income Fund and the Municipal Bond Fund, this limitation shall exclude
shares of other open-end investment companies owned by the Fund but include the
Fund's pro rata portion of the securities and other assets owned by any such
company. (This does not restrict any of the Funds from investing in obligations
of the U.S. Government and repurchase agreements secured thereby.);

3. With respect to all Funds other than the Emerging Growth Fund and the
International Equity Fund, borrow in excess of 10% of the market or other fair
value of its total assets, or pledge its assets to an extent greater than 5% of
the market or other fair value of its total assets, provided that so long as any
borrowing exceeds 5% of the value of the Fund's total assets, the Fund shall not
purchase portfolio securities. Any such borrowings shall be from banks and shall
be undertaken only as a temporary measure for extraordinary or emergency
purposes. With respect to the Emerging Growth Fund, borrow money except
temporarily from banks to facilitate payment of redemption requests and then
only in amounts not exceeding 33 1/3% of its net assets, or pledge more than 10%
of its net assets in connection with permissible borrowings or purchase
additional securities when money borrowed exceeds 5% of its net assets. With
respect to the International Equity Fund, borrow money from banks on a secured
or unsecured basis, in excess of 25% of the value of its total assets. (See
"Leverage".) Deposits in escrow in connection with the writing of covered call
or secured put options, or in connection with the purchase or sale of forward
contracts, futures contracts, foreign currency futures and related options, are
not deemed to be a pledge or other encumbrance. This restriction shall not
prevent the International Equity Fund from entering into reverse repurchase
agreements, provided that reverse repurchase agreements and any transactions
constituting borrowing by the Fund may not exceed 33 1/3% of the Fund's total
assets. The International Equity Fund may not mortgage or pledge its assets
except to secure borrowings permitted under this restriction;

4. Lend money except by the purchase of bonds or other debt obligations of
types commonly offered publicly or privately and purchased by financial
institutions, including investments in repurchase agreements. A Fund will not
invest in repurchase agreements maturing in more than seven days (unless subject
to a demand feature) if any such investment, together with any illiquid
securities (including securities which are subject to legal or contractual
restrictions on resale) held by the Fund, exceeds 10% (or in the case of the
Emerging Growth Fund and the International Equity Fund, 15%) of the market or
other fair value of its total net assets; provided, however, that with respect
to the Emerging Growth Fund, the International Equity Fund, the Growth Fund, the
Growth and Income Fund and the Municipal Bond Fund, illiquid securities shall
exclude shares of other open-end investment companies owned by the Fund but
include the Fund's pro rata portion of the securities and other assets owned by
any such company. See "Investment Practices and Risks -- Repurchase Agreements";

5. Underwrite securities of other companies, except insofar as a Fund might
be deemed to be an underwriter for purposes of the Securities Act of 1933 in the
resale of any securities owned by the Fund; and

6. Lend its portfolio securities in excess of 10% (15% in the case of the
Emerging Growth Fund and the International Equity Fund) of its total assets,
both taken at market value provided that any loans shall be in accordance with
the guidelines established for such loans by the Trustees as described under
"Loans of Portfolio Securities," including the maintenance of collateral from
the borrower equal at all times to the current market value of the securities
loaned.

7. With respect to Municipal Bond Fund, invest in securities issued by
other investment companies except as part of a merger, reorganization or other
acquisition and except to the extent permitted by (i) the 1940 Act, as amended
from time to time, (ii) the rules and regulations promulgated by the SEC under
the 1940 Act, as amended from time to time, or an exemption or other relief from
provisions of the 1940 Act.

Each state and each political subdivision, agency or instrumentality of
such state, and each multi-state agency of which a state is a member is a
separate "issuer" as that term is used in this Prospectus. The non-government
user of facilities financed by industrial development or pollution control bonds
is also considered as a separate issuer. In certain circumstances, the guarantor
of a guaranteed security may also be considered to be an issuer in connection
with such guarantee.

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The Emerging Growth Fund retains the right to invest up to 25% of the value
of its total assets in one company, but intends to do so only if a particular
company is believed to afford better than average prospects in market
appreciation at a time when general business conditions and trends in the market
as a whole are considered to make greater diversification less desirable.

In addition to the foregoing, the Trust has adopted additional investment
restrictions, which may be changed by the Trustees without a vote of
shareholders, as follows:

FOREIGN INVESTMENTS FOR FUNDS OTHER THAN THE INTERNATIONAL EQUITY FUND. The
Emerging Growth Fund, the Growth Fund and the Growth and Income Fund may not
invest in the securities of a foreign issuer if, at the time of acquisition,
more than 20% of the value of a Fund's total assets would be invested in such
securities.

The Emerging Growth Fund, the International Equity Fund, the Growth Fund
and the Growth and Income Fund may purchase put and call options which are
purchased on an exchange or over-the-counter in other markets, or currencies
and, as developed from time to time, various futures contracts on market indices
and other instruments. Purchasing options may increase investment flexibility
and improve total return, but also risks loss of the option premium if an asset
the Fund has the option to buy declines in value.

The Government Fund may not write, purchase or sell puts, calls or
combinations thereof, except that the Fund may (a) write covered or fully
collateralized call options, write secured put options, and enter into closing
or offsetting purchase transactions with respect to such options, (b) purchase
and sell options to the extent that the premiums paid for all such options owned
at any time do not exceed 10% of its total assets, and (c) engage in futures
contracts and related options transactions as described in the Statement of
Additional Information.

The Municipal Bond Fund may engage in futures contracts and related options
as described in the Statement of Additional Information.

ALCOHOL OR TOBACCO. Each Fund, except the International Equity Fund, may
not purchase any security issued by any company deriving more than 25% of its
gross revenues from the manufacture of alcohol or tobacco.

- --------------------------------------------------------------------------------
THE TRUST AND ITS MANAGEMENT
- --------------------------------------------------------------------------------

The Trust is a diversified, open-end management investment company,
generally known as a mutual fund, organized as a Massachusetts business trust on
January 29, 1987. A mutual fund provides, for those who have similar investment
goals, a practical and convenient way to invest in a diversified portfolio of
securities by combining their resources in an effort to achieve such goals.

The Adviser determines the investment of the Trust's assets, provides
administrative services and manages the Trust's business and affairs. The
Adviser is a registered investment adviser whose principal executive offices are
located at 388 Greenwich Street, New York, New York 10013. The Adviser (through
its predecessor entities) has been in the investment counseling business since
1940 and provides investment advisory and management services to investment
companies affiliated with Smith Barney. The Adviser is a wholly owned subsidiary
of Salomon Smith Barney Holdings Inc. ("Holdings") Holdings is a wholly owned
subsidiary of Travelers Group Inc., a diversified financial services holding
company engaged, through its subsidiaries, principally in four business
segments: Investment Services, Consumer Finance Services, Life Insurance
Services and Property & Casualty Insurance Services.

The Trust retains the Adviser to manage the investment of its assets and to
place orders for the purchase and sale of its portfolio securities. [Under
separate investment advisory agreements with each Fund,] the Trust pays the
Adviser an annual fee for the Emerging Growth Fund, the Growth Fund and the
Growth and Income Fund, calculated separately for each Fund at the following
rates: 0.65% of the first $1 billion of the Fund's average daily net assets;
0.60% of the next $1 billion of the Fund's average daily net assets; 0.55% of
the next $1 billion of the Fund's average daily net assets; 0.50% of the next $1
billion of the Fund's average daily net assets; and 0.45% of the Fund's average
daily net assets in excess of $4 billion. The Trust pays the Adviser an annual
fee for the International Equity Fund at the rate of 1.00% of the Fund's average
daily net assets. This fee is higher than that charged by most other mutual
funds but the Trust believes it is justified by the special international nature
of the Fund and is not necessarily higher than the fees charged by certain
mutual funds with investment objectives and policies similar to those of the
Fund. The Trust pays the Adviser an annual fee for the Government Fund of 0.60%
of the first $1 billion of the Fund's average daily net assets; 0.55% of the
next $1 billion of the Fund's average daily net assets; 0.50% of the next

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<PAGE> 39

$1 billion of the Fund's average daily net assets; 0.45% of the next $1 billion
of the Fund's average daily net assets; 0.40% of the next $1 billion of the
Fund's average daily net assets; and 0.35% of the Fund's average daily net
assets in excess of $5 billion. For the Municipal Bond Fund, the Trust pays the
Adviser an annual fee of 0.60% of the first $1 billion of the Fund's average
daily net assets; 0.55% of the next $1 billion of the Fund's average daily net
assets; 0.50% of the next $1 billion of the Fund's average daily net assets; and
0.45% of the Fund's average daily net assets over $3 billion. Each of the
investment advisory agreements described above is referred to in this Prospectus
as an "Advisory Agreement" and together, as the "Advisory Agreements."

Under each of the foregoing Advisory Agreements, the Trust also reimburses
the Adviser for the actual cost of the Trust's accounting services, which
include maintaining its financial books and records and calculating the daily
net asset value of each Fund. Operating expenses paid by the Trust include
transfer agency fees, custodian fees, legal and auditing fees, trustees' fees,
the cost of registration of its shares under federal laws and state blue sky
laws, the cost of reports and proxies to shareholders, and all other ordinary
business expenses not specifically assumed by the Adviser or any other party.

The Adviser may, from time to time, agree to waive their respective
investment advisory fees or any portion thereof or elect to reimburse a Fund for
ordinary business expenses in excess of an agreed upon amount.

PERSONAL INVESTING POLICIES. The Trust and the Adviser have adopted Codes
of Ethics designed to recognize the fiduciary relationship between the Fund and
the Adviser and its employees. The Codes permit directors, trustees, officers
and employees to buy and sell securities for their personal accounts subject to
certain restrictions. Persons with access to certain sensitive information are
subject to pre-clearance and other procedures designed to prevent conflicts of
interest.

PORTFOLIO MANAGEMENT. Sandip Bhagat is responsible for the day-to-day
management of the Emerging Growth Fund. Mr. Bhagat is an Investment Officer of
the Adviser and President of Travelers Investment Management Company, an
affiliate of SBMFM. Mr. Larry Wiessman is responsible for the day-to-day
management of the Growth Fund. Mr. Wiessman is an Investment Officer of the
Adviser. Prior to October, 1997, Mr. Wiessman was a Portfolio Manager of
Neuberger & Berman, LLC since 1995. Prior to that time, Mr. Wiessman was a
Portfolio Manager of College Retirement Equities Fund since 1991. R. Jay Gerken,
James E. Conroy and Joseph P. Deane, each an Investment Officer of the Adviser,
are responsible for day-to-day management of the Growth and Income Fund, the
Government Fund and the Municipal Fund, respectively.

The International Equity Fund is managed by Maurits E. Edersheim and a team
of seasoned international equity portfolio managers, who collectively have over
125 years of experience and manage in excess of $2 billion of global equity
assets for other investment companies and managed accounts. James Conheady, Rein
van der Does and Jeffrey Russell, all Managing Directors of Smith Barney, are
members of the international equity team and are responsible for the day to day
operations of the Fund, including making all investment decisions.

- --------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
- --------------------------------------------------------------------------------

The Alternative Sales Arrangements permit an investor to choose the method
of purchasing shares of each Fund that is most beneficial given the amount of
the purchase and the length of time the investor expects to hold the shares.

CLASS A SHARES. Class A shares of the Emerging Growth Fund, the
International Equity Fund, the Growth Fund and the Growth and Income Fund are
sold at net asset value plus an initial maximum sales charge of up to 5.00% of
the offering price. Class A shares of the Government Fund and Municipal Bond
Fund are sold at net asset value plus an initial maximum sales charge of up to
4.50% of the offering price. Investments of $500,000 or more are not subject to
any sales charge at the time of purchase, but a contingent deferred sales charge
of one percent may be imposed on redemptions made within one year of the
purchase. Class A shares of each Fund are subject to an ongoing service fee at
an annual rate of 0.25% of each Fund's aggregate average daily net assets (0.10%
for the Money Market Fund) attributable to the Class A shares. Certain purchases
of Class A shares qualify for reduced initial sales charges. See "Purchase of
Shares -- Class A Shares."

CLASS B SHARES. Class B shares of each Fund are sold at net asset value and
are subject to a contingent deferred sales charge if they are redeemed within
five years of purchase. Class B shares of each Fund (other than Money Market
Fund) are subject to an ongoing service fee at an annual rate of 0.25% of each
Fund's aggregate average daily net assets attributable to the Class B shares and
an ongoing distribution fee at an annual rate of 0.75% of each Fund's aggregate
average daily net assets attributable to the Class B shares. The ongoing
distribution fee paid by Class B shares will cause such shares to have a higher
expense ratio and to pay lower dividends than those related to Class A or Class
1 shares. See "Purchase of Shares -- Class B Shares." Class B shares of each
Fund will automatically convert to Class A shares six years after the
shareholder's order to purchase was accepted. See "Conversion Feature" herein
for discussion on applicability of the conversion feature to Class B shares.

CLASS 1 SHARES. Class 1 shares are available only to accounts of previously
established shareholders or members of a family unit comprising husband, wife
and minor children, and Class 1 shareholders of other Common Sense Funds
exchanging their Class 1 shares for Class 1 shares of the Fund. Class 1 shares
of each Fund are sold at net asset value plus an initial maximum sales charge.
See "Purchase of Shares -- Class 1 Shares."

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<PAGE> 40

CONVERSION FEATURE. Class B shares of each Fund will automatically convert
to Class A shares eight years after the shares were purchased and will no longer
be subject to the distribution fee. Such conversion will be on the basis of the
relative net asset values per share, without the imposition of any sales load,
fee or other charge. The purpose of the conversion feature is to relieve the
holders of the Class B shares of each Fund that have been outstanding for a
period of time sufficient for the Distributor to have been substantially
compensated for distribution expenses related to the Class B shares as the case
may be, from the burden of the ongoing distribution fee. Class B shares of a
Fund purchased prior to December 31, 1997 and subsequently redeemed will remain
subject to the CDSC at the rates applicable at the time of purchase.

For purposes of conversion to Class A, shares purchased of each Fund
through the reinvestment of dividends and distributions paid on Class B shares
in a shareholder's Fund account will be considered to be held in a separate
sub-account. Each time any Class B shares in the shareholder's Fund account
(other than those in the sub-account) convert to Class A, an equal pro rata
portion of the Class B shares in the sub-account will also convert to Class A.

The conversion of Class B shares to Class A shares is subject to the
continuing availability of an opinion of counsel to the effect that (i) the
assessment of the distribution fee and incremental transfer agency costs, if
any, with respect to Class B shares does not result in a Fund's dividends or
distributions constituting "preferential dividends" under the Internal Revenue
Code of 1986, as amended (the "Code"), and (ii) the conversion of shares does
not constitute a taxable event under federal income tax law. The conversion of
Class B shares may be suspended if such an opinion is no longer available and
such shares might continue to be subject to the distribution fee for an
indefinite period which may extend beyond the period ending six years after the
shareholder's order to purchase was accepted.

FACTORS FOR CONSIDERATION. In deciding which class of shares to purchase,
investors should take into consideration their investment goals, present and
anticipated purchase amounts, time horizons and temperaments. Investors should
consider whether, during the anticipated life of their investment in each Fund,
the accumulated distribution fees and contingent deferred sales charges on Class
B shares prior to conversion would be less than the initial sales charge on
Class A or Class 1 shares, if any, purchased at the same time, and to what
extent such differential would be offset by the higher dividends per share on
Class A or Class 1 shares. To assist investors in making this determination, the
table under the caption "Expense Synopsis" sets forth examples of the charges
applicable to each class of shares. In this regard, Class A or Class 1 shares
may be more beneficial to the investor who qualifies for reduced initial sales
charges, as described herein under "Purchase of Shares -- Class A Shares --
Class 1 Shares." For these reasons, the Distributor will reject any order of
$500,000 or more for Class B shares.

Class A and Class 1 shares of each Fund are not subject to an ongoing
distribution fee and, accordingly, receive correspondingly higher dividends per
share than Class B shares. However, because initial sales charges, if any, are
deducted at the time of purchase, investors in Class A or Class 1 shares of all
Funds do not have all their funds invested initially and, therefore, initially
own fewer shares. Other investors might determine that it is more advantageous
to purchase Class B shares and have all their funds invested initially, although
remaining subject to ongoing distribution fees and, for a five-year period being
subject to a contingent deferred sales charge. Ongoing distribution fees on
Class B shares will be offset to the extent of the additional funds originally
invested and any return realized on those funds. There can, of course, be no
assurance as to the return, if any, which will be realized on such additional
funds.

Class A or Class 1 shares of all Funds may be appropriate for investors who
prefer to pay the sales charge up front, want to take advantage of the reduced
sales charges available on larger investments, wish to maximize their current
income from the start or prefer not to pay redemption charges. Class B shares
may be appropriate for investors who wish to avoid a front-end sales charge or
wish to put 100% of their investment dollars to work immediately.

The distribution expenses incurred by the Distributor in connection with
the sale of the shares of each Fund other than the Money Market Fund will be
reimbursed, in the case of Class A or Class 1 shares, from the proceeds of the
initial sales charge and, in the case of Class B shares, from the proceeds of
the ongoing distribution fee and any contingent deferred sales charge incurred
upon redemption within five years, of purchase. Registered representations of
PFS Investments Inc. ("PFS Investments") distributing each Fund's shares may
receive differing compensation for selling Class A, Class B or Class 1 shares of
such Fund. INVESTORS SHOULD UNDERSTAND THAT THE PURPOSE AND FUNCTION OF THE
CONTINGENT DEFERRED SALES CHARGE AND ONGOING DISTRIBUTION FEE WITH RESPECT TO
THE CLASS B SHARES OF EACH FUND ARE THE SAME AS THOSE OF THE INITIAL SALES
CHARGE WITH RESPECT TO CLASS A OR CLASS 1 SHARES. See "Distribution Plans."

GENERAL. Dividends paid by each Fund with respect to Class A, Class B and
Class 1 shares will be calculated in the same manner at the same time on the
same day, except that the distribution fees and any incremental transfer agency
costs relating to Class B shares will be borne by the respective class. See
"Dividends, Distributions and Taxes." Shares of a Fund may be exchanged, subject
to certain limitations, for shares of the same class of the other Funds offered
in this Prospectus. See "Shareholder Services -- Exchange Privilege."

38
<PAGE> 41

- --------------------------------------------------------------------------------
PURCHASE OF SHARES
- --------------------------------------------------------------------------------

GENERAL

Each Fund offers two classes of shares to the public on a continuous basis
through the Distributor, an indirect subsidiary of Travelers, 65 East 55th
Street, New York, New York 10022. As of May 20, 1996, all of the previously
outstanding shares of the Growth Fund, the Growth and Income Fund, the
Government Fund and the Municipal Bond Fund were redesignated as Class 1 shares
without any other changes, and Class A and Class B shares were authorized for
issuance. As of May 20, 1996, Class 1 shares were authorized for issuance for
the Emerging Growth Fund and the International Equity Fund. Each Fund offers
Class 1 shares only to accounts of previously established shareholders or
members of a family unit comprising husband, wife and minor children, and Class
1 shareholders of other Common Sense Funds exchanging their Class 1 shares for
Class 1 shares of the Fund. Each class of shares represents an interest in the
same portfolio of investments of a Fund.

Shares of beneficial interest in each Fund are available through PFS
Investments, an affiliate of Travelers. Initial investments in a Fund must be at
least $250 and subsequent investments must be at least $25. The Distributor may
waive the minimum amount for initial investment for shares involving periodic
investments. The Trust reserves the right to suspend the sale of any Fund's
shares to the public in response to conditions in the securities markets or for
other reasons and to refuse any order for the purchase of shares. A shareholder
who has insufficient funds to complete any purchase will be charged a fee of $25
per returned purchase by the Distributor or the Sub-Transfer Agent.

Shares may be purchased on any business day by completing the application
accompanying this Prospectus and forwarding the application through PFS
Investments to PFS Shareholder Services (the "Sub-Transfer Agent"), 3100
Breckinridge Blvd., Bldg. 200, Duluth, Georgia 30199-0062. Checks drawn on
foreign banks must be payable in U.S. dollars and have the routing number of the
U.S. bank encoded on the check.

Additionally, investments of $25,000 or more may be made by having your
bank wire federal funds (funds of the Federal Reserve System) to the
Sub-Transfer Agent's bank. Wire transfers will only be accepted on days your
bank, the Sub-Transfer Agent, the Trust, and NationsBank Global Finance are open
for business. Your wired funds must be received by 4:00 p.m. Eastern time by
NationsBank Global Finance to be credited to your account that day. Otherwise,
your wire purchase will be processed the next business day. The wire purchase
will not be considered made until the wired amount is received and the purchase
is accepted by the Trust. If the wire purchase does not contain the information
stated below, the Trust may reject it. Any delays that may occur in wiring
funds, including delays in processing by the banks, are not the responsibility
of the Trust or Sub-Transfer Agent.

You must pay any charge assessed by your bank for the wire service. If a
wire transfer is rejected, all money received by the Trust, less any costs
incurred by the Trust or Sub-Transfer Agent in rejecting it, will be returned
promptly.

To insure the proper handling of your investment, the following procedures
should be observed:

New Account Procedures -- If the wire transfer is for a new account,
you and your PFS Investments representative should call the Sub-Transfer
Agent's Customer Service Department at (800) 544-5445. They will assist you
in establishing your account and processing your wire purchase.

Existing Account Procedures -- If the wire transfer is for an existing
account, the wire must be sent to NationsBank Global Finance, Routing
Number 111000012, Dallas, Texas. It should state the following:

"Credit PFS Shareholder Services Account #3750618260
For Further Credit to CST Account # ______________ (your account
number)
For ____________________________ (your name)"

Upon executing your wire transfer, you or your PFS Investments
representative should contact the Sub-Transfer Agent's Customer Service
Department to notify them of your name, your Trust account number and the name
of the bank transmitting the federal funds.

Shares are offered at the next determined net asset value per share, with
or without a front-end or contingent deferred sales charge depending on the
method of purchasing shares chosen by the investor, as shown in tables herein.
Net asset value per share of each Fund is computed as of the close of trading on
the New York Stock Exchange ("Exchange") (currently 4:00 p.m. Eastern time) on
each day the Exchange is open for trading. Net asset value per share of each
class of each Fund is determined by dividing the value of all the portfolio
securities held by such Fund, cash, and other assets (including accrued
interest) attributable to each class less all liabilities (including accrued
expenses) attributable to each class by the total number of shares of the class
outstanding of the Fund. The price paid for shares purchased is based on the net
asset value next computed after an order is received by the Sub-Transfer Agent.
For a discussion of the methods used to value the portfolio securities of each
Fund, see the Statement of Additional Information.

Generally, the net asset values per share of the Class A, Class B and Class
1 shares of a Fund are expected to be substantially the same. Under certain
circumstances, however, the per share net asset values of the Class A, Class B
and

39
<PAGE> 42

Class 1 shares may differ from one another, reflecting the daily expense
accruals of the distribution and incremental transfer agency fees, if any,
applicable with respect to the Class B shares and the differential in the
dividends paid on the classes of shares. The price paid for shares purchased is
based on the next calculation of net asset value after an order in proper form
is received by the Sub-Transfer Agent plus applicable Class A or Class 1 sales
charges.

Each class of shares of each Fund represents an interest in the same
portfolio of investments of such Fund, has the same rights and is identical in
all respects, except that (i) Class B shares bear the expenses of the contingent
deferred sales arrangement and any expenses (including the distribution fee and
any incremental transfer agency costs) resulting from such sales arrangement,
(ii) each class has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan pursuant to which its distribution fee and service
fee is paid which relate to a specific class, and (iii) Class B shares are
subject to a conversion feature. Each class has different exchange privileges
and certain different shareholder service options available. See "Distribution
Plans" and "Shareholder Services -- Exchange Privilege." The net income
attributable to Class B shares and the dividends payable on Class B shares will
be reduced by the amount of the distribution fee and incremental expenses, if
any, associated with such distribution fee. Registered representatives of PFS
Investments distributing each Fund's shares may receive differing compensation
for selling Class A, Class B or Class 1 shares.

CLASS A SHARES

For each Fund the public offering price of Class A shares is the next
determined net asset value plus a sales charge, as set forth herein.

SALES CHARGE TABLES

EMERGING GROWTH FUND, INTERNATIONAL EQUITY FUND, GROWTH FUND AND GROWTH AND
INCOME FUND

<TABLE>
<CAPTION>
REALLOWED
SALES CHARGE SALES CHARGE TO PFS
AMOUNT OF AS % OF AS % OF (AS % OF
INVESTMENT OFFERING PRICE AMOUNT INVESTED OFFERING PRICE)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000........................................... 5.00 % 5.26 % 4.50 %
$ 25,000 - $ 49,999......................................... 4.00 4.17 3.60
$ 50,000 - $ 99,999......................................... 3.50 3.63 3.15
$100,000 - $249,999......................................... 3.00 3.09 2.70
$250,000 - $499,999......................................... 2.00 2.04 1.80
$500,000 and more........................................... * * *
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

GOVERNMENT FUND AND MUNICIPAL FUND

<TABLE>
<CAPTION>
REALLOWED
SALES CHARGE SALES CHARGE TO PFS
AMOUNT OF AS % OF AS % OF (AS % OF
INVESTMENT OFFERING PRICE AMOUNT INVESTED OFFERING PRICE)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000........................................... 4.50% 4.71% 4.05%
$ 25,000 - $ 49,999......................................... 4.00 4.17 3.60
$ 50,000 - $ 99,999......................................... 3.50 3.63 3.15
$100,000 - $249,999......................................... 2.50 2.56 2.25
$250,000 - $499,999......................................... 1.50 1.52 1.35
$500,000 and more........................................... * * *
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

*Purchases of Class A shares, which when combined with current holdings of
Class A shares offered with a sales charge, equal or exceed $500,000 in the
aggregate, will be made at net asset value without any initial sales charge,
but will be subject to a CDSC of 1.00% on redemptions made within 12 months of
purchase. The CDSC on Class A shares is payable to PFS Distributors, Inc.,
which in turn pays PFS Investments, Inc. to compensate its Registered
Representatives whose clients make purchases of $500,000 or more. The CDSC is
waived in the same circumstances in which the CDSC applicable to Class B
shares is waived. See "Purchase of Shares -- Class B Shares" in the
Prospectus.

Initial Sales Charge Waivers. Purchases of Class A shares may be made at
net asset value without a sales charge in the following circumstances: (a) sales
to (i) Board members and employees of Travelers and its subsidiaries and any of
the Smith Barney Mutual Funds (including retired Board members and employees);
the immediate families of such persons (including the surviving spouse of a
deceased Board member or employee); and to a pension, profit sharing or other
benefit plan for such persons, (ii) employees of members of the National
Association of Securities Dealers, Inc., provided such sales are made upon the
assurance of the purchaser that the purchase is made for investment purposes and
that the securities will not be resold except through redemption or repurchase;
(b) offers of Class A shares to any other investment company in connection with
the combination of such company with the Fund by merger, acquisition of assets
or otherwise; (c) purchases by shareholders who have redeemed Class A shares in
a Fund (or Class A shares of another fund in the Smith Barney Mutual Funds that
are offered with a sales charge) and who wish to reinvest their redemption
proceeds in a Fund, provided the reinvestment is made within 60 calendar days of
the redemption; (d) purchases by accounts managed by registered investment
advisory subsidiaries of Travelers; and (e) sales through PFS Registered
Representatives where the amounts invested represent the redemption proceeds
from investment companies distributed by an entity other than PFS, on the
condition that (i) the redemption has occured no more than 60 days prior to the
purchase of the shares, (ii) the shareholder paid an initial sales charge on
such

40
<PAGE> 43

redeemed shares and (iii) the shares redeemed were not subject to a deferred
sales charge. PFS Investments may pay its Registered Representatives an amount
equal to 0.40% of the amount invested if the purchase represents redemption
proceeds from an investment company distributed by an entity other than PFS. In
order to obtain such discounts, the purchaser must provide sufficient
information at the time of purchase to permit verification that the purchase
would qualify for the elimination of the sales charges.

