VIRTUS FUNDS, 497, 1997-01-30

VIRTUS FUNDS
497, 1997-01-30

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Trust shares
Combined Prospectus

. . . . . . . . . . . .

January 31, 1997

. The U.S. Government Securities Fund
. The Style Manager: Large Cap Fund
. The Style Manager Fund
. The Virginia Municipal Bond Fund

. The Maryland Municipal Bond Fund

. The Treasury Money Market Fund
. The Money Market Fund
. The Tax-Free Money Market Fund

Funds Managed by

[LOGO OF VIRTUS FUNDS]

Investment products are not deposits, obligations of, or guaranteed by any
bank. They are not insured by the FDIC. In addition, they involve risk,
including the possible loss of principal invested.

Virtus Capital Management, Inc., an affiliate of Signet Trust Company, is the
investment adviser to the Virtus Funds and is compensated for this service.

[LOGO OF VIRTUS FUNDS]

THE VIRTUS FUNDS
TRUST SHARES

PROSPECTUS

The Virtus Funds (the "Trust"), an open-end management investment company (a
mutual fund), is comprised of the eight separate investment portfolios set
forth below (collectively, the "Funds," individually, a "Fund"), each having a
distinct investment objective and policies. With the exception of the Tax-Free
Money Market Fund and The Style Manager Fund, which offer a single class of
shares, the Funds are offered in two separate classes of shares known as Trust
Shares and Investment Shares.

. The U.S. Government Securities Fund

. The Style Manager: Large Cap Fund

. The Style Manager Fund

. The Virginia Municipal Bond Fund

. The Maryland Municipal Bond Fund

. The Treasury Money Market Fund

. The Money Market Fund

. The Tax-Free Money Market Fund

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND
ARE NOT ENDORSED OR GUARANTEED BY, SIGNET TRUST COMPANY OR SIGNET BANK OR ANY
OF THEIR AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THE SHARES OF THE U.S. GOVERNMENT SECURITIES FUND, THE
STYLE MANAGER: LARGE CAP FUND, THE STYLE MANAGER FUND, THE VIRGINIA MUNICIPAL
BOND FUND, AND THE MARYLAND MUNICIPAL BOND FUND INVOLVES INVESTMENT RISKS
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

THE TREASURY MONEY MARKET FUND, THE MONEY MARKET FUND, AND THE TAX-FREE MONEY
MARKET FUND ATTEMPT TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE;
THERE CAN BE NO ASSURANCE THAT THESE FUNDS WILL BE ABLE TO DO SO.

This prospectus relates only to the Trust Shares of those Funds offering
classes and to shares of The Tax-Free Money Market Fund and The Style Manager
Fund and contains the information you should read and know before you invest
in any of the Funds. Keep this prospectus for future reference.

The Funds have also filed a Combined Statement of Additional Information for
the Trust Shares of the Funds offering classes and for shares of The Tax-Free
Money Market Fund and The Style Manager Fund, dated January 31, 1997, with the
Securities and Exchange Commission ("SEC"). The information contained in the
Combined Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Combined Statement of
Additional Information, or a paper copy of this prospectus, if you have
received your prospectus electronically, free of charge, obtain other
information, or make inquiries about any of the Funds by writing to the Trust
or calling toll-free 1-800-723-9512. This Statement of Additional Information,
Material incorporated by reference into this document, and other information
regarding the Trust is maintained electronically with the SEC at Internet Web
site (http://www.sec.gov).

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

Prospectus dated January 31, 1997

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

SYNOPSIS 1
- -------------------------------------
SUMMARY OF FUND EXPENSES 2
- -------------------------------------
FINANCIAL HIGHLIGHTS 3
- -------------------------------------
Special Considerations 11
INVESTMENT OBJECTIVE AND POLICIES OF
EACH FUND 11
- -------------------------------------
U.S. Government Securities Fund 11
The Style Manager: Large Cap Fund 12
The Style Manager Fund 13
The Virginia Municipal Bond Fund
and The Maryland Municipal Bond
Fund 14
The Treasury Money Market Fund 14
The Money Market Fund 15
The Tax-Free Money Market Fund 15
Investment Limitations 16
PORTFOLIO INVESTMENTS AND
STRATEGIES 16
- -------------------------------------
Regulatory Compliance 16
Borrowing Money 16
Selling Short 17
Restricted and Illiquid
Securities 17
When-Issued and Delayed Delivery
Transactions 17
Investing in Securities of Other
Investment Companies 17
Diversification 17
Non-Diversification 18
Repurchase Agreements 18
Lending of Portfolio Securities 18
Acquiring Securities 18
Investment Risks 18
Variable Rate Demand Notes 19
Credit Enhancement 19
Demand Features 19
Participation Interests 20
Variable Rate Municipal
Securities 20
Municipal Leases 20
Temporary Investments 20
Municipal Securities 21
Futures Contracts and Options to
Buy or Sell Such Contracts--The
Virginia Municipal Bond Fund and
The Maryland Municipal Bond
Fund 22
THE VIRTUS FUNDS INFORMATION 23
- -------------------------------------
Management of the Trust 23
Distribution of Shares of the
Funds 24
Administration of the Funds 25
Expenses of the Funds and Trust
Shares 25
NET ASSET VALUE 26
- -------------------------------------
INVESTING IN SHARES 26
- -------------------------------------
Share Purchases 26
Minimum Investment Required 27
What Shares Cost 27
Certificates and Confirmations 27
Dividends 27
Capital Gains 28
REDEEMING SHARES 28
- -------------------------------------
SHAREHOLDER INFORMATION 29
- -------------------------------------
Voting Rights 29
EFFECT OF BANKING LAWS 29
- -------------------------------------
TAX INFORMATION 30
- -------------------------------------
Federal Income Tax 30
PERFORMANCE INFORMATION 31
- -------------------------------------
OTHER CLASSES OF SHARES 32
- -------------------------------------
ADDRESSES 33
- -------------------------------------

SYNOPSIS
- -------------------------------------------------------------------------------

The Trust, an open-end, management investment company, was established as a
Massachusetts business trust under a Declaration of Trust dated June 20, 1990.
The Declaration of Trust permits the Trust to offer separate series of shares
of beneficial interest representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate
classes. As of the date of this prospectus, the Board of Trustees (the "Board"
or "Trustees") have established a single class of shares for The Tax-Free
Money Market Fund and The Style Manager Fund, and two classes of shares, Trust
Shares and Investment Shares, for each of the other Funds in the Trust.

As of the date of this prospectus, the Trust is comprised of the following
eight portfolios:
. The U.S. Government Securities Fund--seeks to provide current income by
investing in a professionally managed, diversified portfolio limited
primarily to U.S. government securities;
. The Style Manager: Large Cap Fund--seeks to provide growth of capital
and income by investing in common stocks of high quality companies;
. The Style Manager Fund--seeks to provide growth of capital by investing
in common stocks;
. The Virginia Municipal Bond Fund--seeks to provide current income which
is exempt from federal regular income tax and the personal income tax
imposed by the Commonwealth of Virginia by investing in a portfolio of
Virginia municipal securities;
. The Maryland Municipal Bond Fund--seeks to provide current income which
is exempt from federal regular income tax and the personal income tax
imposed by the State of Maryland by investing in a portfolio of Maryland
municipal securities;
. The Treasury Money Market Fund--seeks to provide current income
consistent with stability of principal by investing in short-term U.S.
Treasury obligations;
. The Money Market Fund--seeks to provide current income consistent with
stability of principal by investing in money market instruments; and
. The Tax-Free Money Market Fund--seeks to provide current income exempt
from federal income tax consistent with stability of principal, by
investing in municipal securities.

This prospectus relates only to the Trust Shares ("Trust Shares") of those
Funds offering classes and to the single class of shares ("Tax-Free Money
Market Shares" and "The Style Manager") of The Tax-Free Money Market Fund and
The Style Manager Fund (Trust Shares, Tax-Free Money Market Shares and The
Style Manager are sometimes collectively referred to as "Shares"). For
information on how to purchase Shares please refer to "Investing in Shares." A
minimum initial investment of $1,000 is required for shares of The Tax-Free
Money Market Fund and The Style Manager Fund, and a minimum investment of
$10,000 is required for Trust Shares of the other Funds in the Trust. Shares
are sold and redeemed at net asset value. Information on redeeming Shares may
be found under "Redeeming Shares." The Funds are advised by Virtus Capital
Management, Inc.

SUMMARY OF FUND EXPENSES--TRUST SHARES, STYLE
MANAGER SHARES AND TAX-FREE MONEY MARKET SHARES
- -------------------------------------------------------------------------------

The following Fee Table and Example summarize the various costs and expenses
that a shareholder of Trust Shares, Style Manager Shares and Tax-Free Money
Market Shares will bear either directly or indirectly.

SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
THE THE THE THE
THE U.S. THE STYLE THE VIRGINIA MARYLAND TREASURY THE TAX-FREE
GOVERNMENT MANAGER: STYLE MUNICIPAL MUNICIPAL MONEY MONEY MONEY
SECURITIES LARGE CAP MANAGER BOND BOND MARKET MARKET MARKET
FUND FUND FUND FUND FUND FUND FUND FUND
---------- --------- ------- --------- --------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Contingent Deferred
Sales Charge (as a
percentage of amount
redeemed, if
applicable)........... None None 2.00% None None None None None
</TABLE>

ANNUAL TRUST SHARES, STYLE MANAGER SHARES AND TAX-FREE MONEY MARKET SHARES
OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT 12B-1 OTHER OPERATING
FEES (1) FEES (2) EXPENSES EXPENSES (3)
---------- -------- -------- ------------
<S> <C> <C> <C> <C>
The U.S. Government Securities Fund... 0.75% None 0.27% 1.02%
The Style Manager: Large Cap Fund..... 0.75% None 0.48% 1.23%
The Style Manager Fund................ 0.75% 0.00% 0.44% 1.19%
The Virginia Municipal Bond Fund...... 0.75% None 0.33% 1.08%
The Maryland Municipal Bond Fund...... 0.75% None 0.65% 1.40%
The Treasury Money Market Fund........ 0.50% None 0.24% 0.74%
The Money Market Fund................. 0.50% None 0.25% 0.75%
The Tax-Free Money Market Fund........ 0.32% 0.00% 0.52% 0.84%
</TABLE>

(1) The management fees for The Style Manager Fund and The Tax-Free Money
Market Fund have been reduced to reflect voluntary waivers by the
investment adviser. The Adviser can terminate these voluntary waivers at
any time at their sole discretion. The maximum management fee for The
Style Manager Fund and The Tax-Free Money Market Fund is 1.25% and 0.50%,
respectively.
(2) The Style Manager Fund and The Tax-Free Money Market Fund will not accrue
or pay 12b-1 fees until a separate class of shares has been created for
certain institutional investors. The Style Manager Fund and The Tax-Free
Money Market Fund can pay up to 0.25% as a 12b-1 fee to the distributor.
See "Management of the Trust--Distribution Plans."
(3) The Total Trust Shares Operating Expenses for The Style Manager Fund and
The Tax-Free Money Market Fund would be 1.69% and 1.02%, respectively,
absent the voluntary waivers described in note 1 above.

The Annual Trust Operating Expenses for The U.S. Government Securities Fund,
The Style Manager: Large Cap Fund, The Style Manager Fund, The Virginia
Municipal Bond Fund, The Maryland Municipal Bond Fund, The Treasury Money
Market Fund, The Money Market Fund, and The Tax Free Money Market Fund were
0.89%, 1.36%, 0.99%, 1.06%, 1.18%, 0.65%, 0.60%, and 0.56%, respectively, for
the fiscal year ended September 30, 1996. The Annual Trust Operating Expenses
in the table above are based on estimated expenses expected during fiscal year
ending September 30, 1997.

EXAMPLE:

You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period. The Funds
charge no contingent deferred sales charges for Trust Shares or Tax-Free Money
Market Shares.
<TABLE>
<CAPTION>
1 YEAR 1 YEAR (+) 3 YEARS 3 YEARS (+) 5 YEARS 10 YEARS
------ ---------- ------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
The U.S. Government
Securities Fund......... $10 $10 $32 $32 $56 $125
The Style Manager: Large
Cap Fund................ $13 $13 $39 $39 $68 $149
The Style Manager Fund.. $33 $12 $60 $38 $65 $144
The Virginia Municipal
Bond Fund............... $11 $11 $34 $34 $60 $132
The Maryland Municipal
Bond Fund............... $14 $14 $44 $44 $77 $168
The Treasury Money
Market Fund............. $8 $8 $24 $24 $41 $92
The Money Market Fund... $8 $8 $24 $24 $42 $93
The Tax-Free Money
Market Fund............. $9 $9 $27 $27 $47 $104
</TABLE>

+Reflects expenses on the same investment, assuming no redemption.

The purpose of the foregoing Example is to assist an investor in understanding
the various costs and expenses that a shareholder of Trust Shares, Style
Manager Shares and Tax-Free Money Market Shares will bear, either directly or
indirectly. For a more complete description of the various costs and expenses,
see "The Virtus Funds Information" and "Investing in Shares." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

THE U.S. GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated November 8, 1996, on the Fund's
financial statements for the year ended September 30, 1996, and on the
following table for each of the periods presented, is included in the Annual
Report, which is incorporated by reference. This table should be read in
conjunction with the Fund's financial statements and notes thereto, which may
be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------
INVESTMENT SHARES 1996 1995 1994 1993 1992 1991(A)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.13 $ 9.83 $10.90 $10.95 $10.54 $10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.62 0.64 0.61 0.66 0.75 0.78
Net realized and
unrealized gain (loss)
on investments (0.24) 0.30 (0.94) 0.03 0.50 0.54
- ------------------------------------------------------------------------------------------
Total from investment
operations 0.38 0.94 (0.33) 0.69 1.25 1.32
- ------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.62) (0.64) (0.61) (0.66)(e) (0.75) (0.78)
Distributions from net
realized gain on
investments -- -- -- (0.08) (0.09) --
Distributions in excess
of net realized gain on
investments (b) -- -- (0.13) -- -- --
- ------------------------------------------------------------------------------------------
Total distributions (0.62) (0.64) (0.74) (0.74) (0.84) (0.78)
- ------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 9.89 $10.13 $ 9.83 $10.90 $10.95 $10.54
- ------------------------------------------------------------------------------------------
TOTAL RETURN (D) 3.79% 9.84% (3.36)% 6.82% 12.42% 14.00%
- ------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.14% 1.01% 0.99% 0.77% 0.52% 0.64%(c)
Net investment income 6.11% 6.41% 5.94% 5.91% 7.01% 8.03%(c)
Expense waiver/
reimbursement (e) 0.13% 0.28% 0.32% 0.43% 0.65% 0.93%(c)
- ------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $116,418 $114,803 $112,439 $119,187 $40,274 $ 10
Portfolio turnover 118% 82% 227% 154% 201% 101%
- ------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------
TRUST SHARES 1996 1995 1994 1993 1992 1991(A)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.13 $ 9.83 $10.90 $10.95 $10.54 $10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.64 0.66 0.63 0.67 0.75 0.78
Net realized and
unrealized gain (loss)
on investments (0.24) 0.30 (0.94) 0.03 0.50 0.54
- ------------------------------------------------------------------------------------------
Total from investment
operations 0.40 0.96 (0.31) 0.70 1.25 1.32
- ------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.64) (0.66) (0.63) (0.67)(e) (0.75) (0.78)
Distributions from net
realized gain on
investments -- -- -- (0.08) (0.09) --
Distributions in excess
of net realized gain on
investments (b) -- -- (0.13) -- -- --
- ------------------------------------------------------------------------------------------
Total distributions (0.64) (0.66) (0.76) (0.75) (0.84) (0.78)
- ------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 9.89 $10.13 $ 9.83 $10.90 $10.95 $10.54
- ------------------------------------------------------------------------------------------
TOTAL RETURN (D) 4.05% 10.11% (3.12)% 6.94% 12.42% 14.00%
- ------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.89% 0.76% 0.74% 0.63% 0.52% 0.64%(c)
Net investment income 6.36% 6.66% 6.19% 6.17% 7.01% 8.03%(c)
Expense waiver/
reimbursement (e) 0.13% 0.28% 0.32% 0.43% 0.65% 0.93%(c)
- ------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $ 78,998 $101,410 $107,103 $112,334 $95,610 $27,565
Portfolio turnover 118% 82% 227% 154% 201% 101%
- ------------------------------------------------------------------------------------------
</TABLE>

(a) Reflects operations for the period from October 16, 1990 (date of initial
public investment) to September 30, 1991.

(b) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal tax
purposes.

(d) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(e) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated September 30, 1996, which can be obtained free of charge.

VIRTUS STYLE MANAGER: LARGE CAP FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated November 8, 1996, on the Fund's
financial statements for the year ended September 30, 1996, and on the
following table for each of the periods presented, is included in the Annual
Report, which is incorporated by reference. This table should be read in
conjunction with the Fund's financial statements and notes thereto, which may
be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
TRUST SHARES 1996 1995(E) 1994 1993 1992 1991(A)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $13.70 $11.80 $12.39 $12.02 $11.86 $10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.33 0.12 0.20 0.28 0.26 0.32
Net realized and
unrealized gain (loss)
on investments 1.15 2.20 (0.40) 0.51 0.46 1.85
- -----------------------------------------------------------------------------------
Total from investment
operations 1.48 2.32 (0.20) 0.79 0.72 2.17
- -----------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.30) (0.12) (0.19) (0.26) (0.25) (0.31)
Distributions from net
realized gain on
investments (1.20) (0.30) (0.20) (0.16) (0.31) --
- -----------------------------------------------------------------------------------
Total distributions (1.50) (0.42) (0.39) (0.42) (0.56) (0.31)
- -----------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $13.68 $13.70 $11.80 $12.39 $12.02 $11.86
- -----------------------------------------------------------------------------------
TOTAL RETURN (B) 11.55% 20.33% (1.50%) 6.42% 6.31% 22.68%
- -----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.11% 0.96% 0.95% 0.66% 0.95% 0.80%(c)
Net investment income 2.26% 0.92% 1.68% 2.09% 2.25% 3.05%(c)
Expense
waiver/reimbursement
(d) -- 0.21% 0.23% 0.55% 0.34% 0.38%(c)
- -----------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $33,683 $45,345 $70,374 $65,841 $49,581 $37,032
Average commission rate
paid $0.0616 -- -- -- -- --
Portfolio turnover 151% 208% 205% 67% 38% 84%
- -----------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
INVESTMENT SHARES 1996 1995(E) 1994 1993 1992 1991(A)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $13.70 $11.80 $12.39 $12.02 $11.86 $10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.27 0.09 0.17 0.24 0.26 0.32
Net realized and
unrealized gain (loss)
on investments 1.18 2.20 (0.39) 0.54 0.46 1.85
- -----------------------------------------------------------------------------------
Total from investment
operations 1.45 2.29 (0.22) 0.78 0.72 2.17
- -----------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.27) (0.09) (0.17) (0.25) (0.25) (0.31)
Distributions from net
realized gain on
investments (1.20) (0.30) (0.20) (0.16) (0.31) --
- -----------------------------------------------------------------------------------
Total distributions (1.47) (0.39) (0.37) (0.41) (0.56) (0.31)
- -----------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $13.68 $13.70 $11.80 $12.39 $12.02 $11.86
- -----------------------------------------------------------------------------------
TOTAL RETURN (B) 11.28% 20.02% (1.72%) 6.31% 6.31% 22.68%
- -----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.36% 1.21% 1.20% 0.87% 0.95% 0.80%(c)
Net investment income 2.01% 0.67% 1.40% 1.81% 2.25% 3.05%(c)
Expense
waiver/reimbursement
(d) -- 0.21% 0.23% 0.55% 0.34% 0.38%(c)
- -----------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $59,891 $44,509 $26,739 $18,691 $2,290 $488
Average commission rate
paid $0.0616 -- -- -- -- --
Portfolio turnover 151% 208% 205% 67% 38% 84%
- -----------------------------------------------------------------------------------
</TABLE>

(a) Reflects operations for the period from October 16, 1990 (date of initial
public investment) to September 30, 1991.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

(e) Per share information presented is based on the monthly number of shares
outstanding due to large fluctuations in the number of shares outstanding
during the period.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated September 30, 1996, which can be obtained free of charge.

VIRTUS STYLE MANAGER FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
PERIOD
YEAR ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
INVESTMENT SHARES 1996 1995(A)
- -------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.03 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.31 0.03
Net realized and unrealized gain (loss) on
investments 0.77 2.03
- -------------------------------------------------------------------------
Total from investment operations 1.08 2.06
- -------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net investment income (0.29) (0.03)
Distributions from net realized gain on
investments (1.35) --
- -------------------------------------------------------------------------
Total distributions (1.64) (0.03)
- -------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.47 $12.03
- -------------------------------------------------------------------------
TOTAL RETURN (B) 10.19% 20.59%
- -------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.99% 0.44%(c)
Net investment income 2.63% 0.46%(c)
Expense waiver/reimbursement (d) 0.44% 1.03%(c)
- -------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $62,783 $78,388
Average commission rate paid $0.0514 --
Portfolio turnover 112% 92%
- -------------------------------------------------------------------------
</TABLE>

(a) Reflects operations for the period from March 7, 1995 (date of initial
public investment) to September 30, 1995.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated September 30, 1996, which can be obtained free of charge.

THE VIRGINIA MUNICIPAL BOND FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated November 8, 1996, on the Fund's
financial statements for the year ended September 30, 1996, and on the
following table for each of the periods presented, is included in the Annual
Report, which is incorporated by reference. This table should be read in
conjunction with the Fund's financial statements and notes thereto, which may
be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------
INVESTMENT SHARES 1996 1995 1994 1993 1992 1991(A)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.81 $10.26 $11.26 $10.46 $10.18 $10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.41 0.45 0.45 0.51 0.54 0.57
Net realized and
unrealized gain (loss)
on investments (0.13) 0.55 (0.92) 0.89 0.29 0.18
- ------------------------------------------------------------------------------------
Total from investment
operations 0.28 1.00 (0.47) 1.40 0.83 0.75
- ------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.41) (0.45) (0.45)(g) (0.51) (0.54) (0.57)
Distributions from net
realized gain on
investments -- -- (0.06) (0.09) (0.01) --
Distributions in excess
of net realized gain on
investments (b) -- -- (0.02) -- -- --
- ------------------------------------------------------------------------------------
Total distributions (0.41) (0.45) (0.53) (0.60) (0.55) (0.57)
- ------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $10.68 $10.81 $10.26 $11.26 $10.46 $10.18
- ------------------------------------------------------------------------------------
TOTAL RETURN (D) 2.60% 10.00% (4.25)% 13.49% 8.51% 7.64%
- ------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.32% 1.17% 1.15% 0.90% 0.83% 0.47%(c)
Net investment income 3.78% 4.32% 4.22% 4.68% 5.14% 6.08%(c)
Expense
waiver/reimbursement
(e) 0.02% 0.22% 0.27% 0.50% 0.86% 1.70%(c)
- ------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $65,700 $70,572 $74,706 $63,492 $20,883 $6,031
Portfolio turnover 129% 26% 29% 17% 51% 27%
- ------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------
TRUST SHARES 1996 1995 1994 1993 1992 1991(A)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.81 $10.26 $11.26 $10.46 $10.18 $10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.44 0.48 0.48 0.53 0.54 0.57
Net realized and
unrealized gain (loss)
on investments (0.13) 0.55 (0.92) 0.89 0.29 0.18
- ------------------------------------------------------------------------------------
Total from investment
operations 0.31 1.03 (0.44) 1.42 0.83 0.75
- ------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.44) (0.48) (0.48)(f) (0.53) (0.54) (0.57)
Distributions from net
realized gain on
investments -- -- (0.06) (0.09) (0.01) --
Distributions in excess
of net realized gain on
investments (b) -- -- (0.02) -- -- --
- ------------------------------------------------------------------------------------
Total distributions (0.44) (0.48) (0.56) (0.62) (0.55) (0.57)
- ------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $10.68 $10.81 $10.26 $11.26 $10.46 $10.18
- ------------------------------------------------------------------------------------
TOTAL RETURN (D) 2.86% 10.27% (4.01%) 13.62% 8.51% 7.64%
- ------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.06% 0.92% 0.90% 0.75% 0.83% 0.47%(c)
Net investment income 4.03% 4.57% 4.47% 4.85% 5.14% 6.08%(c)
Expense
waiver/reimbursement
(e) 0.02% 0.22% 0.27% 0.50% 0.86% 1.70%(c)
- ------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $28,110 $33,670 $34,165 $41,204 $20,852 $8,546
Portfolio turnover 129% 26% 29% 17% 51% 27%
- ------------------------------------------------------------------------------------
</TABLE>

(a) Reflects operations for the period from October 16, 1990 (date of initial
public investment) to September 30, 1991.
(b) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(c) Computed on an annualized basis.
(d) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(e) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(f) Amount includes distributions to shareholders in excess of net investment
income of $0.0002 per share.
(g) Amount includes distributions to shareholder in excess of net investment
income of $0.0001 per share.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated September 30, 1996, which can be obtained free of charge.

THE MARYLAND MUNICIPAL BOND FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated November 8, 1996, on the Fund's
financial statements for the year ended September 30, 1996, and on the
following table for each of the periods presented, is included in the Annual
Report, which is incorporated by reference. This table should be read in
conjunction with the Fund's financial statements and notes thereto, which may
be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
INVESTMENT SHARES 1996 1995 1994 1993 1992 1991(A)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.69 $10.17 $11.24 $10.39 $10.10 $10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.38 0.40 0.45 0.49 0.54 0.53
Net realized and
unrealized gain (loss)
on investments (0.13) 0.54 (0.97) 0.85 0.29 0.10
- --------------------------------------------------------------------------------
Total from investment
operations 0.25 0.94 (0.52) 1.34 0.83 0.63
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.38) (0.40) (0.45) (0.49) (0.54) (0.53)
Distributions from net
realized gain on
investments -- (0.02) (0.10) -- -- --
- --------------------------------------------------------------------------------
Total distributions (0.38) (0.42) (0.55) (0.49) (0.54) (0.53)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $10.56 $10.69 $10.17 $11.24 $10.39 $10.10
- --------------------------------------------------------------------------------
TOTAL RETURN (B) 2.36% 9.81% (4.74%) 13.24% 8.31% 6.64%
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.43% 1.24% 1.17% 1.00% 0.59% 0.60%(c)
Net investment income 3.57% 4.24% 4.22% 4.50% 5.11% 5.66%(c)
Expense
waiver/reimbursement
(d) 0.25% 0.44% 0.51% 0.77% 1.91% 1.05%(c)
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $31,284 $32,172 $34,580 $33,907 $4,053 $2,940
Portfolio turnover 138% 21% 27% 23% 34% 35%
- --------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
TRUST SHARES 1996 1995 1994 1993 1992 1991(A)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.69 $10.17 $11.24 $10.39 $10.10 $10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.41 0.42 0.48 0.50 0.54 0.53
Net realized and
unrealized
gain (loss) on
investments (0.13) 0.54 (0.97) 0.85 0.29 0.10
- --------------------------------------------------------------------------------
Total from investment
operations 0.28 0.96 (0.49) 1.35 0.83 0.63
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.41) (0.42) (0.48) (0.50) (0.54) (0.53)
Distributions from net
realized
gain on investments -- (0.02) (0.10) -- -- --
- --------------------------------------------------------------------------------
Total distributions (0.41) (0.44) (0.58) (0.50) (0.54) (0.53)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $10.56 $10.69 $10.17 $11.24 $10.39 $10.10
- --------------------------------------------------------------------------------
TOTAL RETURN (B) 2.61% 10.09% (4.50%) 13.37% 8.31% 6.64%
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.18% 0.99% 0.92% 0.86% 0.59% 0.60%(c)
Net investment income 3.82% 4.49% 4.46% 4.64% 5.11% 5.66%(c)
Expense
waiver/reimbursement
(d) 0.25% 0.44% 0.51% 0.77% 1.91% 1.05%(c)
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $8,889 $9,447 $11,301 $12,014 $6,004 $556
Portfolio turnover 138% 21% 27% 23% 34% 35%
- --------------------------------------------------------------------------------
</TABLE>

(a) Reflects operations for the period from October 16, 1990 (date of initial
public investment) to September 31, 1991.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated September 30, 1996, which can be obtained free of charge.

THE TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated November 8, 1996, on the Fund's
financial statements for the year ended September 30, 1996, and on the
following table for each of the periods presented, is included in the Annual
Report, which is incorporated by reference. This table should be read in
conjunction with the Fund's financial statements and notes thereto, which may
be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------
INVESTMENT SHARES 1996 1995 1994 1993 1992 1991(A)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.05 0.05 0.03 0.02 0.04 0.06
- ---------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.05) (0.05) (0.03) (0.02) (0.04) (0.06)
- ---------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------
TOTAL RETURN (B) 4.67% 4.98% 2.90% 2.52% 3.61% 5.90%
- ---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.90% 0.85% 0.84% 0.70% 0.70% 0.51%(c)
Net investment income 4.49% 4.92% 3.05% 2.47% 3.49% 5.65%(c)
Expense
waiver/reimbursement
(c) 0.09% 0.10% 0.18% 0.20% 0.11% 0.27%(c)
- ---------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $146,161 $39,363 $21,883 $20,382 $12,960 $548
- ---------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------
TRUST SHARES 1996 1995 1994 1993 1992 1991(A)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.05 0.05 0.03 0.03 0.04 0.06
- ---------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.05) (0.05) (0.03) (0.03) (0.04) (0.06)
- ---------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------
TOTAL RETURN (B) 4.89% 5.24% 3.16% 2.64% 3.61% 5.90%
- ---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.65% 0.60% 0.59% 0.58% 0.70% 0.51%(c)
Net investment income 4.81% 5.17% 3.30% 2.60% 3.49% 5.65%(c)
Expense
waiver/reimbursement
(c) 0.06% 0.10% 0.18% 0.20% 0.11% 0.27%(c)
- ---------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $226,978 $208,656 $304,285 $152,921 $163,451 $129,959
- ---------------------------------------------------------------------------------------
</TABLE>

(a) Reflects operations for the period from October 16, 1990 (date of initial
public investment) to September 30, 1991.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

THE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated November 8, 1996, on the Fund's
financial statements for the year ended September 30, 1996, and on the
following table for each of the periods presented, is included in the Annual
Report, which is incorporated by reference. This table should be read in
conjunction with the Fund's financial statements and notes thereto, which may
be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
INVESTMENT SHARES 1996 1995 1994 1993 1992 1991(A)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.05 0.05 0.03 0.03 0.04 0.06
- --------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.05) (0.05) (0.03) (0.03) (0.04) (0.06)
- --------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------
TOTAL RETURN (B) 4.91% 5.11% 3.10% 2.77% 3.79% 5.92%
- --------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.73% 0.80% 0.80% 0.64% 0.64% 0.51%(c)
Net investment income 4.77% 5.04% 3.07% 2.68% 3.64% 5.99%(c)
Expense
waiver/reimbursement
(d) 0.23% 0.21% 0.25% 0.30% 0.29% 0.36%(c)
- --------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $83,525 $41,813 $15,236 $9,905 $5,803 $1
- --------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
TRUST SHARES 1996 1995 1994 1993 1992 1991(A)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.05 0.05 0.03 0.03 0.04 0.06
- --------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.05) (0.05) (0.03) (0.03) (0.04) (0.06)
- --------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------
TOTAL RETURN (B) 5.04% 5.36% 3.35% 2.89% 3.79% 5.92%
- --------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.60% 0.57% 0.55% 0.50% 0.64% 0.51%(c)
Net investment income 4.93% 5.27% 3.25% 2.83% 3.64% 5.99%(c)
Expense waiver/
reimbursement (d) 0.12% 0.19% 0.25% 0.30% 0.29% 0.36%(c)
- --------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $160,675 $173,761 $132,445 $134,397 $136,616 $57,432
- --------------------------------------------------------------------------------------
</TABLE>

(a) Reflects operations for the period from October 16, 1990 (date of initial
public investment) to September 30, 1991.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

THE TAX-FREE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

(a) Reflects operations for the period from July 27, 1994 (date of initial
public investment) to September 30, 1994.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

SPECIAL CONSIDERATIONS

Investors should be aware of the following general considerations: the market
value of fixed-income securities, which constitute a major part of the
investments of several Funds, may vary inversely in response to changes in
prevailing interest rates. One or more Funds may make certain investments and
employ certain investment techniques that involve other risks, including
entering into repurchase agreements, lending portfolio securities and entering
into futures contracts and related options as hedges. These risks and those
associated with investing in mortgage-backed securities, when-issued
securities, options, variable rate securities and equity securities are
described under "Investment Objective and Policies of Each Fund" and
"Portfolio Investments and Strategies."

INVESTMENT OBJECTIVE AND POLICIES OF EACH FUND
- -------------------------------------------------------------------------------

The investment objective and policies of each Fund appear below. The
investment objective of a Fund cannot be changed without the approval of
holders of a majority of that Fund's shares. While there is no assurance that
a Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.

Unless indicated otherwise, the investment policies of a Fund may be changed
by the Trustees without approval of shareholders. Shareholders will be
notified before any material change in these policies becomes effective.

Additional information about investment limitations, strategies that one or
more Funds may employ, and certain investment policies mentioned below, appear
in the "Portfolio Investments and Strategies" section of this Prospectus and
in the Combined Statement of Additional Information.

THE U.S. GOVERNMENT SECURITIES FUND

The investment objective of The U.S. Government Securities Fund is to provide
current income.

ACCEPTABLE INVESTMENTS. The Fund pursues its investment objective by investing
primarily in securities which are primary or direct obligations of the U.S.
government or its instrumentalities or which are guaranteed by the U.S.
government, its agencies, or instrumentalities. The Fund may also invest in
certain collateralized mortgage obligations ("CMOs") and adjustable rate
mortgage securities ("ARMS"), both of which represent or are supported by
direct or indirect obligations of the U.S. government or its
instrumentalities. The Fund will invest, under normal circumstances, at least
65% of the value of its total assets in U.S. government securities (including
such CMOs and ARMS).

The U.S. government securities in which the Fund invests include:

. direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
. notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as the: Farm Credit System, including the National
Bank for Cooperatives, Farm Credit Banks, and Banks for Cooperatives;
Farmers Home Administration; Federal Home Loan Banks; Federal Home Loan
Mortgage Corporation; Federal National Mortgage Association; Government
National Mortgage Association; and Student Loan Marketing Association.

The obligations of U.S. government agencies or instrumentalities which the
Fund may buy are backed, in a variety of ways, by the U.S. government or its
agencies or instrumentalities. Some of these obligations such as Government
National Mortgage Association mortgage-backed securities and obligations of
the Farmers Home Administration, are backed by the full faith and credit of
the U.S. Treasury. Obligations of the Farmers' Home Administration are also
backed by the issuer's right to borrow from the U.S. Treasury. Obligations of
Federal Home Loan Banks and the Farmers' Home Administration are backed by the
discretionary authority of the U.S. government to purchase certain obligations
of agencies or instrumentalities. Obligations of Federal Home Loan Banks,
Farmers' Home Administration, Federal Farm Credit Banks, Federal National
Mortgage Association, and Federal Home Loan Mortgage Corporation are backed by
the credit of the agency or instrumentality issuing the obligations.

CMOS. The Fund may also invest in CMOs which are rated AAA by a nationally
recognized rating agency and which are issued by private entities such as
investment banking firms and companies related to the construction industry.
The CMOs in which the Fund may invest may be: (i) privately

issued securities which are collateralized by pools of mortgages in which each
mortgage is guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government; (ii) privately issued securities which
are collateralized by pools of mortgages in which payment of principal and
interest are guaranteed by the issuer and such guarantee is collateralized by
U.S. government securities; and (iii) other privately issued securities in
which the proceeds of the issuance are invested in mortgage-backed securities
and payment of the principal and interest are supported by the credit of an
agency or instrumentality of the U.S. government. The mortgage-related
securities provide for a periodic payment consisting of both interest and
principal. The interest portion of these payments will be distributed by the
Fund as income, and the capital portion will be reinvested.

ARMS. ARMS are pass-through mortgage securities with adjustable rather than
fixed interest rates. The ARMS in which the Fund invests are issued by
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), and Federal Home Loan Mortgage Corporation ("FHLMC") and
are actively traded. The underlying mortgages which collateralize ARMS issued
by GNMA are fully guaranteed by the Federal Housing Administration ("FHA") or
Veterans Administration ("VA"), while those collateralizing ARMS issued by
FHLMC or FNMA are typically conventional residential mortgages conforming to
strict underwriting size and maturity constraints.

Unlike conventional bonds, ARMS pay back principal over the life of the ARMS
rather than at maturity. Thus, a holder of the ARMS, such as the Fund, would
receive monthly scheduled payments of principal and interest, and may receive
unscheduled principal payments representing payments on the underlying
mortgages. At the time that a holder of the ARMS reinvests the payments and
any unscheduled prepayments of principal that it receives, the holder may
receive a rate of interest which is actually lower than the rate of interest
paid on the existing ARMS. As a consequence, ARMS may be a less effective
means of "locking in" long-term interest rates than other types of U.S.
government securities.

THE STYLE MANAGER: LARGE CAP FUND

The investment objective of The Style Manager: Large Cap Fund is to provide
growth of capital and income.
ACCEPTABLE INVESTMENTS. The Fund pursues its investment objective by investing
in common stocks of large capitalization companies, with a market
capitalization of at least $1 billion at the time of investment, and which are
either listed on the New York or American Stock Exchanges or trade in the
over-the-counter market. The Fund's investment approach is based upon the
conviction that, over the long term, the economy will continue to expand and
develop and that this economic growth will be reflected in the growth of the
revenues and earnings of publicly held corporations. The securities in which
the Fund invests include, but are not limited to, the following securities.

COMMON STOCKS. The Fund will invest in stocks that the Fund's investment
adviser's proprietary investment methodology has identified as having superior
potential for growth of capital and income. At least 65% of the Fund's
portfolio will be invested in common stocks of large capitalization companies,
unless it is in a defensive position.

The Fund is managed to take advantage of trends in the stock market that favor
different styles of stock selection (value or growth). The value style seeks
stocks that, in the opinion of the adviser, are undervalued and are or will be
worth more than their current price. The growth style seeks stocks with higher
earnings growth rates which, in the opinion of the adviser, will lead to
appreciation in stock price.

OTHER CORPORATE SECURITIES. The Fund will invest in stocks that the Fund's
investment adviser' corporate bonds, notes, warrants, rights, and convertible
securities of these companies. The corporate bonds, notes and convertible debt
securities in which the Fund may invest must be rated, at the time of
purchase, BBB or higher by Standard & Poor's Ratings Group ("S&P") or Fitch
Investor Services ("Fitch") or Baa or higher by Moody's Investor's Service,
Inc. ("Moody's") or, if unrated, of comparable quality as determined by the
Fund's adviser. (If a Security's rating is reduced below the required minimum
after the Fund has purchased it, the Fund is not required to sell the
security, but may consider doing so.) Bonds rated BBB by S&P or Fitch or Baa
by Moody's have speculative characteristics. Changes in economic conditions or
other circumstances are more likely to lead to weakened capacity to make
principal and interest payments than higher rated bonds.

COMMERCIAL PAPER. The Fund may invest in commercial paper rated A-1 by S&P, or
Prime-1 by Moody's, or F-1 by Fitch and money market instruments (including
commercial paper) which are unrated but of comparable quality, including
Canadian Commercial Paper ("CCPs") and Europaper.

BANK INSTRUMENTS. The Fund may invest in instruments of domestic and foreign
banks and savings and loans (such as certificates of deposit, demand and time
deposits, savings shares, and bankers' acceptances) if they have capital,
surplus, and undivided profits over $100,000,000, or if the principal amount
of the instrument is insured by the Bank Insurance Fund ("BIF"), which is
administered by the Federal Deposit Insurance Corporation ("FDIC") or the
Savings Association Insurance Fund ("SAIF"), which is administered by the
FDIC. These instruments may include Eurodollar Certificates of Deposit
("ECDs"), Yankee Certificates of Deposit ("Yankee CDs"), and Eurodollar Time
Deposits ("ETDs").

AMERICAN DEPOSITARY RECEIPTS ("ADRS"). ADRs are receipts typically issued by
an American bank or trust company that evidences ownership of underlying
securities issued by a foreign issuer.

U.S. GOVERNMENT SECURITIES. The Fund may invest in securities issued and/or
guaranteed as to payment of principal and interest by the U.S. government, its
agencies or instrumentalities including those obligations purchased on a when-
issued or delayed delivered basis.

PORTFOLIO TURNOVER. Although the Fund does not intend to invest for the
purpose of seeking short-term profits, securities in its portfolio will be
sold whenever the Fund's adviser believes it is appropriate to do so in light
of the Fund's investment objective, without regard to the length of time a
particular security may have been held. The adviser does not anticipate that
the Fund's annual turnover rate will exceed 200% under normal market
conditions. A higher rate of portfolio turnover may lead to increased costs
and may also result in higher taxes paid by the Fund's shareholders.

THE STYLE MANAGER FUND

The investment objective of The Style Manager Fund is to provide growth of
capital.

ACCEPTABLE INVESTMENTS. The Fund pursues its investment objective by investing
primarily in common stocks of large, medium and small capitalization companies
which are either listed on the New York or American Stock Exchange or trade in
the over-the-counter markets. The securities in which the Fund invests
include, but are not limited to, the following securities. Unless indicated
otherwise, investment policies may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material
changes in these policies becomes effective.

COMMON STOCKS. The Fund will invest in stock that the Fund's investment
adviser's proprietary investment methodology has identified as having superior
appreciation potential. Factors such as product position, market share,
potential earnings growth, or asset values will be considered by the
investment adviser. Under normal market conditions, at least 65% of the Fund's
portfolio will be invested in common stocks.

The Fund is managed to take advantage of trends in the stock market that favor
different styles of stock selection (value or growth), and different sizes of
companies (large, medium and small capitalization). The value style seeks
stocks that, in the opinion of the adviser, are undervalued and are or will be
worth more than their current price. The growth style seeks stocks with high
earnings growth rates which, in the opinion of the adviser, will lead to
appreciation in stock price.

OTHER CORPORATE SECURITIES. The Fund may invest in preferred stocks, corporate
bonds, notes, warrants, rights, and convertible securities of these companies
of the kind described under "The Style Manager: Large Cap Fund".

BANK INSTRUMENTS. The fund may invest in instruments of domestic and foreign
banks and savings and loans (such as certificates of deposit, demand and time
deposits, savings shares, and bankers' acceptances) if they have capital,
surplus, and undivided profits over $100,000,000, or if the principal amount
of the instrument is insured by the BIF or the SAIF. These instruments may
include ECDs, Yankee CDs, and ETDs.

AMERICAN DEPOSITARY RECEIPTS ("ADRS"). The Fund may invest in ADRs.

PORTFOLIO TURNOVER. Although the Fund does not intend to invest for the
purpose of seeking short-term profits, securities in its portfolio will be
sold whenever the adviser believes it is appropriate to do so in light of the
Fund's investment objective, without regard to the length of time a particular
security may have been held. The adviser does not anticipate that the Fund's
annual portfolio turnover rate will exceed 200% under normal market
conditions. A high portfolio turnover rate may lead to increased costs and may
also result in higher taxes paid by the Fund's shareholders.

THE VIRGINIA MUNICIPAL BOND FUND AND THE MARYLAND MUNICIPAL BOND FUND

The investment objective of The Virginia Municipal Bond Fund and The Maryland
Municipal Bond Fund is to provide current income which is exempt from federal
regular income tax and the personal income tax imposed by the Commonwealth of
Virginia and the State of Maryland, respectively. (Federal regular income tax
does not include the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.)

ACCEPTABLE INVESTMENTS. Each Fund pursues its investment objective by
investing in a professionally managed portfolio of securities at least 65% of
which is comprised of Virginia municipal bonds or Maryland municipal bonds, as
the case may be. Each Fund will invest its assets so that, under normal
circumstances, at least 80% of its annual interest income is exempt from
federal regular and Virginia or Maryland state income taxes, respectively, or
that at least 80% of its net assets are invested in obligations, the interest
income from which is exempt from federal regular and Virginia or Maryland
state income taxes, respectively.

The municipal securities in which each Fund invests are debt obligations,
including industrial development bonds, issued on behalf of the Commonwealth
of Virginia or the State of Maryland, as the case may be, or the political
subdivisions or agencies of each respective state. In addition, each Fund may
invest in debt obligations issued by or on behalf of any state, territory or
possession of the United States, including the District of Columbia, or any
political subdivision or agency or any of these and participation interests in
any of the above obligations, the interest from which is, in the opinion of
bond counsel for the issuers or in the opinion of officers of the relevant
Fund and/or the investment adviser to the relevant Fund, exempt from federal
regular income tax and the personal income tax imposed by the Commonwealth of
Virginia or the State of Maryland, as the case may be.

CHARACTERISTICS. The debt securities in which each Fund invests will only
be rated investment grade or of comparable quality at the time of
purchase. The municipal securities which each Fund buys have essentially
the same characteristics assigned by Moody's and S&P to investment grade
bonds. Investment grade bonds are rated Baa, A, Aa, Aaa by Moody's, or
BBB, A, AA, AAA by S&P. Bonds rated "Baa" by Moody's or "BBB" by S&P have
speculative characteristics. Changes in economic conditions or other
circumstances are more likely to lead to weakened capacity to make
principal and interest payments than higher rated bonds. In certain cases,
the Funds' adviser may choose bonds which are unrated, if it judges the
bonds to have the same characteristics as investment grade bonds. If a
security's rating is reduced below the required minimum after a Fund has
purchased it, that Fund is not required to sell the security, but may
consider doing so. A description of the ratings categories is contained in
the Appendix to the Combined Statement of Additional Information.

THE TREASURY MONEY MARKET FUND

The investment objective of The Treasury Money Market Fund is to provide
current income consistent with stability of principal.

ACCEPTABLE INVESTMENTS. The Fund pursues its investment objective by investing
only in a portfolio of short-term U.S. Treasury obligations which are issued
by the U.S. government and are fully guaranteed as to principal and interest
by the United States. They mature in 397 days or less from the date of
acquisition unless they are purchased under a repurchase agreement that
provides for repurchase by the seller within one year from the date of
acquisition. The average maturity of these securities computed on a dollar-
weighted basis, will be 90 days or less.

THE MONEY MARKET FUND

The investment objective of The Money Market Fund is to provide current income
consistent with stability of principal.

ACCEPTABLE INVESTMENTS. The Fund pursues its investment objective by investing
primarily in a diversified portfolio of money market instruments maturing in
397 days or less. The average maturity of these securities, computed on a
dollar-weighted basis, will be 90 days or less. The Fund invests in high
quality money market instruments that are either rated in the highest short-
term rating category by one or more nationally recognized statistical rating
organization ("NRSROs") or of comparable quality to securities having such
ratings. Examples of these instruments include, but are not limited to:

. domestic issues of corporate debt obligations, including variable rate
demand notes;
. commercial paper (including Canadian Commercial Paper and Europaper);
. certificates of deposit, demand and time deposits, bankers' acceptances
and other instruments of domestic and foreign banks and other deposit
institutions ("Bank Instruments");
. short-term credit facilities, such as demand notes;
. asset-backed securities;
. obligations issued or guaranteed as to payment of principal and interest
by the U.S. government or one of its agencies or instrumentalities
("Government Securities"); and
. other money market instruments.

The Fund invests only in instruments denominated and payable in U.S. dollars.

BANK INSTRUMENTS. The Fund only invests in Bank Instruments either issued
by an institution having capital, surplus and undivided profits over $100
million or insured by BIF or SAIF. Bank Instruments may include ECDs,
Yankee CDs and ETDs. The Fund will treat securities credit enhanced with a
bank's letter of credit as Bank Instruments.

SHORT-TERM CREDIT FACILITIES. Demand notes are short-term borrowing
arrangements between a corporation and an institutional lender (such as
the Fund) payable upon demand by either party. The notice period for
demand typically ranges from one to seven days, and the party may demand
full or partial payment. The Fund may also enter into, or acquire
participations in, short-term revolving credit facilities with corporate
borrowers. Demand notes and other short-term credit arrangements usually
provide for floating or variable rates of interest.

ASSET-BACKED SECURITIES. Asset-backed securities are securities issued by
special purpose entities whose primary assets consist of a pool of loans
or accounts receivable. The securities may take the form of beneficial
interest in a special purpose trust, limited partnership interests or
commercial paper or other debt securities issued by a special purpose
corporation. Although the securities often have some form of credit or
liquidity enhancement, payments on the securities depend predominately
upon collections of the loans and receivables held by the issuer.

RATINGS. An NRSRO's highest rating category is determined without regard for
sub-categories and gradations. For example, securities rated A-1 or A-1+ by
S&P, Prime-1 by Moody's or F-1 (+ or -) by Fitch are all considered rated in
the highest short-term rating category. The Fund will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in the highest short-term rating category; currently, such
securities must be rated by two NRSROs in their highest rating category. See
"Regulatory Compliance."

THE TAX-FREE MONEY MARKET FUND
The investment objective of The Tax-Free Money Market Fund is current income
exempt from federal income tax consistent with stability of principal and
liquidity.

ACCEPTABLE INVESTMENTS. The Fund pursues its investment objective by investing
in a portfolio of municipal securities (as defined below) maturing in 13
months or less. As a matter of investment policy, which cannot be changed
without shareholder approval, at least 80% of the Fund's annual interest
income will be exempt from federal income tax (including alternative minimum
tax). The average maturity of the securities in the Fund's portfolio, computed
on a dollar-weighted basis, will be 90 days or less.

The Fund invests primarily in debt obligations issued by or on behalf of
states, territories, and possessions of the United States, including the
District of Columbia, and any political subdivision or financing authority of
any of these, the income from which is, in the opinion of qualified legal
counsel, exempt from federal income tax ("municipal securities"). Examples of
municipal securities include, but are not limited to:

. tax and revenue anticipation notes issued to finance working capital
needs in anticipation of receiving taxes or other revenues;
. bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
. municipal commercial paper and other short-term notes;
. variable rate demand notes;
. municipal bonds (including bonds having serial maturities and pre-
refunded bonds) and leases;
. construction loan notes insured by the Federal Housing Administration
and financed by the Federal or Government National Mortgage Associations;
and
. participation, trust, and partnership interests in any of the foregoing
obligations.

PARTICIPATION INTERESTS. The Fund may purchase interests in municipal
securities from financial institutions such as commercial and investment
banks, savings and loan associations, and insurance companies. These
interests may take the form of participations, beneficial interests in a
trust, partnership interests or any other form of indirect ownership that
allows the Fund to treat the income from the investment as exempt from
federal income tax. The Fund invests in these participation interests in
order to obtain credit enhancement or demand features that would not be
available through direct ownership of the underlying municipal securities.

RATINGS. The municipal securities in which the Fund invests must be rated in
one of the two highest short-term rating categories by one or more NRSRO or be
of comparable quality to securities having such ratings. The Fund will follow
applicable regulations in determining whether a security rated by more than
one NRSRO can be treated as being in one of the two highest short-term rating
categories; currently, such securities must be rated by two NRSROs in one of
their two highest rating categories. See "Regulatory Compliance."

INVESTMENT LIMITATIONS

The Funds' investment limitations are discussed below under "Borrowing Money,"
"Selling Short," "Restricted and Illiquid Securities," "Diversification,"
"Investing in New Issuers," and "Acquiring Securities."

PORTFOLIO INVESTMENTS AND STRATEGIES
- -------------------------------------------------------------------------------

REGULATORY COMPLIANCE

The Treasury Money Market Fund, The Money Market Fund and The Tax-Free Money
Market Fund may follow non-fundamental operational policies that are more
restrictive than their fundamental investment limitations, as set forth in
this prospectus and their Combined Statement of Additional Information, in
order to comply with applicable laws and regulations, including the provisions
of and regulations under the Investment Company Act of 1940, as amended. In
particular, the Funds will comply with the various requirements of Rule 2a-7,
which regulates money market mutual funds. The Treasury Money Market Fund, The
Money Market Fund, and The Tax-Free Money Market Fund will also determine the
effective maturity of their respective investments, as well as their ability
to consider a security as having received the requisite short-term ratings by
NRSROs, according to Rule 2a-7. The Funds may change these operational
policies to reflect changes in the laws and regulations without the approval
of their shareholders.

BORROWING MONEY

Except for The Tax-Free Money Market Fund the Funds will not borrow money
directly or through reverse repurchase agreements (arrangements in which a
Fund sells a portfolio instrument for a percentage of its cash value with an
agreement to buy it back on a set date) or pledge securities except,

under certain circumstances, a Fund may borrow money up to one-third of the
value of its total assets and pledge up to 15% of the value of those assets to
secure such borrowings. The Tax-Free Money Market Fund may borrow up to one-
third of the value of its total assets, including the amount borrowed. The
Tax-Free Money Market Fund will not purchase any securities while borrowings
in excess of 5% of the value of its total assets are outstanding. These
policies cannot be changed without the approval of holders of a majority of a
Fund's Shares.

SELLING SHORT

With respect to The U.S. Government Securities Fund, The Style Manager: Large
Cap Fund and The Style Manager Fund, the Funds will not make short sales of
securities, except in certain limited circumstances. This policy cannot be
changed without the approval of holders of a majority of a Fund's Shares.

RESTRICTED AND ILLIQUID SECURITIES

The Funds may invest in restricted securities. Restricted securities are any
securities in which a Fund may invest pursuant to its investment objective and
policies, but which are subject to restriction on resale under federal
securities law. The Funds will not invest more than 10% of the value of their
total assets in securities subject to restrictions on resale under the
Securities Act of 1933 (except for certain restricted securities which meet
the criteria for liquidity as established by the Board of Trustees). In the
case of The U.S. Government Securities Fund, The Style Manager: Large Cap
Fund, and The Money Market Fund and The Style Manager Fund, this exception
specifically extends to commercial paper issued under Section 4(2) of the
Securities Act of 1933. This policy cannot be changed without the approval of
holders of a majority of a Fund's Shares.

The U.S. Government Securities Fund, The Style Manager: Large Cap Fund, The
Style Manager Fund, The Virginia Municipal Bond Fund, and The Maryland
Municipal Bond Fund will not invest more than 15% of their net assets in
illiquid securities. The Treasury Money Market Fund, The Money Market Fund,
and The Tax-Free Money Market Fund will not invest more than 10% of their net
assets in illiquid securities.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

Each Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which a Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause a Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.

The Trust may dispose of a commitment prior to settlement if the adviser deems
it appropriate to do so. In addition, the Trust may enter in transactions to
sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at
later dates. The Trust may realize short-term profits or losses upon the sale
of such commitments.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Funds may invest in the securities of other investment companies, but will
not own more than 3% of the total outstanding voting stock of any investment
company, invest more than 5% of total assets in any one investment company, or
invest more than 10% of total assets in investment companies in general. The
Funds will invest in other investment companies primarily for the purpose of
investing short-term cash which has not yet been invested in other portfolio
instruments. It should be noted that investment companies incur certain
expenses, and therefore, any investment by a Fund in shares of another
investment company would be subject to certain duplicate expenses,
particularly transfer agent and custodian fees. The adviser will waive its
investment advisory fee on assets invested in securities of open-end
investment companies.

DIVERSIFICATION

With respect to 75% of the value of total assets, The U.S. Government
Securities Fund, The Style Manager: Large Cap Fund, The Money Market Fund and
The Style Manager Fund will not invest more than 5% in securities of any one
issuer other than cash or securities issued or guaranteed by the government of
the United States or its agencies or instrumentalities and repurchase
agreements

collateralized by such securities. This policy cannot be changed without the
approval of holders of a majority of a Fund's Shares.

NON-DIVERSIFICATION

The Virginia Municipal Bond Fund, The Maryland Municipal Bond Fund, The
Treasury Money Market Fund, and The Tax-Free Money Market Fund are non-
diversified investment companies, as defined by the Investment Company Act of
1940, as amended. As such, there is no limit on the percentage of assets which
can be invested in any single issuer. An investment in the Funds, therefore,
will entail greater risk than would exist in a diversified investment company
because the higher percentage of investments among fewer issuers may result in
greater fluctuation in the total market value of each Fund's portfolio. Any
economic, political or regulatory developments affecting the value of the
securities in each Fund's portfolio will have a greater impact on the total
value of the portfolio than would be the case if the portfolio were
diversified among more issuers.

To meet federal tax requirements for qualifications as a "regulated investment
company" the Funds will limit their investments so at the close of each
quarter of each fiscal year: (a) with regard to at least 50% of their
respective total assets no more than 5% of their respective total assets are
invested in the securities of a single issuer, and (b) no more than 25% of
their respective total assets are invested in the securities of a single
issuer.

REPURCHASE AGREEMENTS

The securities in which the Funds invest may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S.
government securities or other securities to a Fund and agree at the time of
sale to repurchase them at a mutually agreed upon time and price. To the
extent that the original seller does not repurchase the securities from a
Fund, that Fund could receive more or less than the repurchase price on any
sale of such securities.

LENDING OF PORTFOLIO SECURITIES

In order to generate additional income, The U.S. Government Securities Fund,
The Style Manager: Large Cap Fund, The Style Manager Fund, The Treasury Money
Market Fund and The Money Market Fund, may lend portfolio securities on a
short-term or a long-term basis up to one-third of the value of their
respective total assets to broker/dealers, banks, or other institutional
borrowers of securities. A Fund will only enter into loan arrangements with
broker/dealers, banks, or other institutions which the investment adviser has
determined are creditworthy under guidelines established by the Board of
Trustees and will receive collateral in the form of cash or U.S. government
securities equal to at least 100% of the value of the securities loaned.

There is the risk that when lending portfolio securities, the securities may
not be available to the Fund on a timely basis and the Fund may, therefore,
lose the opportunity to sell the securities at a desirable price. In addition,
in the event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.

ACQUIRING SECURITIES

The U.S. Government Securities Fund, The Style Manager: Large Cap Fund and The
Style Manager Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer. This policy cannot be changed without the
approval of holders of a majority of the Fund's shares.

INVESTMENT RISKS
ECDs, ETDs, Yankee CDs, and Europaper are subject to different risks than
domestic obligations of domestic banks or corporations. Examples of these
risks include international economic and political developments, foreign
governmental restrictions that may adversely affect the payment of principal
or interest, foreign withholding or other taxes on interest income,
difficulties in obtaining or enforcing a judgment against the issuing entity,
and the possible impact of interruptions in the flow of international currency
transactions. Different risks may also exist for ECDs, ETDs, and Yankee CDs
because the banks issuing these instruments, or their domestic or foreign
branches, are not necessarily subject to the same regulatory requirements that
apply to domestic banks, such as reserve requirements, loan limitations,
examinations, accounting, auditing, recordkeeping, and the public

availability of information. These factors will be carefully considered by the
Fund's adviser in selecting investments for a Fund.