Class A shares of the Funds may be purchased at net asset value by the PFS
Primerica Corporation Savings and Retirement Plan (the "Primerica Plan") for its
participants, subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended. Class A shares so purchased are purchased for
investment purposes and may not be resold except by redemption or repurchase by
or on behalf of the Primerica Plan. Class A shares are also offered at net asset
value to accounts opened for shareholders by PFS Investments representatives
where the amounts invested represent the redemption proceeds from investment
companies distributed by an entity other than the Distributor, if such
redemption has occurred no more than 60 days prior to the purchase of shares of
the Trust, and the shareholder paid an initial sales charge and was not subject
to a deferred sales charge on the redeemed account. Class A shares are offered
at net asset value to such persons because of anticipated economies in sales
efforts and sales related expenses. The Trust may terminate, or amend the terms
of, offering shares of the Trust at net asset value to such persons at any time.
The Distributor may pay PFS Investments representatives through whom purchases
are made at net asset value an amount equal to 0.40% of the amount invested if
the purchase represents redemption proceeds from an investment company
distributed by an entity other than the Distributor. Contact the Sub-Transfer
Agent at (800) 544-5445 for further information and appropriate forms.

PFS Investments may be deemed to be an underwriter for purposes of the
Securities Act of 1933. From time to time, the Distributor or its affiliates may
also pay for certain non-cash sales incentives provided to PFS Investments
representatives. Such incentives do not have any effect on the net amount
invested. In addition to the reallowances from the applicable public offering
price described above, the Distributor may, from time to time, pay or allow
additional reallowances or promotional incentives, in the form of cash or other
compensation to PFS Investments representatives that sell shares of the Trust.

Investors purchasing Class A shares may under certain circumstances be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described herein.

Volume Discounts. The size of the investment shown in the preceding tables
applies to the total amount being invested by any person in shares of the
indicated Fund alone, or in any combination of shares of the Fund and shares of
other Funds. A person eligible for a volume discount includes an individual;
members of a family unit comprising husband, wife and minor children; a trustee
or other fiduciary purchasing for a single fiduciary account including pension,
profit-sharing and other employee benefit trusts qualified under Section 401(a)
of the Code, or multiple custodial accounts where more than one beneficiary is
involved if purchases are made by salary reduction and/or payroll deduction for
qualified and nonqualified accounts and transmitted by a common employer entity.
Employer entity for payroll deduction accounts may include trade and craft
associations and any other similar organizations.

Cumulative Purchase Discount. The size of investment shown in the preceding
tables may also be determined by combining the amount being invested in shares
of the indicated Fund plus the current offering price of all shares of other
Funds which have been previously purchased and are still owned. Shares
previously purchased are only taken into account, however, if the Sub-Transfer
Agent is notified by the shareholder at the time an order is placed for a
purchase which would qualify for a reduced sales load on the basis of the
current value of previous purchases and if sufficient information is furnished
to permit confirmation of such purchases.

Letter of Intent. A Letter of Intent provides an opportunity for an
investor to obtain a reduced sales charge by aggregating all investments over a
13-month period to determine the sales load as outlined in the preceding tables.
Each investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal as if it were a single
investment. The size of investment shown in the preceding tables also includes
purchases of shares of any other Common Sense Fund over a 13-month period, based
on the total amount of intended purchases plus the value of all shares at the
offering price of such Funds previously purchased and still owned. An investor
may elect to compute the 13-month period starting up to 90 days before the date
of execution of a Letter of Intent. Each investment made during the period
receives the reduced sales charge applicable to the total amount of the
investment goal. If the goal is not achieved within the period, the investor
must pay the difference between the charge applicable to the aggregate purchases
made and the sales charge previously paid. The initial purchase must be for an
amount equal to at least 5.00% of the minimum total purchase amount of the level
selected. If trades not initially made under a Letter of Intent subsequently
qualify for a lower sales charge through the 90-day back-dating provisions, an
adjustment will be made at the expiration of the Letter of Intent to give effect
to the lower charge. Such adjustment in sales charge will be used to purchase
additional shares for the shareholder at the applicable discount category.
Additional information is contained in the application form included in this
Prospectus.

41
<PAGE> 44

CLASS B SHARES

For each Fund Class B shares are offered at the next determined net asset
value. Class B shares which are redeemed within five years of purchase are
subject to a contingent deferred sales charge at the rates set forth in the
following tables charged as a percentage of the dollar amount subject thereto.
The charge is assessed on an amount equal to the lesser of the then current
market value or the cost of the shares being redeemed. Accordingly, no sales
charge is imposed on increases in net asset value above the initial purchase
price. In addition, no charge is assessed on shares derived from reinvestment of
dividends or capital gains distributions.

The amount of the contingent deferred sales charge, if any, varies
depending on the number of years from the time of payment for the purchase of
Class B shares until the time of redemption of such shares.

EMERGING GROWTH FUND, INTERNATIONAL EQUITY FUND, GROWTH FUND AND GROWTH AND
INCOME FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE
- ---------------------------------------------------------------------------------------------
<S> <C>
First....................................................... 5.00%
Second...................................................... 4.00%
Third....................................................... 3.00%
Fourth...................................................... 2.00%
Fifth....................................................... 1.00%
Sixth and thereafter........................................ None
- ---------------------------------------------------------------------------------------------
</TABLE>

GOVERNMENT FUND AND MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE
- ---------------------------------------------------------------------------------------------
<S> <C>
First....................................................... 4.50%
Second...................................................... 4.00%
Third....................................................... 3.00%
Fourth...................................................... 2.00%
Fifth....................................................... 1.00%
Sixth and thereafter........................................ None
- ---------------------------------------------------------------------------------------------
</TABLE>

In determining whether a contingent deferred sales charge is applicable to
a redemption, the calculation is determined in the manner that results in the
lowest possible rate being charged. Therefore, it is assumed that the redemption
is first of any shares acquired pursuant to reinvestment of dividends or
distributions, second of shares held for over five years and third of shares
held for less than five years. The charge is not applied to dollar amounts
representing an increase in the net asset value since the time of purchase.

To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the second year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired ten
additional shares upon dividend reinvestment. If at such time the investor makes
his or her first redemption of 50 shares (proceeds of $600), ten shares will not
be subject to charge because of dividend reinvestment. With respect to the
remaining 40 shares, the charge is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds is subject to a deferred sales charge at a
rate of 4.00% (the applicable rate in the second year after purchase).

A commission or transaction fee of 4.00% of the purchase amount will be
paid to PFS Investments at the time of purchase. Additionally, the Distributor
may, from time to time, pay additional promotional incentives in the form of
cash or other compensation, to PFS Investments representatives that sell Class B
shares of the Fund.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE

The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan commences
(see "Redemption of Shares"); (c) redemption of shares within 12 months
following the death or disability of the shareholder; (d) redemption of shares
made in connection with qualified distributions from retirement plans of IRA's
upon the attainment of age 59 1/2; (e) involuntary redemptions; and (f)
redemption of shares to effect a combination of a Fund with any investment
company by merger, acquisition of assets or otherwise. In addition, a
shareholder who has redeemed shares from other funds of the Smith Barney Mutual
Funds may, under certain circumstances, reinvest all or part of the redemption
proceeds within 60 days and receive pro rata credit for any CDSC imposed on the
prior redemption. CDSC waivers will be granted subject to confirmation by PFS of
the shareholder's status or holdings, as the case may be.

42
<PAGE> 45

The contingent deferred sales charge is waived on redemptions of Class B
shares (i) following the death or disability (as defined in the Code) of a
shareholder, (ii) in connection with certain distributions from an IRA or other
retirement plan, (iii) pursuant to the Trust's systematic withdrawal plan but
limited to 12% annually of the initial value of the account, and (iv) effected
pursuant to the right of the Trust to liquidate a shareholder's account as
described herein under "Redemption of Shares." See the Statement of Additional
Information for further discussion of waiver provisions.

CLASS 1 SHARES

Class 1 shares are only offered to accounts of previously established
shareholders or members of a family unit comprising husband, wife and minor
children, and Class 1 shareholders of other Common Sense Funds exchanging their
Class 1 shares for Class 1 shares of the Fund. Class 1 shares are offered to the
limited group of investors described above at the next determined net asset
value plus a sales charge, as set forth herein.

SALES CHARGE TABLES

EMERGING GROWTH FUND, INTERNATIONAL EQUITY FUND, GROWTH FUND AND GROWTH AND
INCOME FUND

<TABLE>
<CAPTION>
REALLOWED
TO PFS
INVESTMENTS
AS % OF AS % OF (AS A % OF
SIZE OF NET AMOUNT OFFERING OFFERING
INVESTMENT INVESTED PRICE PRICE)*
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $10,000........................................... 9.29% 8.50% 7.00%
$10,000 but less than $25,000............................... 8.40% 7.75% 6.25%
$25,000 but less than $50,000............................... 6.38% 6.00% 5.00%
$50,000 but less than $100,000.............................. 4.71% 4.50% 3.75%
$100,000 but less than $250,000............................. 3.63% 3.50% 3.00%
$250,000 but less than $400,000............................. 2.56% 2.50% 2.00%
$400,000 but less than $600,000............................. 2.04% 2.00% 1.60%
$600,000 but less than $5,000,000........................... 1.01% 1.00% 0.75%
$5,000,000 or more.......................................... 0.25% 0.25% 0.20%
- -----------------------------------------------------------------------------------------------------
</TABLE>

GOVERNMENT FUND

<TABLE>
<CAPTION>
REALLOWED
TO PFS
INVESTMENTS
SIZE OF AS % OF AS % OF (AS A % OF
INVESTMENT NET AMOUNT OFFERING OFFERING
---------- INVESTED PRICE PRICE)*
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000........................................... 7.24% 6.75% 6.00%
$25,000 but less than $50,000............................... 6.10% 5.75% 5.00%
$50,000 but less than $100,000.............................. 4.44% 4.25% 3.50%
$100,000 but less than $250,000............................. 3.63% 3.50% 2.75%
$250,000 but less than $500,000............................. 2.56% 2.50% 2.00%
$500,000 but less than $1,000,000........................... 2.04% 2.00% 1.60%
$1,000,000 but less than $2,500,000......................... 1.01% 1.00% 0.75%
$2,500,000 but less than $5,000,000......................... 0.50% 0.50% 0.40%
$5,000,000 or more.......................................... 0.25% 0.25% 0.20%
- -----------------------------------------------------------------------------------------------------
</TABLE>

MUNICIPAL BOND FUND

<TABLE>
<CAPTION>
REALLOWED
TO PFS
INVESTMENTS
AS % OF AS % OF (AS A % OF
SIZE OF NET AMOUNT OFFERING OFFERING
INVESTMENT INVESTED PRICE PRICE)*
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000.......................................... 4.99% 4.75% 4.25%
$100,000 but less than $250,000............................. 3.90% 3.75% 3.25%
$250,000 but less than $500,000............................. 3.09% 3.00% 2.50%
$500,000 but less than $1,000,000........................... 2.04% 2.00% 1.60%
$1,000,000 but less than $2,500,000......................... 1.01% 1.00% 0.75%
$2,500,000 but less than $5,000,000......................... 0.50% 0.50% 0.40%
$5,000,000 or more.......................................... 0.25% 0.25% 0.20%
- -----------------------------------------------------------------------------------------------------
</TABLE>

* Additionally, the Distributor will pay to PFS Investments a promotional fee
calculated as a percentage of the sales charge reallowed to PFS Investments.
The percentage used in the calculation is 3%.

Class 1 Shares of the Trust may be purchased at net asset value by the
Primerica Plan for its participants, subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended. Shares so purchased are
purchased for investment purposes and may not be resold except by redemption or
repurchase by or on behalf of the Primerica Plan. Class 1

43
<PAGE> 46

Shares are also offered at net asset value to accounts opened for shareholders
by PFS Investments representatives where the amounts invested represent the
redemption proceeds from investment companies distributed by an entity other
than the Distributor, if such redemption has occurred no more than 60 days prior
to the purchase of shares of the Trust and the shareholder paid an initial sales
charge and was not subject to a deferred sales charge on the redeemed account.
Shares are offered at net asset value to such persons because of anticipated
economies in sales efforts and sales related expenses. The Trust may terminate,
or amend the terms of, offering shares of the Trust at net asset value to such
persons at any time. The Distributor may pay PFS Investment representatives
through whom purchases are made at net asset value an amount equal to 0.40% of
the amount invested if the purchase represents redemption proceeds from an
investment company distributed by an entity other than the Distributor. Contact
the Sub-Transfer Agent at (800) 544-5445 for further information and appropriate
forms.

Investors purchasing Class 1 shares may under certain circumstances be
entitled to reduced sales charges. The circumstances under which such investors
may pay reduced sales charges are described herein under "Purchases of Shares --
Class A Shares -- Volume Discounts, Cumulative Purchase Discount and Letter of
Intent."

- --------------------------------------------------------------------------------
DISTRIBUTION PLANS
- --------------------------------------------------------------------------------

Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment
company to directly or indirectly pay expenses associated with the distribution
of its shares ("distribution expenses") and servicing its shareholders in
accordance with a plan adopted by the investment company's board of directors
and approved by its shareholders. Pursuant to such Rule, the Trustees of the
Trust, and the shareholders of Class A and Class B of each Fund have adopted two
Distribution Plans hereinafter referred to as the "Class A Plan" and the "Class
B Plan." Each Distribution Plan is in compliance with the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. ("NASD Rules")
applicable to mutual fund sales charges. The NASD Rules limit the annual
distribution costs and service fees that a mutual fund may impose on a class of
shares. The NASD Rules also limit the aggregate amount which the Fund may pay
for such distribution costs. Under the Class A Plan, a Fund pays 0.25% per annum
of its average daily net assets attributable to such class of shares to the
Distributor as a service fee. The service fee is intended to cover personal
services provided to Class A shareholders of a Fund by representatives of PFS
Investments and the maintenance of their accounts.

Under the Class B Plan, Class B shares of each Fund are subject to a
combined annual distribution fee and service fee at the rate of 1.00% of a
Fund's aggregate average daily net assets attributable to such class of shares.
Payments by each Fund to the Distributor under the Class B Plan are used to make
service fee payments to PFS Investments of 0.25% per annum of average daily net
assets. Each Fund pays the Distributor 0.75% of the aggregate average daily net
assets of Class B shares, as compensation for providing sales and promotional
activities and services. Such activities and services relate to the sale,
promotion and marketing of the Class B shares. The expenditures of the
Distributor may consist of sales commissions to PFS Investments for selling
Class B shares, compensation, sales incentives and payments to sales and
marketing personnel, and the payment of expenses incurred in its sales and
promotional activities, including advertising expenditures related to the Class
B shares of a Fund and the costs of preparing and distributing promotional
materials with respect to such Class B shares.

The Distributor receives the proceeds of the initial sales charge, if any,
paid upon the purchase of Class A shares and the contingent deferred sales
charge paid upon certain redemptions of Class B shares, and may use these
proceeds for any of the distribution and service expenses described above.

During the period they are in effect, the Class A Plan and the Class B Plan
obligate each Fund to pay service fees and distribution fees to the Distributor
as compensation for its service and distribution activities, not as
reimbursement for specific expenses incurred. Thus, even if the Distributor's
expenses exceed its service or distribution fees for any Fund, the Fund will not
be obligated to pay more than those fees and, if the Distributor's expenses are
less than such fees, it will retain its full fees and realize a profit. Each
Fund will pay the service fees and distribution fees to the Distributor until
either the applicable Plan is terminated or not renewed. In that event, the
Distributor's expenses in excess of service fees and distribution fees received
or accrued through the termination date will be the Distributor's sole
responsibility and not obligations of a Fund. In their annual consideration of
the continuation of each Fund's Plans, the Trustees will review each Plan and
the Distributor's corresponding expenses for each class separately.

Actual distribution expenditures paid by the Distributor with respect to
Class B shares for any given year are expected to exceed the fees received
pursuant to the Class B Plan and payments received pursuant to contingent
deferred sales charges. Such excess will be carried forward and may be
reimbursed by the Fund or its shareholders from payments received through
contingent deferred sales charges in future years and from payments under the
Class B Plan so long as such Plan is in effect. For example, if in a fiscal year
the Distributor incurred distribution expenses under the Class B Plan of $1
million, of which $500,000 was recovered in the form of contingent deferred
sales charges paid by investors and $400,000 was reimbursed in the form of
payments made by the Fund to the Distributor under the Class B Plan, the balance
of $100,000, would be subject to recovery in future fiscal years from such
sources. For the last fiscal year, the unreimbursed expenses incurred by the
Distributor

44
<PAGE> 47

under the Class B Plan and carried forward for the Emerging Growth Fund, the
International Equity Fund, the Growth Fund, the Growth and Income Fund, the
Government Fund and the Municipal Bond Fund were approximately $ or %,
$ or %, $ or %, $ or %, $ or % and $
or %, respectively of the Class B shares' net assets.

If the Class B Plan was terminated or not continued, the Fund would not be
contractually obligated and has no liability to pay the Distributor for any
expenses not previously reimbursed by the Fund or recovered through contingent
deferred sales charges.

- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------

The Trust offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. A CST Shareholder Service Form should be completed
to effect a change or cancel any Common Sense Trust account option. The CST
Shareholder Service Form is provided in the CST New Account Welcome Package.
Additional CST Shareholder Service Forms may be obtained from the Sub-Transfer
Agent. Customer Service representatives are available from 9:00 a.m. to 6:00
p.m. Monday through Friday (Eastern time) to assist you. If you prefer a
Spanish-speaking representative, please call (800) 544-7278 (Monday through
Friday). TDD service is available for the hearing impaired at (800) 824-1721.

SHAREHOLDER SERVICES APPLICABLE TO ALL CLASSES

INVESTMENT ACCOUNT. Each shareholder of record has an investment account
under which shares are held by the Sub-Transfer Agent. The Trust recommends that
shares be left on deposit with the Sub-Transfer Agent. If a share certificate is
desired, it is issued only for full shares (preferably 100 shares or more) and
must be requested in writing from the Sub-Transfer Agent for each transaction.
Except as described below, after each share transaction in an account, the
shareholder will receive a report showing the activity in the account. A
quarterly report will be sent to shareholders utilizing the pre-authorized check
plan. Additions to an investment account may be made at any time by mailing a
check directly to the Sub-Transfer Agent.

REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of a
Fund. Such shares are acquired at net asset value (without a sales charge). This
reinvestment is automatic unless the shareholder instructs otherwise. The
investor may, on the CST Additional New Account Options Form accompanying this
Prospectus, instruct that dividends and capital gains distributions be paid in
cash or be credited to another account of a Fund described in this Prospectus.
If you are changing this option after your account has been established, you
should complete a CST Shareholder Service Form and mail it to the Sub-Transfer
Agent.

PRE-AUTHORIZED CHECK PLAN. A pre-authorized check plan is available under
which a shareholder can authorize the Sub-Transfer Agent to draw on a bank
account on a regular basis to invest pre-determined amounts in shares of a Fund.
To establish or change an existing pre-authorized check plan, a shareholder
should give the Sub-Transfer Agent ten days prior notice before drawing on such
bank account. You may choose to have your draft on any day of the month and the
Sub-Transfer Agent will submit the draft to your bank on that day. Additionally,
the Sub-Transfer Agent will purchase shares in your Common Sense Trust account
on the day indicated for the amount of the draft. If the draft is returned to
the Sub-Transfer Agent from the depository bank, it may attempt to redeposit the
draft in an effort to collect the proceeds before cancelling the shares bought
with the draft. A shareholder may designate in the application to increase the
amount of the pre-authorized check on an automatic basis. Additional information
is contained in the application accompanying this Prospectus. There is no charge
for establishing a pre-authorized check plan. Standard Pre-Authorized Check Plan
minimum draft amount is $25. A charge of $25 will be imposed on a shareholder's
account for any check returned for insufficient funds, stop payments, or closed
account.

RETIREMENT PLAN. Eligible investors may establish individual retirement
accounts ("IRAs"). PFS Investments, Inc., 3100 Breckinridge Blvd., Bldg. 200,
Duluth, Georgia 30199-0062 serves as custodian under IRA, SEP and 403(b)(7)
plans. Details regarding fees, as well as plan administration, and other details
regarding this Retirement Plan is available from PFS Investments' registered
representatives.

EXCHANGE PRIVILEGE. Shares of any Fund may be exchanged for shares of the
same class of any of the other Funds described in this Prospectus or each of the
following funds upon payment of the excess, if any, of the sales charge
applicable to the Fund being acquired over the sales charge paid on the
purchase.

45
<PAGE> 48

<TABLE>
<CAPTION>
Fund Name
- ---------
<C> <S>
- Smith Barney Appreciation Fund
- Concert Peachtree Growth Fund
- Concert Social Awareness Fund
Smith Barney Concert Allocation Series, Inc. -- Balanced
- Portfolio
Smith Barney Concert Allocation Series, Inc. -- Conservative
- Portfolio
Smith Barney Concert Allocation Series, Inc. -- Growth
- Portfolio
Smith Barney Concert Allocation Series, Inc. -- High Growth
- Portfolio
Smith Barney Concert Allocation Series, Inc. -- Income
- Portfolio
- Smith Barney Investment Grade Bond Fund
*- Smith Barney Exchange Reserve Fund
**- Smith Barney Money Funds, Inc. -- Cash Portfolio
</TABLE>

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

* Available for exchange with Class B shares of a Fund

** Available for exchange with Class 1 shares and Class A shares of a Fund

Class B shareholders of a Fund have the ability to exchange their shares
("original shares") for the same class of shares of any other Fund described in
this Prospectus that offers such class of shares ("new shares") in an amount
equal to the aggregate net asset value of the original shares without the
payment of any contingent deferred sales charge otherwise due upon redemption of
the original shares. For purposes of computing the contingent deferred sales
charge payable upon a redemption of the new shares, the holding period for the
original shares is added to the holding period of the new shares. In the event a
Class B shareholder wishes to exchange all or a portion of his or her shares
into any of the funds imposing a higher CDSC than that imposed by a Fund, the
exchanged Class B shares will be subject to the higher applicable CDSC.

Shares of the fund to be acquired must be registered for sale in the
investor's state. Exchanges of shares are sales and may result in a gain or loss
for federal income tax purposes, although if the shares exchanged have been held
for less than 91 days, the sales charge paid on such shares is not included in
the tax basis of the exchanged shares, but is carried over and included in the
tax basis of the shares acquired. A Fund reserves the right to reject any order
to acquire its shares through exchange, or otherwise modify, restrict or
terminate the exchange privilege at any time on 60 days' notice to its
shareholders of any termination or material amendment. See the Statement of
Additional Information.

A shareholder wishing to make an exchange may do so by completing a CST
Exchange Form and sending it to the Sub-Transfer Agent. A signature guarantee
and other documentary evidence may be required for certain registrations other
than individual accounts (e.g., corporation, trust, etc.). Exchanges are
effected at the net asset value next calculated after the request is received in
good order. See "Purchase of Shares" and "Redemption of Shares." If the
exchanging shareholder does not have an account in the Fund whose shares are
being acquired, a new account will be established with the same registration,
dividend and capital gain options as the account from which shares are
exchanged, unless otherwise specified by the shareholder. In order to establish
a systematic withdrawal plan or a pre-authorized bank draft for the new account,
however, an exchanging shareholder must file a specific written request.

A shareholder may utilize the Sub-Transfer Agent's Facsimile Transaction
Line ("FAX") to effect an exchange as long as a signature guarantee or other
documentary evidence is not required. Exchange requests should be properly
signed by all owners of the account and faxed to the Sub-Transfer Agent at (800)
554-2374. Facsimile exchanges may not be available if the shareholder cannot
reach the Sub-Transfer Agent by FAX, whether because all telephone lines are
busy or for any other reason; in such case, a shareholder would have to use the
Fund's regular exchange procedure described above. Facsimile exchanges received
by the Sub-Transfer Agent prior to 4:00 p.m. Eastern time on a regular business
day will be processed at the net asset value per share determined that day.

An investor considering an exchange should refer to the prospectus for
additional information regarding such fund prior to investing.

SYSTEMATIC EXCHANGE. A shareholder has the option to systematically
exchange a dollar or share amount on a monthly basis. You may automatically
exchange shares from one CST account for shares in another CST account on a
regular schedule (e.g., monthly or quarterly). The accounts must have identical
registrations and the originating account must have a minimum balance of $5,000.
The minimum exchange amount is $50. You may add this service to your account by
completing the CST Additional New Account Options Form accompanying this
Prospectus, and submitting it with your initial application. If you are
selecting this option after your account has been established, you should
complete a CST Shareholder Service Form and mail it to the Sub-Transfer Agent.

SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $5,000 or more at the offering price next computed after receipt of
instructions may establish a withdrawal plan. This plan provides for the orderly
use of the entire account, not only the income but also the capital, if
necessary. Each withdrawal constitutes a redemption of shares on which any
capital gain or loss will be recognized. The planholder may arrange for monthly,
quarterly, semiannual or annual checks in any amount not less than $50, in
multiples of $5, unless specifically authorized by the Distributor.

46
<PAGE> 49

Class B shareholders who establish a withdrawal plan may redeem up to 12%
annually of the shareholder's initial account balance without incurring a
contingent deferred sales charge. Initial account balance means the amount of
the shareholder's investment in a Fund at the time the election to participate
in the plan is made. See "Purchase of Shares -- Waiver of Contingent Deferred
Sales Charge" and the Statement of Additional Information.

Under the plan, sufficient shares of a Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gain
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with purchase of additional shares ordinarily will
be disadvantageous to the shareholder because of the duplication of sales
charges. There is no charge for establishing a systematic withdrawal plan. You
may add this service to your account by completing the CST Additional New
Account Options Form accompanying this Prospectus and submitting it with your
initial application. If you are selecting this option after your account has
been established, you should complete a CST Shareholder Service Form and mail it
to the Sub-Transfer Agent.

DOLLAR COST AVERAGING. Special services are available that enable investors
to take advantage of dollar cost averaging through automatic monthly
investments. Dollar cost averaging involves the investment of a fixed dollar
amount in investment vehicles such as the Funds at pre-set intervals. This
practice will result in more shares being purchased when a Fund's net asset
value is relatively low, and fewer shares being purchased when a Fund's net
asset value is relatively high. Therefore, the investor's overall cost of shares
purchased is lower than it would be if the investor purchased a fixed number of
shares at pre-set intervals.

Investors may purchase shares of any of the Funds by using pre-authorized
checks drawn on the investor's bank account. See "Pre-Authorized Check Plan."
Further information on automatic investing and the advantages of dollar cost
averaging is set forth in the Statement of Additional Information.

ACCOUNT STATEMENTS AND REPORTS. A client will receive several statements
and reports as a Common Sense Trust shareholder. Each time a financial
transaction occurs, a confirmation statement identifying the shares bought or
sold will be mailed. On an annual basis, each January, a year-end statement
detailing the previous year's transactions will be provided. Information
required for income-tax reporting will also be distributed to shareholders,
usually in January.

In addition to the above shareholder activity statements, a Semi-Annual and
Annual Financial Report will be distributed which includes a Statement of Net
Assets identifying each security a Fund is invested in.

Also available at the shareholder's request, is an Account Transcript
identifying every financial transaction in an account since it was opened. To
defray administrative expenses involved with providing multiple years worth of
information, there is a $15 charge for each Account Transcript requested.

Additional copies of tax forms are available at the shareholder's request.
There is a $10 charge for each additional tax form requested.

Additional information regarding the Trust's services may be obtained by
contacting the Client Services Department at (800) 544-5445.