The Style Manager: Large Cap Fund and The Style Manager Fund, as with other
mutual funds that invest primarily in equity securities, are subject to market
risks. That is, the possibility exists that common stocks will decline over
short or even extended periods of time. The United States equity market tends
to be cyclical, experiencing both periods when stock prices generally increase
and periods when stock prices generally decrease. However, because the Funds
invest in small capitalization stocks, there are some additional risk factors
associated with investments in the Funds. In particular, stocks in the small
capitalization sector of the United States equity market have historically
been more volatile in price than larger capitalization stocks, such as those
included in the standard & Poor's 500 Composite Stock Price Index ("Standard &
Poor's 500 Index"). This is because, among other things, small companies have
less certain growth prospects than larger companies; have a lower degree of
liquidity in the equity market; and tend to have a greater sensitivity to
changing economic conditions.
Further, in addition to exhibiting greater volatility, the stocks of small
companies may, to some degree, fluctuate independently of the stocks of large
companies. That is, the stocks of small companies may decline in price as the
price of large company stocks rises or vice versa. Therefore, investors should
expect that the Funds, to the extent that it is invested in small
capitalization stocks, will be more volatile than, and may fluctuate
independently of, broad stock market indices such as the Standard & Poor's 500
Index.

In addition, with respect to fixed income securities, investors should be
aware that prices of fixed income securities generally fluctuate inversely to
the direction of interest rates.

VARIABLE RATE DEMAND NOTES

The Money Market Fund and The Tax-Free Money Market Fund may invest in
variable rate demand notes. Variable rate demand notes are long-term corporate
debt instruments that have variable or floating interest rates and provide the
Funds with the right to tender the security for repurchase at its stated
principal amount plus accrued interest. Such securities typically bear
interest at a rate that is intended to cause the securities to trade at par.
The interest rate may float or be adjusted at regular intervals (ranging from
daily to annually), and is normally based on a published interest rate or
interest rate index. Most variable rate demand notes allow a Fund to demand
the repurchase of the security on not more than seven days' prior notice.
Other notes only permit the Funds to tender the security at the time of each
interest rate adjustment or at other fixed intervals. See "Demand Features."
The Funds treat variable rate demand notes as maturing on the later of the
date of the next interest adjustment or the date on which a Fund may next
tender the security for repurchase.

CREDIT ENHANCEMENT
Certain of The Money Market Fund's and The Tax-Free Money Market Fund's
acceptable investments may have been credit enhanced by a guaranty, letter of
credit or insurance. A Fund typically evaluates the credit quality and ratings
of credit enhanced securities based upon the financial condition and ratings
of the party providing the credit enhancement (the "credit enhancer"), rather
than the issuer. Generally, a Fund will not treat credit enhanced securities
as having been issued by the credit enhancer for diversification purposes.
However, under certain circumstances applicable regulations may require a Fund
to treat the securities as having been issued by both the issuer and credit
enhancer. The bankruptcy, receivership or default of the credit enhancer will
adversely affect the quality and marketability of the underlying security.

DEMAND FEATURES

The Money Market Fund and The Tax-Free Money Market Fund may acquire
securities that are subject to puts and standby commitments ("demand
features") to purchase the securities at their principal amount (usually with
accrued interest) within a fixed period (usually seven days) following a
demand by a Fund. The demand feature may be issued by the issuer of the
underlying securities, a dealer in the securities or by another third party,
and may not be transferred separately from the underlying security. A Fund
uses these arrangements to provide itself with liquidity and not to protect
against changes in the market value of the underlying securities. The
bankruptcy, receivership or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates

the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.

PARTICIPATION INTERESTS

The Virginia Municipal Bond Fund, The Maryland Municipal Bond Fund, and The
Tax-Free Money Market Fund may purchase participation interests from financial
institutions such as commercial banks, savings and loan associations and
insurance companies. These participation interests give the Funds an undivided
interest in municipal securities. The financial institutions from which the
Funds purchase participation interests frequently provide or secure
irrevocable letters of credit or guarantees to assure that the participation
interests are of good quality. The Board of Trustees will determine that
participation interests meet the prescribed quality standards for the Funds.

VARIABLE RATE MUNICIPAL SECURITIES

Some of the municipal securities which The Virginia Municipal Bond Fund and
The Maryland Municipal Bond Fund purchase may have variable interest rates.
Variable interest rates are ordinarily stated as a percentage of the prime
rate of a bank or some similar standard, such as the 91-day U.S. Treasury bill
rate. Many variable rate municipal securities are subject to repayment of
principal on demand by the Funds (usually in not more than seven days). While
some variable rate municipal securities without this demand feature may not be
considered liquid by the Fund's adviser, the Fund's investment limitations
provide that it will invest no more than 15% of its total assets in illiquid
securities. All variable rate municipal securities will meet the quality
standards for the Funds. The investment adviser has been instructed by the
Board of Trustees to monitor the pricing, quality and liquidity of the
variable rate municipal securities, including participation interests, held by
the Funds on the basis of published financial information and reports of the
rating agencies and other analytical services.

MUNICIPAL LEASES

The Virginia Municipal Bond Fund, The Maryland Municipal Bond Fund, and The
Tax-Free Money Market Fund may purchase municipal securities in the form of
municipal leases which are obligations issued by state and local governments
or authorities to finance the acquisition of equipment and facilities.
Municipal leases may take the form of a lease, an installment purchase
contract, a conditional sales contract, or a participation certificate in any
of the above. Lease obligations may be subject to periodic appropriation. If
the entity does not appropriate funds for future lease payments, the entity
cannot be compelled to make such payments. In the event of failure of
appropriation, unless the participation interests are credit enhanced, it is
unlikely that the participants would be able to obtain an acceptable
substitute.

TEMPORARY INVESTMENTS

From time to time, during periods of other than normal market conditions, The
Virginia Municipal Bond Fund, The Maryland Municipal Bond Fund, and The Tax-
Free Money Market Fund may invest in short-term tax-exempt or taxable
temporary investments. These temporary investments include: notes issued by or
on behalf of municipal or corporate issuers; tax-free commercial paper; other
temporary municipal securities; obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities; other debt securities;
commercial paper; certificates of deposit of banks; and repurchase agreements
(arrangements in which an organization selling a Fund a security agrees at the
time of sale to repurchase it at a mutually agreed upon time and price).

Except for The Tax-Free Money Market Fund, there are no rating requirements
applicable to temporary investments. However, the investment adviser will
limit temporary investments to those it considers to be of good quality.
Temporary investments held by The Tax-Free Money Market Fund must be rated in
one of the two highest short-term rating categories by one or more NRSRO.

Although each Fund is permitted to make taxable, temporary investments, there
is no current intention of generating income subject to federal regular income
tax or Virginia or Maryland personal income tax.

MUNICIPAL SECURITIES

The Virginia Municipal Bond Fund, The Maryland Municipal Bond Fund, and The
Tax-Free Money Market Fund invest principally in municipal securities.
Municipal securities are generally issued to finance public works, such as
airports, bridges, highways, housing, hospitals, mass transportation projects,
schools, streets, and water and sewer works. They are also issued to repay
outstanding obligations, to raise funds for general operating expenses and to
make loans to other public institutions and facilities.

Municipal securities include industrial development bonds issued by or on
behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations.
The availability of this financing encourages these corporations to locate
within the sponsoring communities and thereby increases local employment.

The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment
of principal and interest. Interest on and principal of revenue bonds,
however, are payable only from the revenue generated by the facility financed
by the bond or other specified sources of revenue. Revenue bonds do not
represent a pledge of credit or create any debt off or charge against the
general revenues of a municipality or public authority. Industrial development
bonds are typically classified as revenue bonds.

INVESTMENT RISKS. Yields on municipal securities depend on a variety of
factors, including: the general conditions of the municipal bond market; the
size of the particular offering; the maturity of the obligations; and the
rating of the issue. Further, with respect to The Virginia Municipal Bond Fund
and The Maryland Municipal Bond Fund, any adverse economic conditions or
developments affecting the Commonwealth of Virginia, the state of Maryland, or
their municipalities could impact a Fund's portfolio. The ability of The
Virginia Municipal Bond Fund, The Maryland Municipal Bond Fund, and The Tax-
Free Money Market Fund to achieve their investment objectives also depends on
the continuing ability of the issuers of municipal securities and
participation interests, or the guarantors of either, to meet their
obligations for the payment of interest and principal when due. With respect
to The Virginia Municipal Bond Fund and The Maryland Municipal Bond Fund,
investing in Virginia and Maryland municipal securities which meet a Fund's
quality standards may not be possible if the Commonwealth of Virginia, the
state of Maryland, or their municipalities do not maintain their current
credit ratings. In addition, certain Virginia or Maryland constitutional
amendments, legislative measures, executive orders, administrative regulations
and voter initiatives could result in adverse consequences affecting Virginia
and Maryland municipal securities. In addition, from time to time, the supply
of municipal securities acceptable for purchase by The Virginia Municipal Bond
Fund, The Maryland Municipal Bond Fund, and The Tax-Free Money Market Fund,
could become limited.

Obligations of issuers of municipal securities are subject to the provisions
of bankruptcy, insolvency, and other laws affecting the rights and remedies of
creditors. In addition, the obligations of such issuers may become subject to
laws enacted in the future by Congress, state legislators, or referenda
extending the time for payment of principal and/or interest, or imposing other
constraints upon enforcement of such obligations or upon the ability of states
or municipalities to levy taxes. There is also the possibility that, as a
result of litigation or other conditions, the power or ability of any issuer
to pay, when due, the principal of and interest on its municipal securities
may be materially affected.

PUT AND CALL OPTIONS. The Style Manager: Large Cap Fund and The Style Manager
Fund may purchase put options on its portfolio securities. These options will
be used as a hedge to attempt to protect securities which the Funds hold
against decreases in value. These Funds may also write covered call options on
all or any portion of their portfolios to generate income for the Funds. The
Funds will write call options on securities either held in their portfolios or
which they have the right to obtain without payment of further consideration
or for which they have segregated cash or U.S. government securities in the
amount of any additional consideration.

The Style Manager: Large Cap Fund and The Style Manager Fund may purchase and
write over-the-counter options on portfolio securities in negotiated
transactions with the buyers or writers of the options when options on the
portfolio securities held by the Fund are not traded on an exchange. The Funds
purchase and write options only with investment dealers and other financial
institutions (such as commercial banks or savings and loan associations)
deemed creditworthy by the Fund's adviser. Over-the-counter options are two
party contracts with price and terms negotiated between buyer and seller. In
contrast, exchange traded options are third party contracts with standardized
strike prices and expiration dates and are purchased from a clearing
corporation. Exchange-traded options have a continuous liquid market while
over-the-counter options may not. The Funds will not buy call options or write
put options without further notification to shareholders.

FUTURES AND OPTIONS ON FUTURES. The Style Manager: Large Cap Fund, The Style
Manager Fund, The Virginia Municipal Bond Fund and The Maryland Municipal Bond
Fund may purchase and sell futures contracts to hedge all or a portion of
their portfolios against changes in interest rates and market conditions.
Financial Futures contracts call for the delivery of particular debt
instruments at a certain time in the future. The seller of the contract agrees
to make delivery of the type of instrument called for in the contract and the
buyer agrees to take delivery of the instrument at the specified future time.

Stock index futures contracts are based on indices that reflect the market
value of common stock of the firms included in the indices. An index futures
contract is an agreement to which two parties agree to take or make delivery
of an amount of cash equal to the difference between the value of the index at
the close of the last trading day of the contract and the price at which the
index contract was originally written.

The Style Manager: Large Cap Fund, The Style Manager Fund, The Virginia
Municipal Bond Fund and The Maryland Municipal Bond Fund may also write call
options and purchase put options on futures contracts as a hedge to attempt to
protect securities in its portfolio against decreases in value. When a Fund
writes a call option on a futures contract, it is undertaking the obligation
of legally permitted) to collateralize the position and thereby insure that
the selling a futures contract at a fixed price at any time during a specified
period if the option is exercised.

Conversely, as purchaser of a put option on a futures contract, a Fund is
entitled (but not obligated) to sell a futures contract at the fixed price
during the life of the option.

A fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed
5% of the market value of the Fund's total assets. When a Fund purchases
futures contracts, an amount of cash and cash equivalents, equal to the
underlying commodity value of the futures contracts (less any related margin
deposits), will be deposited in a segregated account with the Fund's custodian
(or the broker, if use of such futures contracts is unleveraged.

RISKS. When a Fund uses financial futures and options on financial future
as hedging devices, there is a risk that the prices of the securities
subject to the futures contracts may not correlate perfectly with the
prices of the securities in the Fund's portfolio. This may cause the
futures contract and any related options to react differently than the
portfolio securities to market changes. In addition, the Fund's investment
adviser could be incorrect in its expectations about the direction or
extent of market factors such as stock price movements. In these events,
the Fund may lose money on the futures contract or option.

It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the investment
adviser will consider liquidity before entering into options transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at any
particular time. A Fund's ability to establish and close out futures and
options positions depends on this secondary market.

DERIVATIVE CONTRACTS AND SECURITIES. The term "derivative" has traditionally
been applied to certain contracts (including futures, forward, option and swap
contracts) that "derive" their value from changes in the value of an
underlying security, currency, commodity or index. Certain types of securities
that incorporate the performance characteristics of these contracts are also
referred to as "derivatives." The term has also been applied to securities
"derived" from the cash flows from underlying securities, mortgages or other
obligations.

Derivative contracts and securities can be used to reduce or increase the
volatility of an investment portfolio's total performance. While the response
of certain derivative contracts and securities to market changes may differ
from traditional investments, such as stock and bonds, derivatives do not
necessarily present greater market risks than traditional investments. The
Funds will only use derivative contracts for the purposes disclosed in the
applicable prospectus sections above. To the extent that a Fund invests in
securities that could be characterized as derivatives, it will only do so in a
manner consistent with its investment objectives, policies and limitations.

THE VIRTUS FUNDS INFORMATION
- -------------------------------------------------------------------------------

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES. The Board of Trustees (the "Board" or the "Trustees") is
responsible for managing the business affairs of the Trust and for exercising
all of the powers of the Trust except those reserved for the shareholders. The
Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.

INVESTMENT ADVISER. Investment decisions for the Trust are made by Virtus
Capital Management, Inc., the Trust's investment adviser (the "Adviser"),
subject to direction by the Trustees. The Adviser continually conducts
investment research and supervision for each Fund and is responsible for the
purchase or sale of portfolio instruments, for which it receives an annual fee
from the assets of each Fund.

ADVISORY FEES. The Adviser receives an annual investment advisory fee at
annual rates equal to percentages of the relevant Fund's average net
assets as follows: The Treasury Money Market Fund, The Money Market Fund,
and The Tax-Free Money Market Fund--.50%; and The U.S. Government
Securities Fund, The Style Manager: Large Cap Fund, The Virginia Municipal
Bond Fund; The Maryland Municipal Bond Fund--.75%; and The Style Manager
Fund--1.25%. The investment advisory contract provides for the voluntary
waiver of expenses at any time with respect to a Fund at its sole
discretion. The Adviser has also undertaken to reimburse the Funds for
operating expenses in excess of limitations established by certain states.

ADVISER'S BACKGROUND. Virtus Capital Management, Inc., a Maryland
corporation formed in 1995 to succeed to the business of Signet Asset
Management (adviser to the Funds since 1990), is a wholly-owned subsidiary
of Signet Banking Corporation. Signet Banking Corporation is a multi-
state, multi-bank holding company which has provided investment management
services since 1956. Virtus Capital Management, Inc., which is a
registered investment adviser, manages, in addition to the Funds, three
fixed income common trust funds with $163.6 million in assets. As part of
their regular banking operations, Signet Bank may make loans to public
companies. Virtus Capital Management, Inc. also advises The Blanchard
Group of Funds. Thus, it may be possible, from time to time, for the Funds
to hold or acquire the securities of issuers which are also lending
clients of Signet Bank. The lending relationship will not be a factor in
the selection of securities.

Garry M. Allen has managed The Style Manager: Large Cap Fund since July
1994, and The Style Manager Fund since its inception. Mr. Allen is a
Chartered Financial Analyst and Chief Investment Officer for Virtus
Capital Management, Inc. Prior to joining Virtus Capital Management, Inc.,
Mr. Allen had been Managing Director of U.S. Equities (November 1990 to
March 1994) and Director, Internal Asset Management (June 1985 to November
1990) of The Virginia Retirement System.

Holly S. Thompson has managed The Maryland Municipal Bond Fund and The
Virginia Municipal Bond Fund since December, 1996 and was co-manager of
the Funds since June, 1995. Ms. Thompson is a Chartered Financial Analyst,
and Assistant Vice President of Virtus Capital Management, Inc. Prior to
joining Virtus Capital Management, Inc., Ms. Thompson had been a Discount
Brokerage Trader with Signet Financial Services and joined Virtus Capital
Management, Inc. in February, 1994. Previously, Ms. Thompson was with
Wheat First Securities as a Discount Brokerage Trader (September, 1991 to
June, 1993).

John S. Hall has managed The U.S. Government Securities Fund since
December, 1996 and was co-manager of the Fund since June, 1995. Mr. Hall
is a Chartered Financial Analyst and, is

currently Vice President and Senior Fixed Income Portfolio Manager For
Virtus Capital Management, Inc. Prior to joining Virtus Capital
Management, Inc., Mr. Hall had been Director of Fixed Income Portfolio
Management for Hibernia National Bank, since January, 1992.

SUB-ADVISER TO THE STYLE MANAGER: LARGE CAP FUND AND THE STYLE MANAGER
FUND. Trend Capital Management, Inc. is the sub-adviser to The Style Manager:
Large Cap Fund and The Style Manager Fund.

SUB-ADVISORY FEES. Pursuant to the terms of an investment sub-advisory
agreement between the adviser and Trend Capital Management, Inc. (the
"Sub-Adviser"), the Sub-Adviser furnishes certain investment advisory
services to the adviser, including investment research, statistical and
other factual information, and recommendations, based on the Sub-Adviser's
analysis of trends in the stock market that favor different styles of
stock selection (growth versus value) and different sizes of companies
(large versus small capitalization). For the services provided and the
expenses incurred by the Sub-Adviser pursuant to the sub-advisory
agreement with respect to The Style Manager Fund, VCM will pay Trend an
annual fee as follows: (a) an amount equal to .10% of the first $60
million of the Fund's average daily net assets; and (b) with respect to
average daily net assets of the Fund in excess of $60 million, an amount
equal to (i) one-third of VCM's advisory fee to the extent that such
advisory fee is less than or equals 1% of the Fund's average daily net
assets (but not to exceed .25% of the Fund's average daily net assets);
plus (ii) to the extent that the annual advisory fee exceeds 1% of the
Fund's average daily net assets, an additional amount equal to two-thirds
of such excess. With respect to The Style Manager: Large Cap Fund, VCM
will pay Trend an amount equal to .15% of the first $100 million of the
Fund's average daily net assets; and .33 1/3% of the Fund's average daily
net assets in excess of $100 million.

SUB-ADVISER'S BACKGROUND. Trend Capital Management, Inc., a Minnesota
corporation located at 956 Interchange Tower, 600 S. Highway 169,
Minneapolis, Minnesota 55426, was founded in 1992 by Thomas G. Fox, its
President and Chief Investment Officer. Trend provides investment advisory
services to individuals and institutions, and is registered as an
investment adviser with the Securities and Exchange Commission. Trend also
provides general portfolio management services for certain clients subject
to the client's investment objective. Trend does not provide investment
advisory services to any other mutual fund.

DISTRIBUTION OF SHARES OF THE FUNDS

Federated Securities Corp. is the principal distributor for Shares of the
Funds. It is a Pennsylvania corporation organized on November 14, 1969, and is
the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.

DISTRIBUTION PLAN. Under a distribution plan adopted in accordance with
Investment Company Act Rule 12b-1 on behalf of The Tax-Free Money Market Fund
and The Style Manager Fund (the "Plan"), the distributor may select financial
institutions such as fiduciaries, custodians for public funds, investment
advisers and brokers/dealers to provide distribution and/or administrative
services as agents for their clients or customers. Administrative services may
include, but are not limited to, the following functions: providing office
space, equipment, telephone facilities, and various personnel including
clerical, supervisory, and computer as necessary or beneficial to establish
and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries regarding The Tax-Free Money
Market Fund and The Style Manager Fund; assisting clients in changing dividend
options, account designations, and addresses; and providing such other
services as The Tax-Free Money market Fund and The Style Manager Fund
reasonably request for shares.

The distributor will pay financial institutions a fee based upon shares
subject to the Plan and owned by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid will be determined
from time to time by the Trustees, provided that for any period the total
amount of these fees shall not exceed an annual rate of .35% of the average
net asset value of Tax-Free Money Market Shares, and .25% of the average net
asset value of Style Manager Shares subject to the Plan held during the period
by clients or customers of financial institutions. Any fees paid by the
distributor under the Plan will be reimbursed from the assets of The Tax-Free
Money Market Fund

and The Style Manager Fund. The Plan will not be activated unless and until a
second class of shares of The Tax-Free Money Market Fund and The Style Manager
Fund, which will not have a Rule 12b-1 Plan, is created.

The distributor, in its sole discretion, may uniformly offer to pay all
brokers or dealers selling shares of The Tax-Free Money Market Fund and The
Style Manager Fund additional amounts predicated upon the amount of shares of
The Tax-Free Money Market Fund, The Style Manager Fund or certain other Funds
of The Virtus Funds sold by the broker or dealer. Such payments, if made, will
be in addition to amounts paid under the distribution plan and will not be an
expense of The Tax-Free Money Market Fund or The Style Manager Fund.

ADMINISTRATIVE ARRANGEMENTS. The distributor may pay financial institutions a
fee based upon the average net asset value of Shares of their customers
invested in the Trust for providing administrative services. This fee, if
paid, will be reimbursed by the Adviser and not the Trust.

GLASS-STEAGALL ACT. The Glass-Steagall Act prohibits a depository institution
(such as a commercial bank or a savings and loan association) from being an
underwriter or distributor of most securities. In the event the Glass-Steagall
Act is deemed to prohibit depository institutions from acting in the
administrative capacities described above or should Congress relax current
restrictions on depository institutions, the Board of Trustees will consider
appropriate changes in the administrative services.

State securities laws governing the ability of depository institutions to act
as underwriters or distributors of securities may differ from interpretations
given to the Glass-Steagall Act and, therefore, banks and financial
institutions may be required to register as dealers pursuant to state law.

ADMINISTRATION OF THE FUNDS

ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Funds with certain administrative personnel
and services necessary to operate each Fund and the separate classes. Such
services include shareholder servicing and certain legal and accounting
services. Federated Administrative Services provides these at an annual rate
as specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY
MAXIMUM NET ASSETS OF THE TRUST
ADMINISTRATION FEE AND THE BLANCHARD GROUP OF FUNDS
------------------ -----------------------------------
<S> <C>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>

The administrative fee received during any fiscal year shall be at least
$50,000 per Fund. With respect to The Style Manager Fund, the fee shall be at
least $75,000. Federated Administrative Services may voluntarily waive a
portion of its fee.

EXPENSES OF THE FUNDS AND TRUST SHARES

Each Fund pays all of its own expenses and its allocable share of the Trust's
expenses.

Each Fund's expenses for which holders of Shares may pay their allocable
portion include, but are not limited to: registering each Fund and Shares of
the Fund; investment advisory services; taxes and commissions; custodian fees;
insurance premiums; auditors' fees; and such nonrecurring and extraordinary
items as may arise.

At present, no expenses are allocated to Trust Shares as a class. However, the
Board of Trustees reserves the right to allocate certain other expense to the
shareholders of a particular class as they deem appropriate ("Class
Expenses"). In any case, Class Expenses would be limited to: transfer agent
fees as identified by the transfer agent as attributable to holders of Shares;
printing and postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses and proxies to current shareholders;
registration fees paid to the Securities and Exchange Commission and

registration fees paid to states; expenses related to administrative personnel
and services as required to support holders of Shares of each Fund; legal fees
relating solely to Shares; and Trustees' fee incurred as a result of issues
relating solely to Shares.

BROKERAGE TRANSACTIONS. When selecting brokers and dealers to handle the
purchase and sale of portfolio instruments, the Adviser looks for prompt
execution of the order at a favorable price. In working with dealers, the
Adviser will generally utilize those who are recognized dealers in specific
portfolio instruments, except when a better price and execution of the order
can be obtained elsewhere. In selecting among firms believed to meet these
criteria, the Adviser may give consideration to those firms which have sold or
are selling shares of the Trust. The Adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to review by the Board of
Trustees.

NET ASSET VALUE
- -------------------------------------------------------------------------------

With respect to The Treasury Money Market Fund, The Money Market Fund, and The
Tax-Free Money Market Fund, each Fund attempts to stabilize the net asset
value of its Shares at $1.00 by valuing its portfolio securities using the
amortized cost method. The net asset value for Shares is determined by adding
the interest of the Shares in the value of all securities and other assets of
the Fund, subtracting the interest of the Shares in the liabilities of the
Fund and those attributable to Shares and dividing the remainder by the total
number of Shares outstanding. Of course, these Funds cannot guarantee that
their net asset value will always remain at $1.00 per Share.

With respect to The U.S. Government Securities Fund, The Style Manager: Large
Cap Fund, The Style Manager Fund, The Virginia Municipal Bond Fund and The
Maryland Municipal Bond Fund, net asset value per Share fluctuates and is
determined by adding the interest of the Shares in the market value of all
securities and other assets of the Fund, subtracting the interest of the
Shares in the liabilities of the Fund and those attributable to Shares, and
dividing the remainder by the total number of Shares outstanding. The net
asset value for Trust Shares may exceed that of Shares due to the variance in
daily net income realized by each class. Such variance will reflect only
accrued net income to which the shareholders of a particular class are
entitled.

INVESTING IN SHARES
- -------------------------------------------------------------------------------

SHARE PURCHASES

Shares of the Funds are sold on days on which the New York Stock Exchange is
open for business except on Lee-Jackson-King Day, Columbus Day and Veterans'
Day. Shares of the Funds may be purchased through Signet Trust Company. In
connection with the sale of Shares of the Funds, the distributor may from time
to time offer certain items of nominal value to any shareholder or investor.
The Funds reserve the right to reject any purchase request.

With respect to The Treasury Money Market Fund, The Money Market Fund, and The
Tax-Free Money Market Fund, an investor may write or call Signet Trust Company
to place an order to purchase Shares of the Funds. (Call 804-771-7470).
Purchase orders must be received by Signet Trust Company before 4:00 p.m.
(Eastern time). Payment for Shares of the Funds may be made by check or by
wire. Orders are considered received after payment by check is converted into
federal funds and received by Signet Trust Company. Payment must be received
by Signet Trust Company on the next business day after placing the order. For
orders received by 11:00 a.m. (Eastern time), shareholders will begin earning
dividends on that day provided payment by wire is received by Signet Trust
Company by 2:00 p.m. (Eastern time) on that day.
With respect to The U.S. Government Securities Fund, The Style Manager: Large
Cap Fund, The Style Manager Fund, The Virginia Municipal Bond Fund and The
Maryland Municipal Bond Fund, an investor may write or call Signet Trust
Company to place an order to purchase Shares of the Fund. (Call 804-771-7470).
Purchase orders must be received by Signet Trust Company before 4:00 p.m.
(Eastern time). Payment for Shares of the Funds may be made by check or by
wire. Payment must be received by Signet Trust Company the next business day.

BY CHECK. Purchases of Shares by check must be made payable to The Virtus
Funds and sent to Signet Financial Services, Inc., P.O. Box 26301, Richmond,
VA 23260.

BY WIRE. With respect to The Treasury Money Market Fund, The Money Market
Fund, and The Tax-Free Money Market Fund, payment by wire must be received by
Signet Trust Company before 10:00 a.m. (Eastern time) in order to begin
earning dividends on that day. For orders received after 10:00 a.m. (Eastern
time) payment must be received by 10:00 a.m. (Eastern time) on the next
business day after placing the order. With respect to The U.S. Government
Securities Fund, The Style Manager: Large Cap Fund, The Style Manager Fund,
The Virginia Municipal Bond Fund and The Maryland Municipal Bond Fund, payment
by wire must be received by Signet Trust Company the next business day. Shares
of the Funds cannot be purchase by Federal Reserve Wire on Columbus Day,
Veterans' Day or Lee-Jackson-King Day.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in Shares is $10,000 for those Funds offering
Trust Shares, and $1,000 for The Tax-Free Money Market Fund and The Style
Manager Fund.

WHAT SHARES COST
Shares of the Funds are sold at their net asset value next determined after an
order is received. There is no sales charge imposed by the Funds at the time
of purchase.

The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday, for
The U.S. Government Securities Fund, The Style Manager: Large Cap Fund, The
Style Manager Fund, The Virginia Municipal Bond Fund and The Maryland
Municipal Bond Fund, except on: (i) days on which there are not sufficient
changes in the value of a Fund's portfolio securities that its net asset value
might be materially affected; (ii) days during which no shares of a Fund are
tendered for redemption and no orders to purchase shares are received; or
(iii) the following holidays: New Year's Day, Martin Luther King Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.

The net asset value is determined at 1:00 p.m. Eastern time, and 4:00 p.m.
Eastern time and as of the close of trading (normally 4:00 p.m., Eastern time)
on the New York Stock Exchange, Monday through Friday, for The Treasury Money
Market Fund, The Money Market Fund, and The Tax-Free Money Market Fund, except
on New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday,
Memorial Day, Independence day, Labor Day, Thanksgiving Day, and Christmas
Day.

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Funds, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not issued
unless requested by contacting Signet Trust Company in writing.

With respect to The Treasury Money Market Fund, The Money Market Fund, and The
Tax-Free Money Market Fund, monthly confirmations are sent to report
transactions such as purchases and redemptions as well as dividends paid
during the month. With respect to The U.S. Government Securities Fund, The
Style Manager: Large Cap Fund, The Style Manager Fund, The Virginia Municipal
Bond Fund and The Maryland Municipal Bond Fund, detailed confirmations of each
purchase or redemption are sent to each shareholder. In addition, monthly
confirmations are sent to report dividends paid during that month.

DIVIDENDS

With respect to The U.S. Government Securities Fund, The Virginia Municipal
Bond Fund, The Maryland Municipal Bond Fund, The Treasury Money Market Fund,
The Money Market Fund, and The Tax-Free Money Market Fund, dividends are
declared daily and paid monthly.

With respect to The Treasury Money Market Fund, The Money Market Fund, and The
Tax-Free Money Market Fund, Shares purchased by wire before 2:00 p.m. (Eastern
time) begin earning dividends that day. Shares purchased by check begin
earning dividends on the day after the check is converted by Signet Trust
Company into federal funds.

With respect to The Style Manager: Large Cap Fund and The Style Manager Fund,
dividends are declared and paid quarterly.

Unless cash payments are requested by shareholders in writing to a Fund,
dividends are automatically reinvested in additional Shares of the Fund on
payment dates at the ex-dividend date net asset value without a sales charge.

CAPITAL GAINS

With respect to The Treasury Money Market Fund, The Money Market Fund, and The
Tax-Free Money Market Fund, capital gains, if any, could result in an increase
in dividends. Capital losses could result in a decrease in dividends. If, for
some extraordinary reason, a Fund realizes net long-term capital gains, it
will distribute them at least once every 12 months.

REDEEMING SHARES
- -------------------------------------------------------------------------------

Each Fund redeems Shares at their net asset value next determined after Signet
Trust Company receives the redemption request. Redemptions will be made on
days on which a Fund computes its net asset value. Telephone or written
requests for redemption must be received in proper form by Signet Trust
Company.

BY TELEPHONE. A shareholder may redeem Shares of a Fund by calling Signet
Trust Company to request the redemption. (Call 804-771-7470) Shares will be
redeemed at the net asset value next determined after a Fund receives the
redemption request from Signet Trust Company.

With respect to The Treasury Money Market Fund, The Money Market Fund, and The
Tax-Free Money Market Fund, redemption requests received before 11:00 a.m.
(Eastern time) will be wired the same day, but will not be entitled to that
day's dividend. A redemption request must be received by Signet Trust Company
before 4:00 p.m. (Eastern time). Redemption requests through registered
broker/dealers must be received by Signet Trust Company before 3:00 p.m.
(Eastern time). Signet Trust Company is responsible for promptly submitting
redemption requests and providing proper written redemption instructions to a
Fund. Other registered broker/dealers may charge customary fees and
commissions for this service.

With respect to The U.S. Government Securities Fund, The Style Manager: Large
Cap Fund, The Style Manager Fund, The Virginia Municipal Bond Fund and The
Maryland Municipal Bond Fund, a redemption request must be received by Signet
Trust Company before 4:00 p.m. (Eastern time) in order for Shares to be
redeemed at that day's net asset value. Redemption requests through registered
broker/dealers must be received by Signet Trust Company before 3:00 p.m.
(Eastern time) in order for Shares to be redeemed at that day's net asset
value. Signet Trust Company is responsible for promptly submitting redemption
requests and providing proper written redemption instructions to a Fund. Other
registered broker/dealers may charge customary fees and commissions for this
service.

If, at any time, a Fund should determine it necessary to terminate or modify
this method of redemption, shareholders would be promptly notified.

An authorization form permitting a Fund to accept telephone redemption
requests must first be completed. It is recommended that investors request
this privilege at the time of their initial application. If not completed at
the time of initial application, authorization forms and information on this
service can be obtained through Signet Trust Company. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by a
Fund, it may be liable for losses due to unauthorized or fraudulent telephone
instructions.

In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur,
another method of redemption, such as "By Mail," should be considered.

BY MAIL. Shareholders may redeem Shares of a Fund by sending a written request
to Signet Trust Company. The written request should include the shareholder's
name, the Fund name, the class of shares, the account number, and the Share or
dollar amount requested. If share certificates have been issued, they must be
properly endorsed and should be sent by registered or certified mail with the
written request to Signet Trust Company.

Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with a Fund, or a redemption payable other than to
the shareholder of record must have signatures on written redemption requests
guaranteed by:

. a trust company or commercial bank whose deposits are insured by BIF
which is administered by the FDIC;
. a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
. a savings bank or savings association whose deposits are insured by the
SAIF, which is administered by the FDIC; or
. any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.

The Funds do no accept signatures guaranteed by a notary public.

The Funds and their transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Funds may elect in the
future to limit eligible signature guarantors to institutions that are members
of a signature guarantee program. The Funds and their transfer agent reserve
the right to amend these standards at any time without notice.

Normally, a check for the proceeds is mailed to the shareholder within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.

SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------

VOTING RIGHTS

Each Share of a Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights, except that in matters
affecting only a particular Fund or class, only shareholders of that Fund or
class are entitled to vote. As a Massachusetts business trust, the Trust is
not required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the operation of the Trust or a Fund and
for the election of Trustees under certain circumstances. As of January 2,
1997, Bova & Co, Richmond, Virginia, owned approximately 739,931 Trust Shares
of The Maryland Municipal Bond Fund (98.52%); approximately 2,405,157 Trust
Shares of The Virginia Municipal Bond Fund (100%); approximately 2,364,467
Trust Shares of The Style Manager: Large Cap Fund (100%); approximately
246,323,969 Trust Shares of The Treasury Money Market Fund (99.62%);
approximately 155,305,123 Trust Shares of The Money Market Fund (97.33%);
approximately 7,169,514 Trust Shares of The U.S. Government Securities Fund
(99.99%). Stephens Inc., Little Rock, Arkansas, owned approximately 31,351,409
shares of The Tax-Free Money Market Fund (67.11%). Therefore, these
shareholders may, for certain purposes, be deemed to control the Funds and be
able to affect the outcome of certain matters presented for a vote of
shareholders.

Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting of the shareholders shall be called by the Trustees
upon the written request of shareholders owning at least 10% of the Trust's
outstanding shares.

EFFECT OF BANKING LAWS
- -------------------------------------------------------------------------------

Banking laws and regulations presently prohibit a bank holding company
registered under the federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks
generally from issuing, underwriting, or distributing securities. However,
such banking laws and regulations do not prohibit such a holding company
affiliate or banks generally from acting as investment adviser, transfer agent
or custodian to such an investment company or from purchasing shares of such a
company as agent for and upon the order of such a customer. Signet Trust
Company is subject to such banking laws and regulations.

Signet Trust Company believes, based on the advice of its counsel, that Virtus
Capital Management, Inc., may perform the services for any Fund contemplated
by its advisory agreement with the Trust without violation of the Glass-
Steagall Act or other applicable banking laws or regulations. Changes in
either federal or state statutes and regulations relating to the permissible
activities of banks and their

subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of such or future statutes and regulations, could
prevent Virtus Capital Management, Inc. from continuing to perform all or a
part of the above services for its customers and/or a Fund. If it were
prohibited from engaging in these customer-related activities, the Trustees
would consider alternative advisers and means of continuing available
investment services. In such event, changes in the operation of a Fund may
occur, including possible termination of any automatic or other Fund share
investment and redemption services then being provided by Virtus Capital
Management, Inc. It is not expected that existing shareholders would suffer
any adverse financial consequences (if another adviser with equivalent
abilities to Virtus Capital Management, Inc. is found) as a result of any of
these occurrences.

TAX INFORMATION
- -------------------------------------------------------------------------------

FEDERAL INCOME TAX

The Funds anticipate that they will pay no federal income tax because each
Fund expects to meet requirements of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies.

Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by a
Fund will not be combined for tax purposes with those realized by any of the
other Funds.

With respect to The U.S. Government Securities Fund, The Style Manager: Large
Cap Fund, The Style Manager Fund, The Treasury Money Market Fund and The Money
Market Fund, unless otherwise exempt, shareholders are required to pay federal
income tax on any dividends and other distributions received. This applies
whether dividends and distributions are received in cash or as additional
shares. Shareholders of The U.S. Government Securities Fund, The Style
Manager: Large Cap Fund, The Style Manager Fund, The Treasury Money Market
Fund and The Money Market Fund are urged to consult their own tax advisers
regarding the status of their accounts under state and local tax laws.

Shareholders of The Virginia Municipal Bond Fund, The Maryland Municipal Bond
Fund and The Tax-Free Money Market Fund are not required to pay the federal
regular income tax on any dividends received from the Fund that represent net
interest on tax-exempt municipal bonds. However, under the Tax Reform Act of
1986, dividends representing net interest earned on certain "private activity"
bonds issued after August 17, 1986, may be included in calculating the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations. The Tax-Free Money Market Fund may purchase all types of
municipal bonds, including private activity bonds.

The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular
taxable income of the taxpayer increased by certain "tax preference" items not
included in regular taxable income and reduced by only a portion of the
deductions allowed in the calculation of the regular tax.

Dividends of the Funds representing net interest income earned on some
temporary investments and any realized net short-term gains are taxed as
ordinary income.

These tax consequences apply whether dividends are received in cash or as
additional shares.

VIRGINIA TAXES. Under existing Virginia laws, distributions made by the Fund
will not be subject to Virginia income taxes to the extent that such
distributions qualify as exempt-interest dividends under the Internal Revenue
Code and represent (i) interest from obligations issued by or on behalf of the
Commonwealth of Virginia or any political subdivision thereof; or (ii)
interest from obligations issued by a territory or possession of the United
States or any political subdivision thereof which federal law exempts from
state income taxes. Conversely, to the extent that distributions made by the
Fund are attributable to other types of obligations, such distributions will
be subject to Virginia income taxes.

of Maryland, or the United States Government (excluding obligations issued by
the District of Columbia, a territory or possession of the United States, or a
department, agency, instrumentality, or political subdivision of the District,
territory or possession). Conversely, to the extent that distributions made by
the Fund are derived from other types of obligations, such distributions will
be subject to Maryland income taxes.

OTHER STATE AND LOCAL TAXES. With respect to The Virginia Municipal Bond Fund
and The Maryland Municipal Bond Fund, distributions representing net interest
received on tax-exempt municipal securities are not necessarily free from
income taxes of any other state or local taxing authority. State laws differ
on this issue and shareholders are urged to consult their own tax advisers.

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

From time to time, The U.S. Government Securities Fund, The Style Manager:
Large Cap Fund and The Style Manager Fund may advertise total return and
yield. The Virginia Municipal Bond Fund and The Maryland Municipal Bond Fund
may advertise total return, yield and tax-equivalent yield. The Treasury Money
Market Fund and The Money Market Fund may advertise yield and effective yield.
The Tax-Free Money Market Fund may advertise its yield, effective yield, and
tax-equivalent yield.

Total return represents the change, over a specified period of time, in the
value of an investment in a Fund after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.

The yield of Shares of The U.S. Government Securities Fund, The Style Manager:
Large Cap Fund, The Style Manager Fund, The Virginia Municipal Bond Fund and
The Maryland Municipal Bond Fund is calculated by dividing the net investment
income per Share (as defined by the Securities and Exchange Commission) earned
by Shares over a thirty-day period by the maximum offering price per share of
Shares of a Fund on the last day of the period. This number is then annualized
using semi-annual compounding. The yield does not necessarily reflect income
actually earned by Shares and, therefore, may not correlate to the dividends
or other distributions paid to shareholders.

The yields of Shares of The Treasury Money Market Fund, The Money Market Fund,
and The Tax-Free Money Market Fund represent the annualized rate of income
earned on an investment in Shares over a seven-day period. It is the
annualized dividends earned during the period on the investment, shown as a
percentage of the investment. The effective yield is calculated similarly to
the yield, but, when annualized, the income earned on an investment in Shares
is assumed to be reinvested daily. The effective yield will be slightly higher
than the yield because of the compounding effect of this assumed reinvestment.
The tax-equivalent yield of the Shares for The Virginia Municipal Bond Fund,
The Maryland Municipal Bond Fund, and The Tax-Free Money Market Fund is
calculated similarly to the yield, but is adjusted to reflect the taxable
yield that the Shares would have had to earn to equal its actual yield,
assuming a specific tax rate. The tax-equivalent yield does not necessarily
reflect income actually earned by Shares and, therefore, may not correlate to
the dividends or other distributions paid to shareholders.

Shares are sold without any sales charge or other similar non-recurring
charges.

With respect to The U.S. Government Securities Fund and The Style Manager:
Large Cap Fund total return and yield will be calculated separately for Trust
Shares and Investment Shares.

With respect to The Virginia Municipal Bond Fund and The Maryland Municipal
Bond Fund, total return, yield and tax-equivalent yield will be calculated
separately for Trust Shares and Investment Shares.

With respect to The Treasury Money Market Fund and The Money Market Fund,
yield and effective yield will be calculated separately for Trust Shares and
Investment Shares.

From time to time, advertisements for the Trust may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Trust's performance to certain indices.

OTHER CLASSES OF SHARES
- -------------------------------------------------------------------------------

Investment Shares, the other class of shares offered by those Funds offering
separate classes, are sold to customers of Signet Bank and Signet Financial
Services, Inc. at net asset value at a minimum initial investment of $1,000.
Under certain circumstances, Investment Shares may be subject to a 2.00%
contingent deferred sales charge. Investment Shares may be exchanged for
Investment Shares of the Funds at net asset value. Investment Shares are
distributed to such institutions pursuant to a Rule 12b-1 Plan whereby brokers
and administrators are paid a fee of .35% for The Treasury Money Market Fund
and The Money Market Fund and .25% for The U.S. Government Securities Fund,
The Style Manager: Large Cap Fund, The Virginia Municipal Bond Fund and The
Maryland Municipal Bond Fund of the Investment Shares' average net asset
value.

The amount of dividends payable to Shares will exceed those payable to
Investment Shares by the difference between class expenses and distribution
expenses borne by shares of each respective class.

The stated advisory fee is the same for both classes of each of the Funds.

To obtain more information and a prospectus for Investment Shares, investors
may call 1-800-723-9512.

ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
The U.S. Government Securities Fund Federated Investors Tower
The Style Manager: Large Cap Fund Pittsburgh, Pennsylvania 15222-3779
The Style Manager Fund
The Treasury Money Market Fund
The Money Market Fund
The Virginia Municipal Bond Fund
The Maryland Municipal Bond Fund
The Tax- Free Money Market Fund
- -------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------------
Investment Adviser
Virtus Capital Management, Inc. 707 East Main Street
Suite 1300
Richmond, Virginia 23219
- -------------------------------------------------------------------------------------------------
Custodian
Signet Trust Company 7 North Eighth Street
Richmond, Virginia 23219
- -------------------------------------------------------------------------------------------------
Transfer Agent
Federated Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- -------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
- -------------------------------------------------------------------------------------------------
</TABLE>

THE VIRTUS FUNDS
TRUST SHARES
PROSPECTUS

January 31, 1997

VIRTUS CAPITAL MANAGEMENT, INC.
A Subsidiary of Signet Banking Corporation
Investment Adviser

Federated Securities Corp. is the distributor of the Funds.

CUSIP 927913103 CUSIP 927913830
CUSIP 927913855 CUSIP 927913889
CUSIP 927913301 CUSIP 927913608
CUSIP 927913863 CUSIP 927913806
3042108A-I (1/97)

INVESTMENT SHARES
Combined Prospectus

January 31, 1997

. The U.S. Government Securities Fund
. The Style Manager: Large Cap Fund
. The Style Manager Fund
. The Virginia Municipal Bond Fund
. The Maryland Municipal Bond Fund
. The Treasury Money Market Fund
. The Money Market Fund
. The Tax-Free Money Market Fund

Funds Managed by

[LOGO OF VIRTUS FUNDS]

Investment products available through Signet Financial Services, Inc. (member
NASD) are not deposits, obligations of, or a guaranteed by any bank. They are
not insured by the FDIC. In addition, they involve risk, including the possible
loss of principal invested.

Virtus Capital Management, Inc., an affiliate of Signet Financial Services,
Inc., is the investment adviser to the Virtus Funds and is compensated for
this service.

[LOGO OF VIRTUS FUNDS]

THE VIRTUS FUNDS
INVESTMENT SHARES

PROSPECTUS

The Virtus Funds (the "Trust"), an open-end management investment company (a
mutual fund), is comprised of the eight separate investment portfolios set
forth below (collectively, the "Funds," individually, a "Fund"), each having a
distinct investment objective and policies. With the exception of The Tax-Free
Money Market Fund and The Style Manager Fund, which offer a single class of
shares, the Funds are offered in two separate classes of shares known as
Investment Shares and Trust Shares.

. The U.S. Government Securities Fund

. The Style Manager: Large Cap Fund (formerly, The Stock Fund)

. The Style Manager Fund (formerly, The Strategic Stock Fund)

. The Virginia Municipal Bond Fund

. The Maryland Municipal Bond Fund

. The Treasury Money Market Fund

. The Money Market Fund

. The Tax-Free Money Market Fund

This prospectus relates only to the Investment Shares of those Funds offering
classes and to shares of The Tax-Free Money Market Fund and The Style Manager
Fund and contains the information you should read and know before you invest
in any of the Funds. Keep this prospectus for future reference.

The Funds have also filed a Combined Statement of Additional Information for
the Investment Shares of the Funds offering classes and for shares of The Tax-
Free Money Market Fund and The Style Manager Fund, dated January 31, 1997,
with the Securities and Exchange Commission ("SEC"). The information contained
in the Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Statement of Additional
Information or a paper copy of this prospectus, if you have received your
prospectus electronically, free of charge, obtain other information, or make
inquiries about any of the Funds by writing to the Trust or calling toll-free
1-800-723-9512. This Statement of Additional Information, Material
incorporated by reference into this document, and other information regarding
the Trust is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).

Prospectus dated January 31, 1997

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

SYNOPSIS 1
- -------------------------------------
SUMMARY OF FUND EXPENSES 2
- -------------------------------------
FINANCIAL HIGHLIGHTS 4
- -------------------------------------
Special Considerations 12
INVESTMENT OBJECTIVE AND POLICIES OF
EACH FUND 12
- -------------------------------------
U.S. Government Securities Fund 12
The Style Manager: Large Cap Fund 13
The Style Manager Fund 14
The Virginia Municipal Bond Fund
and The Maryland Municipal Bond
Fund 15
The Treasury Money Market Fund 15
The Money Market Fund 16
The Tax-Free Money Market Fund 16
Investment Limitations 17
PORTFOLIO INVESTMENTS AND
STRATEGIES 17
- -------------------------------------
Regulatory Compliance 17
Borrowing Money 17
Selling Short 18
Restricted and Illiquid
Securities 18
When-Issued and Delayed Delivery
Transactions 18
Investing in Securities of Other
Investment Companies 18
Diversification 18
Non-Diversification 19
Repurchase Agreements 19
Lending of Portfolio Securities 19
Acquiring Securities 19
Investment Risks 19
Variable Rate Demand Notes 20
Credit Enhancement 20
Demand Features 20
Participation Interests 21
Variable Rate Municipal
Securities 21
Municipal Leases 21
Temporary Investments 21
Municipal Securities 21
THE VIRTUS FUNDS INFORMATION 24
- -------------------------------------
Management of the Trust 24
Distribution of Shares of the
Funds 25
Administration of the Funds 26
Expenses of the Funds and
Investment Shares 26
NET ASSET VALUE 27
- -------------------------------------
INVESTING IN SHARES 27
- -------------------------------------
Share Purchases 27
Systematic Investment Program 28
Minimum Investment Required 28
What Shares Cost 28
Certificates and Confirmations 28
Dividends 28
Capital Gains 29
EXCHANGE PRIVILEGE 29
- -------------------------------------
REDEEMING SHARES 30
- -------------------------------------
Contingent Deferred Sales Charge--
The U.S. Government Securities
Fund, The Style Manager: Large
Cap Fund, The Style Manager Fund,
The Virginia Municipal Bond Fund
and The Maryland Municipal Bond
Fund 31
Contingent Deferred Sales Charge--
The Treasury Money Market Fund,
The Money Market Fund, The Tax-
Free Money Market Fund and
Blanchard Funds 32
Systematic Withdrawal Program 32
Check-Writing Privilege 32
Accounts with Low Balances 32
SHAREHOLDER INFORMATION 32
- -------------------------------------
Voting Rights 32
EFFECT OF BANKING LAWS 33
- -------------------------------------
TAX INFORMATION 33
- -------------------------------------
Federal Income Tax 33
PERFORMANCE INFORMATION 34
- -------------------------------------
OTHER CLASSES OF SHARES 35
- -------------------------------------
ADDRESSES 36
- -------------------------------------

SYNOPSIS
- -------------------------------------------------------------------------------

The Trust, an open-end, management investment company, was established as a
Massachusetts business trust under a Declaration of Trust dated June 20, 1990.
The Declaration of Trust permits the Trust to offer separate series of shares
of beneficial interest representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate
classes. As of the date of this prospectus, the Board of Trustees (the "Board"
or "Trustees") have established a single class of shares for The Tax-Free
Money Market Fund and The Style Manager Fund, and two classes of shares,
Investment Shares and Trust Shares, for each of the other Funds in the Trust.

As of the date of this prospectus, the Trust is comprised of the following
eight portfolios:

. The U.S. Government Securities Fund--seeks to provide current income by
investing in a professionally managed, diversified portfolio limited
primarily to U.S. government securities;
. The Style Manager: Large Cap Fund--seeks to provide growth of capital
and income by investing in common stocks;
. The Style Manager Fund--seeks to provide growth of capital by investing
in common stocks;
. The Virginia Municipal Bond Fund--seeks to provide current income which
is exempt from federal regular income tax and the personal income tax
imposed by the Commonwealth of Virginia by investing in a portfolio of
Virginia municipal securities;
. The Maryland Municipal Bond Fund--seeks to provide current income which
is exempt from federal regular income tax and the personal income tax
imposed by the State of Maryland by investing in a portfolio of Maryland
municipal securities;
. The Treasury Money Market Fund--seeks to provide current income
consistent with stability of principal by investing in short-term U.S.
Treasury obligations;
. The Money Market Fund--seeks to provide current income consistent with
stability of principal by investing in money market instruments; and
. The Tax-Free Money Market Fund--seeks to provide current income exempt
from federal income tax consistent with stability of principal, by
investing in municipal securities.

This prospectus relates only to the Investment Shares ("Investment Shares") of
those Funds offering classes and to the single class of shares ("Tax-Free
Money Market Shares" and "Style Manager Shares") of The Tax-Free Money Market
Fund and The Style Manager Fund (Investment Shares, Tax-Free Money Market
Shares and Style Manager Shares are sometimes collectively referred to as
"Shares"). For information on how to purchase Shares please refer to
"Investing in Shares." A minimum initial investment of $1,000 is required for
each Fund. A contingent deferred sales charge may be imposed on all Shares of
The U.S. Government Securities Fund, The Style Manager: Large Cap Fund, The
Style Manager Fund, The Virginia Municipal Bond Fund and The Maryland
Municipal Bond Fund purchased after October 1, 1992 (other than Shares
purchased through reinvestment of dividends and capital gains distributions),
which are redeemed within five years of their purchase dates. Information on
redeeming Shares may be found under "Redeeming Investment Shares." The Funds
are advised by Virtus Capital Management, Inc.

SUMMARY OF FUND EXPENSES--INVESTMENT SHARES, STYLE

MANAGER SHARES AND TAX-FREE MONEY MARKET SHARES
- -------------------------------------------------------------------------------

The following Fee Table and Example summarize the various costs and expenses
that a shareholder of Investment Shares, Style Manager Shares and Tax-Free
Money Market Shares will bear either directly or indirectly.

SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
THE
STYLE THE THE THE THE
THE U.S. MANAGER: THE VIRGINIA MARYLAND TREASURY THE TAX-FREE
GOVERNMENT LARGE STYLE MUNICIPAL MUNICIPAL MONEY MONEY MONEY
SECURITIES CAP MANAGER BOND BOND MARKET MARKET MARKET
FUND FUND FUND FUND FUND FUND FUND FUND
---------- -------- ------- --------- --------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Contingent Deferred
Sales Charge (as a
percentage of amount
redeemed, if
applicable) (1)....... 2.00% 2.00% 2.00% 2.00% 2.00% None None None
</TABLE>

ANNUAL INVESTMENT SHARES, STYLE MANAGER SHARES AND TAX-FREE MONEY MARKET
SHARES OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT 12B-1 OTHER OPERATING
FEES (2) FEES (3) EXPENSES EXPENSES (4)
---------- -------- -------- -------------
<S> <C> <C> <C> <C>
The U.S. Government
Securities Fund........ 0.75% 0.25% 0.27% 1.27%
The Style Manager: Large
Cap Fund............... 0.75% 0.25% 0.48% 1.48%
The Style Manager Fund.. 0.75% 0.00% 0.44% 1.19%
The Virginia Municipal
Bond Fund.............. 0.75% 0.25% 0.33% 1.33%
The Maryland Municipal
Bond Fund.............. 0.75% 0.25% 0.65% 1.65%
The Treasury Money
Market Fund............ 0.50% 0.25% 0.24% 0.99%
The Money Market Fund... 0.50% 0.25% 0.25% 1.00%
The Tax-Free Money
Market Fund............ 0.12% 0.00% 0.52% 0.84%
</TABLE>

(1) A contingent deferred sales charge of 2.00% will be imposed on The
Treasury Money Market Fund, The Money Market Fund and The Tax-Free Money
Market Fund only in limited circumstances in which Shares being redeemed
are acquired in exchange for Investment Shares in those Virtus Funds which
charge a contingent deferred sales charge. The contingent deferred sales
charge is 2.00% of the lesser of the original purchase price or the net
asset value of Shares redeemed within five years of purchase date.

(2) The management fees for The Style Manager Fund and The Tax-Free Money
Market Fund have been reduced to reflect voluntary waivers by the
investment adviser. The Adviser can terminate these voluntary waivers at
any time at their sole discretion. The maximum management fee for The
Style Manager Fund and The Tax-Free Money Market Fund is 1.25% and 0.50%,
respectively.

(3) Fees are paid by Investment Shares of each Fund for distribution and/or
administrative services provided with respect to Investment Shares. Total
payments of up to 0.25% of the average daily net assets attributable to
Investment Shares are permitted under the Distribution Plans. The Style
Manager Fund and The Tax-Free Money Market Fund will not accrue or pay
12b-1 fees until a separate class of shares has been created for certain
institutional investors. The Style Manager Fund and The Tax-Free Money
Market Fund can pay up to 0.25% as a 12b-1 fee to the distributor. See
"Management of the Trust--Distribution Plans."

(4) The Total Investment Shares Operating Expenses for The Style Manager Fund
and The Tax-Free Money Market Fund would be 1.69% and 1.02%, respectively,
absent the voluntary waivers described in note 2 above.

The Annual Trust Operating Expenses for The U.S. Government Securities Fund,
The Style Manager: Large Cap Fund, The Style Manager Fund, The Virginia
Municipal Bond Fund, The Maryland Municipal Bond Fund, The Treasury Money
Market Fund, The Money Market Fund, and The Tax-Free Money Market Fund were
1.14%, 1.11%, 0.99%, 1.32%, 1.43%, 0.90%, 0.73%, and 0.56, respectively, for
the fiscal year ended September 30, 1996. The Annual Trust Operating Expenses
in the table above are based on estimated expenses expected during fiscal year
ending September 30, 1997.

EXAMPLE:

You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 1 YEAR(+) 3 YEARS 3 YEARS(+) 5 YEARS 10 YEARS
------ --------- ------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
The U.S. Government
Securities Fund........... $34 $13 $63 $40 $70 $153
The Style Manager: Large
Cap Fund.................. $36 $15 $69 $47 $81 $177
The Style Manager Fund.... $33 $12 $60 $38 $65 $144
The Virginia Municipal
Bond Fund................. $34 $14 $64 $42 $73 $160
The Maryland Municipal
Bond Fund................. $37 $17 $74 $52 $90 $195
The Treasury Money Market
Fund...................... $10 $10 $32 $32 $55 $121
The Money Market Fund..... $10 $10 $32 $32 $55 $122
The Tax-Free Money Market
Fund...................... $7 $7 $20 $20 $36 $80
</TABLE>

+ Reflects expenses on the same investment, assuming no redemption.