SHAREHOLDER SERVICES APPLICABLE TO CLASS A AND CLASS 1 SHAREHOLDERS ONLY

CHECK WRITING PRIVILEGE. A Class A or Class 1 shareholder holding shares of
the Government Fund and the Municipal Bond Fund for which certificates have not
been issued may appoint the Fund's Sub-Transfer Agent as agent and request, on
the application form, special forms of drafts payable through Fidelity National
Bank ("Fidelity"). The Sub-Transfer Agent issues these drafts on behalf of the
Fund in books of ten drafts, for which there is a charge by the Fund of $7.50
per book. These drafts may be made payable by the shareholder to the order of
any person in any amount of $250 or more. When a draft is presented to Fidelity
for payment, full and fractional shares required to cover the amount of the
draft will be redeemed from the shareholder's account by the Sub-Transfer Agent
at the next determined net asset value. Any gain or loss realized on the sale of
shares is a taxable event. See "Redemption of Shares." Drafts will not be
honored for redemption of shares held less than fifteen (15) days, or until the
Sub-Transfer Agent is presented with satisfactory evidence that the purchase
check has cleared. Any shares for which there are outstanding certificates may
not be redeemed by draft. If the amount of the draft is greater than the
proceeds of all uncertificated shares held in the shareholder's account, the
draft will be returned and the shareholder may be subject to additional charges
imposed by banks. A shareholder may not liquidate the entire account by means of
a draft. The check writing privilege may be terminated or suspended at any time
by the Fund or Fidelity. Retirement plans and accounts that are subject to
backup withholding are not eligible for the privilege. A "stop payment" system
is not available on the Government Fund and the Municipal Bond Fund checks.
Fidelity will only honor those drafts authorized by the Trust. Generally, a
properly completed Check Writing Card is all that is required for the Check
Writing Privilege. With certain registrations other than individual or joint
owners, however, other documents and signature guarantees may be necessary. A
shareholder who has insufficient Funds to honor a draft will be charged a fee of
$25 by the Distributor or the Sub-Transfer Agent. To defray administration
expenses involved with providing copies of money market drafts, there is a $10
fee for each draft copy requested.

47
<PAGE> 50

- --------------------------------------------------------------------------------
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------

Shareholders may redeem for cash some or all of their shares of any Fund at
any time by sending a written request in proper form directly to the
Sub-Transfer Agent at 3100 Breckinridge Blvd., Bldg. 200, Duluth, Georgia
30199-0062. There is no charge for a redemption. If you should have any
questions concerning how to redeem your account after reviewing the information
below, please contact the Sub-Transfer Agent at (800) 544-5445, Spanish-speaking
representatives (800) 544-7278 or TDD Line for the Hearing Impaired (800)
824-1721.

As described herein under "Purchase of Shares," redemptions of Class B
shares are subject to a contingent deferred sales charge. In addition, a
contingent deferred sales charge of 1.00% may be imposed on redemptions of Class
A shares made within one year of purchase for investments of $1 million or more.
The contingent deferred sales charge incurred upon redemption is paid to the
Distributor in reimbursement for the distribution-related expenses. See
"Purchase of Shares." A custodian of a retirement plan account may charge
redemption fees based on the custodian's fee schedule.

The request for redemption must be signed by all persons in whose names the
shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption exceed $50,000, or if the
proceeds are not to be paid to the record owner(s) at the record address, if the
shareholder(s) has had an address change in the past 45 days, or if the
shareholder(s) is a corporation, sole proprietor, partnership, trust or
fiduciary, signature(s) must be guaranteed by one of the following: a bank or
trust company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.

Generally, a properly completed CST Redemption Form with any required
signature guarantee is all that is required for a redemption. In some cases,
however, other documents may be necessary. For example, in the case of
shareholders holding certificates, the certificates for the shares being
redeemed must accompany the redemption request. Additional documentary evidence
of authority is also required by the Sub-Transfer Agent in the event redemption
is requested by a corporation, partnership, trust, fiduciary, executor or
administrator. Additionally, if a shareholder requests a redemption from a
Retirement Plan account (IRA or SEP), such request must state whether or not
federal income tax is to be withheld from the proceeds of the redemption check.
All 403(b)(7) distributions will have the 20% mandatory withholding deducted
unless the proceeds are payable to a new Custodian/Trustee as successor
Custodian/Trustee. A Letter of Acceptance from the successor Custodian/Trustee
is required and must accompany the distribution request.

A shareholder may utilize the Sub-Transfer Agent's FAX to redeem their
account as long as a signature guarantee or other documentary evidence is not
required. Redemption requests should be properly signed by all owners of the
account and faxed to the Sub-Transfer Agent at (800) 554-2374. Facsimile
redemptions may not be available if the shareholder cannot reach the
Sub-Transfer Agent by FAX, whether because all telephone lines are busy or for
any other reason; in such case, a shareholder would have to use the Fund's
regular redemption procedure described above. Facsimile redemptions received by
the Sub-Transfer Agent prior to 4:00 p.m. Eastern time on a regular business day
will be processed at the net asset value per share determined that day.

In all cases, the redemption price is the net asset value per share of the
Fund next determined after the request for redemption is received in proper form
by the Sub-Transfer Agent. Payment for shares redeemed will be made by check
mailed within seven days after acceptance by the Sub-Transfer Agent of the
request and any other necessary documents in proper order. Such payment may be
postponed or the right of redemption suspended as provided by the rules of the
SEC. If the shares to be redeemed have been recently purchased by check or
draft, the Sub-Transfer Agent may hold the payment of the proceeds until the
purchase check or draft has cleared, usually a period of up to 15 days. Any
taxable gain or loss will be recognized by the shareholder upon redemption of
shares.

After following the above-stated redemption guidelines, a shareholder(s)
may elect to have the redemption proceeds wire-transferred directly to the
shareholder's bank account of record (defined as a currently established
pre-authorized draft on the shareholder's account with no changes within the
previous 45 days), as long as the bank account is registered in the same name(s)
as the account with the Fund. If the proceeds are not to be wired to the bank
account of record, or to the registered owner(s), a signature guarantee will be
required from all shareholder(s). A $25 service fee will be charged by the
Sub-Transfer Agent to help defray the administrative expense of executing a wire
redemption. Redemption proceeds will normally be wired to the designated bank
account on the next business day following the redemption, and should ordinarily
be credited to your bank account by your bank within 48 to 72 hours.

The Trust may redeem any shareholder account with a net asset value of less
than $200. Three months advance notice of any such involuntary redemption is
required and the shareholder may purchase prior to such redemption the required
value of additional shares in order to avoid such involuntary redemption. Any
involuntary redemption may only occur if the shareholder's account is less than
the required minimum due to shareholder redemptions or if the shareholder's
account did not reach the required minimum because the shareholder failed to
meet the shareholder's obligations under a periodic investment arrangement. Any
taxable gain or loss will be recognized by the shareholder upon redemption of
shares.

48
<PAGE> 51

REINSTATEMENT PRIVILEGE. A Class A or Class B shareholder who has redeemed
shares of a Fund may reinvest any portion or all of the proceeds of such
redemption in Class A shares of any Fund. A Class 1 shareholder who has redeemed
shares of a Fund may reinvest proceeds of such redemption in Class 1 shares of
any Fund. Such reinvestment is made at the net asset value (without sales
charge) next determined after the order is received, which must be within 60
days after the date of the redemption. This privilege can be exercised only
once.

- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------

Unless the shareholder instructs otherwise, all dividends and capital gain
distributions of each Fund are automatically reinvested in additional shares of
the same class of such Fund. See "Shareholder Services -- Reinvestment Plan."
Dividends and distributions paid by a Fund have the effect of reducing the net
asset value per share on the record date by the amount of the dividend or
distribution. Therefore, a dividend or distribution paid shortly after a
purchase of shares by an investor would represent, in substance, a return of
capital to the shareholder (to the extent it is paid on the shares so
purchased), even though it would be subject to income taxes, as discussed below.

The per share dividends on Class B shares will be lower than the per share
dividends on Class A and Class 1 shares as a result of the distribution fees and
any incremental transfer agency fees applicable to such class of shares.

DIVIDENDS AND DISTRIBUTIONS OF THE EMERGING GROWTH FUND, THE INTERNATIONAL
EQUITY FUND, THE GROWTH FUND AND THE GROWTH INCOME FUND. Dividends from stocks
and interest earned from other investments are the main source of income for the
Emerging Growth Fund, the International Equity Fund, the Growth Fund and the
Growth and Income Fund. When a Fund sells portfolio securities, it may realize
capital gains or losses, depending on whether the prices of the securities sold
are higher or lower than the prices the Fund paid to purchase them. Net realized
capital gains represent the total profit from sales of securities minus total
losses from sales of securities including any losses carried forward from prior
years.

The Emerging Growth Fund, the International Equity Fund and the Growth Fund
distribute substantially all their net investment income, less expenses, and any
net realized capital gains annually, normally in December. The Growth and Income
Fund distributes substantially all its net investment income, less expenses
quarterly, normally in March, June, September and December, and it distributes
any net realized capital gains annually, normally in December. Net long-term
gains realized from the Funds' transactions in options, futures and related
options transactions may be paid out more frequently (with short-term gains) as
may be determined from time to time by the Trustees, but only after appropriate
regulatory approval is first obtained. There is no assurance that such
regulatory approval will be obtained.

DIVIDENDS AND DISTRIBUTIONS OF THE GOVERNMENT FUND. Income dividends are
declared each business day, and paid monthly. Any taxable net realized
short-term capital gains may be distributed quarterly and any net realized
long-term gains are distributed to shareholders annually, normally in December.
Net long-term gains realized from the Fund's transactions in options, futures
and related options transactions may be paid out more frequently (with
short-term gains) as may be determined from time to time by the Trustees, but
only after appropriate regulatory approval is first obtained. There is no
assurance that such regulatory approval will be obtained.

In computing interest income, the Fund does not amortize debt discount or
premiums resulting from the purchase of debt securities. Thus in the case of
U.S. Government securities purchased at a premium, interest income is greater
than it would be if the premium was amortized.

DIVIDENDS AND DISTRIBUTIONS OF THE MUNICIPAL BOND FUND. Income dividends
are declared each business day, and paid monthly. The daily dividend is a fixed
amount determined at least monthly which is not expected to exceed the net
income of the Fund for the month divided by the number of business days during
the month. The Fund intends to distribute after the end of a fiscal year the net
capital gains, if any, realized during the fiscal year, except to the extent
that such gains are offset by capital loss carryovers of the Fund.

Net long-term gains realized from transactions in futures and related
options transactions may be paid out more frequently (with short-term gains) as
may be determined from time to time by the Trustees, but only after appropriate
regulatory approval is first obtained. There is no assurance that such
regulatory approval will be obtained.

TAXES. Each Fund has qualified and intends to qualify as a "regulated
investment company" under the Code. By so qualifying and by distributing all of
its net investment income and net realized capital gains within the time periods
specified in the Code, each Fund would not be required to pay any federal income
tax. Dividends from net investment income and distributions from any net
realized short-term capital gains are taxable to shareholders as ordinary
income. All such dividends are taxable to the shareholder whether or not
reinvested in shares. However, shareholders not subject to tax on their income
will not be required to pay tax on amounts distributed to them.

In addition, the Municipal Bond Fund intends to invest in sufficient
Municipal Bonds to permit payment of "exempt-interest dividends" (as defined in
the Code). Dividends paid by the Fund from the net tax-exempt interest earned
from

49
<PAGE> 52

Municipal Securities qualify as exempt-interest dividends if, at the close of
each quarter of the fiscal year, at least 50% of the value of the total assets
of the Fund consists of Municipal Bonds. See "Federal Tax Information" in the
Statement of Additional Information.

Exempt-interest dividends paid to shareholders are not includable in the
shareholder's gross income for federal income tax purposes. The percentage of
the total dividends paid by the Fund during any taxable year that qualify as
exempt-interest dividends will be the same for all shareholders of the Fund
receiving dividends during such year.

Dividends and interest received by the Emerging Growth Fund, the
International Equity Fund, the Growth Fund and the Growth and Income Fund may
give rise to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the rate of foreign tax in
advance since the amount of a Fund's assets to be invested in various countries
is not known. Such foreign taxes would reduce the income of the Fund distributed
to shareholders.

If, at the end of the International Equity Fund's taxable year, more than
50% of the value of its total assets consists of stock or securities of foreign
corporations, the Fund may make an election pursuant to which foreign income
taxes paid by it will be treated as paid directly by its shareholders. The Fund
will make this election only if it deems the election to be in the best
interests of its shareholders, and will notify shareholders in writing each year
if it makes the election and the amount of foreign taxes to be treated as paid
by the shareholders. If the Fund makes such an election, the amount of such
foreign taxes would be included in the income of shareholders, and a shareholder
other than a foreign corporation or non-resident alien individual could claim
either a credit or, provided the shareholder itemizes deductions, a deduction
for U.S. federal income tax purposes for such foreign taxes. Shareholders who
choose to utilize a credit (rather than a deduction) for foreign taxes will be
subject to the limitation that the credit may not exceed the shareholders' U.S.
tax (determined without regard to the availability of the credit) attributed to
their total foreign source taxable income. For this purpose, the portion of
dividends and distributions paid by the Fund from its foreign source income will
be treated as foreign source income. The Fund's gains and losses from the sale
of securities and from certain foreign currency gains and losses will generally
be treated as derived from U.S. sources. The limitation on the foreign tax
credit is applied separately to foreign source "passive income," such as the
portion of dividends received from the Fund that qualifies as foreign source
income. In addition, the foreign tax credit is allowed to offset only 90% of the
alternative minimum tax imposed on corporations and individuals. Because of
these limitations, shareholders may be unable to claim a credit for the full
amount of their proportionate share of the foreign income taxes paid by the
Fund.

The foregoing is a brief summary of some of the federal income tax
considerations affecting the Trust and its investors who are U.S. residents or
U.S. corporations. Investors should consult their tax advisors for more detailed
tax advice including state and local tax considerations. Foreign investors
should consult their own counsel for further information as to the U.S. and
their country of residence or citizenship tax consequences of receipt of
dividends and distributions from the Trust.

Shareholders are notified annually of the federal tax status of dividends
and capital gains distributions, including information as to the portion
(including short-term capital gains) taxable as ordinary income, and the portion
taxable as long-term capital gains. TO AVOID BEING SUBJECT TO A 31% FEDERAL
BACKUP WITHHOLDING ON DIVIDENDS, DISTRIBUTIONS AND REDEMPTION PAYMENTS,
SHAREHOLDERS MUST FURNISH THE FUND WITH THEIR CORRECT TAXPAYER IDENTIFICATION
NUMBER. Shareholders are urged to consult their tax advisers with specific
reference to their own tax situation.

STATE AND LOCAL TAXES. The exemption of interest income for federal income
tax purposes may not result in similar exemptions under the laws of a particular
state or local taxing authority. Income distributions may be taxable to
shareholders under state or local law as dividend income even though a portion
of such distributions may be derived from interest on tax-exempt obligations
which, if realized directly, would be exempt from such income taxes. It is
recommended that shareholders consult their tax advisers for information in this
regard. The Municipal Bond Fund will report annually to its shareholders the
percentage and source, on a state-by-state basis, of interest income earned on
Municipal Bonds held by the Fund during the preceding year. Distributions paid
by the Fund from sources other than tax-exempt interest are generally subject to
taxation at the state and local levels.

TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS. Gains or losses on each
Fund's transactions in certain listed options (except certain equity options) on
securities or indices, futures or options on futures generally are treated as
60% long-term and 40% short-term, and positions held by a Fund at the end of its
fiscal year generally are required to be marked to market, with the result that
unrealized gains and losses are treated as though they were realized. Gains and
losses realized by a Fund on transactions in over-the-counter options generally
are short-term capital gains or losses unless the option is exercised in which
case the character of the gain or loss is determined by the holding period of
the underlying security. The Code contains certain "straddle" rules which
require deferral of losses incurred in certain transactions involving hedged
positions to the extent a Fund has unrealized gains in offsetting positions and
generally terminate the holding period of the subject position. Additional
information is set forth in the Statement of Additional Information.

50
<PAGE> 53

- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------

From time to time, each of the Funds may advertise its total return for
prior periods. Any such advertisement would include at least average annual
total return quotations for one year, five years and for the life of each Fund.
Other total return quotations, aggregate or average, over other time periods may
also be included.

The total return of a Fund for a particular period represents the increase
(or decrease) in the value of a hypothetical investment in the Fund from the
beginning to the end of the period. Total return is calculated by subtracting
the value of the initial investment from the ending value and showing the
difference as a percentage of the initial investment; the calculation assumes
the initial investment is made at the maximum public offering price for Class A
and Class 1 shares, if applicable; that all income dividends or capital gains
distributions during the period are reinvested in Fund shares at net asset
value; and that any applicable contingent deferred sales charge has been paid.
Total return will vary depending on market conditions, the securities comprising
a Fund's portfolio, a Fund's operating expenses and unrealized net capital gains
or losses during the period. Total return is based on historical earnings and
asset value fluctuations and is not intended to indicate future performance. No
adjustments are made to reflect any income taxes payable by shareholders on
dividends and distributions paid by the Fund.

Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equate the initial amount invested to the ending redeemable value.

In addition to total return information, the Government Fund and the
Municipal Bond Fund may also advertise their current "yield." Yield figures are
based on historical earnings and are not intended to indicate future
performance. Yield is determined by analyzing the Fund's net income per share
for a 30-day (or one-month) period (which period will be stated in the
advertisement), and dividing by the maximum offering price per share on the last
day of the period. A "bond equivalent" annualization method is used to reflect a
semiannual compounding. The Municipal Bond Fund's "tax-equivalent yield" is
calculated by determining the rate of return that would have to be achieved on a
fully taxable investment to produce the after-tax equivalent of the Municipal
Bond Fund's yield, assuming certain tax brackets for a Fund shareholder.

For purposes of calculating yield quotations, net income is determined by a
standard formula prescribed by the SEC to facilitate comparison with yields
quoted by other investment companies. Net income computed for this formula
differs from net income reported by a Fund in accordance with generally accepted
accounting principles and from net income computed for federal income tax
reporting purposes. Thus the yield computed for a period may be greater or
lesser than a Fund's then current dividend rate.

A Fund's yield is not fixed and will fluctuate in response to prevailing
interest rates and the market value of portfolio securities, and as a function
of the type of securities owned by a Fund, portfolio maturity and a Fund's
expenses.

Yield quotations should be considered relative to changes in the net asset
value of a Fund's shares, a Fund's investment policies, and the risks of
investing in shares of a Fund. The investment return and principal value of an
investment in a Fund will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.

Yield and total return are calculated separately for each Fund's Class A,
Class B and Class 1 shares. Class A and Class 1 total return figures include the
maximum sales charge applicable; Class B total return figures include any
applicable contingent deferred sales charge. Because of the differences in sales
charges and distribution fees, the total return for each of the classes will
differ.

In reports or other communications to shareholders or in advertising
material, a Fund may compare its performance with that of other mutual funds as
listed in the ratings or rankings prepared by Lipper Analytical Services, Inc.,
Donaghue's Money Market Report, CDA, Ibbotson Associates, Morningstar Mutual
Funds or similar independent services which monitor the performance of mutual
funds or with the Consumer Price Index, Dow Jones Industrial Average, Salomon
Brothers' various indices, Standard & Poor's or NASDAQ, or with other
international indices, or other appropriate indices of investment securities or
with investment or savings vehicles. The performance information may also
include evaluations of a Fund published by nationally recognized ranking
services and by nationally recognized financial publications. Such comparative
performance information will be stated in the same terms in which the
comparative data or indices are stated. Any such advertisement would also
include the standard performance information required by the SEC as described
above. For these purposes, the performance of a Fund, as well as the performance
of other mutual funds or indices, do not reflect sales charges, the inclusion of
which would reduce Fund performance.

The Funds may, from time to time, illustrate the benefits of tax-deferral
by comparing taxable investments to investments made through tax-deferred
retirement plans and the Funds may illustrate in graph or chart form, or
otherwise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan to investments made in a rising market.

51
<PAGE> 54

The Funds may, from time to time, in reports or other communications to
shareholders or in advertising material, illustrate the benefits of compounding
at various assumed rates of return. Such illustrations may be in the form of
charts or graphs and will not be based on historical returns experienced by the
Funds. The Funds may also utilize performance information in hypothetical
illustrations provided in narrative form. These hypotheticals will be
accompanied by the standard performance information required by the SEC as
described above.

The Funds may, from time to time, in communications to shareholders or in
advertising material illustrate in graph, chart or narrative form: a) the
importance of investment goals such as owning a home, funding a college
education, or saving money for retirement. These illustrations may depict the
rising costs of college and mortgage payments and the declining number of
workers supporting the Social Security system. Fund communications and
advertisements may also encourage investments in the Funds for purposes of
helping families to achieve their investment goals; b) the benefits and
popularity of purchasing term insurance as opposed to other, more expensive
types of insurance in addition to the possible benefits of investing the savings
in mutual funds; c) the growth of mutual fund assets as reported by industry
publications; and d) the theory of decreasing responsibility, i.e. as
individuals grow older and their assets increase, the need for life insurance
generally decreases.

The Municipal Bond Fund may, from time to time, illustrate the growth
advantage of tax-free income by comparing hypothetical taxable growth
compounding examples to hypothetical tax-free growth compounding examples.

The Trust's Annual Report contains additional performance information with
respect to each Fund discussed in this Prospectus. A copy of the Annual Report
may be obtained without charge by calling or writing the Trust at the telephone
number and address printed on the cover page of this Prospectus.

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------

ORGANIZATION OF THE TRUST. The Trust was organized under the laws of the
Commonwealth of Massachusetts and is a business entity commonly known as a
"Massachusetts business trust." It is a diversified, open-end management
investment company authorized to issue an unlimited number of Class A, Class B
and Class 1 shares of beneficial interest of $.01 par value, in the Funds.
Shares issued are fully paid, non-assessable and have no preemptive or
conversion rights. In the event of liquidation of any Fund, shareholders of such
Fund are entitled to share pro rata in the net assets of the Fund available for
distribution to shareholders.

Shareholders are entitled to one vote for each full share held and to
fractional votes for fractional shares held in the election of Trustees (to the
extent hereafter provided) and on other matters submitted to the vote of
shareholders. Each class of shares represents interest in the assets of each
Fund and has identical voting, dividend, liquidation and other rights on the
same terms and conditions, except that the distribution fees and service fees
and any incremental transfer agency fees related to each class of shares of each
Fund are borne solely by that class, and each class of shares of each Fund has
exclusive voting rights with respect to provisions of the Trust's Class A Plan
and Class B Plan which pertain to that class of each Fund. All shares have equal
voting rights, except that only shares of the respective Fund are entitled to
vote on matters concerning only that Fund. There will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees holding office have been elected by
shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Shareholders may, in
accordance with the Declaration of Trust, cause a meeting of shareholders to be
held for the purpose of voting on the removal of Trustees. Except as set forth
above, the Trustees shall continue to hold office and appoint successor
Trustees.

The Declaration of Trust establishing the Trust, dated January 29, 1987, a
copy of which together with all amendments thereto (the "Declaration"), is on
file in the office of the Secretary of the Commonwealth of Massachusetts,
provides that the name "Common Sense Trust" refers to the Trustees under the
Declaration collectively as Trustees, not as individuals or personally; and no
Trustee, officer or shareholder of the Trust shall be held to any personal
liability, nor shall resort be had to their private property for the
satisfaction of any obligation or liability of any Fund but the assets of the
applicable Fund only shall be liable.

SHAREHOLDER INQUIRIES. Shareholder inquiries should be directed by writing
the Sub-Transfer Agent at 3100 Breckinridge Blvd., Bldg. 200, Duluth, Georgia
30199-0062 or calling (800) 544-5445.

SUB-TRANSFER AGENT. First Data Investor Services Group, Inc. ("First
Data"). First Data is located at One Exchange Place, Boston, Mass. 02109 serves
as Transfer Agent for the Fund.

LEGAL COUNSEL. Sullivan & Worcester LLP, 1025 Connecticut Avenue N.W.,
Washington, D.C. 20036, is legal counsel to the Trust.

INDEPENDENT AUDITORS. Ernst & Young LLP, 1221 McKinney, Suite 2400,
Houston, Texas 77010, are the independent auditors for the Trust.

52
<PAGE> 55

STATEMENT OF ADDITIONAL INFORMATION

CONCERT INVESTMENT SERIES

388 Greenwich Street

New York, NY 10013

February 27, 1998

Concert Investment Series (the "Trust") is a diversified, open-end
management investment company with six separate Funds which are discussed
herein: the Emerging Growth Fund (the "Emerging Growth Fund"), the International
Equity Fund (the "International Equity Fund"), the Growth Fund (the "Growth
Fund"), the Growth and Income Fund (the "Growth and Income Fund"), the
Government Fund (the "Government Fund") and the Municipal Bond Fund (the
"Municipal Bond Fund"). Each Fund is in effect a separate fund issuing its own
shares.

This Statement of Additional Information is not a Prospectus but contains
information in addition to and more detailed than that set forth in the
Prospectus bearing the same date and should be read in conjunction with the
Prospectus. A Prospectus may be obtained without charge by writing PFS
Distributors, Inc. at 3100 Breckinridge Boulevard, Bldg. 200, Duluth, Georgia
30199-0001. Please call Customer Service at (800) 544-5445 for information on
the Funds.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
General Information......................................... B-2
Goals and Investment Policies............................... B-2
Investment Restrictions..................................... B-17
Trustees and Officers....................................... B-22
Investment Advisory Agreements.............................. B-24
Distributor................................................. B-26
Portfolio Turnover.......................................... B-26
Distribution Plans.......................................... B-26
Portfolio Transactions and Brokerage........................ B-28
Determination of Net Asset Value............................ B-32
Purchase and Redemption of Shares........................... B-33
Exchange Privilege.......................................... B-35
Dividends, Distributions and Federal Taxes.................. B-36
Other Information........................................... B-39
Report of Independent Accountants........................... B-
Financial Statements........................................ B-
Notes to Financial Statements............................... B-
Appendix 1 -- Commercial Paper, Bond and Other Short- and
Long-Term Ratings......................................... B-108
Appendix 2 -- Municipal Bond Ratings........................ B-110
</TABLE>

<PAGE> 56

GENERAL INFORMATION

Smith Barney Mutual Funds Management Inc. (the "Adviser") was incorporated
on March 12, 1968 and renders investment management advice to investment
companies with aggregate assets under management of approximately $ billion
as of December 31, 1997. The Adviser is an affiliate of Smith Barney Inc. and a
wholly-owned subsidiary of Salomon Smith Barney Holdings Inc. which in turn is a
wholly-owned subsidiary of Travelers Group Inc. ("Travelers"). Travelers is
engaged primarily in investment services, consumer finance services, life
insurance services and property and casualty insurance services.

PFS Distributors, Inc. (the "Distributor") is an indirect wholly-owned
subsidiary of Travelers. PFS Shareholder Services (the "Transfer Agent"), is a
subsidiary of PFS Services, Inc., an affiliate of Primerica Financial Services,
Inc. ("Primerica Financial"). PFS Investments, Inc. ("PFS Investments") is an
indirect wholly-owned subsidiary of Travelers.

As of December 19, 1997, no person was known to own beneficially or of
record as much as five percent of the outstanding shares of any Fund of the
Trust except as listed below.

<TABLE>
<CAPTION>
NUMBER
NAME AND ADDRESS CLASS OF OF SHARES PERCENTAGE
OF HOLDER FUND SHARES OWNED OWNERSHIP
---------------- ---- -------- ----------- ----------
<S> <C> <C> <C> <C>
Margaret C Wadlington Municipal Bond A 52,141 7.8%
8385 Westfair Dr
Germantown, TN 38139-3259
William L Bevins Municipal Bond B 10,729 5.3%
6900 Buncombe Rd
Lot #26
Shreveport. La 71129-9492
</TABLE>

- ---------------
PFS Investments acts as custodian for certain employee benefit plans and
individual retirement accounts.

GOALS AND INVESTMENT POLICIES

The following disclosures supplement disclosures set forth under an
identical caption in the Prospectus and do not, standing alone, present a
complete and accurate explanation of the matters disclosed. Readers must refer
also to this caption in the Prospectus for a complete presentation of the
matters disclosed below.

EMERGING GROWTH FUND

The Fund seeks capital appreciation by investing in a portfolio of
securities consisting principally of common stocks of small and medium sized
companies considered by the Adviser to be emerging growth companies.

INTERNATIONAL EQUITY FUND

The Fund seeks total return on its assets from growth of capital and
income. The Fund seeks to achieve its goal by investing at least 65% of its
assets in a diversified portfolio of equity securities of established non-United
States issuers.

GROWTH FUND

The Fund seeks capital appreciation through investments in common stocks
and options on common stocks. The Fund may also engage in transactions involving
stock index futures contracts and options on such contracts. Any income realized
on its investments will be purely incidental to the goal of capital
appreciation.