The purpose of the foregoing Example is to assist an investor in understanding
the various costs and expenses that a shareholder of Investment Shares, Style
Manager Shares and Tax-Free Money Market Shares will bear, either directly or
indirectly. For a more complete description of the various costs and expenses,
see "The Virtus Funds Information" and "Investing in Shares." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

THE U.S. GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated January 31, 1996, on the Fund's
financial statements for the year ended September 30, 1996, and on the
following table for each of the periods presented, is included in the Annual
Report, which is incorporated by reference. This table should be read in
conjunction with the Fund's financial statements and notes thereto, which may
be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------
INVESTMENT SHARES 1996 1995 1994 1993 1992 1991(A)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.13 $ 9.83 $10.90 $10.95 $10.54 $10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.62 0.64 0.61 0.66 0.75 0.78
Net realized and
unrealized gain (loss)
on investments (0.24) 0.30 (0.94) 0.03 0.50 0.54
- ------------------------------------------------------------------------------------------
Total from investment
operations 0.38 0.94 (0.33) 0.69 1.25 1.32
- ------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.62) (0.64) (0.61) (0.66)(e) (0.75) (0.78)
Distributions from net
realized gain on
investments -- -- -- (0.08) (0.09) --
Distributions in excess
of net realized gain on
investments (b) -- -- (0.13) -- -- --
- ------------------------------------------------------------------------------------------
Total distributions (0.62) (0.64) (0.74) (0.74) (0.84) (0.78)
- ------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 9.89 $10.13 $ 9.83 $10.90 $10.95 $10.54
- ------------------------------------------------------------------------------------------
TOTAL RETURN (D) 3.79% 9.84% (3.36)% 6.82% 12.42% 14.00%
- ------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.14% 1.01% 0.99% 0.77% 0.52% 0.64%(c)
Net investment income 6.11% 6.41% 5.94% 5.91% 7.01% 8.03%(c)
Expense waiver/
reimbursement (e) 0.13% 0.28% 0.32% 0.43% 0.65% 0.93%(c)
- ------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $116,418 $114,803 $112,439 $119,187 $40,274 $ 10
Portfolio turnover 118% 82% 227% 154% 201% 101%
- ------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------
TRUST SHARES 1996 1995 1994 1993 1992 1991(A)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.13 $ 9.83 $10.90 $10.95 $10.54 $10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.64 0.66 0.63 0.67 0.75 0.78
Net realized and
unrealized gain (loss)
on investments (0.24) 0.30 (0.94) 0.03 0.50 0.54
- ------------------------------------------------------------------------------------------
Total from investment
operations 0.40 0.96 (0.31) 0.70 1.25 1.32
- ------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.64) (0.66) (0.63) (0.67)(e) (0.75) (0.78)
Distributions from net
realized gain on
investments -- -- -- (0.08) (0.09) --
Distributions in excess
of net realized gain on
investments (b) -- -- (0.13) -- -- --
- ------------------------------------------------------------------------------------------
Total distributions (0.64) (0.66) (0.76) (0.75) (0.84) (0.78)
- ------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 9.89 $10.13 $ 9.83 $10.90 $10.95 $10.54
- ------------------------------------------------------------------------------------------
TOTAL RETURN (D) 4.05% 10.11% (3.12)% 6.94% 12.42% 14.00%
- ------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.89% 0.76% 0.74% 0.63% 0.52% 0.64%(c)
Net investment income 6.36% 6.66% 6.19% 6.17% 7.01% 8.03%(c)
Expense waiver/
reimbursement (e) 0.13% 0.28% 0.32% 0.43% 0.65% 0.93%(c)
- ------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $ 78,998 $101,410 $107,103 $112,334 $95,610 $27,565
Portfolio turnover 118% 82% 227% 154% 201% 101%
- ------------------------------------------------------------------------------------------
</TABLE>

(d) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(e) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated September 30, 1996, which can be obtained free of charge.

VIRTUS STYLE MANAGER: LARGE CAP FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated January 31, 1996, on the Fund's
financial statements for the year ended September 30, 1996, and on the
following table for each of the periods presented, is included in the Annual
Report, which is incorporated by reference. This table should be read in
conjunction with the Fund's financial statements and notes thereto, which may
be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
TRUST SHARES 1996 1995(E) 1994 1993 1992 1991(A)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $13.70 $11.80 $12.39 $12.02 $11.86 $10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.33 0.12 0.20 0.28 0.26 0.32
Net realized and
unrealized gain (loss)
on investments 1.15 2.20 (0.40) 0.51 0.46 1.85
- -----------------------------------------------------------------------------------
Total from investment
operations 1.48 2.32 (0.20) 0.79 0.72 2.17
- -----------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.30) (0.12) (0.19) (0.26) (0.25) (0.31)
Distributions from net
realized gain on
investments (1.20) (0.30) (0.20) (0.16) (0.31) --
- -----------------------------------------------------------------------------------
Total distributions (1.50) (0.42) (0.39) (0.42) (0.56) (0.31)
- -----------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $13.68 $13.70 $11.80 $12.39 $12.02 $11.86
- -----------------------------------------------------------------------------------
TOTAL RETURN (B) 11.55% 20.33% (1.50%) 6.42% 6.31% 22.68%
- -----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.11% 0.96% 0.95% 0.66% 0.95% 0.80%(c)
Net investment income 2.26% 0.92% 1.68% 2.09% 2.25% 3.05%(c)
Expense
waiver/reimbursement
(d) -- 0.21% 0.23% 0.55% 0.34% 0.38%(c)
- -----------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $33,683 $45,345 $70,374 $65,841 $49,581 $37,032
Average commission rate
paid $0.0616 -- -- -- -- --
Portfolio turnover 151% 208% 205% 67% 38% 84%
- -----------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
INVESTMENT SHARES 1996 1995(E) 1994 1993 1992 1991(A)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $13.70 $11.80 $12.39 $12.02 $11.86 $10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.27 0.09 0.17 0.24 0.26 0.32
Net realized and
unrealized gain (loss)
on investments 1.18 2.20 (0.39) 0.54 0.46 1.85
- -----------------------------------------------------------------------------------
Total from investment
operations 1.45 2.29 (0.22) 0.78 0.72 2.17
- -----------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.27) (0.09) (0.17) (0.25) (0.25) (0.31)
Distributions from net
realized gain on
investments (1.20) (0.30) (0.20) (0.16) (0.31) --
- -----------------------------------------------------------------------------------
Total distributions (1.47) (0.39) (0.37) (0.41) (0.56) (0.31)
- -----------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $13.68 $13.70 $11.80 $12.39 $12.02 $11.86
- -----------------------------------------------------------------------------------
TOTAL RETURN (B) 11.28% 20.02% (1.72%) 6.31% 6.31% 22.68%
- -----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.36% 1.21% 1.20% 0.87% 0.95% 0.80%(c)
Net investment income 2.01% 0.67% 1.40% 1.81% 2.25% 3.05%(c)
Expense
waiver/reimbursement
(d) -- 0.21% 0.23% 0.55% 0.34% 0.38%(c)
- -----------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $59,891 $44,509 $26,739 $18,691 $2,290 $488
Average commission rate
paid $0.0616 -- -- -- -- --
Portfolio turnover 151% 208% 205% 67% 38% 84%
- -----------------------------------------------------------------------------------
</TABLE>

(a) Reflects operations for the period from October 16, 1990 (date of initial
public investment) to September 30, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(e) Per share information presented is based on the monthly number of shares
outstanding due to large fluctuations in the number of shares outstanding
during the period.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated September 30, 1996, which can be obtained free of charge.

VIRTUS STYLE MANAGER FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

(a) Reflects operations for the period from March 7, 1995 (date of initial
public investment) to September 30, 1995.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated September 30, 1996, which can be obtained free of charge.

THE VIRGINIA MUNICIPAL BOND FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated January 31, 1996, on the Fund's
financial statements for the year ended September 30, 1996, and on the
following table for each of the periods presented, is included in the Annual
Report, which is incorporated by reference. This table should be read in
conjunction with the Fund's financial statements and notes thereto, which may
be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------
INVESTMENT SHARES 1996 1995 1994 1993 1992 1991(A)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.81 $10.26 $11.26 $10.46 $10.18 $10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.41 0.45 0.45 0.51 0.54 0.57
Net realized and
unrealized gain (loss)
on investments (0.13) 0.55 (0.92) 0.89 0.29 0.18
- ------------------------------------------------------------------------------------
Total from investment
operations 0.28 1.00 (0.47) 1.40 0.83 0.75
- ------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.41) (0.45) (0.45)(g) (0.51) (0.54) (0.57)
Distributions from net
realized gain on
investments -- -- (0.06) (0.09) (0.01) --
Distributions in excess
of net realized gain on
investments (b) -- -- (0.02) -- -- --
- ------------------------------------------------------------------------------------
Total distributions (0.41) (0.45) (0.53) (0.60) (0.55) (0.57)
- ------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $10.68 $10.81 $10.26 $11.26 $10.46 $10.18
- ------------------------------------------------------------------------------------
TOTAL RETURN (D) 2.60% 10.00% (4.25)% 13.49% 8.51% 7.64%
- ------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.32% 1.17% 1.15% 0.90% 0.83% 0.47%(c)
Net investment income 3.78% 4.32% 4.22% 4.68% 5.14% 6.08%(c)
Expense
waiver/reimbursement
(e) 0.02% 0.22% 0.27% 0.50% 0.86% 1.70%(c)
- ------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $65,700 $70,572 $74,706 $63,492 $20,883 $6,031
Portfolio turnover 129% 26% 29% 17% 51% 27%
- ------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------
TRUST SHARES 1996 1995 1994 1993 1992 1991(A)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.81 $10.26 $11.26 $10.46 $10.18 $10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.44 0.48 0.48 0.53 0.54 0.57
Net realized and
unrealized gain (loss)
on investments (0.13) 0.55 (0.92) 0.89 0.29 0.18
- ------------------------------------------------------------------------------------
Total from investment
operations 0.31 1.03 (0.44) 1.42 0.83 0.75
- ------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.44) (0.48) (0.48)(f) (0.53) (0.54) (0.57)
Distributions from net
realized gain on
investments -- -- (0.06) (0.09) (0.01) --
Distributions in excess
of net realized gain on
investments (b) -- -- (0.02) -- -- --
- ------------------------------------------------------------------------------------
Total distributions (0.44) (0.48) (0.56) (0.62) (0.55) (0.57)
- ------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $10.68 $10.81 $10.26 $11.26 $10.46 $10.18
- ------------------------------------------------------------------------------------
TOTAL RETURN (D) 2.86% 10.27% (4.01%) 13.62% 8.51% 7.64%
- ------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.06% 0.92% 0.90% 0.75% 0.83% 0.47%(c)
Net investment income 4.03% 4.57% 4.47% 4.85% 5.14% 6.08%(c)
Expense
waiver/reimbursement
(e) 0.02% 0.22% 0.27% 0.50% 0.86% 1.70%(c)
- ------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $28,110 $33,670 $34,165 $41,204 $20,852 $8,546
Portfolio turnover 129% 26% 29% 17% 51% 27%
- ------------------------------------------------------------------------------------
</TABLE>

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated September 30, 1996, which can be obtained free of charge.

THE MARYLAND MUNICIPAL BOND FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated January 31, 1996, on the Fund's
financial statements for the year ended September 30, 1996, and on the
following table for each of the periods presented, is included in the Annual
Report, which is incorporated by reference. This table should be read in
conjunction with the Fund's financial statements and notes thereto, which may
be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
INVESTMENT SHARES 1996 1995 1994 1993 1992 1991(A)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.69 $10.17 $11.24 $10.39 $10.10 $10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.38 0.40 0.45 0.49 0.54 0.53
Net realized and
unrealized gain (loss)
on investments (0.13) 0.54 (0.97) 0.85 0.29 0.10
- --------------------------------------------------------------------------------
Total from investment
operations 0.25 0.94 (0.52) 1.34 0.83 0.63
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.38) (0.40) (0.45) (0.49) (0.54) (0.53)
Distributions from net
realized gain on
investments -- (0.02) (0.10) -- -- --
- --------------------------------------------------------------------------------
Total distributions (0.38) (0.42) (0.55) (0.49) (0.54) (0.53)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $10.56 $10.69 $10.17 $11.24 $10.39 $10.10
- --------------------------------------------------------------------------------
TOTAL RETURN (B) 2.36% 9.81% (4.74%) 13.24% 8.31% 6.64%
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.43% 1.24% 1.17% 1.00% 0.59% 0.60%(c)
Net investment income 3.57% 4.24% 4.22% 4.50% 5.11% 5.66%(c)
Expense
waiver/reimbursement
(d) 0.25% 0.44% 0.51% 0.77% 1.91% 1.05%(c)
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $31,284 $32,172 $34,580 $33,907 $4,053 $2,940
Portfolio turnover 138% 21% 27% 23% 34% 35%
- --------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
TRUST SHARES 1996 1995 1994 1993 1992 1991(A)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.69 $10.17 $11.24 $10.39 $10.10 $10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.41 0.42 0.48 0.50 0.54 0.53
Net realized and
unrealized
gain (loss) on
investments (0.13) 0.54 (0.97) 0.85 0.29 0.10
- --------------------------------------------------------------------------------
Total from investment
operations 0.28 0.96 (0.49) 1.35 0.83 0.63
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.41) (0.42) (0.48) (0.50) (0.54) (0.53)
Distributions from net
realized
gain on investments -- (0.02) (0.10) -- -- --
- --------------------------------------------------------------------------------
Total distributions (0.41) (0.44) (0.58) (0.50) (0.54) (0.53)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $10.56 $10.69 $10.17 $11.24 $10.39 $10.10
- --------------------------------------------------------------------------------
TOTAL RETURN (B) 2.61% 10.09% (4.50%) 13.37% 8.31% 6.64%
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.18% 0.99% 0.92% 0.86% 0.59% 0.60%(c)
Net investment income 3.82% 4.49% 4.46% 4.64% 5.11% 5.66%(c)
Expense
waiver/reimbursement
(d) 0.25% 0.44% 0.51% 0.77% 1.91% 1.05%(c)
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $8,889 $9,447 $11,301 $12,014 $6,004 $556
Portfolio turnover 138% 21% 27% 23% 34% 35%
- --------------------------------------------------------------------------------
</TABLE>

(a) Reflects operations for the period from October 16, 1990 (date of initial
public investment) to September 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated September 30, 1996, which can be obtained free of charge.

THE TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated January 31, 1996, on the Fund's
financial statements for the year ended September 30, 1996, and on the
following table for each of the periods presented, is included in the Annual
Report, which is incorporated by reference. This table should be read in
conjunction with the Fund's financial statements and notes thereto, which may
be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------
INVESTMENT SHARES 1996 1995 1994 1993 1992 1991(A)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.05 0.05 0.03 0.02 0.04 0.06
- ---------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.05) (0.05) (0.03) (0.02) (0.04) (0.06)
- ---------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------
TOTAL RETURN (B) 4.67% 4.98% 2.90% 2.52% 3.61% 5.90%
- ---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.90% 0.85% 0.84% 0.70% 0.70% 0.51%(c)
Net investment income 4.49% 4.92% 3.05% 2.47% 3.49% 5.65%(c)
Expense
waiver/reimbursement
(c) 0.09% 0.10% 0.18% 0.20% 0.11% 0.27%(c)
- ---------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $146,161 $39,363 $21,883 $20,382 $12,960 $548
- ---------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------
TRUST SHARES 1996 1995 1994 1993 1992 1991(A)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.05 0.05 0.03 0.03 0.04 0.06
- ---------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.05) (0.05) (0.03) (0.03) (0.04) (0.06)
- ---------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------
TOTAL RETURN (B) 4.89% 5.24% 3.16% 2.64% 3.61% 5.90%
- ---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.65% 0.60% 0.59% 0.58% 0.70% 0.51%(c)
Net investment income 4.81% 5.17% 3.30% 2.60% 3.49% 5.65%(c)
Expense
waiver/reimbursement
(c) 0.06% 0.10% 0.18% 0.20% 0.11% 0.27%(c)
- ---------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $226,978 $208,656 $304,285 $152,921 $163,451 $129,959
- ---------------------------------------------------------------------------------------
</TABLE>

(a) Reflects operations for the period from October 16, 1990 (date of initial
public investment) to September 30, 1991.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

THE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated January 31, 1996, on the Fund's
financial statements for the year ended September 30, 1996, and on the
following table for each of the periods presented, is included in the Annual
Report, which is incorporated by reference. This table should be read in
conjunction with the Fund's financial statements and notes thereto, which may
be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
INVESTMENT SHARES 1996 1995 1994 1993 1992 1991(A)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.05 0.05 0.03 0.03 0.04 0.06
- --------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.05) (0.05) (0.03) (0.03) (0.04) (0.06)
- --------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------
TOTAL RETURN (B) 4.91% 5.11% 3.10% 2.77% 3.79% 5.92%
- --------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.73% 0.80% 0.80% 0.64% 0.64% 0.51%(c)
Net investment income 4.77% 5.04% 3.07% 2.68% 3.64% 5.99%(c)
Expense
waiver/reimbursement
(d) 0.23% 0.21% 0.25% 0.30% 0.29% 0.36%(c)
- --------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $83,525 $41,813 $15,236 $9,905 $5,803 $1
- --------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
TRUST SHARES 1996 1995 1994 1993 1992 1991(A)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.05 0.05 0.03 0.03 0.04 0.06
- --------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Distributions from net
investment income (0.05) (0.05) (0.03) (0.03) (0.04) (0.06)
- --------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------
TOTAL RETURN (B) 5.04% 5.36% 3.35% 2.89% 3.79% 5.92%
- --------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.60% 0.57% 0.55% 0.50% 0.64% 0.51%(c)
Net investment income 4.93% 5.27% 3.25% 2.83% 3.64% 5.99%(c)
Expense waiver/
reimbursement (d) 0.12% 0.19% 0.25% 0.30% 0.29% 0.36%(c)
- --------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $160,675 $173,761 $132,445 $134,397 $136,616 $57,432
- --------------------------------------------------------------------------------------
</TABLE>

(a) Reflects operations for the period from October 16, 1990 (date of initial
public investment) to September 30, 1991.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

THE TAX-FREE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

(a) Reflects operations for the period from July 27, 1994 (date of initial
public investment) to September 30, 1994.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

SPECIAL CONSIDERATIONS

INVESTMENT OBJECTIVE AND POLICIES OF EACH FUND
- -------------------------------------------------------------------------------

THE U.S. GOVERNMENT SECURITIES FUND

The investment objective of The U.S. Government Securities Fund is to provide
current income.

. direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and

. notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as the: Farm Credit System, including the National
Bank for Cooperatives, Farm Credit Banks, and Banks for Cooperatives;
Farmers Home Administration; Federal Home Loan Banks; Federal Home Loan
Mortgage Corporation; Federal National Mortgage Association; Government
National Mortgage Association; and Student Loan Marketing Association.

CMOS. The Fund may also invest in CMOs which are rated AAA or better by a
nationally recognized rating agency and which are issued by private entities
such as investment banking firms

and companies related to the construction industry. The CMOs in which the Fund
may invest may be: (i) privately issued securities which are collateralized by
pools of mortgages in which each mortgage is guaranteed as to payment of
principal and interest by an agency or instrumentality of the U.S. government;
(ii) privately issued securities which are collateralized by pools of
mortgages in which payment of principal and interest are guaranteed by the
issuer and such guarantee is collateralized by U.S. government securities; and
(iii) other privately issued securities in which the proceeds of the issuance
are invested in mortgage-backed securities and payment of the principal and
interest are supported by the credit of an agency or instrumentality of the
U.S. government. The mortgage-related securities provide for a periodic
payment consisting of both interest and principal. The interest portion of
these payments will be distributed by the Fund as income, and the capital
portion will be reinvested.

THE STYLE MANAGER: LARGE CAP FUND

The investment objective of The Style Manager: Large Cap Fund is to provide
growth of capital and income.

ACCEPTABLE INVESTMENTS. The Fund pursues its investment objective by investing
in common stocks of large capitalization companies, with a market
capitalization of at least $1 billion at the time of investment, and which are
either listed on the New York or American Stock Exchanges or trade in the
over-the-counter market. The Fund's investment approach is based upon the
conviction that, over the long term, the economy will continue to expand and
develop and that this economic growth will be reflected in the growth of the
revenues and earnings of publicly held corporations. The securities in which
the Fund invests include, but are not limited to, the following securities.

OTHER CORPORATE SECURITIES. The Fund may invest in preferred stocks, corporate
bonds, notes, warrants, rights, and convertible securities of these companies.
The Corporate bonds, notes, and convertible debt securities in which the Fund
may invest must be rated, at the time of purchase, BBB or higher by Standard &
Poor's Ratings Group ("S&P") or Fitch Investor Services ("Fitch") or Baa or
higher by Moody's Investor's Service, Inc. ("Moody's"), or, if unrated, of
comparable quality as determined by the Fund's adviser. (If a securities
rating is reduced below the required minimum after the Fund has purchased it,
the Fund is not required to sell the security, but may consider doing so.
Bonds rated BBB by S&P or Fitch or Baa by Moody's have speculative
characteristics. Changes in economic conditions or other circumstances are
more likely to lead to weakened capacity to make principal and interest
payments than higher rated bonds.

AMERICAN DEPOSITARY RECEIPTS ("ADRS"). ADRs are receipts typically issued by
an American bank or trust company that evidences ownership of underlying
securities issued by a foreign issuer.

THE STYLE MANAGER FUND

The investment objective of The Style Manager Fund is to provide growth of
capital.

BANK INSTRUMENTS. The fund may invest in instruments of domestic and foreign
banks and savings and loans (such as certificates of deposit, demand and time
deposits, savings shares, and bankers' acceptances) if they have capital,
surplus, and undivided profits over $100,000,000, or if the principal amount
of the instrument is insured by the BIF. These instruments may include ECPs,
Yankee CDs and ETDs.

AMERICAN DEPOSITARY RECEIPTS ("ADRS"). The Fund may invest in ADRs.

The Fund's ability to establish and close out futures and options positions
depends on this secondary market.

THE VIRGINIA MUNICIPAL BOND FUND AND THE MARYLAND MUNICIPAL BOND FUND

THE TREASURY MONEY MARKET FUND

The investment objective of The Treasury Money Market Fund is to provide
current income consistent with stability of principal.

THE MONEY MARKET FUND

The investment objective of The Money Market Fund is to provide current income
consistent with stability of principal.

The Fund invests only in instruments denominated and payable in U.S. dollars.

THE TAX-FREE MONEY MARKET FUND

The investment objective of The Tax-Free Money Market Fund is current income
exempt from federal income tax consistent with stability of principal and
liquidity.

. tax and revenue anticipation notes issued to finance working capital
needs in anticipation of receiving taxes or other revenues;
. bond anticipation notes that are intended to be refinanced through a
later issuance of longer-term bonds;
. municipal commercial paper and other short-term notes;
. variable rate demand notes;
. municipal bonds (including bonds having serial maturities and pre-
refunded bonds) and leases; construction loan notes insured by the Federal
Housing Administration and financed by the Federal or Government National
Mortgage Associations; and
. participation, trust, and partnership interests in any of the foregoing
obligations.

INVESTMENT LIMITATIONS

PORTFOLIO INVESTMENTS AND STRATEGIES
- -------------------------------------------------------------------------------

REGULATORY COMPLIANCE

BORROWING MONEY

Except for The Tax-Free Money Market Fund, the Funds will not borrow money
directly or through reverse repurchase agreements (arrangements in which a
Fund sells a portfolio instrument for a percentage of its cash value with an
agreement to buy it back on a set date) or pledge securities except, under
certain circumstances, a Fund may borrow money up to one-third of the value of
its total assets and pledge up to 15% of the value of those assets to secure
such borrowings. The Tax-Free Money

Market Fund may borrow up to one-third of the value of its total assets,
including the amount borrowed. The Tax-Free Money Market Fund will not
purchase any securities while borrowings in excess of 5% of the value of its
total assets are outstanding. These policies cannot be changed without the
approval of holders of a majority of a Fund's Shares.

SELLING SHORT

RESTRICTED AND ILLIQUID SECURITIES

The Funds may invest in restricted securities. Restricted securities are any
securities in which a Fund may invest pursuant to its investment objective and
policies, but which are subject to restriction on resale under federal
securities law. The Funds will not invest more than 10% of the value of their
total assets in securities subject to restrictions on resale under the
Securities Act of 1933 (except for certain restricted securities which meet
the criteria for liquidity as established by the Board of Trustees). In the
case of The U.S. Government Securities Fund, The Style Manager: Large Cap
Fund, The Money Market Fund and The Style Manager Fund this exception
specifically extends to commercial paper issued under Section 4(2) of the
Securities Act of 1933. This policy cannot be changed without the approval of
holders of a majority of a Fund's Shares.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

The Fund may dispose of a commitment prior to settlement if the adviser deems
it appropriate to do so. In addition, the Fund may enter in transactions to
sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at
later dates. A Fund may realize short-term profits or losses upon the sale of
such commitments.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

DIVERSIFICATION
With respect to 75% of the value of total assets, The U.S. Government
Securities Fund, The Style Manager: Large Cap Fund, The Money Market Fund and
The Style Manager Fund will not invest more than 5% in securities of any one
issuer other than cash or securities issued or guaranteed by the government of
the United States or its agencies or instrumentalities and repurchase
agreements collateralized by such securities. This policy cannot be changed
without the approval of holders of a majority of a Fund's Shares.

NON-DIVERSIFICATION

LENDING OF PORTFOLIO SECURITIES

ACQUIRING SECURITIES

INVESTMENT RISKS

ECDs, ETDs, Yankee CDs, and Europaper are subject to different risks than
domestic obligations of domestic banks or corporations. Examples of these
risks include international economic and political developments, foreign
governmental restrictions that may adversely affect the payment of principal
or interest, foreign withholding or other taxes on interest income,
difficulties in obtaining or enforcing a judgment against the issuing entity,
and the possible impact of interruptions in the flow of international currency
transactions. Different risks may also exist for ECDs, ETDs, and Yankee CDs
because the banks issuing these instruments, or their domestic or foreign
branches, are not necessarily subject to the same regulatory requirements that
apply to domestic banks, such as reserve requirements, loan limitations,
examinations, accounting, auditing, recordkeeping, and the public availability
of information. These factors will be carefully considered by the Fund's
adviser in selecting investments for a Fund.

Further, in addition to exhibiting greater volatility, the stocks of small
companies may, to some degree, fluctuate independently of the stocks of large
companies. That is, the stocks of small companies may decline in price as the
price of large company stocks rises or vice versa. Therefore, investors should
expect that the Funds, to the extent that it is invested in small
capitalization stocks, will be more volatile than, and may fluctuate
independently of, broad stock market indices such as the Standard & Poor's 500
Index.

In addition, with respect to fixed income securities, investors should be
aware that prices of fixed income securities generally fluctuate inversely to
the direction of interest rates.

VARIABLE RATE DEMAND NOTES

CREDIT ENHANCEMENT

Certain of The Money Market Fund's and The Tax-Free Money Market Fund's
acceptable investments may have been credit enhanced by a guaranty, letter of
credit or insurance. A Fund typically evaluates the credit quality and ratings
of credit enhanced securities based upon the financial condition and ratings
of the party providing the credit enhancement (the "credit enhancer"), rather
than the issuer. Generally, a Fund will not treat credit enhanced securities
as having been issued by the credit enhancer for diversification purposes.
However, under certain circumstances applicable regulations may require a Fund
to treat the securities as having been issued by both the issuer and credit
enhancer. The bankruptcy, receivership or default of the credit enhancer will
adversely affect the quality and marketability of the underlying security.

DEMAND FEATURES

PARTICIPATION INTERESTS

VARIABLE RATE MUNICIPAL SECURITIES

MUNICIPAL LEASES

TEMPORARY INVESTMENTS

MUNICIPAL SECURITIES

obligations, to raise funds for general operating expenses and to make loans
to other public institutions and facilities.

INVESTMENT RISKS. Yields on municipal securities depend on a variety of
factors, including: the general conditions of the municipal bond market; the
size of the particular offering; the maturity of the obligations; and the
rating of the issue. Further, with respect to The Virginia Municipal Bond Fund
and The Maryland Municipal Bond Fund, any adverse economic conditions or
developments affecting the Commonwealth of Virginia, the state of Maryland, or
their municipalities could impact a Fund's portfolio. The ability of The
Virginia Municipal Bond Fund, The Maryland Municipal Bond Fund, and The Tax-
Free Money-Market Fund to achieve their investment objectives also depends on
the continuing ability of the issuers of municipal securities and
participation interests, or the guarantors of either, to meet their
obligations for the payment of interest and principal when due. With respect
to The Virginia Municipal Bond Fund and The Maryland Municipal Bond Fund,
investing in Virginia and Maryland municipal securities which meet a Fund's
quality standards may not be possible if the Commonwealth of Virginia, the
state of Maryland, or their municipalities do not maintain their current
credit ratings. In addition, certain Virginia or Maryland constitutional
amendments, legislative measures, executive orders, administrative regulations
and voter initiatives could result in adverse consequences affecting Virginia
and Maryland municipal securities. In addition, from time to time, the supply
of municipal securities acceptable for purchase by The Virginia Municipal Bond
Fund, The Maryland Municipal Bond Fund, and The Tax-Free Money Market Fund,
could become limited.