GROWTH AND INCOME FUND

The Fund seeks reasonable growth and income through investments in equity
securities that provide dividend and interest income, including common and
preferred stocks and securities convertible into common and preferred stocks.

B-2
<PAGE> 57

In general, the Fund intends to invest in securities that have yielded a
dividend or interest return to security holders within the past twelve months,
however, it may invest in non-income producing investments held for anticipated
increase in value. The Fund may also engage in transactions in options, futures
contracts, and options on futures.

GOVERNMENT FUND

The Fund seeks high current return consistent with preservation of capital
by investing in debt securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. The Fund may also purchase and sell options and
engage in transactions in interest rate futures contracts and options on such
contracts in order to hedge against changes in interest rates.

The Fund seeks high current return consistent with preservation of capital.
The Fund intends to invest at least 80% of its assets in debt securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities.
Repurchase agreements may be entered into with domestic banks or broker-dealers
deemed creditworthy by the Adviser solely for purposes of investing the Fund's
cash reserves or when the Fund is in a temporary defensive posture. The Fund may
write covered or fully collateralized call options on U.S. Government securities
and enter into closing or offsetting purchase transactions with respect to
certain of such options. The Fund may also write secured put options and enter
into closing or offsetting purchase transactions with respect to such options.
The Fund may write both listed and over-the-counter options as described in the
Prospectus.

The Fund seeks to obtain a high current return from the following sources:

- interest paid on the Fund's portfolio securities;

- premiums earned upon the expiration of options written;

- net profits from closing transactions; and

- net gains from the sale of portfolio securities on the exercise of
options or otherwise.

The Fund is not designed for investors seeking long-term capital
appreciation. Moreover, varying economic and market conditions may affect the
value of and yields on U.S. Government securities. Accordingly, there is no
assurance that the Fund's investment objective will be achieved.

MORTGAGE RELATED SECURITIES. The Government Fund may invest in
mortgage-related securities, including those representing an undivided ownership
interest in a pool of mortgage loans, e.g., GNMA, FNMA, FHLMC Certificates.

GOVERNMENT NATIONAL MORTGAGE ASSOCIATION. The Government National Mortgage
Association ("GNMA") is a wholly owned corporate instrumentality of the United
States within the U.S. Department of Housing and Urban Development. GNMA's
principal programs involve its guarantees of privately issued securities backed
by pools of mortgages.

GNMA CERTIFICATES. Certificates of the Government National Mortgage
Association ("GNMA Certificates") are mortgage-backed securities, which evidence
an undivided interest in a pool of mortgage loans. GNMA Certificates differ from
bonds in that principal is paid back monthly by the borrower over the term of
the loan rather than returned in a lump sum at maturity. GNMA Certificates that
the Fund purchases are the "modified pass-through" type. "Modified pass-through"
GNMA Certificates entitle the holder to receive a share of all interest and
principal payments paid and owned on the mortgage pool net of fees paid to the
"issuer" and GNMA, regardless of whether or not the mortgagor actually makes the
payment.

GNMA GUARANTEE. The National Housing Act authorizes GNMA to guarantee the
timely payment of principal and interest on securities backed by a pool of
mortgages insured by the Federal Housing Administration ("FHA") or the Farmers'
Home Administration ("FMHA"), or guaranteed by the Veterans Administration
("VA"). Once a pool of such mortgages is assembled and approved by GNMA, the
GNMA guarantee is backed by the full faith and credit of the U.S. Government.
GNMA is also empowered to borrow without limitation from the U.S. Treasury if
necessary to make any payments required under its guarantee.

B-3
<PAGE> 58

LIFE OF GNMA CERTIFICATES. The average life of a GNMA Certificate is likely
to be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of principal
investment long before maturity of the mortgages in the pool. The Fund normally
will not distribute principal payments (whether regular or prepaid) to its
shareholders. Rather, it will invest such payments in additional mortgage-
related securities of the types described above or other U.S. Government
securities. Interest received by the Fund will, however, be distributed to
shareholders. Foreclosures impose no risk to principal investment because of the
GNMA guarantee.

As prepayment rates of the individual mortgage pools vary widely, it is not
possible to predict accurately the average life of a particular issue of GNMA
Certificates. However, statistics published by the FHA indicate that the average
life of single-family dwelling mortgages with 25- to 30-year maturities, the
type of mortgages backing the vast majority of GNMA Certificates, is
approximately 12 years. Therefore, it is customary to treat GNMA Certificates as
30-year mortgage-backed securities which prepay fully in the twelfth year.

YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of interest of
GNMA Certificates is lower than the interest rate paid on the VA-guaranteed or
FHA-insured mortgages underlying the Certificates, but only by the amount of the
fees paid to GNMA and the GNMA Certificate issuer. For the most common type of
mortgage pool, containing single-family dwelling mortgages, GNMA receives an
annual fee of 0.06 of one percent of the outstanding principal for providing its
guarantee, and the GNMA Certificate issuer is paid an annual servicing fee of
0.44 of one percent for assembling the mortgage pool and for passing through
monthly payments of interest and principal to Certificate holders.

The coupon rate by itself, however, does not indicate the yield which will
be earned on the GNMA Certificates for the following reasons:

1. Certificates are usually issued at a premium or discount, rather
than at par.

2. After issuance, Certificates usually trade in the secondary market
at a premium or discount.

3. Interest is paid monthly rather than semi-annually as is the case
for traditional bonds. Monthly compounding has the effect of raising the
effective yield earned on GNMA Certificates.

4. The actual yield of each GNMA Certificate is influenced by the
prepayment experience of the mortgage pool underlying the Certificate. If
mortgagors prepay their mortgages, the principal returned to Certificate
holders may be reinvested at higher or lower rates.

In quoting yields for GNMA Certificates, the customary practice is to
assume that the Certificates will have a 12 year life. Compared on this basis,
GNMA Certificates have historically yielded roughly 1/4 of 1.00% more than high
grade corporate bonds and 1/2 of 1.00% more than U.S. Government and U.S.
Government agency bonds. As the life of individual pools may vary widely,
however, the actual yield earned on any issue of GNMA Certificates may differ
significantly from the yield estimated on the assumption of a twelve-year life.

MARKET FOR GNMA CERTIFICATES. Since the inception of the GNMA
mortgage-backed securities program in 1970, the amount of GNMA Certificates
outstanding has grown rapidly. The size of the market and the active
participation in the secondary market by securities dealers and many types of
investors make GNMA Certificates highly liquid instruments. Quotes for GNMA
Certificates are readily available from securities dealers and depend on, among
other things, the level of market rates, the Certificate's coupon rate and the
prepayment experience of the pool of mortgages backing each Certificate.

FHLMC SECURITIES. The Federal Home Loan Mortgage Corporation ("FHLMC") was
created in 1970 to promote development of a nationwide secondary market in
conventional residential mortgages. FHLMC issues two types of mortgage
pass-through securities, mortgage participation certificates ("PCs") and
guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in
that each PC represents a pro rata share of all interest and principal payments
made and owed on the underlying pool. Like GNMA Certificates, PCs are assumed to
be prepaid fully in their twelfth year. FHLMC guarantees timely monthly payment
of interest of PCs and the ultimate payment of principal.

B-4
<PAGE> 59

GMCs also represent a pro rata interest in a pool of mortgages. However,
these instruments pay interest semiannually and return principal once a year in
guaranteed minimum payments. The expected average life of these securities is
approximately 10 years.

FNMA SECURITIES. The Federal National Mortgage Association ("FNMA") was
established in 1938 to create a secondary market in mortgages insured by the
FHA. FNMA issues guarantee mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in that each
Certificate represents a pro rata share of all interest and principal payments
made and owed on the underlying pool. FNMA guarantees timely payment of interest
on FNMA Certificates and the full return of principal. Like GNMA Certificates,
FNMA Certificates are assumed to be prepaid fully in their twelfth year.

Risk of foreclosure of the underlying mortgages is greater with FHLMC and
FNMA securities because, unlike GNMA securities, FHLMC and FNMA securities are
not guaranteed by the full faith and credit of the U.S. Government.

MUNICIPAL BOND FUND

The Fund seeks as high a level of current interest income exempt from
federal income tax as is consistent with the preservation of capital.

MUNICIPAL BONDS. "Municipal Bonds" include debt obligations issued to
obtain funds for various public purposes, including construction of a wide range
of public facilities, refunding of outstanding obligations and obtaining funds
for general operating expenses and loans to other public institutions and
facilities. In addition, certain types of industrial development obligations are
issued by or on behalf of public authorities to finance various
privately-operated facilities. Such obligations are included within the term
Municipal Bonds if the interest paid thereon is exempt from federal income tax.
Municipal Bonds also include short-term tax-exempt municipal obligations such as
tax anticipation notes, bond anticipation notes, revenue anticipation notes, and
variable rate demand notes.

The two principal classifications of Municipal Bonds are "general
obligations" and "revenue" or "special obligations." General obligations are
secured by the issuer's pledge of full faith, credit, and taxing power for the
payment of principal and interest. Revenue or special obligations are payable
only from the revenues derived from a particular facility or class of facilities
or, in some cases, from the proceeds of a special excise tax or from other
specific revenue sources such as the user of the facility being financed.
Industrial development bonds, including pollution control bonds, are revenue
bonds and do not constitute the pledge of the credit or taxing power of the
issuer of such bonds. The payment of the principal and interest on such
industrial revenue bonds depends solely on the ability of the user of the
facilities financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment. The Fund's portfolio may also include "moral obligation" bonds which
are normally issued by special purpose public authorities. If an issuer of moral
obligation bonds is unable to meet its obligations, the repayment of such bonds
becomes a moral commitment but not a legal obligation of the state or
municipality which is the issuer of the bonds.

When the Fund engages in when-issued and delayed delivery transactions, the
Fund relies on the buyer or seller, as the case may be, to consummate the trade.
Failure of the buyer or seller to do so may result in the Fund missing the
opportunity of obtaining a price considered to be advantageous.

On a temporary basis, due to market conditions, the Fund may invest in
Municipal Notes which include demand notes and short-term municipal obligations
(such as tax anticipation notes, revenue anticipation notes, construction loan
notes and short-term discount notes) and tax-exempt commercial paper, provided
that such obligations have the ratings described in the Prospectus. Demand notes
are obligations which normally have a stated maturity in excess of one year, but
permit any holder to demand payment of principal plus accrued interest upon a
specified number of days' notice. Frequently, such obligations are secured by
letters of credit or other credit support arrangement provided by banks. The
issuer of such notes normally has a corresponding right, after a given period,
to prepay at its discretion the outstanding principal of the note plus accrued
interest upon a specified number of days' notice to the noteholders. The
interest rate on a demand

B-5
<PAGE> 60

note may be based on a known lending rate, such as a bank's prime rate, and may
be adjusted when such rate changes, or the interest rate on a demand note may be
a market rate that is adjusted at specified intervals. Participation interests
in variable rate demand notes will be purchased only if, in the opinion of
counsel, interest income on such interest will be tax-exempt when distributed as
dividends to shareholders.

Yields on Municipal Bonds are dependent on a variety of factors, including
the general condition of the money market and of the municipal bond market, the
size of a particular offering, the maturity of the obligation, and the rating of
the issue. The ability of the Fund to achieve its investment objective is also
dependent on the continuing ability of the issuers of the Municipal Bonds in
which the Fund invests to meet their obligations for the payment of interest and
principal when due. There are variations in the risks involved in holding
Municipal Bonds, both within a particular classification and among
classifications, depending on numerous factors. Furthermore, the rights of
holders of Municipal Bonds and the obligations of the issuers of such Municipal
Bonds may be subject to applicable bankruptcy, insolvency and similar laws and
court decisions affecting the rights of creditors generally, and such laws, if
any, which may be enacted by Congress or state legislatures imposing a
moratorium on the payment of principal and interest or imposing other
constraints or conditions on the payments of principal and interest on Municipal
Bonds.

TEMPORARY INVESTMENTS. The taxable securities in which the Municipal Bond
Fund may invest as temporary investments include U.S. Government securities,
domestic bank certificates of deposit and repurchase agreements.

U.S. Government securities include obligations issued or guaranteed as to
principal and interest by the U.S. Government, its agencies and
instrumentalities which are supported by any of the following: (a) the full
faith and credit of the U.S. Government, (b) the right of the issuer to borrow
an amount limited to a specific line or credit from the U.S. Government, (c)
discretionary authority of the U.S. Government agency or instrumentality, or (d)
the credit of the instrumentality. Such agencies or instrumentalities include,
but are not limited to, the Federal National Mortgage Association, the
Government National Mortgage Association, Federal Land Banks, and the Farmer's
Home Administration. The Fund may not invest in a certificate of deposit issued
by a commercial bank unless the bank is organized and operating in the United
States and has total assets of at least $500 million and is a member of the
Federal Deposit Insurance Corporation.

REPURCHASE AGREEMENTS

Each Fund may enter into repurchase agreements with broker-dealers or
domestic banks. The Trustees will review on a continuing basis those
institutions which enter into a repurchase agreement with the Fund. A repurchase
agreement is a short-term investment in which the purchaser (i.e., the Fund)
acquires ownership of a debt security and the seller agrees to repurchase the
obligation at a future time and set price, usually not more than seven days from
the date of purchase, thereby determining the yield during the purchaser's
holding period. Repurchase agreements are collateralized by the underlying debt
securities and may be considered to be loans under the 1940 Act. The Fund will
make payment for such securities only upon physical delivery or evidence of book
entry transfer to the account of a custodian or bank acting as agent. The seller
under a repurchase agreement is required to maintain the value of the underlying
securities marked to market daily at not less than the repurchase price. The
underlying securities (normally securities of the U.S. Government, or its
agencies and instrumentalities), may have maturity dates exceeding one year. The
Fund does not bear the risk of a decline in value of the underlying security
unless the seller defaults under its repurchase obligation. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and loss
including: (a) possible decline in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto, (b) possible lack
of access to income on the underlying security during this period, and (c)
expenses of enforcing its rights.

REVERSE REPURCHASE AGREEMENTS

The International Equity Fund may invest in reverse repurchase agreements.
The International Equity Fund does not currently intend to commit more than
5.00% of its net assets to reverse repurchase agreements. The Fund may enter
into reverse repurchase agreements with broker/dealers and other financial
institutions.

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Such agreements involve the sale of portfolio securities with an agreement to
repurchase the securities at an agreed-upon price, date and interest payment and
are considered to be borrowings by the International Equity Fund and are subject
to the borrowing limitations set forth under "Investment Restrictions." Since
the proceeds of reverse repurchase agreements are invested, this would introduce
the speculative factor known as "leverage." The securities purchased with the
funds obtained from the agreement and securities collateralizing the agreement
will have maturity dates no later than the repayment date. Generally, the effect
of such a transaction is that the International Equity Fund can recover all or
most of the cash invested in the portfolio securities involved during the term
of the reverse repurchase agreement, while in many cases it will be able to keep
some of the interest income associated with those securities. Such transactions
are only advantageous if the Fund has an opportunity to earn a greater rate of
interest on the cash derived from the transaction than the interest cost of
obtaining that cash. Opportunities to realize earnings from the use of the
proceeds equal to or greater than the interest required to be paid may not
always be available, and the Fund intends to use the reverse repurchase
technique only when the Adviser believes it will be advantageous to the
International Equity Fund. The use of reverse repurchase agreements may
exaggerate any interim increase or decrease in the value of the Fund's assets.
The Fund's custodian bank will maintain a separate account for the Fund with
securities having a value equal to or greater than such commitments.

COMMERCIAL BANK OBLIGATIONS

For the purposes of the International Equity Fund's investment policies
with respect to bank obligations, obligations of foreign branches of U.S. banks
and of foreign banks may be general obligations of the parent bank in addition
to the issuing bank, or may be limited by the terms of a specific obligation and
by government regulation. As with investment in foreign securities in general,
investments in the obligations of foreign branches of U.S. banks and of foreign
banks may subject the International Equity Fund to investment risks that are
different in some respects from those of investments in obligations of domestic
issuers. Although the Fund will typically acquire obligations issued and
supported by the credit of U.S. or foreign banks having total assets at the time
of purchase in excess of U.S. $1 billion (or the equivalent thereof), this U.S.
$1 billion figure is not a fundamental investment policy or restriction of the
International Equity Fund. For calculation purposes with respect to the U.S. $1
billion figure, the assets of a bank will be deemed to include the assets of its
U.S. and non-U.S. branches.

COMMERCIAL PAPER

Commercial paper consists of short-term (usually 1 to 270 days) unsecured
promissory notes issued by corporations in order to finance their current
operations. A variable amount master demand note (which is a type of commercial
paper) represents a direct borrowing arrangement involving periodically
fluctuating rates of interest under a letter agreement between a commercial
paper issuer and an institutional lender, such as one of the Funds pursuant to
which the lender may determine to invest varying amounts. Transfer of such notes
is usually restricted by the issuer, and there is no secondary trading market
for such notes. Each Fund therefore, may not invest in a master demand note, if
as a result more than 5% (15% in the case of the Emerging Growth Fund and the
International Equity Fund) of the value of the Fund's total assets would be
invested in such notes and other illiquid securities.

OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS

SELLING CALL AND PUT OPTIONS (THE EMERGING GROWTH FUND, THE INTERNATIONAL EQUITY
FUND, THE GROWTH FUND, THE GROWTH AND INCOME FUND AND THE GOVERNMENT FUND)

PURPOSE. The principal reason for selling options is to obtain, through
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. A Fund's current return can be expected to
fluctuate because premiums earned from writing options and dividend or interest
income yields on portfolio securities vary as economic and market conditions
change. Writing options on portfolio securities also results in a higher
portfolio turnover.

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SELLING OPTIONS. The purchaser of a call option pays a premium to the
writer (i.e., the seller) for the right to buy the underlying security from the
writer at a specified price during a certain period. The Emerging Growth Fund,
the International Equity Fund, the Growth Fund and the Growth and Income Fund
sell call options only on a covered basis. The Government Fund sells call
options either on a covered basis, or for cross-hedging purposes. A call option
is covered if the Fund owns or has the right to acquire the underlying
securities subject to the call option at all times during the option period.
Thus, the Government Fund may sell options on U.S. Government securities or
forward commitments of such securities. An option is for cross-hedging purposes
(relative to the Government Fund only) to hedge against a security which the
Fund owns or has the right to acquire. In such circumstances, the Government
Fund maintains in a segregated account with the Fund's Custodian, cash or U.S.
Government securities in an amount not less than the market value of the
underlying security, marked to market daily, while the option is outstanding.

The purchaser of a put option pays a premium to the seller (i.e., the
writer) for the right to sell the underlying security to the writer at a
specified price during a certain period. A Fund sells put options only on a
secured basis, which means that, at all times during the option period, the Fund
would maintain in a segregated account with its Custodian cash, cash equivalents
or liquid securities in an amount of not less than the exercise price of the
option, or will hold a put on the same underlying security at an equal or
greater exercise price. A Fund generally sells put options when the Adviser
wishes to purchase the underlying security for the Fund's portfolio at a price
lower than the current market price of the security.

CLOSING PURCHASE TRANSACTIONS AND OFFSETTING TRANSACTIONS. In order to
terminate its position as writer of a call or put option, a Fund may enter into
a "closing purchase transaction," which is the purchase of a call (put) on the
same underlying security and having the same exercise price and expiration date
as the call (put) previously sold by the Fund. The Fund will realize a gain
(loss) if the premium plus commission paid in the closing purchase transaction
is less (greater) than the premium it received on the sale of the option. A Fund
would also realize a gain if an option it has sold lapses unexercised.

A Fund may sell options that are listed on an exchange as well as options
that are traded over-the-counter. A Fund may close out its position as writer of
an option only if a liquid secondary market exists for options of that series,
but there is no assurance that such a market will exist, particularly in the
case of over-the-counter options, since they can be closed out only with the
other party to the transaction. Alternatively, a Fund may purchase an offsetting
option, which does not close out its position as a writer, but provides an asset
of equal value to its obligation under the option sold. If a Fund is not able to
enter into a closing purchase transaction or to purchase an offsetting option
with respect to an option it has sold, it will be required to maintain the
securities subject to the call or the collateral securing the put until a
closing purchase transaction can be entered into (or the option is exercised or
expires), even though it might not be advantageous to do so.

RISKS OF SELLING OPTIONS. By selling a call option, a Fund loses the
potential for gain on the underlying security above the exercise price while the
option is outstanding; by writing a put option a Fund might become obligated to
purchase the underlying security at an exercise price that exceeds the then
current market price.

Each of the United States exchanges has established limitations governing
the maximum number of call or put options on the same underlying security
(whether or not covered) that may be written by a single investor, whether
acting alone or in concert with others, regardless of whether such options are
written on one or more accounts or through one or more brokers. An exchange may
order the liquidation of positions found to be in violation of those limits, and
it may impose other sanctions or restrictions. These position limits may
restrict the number of options the Fund may be able to write.

PURCHASING CALL AND PUT OPTIONS (THE EMERGING GROWTH FUND, THE INTERNATIONAL
EQUITY FUND, THE GROWTH FUND, THE GROWTH AND INCOME FUND AND THE GOVERNMENT
FUND)

A Fund may purchase call options to protect (e.g., hedge) against
anticipated increases in the prices of securities it wishes to acquire.
Alternatively, call options may be purchased for their leverage potential. Since
the premium paid for a call option is typically a small fraction of the price of
the underlying security, a given amount of funds will purchase call options
covering a much larger quantity of such security than could be purchased
directly. By purchasing call options, a Fund can benefit from any significant
increase in the price of

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the underlying security to a greater extent than had it invested the same amount
in the security directly. However, because of the very high volatility of option
premiums, a Fund could bear a significant risk of losing the entire premium if
the price of the underlying security did not rise sufficiently, or if it did not
do so before the option expired.

Conversely, put options may be purchased to protect (e.g., hedge) against
anticipated declines in the market value of either specific portfolio securities
or of a Fund's assets generally. Alternatively, put options may be purchased for
capital appreciation in anticipation of a price decline in the underlying
security and a corresponding increase in the value of the put option. The
purchase of put options for capital appreciation involves the same significant
risk of loss as described above for call options. In any case, the purchase of
options for capital appreciation would increase the Fund's volatility by
increasing the impact of changes in the market price of the underlying
securities on the Fund's net asset value.

The Funds may purchase either listed or over-the-counter options.

OPTIONS ON STOCK INDEXES (THE EMERGING GROWTH FUND, THE INTERNATIONAL EQUITY
FUND, THE GROWTH FUND AND THE GROWTH AND INCOME FUND)

Options on stock indices are similar to options on stock, but the delivery
requirements are different. Instead of giving the right to take or make delivery
of stock at a specified price, an option on a stock index gives the holder the
right to receive an amount of cash upon exercise of the option. Receipt of this
cash amount will depend upon the closing level of the stock index upon which the
option is based being greater than (in the case of a call) or less than (in the
case of a put) the exercise price of the option. The amount of cash received
will be the difference between the closing price of the index and the exercise
price of the option, multiplied by a specified dollar multiple. The writer of
the option is obligated, in return for the premium received, to make delivery of
this amount.

Some stock index options are based on a broad market index such as the
Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower index such as the Standard & Poor's 100. Indexes are also based on an
industry or market segment such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index. Options are currently traded on The Chicago Board
Options Exchange, the New York Stock Exchange, the American Stock Exchange and
other exchanges.

Gain or loss to a Fund on transactions in stock index options will depend
on price movements in the stock market generally (or in a particular industry or
segment of the market) rather than price movements of individual securities. As
with stock options, the Fund may offset its position in stock index options
prior to expiration by entering into a closing transaction on an Exchange, or it
may let the option expire unexercised.

FOREIGN CURRENCY OPTIONS (THE INTERNATIONAL EQUITY FUND)

The Fund may purchase put and call options on foreign currencies to reduce
the risk of currency exchange fluctuation. Premiums paid for such put and call
options will be limited to no more than 5% of the Fund's net assets at any given
time. Options on foreign currencies operate similarly to options on securities,
and are traded primarily in the over-the-counter market, although options on
foreign currencies are traded on United States and foreign exchanges.
Exchange-traded options are expected to be purchased by the Fund from time to
time and over-the-counter options may also be purchased, but only when the
Adviser believes that a liquid secondary market exists for such options,
although there can be no assurance that a liquid secondary market will exist for
a particular option at any specific time. Options on foreign currencies are
affected by all of those factors which influence foreign exchange rates and
investment generally. See "Investment Practices and Risks -- Options, Futures
Contracts and Related Options" in the Prospectus.

The value of a foreign currency option is dependent upon the value of the
underlying foreign currency relative to the U.S. dollar. As a result, the price
of the option position may vary with changes in the value of either or both
currencies and has no relationship to the investment merits of a foreign
security. Because foreign currency transactions occurring in the interbank
market (conducted directly between currency traders, usually large commercial
banks, and their customers) involve substantially larger amounts than those that

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may be involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an 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.

There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (i.e., less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options markets.

FUTURES CONTRACTS

The Trust may engage in transactions involving futures contracts and
related options in accordance with rules and interpretations of the Commodity
Futures Trading Commission ("CFTC") under which the Trust and its Funds is
exempt from registration as a "commodity pool".

TYPES OF CONTRACTS. An interest rate futures contract is a bilateral
agreement pursuant to which two parties agree to take or make delivery of a
specific type of debt security at a specified future time and at a specified
price. Although interest rate futures contracts call for delivery of specified
securities, in most cases the contracts are closed out (by an offsetting
purchase or sale) prior to actual delivery, with the difference between the
contract price and the offsetting price paid in cash.

A municipal bond futures contract is an agreement pursuant to which two
parties agree to take and make delivery of an amount of cash equal to a
specified dollar amount times the differences between The Bond Buyer Municipal
Bond Index value at the close of the last trading day of the contract and the
price at which the futures contract is originally struck.

A stock index futures contract is a bilateral agreement pursuant to which
two parties agree to take or make delivery of cash equal to a specified dollar
amount times the difference between the stock index value at a specified time
and the price at which the futures contract is originally struck. A stock index
fluctuates with changes in the market values of the stocks included. No physical
delivery of the underlying stocks in the index is made.

Currently, stock index futures contracts can be purchased with respect to
the Standard & Poor's 500 Stock Index on the Chicago Mercantile Exchange
("CME"), the New York Stock Exchange Composite Index on the New York Futures
Exchange and the Value Line Stock Index on the Kansas City Board of Trade.
Differences in the stocks included in the indexes may result in differences in
correlation of the futures contracts with movements in the value of the
securities being hedged.

Foreign stock index futures traded outside the United States include the
Nikkei Index of 225 Japanese stocks traded on the Singapore International
Monetary Exchange ("Nikkei Index"), Osaka Index of 50 Japanese stocks traded on
the Osaka Exchange, Financial Times Stock Exchange Index of the 100 largest
stocks on the London Stock Exchange, the All Ordinaries Share Price Index of 307
stocks on the Sydney, Melbourne Exchanges, Hang Seng Index of 33 stocks on the
Hong Kong Stock Exchange, Barclays Share Price Index of 40 stocks on the New
Zealand Stock Exchange and Toronto Index of 35 stocks on the Toronto Stock
Exchange. Futures and futures options on the Nikkei Index are traded on the CME
and United States commodity exchanges may develop futures and futures options on
other indices of foreign securities. Futures and options on United States
devised index of foreign stocks are also being developed. Investments in
securities of foreign entities and securities denominated in foreign currencies
involve risks not typically involved in domestic investment, including
fluctuations in foreign exchange rates, future foreign political and economic
developments, and the possible imposition of exchange controls or other foreign
or United States governmental laws or restrictions applicable to such
investments.

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The International Equity Fund may enter into futures contracts for
non-hedging purposes, subject to applicable law.