The Tax-Free Money Market Fund may invest in municipal securities which are
repayable out of revenue streams generated from economically related projects
or facilities and/or whose issuers are located in the same state. Sizable
investments in these municipal securities could involve an increased risk to
the Fund should any of these related projects or facilities experience
financial difficulties.
Obligations of issuers of municipal securities are subject to the provisions
of bankruptcy, insolvency, and other laws affecting the rights and remedies of
creditors. In addition, the obligations of such issuers may become subject to
laws enacted in the future by Congress, state legislators, or referenda
extending the time for payment of principal and/or interest, or imposing other
constraints upon enforcement of such obligations or upon the ability of states
or municipalities to levy taxes. There is also the possibility that, as a
result of litigation or other conditions, the power or ability of any issuer
to pay, when due, the principal of and interest on its municipal securities
may be materially affected.

Over-the-counter options are two party contracts with price and terms
negotiated between buyer and seller. In contrast, exchange traded options are
third party contracts with standardized strike prices
and expiration dates and are purchased from a clearing corporation. Exchange-
traded options have a continuous liquid market while over-the-counter options
may not. The Fund will not buy call options or write put options without
further notification to shareholders.

FINANCIAL FUTURES AND OPTIONS ON FUTURES. The Style Manager: Large Cap Fund,
The Style Manager Fund, The Virginia Municipal Bond Fund and The Maryland
Municipal Bond Fund may purchase and sell financial futures contracts to hedge
all or a portion of their portfolios against changes in interest rates and
market conditions. Financial futures contracts call for the delivery of
particular debt instruments at a certain time in the future. The seller of the
contract agrees to make delivery of the type of instrument called for in the
contract and the buyer agrees to take delivery of the instrument at the
specified future time.

The Style Manager: Large Cap Fund, The Style Manager Fund, The Virginia
Municpal Bond Fund and The Maryland Municipal Bond Fund may also write call
options and purchase put options on financial futures contracts as a hedge to
attempt to protect securities in its portfolio against decreases in value.
When a Fund writes a call option on a futures contract, it is undertaking the
obligation of selling a futures contract at a fixed price at any time during a
specified period if the option is exercised.

Conversely, as purchaser of a put option on a futures contract, a Fund is
entitled (but not obligated) to sell a futures contract at the fixed price
during the life of the option.

A Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed
5% of the market value of the Fund's total assets. When a Fund purchases
futures contracts, an amount of cash and cash equivalents, equal to the
underlying commodity value of the futures contracts (less any related margin
deposits), will be deposited in a segregated account with the Fund's custodian
(or the broker, if legally permitted) to collateralize the position and
thereby insure that the use of such futures contract is unleveraged.

RISKS. When a Fund uses financial futures and options on financial futures
as hedging devices, there is a risk that the prices of the securities
subject to the futures contracts may not correlate perfectly with the
prices of the securities in the Fund's portfolio. This may cause the
futures contract and any related options to react differently than the
portfolio securities to market changes. In addition, the Fund's investment
adviser could be incorrect in its expectations about the direction or
extent of market factors such as stock price movements. In these events,
the Fund may lose money on the futures contract or option.

THE VIRTUS FUNDS INFORMATION
- -------------------------------------------------------------------------------

MANAGEMENT OF THE TRUST

ADVISORY FEES. The Adviser receives an annual investment advisory fee at
annual rates equal to percentages of the relevant Fund's average net
assets as follows: The Treasury Money Market Fund, The Money Market Fund,
and The Tax-Free Money Market Fund--.50%; The U.S. Government Securities
Fund, The Style Manager: Large Cap Fund, The Virginia Municipal Bond Fund;
and The Maryland Municipal Bond Fund--.75%; and The Style Manager Fund--
1.25%. The investment advisory contract provides for the voluntary waiver
of expenses at any time with respect to a Fund at its sole discretion.

Garry M. Allen has managed The Style Manager: Large Cap Fund since July
1994, and The Style Manager Fund since its inception. Mr. Allen is a
Chartered Financial Analyst and Chief Investment Officer for Virtus
Capital Management, Inc. Prior to joining Virtus Capital Management, Inc.,
Mr. Allen had been Managing Director of U.S. Equities (November 1990 to
March 1994) and Director, International Asset Management (June 1985 to
November 1990) of The Virginia Retirement System.

Holly S. Thompson has managed The Maryland Municipal Bond Fund and The
Virginia Municipal Bond Fund since June 1995. Ms. Thompson is a Chartered
Financial Analyst and Assistant Vice President of Virtus Capital Management,
Inc. Prior to joining Virtus Capital Management, Inc., Ms. Thompson had been
a Discount Brokerage Trader with Signet Financial Services and joined Virtus
Capital Management, Inc. in February, 1994. Previously, Ms. Thompson ws with
Wheat First Securities as a Discount Brokerage Trader (September, 1991 to
June, 1993).

John S. Hall has managed The U.S. Government Securities Fund since
December 1996. Mr. Hall is a Chartered Financial Analyst and, is currently
Vice President and Senior Fixed Income Portfolio Manager for Virtus
Capital Management, Inc. Prior to joining Virtus Capital Management, Inc.,
Mr. Hall had been Director of Fixed Income Portfolio Management for
Hibernia National Bank, since January, 1992.

SUB-ADVISER TO THE STYLE MANAGER FUND: LARGE CAP AND THE STYLE MANAGER
FUND. Trend Capital Management, Inc. is the sub-adviser to The Style Manager
Fund: Large Cap and The Style Manager Fund.

SUB-ADVISER. Pursuant to the terms of an investment sub-advisory agreement
between the Adviser and Trend Capital Management, Inc. (the "Sub-Adviser"),
the Sub-Adviser furnishes certain investment advisory services to the adviser,
including investment research, statistical and other factual information, and
recommendations, based on the Sub-Adviser's analysis of trends in the stock
market that favor different styles of stock selection (growth versus value)
and different sizes of companies

(large versus small capitalization). For the services provided and the
expenses incurred by the Sub-Adviser pursuant to the sub-advisory agreement,
with respect to The Style Manager Fund, the Adviser will pay Trend an annual
fee as follows: (a) an amount equal to .10% of the first $60 million of the
Fund's average daily net assets; and (b) with respect to average daily net
assets of the Fund in excess of $60 million, an amount equal to (i) one-third
of the Adviser's advisory fee to the extent that such advisory fee is less
than or equals 1% of the Fund's average daily net assets (but not to exceed
.25% of the Fund's average daily net assets); plus (ii) to the extent that the
annual advisory fee exceeds 1% of the Fund's average daily net assets, an
additional amount equal to two-thirds of such excess. With respect to The
Style Manager: Large Cap Fund, the Adviser will pay Trend an amount equal to
.15% of the first $100 million of the Fund's average daily net assets; and .33
1/3% of the Fund's average daily net assets in excess of $100 million.

SUB-ADVISORY FEES. Pursuant to the terms of an investment sub-advisory
agreement between the adviser and Trend Capital Management, Inc. (the "Sub-
Adviser"), the Sub-Adviser furnishes certain investment advisory services to
the adviser, including investment research, statistical and other factual
information, and recommendations, based on the Sub-Adviser's analysis of
trends in the stock market that favor different styles of stock selection
(growth versus value) and different sizes of companies (large versus small
capitalization). For the services provided and the expenses incurred by the
Sub-Adviser pursuant to the sub-advisory agreement with respect to The Style
Manager Fund, VCM will pay Trend an annual fee as follows: (a) an amount equal
to .10% of the first 60 million of the Fund's average daily net assets; and
(b) with respect to average daily net assets of the Fund in excess of $60
million, an amount equal to (i) one-third of VCM's advisory fee to the extent
that such advisory fee is less than or equals 1% of the Fund's average daily
net assets (but not to exceed .25% of the Fund's average daily net assets);
plus (ii) to the extent that the annual advisory fee exceeds 1% of the Fund's
average daily net assets, an additional amount equal to two-thirds of such
excess. With respect to The Style Manager: Large Cap Fund, VCM will pay Trend
an amount equal to .15% of the first $100 million of the Fund's average daily
net assets; and .33 1/3% of the Fund's average daily net assets in excess of
$100 million.
SUB-ADVISER'S BACKGROUND. Trend Capital Management, Inc., a Minnesota
corporation located at 956 Interchange Tower, 600 S. Highway 169, Minneapolis,
Minnesota 55426, was founded in 1992 by Thomas G. Fox, its President and Chief
Investment Officer. Trend provides investment advisory services to individuals
and institutions, and is registered as an investment adviser with the
Securities and Exchange Commission. Trend also provides general portfolio
management services for certain clients subject to the client's investment
objective. Trend does not provide investment advisory services to any other
mutual fund.

DISTRIBUTION OF SHARES OF THE FUNDS

DISTRIBUTION PLAN. According to the provisions of a distribution plan adopted
pursuant to Investment Company Act Rule 12b-1, the distributor may select
brokers and dealers to provide distribution and administrative services as to
Shares of the Funds. The distributor may also select administrators (including
financial institutions, fiduciaries, custodians for public funds and
investment advisers) to provide administrative services. Administrative
services may include, but are not limited to, the following functions:
providing office space, equipment, telephone facilities, and various personnel
including clerical, supervisory, and computer, as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase
and redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries regarding Shares; assisting
clients in changing dividend options, account designations, and addresses; and
providing such other services as each Fund reasonably requests for its Shares.

Brokers, dealers, and administrators will receive fees based upon Shares owned
by their clients or customers. The schedules of such fees and the basis upon
which such fees will be paid will be determined from time to time by the Board
of Trustees, provided that for any period the total amount of fees
representing an expense to the Trust shall not exceed an annual rate of .25 of
1% of the average net asset value of Shares of the Funds held in the accounts
during the period for which the brokers, dealers, and administrators provide
services. Any fees paid by the distributor with respect to Shares of a Fund
pursuant to the distribution plan will be reimbursed by the Trust from the
assets of the

Shares of that Fund. With respect to The Style Manager Fund, the Plan will not
be activated unless and until a second class of shares of the Fund, which will
not have a Rule 12b-1 Plan, is created.

The distributor will, periodically, uniformly offer to pay cash or promotional
incentives in the form of trips to sales seminars at luxury resorts, tickets
or other items to all dealers selling shares of the Funds. Such payments will
be predicated upon the amount of shares of the Funds that are sold by the
dealer. Such payments, if made, will be in addition to amounts paid under the
distribution plan and will not be an expense of a Fund.

ADMINISTRATION OF THE FUNDS

ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Funds with certain administrative personnel
and services necessary to operate each Fund and the separate classes. Such
services include shareholder servicing and certain legal and accounting
services. Federated Administrative Services provides these at an annual rate
as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATION FEE NET ASSETS OF THE TRUST
------------------ -----------------------------------
<S> <C>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>

The administrative fee received during any fiscal year shall be at least
$75,000 per Fund. Federated Administrative Services may voluntarily waive a
portion of its fee.

EXPENSES OF THE FUNDS AND INVESTMENT SHARES

Each Fund pays all of its own expenses and its allocable share of the Trust's
expenses.

The Trust's expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Trust and
continuing its existence; registering the Trust; Trustees fees; auditors'
fees; the cost of meetings of Trustees; legal fees of the Trust; association
membership dues and such nonrecurring and extraordinary items as may arise.
Each Fund's expenses for which holders of Shares may pay their allocable
portion include, but are not limited to: registering each Fund and Shares of
the Fund; investment advisory services; taxes and commissions; custodian fees;
insurance premiums; auditors' fees; and such nonrecurring and extraordinary
items as may arise.

In addition, the Board of Trustees reserves the right to allocate certain
other expenses to holders of Shares as it deems appropriate ("Class
Expenses"). In any case, Class Expenses would be limited to: distribution
fees; transfer agent fees as identified by the transfer agent as attributable
to holders of Shares; printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses and proxies
to current shareholders; registration fees paid to the Securities and Exchange
Commission and registration fees paid to state securities commissions;
expenses related to administrative personnel and services as required to
support holders of Shares; legal fees relating solely to Shares; and Trustees'
fees incurred as a result of issues relating solely to Shares.

BROKERAGE TRANSACTIONS. When selecting brokers and dealers to handle the
purchase and sale of portfolio instruments, the Adviser looks for prompt
execution of the order at a favorable price. In

working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better
price and execution of the order can be obtained elsewhere. In selecting among
firms believed to meet these criteria, the Adviser may give consideration to
those firms which have sold or are selling shares of the Trust. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Board of Trustees.

NET ASSET VALUE
- -------------------------------------------------------------------------------

INVESTING IN SHARES
- -------------------------------------------------------------------------------

SHARE PURCHASES

Shares of the Funds are sold on days on which the New York Stock Exchange is
open for business except on Lee-Jackson-King Day, Columbus Day and Veterans'
Day. Shares of the Funds may be purchased through Signet Financial Services,
Inc. In connection with the sale of Shares of the Funds, the distributor may
from time to time offer certain items of nominal value to any shareholder or
investor. The Funds reserve the right to reject any purchase request.

With respect to The Treasury Money Market Fund, The Money Market Fund, and The
Tax-Free Money Market Fund, an investor may write or call Signet Financial
Services, Inc. to place an order to purchase Shares of the Funds. (Call toll-
free 1-800-723-9512). Purchase orders must be received by Signet Financial
Services, Inc. before 4:00 p.m. (Eastern time). Payment for Shares of the
Funds may be made by check or by wire. Orders are considered received after
payment by check is converted into federal funds and received by Signet
Financial Services, Inc. Payment must be received by Signet Financial
Services, Inc. on the next business day after placing the order. For orders
received by 11:00 a.m. (Eastern time), shareholders will begin earning
dividends on that day provided payment by wire is received by Signet Financial
Services, Inc. by 2:00 p.m. (Eastern time) on that day.

With respect to The U.S. Government Securities Fund, The Style Manager: Large
Cap Fund, The Style Manager Fund, The Virginia Municipal Bond Fund and The
Maryland Municipal Bond Fund, an investor may write or call Signet Financial
Services, Inc. to place an order to purchase Shares of the Fund. (Call toll-
free 1-800-723-9512). Purchase orders must be received by Signet Financial
Services, Inc. before 4:00 p.m. (Eastern time) in order for Shares to be
purchased at that day's public offering price. Payment for Shares of the Funds
may be made by check or by wire. Payment must be received by Signet Financial
Services, Inc. within three days of placing the order.

BY CHECK. Purchases of Shares by check must be made payable to The Virtus
Funds and sent to Signet Financial Services, Inc., P.O. Box 26301, Richmond,
VA 23260.

BY WIRE. With respect to The Treasury Money Market Fund, The Money Market
Fund, and The Tax-Free Money Market Fund, payment by wire must be received by
Signet Financial Services, Inc. before 10:00 a.m. (Eastern time) in order to
begin earning dividends on that day. For orders received after 10:00 a.m.
(Eastern time) payment must be received by 10:00 a.m. (Eastern time) on the
next business day after placing the order. With respect to The U.S. Government
Securities Fund, The Style Manager:

Large Cap Fund, The Style Manager Fund, The Virginia Municipal Bond Fund and
The Maryland Municipal Bond Fund, payment by wire must be received by Signet
Financial Services, Inc. by the third business day after placing the order.
Shares of the Funds cannot be purchased by Federal Reserve Wire on Columbus
Day, Veterans' Day or Lee-Jackson-King Day.

SYSTEMATIC INVESTMENT PROGRAM
Once an account has been opened, holders of Shares may add to their investment
on a regular basis in a minimum amount of $100. Under this program, funds may
be automatically withdrawn periodically from the shareholder's checking
account and invested in Shares at the net asset value next determined after an
order is received by Signet Financial Services, Inc., plus the applicable
sales charge. A Shareholder may apply for participation in this program
through Signet Financial Services, Inc.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in Shares is $1,000. Subsequent investments
must be in amounts of at least $100. No minimum investment is required for
officers, directors and employees (and their spouses and immediate family
members) of Signet Banking Corporation or its subsidiaries.

WHAT SHARES COST

Shares of the Funds are sold at their net asset value next determined after an
order is received. There is no sales charge imposed by the Funds at the time
of purchase.

The net asset value is determined at 1:00 p.m. Eastern time, and 4:00 p.m.
Eastern time and as of the close of trading (normally 4:00 p.m., Eastern time)
on the New York Stock Exchange, Monday through Friday, for The Treasury Money
Market Fund, The Money Market Fund, and The Tax-Free Money Market Fund, except
on New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas
Day.

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Funds, Federated Shareholder Services Company
maintains a share account for each shareholder of record. Share certificates
are not issued unless requested by contacting Signet Financial Services, Inc.
in writing.

DIVIDENDS

With respect to The Style Manager: Large Cap Fund and The Style Manager Fund,
dividends are declared and paid quarterly.

CAPITAL GAINS

EXCHANGE PRIVILEGE
- -------------------------------------------------------------------------------

Holders of Shares have easy access to Shares of the other funds comprising the
Trust and to shares of any Fund (a "Blanchard Fund") of The Blanchard Group of
Funds through an exchange program, and exchanges may be made at net asset
value without paying a redemption fee or sales charge upon such exchange.

Shareholders who exchange into a Virtus Fund must exchange shares having a net
asset value of at least $1,000, and shareholders who exchange into a Blanchard
Fund must exchange shares having a net asset value at least equal to the
minimum investment requirement of the applicable Blanchard Fund. Prior to any
exchange, the shareholder must receive a copy of the current prospectus of the
participating fund into which an exchange is to be made.

Upon receipt by Signet Financial Services, Inc. of proper instructions and all
necessary supporting documents, Shares submitted for exchange will be redeemed
at the next-determined net asset value and invested in Investment Shares of
the other participating Fund, or in shares of the applicable Blanchard Fund,
as the case may be. If the exchanging shareholder does not have an account in
the participating fund whose Shares are being acquired, a new account will be
established with the same registration and reinvestment options for dividends
and capital gains as the account from which Shares are exchanged, unless
otherwise specified by the shareholder. In the case where the new account
registration is not identical to that of the existing account, a signature
guarantee is required. (See "Redeeming Shares By Mail.") Exercise of this
privilege is treated as a sale for federal income tax purposes and, depending
on the circumstances, a shortor long-term capital gain or loss may be
realized. The Fund reserves the right to modify or terminate the exchange
privilege at any time. Shareholders will be notified prior to any modification
or termination of this privilege. Shareholders may obtain further information
on the exchange privilege by calling Signet Financial Services, Inc.

BY TELEPHONE. Shareholders may provide instructions for exchanges between
participating funds by calling Signet Financial Services, Inc. toll-free at 1-
800-723-9512. It is recommended that investors request this privilege at the
time of their initial application. Information on this service can be obtained
through Signet Financial Services, Inc. Shares may be exchanged by telephone
only between fund accounts having identical shareholder registrations.
Exchange instructions given by telephone may be electronically recorded. If
reasonable procedures are not followed by a Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.

Any Shares held in certificate form cannot be exchanged by telephone but must
be forwarded to Signet Financial Services, Inc. and deposited to the
shareholder's mutual fund account before being exchanged.

Telephone exchange instructions must be received by Signet Financial Services,
Inc. before 3:00 p.m. (Eastern time) for Shares to be exchanged the same day.
The telephone exchange privilege may be modified or terminated at any time.
Shareholders will be notified of such modification or termination.
Shareholders of a Fund may have difficulty in making exchanges by telephone
through banks, brokers, and other financial institutions during times of
drastic economic or market changes. If a shareholder cannot contact his bank,
broker, or financial institution by telephone, it is recommended that an
exchange request be made in writing and sent by overnight mail to Signet
Financial Services, Inc.

REDEEMING SHARES
- -------------------------------------------------------------------------------

Each Fund redeems Shares at their net asset value, less any applicable
contingent deferred sales charge, next determined after Signet Financial
Services, Inc. receives the redemption request. Redemptions will be made on
days on which a Fund computes its net asset value. Telephone or written
requests for redemption must be received in proper form by Signet Financial
Services, Inc.

BY TELEPHONE. A shareholder may redeem Shares of a Fund by calling Signet
Financial Services, Inc. to request the redemption. (Call toll free 1-800-444-
7123). Shares will be redeemed at the net asset value, less any applicable
contingent deferred sales charge, next determined after a Fund receives the
redemption request from Signet Financial Services, Inc.

With respect to The Treasury Money Market Fund, The Money Market Fund, and The
Tax-Free Money Market Fund, redemption requests received before 11:00 a.m.
(Eastern time) will be wired the same day, but will not be entitled to that
day's dividend. A redemption request must be received by Signet Financial
Services, Inc. before 4:00 p.m. (Eastern time). Redemption requests through
registered broker/dealers must be received by Signet Financial Services, Inc.
before 3:00 p.m. (Eastern time). Signet Financial Services, Inc. is
responsible for promptly submitting redemption requests and providing proper
written redemption instructions to a Fund. Other registered broker/dealers may
charge customary fees and commissions for this service.

With respect to The U.S. Government Securities Fund, The Style Manager: Large
Cap Fund, The Style Manager Fund, The Virginia Municipal Bond Fund and The
Maryland Municipal Bond Fund, a redemption request must be received by Signet
Financial Services, Inc. before 4:00 p.m. (Eastern time) in order for Shares
to be redeemed at that day's net asset value. Redemption requests through
registered broker/dealers must be received by Signet Financial Services, Inc.
before 3:00 p.m. (Eastern time) in order for Shares to be redeemed at that
day's net asset value. Signet Financial Services, Inc. is responsible for
promptly submitting redemption requests and providing proper written
redemption instructions to a Fund. Other registered broker/dealers may charge
customary fees and commissions for this service.

If, at any time, a Fund should determine it necessary to terminate or modify
this method of redemption, shareholders would be promptly notified.

An authorization form permitting a Fund to accept telephone redemption
requests must first be completed. It is recommended that investors request
this privilege at the time of their initial application. If not completed at
the time of initial application, authorization forms and information on this
service can be obtained through Signet Financial Services, Inc. Telephone
redemption instructions may be recorded. If reasonable procedures are not
followed by a Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

BY MAIL. Shareholders may redeem Shares of a Fund by sending a written request
to Signet Financial Services, Inc. The written request should include the
shareholder's name, the Fund name, the class of shares, the account number,
and the Share or dollar amount requested. If share certificates have been
issued, they must be properly endorsed and should be sent by registered or
certified mail with the written request to Signet Financial Services, Inc.
P.O. Box 26301, Richmond, VA 23260.

. a trust company or commercial bank whose deposits are insured by BIF,
which is administered by the Federal Deposit Insurance Corporation
("FDIC");
. a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
. a savings bank or savings association whose deposits are
insured by the SAIF, which is administered by the FDIC; or
. any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.

The Funds do not accept signatures guaranteed by a notary public.

Normally, a check for the proceeds is mailed to the shareholder within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.

CONTINGENT DEFERRED SALES CHARGE--THE U.S. GOVERNMENT SECURITIES FUND, THE
STYLE MANAGER: LARGE CAP FUND, THE STYLE MANAGER FUND, THE VIRGINIA MUNICIPAL
BOND FUND AND THE MARYLAND MUNICIPAL BOND FUND

Shareholders redeeming Shares from accounts in the Funds listed above within
five years of the purchase date of those Shares will be charged a contingent
deferred sales charge by the Fund's distributor. The charge will be based upon
the lesser of the original purchase price or the net asset value of the Shares
redeemed, as follows:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
AMOUNT OF PURCHASE SALES CHARGE
------------------ -------------------
<S> <C>
Under $100,000 2.0%
$100,000-$249,999 1.5%
$250,000-$399,999 1.0%
$400,000-$499,999 0.5%
$500,000 or more None
</TABLE>

Separate purchases will not be aggregated for purposes of determining the
applicable contingent deferred sales charge. In instances in which Fund Shares
have been acquired in exchange for Investment Shares in other Virtus Funds,
(i) the purchase price is the price of the Shares when originally purchased
and (ii) the five year period will begin on the date of the original purchase.
The contingent deferred sales charge will not be imposed on Shares acquired
(i) through the reinvestment of dividends or distribution of capital gains,
(ii) prior to October 1, 1992, or (iii) in exchange for Shares acquired prior
to October 1, 1992. In computing the contingent deferred sales charge, if any,
redemptions are deemed to have occurred in the following order: 1) Shares
acquired through the reinvestment of dividends and long-term capital gains, 2)
Shares purchased prior to October 1, 1992 (including Shares acquired in
exchange for Shares purchased prior to October 1, 1992), 3) Shares purchased
more than five years before the date of redemption, and 4) Shares purchased
after October 1, 1992 and redeemed within five years of the date of purchase,
determined on a first-in, first-out basis.

The contingent deferred sales charge will not be imposed on redemption of
Shares (i) following the death or disability (as defined in the Internal
Revenue Code) of a shareholder; (ii) to the extent that the redemption
represents a minimum required distribution from an IRA or other retirement
plan to a shareholder who has attained the age of 70 1/2; (iii) owned by the
Trust Division of Signet Trust Company or other affiliates of Signet Banking
Corporation representing funds which are held in a fiduciary, agency,
custodial, or similar capacity; (iv) owned by directors and employees of the
Fund, Signet Banking Corporation or Federated Securities Corp. or their
affiliates, or any bank or investment dealer who has a sales agreement with
Federated Securities Corp. with regard to the Fund, and their spouses and
children under 21; owned by non-trust customers ("customers") of fee-based
planners, investment advisers or banking institutions (collectively,
"Institutions") where such Institutions have an agreement with, and such
customers have a brokerage account with, Signet Financial Services, Inc.; (vi)
purchased through the Imprint Program sponsored by Signet Financial Services,
Inc.; (vii) if the proceeds from the redemption are used to purchase a Strive
variable annuity within 10 days of the redemption; (viii) purchased by a
person who, at the time of purchase owns shares of a Blanchard Fund; (ix)
purchased in exchange for shares of a Blanchard Fund (unless such Blanchard
Fund shares were themselves acquired in exchange for shares of a Virtus Fund
which imposed a contingent deferred sales charge); (x) purchased in exchange
for shares of a Virtus Fund which shares originally represented an interest in
the Vista Federal Money Market Fund; or (xi) purchased through entities having
"no transaction fee" aggreements with the Funds.

The contingent deferred sales charge is not charged when Fund Shares are
exchanged for shares of any other portfolio of The Virtus Funds or when
redemptions are made by the Fund to liquidate accounts with low balances.

CONTINGENT DEFERRED SALES CHARGE--THE TREASURY MONEY MARKET FUND, THE MONEY
MARKET FUND, THE TAX-FREE MONEY MARKET FUND AND BLANCHARD FUNDS

A contingent deferred sales charge will be imposed only in certain instances
in which the Shares of The Treasury Money Market Fund, The Money Market Fund,
The Tax-Free Money Market Fund or a Blanchard Fund being redeemed were
acquired in exchange for Shares of those Virtus Funds which charge a
contingent deferred sales charge ("CDSC Shares"). If Shares of The Treasury
Money Market Fund, The Money Market Fund, The Tax-Free Money Market Fund or a
Blanchard Fund were acquired in exchange for CDSC Shares, redemption of the
Shares of The Treasury Money Market Fund, The Money Market Fund, The Tax-Free
Money Market Fund or a Blanchard Fund within five years of the purchase of the
CDSC Shares, will have the same consequences as described under "Contingent
Deferred Sales Charge--The U.S. Government Securities Fund, The Style Manager:
Large Cap Fund, The Style Manager Fund, The Virginia Municipal Bond Fund, and
The Maryland Municipal Bond Fund."

SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Shares are
redeemed at net asset value, less any applicable contingent deferred sales
charge, to provide for periodic withdrawal payments in an amount directed by
the shareholder. Depending upon the amount of the withdrawal payments, the
amount of dividends paid and capital gains distributions with respect to
Shares, and the fluctuation of the net asset value of Shares redeemed under
this program, redemptions may reduce, and eventually deplete, the
shareholder's investment in Shares of a Fund. For this reason, payments under
this program should not be considered as yield or income on the shareholder's
investment in Shares of a Fund. To be eligible to participate in this program,
a shareholder must have an account value of at least $10,000. A shareholder
may apply for participation in this program through Signet Financial Services,
Inc.

CHECK-WRITING PRIVILEGE

If you are a shareholder of The Treasury Money Market Fund, The Money Market
Fund, or The Tax-Free Money Market Fund (other than IRA shareholders), you may
elect a service which allows you to write an unlimited number of checks in any
amount of $250 or more which will clear through the Transfer Agent. If the
amount of your check is less than $250 or exceeds the value of the shares in
your account, your check will be returned and a $10 fee deducted from your
account. You may not use the Check-Writing Privilege to close out your account
as you will not be able to ascertain the exact account balance of your account
on the date your check clears. To close out your account completely, you
should use the telephone or mail redemption procedures previously described.
Stop orders may be placed on checks for a fee of $10. For further information
on this service, please call 1-800-723-9512.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, a Fund may
redeem Shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the required minimum value
of $1,000 due to shareholder redemptions. This requirement does not apply,
however, if the balance falls below $1,000 because of changes in a Fund's net
asset value. Before Shares are redeemed to close an account, the shareholder
is notified in writing and allowed 30 days to purchase additional Shares to
meet the minimum requirement.

SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------

VOTING RIGHTS

1997, Stephens Inc., Little Rock, Arkansas, owned approximately 733,494
Investment Shares of The Maryland Municipal Bond Fund (25.47%); owned
approximately 2,019,097 Investment Shares of The Virginia Municipal Bond
Fund (33.53%); approximately 1,527,502 Investment Shares of The Style Manager:
Large Cap Fund; approximately 4,239,055 Investment Shares of The U.S.
Government Securities Fund (36.20%). Bova & Co., Richmond, Virginia, owned
approximately 7,077,427 shares of The Tax-Free Money Market Fund (67.11%).
Therefore, these shareholders may, for certain purposes, be deemed to control
the Funds and be able to affect the outcome of certain matters presented for
a vote of shareholders.