INITIAL AND VARIATION MARGIN. In contrast to the purchase or sale of a
security, no price is paid or received upon the purchase or sale of a futures
contract. Initially, a Fund is required to deposit with its Custodian in an
account in the broker's name an amount of cash, cash equivalents or liquid
securities equal to a percentage (which will normally range between 2% and 10%)
of the contract amount. This amount is known as initial margin. The nature of
initial margin in futures transactions is different from that of margin in
securities transactions in that futures contract margin does not involve the
borrowing of funds by the customer to finance the transaction. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract, which is returned to the Fund upon termination of the futures
contract and satisfaction of its contractual obligations. Subsequent payments to
and from the broker, called variation margin, are made on a daily basis as the
price of the underlying securities or index fluctuates, making the long and
short positions in the futures contract more or less valuable, a process known
as marking to market.

For example, when a Fund purchases a futures contract and the price of the
underlying security or index rises, that position increases in value, and the
Fund receives from the broker a variation margin payment equal to that increase
in value. Conversely, where the Fund purchases a futures contract and the value
of the underlying security or index declines, the position is less valuable, and
the Fund is required to make a variation margin payment to the broker.

At any time prior to expiration of the futures contract, the Fund may elect
to terminate the position by taking an opposite position. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain.

FUTURES STRATEGIES. When a Fund anticipates a significant market or market
sector advance, the purchase of a futures contract affords a hedge against not
participating in the advance at a time when the Fund is otherwise fully invested
("anticipatory hedge"). Such purchase of a futures contract serves as a
temporary substitute for the purchase of individual securities, which may be
purchased in an orderly fashion once the market has stabilized. As individual
securities are purchased, an equivalent amount of futures contracts could be
terminated by offsetting sales. A Fund may sell futures contracts in
anticipation of or in a general market or market sector decline that may
adversely affect the market value of the Fund's securities ("defensive hedge").
To the extent that the Fund's portfolio of securities changes in value in
correlation with the underlying security or index, the sale of futures contracts
substantially reduces the risk to the Fund of a market decline and, by so doing,
provides an alternative to the liquidation of securities positions in the Fund
with attendant transaction costs.

For example, if the Government Fund holds long-term U.S. Government
securities, and a rise in long-term interest rates is anticipated, it could, in
lieu of selling its portfolio securities, sell futures contracts for similar
long-term securities. If interest rates increased and the value of the Fund's
securities declined during the period the contracts were outstanding, the value
of the Fund's futures contracts should increase, thereby protecting the Fund by
preventing net asset value from declining as much as it otherwise would have.

In the event of the bankruptcy of a broker through which a Fund engages in
transactions in listed options, futures or related options, the Fund could
experience delays and/or losses in liquidating open positions purchased incur a
loss of all or part of its margin deposits with the broker. Similarly, in the
event of the bankruptcy of the writer of an over-the-counter option purchased by
the Government Fund, the Fund could experience a loss of all or part of the
value of the option. Transactions are entered into by a Fund only with brokers
or financial institutions deemed creditworthy by the Adviser.

Persons who trade in futures contracts may be broadly classified as
"hedgers" and "speculators." Hedgers, whose business activity involves
investment or other commitment in securities or other obligations, use the
futures market to offset unfavorable changes in value that may occur because of
fluctuations in the value of the securities and obligations held or committed to
be acquired by them or fluctuations in the value of the currency in which the
securities or obligations are denominated. Debtors and other obligors may also
hedge the interest cost of their obligations. The speculator, like the hedger,
generally expects neither to deliver

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nor to receive the financial instrument underlying the futures contract, but,
unlike the hedger, hopes to profit from fluctuations in prevailing interest
rates or currency exchange rates.

Each Fund's futures transactions will be entered into for traditional
hedging purposes; that is, futures contracts will be sold to protect against a
decline in the price of securities or currencies that the Fund owns, or futures
contracts will be purchased to protect a Fund against an increase in the price
of securities of currencies it has committed to purchase or expects to purchase.
The International Equity Fund may also enter into futures transactions for
non-hedging purposes, subject to applicable law.

SPECIAL RISKS ASSOCIATED WITH FUTURES TRANSACTIONS. There are several risks
connected with the use of futures contracts as a hedging device. These include
the risk of imperfect correlation between movements in the price of the futures
contracts and of the underlying securities, the risk of market distortion, the
illiquidity risk and the risk of error in anticipating price movement.

There may be an imperfect correlation (or no correlation) between movements
in the price of the futures contracts and of the securities being hedged. The
risk of imperfect correlation increases as the composition of the portfolio of
securities being hedged diverges from the securities upon which the futures
contract is based. If the price of the futures contract moves less than the
price of the securities being hedged, the hedge will not be fully effective, but
if the price of the securities being hedged moves in an unfavorable direction,
the Fund would be in a better position than if it had not tried to hedge.
However, if the price of the security being hedged moves in a favorable
direction, the hedge will partially offset this advantage. To compensate for the
imperfect correlation of movements of prices of a futures contract and the
securities being hedged, a Fund may buy or sell futures contracts in a greater
dollar amount than the dollar amount of the securities being hedged if the
historical volatility of the securities being hedged has been greater than the
historical volatility of the securities underlying the futures contract, or may
buy or sell fewer futures contracts if the historical volatility of the
securities being hedged is less than the historical volatility of the securities
underlying the futures contract. Nevertheless, the price of the futures contract
may move less than the price of the securities which are the subject of the
hedge (or the value of futures contracts and securities held by a Fund may
decline simultaneously), resulting in the hedge not being fully effective.

There is also the risk that the price of futures contracts may not
correlate perfectly with movements in the securities underlying the futures
contract due to certain market distortions. First, all participants in the
futures market are subject to initial margin depository and maintenance
requirements. Rather than meet additional margin deposit requirements, investors
may close futures contracts through offsetting transactions, which could distort
the normal relationship between the futures market and the securities underlying
the futures contract. Second, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities markets. Therefore, increased participation by speculators in the
futures markets may cause temporary price distortions. Due to the possibility of
price distortion in the futures markets and because of the imperfect correlation
between movements in futures contracts and movements in the securities
underlying them, a correct forecast of general market trends by the Adviser may
still not result in a successful hedging transaction judged over a very short
time frame.

There is also the risk that futures markets may not be sufficiently liquid.
Futures contracts may be closed out only on an Exchange or Board of Trade that
provides a market for such futures contracts. Although a Fund intends to
purchase or sell futures only on Exchanges and Boards of trade where there
appears to be an active secondary market, there can be no assurance that an
active secondary market will exist for any particular contract or at any
particular time. In the event of such illiquidity, it might not be possible to
close a futures position and, in the event of adverse price movement, a Fund
would continue to be required to make daily payments of variation margin. Since
the securities being hedged will not be sold until the related futures contract
is sold, an increase, if any, in the price of the securities may to some extent
offset losses on the related futures contract. In such event, the Fund would
lose the benefit of the appreciation in value of the securities.

Successful use of futures is also subject to the Adviser's ability
correctly to predict the direction of movements in the market. For example, if
the Fund hedges against a decline in the market, and market prices instead
advance, the Fund will lose part or all of the benefit of the increase in value
of its securities holdings because it will have offsetting losses in futures
contracts. In such cases, if the Fund has insufficient cash, it

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may have to sell portfolio securities at a time when it is disadvantageous to do
so in order to meet the daily variation margin.

CFTC regulations require, among other things, (i) that futures and related
options be used solely for bona fide hedging purposes (or meet certain
conditions as specified in CFTC regulations) and (ii) that a Fund not enter into
futures and related options for which the aggregate initial margin and premiums
exceed 5% of the fair market value of a Fund's assets. The International Equity
Fund may enter into transactions in futures contracts and options on futures
contracts only (i) for bona fide hedging purposes (as defined in CFTC
regulations), or (ii) for non-hedging purposes provided the aggregate initial
margin and premiums on such non-hedging positions does not exceed 5% of the
liquidation value of the Fund's assets. Relative to the purchase or sale of
futures contracts by a Fund, an amount of cash, cash equivalents or U.S.
Government securities equal to the market value of the obligation under the
futures contracts (less any related margin deposits) will be maintained in a
segregated account with the Custodian.

ADDITIONAL RISKS TO OPTIONS AND FUTURES TRANSACTIONS. Each of the Exchanges
has established limitations governing the maximum number of call or put options
on the same underlying security or futures contract (whether or not covered)
which may be written by a single investor, whether acting alone or in concert
with others (regardless of whether such options are written on the same or
different Exchanges or are held or written on one or more accounts or through
one or more brokers). Option positions of all investment companies advised by
the Adviser are combined for purposes of these limits. An Exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose other sanctions or restrictions. These position limits may restrict the
number of listed options which the Fund may sell.

Although a Fund intends to enter into futures contracts only if there is an
active market for such contracts, there is no assurance that an active market
will exist for the contracts at any particular time. Most U.S. futures exchanges
and boards of trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices would move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, and in the event of
adverse price movements, a Fund would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the portion
of the portfolio being hedged, if any, may partially or completely offset losses
on the futures contract. However, there is no guarantee that the price of the
securities being hedged will, in fact, correlate with the price movements in a
futures contract and thus provide an offset to losses on the futures contract.

A Fund pays commissions on futures contracts and options transactions.

OPTIONS ON FUTURES CONTRACTS

A Fund may also purchase and sell options on futures contracts which are
traded on an Exchange. An option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put), at a specified exercise price at any time during the option
period. As a seller of an option on a futures contract, a Fund is subject to
initial margin and maintenance requirements similar to those applicable to
futures contracts. In addition, net option premiums received by a Fund are
required to be included as initial margin deposits. When an option on a futures
contract is exercised, delivery of the futures position is accompanied by cash
representing the difference between the current market price of the futures
contract and the exercise price of the option. A Fund may purchase put options
on futures contracts in lieu of, and for the same purposes as, the sale of a
futures contract. The purchase of call options on futures contracts in intended
to serve the same purpose as the actual purchase of the futures contract.

RISKS OF TRANSACTIONS IN OPTIONS ON STOCK INDEX FUTURES. In addition to the
risks described above which apply to all options transactions, there are several
special risks relating to options on stock index futures. The Advisers will not
purchase options on stock index futures on any Exchange unless and until, in the
Adviser's opinion, the market for such options has developed sufficiently that
the risks in connection with options on

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futures transactions are no greater than the risks in connection with stock
index futures transactions. Compared to the use of stock index futures, the
purchase of options on stock index futures involves less potential risk to the
Growth Fund because the maximum amount at risk is the premium paid for the
options (plus transaction costs). However there may be circumstances, such as
when there is no movement in the level of the index, when the use of an option
on a stock index future would result in a loss to the Fund when the use of a
stock index future would not.

FORWARD COMMITMENTS (THE GOVERNMENT FUND ONLY)

Relative to a Forward Commitment purchase, the Fund maintains a segregated
account (which is marked to market daily) of cash or U.S. Government securities
(which may have maturities which are longer than the term of the Forward
Commitment) with the Fund's custodian in an aggregate amount equal to the amount
of its commitment as long as the obligation to purchase continues. Since the
market value of both the securities subject to the Forward Commitment and the
securities held in the segregated account may fluctuate, the use of the Forward
Commitments may magnify the impact of interest rate changes on the Fund's net
asset value.

A Forward Commitment sale is covered if the Fund owns or has the right to
acquire the underlying securities subject to the Forward Commitment. A Forward
Commitment sale is for cross-hedging purposes if it is not covered, but is
designed to provide a hedge against a decline in value of a security which the
Fund owns or has the right to acquire. In either circumstance, the Fund
maintains in a segregated account (which is marked to market daily) either the
security covered by the Forward Commitment or cash or U.S. Government securities
(which may have maturities which are longer than the term of the Forward
Commitment) with the Fund's custodian in an aggregate amount equal to the amount
of its commitment as long as the obligation to sell continues. By entering into
a Forward Commitment sale transaction, the Fund forgoes or reduces the potential
for both gain and loss in the security which is being hedged by the Forward
Commitment sale.

FORWARD CURRENCY CONTRACTS AND OPTIONS ON CURRENCY (THE INTERNATIONAL EQUITY
FUND)

A forward currency contract is an obligation to purchase or sell a currency
against another currency at a future date and price as agreed upon by the
parties. The Fund may either accept or make delivery of the currency at the
maturity of the forward contract or, prior to maturity, enter into a closing
transaction involving the purchase or sale or an offsetting contract. The Fund
engages in forward currency transactions in anticipation of, or to protect
itself against fluctuations in exchange rates. The Fund might sell a particular
foreign currency forward, for example, when it holds bonds denominated in that
currency but anticipates, and seeks to be protected against, decline in the
currency against the U.S. dollar. Similarly, the Fund might sell the U.S. dollar
forward when it holds bonds denominated in U.S. dollars but anticipates, and
seeks to be protected against, a decline in the U.S. dollar relative to other
currencies. Further, the Fund might purchase a currency forward to "lock in" the
price of securities denominated in that currency which it anticipates
purchasing.

The matching of the increase in value of a forward contract and the decline
in the U.S. dollar equivalent value of the foreign currency denominated asset,
that is the subject of the hedge, generally will not be precise. In addition,
the Fund may not always be able to enter into foreign currency forward contracts
at attractive prices and this will limit the Fund's ability to use such contract
to hedge or cross-hedge its assets. Also, with regard to the Fund's use of
cross-hedges, there can be no assurance that historical correlations between the
movement of certain foreign currencies relative to the U.S. dollar will
continue. Thus, at any time poor correlation may exist between movements in the
exchange rates of the foreign currencies underlying the Fund's cross-hedges and
the movements in the exchange rates of foreign currencies in which the Fund's
assets that are the subject of such cross-hedges are denominated.

Forward contracts are traded in an interbank market conducted directly
between currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement and is consummated without
payment of any commission. The Fund, however, may enter into forward contracts
with deposit requirements or commissions.

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A put option on currency gives the Fund, as purchaser, the right (but not
the obligation) to sell a specified amount of currency at the exercise price
until the expiration of the option. A call option gives the Fund, as purchaser,
the right (but not the obligation) to purchase a specified amount of currency at
the exercise price until its expiration. The Fund might purchase a currency put
option, for example, to protect itself during the contract period against a
decline in the value of a currency in which it holds or anticipates holding
securities. If the currency's value should decline, the loss in currency value
should be offset, in whole or in part, by an increase in the value of the put.
If the value of the currency instead should rise, any gain to the Fund would be
reduced by the premium it had paid for the put option. A currency call option
might be purchased, for example, in anticipation of, or to protect against, a
rise in the value of a currency in which the Fund anticipates purchasing
securities.

The Fund's ability to establish and close out positions in foreign currency
options is subject to the existence of a liquid market. There can be no
assurance that a liquid market will exist for a particular option at any
specific time. In addition, options on foreign currencies are affected by all of
those factors that influence foreign exchange rates and investment generally.

A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. Exchange
markets for options on foreign currencies exist but are relatively new, and the
ability to establish and close out positions on the exchanges is subject to
maintenance of a liquid secondary market. Closing transactions may be effected
with respect to options traded in the over-the-counter ("OTC") markets
(currently the primary markets for options on foreign currencies) only by
negotiating directly with the other party to the option contract or in a
secondary market for the option if such market exists. Although the Fund intends
to purchase only those options for which there appears to be an active secondary
market, there is no assurance that a liquid secondary market will exist for any
particular option at any specific time. In such event, it may not be possible to
effect closing transactions with respect to certain options, with the result
that the Fund would have to exercise those options which it has purchased in
order to realize any profit. The staff of the Securities and Exchange Commission
("SEC") has taken the position that, in general, purchased OTC options and the
underlying securities used to cover written OTC options are illiquid securities.
However, the Fund may treat as liquid the underlying securities used to cover
written OTC options, provided it has arrangements with certain qualified dealers
who agree that the Fund may repurchase any option it writes for a maximum price
to be calculated by a predetermined formula. In these cases, the OTC option
itself would only be considered illiquid to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.

INTEREST RATE TRANSACTIONS (THE INTERNATIONAL EQUITY FUND)

Among the hedging transactions into which the Fund may enter are interest
rate swaps and the purchase or sale of interest rate caps and floors. The Fund
expects to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its portfolio or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. The Fund intends to use these transactions as a hedge and not
as a speculative investment. The Fund will not sell interest rate caps or floors
that it does not own. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments. The purchase of
an interest rate cap entitles the purchaser, to the extent that a specified
index exceeds a predetermined interest rate, to receive payments of interest on
a notional principal amount from the party selling such interest rate cap. The
purchase of an interest rate floor entitles the purchaser, to the extent that a
specified index falls below a predetermined interest rate, to receive payments
of interest on a notional principal amount from the party selling such interest
rate floor.

The Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending on whether it is hedging its
assets or its liabilities, and will usually enter into interest rate swaps on a
net basis, i.e., the two payment streams are netted but, with the Fund receiving
or paying, as the case may be, only the net amount of the two payments. Inasmuch
as these hedging transactions are entered into for good faith hedging purposes,
the Adviser and the Fund believe such obligations do not constitute senior
securities and, accordingly will not treat them as being subject to its
borrowing restrictions. The net

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amount of the excess, if any, of the Fund's obligations over its entitlements
with respect to each interest rate swap will be accrued on a daily basis and an
amount of cash or liquid securities having an aggregate net asset value at least
equal to the accrued excess will be maintained in a segregated account by a
custodian that satisfies the requirements of the 1940 Act. The Fund will not
enter into any interest rate swap, cap or floor transaction unless the unsecured
senior debt or the claims-paying ability of the other party thereto is rated in
the highest rating category of at least one nationally recognized rating
organization at the time of entering into such transaction. If there is a
default by the other party to such a transaction, the Fund will have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing swap
documentation. As a result, the swap market has become relatively liquid. Caps
and floors are more recent innovations for which standardized documentation has
not yet been developed and, accordingly, they are less liquid than swaps.

New options and futures contracts and various combinations thereof continue
to be developed and the Fund may invest in any such options and contracts as may
be developed to the extent consistent with its investment objective and
regulatory requirements applicable to investment companies.

USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS (THE INTERNATIONAL EQUITY FUND)

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

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

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

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<PAGE> 71

custodian, an amount of cash or liquid securities having an aggregate value
equal to at least the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.

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

LOANS OF PORTFOLIO SECURITIES

Each of the Funds may lend portfolio securities to unaffiliated brokers,
dealers and financial institutions provided that cash equal to 100% of the
market value of the securities loaned is deposited by the borrower with the
particular Fund and is marked to market daily. While such securities are on
loan, the borrower is required to pay the Fund any income accruing thereon.
Furthermore, the Fund may invest the cash collateral in portfolio securities
thereby increasing the return to the Fund as well as increasing the market risk
to the Fund. A Fund will not lend its portfolio securities if such loans are not
permitted by the laws or regulations of any state in which its shares are
qualified for sale. However, should the Fund believe that lending securities is
in the best interests of the Fund's shareholders, it would consider withdrawing
its shares from sale in any such state.

Loans would be made for short-term purposes and subject to termination by
the Fund in the normal settlement time, currently five business days after
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to the
Fund and its shareholders, but any gain can be realized only if the borrower
does not default. Each Fund may pay reasonable finders', administrative and
custodial fees in connection with a loan.

INVESTMENT RESTRICTIONS

Each Fund has adopted the following restrictions which may not be changed
with respect to any Fund without approval by the vote of a majority of such
Fund's outstanding voting shares, which is defined by the 1940 Act as the lesser
of (i) 67% or more of the voting securities present at a meeting, if the holders
of more than 50% of the outstanding voting securities of the Fund are present or
represented by proxy; or (ii) more than 50% of the Fund's outstanding voting
securities. The percentage limitations need only be met at the time the
investment is made or after relevant action is taken.

THE FOLLOWING RESTRICTIONS APPLY TO ALL FUNDS:

A Fund shall not:

1. Lend money except by the purchase of bonds or other debt
obligations of types commonly offered publicly or privately and purchased
by financial institutions, including investments in repurchase agreements.
A Fund will not invest in repurchase agreements maturing in more than seven
days (unless subject to a demand feature) if any such investment, together
with any illiquid securities (including securities which are subject to
legal or contractual restrictions on resale) held by the Fund, exceeds 10%
of the market or other fair value of its total net assets (15% in the case
of the Emerging Growth Fund and the International Equity Fund); provided,
however, that with respect to the Emerging Growth Fund, the International
Equity Fund, the Growth Fund, the Growth and Income Fund and the Municipal
Bond

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<PAGE> 72

Fund, illiquid securities shall exclude shares of other open-end investment
companies owned by the Fund but include the Fund's pro rata portion of the
securities and other assets owned by any such company. See "Repurchase
Agreements";

2. Underwrite securities of other companies, except insofar as a Fund
might be deemed to be an underwriter for purposes of the Securities Act of
1933 (the "1933 Act") in the resale of any securities owned by the Fund;

3. Lend its portfolio securities in excess of 10% (15% in the case of
the Emerging Growth Fund and the International Equity Fund) of its total
assets, both taken at market value, provided that any loans shall be in
accordance with the guidelines established for such loans by the Trustees
as described under "Loans of Portfolio Securities," including the
maintenance of collateral from the borrower equal at all times to the
current market value of the securities loaned;

4. With respect to 75% of its assets, invest more than 5% of its
assets in the securities of any one issuer (except obligations of the U.S.
Government, its agencies or instrumentalities and repurchase agreements
secured thereby) or purchase more than 10% of the outstanding voting
securities of any one issuer. Neither limitation shall apply to the
acquisition of shares of other open-end investment companies by the
Emerging Growth Fund, the International Equity Fund, the Growth Fund, the
Growth and Income Fund and the Municipal Bond Fund, to the extent permitted
by rule or order of the SEC exempting them from the limitations imposed by
Section 12(d)(1) of the 1940 Act;

5. Invest more than 25% of the value of its total assets in securities
of issuers in any particular industry; provided, however, that with respect
to the Emerging Growth Fund, the International Equity Fund, the Growth
Fund, the Growth and Income Fund and the Municipal Bond Fund, this
limitation shall exclude shares of other open-end investment companies
owned by the Fund but include the Fund's pro rata portion of the securities
and other assets owned by any such company. (This does not restrict any of
the Funds from investing in obligations of the U.S. Government and
repurchase agreements secured thereby); and

6. With respect to all Funds other than the Emerging Growth Fund and
the International Equity Fund, borrow in excess of 10% of the market or
other fair value of its total assets, or pledge its assets to an extent
greater than 5% of the market or other fair value of its total assets,
provided that so long as any borrowing exceeds 5% of the value of the
Fund's total assets, the Fund shall not purchase portfolio securities. Any
such borrowings shall be from banks and shall be undertaken only as a
temporary measure for extraordinary or emergency purposes. With respect to
the Emerging Growth Fund, borrow money except temporarily from banks to
facilitate payment of redemption requests and then only in amounts not
exceeding 33 1/3% of its net assets, or pledge more than 10% of its net
assets in connection with permissible borrowings or purchase additional
securities when money borrowed exceeds 5% of its net assets. With respect
to the International Equity Fund, borrow money from banks on a secured or
unsecured basis, in excess of 25% of the value of its total assets.
Deposits in escrow in connection with the writing of covered call or
secured put options, or in connection with the purchase or sale of forward
contracts, futures contracts, foreign currency futures and related options,
are not deemed to be a pledge or other encumbrance. This restriction shall
not prevent the International Equity Fund from entering into reverse
repurchase agreements, provided that reverse repurchase agreements and any
transactions constituting borrowing by the Fund may not exceed 33 1/3% of
the Fund's net assets. The International Equity Fund may not mortgage or
pledge its assets except to secure borrowings permitted under this
restriction.

THE FOLLOWING RESTRICTIONS APPLY TO THE GROWTH FUND, THE GROWTH AND INCOME FUND,
THE GOVERNMENT FUND AND THE MUNICIPAL BOND FUND:

A Fund shall not:

1. Make any investment in real estate, commodities or commodities
contracts, or warrants except that the Growth Fund, the Growth and Income
Fund, the Government Fund and the Municipal Bond Fund may engage in
transactions in futures and related options, the Government Fund may
purchase or

B-18
<PAGE> 73

sell securities which are secured by real estate, and the Growth Fund may
acquire warrants or other rights to subscribe to securities of companies
issuing such warrants or rights, or of parents or subsidiaries of such
companies, although the Growth Fund may not invest more than 5% of its net
assets in such securities valued at the lower of cost or market, nor more
than 2% of its net assets in such securities (valued on such basis) which
are not listed on the New York or American Stock Exchanges (warrants and
rights represent options, usually for a specified period of time, to
purchase a particular security at a specified price from the issuer).
Warrants or rights acquired in units or attached to other securities are
not subject to the foregoing limitations;

2. Purchase securities on margin, except that a Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities. The deposit or payment by a Fund of an initial or
variation margin in connection with futures contracts or related option
transactions is not considered the purchase of a security on margin;

3. Invest in securities of any company if any officer or trustee of
the Trust or of the Adviser owns more than 1/2 of 1% of the outstanding
securities of such company, and such officers and trustees own more than 5%
of the outstanding securities of such issuer;

4. Invest in oil or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Growth Fund and the
Growth and Income Fund, may invest in the securities of companies which
invest in or sponsor such programs;

5. Invest in companies for the purpose of acquiring control or
management thereof;

6. Invest in the securities of other open-end investment companies, or
invest in the securities of closed-end investment companies except through
purchase in the open market in a transaction involving no commission or
profit to a sponsor or dealer (other than the customary brokers commission)
or as part of a merger, consolidation or other acquisition, except that the
Growth Fund, the Growth and Income Fund and the Municipal Bond Fund may
acquire shares of other open-end investment companies to the extent
permitted by rule or order of the SEC exempting them from the limitations
imposed by Section 12(d)(1) of the 1940 Act;

7. Purchase a restricted security or a security for which market
quotations are not readily available if as a result of such purchase more
than 5% of the Fund's assets would be invested in such securities;
provided, however, that with respect to the Growth Fund, the Growth and
Income Fund and the Municipal Bond Fund, this limitation shall exclude
shares of other open-end investment companies owned by the Fund but include
the Fund's pro rata portion of the securities and other assets owned by any
such company. Illiquid securities include securities subject to legal or
contractual restrictions on resale, which include repurchase agreements
which have a maturity of longer than seven days. This policy does not apply
to restricted securities eligible for resale pursuant to Rule 144A under
the 1933 Act which the Trustees or the Adviser under Board approved
guidelines may determine are liquid nor does it apply to other securities
for which, notwithstanding legal or contractual restrictions on resale, a
liquid market exists;

8. Invest more than 5% of its assets in companies having a record
together with predecessors, of less than three years' continuous operation,
except that the Growth Fund, the Growth and Income Fund and the Municipal
Bond Fund, may acquire shares of other open-end investment companies to the
extent permitted by rule or order of the SEC exempting them from the
limitations imposed by Section 12(d)(1) of the 1940 Act;

9. Engage in option writing for speculative purposes or purchase call
or put options on securities if, as a result, more than 5% of its net
assets of the Fund would be invested in premiums on such options; and

10. Purchase any security issued by any company deriving more than 25%
of its gross revenues from the manufacture of alcohol or tobacco.

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<PAGE> 74

THE TRUST HAS ADOPTED ADDITIONAL INVESTMENT RESTRICTIONS, WITH RESPECT TO
THE ABOVE REFERENCED FUNDS, WHICH MAY BE CHANGED BY THE TRUSTEES WITHOUT A VOTE
OF SHAREHOLDERS, AS FOLLOWS:

The Trust shall not make short sales of securities unless at the time of
sale a Fund owns or has the right to acquire at no additional cost securities
identical to those sold short; provided that this prohibition does not apply to
the writing of options or the sale of forward contracts, futures, foreign
currency futures or related options.

FOREIGN INVESTMENTS. The Growth Fund and the Growth and Income Fund may not
invest in the securities of a foreign issuer if, at the time of acquisition,
more than 20% of the value of the Fund's total assets would be invested in such
securities.

FUTURES CONTRACTS AND OPTIONS. In addition, the Growth Fund and the Growth
and Income Fund may not write, purchase or sell puts, calls or combinations
thereof, except that each Fund may (a) write covered call options with respect
to any part or all of its portfolio securities, write secured put options, or
enter into closing purchase transactions with respect to such options, (b)
purchase and sell put options to the extent that the premiums paid for all such
options do not exceed 10% of its total assets and only if the Fund owns the
securities covered by the put option at the time of purchase, and (c) engage in
futures contracts and related options transactions as described herein. The
Growth Fund and the Growth and Income Fund may purchase put and call options
which are purchased on an exchange in other markets, or currencies and, as
developed from time to time, various futures contracts on market indices and
other instruments. Purchasing options may increase investment flexibility and
improve total return, but also risks loss of the option premium if an asset the
Fund has the option to buy declines in value.

The Municipal Bond Fund may engage in futures contracts and related options
as described herein.

THE FOLLOWING RESTRICTIONS APPLY TO THE EMERGING GROWTH FUND AND THE
INTERNATIONAL EQUITY FUND:

A Fund shall not:

1. Make any investment in real estate, commodities or commodities
contracts, except that each Fund may engage in transactions in forward
commitments, futures contracts, foreign currency futures and related
options and may purchase or sell securities which are secured by real
estate or interests therein; or issued by companies; including real estate
investment trusts, which invest in real estate or interests therein; and
the International Equity Fund may engage in currency transactions; and

2. Issue senior securities, as defined in the 1940 Act, except that
this restriction shall not be deemed to prohibit a Fund from (i) making and
collateralizing any permitted borrowings, (ii) making any permitted loans
of its portfolio securities, or (iii) entering into repurchase agreements,
utilizing options, futures contracts and foreign currency futures and
options thereon, forward contracts, forward commitments and other
investment strategies and instruments that would be considered "senior
securities" but for the maintenance by the Fund of a segregated account
with its custodian or some other form of "cover."

THE TRUST HAS ADOPTED ADDITIONAL INVESTMENT RESTRICTIONS WITH RESPECT TO
THE EMERGING GROWTH FUND AND THE INTERNATIONAL EQUITY FUND, WHICH MAY BE CHANGED
BY THE TRUSTEES WITHOUT A VOTE OF SHAREHOLDERS. THESE RESTRICTIONS PROVIDE THAT
A FUND SHALL NOT:

1. Purchase securities on margin, except that a Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities. The deposit or payment by a Fund of an

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<PAGE> 75

initial or variation margin in connection with forward contracts, futures
contracts, foreign currency futures or related option transactions is not
considered the purchase of a security on margin;

2. Invest in securities of any company if any officer or trustee of
the Trust or of the Adviser owns more than 1/2 of 1% of the outstanding
securities of such company, and such officers and trustees own more than 5%
of the outstanding securities of such issuer;

3. Invest in oil or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Emerging Growth
Fund and the International Equity Fund may invest in the securities of
companies which invest in or sponsor such programs;

4. Invest in companies for the purpose of acquiring control or
management thereof;

5. Invest in the securities of other open-end investment companies, or
invest in the securities of closed-end investment companies except through
purchase in the open market in a transaction involving no commission or
profit to a sponsor or dealer (other than the customary brokers commission)
or as part of a merger, consolidation or other acquisition, except that the
Emerging Growth Fund and the International Equity Fund, may acquire shares
of other open-end investment companies to the extent permitted by rule or
order of the SEC exempting them from the limitations imposed by Section
12(d)(1) of the 1940 Act;

6. Purchase an illiquid security if, as a result of such purchase,
more than 15% of the Fund's net assets would be invested in such
securities; provided, however, that with respect to the Emerging Growth
Fund and the International Equity Fund, this limitation shall exclude
shares of other open-end investment companies owned by the Fund but include
the Fund's pro rata portion of the securities and other assets owned by any
such company. Illiquid securities include securities subject to legal or
contractual restrictions on resale, which include repurchase agreements
which have a maturity of longer than seven days. This policy does not apply
to restricted securities eligible for resale pursuant to Rule 144A under
the 1933 Act which the Trustees or the Adviser or Subadviser under
Board-approved guidelines, may determine are liquid nor does it apply to
other securities for which, notwithstanding legal or contractual
restrictions on resale, a liquid market exists;

7. Invest more than 5% of its assets in companies having a record
together with predecessors, of less than three years' continuous operation,
except that the Emerging Growth Fund and the International Equity Fund, may
acquire shares of other open-end investment companies to the extent
permitted by rule or order of the SEC exempting them from the limitations
imposed by Section 12(d)(1) of the 1940 Act;

8. Except for the International Equity Fund, purchase any security
issued by any company deriving more than 25% of its gross revenues from the
manufacture of alcohol or tobacco;

9. Make short sales of securities, unless at the time of sale a Fund
owns or has the right to acquire at no additional cost securities identical
to those sold short; provided that this prohibition does not apply to the
writing of options or the sale of forward contracts, futures, foreign
currency futures or related options; and

10. Invest more than 5% of its net assets in warrants or rights valued
at the lower of cost or market, nor more than 2% of its net assets in
warrants or rights (valued on such basis) which are not listed on the New
York or American Stock Exchanges. Warrants or rights acquired in units or
attached to other securities are not subject to the foregoing limitations.

FOREIGN INVESTMENTS FOR FUNDS OTHER THAN THE INTERNATIONAL EQUITY FUND. The
Emerging Growth Fund may not invest in the securities of a foreign issuer if, at
the time of acquisition, more than 20% of the value of the Fund's total assets
would be invested in such securities.

FUTURES CONTRACTS AND OPTIONS. In addition, the Emerging Growth Fund and
the International Equity Fund may purchase put and call options which are
purchased on an exchange in other markets, or currencies and, as developed from
time to time, various futures contracts on market indices and other instruments.

B-21
<PAGE> 76

Purchasing options may increase investment flexibility and improve total return,
but also risks loss of the option premium if an asset the Fund has the option to
buy declines in value.

TRUSTEES AND OFFICERS

The Trustees and executive officers and their principal occupations for the
past five years are listed below.

TRUSTEES

DONALD M. CARLTON, Trustee. Radian International L.L.C., 8501 N. Mopac
Blvd., Building No. 6, Austin, Texas 78759. President and Chief Executive of
Radian International L.L.C. (chemical engineering). Director of National
Instruments Corp. and Central and Southwest Corporation. Formerly Director of
The Hartford Steam Boiler Inspection and Insurance Company
(insurance/engineering services).

Date of Birth: 07/20/37

A. BENTON COCANOUGHER, Trustee. Texas A & M University, 601 Blocker Bldg.,
College Station, Texas 77843-4113. Dean of College of Business Administration
and Graduate School of Business of Texas A & M University; Director of Randall's
Food Markets, Inc.; Director of First American Bank; and Director of First
American Savings Bank.

Date of Birth: 07/06/38

STEPHEN RANDOLPH GROSS, Trustee. 2625 Cumberland Parkway, Suite 400,
Atlanta, Georgia 30339. Managing Partner of Gross, Collins & Cress, P.C.
(accounting firm); Director of Charter Bank & Trust.

Date of Birth: 10/08/47

HEATH B. MCLENDON,* Trustee. Managing Director of Smith Barney; President
and Director of the Adviser and Travelers Investment Adviser, Inc.; Chairman of
Smith Barney Strategy Advisers Inc. Prior to July 1993, Senior Executive Vice
President of Shearson Lehman Brothers Inc., Vice Chairman of Shearson Asset
Management, Director of Pan-Agora Asset Management, Inc. and Pan-Agora Asset
Management Limited.

ALAN G. MERTEN, Trustee. George Mason University, 4400 University Drive,
Fairfax, Virginia 22030-4444. President of George Mason University. Director of
Comshare, Inc. (information technology), and Tompkins County Trust Company,
Ithaca, New York; formerly The Anne and Elmer Lindseth Dean of Johnson Graduate
School of Management of Cornell University.

Date of Birth: 12/27/41

R. RICHARDSON PETTIT, Trustee. Department of Finance, College of Business,
University of Houston, 4800 Calhoun, Houston, Texas 77204-6283. Duncan Professor
of Finance of the University of Houston; formerly Hanson Distinguished Professor
of Business of the University of Washington.

Date of Birth: 07/06/42

ALAN B. SHEPARD, JR., Trustee. 1512 Bonifacio Road, P.O. Box 63, Pebble
Beach, California 93953-0063. President of Seven Fourteen Enterprises, Inc.
(investments); Partner of Houston Partners (venture capital); Director and Vice
Chairman of Kwik-Kopy Corporation (printing); Director of Allied Waste
Industries (waste treatment).(1)(2)

Date of Birth: 11/18/23
- ---------------

* Such Trustees are "interested persons" (within the meaning of Section
2(a)(19) of the Investment Company Act of 1940). Mr. McLendon is an
interested person of the Adviser and the Trust by reason of his position
with the Adviser.

B-22
<PAGE> 77

OFFICERS

[LIST -- TO COME]

As of February , 1998, the Trustees and officers of the Trust as a group
own less than one percent of the outstanding shares of the Trust. The Trustees
who are not affiliated with the Adviser or Distributor initially will be
compensated by the Trust at the annual rate of $ plus a fee of $ per
day for each Board meeting attended. During the fiscal period ended October 31,
1997, the Trustees who were not affiliated with the Adviser received as a group
$ , $ , $ , $ , $ , $ and $ in
Trustees' fees from the Emerging Growth Fund, the International Equity Fund, the
Growth Fund, the Growth and Income Fund, the Government Fund, the Municipal Bond
Fund and the Money Market Fund, respectively, in addition to certain
out-of-pocket expenses.

Additional information regarding compensation paid by the Funds and the
related mutual funds for which the Trustees serve as trustees noted above is set
forth below. The compensation shown for the Funds is for the fiscal year ended
October 31, 1997, while the total compensation shown for the Funds and other
related mutual funds is for the calendar year ended December 31, 1997. Messrs.
Lane and Powell are not compensated for their service as Trustees, because of
their affiliation with the Distributor and the Adviser, respectively.

COMPENSATION TABLE

<TABLE>
<CAPTION>
PENSION OR TOTAL(1)
RETIREMENT COMPENSATION
AGGREGATE COMPENSATION BENEFITS FROM REGISTRANT
FROM REGISTRANT(3) ACCRUED AS AND FUND
---------------------------------------------------- PART OF FUND COMPLEX PAID
NAME OF PERSON EM INT G G/I GVT MB EXPENSES TO DIRECTORS
-------------- ------ ------ ------- ------ ------ ------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dr. Donald M. Carlton.................
Dr. A. Benton Cocanougher.............
Stephen Randolph Gross................
Dr. Norman Hackerman(2)...............
Robert D. H. Harvey(2)................
Dr. Alan G. Merten....................
Dr. Steven Muller.....................
Dr. F. Robert Paulsen.................
Dr. R. Richardson Pettit..............
Alan B. Shepard, Jr...................
Miller Upton(2).......................
Benjamin N. Woodson(2)................
</TABLE>

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

(1) Reflects eleven investment companies in the fund complex. Amounts reflected
are for the calendar year ended December 31, 1996.

(2) Messrs. Hackerman, Harvey, Upton and Woodson retired as Trustees on March
31, 1996. Mr. Paulsen retired as a Trustee on April 10, 1997. Mr. Muller
retired as a Trustee on [January 2, 1998].

(3) The Trustees of the Trust instituted a Retirement Plan effective April 1,
1996. For the current Trustees not affiliated with the Adviser, the annual
retirement benefit payable per year for a ten year period is based upon the
highest total annual compensation received in any of the three calendar
years preceding retirement. Trustees with more than five but less than ten
years of service at retirement will receive a prorated reduced benefit.

B-23
<PAGE> 78

Legend:

<TABLE>
<S> <C>
EM = Emerging Growth Fund
INT = International Equity Fund
G = Growth Fund
G/I = Growth and Income Fund
GVT = Government Fund
MB = Municipal Bond Fund
</TABLE>

LEGAL COUNSEL

Sullivan & Worcester LLP

INVESTMENT ADVISORY AGREEMENT[S]

The Trust and the Adviser are parties to a separate Investment Advisory
Agreement for each Fund (each, an "Advisory Agreement" and together, the
"Advisory Agreements"). Under the Advisory Agreements, the Trust retains the
Adviser to manage the investment of its assets and to place orders for the
purchase and sale of its portfolio securities. The Adviser is responsible for
obtaining and evaluating economic, statistical, and financial data and for
formulating and implementing investment programs in furtherance of each Fund's
investment objectives. The Adviser also furnishes at no cost to the Trust
(except as noted herein) the services of sufficient executive and clerical
personnel for the Trust as are necessary to prepare registration statements,
prospectuses, shareholder reports, and notices and proxy solicitation materials.
In addition, the Adviser furnishes at no cost to the Trust the services of a
President of the Trust, one or more Vice Presidents as needed, and a Secretary.

Under the Advisory Agreements, the Trust bears the cost of its accounting
services, which includes maintaining its financial books and records and
calculating the daily net asset value of each Fund. The costs of such accounting
services include the salaries and overhead expenses of a Treasurer or other
principal financial officer and the personnel operating under his direction. The
services are provided at cost which is allocated among all investment companies
advised or subadvised by the Adviser. The Trust also pays transfer agency fees,
custodian fees, legal fees, the costs of reports to shareholders and all other
ordinary expenses not specifically assumed by the Adviser.

The Trust retains the Adviser to manage the investment of its assets and to
place orders for the purchase and sale of its portfolio securities. Under the
relevant Advisory Agreement, the Trust pays the Adviser an annual fee for the
Emerging Growth Fund, the Growth Fund and the Growth and Income Fund calculated
separately for each Fund, at the rate of 0.65% of the first $1 billion of the
Fund's average daily net assets; 0.60% of the next $1 billion of the Fund's
average daily net assets; 0.55% of the next $1 billion of the Fund's average
daily net assets; 0.50% of the next $1 billion of the Fund's average daily net
assets; and 0.45% of the Fund's average daily net assets in excess of $4
billion. The Trust pays the Adviser an annual fee for the International Equity
Fund at the rate of 1.00% of the Fund's average daily net assets. This fee is
higher than that charged by most other mutual funds but the Trust believes it is
justified by the special international nature of the Fund and is not necessarily
higher than the fees charged by certain mutual funds with investment goals and
policies similar to those of the Fund. The Trust pays the Adviser an annual fee
for the Government Fund at the rate of 0.60% of the first $1 billion of the
Fund's average daily net assets; 0.55% of the next $1 billion of the Fund's
average daily net assets; 0.50% of the next $1 billion of the Fund's average
daily net assets; 0.45% of the next $1 billion of the Fund's average daily net
assets; 0.40% of the next $1 billion of the Fund's average daily net assets; and
0.35% of the Fund's average daily net assets in excess of $5 billion. The Trust
pays the Adviser an annual fee for the Municipal Bond Fund at the rate of 0.60%
of the first $1 billion of the Fund's average daily net assets; 0.55% of the
next $1 billion of the Fund's average daily net assets; 0.50% of the next $1
billion of the Fund's average daily net assets; and 0.45% of the Fund's average
daily net assets in excess of $3 billion.

B-24
<PAGE> 79

The average daily net assets of each Fund are determined by taking the
average of all of the determinations of net asset value of such Fund for each
business day during a given calendar month. Such fee is payable for each
calendar month as soon as practicable after the end of that month.

The following table shows expenses paid under the relevant investment
advisory agreement during the periods ended October 31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
EMERGING INTERNATIONAL GROWTH & MUNICIPAL
GROWTH EQUITY GROWTH INCOME GOVERNMENT BOND
-------- ------------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
OCTOBER 31, 1997
Accounting Services..........................
Gross Advisory Fees..........................
Contractual Expense Reimbursement............
Voluntary Expense Reimbursement..............

OCTOBER 31, 1996
Accounting Services.......................... $79,620 $ 30,600 $ 406,931 $ 168,039 $ 93,056 $ 99,374
Gross Advisory Fees.......................... 376,436 130,149 17,148,560 6,017,204 1,883,666 728,210
Contractual Expense Reimbursement............ -- 130,149 -- -- -- --
Voluntary Expense Reimbursement.............. -- 47,998 -- -- -- --

OCTOBER 31, 1995
Accounting Services.......................... $ 6,356 $ 4,807 $ 277,991 $ 123,458 $ 92,277 $ 90,522
Gross Advisory Fees.......................... 47,662 35,227 14,436,748 4,937,121 1,979,623 678,530
Contractual Expense Reimbursement............ -- -- -- -- -- --
Voluntary Expense Reimbursement.............. -- -- -- -- -- --
</TABLE>

The Advisory Agreements also provide that, in the event the ordinary
business expenses of the Trust, calculated separately for each Fund, for any
fiscal year should exceed the most restrictive expense limitation applicable in
the states where the Trust's shares are qualified for sale, unless waived, the
compensation due the Adviser will be reduced by the amount of such excess and
that, if a reduction in and refund of the advisory fee is insufficient, the
Adviser will pay the Trust monthly an amount sufficient to make up the
deficiency, subject to readjustment during the year. Ordinary business expenses
do not include (1) interest and taxes, (2) brokerage commissions, (3) certain
litigation and indemnification expenses as described in the Advisory Agreements
and (4) payments made by a Fund pursuant to the Distribution Plans. Each Fund's
Advisory Agreement also provides that the Adviser shall not be liable to the
Trust for any actions or omissions if it acted in good faith without negligence
or misconduct. The Advisory Agreements also provide that the Adviser shall not
be liable to the Trust for any actions or omissions if it acted in good faith
without negligence or misconduct.

Each Advisory Agreement has an initial term of two years and thereafter
with respect to each Fund may be continued from year to year if specifically
approved at least annually (a)(i) by the Trustees or (ii) by vote of a majority
of the Fund's outstanding voting securities, and (b) by the affirmative vote of
a majority of the Trustees who are not parties to the agreement or interested
persons of any such party by votes cast in person at a meeting called for such
purpose. The Advisory Agreements provide that they shall terminate automatically
if assigned and that they may be terminated without penalty by either party on
60 days written notice.

[Currently, the most restrictive applicable limitations are 2.50% of the
first $30 million, 2% of the next $70 million, and 1.50% of the remaining
average net assets. The Trust has received from California (the state with the
most restrictive expense limitation) a waiver, effective retroactive to the
inception of the Trust, which allows each Fund to exclude shareholder service
costs from the calculation of the expense limitation.]

B-25
<PAGE> 80

DISTRIBUTOR

The Distributor acts as the principal underwriter of the shares of the
Trust pursuant to a written agreement for the Funds ("Underwriting Agreement").
The Distributor has entered into a selling agreement with PFS Investments giving
PFS Investments the exclusive right to sell shares of each Fund of the Trust on
behalf of the Distributor. The Distributor's obligation is an agency or "best
efforts" arrangement under which the Distributor is required to take and pay
only for such shares of each Fund as may be sold to the public. The Distributor
is not obligated to sell any stated number of shares. The Underwriting Agreement
is renewable from year to year if approved (a) by the Trustees or by a vote of a
majority of the Trust's outstanding voting securities, and (b) by the
affirmative vote of a majority of Trustees who are not parties to the Agreement
or interested persons of any party by votes cast in person at a meeting called
for such purpose. The Underwriting Agreement provides that it will terminate if
assigned, and that it may be terminated without penalty by either party on 60
days' written notice.

The following table shows commissions paid, amounts retained by the
Distributor and amounts received by PFS Investments during the periods ended
October 31, 1997, 1996 and 1995.

<TABLE>
<CAPTION>
EMERGING INTERNATIONAL GROWTH & MUNICIPAL
GROWTH EQUITY GROWTH INCOME GOVERNMENT BOND
---------- ------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OCTOBER 31, 1997
Total Underwriting Commissions..............
Amount Retained By Distributor..............
Amount Received By PFS Investments..........

OCTOBER 31, 1996
Total Underwriting Commissions.............. $1,519,351 $235,791 $19,303,603 $5,144,500 $ 950,019 $1,029,147
Amount Retained By Distributor.............. 124,777 21,437 3,405,104 888,760 162,072 124,395
Amount Received By PFS Investments.......... 1,394,574 214,354 15,898,499 4,255,740 1,173,867 904,752

OCTOBER 31, 1995
Total Underwriting Commissions.............. $ 569,333 $147,459 $21,001,021 $5,352,114 $1,871,172 $1,033,937
Amount Retained By Distributor.............. 47,949 11,149 3,711,115 929,500 378,331 118,219
Amount Received By PFS Investments.......... 521,384 136,310 17,289,906 4,422,614 1,492,841 915,718
</TABLE>

The Distributor bears the cost of printing (but not typesetting)
prospectuses used in connection with this offering and the cost and expense of
supplemental sales literature, promotion and advertising. The Trust pays all
expenses attributable to the registrations of its shares under federal and state
blue sky laws, including registration and filing fees, the cost of preparation
of the prospectuses, related legal and auditing expenses, and the cost of
printing prospectuses for current shareholders.

PORTFOLIO TURNOVER

The portfolio turnover rate may vary greatly from year to year as well as
within a year. Each Fund's portfolio turnover rate for prior years is shown
under the "Financial Highlights" in the Prospectus.

DISTRIBUTION PLANS

The Trust has adopted a Class A distribution plan and a Class B
distribution plan (the "Class A Plan" and "Class B Plan," respectively) to
permit each Fund directly or indirectly to pay expenses associated with
servicing shareholders and in the case of the Class B Plan the distribution of
its shares (the Class A Plan and the Class B Plan are sometimes referred to
herein collectively as "Plans" and individually as a "Plan").

With respect to the Class A Plan, each Fund is authorized to pay the
Distributor, as compensation for the Distributor's services, a service fee at an
annual rate of 0.25% of the average daily net assets of the Fund's Class A
shares. Such fee shall be calculated and accrued daily and paid monthly. With
respect to the Class A Plan, the Distributor intends to make payments thereunder
only to compensate PFS Investments for personal service and the maintenance of
shareholder accounts. With respect to the Class B Plan, authorized payments by
each Fund include payments at an annual rate of 0.25% of the average daily net
assets of the Class B shares to the Distributor for payments for personal
service and/or the maintenance of shareholder accounts. With

B-26
<PAGE> 81

respect to the Class B Plan, authorized payments by each Fund also include
payments at an annual rate of 0.75% of the average daily net assets of the Class
B shares to the Distributor as compensation for providing sales and promotional
activities and services.

In reporting amounts expended under the Plans to the Trustees, the
Distributor will allocate expenses attributable to the sale of both Class A and
Class B shares to each class based on the ratio of sales of Class A and Class B
shares to the sales of both classes of shares. The service fees paid by the
Class A shares will not be used to subsidize the sale of Class B shares;
similarly, the service fees, if any, and distribution fees paid by the Class B
shares will not be used to subsidize the sale of Class A shares.

As required by Rule 12b-1 under the 1940 Act, each Plan and the forms of
servicing agreements were approved by the Trustees, including a majority of the
Trustees who are not interested persons (as defined in the 1940 Act) of the
Trust and who have no direct or indirect financial interest in the operation of
any of the Plans or in any agreements related to each Plan ("Independent
Trustees"). In approving each Plan in accordance with the requirements of Rule
12b-1, the Trustees determined that there is a reasonable likelihood that each
Plan will benefit the Trust and its shareholders.

Each Plan requires the Distributor to provide the Trustees at least
quarterly with a written report of the amounts expended pursuant to each Plan
and the purposes for which such expenditures were made. Unless sooner terminated
in accordance with its terms, the Plans will continue in effect for a period of
one year and thereafter will continue in effect so long as such continuance is
specifically approved at least annually by the Trustees, including a majority of
Independent Trustees.

Each Plan may be terminated by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting shares of the
respective class. Any change in any of the Plans that would materially increase
the distribution or service expenses borne by the Trust requires shareholder
approval, voting separately by class; otherwise, it may be amended by a majority
of the Trustees, including a majority of the Independent Trustees, by vote cast
in person at a meeting called for the purpose of voting upon such amendment. So
long as the Plan is in effect, the selection or nomination of the Independent
Trustees is committed to the discretion of the Independent Trustees.

With respect to each Plan, the Trustees considered all compensation that
the Distributor would receive under the Plan and the Underwriting Agreement,
including service fees and, as applicable, initial sales charges, distribution
fees and contingent deferred sales charges. The Trustees also considered the
benefits that would accrue to the Distributor under each Plan in that the
Distributor would receive service fees and distribution fees and the Adviser
would receive advisory fees which are calculated based upon a percentage of the
average net assets of each Fund, which fees would increase if the Plans were
successful and each Fund attained and maintained significant asset levels.

For the fiscal year ended October 31, 1997, the aggregate expenses for the
Emerging Growth Fund under the Fund's Class A Plan were $ or 0.25%,
respectively, of the Class A shares' average net assets. Such expenses were paid
to reimburse the Distributor for payments made to Service Organizations for
servicing Fund shareholders and for administering the Class A Plan. For the
fiscal year ended October 31, 1997, the Fund's aggregate expenses under the
Class B Plan were $ or 1.00% of the Class B shares' average net assets.
Such expenses were paid to reimburse the Distributor for the following payments:
$ for commissions and transaction fees paid to broker-dealers and other
Service Organizations in respect of sales of Class B shares of the Fund and
$ for fees paid to Service Organizations for servicing Class B
shareholders and administering the Class B Plan.

For the fiscal year ended October 31, 1997, the aggregate expenses for the
International Equity Fund under the Fund's Class A Plan were $ or 0.25%,
respectively, of the Class A shares' average net assets. Such expenses were paid
to reimburse the Distributor for payments made to Service Organizations for
servicing Fund shareholders and for administering the Class A Plan. For the
fiscal year ended October 31, 1997, the Fund's aggregate expenses under the
Class B Plan were $ or 1.00% of the Class B shares' average net assets.
Such expenses were paid to reimburse the Distributor for the following payments:
$ for commissions and transaction fees paid to broker-dealers and other
Service Organizations in respect of sales

B-27
<PAGE> 82

of Class B shares of the Fund and $ for fees paid to Service Organizations
for servicing Class B shareholders and administering the Class B Plan.

For the fiscal year ended October 31, 1997, the aggregate expenses for the
Growth Fund under the Class A Plan were $ or 0.25%, respectively, of the
Class A shares' average net assets. Such expenses were paid to reimburse the
Distributor for payments made to Service Organizations for servicing Fund
shareholders and for administering the Class A Plan. For the fiscal year ended
October 31, 1997, the Fund's aggregate expenses under the Class B Plan were
$ or 1.00% of the Class B shares' average net assets. Such expenses were
paid to reimburse the Distributor for the following payments: $ for
commissions and transaction fees paid to broker-dealers and other Service
Organizations in respect of sales of Class B shares of the Fund and $39,440 for
fees paid to Service Organizations for servicing Class B shareholders and
administering the Class B Plan.

For the fiscal year ended October 31, 1997, the aggregate expenses for the
Growth and Income Fund under the Fund's Class A Plan were $ or 0.25%,
respectively, of the Class A shares' average net assets. Such expenses were paid
to reimburse the Distributor for payments made to Service Organizations for
servicing Fund shareholders and for administering the Class A Plan. For the
fiscal year ended October 31, 1997, the Fund's aggregate expenses under the
Class B Plan were $ or 1.00% of the Class B shares' average net assets.
Such expenses were paid to reimburse the Distributor for the following payments:
$ for commissions and transaction fees paid to broker-dealers and other
Service Organizations in respect of sales of Class B shares of the Fund and
$ for fees paid to Service Organizations for servicing Class B
shareholders and administering the Class B Plan.

For the fiscal year ended October 31, 1997, the aggregate expenses for the
Government Fund under the Fund's Class A Plan were $ or 0.25%,
respectively, of the Class A shares' average net assets. Such expenses were paid
to reimburse the Distributor for payments made to Service Organizations for
servicing Fund shareholders and for administering the Class A Plan. For the
fiscal year ended October 31, 1997, the Fund's aggregate expenses under the
Class B Plan were $ or 1.00% of the Class B shares' average net assets.
Such expenses were paid to reimburse the Distributor for the following payments:
$ for commissions and transaction fees paid to broker-dealers and other
Service Organizations in respect of sales of Class B shares of the Fund and
$ for fees paid to Service Organizations for servicing Class B
shareholders and administering the Class B Plan.