EFFECT OF BANKING LAWS
- -------------------------------------------------------------------------------

Signet Trust Company believes, based on the advice of its counsel, that Virtus
Capital Management, Inc. may perform the services for any Fund contemplated by
its advisory agreement with the Trust without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. Changes in either federal
or state statutes and regulations relating to the permissible activities of
banks and their subsidiaries or affiliates, as well as further judicial or
administrative decisions or interpretations of such or future statutes and
regulations, could prevent Virtus Capital Management, Inc. from continuing to
perform all or a part of the above services for its customers and/or a Fund.
If it were prohibited from engaging in these customer-related activities, the
Trustees would consider alternative advisers and means of continuing available
investment services. In such event, changes in the operation of a Fund may
occur, including possible termination of any automatic or other Fund share
investment and redemption services then being provided by Virtus Capital
Management, Inc. It is not expected that existing shareholders would suffer
any adverse financial consequences (if another adviser with equivalent
abilities to Virtus Capital Management, Inc. is found) as a result of any of
these occurrences.

TAX INFORMATION
- -------------------------------------------------------------------------------

FEDERAL INCOME TAX

received. This applies whether dividends and distributions are received in
cash or as additional shares. Shareholders of The U.S. Government Securities
Fund, The Style Manager: Large Cap Fund, The Style Manager Fund, The Treasury
Money Market Fund and The Money Market Fund are urged to consult their own tax
advisers regarding the status of their accounts under state and local tax
laws.

Shareholders of The Virginia Municipal Bond Fund, The Maryland Municipal Bond
Fund and The Tax-Free Money Market Fund are not required to pay the federal
regular income tax on any dividends received from the Fund that represent net
interest on tax-exempt municipal bonds. However, under the Tax reform Act of
1986, dividends representing net interest earned on certain "private activity"
bonds issued after August 17, 1986, may be included in calculating the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations. The Virginia Municipal Bond Fund, The Maryland Municipal Bond
Fund and The Tax-Free Money Market Fund may purchase all types of municipal
bonds, including private activity bonds.

Dividends of the Funds representing net interest income earned on some
temporary investments and any realized net short-term gains are taxed as
ordinary income.

These tax consequences apply whether dividends are received in cash or as
additional shares.

MARYLAND TAXES. Under existing Maryland laws, distributions made by the Fund
will not be subject to Maryland state or local income taxes to the extent that
such distributions qualify as exempt-interest dividends under the Internal
Revenue Code, and represent (i) interest on tax-exempt obligations of Maryland
or its political subdivisions or authorities; (ii) interest on obligations of
the United States or an authority, commission, instrumentality, possession or
territory of the United States; or (iii) gain realized by the Fund from the
sale or exchange of bonds issued by Maryland, a political subdivision of
Maryland, or the United States Government (excluding obligations issued by the
District of Columbia, a territory or possession of the United States, or a
department, agency, instrumentality, or political subdivision of the District,
territory or possession). Conversely, to the extent that distributions made by
the Fund are derived from other types of obligations, such distributions will
be subject to Maryland income taxes.

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

The yield of Shares of The Treasury Money Market Fund, The Money Market Fund,
and The Tax-Free Money Market Fund represent the annualized rate of income
earned on an investment in Shares over a seven-day period. It is the
annualized dividends earned during the period on the investment, shown as a
percentage of the investment. The effective yield is calculated similarly to
the yield, but, when annualized, the income earned on an investment in Shares
is assumed to be reinvested daily. The effective yield will be slightly higher
than the yield because of the compounding effect of this assumed reinvestment.

The tax-equivalent yield of the Shares for The Virginia Municipal Bond Fund,
The Maryland Municipal Bond Fund, and The Tax-Free Money Market Fund is
calculated similarly to the yield, but is adjusted to reflect the taxable
yield that the Shares would have had to earn to equal its actual yield,
assuming a specific tax rate. The tax-equivalent yield does not necessarily
reflect income actually earned by Shares and, therefore, may not correlate to
the dividends or other distributions paid to shareholders.

With respect to The U.S. Government Securities Fund, and The Style Manager:
Large Cap Fund total return and yield will be calculated separately for
Investment Shares and Trust Shares.

With respect to The Virginia Municipal Bond Fund and The Maryland Municipal
Bond Fund, total return, yield and tax-equivalent yield will be calculated
separately for Investment Shares and Trust Shares.

With respect to The Treasury Money Market Fund and The Money Market Fund,
yield and effective yield will be calculated separately for Investment Shares
and Trust Shares.

From time to time, advertisements for the Funds may refer to ratings,
rankings, and other information in certain financial publications and/or
compare their performance to certain indices.

OTHER CLASSES OF SHARES
- -------------------------------------------------------------------------------

Trust Shares, the other class of shares offered by those Funds offering
separate classes, are sold to trusts, fiduciaries and institutions at net
asset value at a minimum initial investment of $10,000. Trust Shares are not
sold pursuant to a Rule 12b-1 Plan.

The amount of dividends payable to Trust Shares will exceed those payable to
Investment Shares by the difference between class expenses and distribution
expenses borne by shares of each respective class.

The stated advisory fee is the same for both classes of each of the Funds.

To obtain more information and a prospectus for Trust Shares, investors may
call 1-800-723-9512.

ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
The U.S. Government Securities Fund Federated Investors Tower
The Style Manager: Large Cap Fund Pittsburgh, Pennsylvania 15222-3779
The Style Manager Fund
The Treasury Money Market Fund
The Money Market Fund
The Virginia Municipal Bond Fund
The Maryland Municipal Bond Fund
The Tax-Free Money Market Fund
- -------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------------
Investment Adviser
Virtus Capital Management, Inc. 707 East Main Street
Suite 1300
Richmond, Virginia 23219
- -------------------------------------------------------------------------------------------------
Custodian
Signet Trust Company 7 North Eighth Street
Richmond, Virginia 23219
- -------------------------------------------------------------------------------------------------
Transfer Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- -------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
- -------------------------------------------------------------------------------------------------
</TABLE>

THE VIRTUS FUNDS
INVESTMENT SHARES

COMBINED PROSPECTUS

January 31, 1997

VIRTUS CAPITAL MANAGEMENT, INC.
A Subsidiary of Signet Banking Corporation
Investment Adviser

Federated Securities Corp. is the distributor of the Funds.

CUSIP 927913202 CUSIP 927913509
CUSIP 927913848 CUSIP 927913889
CUSIP 927913400 CUSIP 927913707
CUSIP 927913871 CUSIP 927913806

3042108A-R (1/97)
THE VIRTUS FUNDS
TRUST SHARES
CONSISTS OF EIGHT PORTFOLIOS:
THE U. S. GOVERNMENT SECURITIES FUND;
THE STYLE MANAGER: LARGE CAP FUND;
THE STYLE MANAGER FUND;
THE VIRGINIA MUNICIPAL BOND FUND;
THE MARYLAND MUNICIPAL BOND FUND;
THE TREASURY MONEY MARKET FUND;
THE MONEY MARKET FUND; AND
THE TAX-FREE MONEY MARKET FUND.
STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information should be read with the Prospectus
for the Trust Shares dated January 31,1997. This Statement is not a
Prospectus itself. You may request a copy of a prospectus or a paper copy
of this Statement of Additional Information, if you have received it
electronically, free of charge by writing to the Trust or calling toll-free
1-800-723-9512.

FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779

Statement dated January 31, 1997

Federated Securities Corp. is the distributor of the Funds
and is a subsidiary of Federated Investors.
CUSIP 927913103
CUSIP 927913855
CUSIP 927913301
CUSIP 927913863
CUSIP 927913830
CUSIP 927913889
CUSIP 927913608
CUSIP 927913806

2102608B-I (1/97)

TABLE OF CONTENTS

GENERAL INFORMATION ABOUT THE TRUST 1

INVESTMENT OBJECTIVE AND POLICIES OF THE
FUNDS 1

THE U.S. GOVERNMENT SECURITIES FUND 1

Types of Investments 1
THE STYLE MANAGER: LARGE CAP FUND AND THE
STYLE MANAGER FUND 2

Commercial Paper 4
Bank Instruments 4
THE VIRGINIA MUNICIPAL BOND FUND AND THE
MARYLAND MUNICIPAL BOND FUND 5

Acceptable Investments 5
Types of Acceptable Investments5
THE TREASURY MONEY MARKET FUND 5

Types of Investments 5
THE MONEY MARKET FUND 6

Types of Investments 6
THE TAX-FREE MONEY MARKET FUND 6

PORTFOLIO INVESTMENTS AND STRATEGIES 6

Repurchase Agreements 6
Reverse Repurchase Agreements 6

When-Issued and Delayed Delivery
Transactions 6
Lending of Portfolio Securities7
Restricted and Illiquid Securities 7
Participation Interests 7
Variable Rate Municipal Securities 8
Municipal Leases 8
Temporary Investments 8
Adjustable Rate Mortgage Securities 8
Portfolio Turnover 9
INVESTMENT LIMITATIONS 9

VIRTUS FUNDS MANAGEMENT 13

Fund Ownership 16
Officers and Trustees Compensation 17
Trustee Liability 17
INVESTMENT ADVISORY SERVICES 18

Adviser to the Trust 18
Advisory Fees 18
Sub-Adviser to the Style Manager: Large Cap
Fund and The Style Manager Fund18
Sub-Advisory Fees 18
OTHER SERVICES 18

Fund Administration 18
Custodian 19
Transfer Agent 19
Independent Auditors 19

BROKERAGE TRANSACTIONS 19

PURCHASING SHARES 19

Distribution Plan 20
Conversion to Federal Funds 20
ADMINISTRATIVE ARRANGEMENTS 20

DETERMINING NET ASSET VALUE 20

Determining Market Value of Securities 21
Use of the Amortized Cost Method21
Valuing Municipal Securities 22
Use of Amortized Cost 22
REDEEMING SHARES 22

Redemption in Kind 22
MASSACHUSETTS PARTNERSHIP LAW 23

TAX STATUS 23

The Funds' Tax Status 23
Shareholders' Tax Status 23
TOTAL RETURN 24

YIELD 24

EFFECTIVE YIELD 25

TAX-EQUIVALENT YIELD 25

PERFORMANCE COMPARISONS 29

The U.S. Government Securities Fund 29

The Style Manager: Large Cap Fund and
The Style Manager Fund 30
The Virginia Municipal Bond Fund and
The Maryland Municipal Bond Fund30
The Treasury Money Market Fund30
The Money Market Fund 31
The Tax-Free Money Market Fund31
FINANCIAL STATEMENTS 31

APPENDIX 32

GENERAL INFORMATION ABOUT THE TRUST

The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated June 20, 1990. As of the date of this Statement,
the Trust consists of eight separate portfolios of securities
(collectively, the `Funds'', individually, a ``Fund'') which are as
follows: The U. S. Government Securities Fund, The Style Manager: Large Cap
Fund, The Style Manager Fund, The Virginia Municipal Bond Fund, The
Maryland Municipal Bond Fund, The Treasury Money Market Fund, The Money
Market Fund, and The Tax-Free Money Market Fund. On October 1, 1992, the
name of the Trust was changed from `The SBK Select Series'' to ``Signet
Select Funds.''On August 15, 1994, the name of the Trust was changed from
`Signet Select Funds'' to ``The Medalist Funds.'' On February 15, 1995, the
name of the Trust was changed from "The Medalist Funds" to "The Virtus
Funds."
With the exception of The Tax-Free Money Market Fund and The Style Manager
Fund, which offer a single class of shares, the Funds are offered in two
classes, Investment Shares and Trust Shares. This Combined Statement of
Additional Information relates only to the Trust Shares of those Funds
offering classes and to shares of The Tax-Free Money Market Fund and The
Style Manager Fund.
INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS

The prospectus discusses the objective of each Fund and the policies it
employs to achieve those objectives. The following discussion supplements
the description of the Funds' investment policies in the combined
prospectus.
The Funds' respective investment objectives cannot be changed without
approval of shareholders. The investment policies described below may be

changed by the Trustees without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
Additional information about investment limitations, strategies that one or
more Funds may employ, and certain investment policies mentioned below
appear in the prospectus section `Portfolio Investments and Strategies.''
THE U.S. GOVERNMENT SECURITIES FUND

TYPES OF INVESTMENTS
The Fund invests primarily in securities which are guaranteed as to payment
of principal and interest by the U.S. government or its instrumentalities.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as
U.S. Treasury bills, notes, and bonds) and obligations issued or
guaranteed by U.S. government agencies or instrumentalities. These
securities are backed by: the full faith and credit of the U.S.
Treasury; the issuer's right to borrow from the U.S. Treasury; the
discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or the credit of the
agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always
receive financial support from the U.S. government are: the Farm
Credit System; Federal Home Loan Banks; Farmers Home Administration;
and Federal National Mortgage Association.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
Privately issued CMOs generally represent an ownership interest in
federal agency mortgage pass-through securities such as those issued
by the Government National Mortgage Association. The terms and

characteristics of the mortgage instruments may vary among pass-
through mortgage loan pools.
The market for such CMOs has expanded considerably since its
inception. The size of the primary issuance market and the active
participation in the secondary market by securities dealers and other
investors make government-related pools highly liquid.

THE STYLE MANAGER: LARGE CAP FUND AND THE STYLE MANAGER FUND

The Funds invest primarily in corporate securities, including common
stocks, preferred stocks, corporate bonds, notes, warrants and convertible
securities.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities which may be
exchanged or converted into a predetermined number of the issuer's
underlying common stock at the option of the holder during a specified
time period. Convertible securities may take the form of convertible
preferred stock, convertible bonds or debentures, units consisting of
`usable'' bonds and warrants or a combination of the features of
several of these securities. The investment characteristics of each
convertible security vary widely, which allows convertible securities
to be employed for different investment objectives.
A Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in
which, in the investment adviser's opinion, the investment
characteristics of the underlying common shares will assist the Fund
in achieving its investment objectives. Otherwise, the Fund may hold

or trade convertible securities. In selecting convertible securities
for a Fund, the Fund's adviser evaluates the investment
characteristics of the convertible security as a fixed income
instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with
respect to a particular convertible security, a Fund's adviser
considers numerous factors, including the economic and political
outlook, the value of the security relative to other investment
alternatives, trends in the determinants of the issuer's profits, and
the issuer's management capability and practices.
WARRANTS
Warrants are basically options to purchase common stock at a specific
price (usually at a premium above the market value of the optioned
common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than a year to twenty years
or may be perpetual. However, most warrants have expiration dates
after which they are worthless. In addition, if the market price of
the common stock does not exceed the warrant's exercise price during
the life of the warrant, the warrant will expire as worthless.
Warrants have no voting rights, pay no dividends, and have no rights
with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may
tend to be greater than the percentage increase or decrease in the
market price of the optioned common stock.
FUTURES AND OPTIONS TRANSACTIONS
As a means of reducing fluctuations in the net asset value of shares
of a Fund, the Fund may attempt to hedge all or a portion of its
portfolio by buying and selling financial futures contracts, buying

put options on portfolio securities and listed put options on futures
contracts, and writing call options on futures contracts. a Fund may
also write covered call options on portfolio securities to attempt to
increase its current income. The Fund will maintain its positions in
securities, option rights, and segregated cash subject to puts and
calls until the options are exercised, closed, or have expired. An
option position on financial futures contracts may be closed out only
on an exchange which provides a secondary market from options of the
same series.
FINANCIAL FUTURES CONTRACTS
A futures contract is a firm commitment by two parties: the seller,
who agrees to make delivery of the specific type of security called
for in the contract (`going short'') and the buyer, who agrees to
take delivery of the security (`going long'') at a certain time in
the future. Financial futures contracts call for the delivery of
shares of common stocks represented in a particular index.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
A Fund may purchase listed put options on financial futures contracts.
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified
price, the purchase of a put option on a futures contract entitles
(but does not obligate) its purchaser to decide on or before a future
date whether to assume a short position at the specified price.

Generally, if the hedged portfolio securities decrease in value during
the term of an option, the related futures contracts will also
decrease in value and the option will increase in value. In such an

event, a Fund will normally close out its option by selling an
identical option. If the hedge is successful, the proceeds received by
a Fund upon the sale of the second option will be large enough to
offset both the premium paid by the Fund for the original option plus
the decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures
contract of the type underlying the option (for a price less than the
strike price of the option) and exercise the option. The Fund would
then deliver the futures contract in return for payment of the strike
price. If the Fund neither closes out nor exercises an option, the
option will expire on the date provided in the option contract, and
only the premium paid for the contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, a Fund may write
listed call options on futures contracts to hedge its portfolio. When
a Fund writes a call option on a futures contract, it is undertaking
the obligation of assuming a short futures position (selling a futures
contract) at the fixed strike price at any time during the life of the
option if the option is exercised. As stock prices fall, causing the
prices of futures to go down, the Fund's obligation under a call
option on a future (to sell a futures contract) costs less to fulfill,
causing the value of the Fund's call option position to increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the
call, so that the Fund keeps the premium received for the option. This
premium can substantially offset the drop in value of the Fund's fixed
income or indexed portfolio which is occurring as interest rates rise.

Prior to the expiration of a call written by a Fund, or exercise of it
by the buyer, the Fund may close out the option by buying an identical
option. If the hedge is successful, the cost of the second option will
be less than the premium received by the Fund for the initial option.
The net premium income of the Fund will then substantially offset the
decrease in value of the hedged securities.
A Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds
the current market value of its securities portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the
futures contracts. If this limitation is exceeded at any time, the
Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
`MARGIN'' IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, a Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of `initial margin'' in
cash or U.S. Treasury bills with its custodian (or the broker, if
legally permitted). The nature of initial margin in futures
transactions is different from that of margin in securities
transactions in that futures contract initial margin does not involve
the borrowing of funds by the Fund to finance the transactions.
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, assuming all contractual obligations have
been satisfied.
A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the
Fund pays or receives cash, called `variation margin,'' equal to the
daily change in value of the futures contract. This process is known
as `marking to market.'' Variation margin does not represent a
borrowing or loan by the Fund but is instead settlement between the
Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the
Fund will mark to market its open futures positions.
The Fund is also required to deposit and maintain margin when it
writes call options on futures contracts.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
A Fund may purchase put options on portfolio securities to protect
against price movements in particular securities in its portfolio. A
put option gives the Fund, in return for a premium, the right to sell
the underlying security to the writer (seller) at a specified price
during the term of the option.

WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
A Fund may also write covered call options to generate income. As
writer of a call option, the Fund has the obligation upon exercise of
the option during the option period to deliver the underlying security
upon payment of the exercise price. The Fund may only sell call
options either on securities held in its portfolio or on securities
which it has the right to obtain without payment of further

consideration (or has segregated cash in the amount of any additional
consideration).
OVER-THE-COUNTER OPTIONS
A Fund may purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of
the options for those options on portfolio securities held by the Fund
and not traded on an exchange.
Over-the-counter options are two party contracts with price and terms
negotiated between buyer and seller. In contrast, exchange-traded
options are third party contracts with standardized strike prices and
expiration dates and are purchased from a clearing corporation.
Exchange-traded options have a continuous liquid market while over-
the-counter options may not.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
are those set forth under `The U.S. Government Securities Fund-U.S.
Government Obligations.''
COMMERCIAL PAPER
A Fund may invest in commercial paper rated at least A-1 by Standard &
Poor's Ratings Group (`S&P''), Prime-1 by Moody's Investors Service, Inc.
(`Moody's''), or F-1 by Fitch Investors Service (``Fitch'') and money
market instruments (including commercial paper) which are unrated but of
comparable quality, including Canadian Commercial Paper (`CCPs'') and
Europaper. In the case where commercial paper, CCPs or Europaper have
received different ratings from different rating services, such commercial
paper, CCPs or Europaper is an acceptable investment so long as at least
one rating is one of the preceding high quality ratings and provided the

investment adviser has determined that such investment presents minimal
credit risks.
BANK INSTRUMENTS
A Fund may invest in the instruments of banks and savings and loans whose
deposits are insured by the Bank Insurance Fund (`BIF''), which is
administered by the Federal Deposit Insurance Corporation (`FDIC''), or
the Savings Association Insurance Fund (`SAIF''), which is administered by
the FDIC, such as certificates of deposit, demand and time deposits,
savings shares, and bankers' acceptances. These instruments are not
necessarily guaranteed by those organizations.
In addition to domestic bank obligations such as certificates of deposit,
demand and time deposits, savings shares, and bankers' acceptances, the
Fund may invest in:
oEurodollar Certificates of Deposit (``ECDs'') issued by foreign
branches of U.S. or foreign banks;
oEurodollar Time Deposits (``ETDs''), which are U.S. dollar-
denominated deposits in foreign branches of U.S. or foreign banks;
oCanadian Time Deposits, which are U.S. dollar-denominated deposits
issued by branches of major Canadian banks located in the United
States; and
oYankee Certificates of Deposit (``Yankee CDs''), which are U.S.
dollar-denominated certificates of deposit issued by U.S. branches
of foreign banks and held in the United States.

THE VIRGINIA MUNICIPAL BOND FUND AND THE MARYLAND MUNICIPAL BOND FUND

ACCEPTABLE INVESTMENTS
The Virginia Municipal Bond Fund and The Maryland Municipal Bond Fund
pursue their investment objectives by investing in professionally managed
portfolios of securities at least 65% of which are comprised of Virginia
(in the case of The Virginia Municipal Bond Fund) or Maryland (in the case
of The Maryland Municipal Bond Fund) municipal securities. The Funds will
invest their assets so that, under normal circumstances, at least 80% of
their annual interest income is exempt from federal regular and Virginia
(in the case of The Virginia Municipal Bond Fund) or Maryland (in the case
of The Maryland Municipal Bond Fund) state income taxes or that at least
80% of their total assets are invested in obligations, the interest income
from which is exempt from federal regular and Virginia (in the case of The
Virginia Municipal Bond Fund) or Maryland (in the case of The Maryland
Municipal Bond Fund) state income taxes.
CHARACTERISTICS
The municipal securities in which the Funds invest have the
characteristics set forth in the prospectus. An unrated municipal
security will be determined by a Fund's adviser to meet the quality
standards established by the Fund's Board of Trustees if it is of
comparable quality to the rated municipal securities which the Fund
purchases. The Trustees consider the creditworthiness of the issuer of
a municipal security, the issuer of a participation interest if the
Fund has the right to demand payment from the issuer of the interest
or the guarantor of payment by either of those issuers.

If Moody's or S&P's ratings change because of changes in those
organizations or in their rating systems, a Fund will try to use
comparable ratings as standards in accordance with the investment
policies described in the Fund's prospectus.
TYPES OF ACCEPTABLE INVESTMENTS
Examples of Virginia and Maryland municipal securities are:
omunicipal notes and tax-exempt commercial paper;
oserial bonds sold with a series of maturity dates;
otax anticipation notes sold to finance working capital needs of
municipalities in anticipation of receiving taxes at a later date;
obond anticipation notes sold in anticipation of the issuance of
longer-term bonds in the future;
orevenue anticipation notes sold in expectation of receipt of federal
income available under the Federal Revenue Sharing Program;
oprerefunded municipal bonds refundable at a later date (payment of
principal and interest on prerefunded bonds is assured through the
first call date by the deposit in escrow of U.S. government
securities); or
ogeneral obligation bonds secured by a municipality's pledge of
taxation.
THE TREASURY MONEY MARKET FUND

TYPES OF INVESTMENTS
The Fund invests only in short-term U.S. Treasury obligations. Short-term
U.S. Treasury obligations as used herein refers to evidences of
indebtedness issued by the United States, or issued by an agency or
instrumentality thereof, and fully guaranteed as to principal and interest
by the United States, maturing in 397 days or less from the date of

acquisition unless they are purchased under a repurchase agreement that
provides for repurchase by the seller within one year from the date of
acquisition. The Fund may also retain Fund assets in cash.
THE MONEY MARKET FUND

TYPES OF INVESTMENTS
The Fund invests primarily in money market instruments maturing in 397 days
or less and which include, but are not limited to, commercial paper and
demand master notes, domestic and foreign bank instruments, U.S. government
obligations, and corporate debt obligations.
BANK INSTRUMENTS
The types of bank instruments in which the Fund invests are those set
forth under `The Style Manager: Large Cap Fund-Bank Instruments.''
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
are those set forth under `The U.S. Government Securities Fund-U.S.
Government Obligations.''
THE TAX-FREE MONEY MARKET FUND

The Fund invests in a portfolio of municipal securities maturing in 13
months or less. As a matter of investment policy, which cannot be changed
without shareholder approval, at least 80% of the Fund's annual interest
income will be exempt from federal income tax (including alternative
minimum tax). The average maturity of the securities in the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.

PORTFOLIO INVESTMENTS AND STRATEGIES

REPURCHASE AGREEMENTS
The Funds or their custodian will take possession of the securities subject
to repurchase agreements and these securities will be marked to market
daily. In the event that a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by a Fund might be delayed
pending court action. The Funds believe that under the regular procedures
normally in effect for custody of a Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in
favor of a Fund and allow retention or disposition of such securities. The
Funds will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are deemed
by the adviser to be creditworthy pursuant to guidelines established by the
Trustees.
REVERSE REPURCHASE AGREEMENTS
The Funds may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement a Fund transfers possession of a portfolio instrument to another
person, such as a financial institution, broker, or dealer, in return for a
percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an
agreed upon rate. The use of reverse repurchase agreements may enable a
Fund to avoid selling portfolio instruments at a time when a sale may be
deemed to be disadvantageous, but the ability to enter into reverse
repurchase agreements does not ensure that a Fund will be able to avoid
selling portfolio instruments at a disadvantageous time.

When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for a Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of a
Fund sufficient to make payment for the securities to be purchased are
segregated on a Fund's records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Funds may engage in these transactions to an extent that would cause
the segregation of an amount up to 20% of the total value of their assets.
The Funds do not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of their respective assets.
LENDING OF PORTFOLIO SECURITIES
The collateral received when The U.S. Government Securities Fund, The Style
Manager: Large Cap Fund, The Style Manager Fund, and The Money Market Fund
lend portfolio securities must be valued daily and, should the market value
of the loaned securities increase, the borrower must furnish additional
collateral to the particular Fund. During the time portfolio securities are
on loan, the borrower pays a Fund any dividends or interest paid on such
securities. Loans are subject to termination at the option of a Fund or the
borrower. A Fund may pay reasonable administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the interest
earned on the cash or equivalent collateral to the borrower or placing
broker. The U.S. Government Securities Fund and The Style Manager: Large

Cap Fund do not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
RESTRICTED AND ILLIQUID SECURITIES
The Funds may invest in restricted securities. Restricted securities are
any securities in which a Fund may otherwise invest pursuant to its
investment objective and policies but which are subject to restriction on
resale under federal securities law. However, The U.S. Government
Securities Fund, The Style Manager: Large Cap Fund, The Style Manager Fund,
The Virginia Municipal Bond Fund and The Maryland Municipal Bond Fund will
limit investments in illiquid securities, including certain restricted
securities determined by the Trustees not to be liquid, and repurchase
agreements providing for settlement in more than seven days after notice,
to 15% of its net assets. In the case of The Virginia Municipal Bond Fund
and The Maryland Municipal Bond Fund, illiquid securities will include
participation interests and variable rate municipal securities without a
demand feature or with a demand feature of longer than seven days and which
the adviser believes cannot be sold within seven days. The Treasury Money
Market Fund, The Money Market Fund, and The Tax-Free Money Market Fund will
limit investments in illiquid securities, including certain securities
determined by the Trustees not to be liquid, and repurchase agreements
providing for settlement in more than seven days after notice, and in the
case of The Money Market Fund, specifically including non-negotiable fixed
income time deposits with maturities over seven days, to 10% of their net
assets.
The U.S. Government Securities Fund, The Style Manager: Large Cap Fund, The
Style Manager Fund, and The Money Market Fund may invest in commercial
paper issued in reliance on the exemption from registration afforded by

Section 4(2) of the Securities Act of 1933. Section 4(2) commercial paper
is restricted as to disposition under federal securities law and is
generally sold to institutional investors, such as the Fund, who agree that
they are purchasing the paper for investment purposes and not with a view
to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial
paper, thus providing liquidity. The Funds believe that Section 4(2)
commercial paper and possibly certain other restricted securities which
meet the criteria for liquidity established by the Board of Trustees are
quite liquid. The Funds intend, therefore, to treat the restricted
securities which meet the criteria for liquidity established by the
Trustees, including Section 4(2) commercial paper, as determined by a
Fund's investment adviser, as liquid and not subject to the investment
limitation applicable to illiquid securities. In addition, because Section
4(2) commercial paper is liquid, the Funds intend to not subject such paper
to the limitation applicable to restricted securities.
PARTICIPATION INTERESTS
The financial institutions from which The Virginia Municipal Bond Fund, The
Maryland Municipal Bond Fund, and The Tax-Free Money Market Fund purchase
participation interests frequently provide or secure from other financial
institutions irrevocable letters of credit or guarantees and give a Fund
the right to demand payment on specified notice (normally within thirty
days for The Virginia Municipal Bond Fund and The Maryland Municipal Bond
Fund and seven days for The Tax-Free Money Market Fund) from the issuer of
the letter of credit or guarantee. These financial institutions may charge
certain fees in connection with their repurchase commitments, including a

fee equal to the excess of the interest paid on the municipal securities
over the negotiated yield at which the participation interests were
purchased by a Fund. By purchasing participation interests, a Fund is
buying a security meeting the maturity and quality requirements of a Fund
and is also receiving the tax-free benefits of the underlying securities.
In the acquisition of participation interests, a Fund's investment adviser
will consider the following quality factors:
othe quality of the underlying municipal security (of which a Fund
takes possession);
othe quality of the issuer of the participation interest; and
oa guarantee or letter of credit from a high-quality financial
institution supporting the participation interest.