For the fiscal year ended October 31, 1997, the aggregate expenses for the
Municipal Bond Fund under the Fund's Class A Plan were $ or 0.25%,
respectively, of the Class A shares' average net assets. Such expenses were paid
to reimburse the Distributor for payments made to Service Organizations for
servicing Fund shareholders and for administering the Class A Plan. For the
fiscal year ended October 31, 1997, the Fund's aggregate expenses under the
Class B Plan were $ or 1.00% of the Class B shares' average net assets.
Such expenses were paid to reimburse the Distributor for the following payments:
$ for commissions and transaction fees paid to broker-dealers and other
Service Organizations in respect of sales of Class B shares of the Fund and
$ for fees paid to Service Organizations for servicing Class B
shareholders and administering the Class B Plan.

PORTFOLIO TRANSACTIONS AND BROKERAGE

The Adviser is responsible for decisions to buy and sell securities for the
Trust and for the placement of its portfolio business and the negotiation of any
commissions paid on such transactions. It is the policy of the Advisers to seek
the best security price available with respect to each transaction. In
over-the-counter transactions, orders are placed directly with a principal
market maker unless it is believed that a better price and execution can be
obtained by using a broker. Except to the extent that the Trust may pay higher
brokerage commissions for brokerage and research services (as described below)
on a portion of its transactions executed on securities exchanges, the Adviser
seeks the best security price at the most favorable commission rate. From time
to time, the Fund may place brokerage transactions with affiliated persons of
the Adviser. In selecting broker/dealers and in negotiating commissions, the
Adviser considers the firm's reliability, the quality of its execution services
on a continuing basis and its financial condition. When more than one firm is
believed to

B-28
<PAGE> 83

meet these criteria, preference may be given to firms which also provide
research services to the Trust or the Adviser.

Section 28(e) of the Securities Exchange Act of 1934 ("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 securities 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 in, 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, (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody), and (d)
furnishing other products or services that assist the Adviser or the Subadviser
in fulfilling their investment-decision making responsibilities.

Pursuant to provisions of the relevant Advisory Agreement, the Trustees
have authorized the Adviser to cause the Trust to incur brokerage commissions in
an amount higher than the lowest available rate in return for research services
provided to the Adviser. The Adviser is of the opinion that the continued
receipt of supplemental investment research services from dealers is essential
to its provision of high quality portfolio management services to the Trust. The
Adviser undertakes that such higher commissions will not be paid by the Trust
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 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 Trust are
reasonable in relation to the expected benefits to the Trust over the long term.
The investment advisory fees paid by the Trust under the Advisory Agreements are
not reduced as a result of the Adviser's receipt of research services.

Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to seeking best execution and such other
policies as the Trustees may determine, the Adviser may consider sales of shares
of the Trust as a factor in the selection of firms to execute portfolio
transactions for the Trust.

The Adviser places portfolio transactions for other advisory accounts
including other investment companies. Research services furnished by firms
through which the Trust effects its 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 Trust. In the opinion of the Adviser, the
benefits from research services to the Funds of the Trust and to the accounts
managed by the Adviser cannot be measured separately. Because the volume and
nature of the trading activities of the accounts are not uniform, the amount of
commissions in excess of the lowest available rate paid by each account for
brokerage and research services will vary. However, in the opinion of the
Adviser, such costs to the Trust will not be disproportionate to the benefits
received by the Trust on a continuing basis.

The Adviser will seek to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities by the Trust and
other accounts that the Adviser may establish in the future. In some cases, this
procedure could have an adverse effect on the price or the amount of securities
available to the Trust. In making such allocations among the Trust and other
advisory accounts, the main factors considered by the Adviser is the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held, and opinions of the persons responsible
for recommending the investment.

B-29
<PAGE> 84

The following table summarizes for each Fund the total brokerage
commissions paid, the amount of commissions paid to brokers selected primarily
on the basis of research services provided to the Adviser and the value of these
specific transactions.

<TABLE>
<CAPTION>
EMERGING INTERNATIONAL GROWTH & MUNICIPAL
GROWTH EQUITY GROWTH INCOME GOVERNMENT BOND
----------- ------------- -------------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
1997
Total Brokerage Commissions............
Commissions for Research Services......
Value of Research Transactions.........
1996
Total Brokerage Commissions............ $ 99,218 $94,895 $ 10,114,647 $ 2,273,725 $160,181 $ --
Commissions for Research Services...... 73,884 -- 3,194,442 896,669 -- --
Value of Research Transactions......... 13,016,975 -- 2,657,952,353 821,323,593 -- --
1995
Total Brokerage Commissions............ $ 33,144 $51,642 11,276,872 2,443,026 125,499 --
Commissions for Research Services...... 27,920 -- 2,878,071 880,873 -- --
Value of Research Transactions......... 24,893,286 -- 1,995,983,303 524,158,962 -- --
</TABLE>

The Funds may from time to time place brokerage transactions with brokers
that may be considered affiliated persons of the Adviser or the Distributor. The
negotiated commission paid to an affiliated broker on any transaction would be
comparable to that payable to a non-affiliated broker in a similar transaction.

The Funds paid the following commissions to these brokers during the
periods shown:

Commissions Paid:

<TABLE>
<CAPTION>
ROBINSON SMITH
FISCAL 1997 COMMISSIONS HUMPHREY BARNEY
----------------------- -------- --------
<S> <C> <C>
Emerging Growth.............................................
International Equity........................................
Growth......................................................
Growth & Income.............................................
Government..................................................
Municipal Bond..............................................
</TABLE>

<TABLE>
<CAPTION>
ROBINSON SMITH
FISCAL 1997 PERCENTAGE HUMPHREY BARNEY
---------------------- -------- --------
<S> <C> <C>
Emerging Growth.............................................
International Equity........................................
Growth......................................................
Growth & Income.............................................
Government..................................................
Municipal Bond..............................................
</TABLE>

<TABLE>
<CAPTION>
VALUE OF TRANSACTIONS WITH ROBINSON SMITH
AFFILIATES TO TOTAL TRANSACTIONS HUMPHREY BARNEY
-------------------------------- -------- --------
<S> <C> <C>
Emerging Growth.............................................
International Equity........................................
Growth......................................................
Growth & Income.............................................
Government..................................................
Municipal Bond..............................................
</TABLE>

<TABLE>
<CAPTION>
ROBINSON SMITH
FISCAL 1996 COMMISSIONS HUMPHREY BARNEY
----------------------- -------- --------
<S> <C> <C>
Emerging Growth............................................. $ -- $ 1,835
International Equity........................................ -- --
Growth...................................................... 7,200 240,982
Growth & Income............................................. 2,400 92,761
Government.................................................. -- 28,322
Municipal Bond.............................................. -- --
</TABLE>

B-30
<PAGE> 85

<TABLE>
<CAPTION>
ROBINSON SMITH
FISCAL 1996 PERCENTAGES HUMPHREY BARNEY
----------------------- -------- --------
<S> <C> <C>
Emerging Growth............................................. -- 1.87%
International Equity........................................ -- --
Growth...................................................... 0.07% 2.38%
Growth & Income............................................. 0.10% 4.08%
Government.................................................. -- 17.68%
Municipal Bond.............................................. -- --
</TABLE>

<TABLE>
<CAPTION>
VALUE OF TRANSACTIONS WITH ROBINSON SMITH
AFFILIATES TO TOTAL TRANSACTIONS HUMPHREY BARNEY
-------------------------------- -------- --------
<S> <C> <C>
Emerging Growth............................................. -- --
International Equity........................................ -- --
Growth...................................................... -- 0.002%
Growth & Income............................................. -- 0.027%
Government.................................................. -- 4.65%
Municipal Bond.............................................. -- 5.35%
</TABLE>

<TABLE>
<CAPTION>
ROBINSON SMITH
FISCAL 1995 COMMISSIONS HUMPHREY BARNEY
----------------------- -------- --------
<S> <C> <C>
Emerging Growth............................................. $ -- $ 310
International Equity........................................ -- 1,077
Growth...................................................... 5,250 253,827
Growth & Income............................................. 189 118,952
Government.................................................. -- 20,942
Municipal Bond.............................................. -- --
</TABLE>

<TABLE>
<CAPTION>
ROBINSON SMITH
FISCAL 1995 PERCENTAGES HUMPHREY BARNEY
----------------------- -------- --------
<S> <C> <C>
Commissions with affiliates to total commissions
Emerging Growth........................................... -- 0.94%
International Equity...................................... -- 2.10%
Growth.................................................... 0.05% 2.25%
Growth & Income........................................... 0.01% 4.87%
Government................................................ -- 16.69%
Municipal Bond............................................ -- --
</TABLE>

<TABLE>
<CAPTION>
VALUE OF TRANSACTIONS WITH ROBINSON SMITH
AFFILIATES TO TOTAL TRANSACTIONS HUMPHREY BARNEY
-------------------------------- -------- --------
<S> <C> <C>
Emerging Growth............................................. -- 0.35%
International Equity........................................ -- 1.23%
Growth...................................................... 0.03% 7.40%
Growth & Income............................................. -- 10.52%
Government.................................................. -- 15.55%
Municipal Bond.............................................. -- --
</TABLE>

B-31
<PAGE> 86

DETERMINATION OF NET ASSET VALUE

The net asset value of the shares of each Fund is determined as of the
close of the New York Stock Exchange (the "Exchange") (currently 4:00 p.m., New
York time) on each business day on which the Exchange is open.

THE EMERGING GROWTH FUND, THE INTERNATIONAL EQUITY FUND, THE GROWTH FUND AND THE
GROWTH AND INCOME FUND NET ASSET VALUATION

The net asset value of each Fund is computed by (i) valuing securities
listed or traded on a national securities exchange at the last reported sales
price, or if there has been no sale that day at the last reported bid price,
using prices as of the close of trading on the Exchange, (ii) valuing unlisted
securities for which over-the-counter market quotations are readily available at
the most recent bid price as supplied by the National Association of Securities
Dealers Automated Quotations (NASDAQ) or by broker-dealers, and (iii) valuing
any securities for which market quotations are not readily available, and any
other assets at fair value as determined in good faith by the Trustees. Options
on stocks, options on stock indexes and stock index futures contracts and
options thereon, which are traded on exchanges, are valued at their last sales
or settlement price as of the close of such exchanges, or, if no sales are
reported, at the mean between the last reported bid and asked prices. Debt
securities with a remaining maturity of 60 days or less are valued on an
amortized cost basis which approximates market value.

Foreign securities trading may not take place on all days on which the
Exchange is open. Further, trading takes place in various foreign markets on
days on which the Exchange is not open. Accordingly, the determination of the
net asset value of a Fund may not take place contemporaneously with the
determination of the prices of investments held by such Fund. Events affecting
the values of investments that occur between the time their prices are
determined and 4:00 p.m. Eastern time on each day that the Exchange is open will
not be reflected in a Fund's net asset value unless the Adviser, under the
supervision of the Trustees, determines that the particular event would
materially affect net asset value. As a result, a Fund's net asset value may be
significantly affected by such trading on days when a shareholder has no access
to the Funds.

GOVERNMENT FUND NET ASSET VALUATION

U.S. Government securities are traded in the over-the-counter market and
are valued at the last available bid price. Such valuations are based on
quotations of one of more dealers that make markets in the securities as
obtained from such dealers or from a pricing service. Options and interest rate
futures contracts and options thereon, which are traded on exchanges, are valued
at their last sales or settlement price as of the close of such exchanges, or,
if no sales are reported, at the mean between the last reported bid and asked
prices. Securities with a remaining maturity of 60 days or less are valued on an
amortized cost basis which approximates market value. Securities and assets for
which market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Trustees. Such
valuations and procedures will be reviewed periodically by the Trustees.

THE MUNICIPAL BOND FUND NET ASSET VALUATION

Municipal Bonds owned by the Fund are valued by an independent pricing
service ("Service"). When, in the judgment of the Service, quoted bid prices for
investments are readily available and are representative of the bid side of the
market, these investments are valued at such quoted bid prices (as obtained by
the Service from dealers in such securities). Other investments are carried at
fair value as determined by the Service, based on methods which include
consideration of: yields or prices of municipal bonds of comparable quality,
coupon, maturity and type; indications as to values from dealers; and general
market conditions. The Service may employ electronic data processing techniques
and/or a matrix system to determine valuations. Any assets which are not valued
by the Service would be valued at fair value using methods determined in good
faith by the Trustees.

B-32
<PAGE> 87

GENERAL

The assets belonging to the Class A, Class B and Class 1 shares of each
Fund will be invested together in a single portfolio. The net asset value of
each class will be determined separately by subtracting the expenses and
liabilities allocated to that class.

PURCHASE AND REDEMPTION OF SHARES

The following information supplements the sections in the Funds' Prospectus
captioned "Purchase of Shares" and "Redemption of Shares."

PURCHASE OF SHARES

Shares of each Fund are sold in a continuous offering and may be purchased
on any business day through PFS Investments.

ALTERNATIVE SALES ARRANGEMENT

Each Fund issues two classes of shares: Class A shares are subject to an
initial sales charge and Class B shares are sold at net asset value and are
subject to a contingent deferred sales charge. Each Fund offers Class 1 shares
only to accounts of previously established shareholders or members of a family
unit comprising husband, wife and minor children, and Class 1 shareholders of
other Common Share Funds exchanging their Class 1 shares for Class 1 shares of
the Fund. The classes of shares each represent interests in the same Fund's
portfolio of investments, have the same rights and are identical in all
respects, except that Class B shares bear the expenses of the deferred sales
arrangements, distribution fees, and any expenses (including any incremental
transfer agency costs) resulting from such sales arrangements, and except that
each class has exclusive voting rights with respect to the Rule 12b-1
distribution plan pursuant to which its distribution fees are paid.

During special promotions, the entire sales charge on Class A shares may be
reallowed to dealers, and at such times PFS Investments may be deemed to be an
underwriter for purposes of the 1933 Act.

INVESTMENTS BY MAIL

A shareholder investment account may be opened by completing the
application accompanying the Prospectus and forwarding the application, through
PFS Investments to the Transfer Agent at 3100 Breckinridge Boulevard, Bldg. 200,
Duluth, Georgia 30199-0062. The account is opened only upon acceptance of the
application by the Transfer Agent. The minimum initial investment of $250 or
more in the form of a check payable to the Trust, must accompany the
application. This minimum may be waived by the Distributor for plans involving
continuing investments. Subsequent investments of $25 or more may be mailed
directly to the Transfer Agent. All such investments are made at the public
offering price of the Fund's shares next computed following receipt of payment
by the Transfer Agent. Confirmations of the opening of an account and of all
subsequent transactions in the account are forwarded by the Transfer Agent to
the shareholder.

In processing applications and investments, the Transfer Agent acts as
agent for the investor and for PFS Investments and also as agent for the
Distributor, in accordance with the terms of the Prospectus. If the Transfer
Agent ceases to act as such, a successor company named by the Trust will act in
the same capacity so long as the account remains open.

CUMULATIVE PURCHASE DISCOUNT

The reduced sales load reflected in the sales charge table as shown in the
Prospectus applies to purchases of Class A and Class 1 shares of the Emerging
Growth Fund, the International Equity Fund, the Growth Fund, the Growth and
Income Fund, the Government Fund and the Municipal Bond Fund. An aggregate
investment includes all shares of all of the above Funds and shares of other
Common Sense Funds previously purchased and still owned, plus the shares being
purchased. The current offering price is used to determine the value of all such
shares. The same reduction is applicable to purchases under a Letter of Intent
as described in

B-33
<PAGE> 88

the next paragraph. PFS Investments must notify the Distributor at the time an
order is placed for a purchase which would qualify for the reduced charge on the
basis of previous purchases. Similar notification must be given in writing when
such an order is placed by mail. The reduced sales charge will not be applied if
such notification is not furnished at the time of the order. The reduced sales
charge will also not be applied unless the records of the Distributor or the
Transfer Agent confirm the investor's representations concerning his holdings.

LETTER OF INTENT

A Letter of Intent applies to purchases of Class A and Class 1 shares of
all Funds. When an investor submits a Letter of Intent to attain an investment
goal within a 13-month period, the Transfer Agent escrows shares totaling 5% of
the dollar amount of the Letter of Intent in the name of the investor. The
Letter of Intent does not obligate the investor to purchase the indicated
amount. In the event the Letter of Intent goal is not achieved within the
13-month period, the investor is required to pay the difference between the
sales charge otherwise applicable to the purchases made during this period and
the sales charge actually paid. Such payment may be made directly to the
Distributor or, if not paid, the Distributor will liquidate sufficient escrow
shares to obtain such difference. If the goal is exceeded in an amount which
qualifies for a lower sales charge, a price adjustment is made at the end of the
13-month period by refunding to the investor the amount of excess sales
commissions, if any, paid during the 13-month period.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE ("CDSC")

The CDSC is waived on redemptions of Class A and Class B shares in the
circumstances described below:

(a) Redemption Upon Disability or Death

The Trust may waive the CDSC on redemptions following the death or
disability of a Class A or Class B shareholder. An individual will be considered
disabled for this purpose if he or she meets the definition thereof in Section
72(m)(7) of the Code, which in pertinent part defines a person as disabled if
such person "is unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment which can be
expected to result in death or to be of long-continued and indefinite duration."
While the Trust does not specifically adopt the balance of the Code's definition
which pertains to furnishing the Secretary of Treasury with such proof as he or
she may require, the Distributor will require satisfactory proof of death or
disability before it determines to waive the CDSC.

In cases of disability or death, the CDSC may be waived where the decedent
or disabled person is either an individual shareholder or owns the shares as a
joint tenant with right of survivorship or is the beneficial owner of a
custodial or fiduciary account, and where the redemption is made within one year
of the death or initial determination of disability. This waiver of the CDSC
applies to a total or partial redemption, but only to redemptions of shares held
at the time of the death or initial determination of disability.

(b) Redemption in Connection with Certain Distributions from Retirement Plans

The Trust may waive the CDSC when a total or partial redemption is made in
connection with certain distributions from Retirement Plans. The charge may be
waived upon the tax-free rollover or transfer of assets to another Retirement
Plan invested in one or more of the Funds; in such event, as described below,
the Fund will "tack" the period for which the original shares were held on to
the holding period of the shares acquired in the transfer or rollover for
purposes of determining what, if any, CDSC is applicable in the event that such
acquired shares are redeemed following the transfer or rollover. The charge also
may be waived on any redemption which results from the return of an excess
contribution pursuant to Section 408(d)(4) or (5) of the Code, the return of
excess deferral amounts pursuant to Code Section 401(k)(8) or 402(g)(2), or from
the death or disability of the employee (see Code Section 72(m)(7) and
72(t)(2)(A)(ii)). In addition, the charge may be waived on any minimum
distribution required to be distributed in accordance with Code Section
401(a)(9).

B-34
<PAGE> 89

The Trust does not intend to waive the CDSC for any distributions from IRAs
or other Retirement Plans not specifically described above.

A shareholder may elect to participate in a systematic withdrawal plan
("Plan") with respect to the shareholder's investment in a Fund. Under the Plan,
a dollar amount of a participating shareholder's investment in the Fund will be
redeemed systematically by the Fund on a periodic basis, and the proceeds mailed
to the shareholder. The amount to be redeemed and frequency of the systematic
withdrawals will be specified by the shareholder upon his or her election to
participate in the Plan. The CDSC may be waived on redemptions made under the
Plan.

The amount of the shareholder's investment in a Fund at the time the
election to participate in the Plan is made with respect to the Fund is
hereinafter referred to as the "initial account balance." The amount to be
systematically redeemed from such Fund without the imposition of a CDSC may not
exceed a maximum of 12% annually of the shareholder's initial account balance.
The Trust reserves the right to change the terms and conditions of the Plan and
the ability to offer the Plan.

(d) Involuntary Redemptions of Shares in Accounts that Do Not Have the
Required Minimum Balance

The Trust reserves the right to redeem shareholder accounts with balances
of less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the account up
to the required minimum balance. Any involuntary redemption may only occur if
the shareholder account is less than the amount specified in the Prospectus due
to shareholder redemptions. The Trust may waive the CDSC upon such involuntary
redemption.

(e) Redemption by Adviser

The Trust may waive the CDSC when a total or partial redemption is made by
the Adviser with respect to its investments in a Fund.

REDEMPTION OF SHARES

Redemptions are not made on days during which the Exchange is closed. The
right of redemption may be suspended and the payment therefor may be postponed
for more than seven days during any period when (a) the Exchange is closed for
other than customary weekends or holidays; (b) trading on the Exchange is
restricted; (c) an emergency exists as a result of which disposal by the Trust
of securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Trust to fairly determine the value of its net assets; or
(d) the SEC, by order, so permits.

EXCHANGE PRIVILEGE

The following supplements the discussion of "Shareholder Services --
Exchange Privilege" in the Prospectus:

By use of the exchange privilege, the investor authorizes the Transfer
Agent to act on written exchange instructions from any person representing
himself to be the investor or the agent of the investor and believed by the
Transfer Agent to be genuine. The Transfer Agent's records of such instructions
are binding.

For purposes of determining the sales charge rate previously paid on Class
A and Class 1 shares of a Fund, all sales charges paid on the exchanged security
and on any security previously exchanged for such security or for any of its
predecessors shall be included. If the exchanged security was acquired through
reinvestment, that security is deemed to have been sold with a sales charge rate
equal to the rate previously paid on the security on which the dividend or
distribution was paid. If a shareholder exchanges less than all of his
securities, the security upon which the highest sales charge rate was previously
paid is deemed exchanged first.

B-35
<PAGE> 90

Exchange requests received on a business day prior to the time shares of a
Fund involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in a fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the Funds involved in the request are priced will be processed on the
next business day in the manner described above.

DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES

The Emerging Growth Fund, the International Equity Fund and the Growth Fund
distribute dividends and capital gains annually; the Growth and Income Fund
declares and pays dividends quarterly. The Government Fund and the Municipal
Bond Fund declare dividends each business day and distribute monthly
substantially all of their net investment income to shareholders. The daily
dividends of the Government Fund are a fixed amount determined for each class at
least monthly. The per share dividends on Class B shares of each Fund will be
lower than the per share dividends on Class A and Class 1 shares as a result of
the distribution fees and incremental transfer agency fees, if any, applicable
to the Class B shares. Each Fund intends similarly to distribute to shareholders
any taxable net realized capital gains. Taxable net realized capital gains are
the excess, if any, of the Fund's total profits on the sale of securities during
the year over its total losses on the sale of securities, including capital
losses carried forward from prior years in accordance with the tax laws. Such
capital gains, if any, are distributed at least once a year. All income
dividends and capital gains distributions are reinvested in shares of a Fund at
net asset value without sales charge on the record date, except that any
shareholder may otherwise instruct the shareholder service agent in writing and
receive cash. Shareholders are informed as to the sources of distributions at
the time of payment.

Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Code. By so qualifying, a Fund will not be subject to
federal income taxes on amounts paid by it as dividends and distributions to
shareholders. If any Fund were to fail to qualify as a regulated investment
company under the Code, all of its income (without deduction for income
dividends or capital gain distributions paid to shareholders) would be subject
to tax at corporate rates. Each Fund expects to be treated as a separate entity
for purposes of determining federal tax treatment.

The Code permits a regulated investment company whose assets consist
primarily of tax-exempt Municipal Bonds to pass through to its investors,
tax-exempt, net Municipal Bond interest income. In order for the Municipal Bond
Fund to be eligible to pay exempt-interest dividends during any taxable year, at
the close of each fiscal quarter, at least 50% of the aggregate value of the
Fund's assets must consist of exempt-interest obligations. In addition, the Fund
must distribute at least (i) 90% of the excess of its exempt-interest income
over certain disallowed deductions, and (ii) 90% of its "investment company
taxable net income" (i.e., its ordinary taxable income and the excess, if any,
of its net short-term capital gains over any net long-term capital losses)
recognized by the Fund during the taxable year.

Not later than 60 days after the close of its taxable year, the Municipal
Bond Fund will notify its shareholders of the portion of the dividends paid by
the Fund to the shareholders for the taxable year which constitutes exempt
interest dividends. The aggregate amount of dividends so designated cannot
exceed, however, the excess of the amount of interest exempt from tax under
Section 103 of the Code received by the Fund during the year over any amounts
disallowed as deductions under Sections 265 and 171(a)(2) of the Code. Since the
percentage of dividends which are "exempt-interest" dividends is determined on
an average annual method for the fiscal year, the percentage of income
designated as tax-exempt for any particular dividend may be substantially
different from the percentage of the Fund's income that was tax-exempt during
the period covered by the dividend.

Although exempt-interest dividends generally may be treated by the
Municipal Bond Fund's shareholders as items of interest excluded from their
gross income, each shareholder is advised to consult his or her tax adviser with
respect to whether exempt-interest dividends retain this exclusion if the
shareholder should be treated as a "substantial user" or a "related person" with
respect to any of the tax-exempt obligations held by

B-36
<PAGE> 91

the Fund. "Substantial user" is defined under U.S. Treasury Regulations to
include a non-exempt person who regularly uses in his trade or business a part
of any facilities financed with the tax-exempt obligations and whose gross
revenues derived from such facilities exceed five percent of the total revenues
derived from the facilities by all users, or who occupies more than five percent
of the usable area of the facilities or for whom the facilities or a part
thereof were specifically constructed, reconstructed or acquired. Examples of
"related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S corporation and its
shareholders.

Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Municipal Bond Fund is not deductible for federal income tax
purposes if the Fund distributes exempt-interest dividends during the
shareholder's taxable year. If a shareholder receives an exempt-interest
dividend with respect to any shares and such shares are held for six months or
less, any capital loss on the sale or exchange of the shares will be disallowed
to the extent of the amount of such exempt-interest dividend.

If, during any taxable year, the Municipal Bond Fund realizes net capital
gains (the excess of net long-term capital gains over net short-term capital
losses) from the sale or other disposition of Municipal Bonds or other assets,
the Fund will have no tax liability with respect to such gains if they are
distributed to shareholders. Distributions designated as capital gains dividends
are taxable to shareholders as long-term capital gains, regardless of how long a
shareholder has held his or her shares. Not later than 60 days after the close
of the Fund's taxable year, the Fund will send to its shareholders a written
notice designating the amount of any distributions made during the year which
constitute capital gain.

While the Municipal Bond Fund expects that a major portion of its
investment income will constitute tax-exempt interest, a portion may consist of
"investment company taxable income" and "net capital gains". As pointed out
above, the Fund will be subject to tax for any year on its undistributed
investment company taxable income and net capital gains.

Each Fund is subject to a 4% excise tax to the extent it fails to
distribute to its shareholders during any calendar year at least (1) 98% of its
ordinary taxable income for the twelve months ended December 31, plus (2) 98% of
its capital gain net income for the twelve months ended October 31 of such year.
Each Fund intends to distribute sufficient amounts to avoid liability for the
excise tax.

The Tax Reform Act added a provision that, for years beginning after
December 31, 1989, 75% of the excess of a corporation's adjusted current
earnings (generally, earning and profits, with adjustments) over its other
alternative minimum taxable income is an item of tax preference for
corporations. All tax-exempt interest is included in the definition of "adjusted
current earnings" so a portion of such interest is included in computing the
alternative minimum tax on corporations. For shareholders that are financial
institutions, the Tax Reform Act eliminates their ability to deduct interest
payments to the extent allocated on a pro rata basis to the purchase of Fund
shares.

Dividends from net investment income and distributions from any short-term
capital gains are taxable to shareholders as ordinary income. A portion of
dividends taxable as ordinary income paid by the Emerging Growth Fund, the
International Equity Fund, the Growth Fund and the Growth and Income Fund
qualify for the 70% dividends received deduction for corporations. To qualify
for the dividends received deduction, a corporate shareholder must hold the
shares on which the dividend is paid for more than 45 days.

Dividends and distributions declared payable to shareholders of record
after September 30 of any year and paid before February 1 of the following year
are considered taxable income to shareholders on December 31 even though paid in
the next year.

A capital gain dividend received after the purchase of the shares of any
one of the Funds in the Trust reduces the net asset value of the shares by the
amount of the distribution and will be subject to income taxes. Distributions
from long-term capital gains are taxable to shareholders as long-term capital
gains, regardless of how long the shareholder has held Fund shares. Such
dividends and distributions from short-term capital gains are not eligible for
the dividends received deduction referred to above. Any loss on the sale of Fund
shares held for less than six months is treated as a long-term capital loss to
the extent of any long-term capital gain distribution paid on such shares,
subject to any exception that may be provided by IRS regulations for losses

B-37
<PAGE> 92

incurred under certain systematic withdrawal plans. All dividends and
distributions are taxable to the shareholder whether or not reinvested in
shares. Shareholders are notified annually by the Fund as to the federal tax
status of dividends and distributions paid by the Fund.

If shares of each Fund are sold or exchanged within 90 days of acquisition,
and shares of the same or a related mutual fund are acquired, to the extent the
sales charge is reduced or waived on the subsequent acquisition, the sales
charge may not be used to determine the basis in the disposed shares for
purposes of determining gain or loss. To the extent the sales charge is not
allowed in determining gain or loss on the initial shares, it is capitalized in
the basis of the subsequent shares.

Dividends to shareholders who are non-resident aliens may be subject to a
United States withholding tax at a rate of up to 30% under existing provisions
of the Code applicable to foreign individuals and entities unless a reduced rate
of withholding or a withholding exemption is provided under applicable treaty
laws. Non-resident shareholders are urged to consult their own tax advisers
concerning the applicability of the United States withholding tax.

Dividends and capital gains distributions may also be subject to state and
local taxes. Shareholders are urged to consult their attorneys or tax advisers
regarding specific questions as to federal, state or local taxes.

BACK-UP WITHHOLDING. The Trust is required to withhold and remit to the
United States Treasury 31% of (i) reportable taxable dividends and distributions
and (ii) the proceeds of any redemptions of Trust shares with respect to any
shareholder who is not exempt from withholding and who fails to furnish the
Trust with a correct taxpayer identification number, who fails to report fully
dividend or interest income or who fails to certify to the Trust that he has
provided a correct taxpayer identification number and that he is not subject to
withholding. (An individual's taxpayer identification number is his or her
social security number.) The 31% "Back-up withholding tax" is not an additional
tax and may be credited against a taxpayer's regular federal income tax
liability.

The Code includes special rules applicable to certain listed options
(excluding equity options as defined in the Code), futures contracts, and
options on futures contracts which the Emerging Growth Fund, the International
Equity Fund, the Growth Fund, the Growth and Income Fund, the Government Fund
and the Municipal Bond Fund may write, purchase or sell. Such options and
contracts are classified as Section 1256 contracts under the Code. The character
of gain or loss resulting from the sale, disposition, closing out, expiration or
other termination of Section 1256 contracts is generally treated as long-term
capital gain or loss to the extent of 60 percent thereof and short-term capital
gain or loss to the extent of 40 percent thereof ("60/40 gain or loss"). Such
contracts, when held by the Fund at the end of a fiscal year, generally are
required to be treated as sold at market value on the last day of such fiscal
year for federal income tax purposes ("marked-to-market"). Over-the-counter
options are not classified as Section 1256 contracts and are not subject to the
marked-to-market rule or to 60/40 gain or loss treatment. Any gains or losses
recognized by the Government Fund from transactions in over-the-counter options
generally constitute short-term capital gains or losses. If over-the-counter
call options written, or over-the-counter put options purchased, by the
Government Fund are exercised, the gain or loss realized on the sale of the
underlying securities may be either short-term or long-term, depending on the
holding period of the securities. In determining the amount of gain or loss, the
sales proceeds are reduced by the premium paid for over-the-counter puts or
increased by the premium received for over-the-counter calls.

Certain of the Emerging Growth Fund's, the International Equity Fund's, the
Growth Fund's, the Growth and Income Fund's, the Government Fund's and the
Municipal Bond Fund's transactions in options, futures contracts, or options on
futures contracts, particularly their hedging transactions, may constitute
"straddles" which are defined in the Code as offsetting positions with respect
to personal property. A straddle in which at least one (but not all) of the
positions are Section 1256 contracts is a "mixed straddle" under the Code if
certain conditions are met.

The Code generally provides with respect to straddles (i) "loss deferral"
rules which may postpone recognition for tax purposes of losses from certain
closing purchase transactions or other dispositions of a position in the
straddle to the extent of unrealized gains in the offsetting position, (ii)
"wash sale" rules which

B-38
<PAGE> 93

may postpone recognition for tax purposes of losses where a position is sold and
a new offsetting position is acquired within a prescribed period and (iii)
"short sale" rules which may terminate the holding period of securities owned by
the Fund when offsetting positions are established and which may convert certain
losses from short-term to long-term.

The Code provides that certain elections may be made for mixed straddles
that can alter the character of the capital gain or loss recognized upon
disposition of positions which form part of a straddle. Certain other elections
are also provided in the Code. No determination has been reached to make any of
these elections.

The Municipal Bond Fund may acquire an option to "put" specified portfolio
securities to banks or municipal bond dealers from whom the securities are
purchased. See "Stand-By Commitments," in the Prospectus. The Fund has been
advised by its legal counsel that it will be treated for federal income tax
purposes as the owner of the Municipal Securities acquired subject to the put;
and the interest on the Municipal Securities will be tax-exempt to the Fund.
Counsel has pointed out that although the Internal Revenue Service has issued a
favorable published ruling on a similar but not identical situation, it could
reach a different conclusion from that of counsel. Counsel has also advised the
Fund that the Internal Revenue Service presently will not ordinarily issue
private letter rulings regarding the ownership of securities subject to stand-by
commitments.

The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury Regulations promulgated thereunder. The Code and these Treasury
Regulations are subject to change by legislative or administrative action either
prospectively or retroactively.

OTHER INFORMATION

PERFORMANCE INFORMATION

The average annual total return (computed in the manner described in the
Prospectus) and yield for each Fund are shown in the table below. These results
are based on historical earnings and asset value fluctuations and are not
intended to indicate future performance. Such information should be considered
in light of each Fund's investment objectives and policies as well as the risks
incurred in each Fund's investment practices.

<TABLE>
<CAPTION>
CLASS 1 CLASS A CLASS B
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C> <C>
Common Sense Emerging Growth Fund
i) total return for one year period ended 10/31/97.......... -- 16.06% 16.94%
ii) total return for five year period ended 10/31/97......... -- -- --
iii) total return since inception
(based on inception date of 2/21/95)..................... -- 26.39% 27.76%
iv) total return since inception
(based on inception date of 8/08/96)..................... (19.66)% -- --
Common Sense International Equity Fund
i) total return for one year period ended 10/31/97.......... -- 12.75% 13.64%
ii) total return for five year period ended 10/31/97......... -- -- --
iii) total return since inception
(based on inception date of 3/17/95)..................... -- 18.06% 19.21%
iv) total return since inception
(based on inception date of 8/08/96)..................... (21.97)% -- --
</TABLE>

B-39
<PAGE> 94

<TABLE>
<CAPTION>
CLASS 1 CLASS A CLASS B
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C> <C>
Common Sense Growth Fund
i) total return for one year period ended 10/31/97.......... 9.76% 11.57%* 12.56%*
ii) total return for five year period ended 10/31/97......... 11.75% -- --
iii) total return since inception
(based on inception date of 4/14/87)..................... 10.57% -- --
iv) total return since inception
(based on inception date of 5/03/94)..................... -- 13.65%* 14.55%*
Common Sense Growth and Income Fund
i) total return for one year period ended 10/31/97.......... 10.35% 13.51%* 14.22%*
ii) total return for five year period ended 10/31/97......... 11.41% -- --
iii) total return since inception
(based on inception date of 4/14/87)..................... 9.88% -- --
iv) total return since inception
(based on inception date of 5/03/94)..................... -- 13.02%* 13.79%*
Common Sense Government Fund
i) total return for one year period ended 10/31/97.......... (2.46)% (1.91)%* (1.74)%*
ii) total return for five year period ended 10/31/97......... 4.95% -- --
iii) total return since inception
(based on inception date of 4/14/87)..................... 6.76% -- --
iv) total return since inception
(based on inception date of 5/03/94)..................... -- 2.90%* 3.03%*
v) yield.................................................... 5.59% 5.45% 4.95%
Common Sense Municipal Bond Fund
i) total return for one year period ended 10/31/97.......... 1.02% -- --
ii) total return for five year period ended 10/31/97......... 6.15% -- --
iii) total return since inception
(based on inception date of 7/13/88)..................... 7.10% -- --
iv) total return since inception
(based on inception date of 8/08/96)..................... -- (14.09)% (12.70)%
v) yield.................................................... 4.10% 3.57% 2.21%
vi) tax equivalent yield..................................... 6.40% 5.58% 3.45%
</TABLE>

- ---------------
* Based on inception of 5/03/94

<TABLE>
<S> <C>
** Subsidized annualized current yield 4.43% Subsidized effective yield 4.53%
Non-subsidized annualized current Non-subsidized effective yield 3.55%
yield 3.45%
</TABLE>

The yield for Class A and Class B shares is not fixed and will fluctuate in
response to prevailing interest rates and the market value of portfolio
securities, and as a function of the type of securities owned by the Fund,
portfolio maturity and the Fund's expenses.

Yield and total return for the Government Fund and the Municipal Bond Fund
are computed separately for each class of shares.

The Funds may illustrate in advertising materials the use of a Payroll
Deduction Plan as a convenient way for business owners to help their employees
set up either IRA or voluntary mutual fund accounts. The Funds may illustrate in
advertising materials retirement planning through employee contributions and/or
salary reductions. Such advertising material will illustrate that employees may
have the opportunity to save for retirement and reduce taxes by electing to
defer a portion of their salary into a special mutual fund IRA account. The
Funds may illustrate in advertising materials that Uniform Gift to Minors Act
accounts may be used as a vehicle for saving for a child's financial future.
Such illustrations will include statements to the effect that upon reaching the
age of majority, such custodial accounts become the child's property.

B-40
<PAGE> 95

SHAREHOLDER SERVICES

UNIFORM GIFTS TO MINORS ACT. The Trust recognizes the importance to a child
of establishing a savings and investment plan early in life for education and
other purposes when the child becomes older. The advantages of regular
investment with interest or earnings compounding over a number of years are
great. In addition, taxes on these earnings are assessed against the income of
the child rather than the donor, usually at a lower bracket.

Investors wishing to establish a UGMA account should call the Trust for an
application. Individuals desiring to open an account under UGMA are also advised
to consult with a tax adviser before establishing the account.

INDIVIDUAL RETIREMENT ACCOUNT. Any individual who has compensation or
earned income from employment or self-employment and who is under age 70 1/2 may
establish an IRA. The limitation on the maximum annual contribution to an IRA is
the lesser of 100% of compensation or $2,000. An IRA may also be established for
a spouse who has no compensation (or who elects to be treated as having no
compensation), and the limitation on the maximum annual contributions to the two
IRAs is the lesser of 100% of compensation or $2,250.

Under the Tax Reform Act of 1986, whether contributions to an IRA are
deductible for federal income tax purposes depends on whether an individual (or
his/her spouse) is a participant in an employer-sponsored plan and on the
adjusted gross income of the individual.

In the case of an individual who is a participant in an employer-sponsored
plan, no deduction is available for IRA contributions if his adjusted gross
income reaches certain levels ($35,000 for a single individual, $50,000 for
married individuals filing jointly and $10,000 for married individuals filing
separately) and the deduction is phased out ratably if his adjusted gross income
falls within certain ranges ($25,000 - $35,000 for a single individual,
$40,000 - $50,000 for married individuals filing jointly and $0 - $10,000 for
married individuals filing separately). IRA contributions, up to the annual
limit, remain fully deductible for all single individuals with less than $25,000
of annual adjusted gross income and all married individuals with less than
$40,000 of annual adjusted gross income. Individuals who are disqualified from
making deductible IRA contributions can make non-deductible contributions to
their IRAs, subject to the same limitation on maximum annual contribution
discussed above.

In addition, any individual, regardless of age, may establish a rollover
IRA to receive an eligible rollover distribution from an employer-sponsored
plan.

SIMPLIFIED EMPLOYEE PENSION PLAN (SEP) AND SALARY REDUCTION SIMPLIFIED
EMPLOYEE PENSION PLAN (SARSEP). A SEP/SARSEP is a means for an employer to
provide retirement contributions to IRAs for all employees, without the
complicated reporting and record keeping involved in a qualified plan. Employees
covered by a SEP/SARSEP can use the same IRA to receive their own allowable IRA
contribution.

SECTION 403(B)(7) PLAN. Employees of certain exempt organizations and
schools can have a portion of their compensation set aside, and income taxes
attributable to such portion deferred, in a Section 403(b)(7) plan. Teachers,
school administrators, ministers, employees of hospitals, libraries, community
chests, funds, foundations, and many others may be eligible. The employer must
be an organization described in Section 501(c)(3) of the Internal Revenue Code
and must be exempt from tax under Section 501(a) of the Code. In addition, any
employee of most public educational institutions is eligible if his employer is
a state or a political subdivision of a state, or any agency or instrumentality
of either. The employee is not taxed on the amount set aside or the earnings
thereon until the funds are withdrawn, normally at retirement.

CUSTODY OF ASSETS

All securities owned by the Trust and all cash, including proceeds from the
sale of shares of the Trust and of securities in the Trust's investment
portfolio, are held by State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02101, as Custodian.

B-41
<PAGE> 96

SHAREHOLDER REPORTS

Semi-annual statements are furnished to shareholders, and annually such
statements are audited by the independent accountants.

INDEPENDENT AUDITORS

Ernst & Young LLP, 1221 McKinney, Suite 2400, Houston, Texas 77010, the
independent auditors for the Trust, perform annual examinations of the Trust's
financial statements.

SHAREHOLDER AND TRUSTEE RESPONSIBILITY

Under the laws of certain states, including Massachusetts where the Trust
was organized, shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
Trust. However, the risk of a shareholder incurring any financial loss on
account of shareholder liability is limited to circumstances in which the Trust
itself would be unable to meet its obligations. The Declaration of Trust
contains an express disclaimer of shareholder liability for acts or obligations
of the Trust and provides that notice of the disclaimer may be given in each
agreement, obligation, or instrument which is entered into or executed by the
Trust or Trustees. The Declaration of Trust provides for indemnification out of
Trust property to any shareholder held personally liable for the obligations of
the Trust and also provides for the Trust to reimburse such shareholder for all
legal and other expenses reasonably incurred in connection with any such claim
or liability.

Under the Declaration of Trust, the Trustees and Officers are not liable
for actions or failure to act; however, they are not protected from liability by
reason of their willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of their office. The Trust will
provide indemnification to its Trustees and Officers as authorized by its
By-Laws and by the 1940 Act and the rules and regulations thereunder.

B-42
<PAGE> 97

PART C. OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

(a) Financial Statements+

Included in the Prospectus:
Financial Highlights

Included in the Statement of Additional Information:
Report of Independent Auditors
Financial Statements
Notes to Financial Statements

(b) Exhibits

<TABLE>
<C> <S>
1.1 -- Agreement and Declaration of Trust dated January 29,
1987. (Incorporated herein by reference to Form N-1A of
Registrant's Post-Effective Amendment No. 18, filed on
February 28, 1997.)
1.2 -- Certificate of Designation of Common Sense Money Market
Fund dated September 30, 1987. (Incorporated herein by
reference to Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28, 1997.)
1.3 -- Certificate of Designation Common Sense Municipal Bond
Fund dated April 4, 1988. (Incorporated herein by
reference to Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28, 1997.)
1.4 -- Certificate of Resolution dated January 8, 1992.
(Incorporated herein by reference to Form N-1A of
Registrant's Post-Effective Amendment No. 18, filed on
February 28, 1997.)
1.5 -- Certificate of Amendment dated January 20, 1994.
(Incorporated herein by reference to Form N-1A of
Registrant's Post-Effective Amendment No. 18, filed on
February 28, 1997.)
1.6 -- Certificate of Designation of Common Sense II Aggressive
Opportunity Fund dated January 27, 1994. (Incorporated
herein by reference to Form N-1A of Registrant's
Post-Effective Amendment No. 18, filed on February 28,
1997.)
1.7 -- Certificate of Designation of Common Sense II Government
Fund dated January 27, 1994. (Incorporated herein by
reference to Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28, 1997.)
1.8 -- Certificate of Designation of Common Sense II Growth Fund
dated January 27, 1994. (Incorporated herein by reference
to Form N-1A of Registrant's Post-Effective Amendment No.
18, filed on February 28, 1997.)
1.9 -- Certificate of Designation of Common Sense II Growth and
Income Fund dated January 27, 1994. (Incorporated herein
by reference to Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28, 1997.)
1.10 -- Certificate of Amendment of the Agreement and Declaration
of Trust dated May 10, 1996. (Incorporated herein by
reference to Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28, 1997.)
1.11 -- Amended and Restated Certificate of Designation of Common
Sense II Emerging Growth Fund dated May 10, 1996.
(Incorporated herein by reference to Form N-1A of
Registrant's Post-Effective Amendment No. 18, filed on
February 28, 1997.)
</TABLE>

C-1
<PAGE> 98

<TABLE>
<C> <S>
1.12 -- Amended and Restated Certificate of Designation of Common
Sense II International Equity Fund dated May 10, 1996.
(Incorporated herein by reference to Form N-1A of
Registrant's Post-Effective Amendment No. 18, filed on
February 28, 1997.)
1.13 -- Amended and Restated Certificate of Designation of Common
Sense Money Market Fund dated May 10, 1996. (Incorporated
herein by reference to Form N-1A of Registrant's
Post-Effective Amendment No. 18, filed on February 28,
1997.)
1.14 -- Amended and Restated Certificate of Designation of Common
Sense Municipal Bond Fund dated May 10, 1996.
(Incorporated herein by reference to Form N-1A of
Registrant's Post-Effective Amendment No. 18, filed on
February 28, 1997.)
1.15 -- Certificate of Amendment Amending the Amended and
Restated Certificate of Designation of Common Sense
Emerging Growth Fund dated July 2, 1996. (Incorporated
herein by reference to Form N-1A of Registrant's
Post-Effective Amendment No. 18, filed on February 28,
1997.)
1.16 -- Certificate of Amendment Amending the Amended and
Restated Certificate of Designation of Common Sense
International Equity Fund dated July 2, 1996.
(Incorporated herein by reference to Form N-1A of
Registrant's Post-Effective Amendment No. 18, filed on
February 28, 1997.)
2 -- Bylaws as amended July 10, 1996. (Incorporated herein by
reference to Form N-1A of Registrant's Post-Effective
Amendment No. 18, filed on February 28, 1997.)
4.1 -- Specimen copy of Share of Beneficial Interest in Common
Sense Trust for Class A shares. (Incorporated herein by
reference to Form N-1A of Registrant's Post-Effective
Amendment No. 17, filed on March 21, 1996.)
4.2 -- Specimen copy of Share of Beneficial Interest in Common
Sense Trust for Class B shares. (Incorporated herein by
reference to Form N-1A of Registrant's Post-Effective
Amendment No. 17, filed on March 21, 1996.)
4.3 -- Specimen copy of Share of Beneficial Interest in Common
Sense Trust for Class 1 shares. (Incorporated herein by
reference to Form N-1A of Registrant's Post-Effective
Amendment No. 17, filed on March 21, 1996.)
5.1 -- Investment Advisory Agreement for Common Sense Growth
Fund.+
5.2 -- Investment Advisory Agreement for Common Sense Growth and
Income Fund.+
5.3 -- Investment Advisory Agreement for Common Sense Government
Fund.+
5.4 -- Investment Advisory Agreement for Common Sense Municipal
Bond Fund.+
5.5 -- Investment Advisory Agreement for Common Sense Money
Market Fund.+
6.1 -- Underwriting Agreement for Common Sense Trust.+
6.2 -- Form of Selling Agreement with PFS Investments, Inc.
(Incorporated herein by reference to Form N-1A of
Registrant's Post-Effective Amendment No. 17, filed on
March 21, 1996.)
7 -- Inapplicable.
8.1 -- Custodian Agreement.+
8.2 -- Transfer Agency Agreement.+
10 -- Opinion of Counsel.+
11 -- Consent of Independent Auditors.+
13.1 -- Investment Letter for Common Sense Funds. (Incorporated
by reference to Exhibit 13 filed with Pre-Effective
Amendment No. 2, filed March 31, 1987.)
</TABLE>

C-2
<PAGE> 99

<TABLE>
<C> <S>
13.2 -- Investment Letter for Common Sense II Funds dated May 2,
1994. (Incorporated herein by reference to Exhibit 13.2
filed with Post-Effective Amendment No. 12, filed October
28, 1994.)
13.3 -- Investment Letter for Common Sense II Emerging Growth
Fund and Common Sense II International Equity Fund
(Incorporated herein by reference to Exhibit 13.3 filed
with Post-Effective Amendment No. 15, filed August 11,
1995).
14.1 -- Individual Retirement Account Application. (Incorporated
by reference to Exhibit 14.1 with Post-Effective
Amendment No. 9, filed November 10, 1993.)
14.2 -- 403(b)(7) Custodial Account Application. (Incorporated by
reference to Exhibit 14.2 with Post-Effective Amendment
No. 9, filed November 10, 1993.)
14.3 -- Simplified Employee Pension Account Application.
(Incorporated by reference to Exhibit 14.3 filed with
Post-Effective Amendment No. 9, filed November 10, 1993.)
15.1 -- Class A Distribution Plan.+
15.2 -- Class B Distribution Plan.+
15.3 -- Form of Servicing Agreement for Class A shares of Common
Sense Trust.+
15.4 -- Form of Servicing Agreement for Class B shares of Common
Sense Trust.+
16 -- Computation Measure for Performance Information.+
18 -- Rule 18f-3 Plan. (Incorporated herein by reference to
Form N-1A of Registrant's Post-Effective Amendment No.
18, filed on February 28, 1997.)
19.1 -- Power-of-Attorney for Mr. Lane. (Incorporated by
reference to Exhibit 17 filed with Post-Effective
Amendment No. 7, filed January 23, 1992.)
19.2 -- Power-of-Attorney for Mr. Merten. (Incorporated by
reference to Exhibit 17.1 filed with Post-Effective
Amendment No. 6, filed January 23, 1991.)
19.3 -- Powers-of-Attorney for Messrs. Cocanougher, Gross, Pettit
and Shepard. (Incorporated by reference to Exhibit 17
filed with Post-Effective Amendment No. 5, filed June 1,
1990.)
19.4 -- Powers-of-Attorney for Messrs. Carlton and Muller.
(Incorporated by reference to Exhibit 18.4 filed with
Post-Effective Amendment No. 10, filed January 6, 1994.)
27 -- Financial Data Schedules.+
</TABLE>

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

+ To be filed by further amendment.

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

None

C-3
<PAGE> 100

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

AS OF DECEMBER 19, 1997

<TABLE>
<CAPTION>
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
- ---------------------------------------------- -----------------------------
CLASS A CLASS B CLASS 1
Shares of Beneficial Interest, $0.01 par value ------- ------- -------
<S> <C> <C> <C>
Common Sense Emerging Growth Fund 32,070 26,836 972
Common Sense International Equity Fund 5,162 4,634 335
Common Sense Growth Fund 38,360 34,566 476,745
Common Sense Growth and Income Fund 14,056 15,687 106,989
Common Sense Government Fund 2,457 1,818 21,082
Common Sense Municipal Bond Fund 1,468 361 9,194
Common Sense Money Market Fund 3,960 159 19,970
</TABLE>

ITEM 27. INDEMNIFICATION.

Item 27 is incorporated herein by reference to Form N-1A of Registrants
Registration No. 33-11716, Post Effective Amendment No. 11, filed on March 2,
1994.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

See "The Trust and Its Management" in the Prospectus and "Trustees and
Officers" in the Statement of Additional Information for information regarding
the business of the Adviser. For information as to the business, profession,
vocation and employment of a substantial nature of directors and officers of the
Adviser, reference is made to the Adviser's current Form ADV (File No. 801-1669)
filed under the Investment Advisers Act of 1940, as amended, incorporated herein
by reference.

ITEM 29. PRINCIPAL UNDERWRITERS.

(a) None.

(b) The following information is furnished with respect to each officer and
director of PFS Distributors, Inc.:

<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS PRINCIPAL UNDERWRITER WITH REGISTRANT
------------------ -------------------------- ---------------------
<S> <C> <C>
DIRECTORS:
Gregory C. Pitts(1) Senior Vice President
D. Richard Williams(1) -- Vice President
OFFICERS:
David H. Siegel(1) Chief Executive Officer and
President
Anthony L. Fedele(1) Group Executive Vice President
Daniel D. McConnell(1) Executive Vice President, Chief
Compliance Officer and Secretary
Cynthia K. Bastin(1) Senior Vice President, Chief
Financial Officer and Treasurer
William A. Kelly(1) Senior Vice President Vice President
Cynthia K. Mitchell(1) Vice President
Ellen W. Montgomery(1) Vice President
Michael R. Snider(1) Vice President
Richard W. Atcheson(1) Assistant Secretary
Allen F. Coleman(1) Assistant Secretary
</TABLE>

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

(1) 3120 Breckinridge Boulevard, Duluth, Georgia 30199-0001.

C-4
<PAGE> 101

(c) Commissions and other compensation received by each principal
underwriter who is not an affiliated person of the Registrant or an affiliated
person of such an affiliated person, directly or indirectly, from the Registrant
during the Registrant's last fiscal year.

Inapplicable.

ITEM 30. LOCATION OF BOOKS AND RECORDS.

All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by
Registrant will be maintained at its offices, located at Smith Barney Mutual
Funds Management, Inc., 388 Greenwich Street, 22nd Floor, New York, NY 10013,
PFS Shareholder Services, 3100 Breckinridge Blvd., Bldg. 200, Duluth, Georgia
30199-0062, or at the State Street Bank and Trust Company, 1776 Heritage Drive,
North Quincy, MA; (ii) by the Adviser, will be maintained at its offices,
located at Smith Barney Mutual Funds Management, Inc., 388 Greenwich Street,
22nd Floor, New York, NY 10013; and (iii) by the Distributor, the principal
underwriter, will be maintained at its offices located at PFS Distributors,
Inc., 3120 Breckinridge Blvd., Bldg. 1200, Duluth, Georgia 30199-0001.

ITEM 31. MANAGEMENT SERVICES.

There are no management related services contracts not discussed in Part A
or Part B.

ITEM 32. UNDERTAKINGS.

Registrant hereby undertakes to furnish to each person to whom a prospectus
is delivered a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.

Registrant hereby undertakes, if requested to do so by the holders of at
least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of a trustee
or trustees and to assist in communications with other shareholders as required
by Section 16(c) of the Investment Company Act of 1940.

C-5
<PAGE> 102

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, COMMON SENSE TRUST, has duly
caused this Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Oakbrook Terrace,
and State of Illinois, on the 23rd day of December, 1997.

COMMON SENSE TRUST

/s/ DON G. POWELL
------------------------------------------
(Don G. Powell, President)

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to this Registration Statement has been signed on December 23, 1997 by the
following persons in the capacities indicated:

<TABLE>
<S> <C>
Principal Executive Officer:
/s/ DON G. POWELL President and Trustee
-----------------------------------------------------
(Don G. Powell)

Principal Financial Officer:

/s/ EDWARD C. WOOD III Vice President and Chief Financial Officer
-----------------------------------------------------
(Edward C. Wood III)

Trustees:

*DONALD M. CARLTON Trustee
-----------------------------------------------------
(Donald M. Carlton)

*A. BENTON COCANOUGHER Trustee
-----------------------------------------------------
(A. Benton Cocanougher)

*STEPHEN R. GROSS Trustee
-----------------------------------------------------
(Stephen R. Gross)

*JEFFREY B. LANE Trustee
-----------------------------------------------------
(Jeffrey B. Lane)

*ALAN G. MERTEN Trustee
-----------------------------------------------------
(Alan G. Merten)

*STEVEN MULLER Trustee
-----------------------------------------------------
(Steven Muller)

*F. ROBERT PAULSEN Trustee
-----------------------------------------------------
(F. Robert Paulsen)

*R. RICHARDSON PETTIT Trustee
-----------------------------------------------------
(R. Richardson Pettit)

*ALAN B. SHEPARD, JR. Trustee
-----------------------------------------------------
(Alan B. Shepard, Jr.)
</TABLE>

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

* Signed by the undersigned pursuant to a Power-of-Attorney previously filed.

/s/ DON G. POWELL
------------------------------------------
Don G. Powell
Attorney-in-Fact