VARIABLE RATE MUNICIPAL SECURITIES
The Virginia Municipal Bond Fund, The Maryland Municipal Bond Fund, and The
Tax-Free Money Market Fund invest in variable municipal securities.
Variable interest rates generally reduce changes in the market value of
municipal securities from their original purchase prices. Accordingly, as
interest rates decrease or increase, the potential for capital appreciation
or depreciation is less for variable rate municipal securities than for
fixed income obligations.
Many municipal securities with variable interest rates purchased by The
Tax-Free Money Market Fund are subject to repayment of principal (usually
within seven days) on The Tax-Free Money Market Fund's demand. For purposes
of determining the Fund's average maturity, the maturities of these
variable rate demand municipal securities (including participation
interests) are the longer of the periods remaining until the next

readjustment of their interest rates or the periods remaining until their
principal amounts can be recovered by exercising the right to demand
payment. The terms of these variable rate demand instruments require
payment of principal and accrued interest from the issuer of the municipal
obligations, the issuer of the participation interests or a guarantor of
either issuer.
MUNICIPAL LEASES
The Virginia Municipal Bond Fund, The Maryland Municipal Bond Fund, and The
Tax-Free Money Market Fund may purchase municipal securities in the form of
participation interests which represent undivided proportional interests in
lease payments by a governmental or nonprofit entity. The lease payments
and other rights under the lease provide for and secure the payments on the
certificates. Lease obligations may be limited by municipal charter or the
nature of the appropriation for the lease. In particular, lease obligations
may be subject to periodic appropriation. If the entity does not
appropriate funds for future lease payments, the entity cannot be compelled
to make such payments. Furthermore, a lease may provide that the
certificate trustee cannot accelerate lease obligations upon default. The
trustee would only be able to enforce lease payments as they became due. In
the event of a default or failure of appropriation, it is unlikely that the
trustee would be able to obtain an acceptable substitute source of payment.
In determining the liquidity of municipal lease securities, the adviser,
under the authority delegated by the Board of Trustees, will base its
determination on the following factors: (a) whether the lease can be
terminated by the lessee; (b) the potential recovery, if any, from a sale
of the leased property upon termination of the lease; (c) the lessee's
general credit strength (e.g., its debts, administrative, economic and
financial characteristics, and prospects); (d) the likelihood that the

lessee will discontinue appropriating funding for the leased property
because the property is no longer deemed essential to its operations (e.g.,
the potential for an `event of nonappropriation''); and (e) any credit
enhancement of legal recourse provided upon an event of nonappropriation or
other termination of the lease.
TEMPORARY INVESTMENTS
The Virginia Municipal Bond Fund, The Maryland Municipal Bond Fund and The
Tax-Free Money Market Fund may also invest in temporary investments during
times of unusual market conditions for defensive purposes and to maintain
liquidity.
From time to time, such as when suitable securities are not available to
the respective Fund, a Fund may invest a portion of its assets in cash. Any
portion of a Fund's assets maintained in cash will reduce the amount of
assets in securities held in the respective Fund, and could thereby reduce
a Fund's yield.
ADJUSTABLE RATE MORTGAGE SECURITIES
The U.S. Government Securities Fund invests in adjustable rate mortgage
securities (`ARMS''). Not unlike other U.S. government securities, the
market value of ARMS will generally vary inversely with changes in market
interest rates. Thus, the market value of ARMS generally declines when
interest rates rise and generally rises when interest rates decline.
While ARMS generally entail less risk of a decline during periods of
rapidly rising rates, ARMS may also have less potential for capital
appreciation than other similar investments (e.g. investments with
comparable maturities) because as interest rates decline, the likelihood
increases that mortgages will be prepaid. Furthermore, if ARMS are
purchased at a premium, mortgage foreclosures and unscheduled principal
payment may result in some loss of a holder's principal investment to the

extent of the premium paid. Conversely, if ARMS are purchased at a
discount, both a scheduled payment of principal and an unscheduled
prepayment of principal would increase current and total returns and would
accelerate the recognition of income, which would be taxed as ordinary
income when distributed to shareholders.

PORTFOLIO TURNOVER
The Funds will not attempt to set or meet a portfolio turnover rate since
any turnover would be incidental to transactions undertaken in an attempt
to achieve a Fund's investment objective. The Style Manager: Large Cap Fund
and The Style Manager Fund may experience greater portfolio turnover than
would be expected with a portfolio of higher-rated securities. A high
portfolio turnover will result in increased transaction costs to the Fund.
For the fiscal years ended September 30, 1996, 1995, and 1994, the
portfolio turnover rates were 118%, 82% and 227%, respectively, for The
U.S. Government Securities Fund; 151%, 208% and 205%, respectively, for The
Style Manager: Large Cap Fund; 126%, 26% and 29%, respectively, for The
Virginia Municipal Bond Fund; and 138%, 21% and 27%, respectively, for The
Maryland Municipal Bond Fund. For the fiscal year ended September 30, 1996
and for the period from March 7, 1995, (date of initial public investment)
to September 30, 1995, The Style Manager Fund's portfolio turnover rate was
112% and 92%, respectively.
INVESTMENT LIMITATIONS

ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Funds will not issue senior securities except that a Fund may
borrow money directly or through reverse repurchase agreements in

amounts up to one-third of the value of its net assets, including the
amount borrowed. The Funds will not borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling a Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. A Fund will not purchase any
securities while any borrowings in excess of 5% of its total assets
are outstanding. With respect to The U.S. Government Securities Fund,
The Style Manager: Large Cap Fund, The Style Manager Fund, The
Virginia Municipal Bond Fund, The Maryland Municipal Bond Fund, The
Treasury Money Market Fund, and The Money Market Fund, during the
period any reverse repurchase agreements are outstanding, the Funds
will restrict the purchase of portfolio securities to money market
instruments maturing on or before the expiration date of the reverse
repurchase agreements, but only to the extent necessary to assure
completion of the reverse repurchase agreements.
SELLING SHORT AND BUYING ON MARGIN
The Funds will not purchase any securities on margin but they may
obtain such short-term credits as may be necessary for clearance of
transactions. With respect to The U.S. Government Securities Fund, The
Style Manager: Large Cap Fund and The Style Manager Fund, the deposit
or payment by the Fund of initial or variation margin in connection
with financial futures contracts or related options transactions is
not considered the purchase of a security on margin. The Virginia
Municipal Bond Fund, The Maryland Municipal Bond Fund, The Treasury
Money Market Fund, The Money Market Fund, and The Tax-Free Money
Market Fund may not sell any securities short.

PLEDGING ASSETS
The Funds will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. In these cases the Funds, except The
Tax-Free Money Market Fund, may pledge assets having a market value
not exceeding the lesser of the dollar amounts borrowed or 15% of the
value of total assets of a Fund at the time of the pledge. Margin
deposits for the purchase and sale of financial futures contracts and
related options are not deemed to be a pledge.
LENDING CASH OR SECURITIES
The U.S. Government Securities Fund, The Style Manager: Large Cap
Fund, The Style Manager Fund, The Treasury Money Market Fund and The
Money Market Fund, will not lend any of their assets, except portfolio
securities up to one-third of the value of their total assets. This
shall not prevent a Fund from purchasing or holding bonds, debentures,
notes, certificates of indebtedness, or other debt securities,
entering into repurchase agreements, or engaging in other transactions
where permitted by a Fund's investment objective, policies, and
limitations or the Trust's Declaration of Trust.
The Virginia Municipal Bond Fund and The Maryland Municipal Bond Fund
will not lend any of their assets, except that they may acquire
publicly or nonpublicly issued municipal securities or temporary
investments or enter into repurchase agreements as permitted by a
Fund's investment objective, policies, limitations and Declaration of
Trust.
The Tax-Free Money Market Fund will not lend any of its assets except
that it may purchase or hold portfolio securities permitted by its
investment objective, policies and limitations, or Declaration of
Trust.

INVESTING IN RESTRICTED SECURITIES
Except for The Tax-Free Money Market Fund, the Funds will not invest
more than 10% of their net assets in securities subject to
restrictions on resale under the Securities Act of 1933 (except
certain restricted securities which meet the criteria for liquidity as
established by the Board of Trustees. With respect to The U.S.
Government Securities Fund, The Style Manager: Large Cap Fund, The
Style Manager Fund and The Money Market Fund, this exception
specifically extends to commercial paper issued under Section 4(2) of
the Securities Act of 1933 and certain other restricted securities
which meet the criteria for liquidity as established by the Board of
Trustees).
The Tax-Free Money Market Fund will not invest more than 10% of its
total assets in securities subject to restrictions on resale under
federal securities law, except for restricted securities determined to
be liquid under criteria established by the Trustees.
INVESTING IN COMMODITIES
The Funds will not purchase or sell commodities, commodity contracts
or commodity futures contracts except for financial futures contracts
in the case of The Style Manager: Large Cap Fund and The Style Manager
Fund.
INVESTING IN REAL ESTATE
The Funds will not purchase or sell real estate, including limited
partnership interests with respect to The Style Manager Fund, although
The U.S. Government Securities Fund, The Style Manager: Large Cap Fund
and The Style Manager Fund may invest in securities secured by real
estate or interests in real estate or issued by companies, including
real estate investment trusts, which invest in real estate or

interests therein. The Virginia Municipal Bond Fund, The Maryland
Municipal Bond Fund, The Money Market Fund, and The Tax-Free Money
Market Fund may invest in securities of issuers whose business
involves the purchase or sale of real estate or in securities which
are secured by real estate or interests in real estate.
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of its total assets, The U.S.
Government Securities Fund, The Style Manager: Large Cap Fund, The
Style Manager Fund and The Money Market Fund will not purchase
securities issued by any one issuer (other than cash, cash items or
securities issued or guaranteed by the government of the United States
or its agencies or instrumentalities and repurchase agreements
collateralized by such securities), if as a result more than 5% of the
value of its total assets would be invested in the securities of that
issuer. The U.S. Government Fund and The Style Manager: Large Cap Fund
will not acquire more than 10% of the outstanding voting securities of
any one issuer.
CONCENTRATION OF INVESTMENTS
The U.S. Government Securities Fund, The Style Manager: Large Cap
Fund, The Style Manager Fund and The Money Market Fund will not invest
25% or more of the value of their total assets in any one industry.
With respect to The Money Market Fund, investing in bank instruments
(such as time and demand deposits and certificates of deposit), U.S.
government obligations, or instruments secured by these money market
instruments, such as repurchase agreements for U.S. government
obligations, shall not be considered investments in any one industry.
The Virginia Municipal Bond Fund and The Maryland Municipal Bond Fund
will not purchase securities if, as a result of such purchase, 25% or

more of the value of its total assets would be invested in any one
industry or in industrial development bonds or other securities, the
interest on which is paid from revenues of similar types of projects.
However, these Funds may invest as temporary investments more than 25%
of the value of its assets in cash or cash items, securities issued or
guaranteed by the U.S. government, its agencies, or instrumentalities,
or instruments secured by these money market instruments, such as
repurchase agreements.

The Tax-Free Money Market Fund will not invest 25% or more of the
value of its total assets in any one industry, except that it may
invest more than 25% of its total assets in securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities
and industrial development bonds as long as they are not from the same
facility or similar types of facilities. The Tax-Free Money Market
Fund does not intend to purchase securities that would increase the
percentage of its assets invested in the securities of governmental
subdivisions located in any one state, territory, or U.S. possession
to 25% or more.
UNDERWRITING
The Funds will not underwrite any issue of securities, except as a
Fund may be deemed to be an underwriter under the Securities Act of
1933 in connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
The above limitations cannot be changed with respect to a Fund without
approval of a majority of that Fund's Shares. The following limitations may
be changed by the Trustees without shareholder approval. Shareholders will

be notified before any material change in these limitations becomes
effective.
INVESTING IN ILLIQUID SECURITIES
The U.S. Government Securities Fund, The Style Manager: Large Cap
Fund, The Style Manager Fund, The Virginia Municipal Bond Fund, and
The Maryland Municipal Bond Fund will not invest more than 15% of the
value of their net assets in illiquid securities, including repurchase
agreements providing for settlement in more than seven days after
notice, and certain restricted securities determined by the Trustees
not to be liquid; and, in the case of The Virginia Municipal Bond Fund
and The Maryland Municipal Bond Fund, specifically including
participation interests and variable rate municipal securities without
a demand feature or with a demand feature of longer than seven days
and which the adviser believes cannot be sold within seven days. The
Treasury Money Market Fund, The Money Market Fund, and The Tax-Free
Money Market Fund will not invest more than 10% of the value of their
net assets in illiquid securities, including repurchase agreements
providing for settlement more than seven days after notice and certain
securities determined by the Trustees not to be liquid; and, in the
case of The Money Market Fund, specifically including non-negotiable
fixed income time deposits with maturities over seven days.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Funds will limit their respective investment in other investment
companies to no more than 3% of the total outstanding voting stock of
any investment company, invest no more than 5% of total assets in any
one investment company, or invest more than 10% of total assets in
investment companies in general. The U.S. Government Securities Fund,
The Style Manager: Large Cap Fund, The Style Manager Fund, The

SELLING SHORT
Neither The U.S. Government Securities Fund, The Style Manager: Large
Cap Fund, nor The Style Manager Fund will sell securities short unless
(1) it owns, or has a right to acquire, an equal amount of such
securities, or (2) it has segregated an amount of its other assets
equal to the lesser of the market value of the securities sold short
or the amount required to acquire such securities. The segregated
amount will not exceed 10% of The U.S. Government Securities Fund's
nor The Style Manager: Large Cap Fund's net assets. With respect to

The Style Manager Fund, the segregated amount will not exceed 5% of
the Fund's net assets. The dollar amount of short sales at any one
time shall not exceed 5% of the Fund's net assets and the value of
securities of any one issuer in which the Fund is short may not exceed
the lesser of 2% of the value of the Fund's net assets or 2% of the
Securities of any class of any issuer.
While in a short position, the Fund will retain the securities, rights
or segregated assets.
DEALING IN PUTS AND CALLS
The Virginia Municipal Bond Fund, The Maryland Municipal Bond Fund,
and The Tax-Free Money Market Fund will not invest in puts, calls,
straddles, spreads, or any combination of them except that The
Virginia Municipal Bond Fund and The Maryland Municipal Bond Fund may
purchase put options on municipal securities in an amount up to 5% of
its total assets or may purchase municipal securities accompanied by
agreements of sellers to repurchase them at a Fund's option.
Except with respect to the Funds' policy of borrowing money, if a
percentage limitation is adhered to at the time of investment, a later
increase or decrease in percentage resulting from any change in value
or net assets will not result in a violation of such restriction.
The U.S. Government Securities Fund,The Style Manager: Large Cap Fund
and The Style Manager Fund have no present intent to borrow money,
pledge securities, sell securities short, or invest in restricted or
illiquid securities in excess of 5% of the value of their respective
net assets in the coming fiscal year. These Funds (1) will limit the
aggregate value of the assets underlying covered call options or put
options written by a Fund to not more than 25% of its net assets, (2)
will limit the premiums paid for options purchased by a Fund to 20% of

its net assets, and (3) will limit the margin deposits on futures
contracts entered into by a Fund to 5% of its net assets. (If state
requirements change, these restrictions may be revised without
shareholder notification.)
The Virginia Municipal Bond Fund and The Maryland Municipal Bond Fund
have no present intent to issue senior securities or borrow money,
pledge securities, invest in restricted or illiquid securities, sell
securities short, or engage in when-issued and delayed delivery
transactions in excess of 5% of the value of its net assets during the
fiscal period.
The Treasury Money Market Fund and The Money Market Fund do not expect
to issue senior securities or borrow money, pledge securities, sell
securities short, engage in when-issued and delayed delivery
transactions or reverse repurchase agreements, for The Money Market
Fund only, in excess of 5% of the value of their net assets during the
coming fiscal year.
The Tax-Free Money Market Fund does not intend to borrow money, sell
securities short, or pledge securities in excess of 5% of the value of
its net assets during the coming fiscal year.
To comply with registration requirements in a certain state, The
Virginia Municipal Bond Fund, The Maryland Municipal Bond Fund, The
Money Market Fund, and The Tax-Free Money Market Fund will not invest
in real estate limited partnerships or sell securities short,.

VIRTUS FUNDS MANAGEMENT

Officers and Trustees are listed with their addresses, birthdates, present
positions with Virtus Funds, and principal occupations.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.

Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee

Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Trustee of the
Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.

Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.

Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.

Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee

President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference

Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.

J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;

Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.

Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.

Joseph S. Machi
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 22, 1962
Vice President and Assistant Treasurer
Vice President, Federated Services Company; Vice President and Assistant
Treasurer of some of the Funds.

*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.

@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Arrow Funds; Automated Government
Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash
Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D.
Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S.
Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated
ARMs Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.;
Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust;
Federated Government Income Securities, Inc.; Federated Government Trust;
Federated High Income Bond Fund, Inc.; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Insurance Series; Federated
Investment Portfolios; Federated Investment Trust; Federated Master Trust;
Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government Trust; Federated
Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S.
Government Securities Fund: 2-5 Years; Federated U.S. Government Securities
Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed
Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S.
Government Money Market Trust; Liquid Cash Trust; Managed Series Trust;

Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds;
RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the outstanding shares of each
Fund.
As of January 2, 1997, the following shareholders of record owned 5% or
more of the outstanding shares of the Funds: Bova & Co., Richmond,
Virginia, owned approximately 739,931 Trust Shares of The Maryland
Municipal Bond Fund (98.52%); Approximately 2,405,157 Trust Shares of The
Virginia Municipal Bond Fund (100%); owned approximately 2,364,467 Trust
Shares of The Style Manager: Large Cap Fund (100%); owned approximately
246,323,969 Trust Shares of The Treasury Money Market Fund (99.62%); owned
approximately 155,305,123 Trust Shares of The Money Market Fund (97.33%);
owned approximately 7,169,514 Trust Shares of The U.S. Government
Securities Fund (99.99%); and owned approximately 7,077,427 shares of The
Tax-Free Money Market Fund (14.91%). Stephens Inc., Little Rock, Arkansas,
owned 31,851,409 shares of The Tax-Free Money Market Fund (67.11%).

OFFICERS AND TRUSTEES COMPENSATION

NAME , AGGREGATE TOTAL COMPENSATION

POSITION WITH COMPENSATION FROM PAID TO TRUSTEES FROM
TRUST TRUST+ TRUST AND FUND COMPLEX

John F. Donahue,
Chairman and Trustee $-0- $-0- for the Trust and
2 investment companies
Thomas G. Bigley,
Trustee $2,178 $3563 for the Trust and
2 investment companies
John T. Conroy, Jr.,
Trustee $2,377 $3888 for the Trust and
2 investment companies
William J. Copeland,
Trustee $2,377 $3888 for the Trust and
2 investment companies
James E. Dowd,
Trustee $2,377 $3888 for the Trust and
2 investment companies
Lawrence D. Ellis, M.D.,
Trustee $2,178 $3563 for the Trust and
2 investment companies
Edward L. Flaherty, Jr.,
Trustee $2,377 $3888 for the Trust and
2 investment companies
Edward C. Gonzales,
President and Trustee $-0- $-0- for the Trust and
2 investment companies

Peter E. Madden,
Trustee $2,178 $3563 for the Trust and
2 investment companies
Gregor F. Meyer,
Trustee $2,178 $3563 for the Trust and
2 investment companies
Wesley W. Posvar,
Trustee $2,178 $3563 for the Trust and
2 investment companies
Marjorie P. Smuts,
Trustee $2,178 $3563 for the Trust and
2 investment companies

+The aggregate compensation is provided for the Trust which is comprised of
eight portfolios.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, they are
not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.

INVESTMENT ADVISORY SERVICES

ADVISER TO THE TRUST
The Trust's investment adviser is Virtus Capital Management, Inc., a
wholly-owned subsidiary of Signet Banking Corporation. Because of the

internal controls maintained by Signet Bank to restrict the flow of non-
public information, Fund investments are typically made without any
knowledge of Signet Bank's or its affiliates' lending relationships with an
issuer.
The adviser shall not be liable to the Trust, a Fund, or any shareholder of
any of the Funds for any losses that may be sustained in the purchase,
holding, or sale of any security or for anything done or omitted by it,
except acts or omissions involving willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties imposed upon it by its
contract with the Trust.
ADVISORY FEES
For its advisory services, Virtus Capital Management, Inc. receives an
annual investment advisory fee as described in the prospectus. During the
fiscal years ended September 30, 1996, 1995, and 1994, the adviser earned
fees from: The U.S. Government Securities Fund of $1,612,364, $1,581,364
and $1,734,083, respectively, of which $276,121, $589,885 and $734,744,
respectively, were voluntarily waived; The Style Manager: Large Cap Fund of
$704,007, $678,512 and $703,937, respectively, of which $0, $189,983 and
$214,366, respectively, were voluntarily waived; The Style Manager Fund of
$657,611 and $374,393, respectively, for the fiscal year ended September
30, 1996 and for the period from March 7, 1995 (date of initial public
investment) to September 30, 1995, of which $290,966 and $374,393,
respectively, were voluntarily waived; The Virginia Municipal Bond Fund of
$762,051, $775,247 and $861,187, respectively, of which $20,993, $227,301
and $314,920, respectively, were voluntarily waived; The Maryland Municipal
Bond Fund of $315,941, $316,194 and $355,431, respectively, of which
$106,102, $187,476 and $241,790, respectively, were voluntarily waived; The
Treasury Money Market Fund of $1,721,497, $2,347,424 and $1,388,302,

respectively, of which $209,248, $469,485 and $508,090, respectively, were
voluntarily waived; and The Money Market Fund of $1,249,811, $868,490 and
$709,679, respectively, of which $299,129, $336,697 and $354,839,
respectively, were voluntarily waived. For the fiscal years ended September
30, 1996, 1995 and for the period from July 27, 1994 to September 30, 1994
the adviser earned $462,900, $262,792 and $21,033, respectively, from The
Tax-Free Money Market Fund, of which $184,473, $262,792 and $19,388,
respectively, were voluntarily waived.
SUB-ADVISER TO THE STYLE MANAGER: LARGE CAP FUND AND THE STYLE MANAGER FUND
Trend Capital Management, Inc. is the sub-adviser to The Style Manager:
Large Cap Fund and The Style Manager Fund.
SUB-ADVISORY FEES
For its sub-advisory services, the Sub-Adviser receives an annual sub-
advisory fee as described in the prospectus.
OTHER SERVICES

FUND ADMINISTRATION
Federated Administrative Services, which is a subsidiary of Federated
Investors, provides administrative personnel and services to the Funds for
the fees set forth in the prospectus. For the fiscal years ended September
30, 1996, 1995, and 1994, the Funds incurred costs for administrative
services as follows: The U.S. Government Securities Fund incurred $211,649,
$226,246 and $269,932, respectively; The Style Manager: Large Cap Fund
incurred $92,298, $97,229 and $109,075, respectively; The Style Manager
Fund incurred $93,863 and $85,069, respectively, for the fiscal year ended
September 30, 1996 and for the period from March 7, 1995 (date of initial
public investment) to September 30, 1995; The Virginia Municipal Bond Fund
incurred $100,059, $110,908 and $133,956, respectively; The Maryland
Municipal Bond Fund incurred $67,667, $45,246 and $55,254, respectively;

The Treasury Money Market Fund incurred $336,951, $500,283 and $319,857,
respectively; and The Money Market Fund incurred $254,134, $185,586 and
$165,549, respectively; of which $0, $0 and $0, respectively, were
voluntarily waived for The U.S. Government Securities Fund; $0, $0 and $0,
respectively, were voluntarily waived for The Style Manager: Large Cap
Fund; $0, $0 and $0, respectively, were voluntarily waived for The Virginia
Municipal Bond Fund; $0, $0 and $0, respectively, were voluntarily waived
for The Maryland Municipal Bond Fund; $0, $0 and $0, respectively, were
voluntarily waived for The Treasury Money Market Fund; and $0, $0 and $0,
respectively, were voluntarily waived for The Money Market Fund. For the
fiscal year ended September 30, 1996, 1995 and for the period from July 27,
1994, to September 30, 1994, The Tax-Free Money Market Fund paid $95,363,
$58,355 and $8,904, respectively, for administrative services, of which $0,
$0 and $0, respectively, were voluntarily waived.
CUSTODIAN
Signet Trust Company, Richmond, Virginia, is custodian for the securities
and cash of the Funds. Under the Custodian Agreement, Signet Trust Company
holds the Funds' portfolio securities in safekeeping and keeps all
necessary records and documents relating to its duties.
TRANSFER AGENT
Federated Shareholder Services Company, Boston, Massachusetts, is transfer
agent for the Shares of the Funds and dividend disbursing agent for the
Funds.
INDEPENDENT AUDITORS
The independent auditors for the Funds are Deloitte & Touche LLP,
Pittsburgh, Pennsylvania.

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the Board
of Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Funds or to the
adviser and may include:
oadvice as to the advisability of investing in securities;
osecurity analysis and reports;
oeconomic studies;
oindustry studies;
oreceipt of quotations for portfolio evaluations; and
osimilar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of the
brokerage and research services provided.
Research services provided by brokers may be used by the adviser in
advising the Funds and other accounts. To the extent that receipt of these
services may supplant services for which the adviser or its affiliates
might otherwise have paid, it would tend to reduce their expenses.

For the fiscal year ended September 30, 1996, The Style Manager: Large Cap
Fund and The Style Manager Fund paid $403,888 and $311,323, respectively,
in commissions on brokerage transactions.
PURCHASING SHARES

DISTRIBUTION PLAN
The Trust has adopted a Plan for Shares of the Funds pursuant to Rule 12b-1
which was promulgated by the Securities and Exchange Commission pursuant to
the Investment Company Act of 1940. The Plan provides that the Funds'
distributor, Federated Securities Corp., shall act as the distributor of
Shares, and it permits the payment of fees to brokers and dealers for
distribution and administrative services and to administrators for
administrative services. The Plan is designed to (i) stimulate brokers and
dealers to provide distribution and administrative support services to the
Funds and their holders of Shares and (ii) stimulate administrators to
render administrative support services to the Funds and their holders of
Shares. These services are to be provided by a representative who has
knowledge of the holder of Shares' particular circumstances and goals, and
include, but are not limited to: providing office space, equipment,
telephone facilities, and various personnel including clerical,
supervisory, and computer, as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and

redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries regarding the Funds; assisting
clients in changing dividend options, account designations, and addresses;
and providing such other services as the Trust reasonably requests.
Other benefits which the Funds hope to achieve through the Plan include,
but are not limited to the following: (1) an efficient and effective
administrative system; (2) a more efficient use of assets of holders of
Shares by having them rapidly invested in the Funds with a minimum of delay
and administrative detail; and (3) an efficient and reliable records system
for holders of Shares and prompt responses to shareholder requests and
inquiries concerning their accounts.
By adopting the Plan, the Board of Trustees expects that the Funds will be
able to achieve a more predictable flow of cash for investment purposes and
to meet redemptions. This will facilitate more efficient portfolio
management and assist the Funds in seeking to achieve their respective
investment objectives. By identifying potential investors in Shares whose
needs are served by a particular Fund's objective, and properly servicing
these accounts, the Funds may be able to curb sharp fluctuations in rates
of redemptions and sales.
For the fiscal years ended September 30, 1996, 1995, and 1994, the Funds
paid fees to brokers and administrators (financial institutions) pursuant
to the Plan as follows: The U.S. Government Securities Fund $297,511,
$268,621 and $299,048, respectively; The Style Manager: Large Cap Fund
$128,090, $80,046 and $59,836, respectively; The Virginia Municipal Bond
Fund, $174,114, $174,523 and $190,877, respectively; The Maryland Municipal
Bond Fund, $82,278, $80,136 and $89,447, respectively; The Treasury Money
Market Fund, $270,001, $80,097 and $52,221, respectively; and The Money
Market Fund, $198,913, $79,316 and $26,424. For the fiscal years ended

September 30, 1996 and 1995, and for the period from July 27, 1994 to
September 30, 1994, the Tax-Free Money Market Fund paid no fees pursuant to
the Plan. For the fiscal year ended September 30, 1996 and for the period
from March 7, 1995 to September 30, 1996, The Style Manager Fund paid no
fees pursuant to the Plan.
CONVERSION TO FEDERAL FUNDS
It is the policy of The Treasury Money Market Fund, The Money Market Fund,
and The Tax-Free Money Market Fund to be as fully invested as possible so
that maximum interest may be earned. To this end, all payments from
shareholders must be in federal funds or be converted into federal funds.
Federated Services Company acts as the shareholder's agent in depositing
checks and converting them to federal funds.
ADMINISTRATIVE ARRANGEMENTS

For the fiscal years ended September 30, 1996, 1995 and 1994, the
distributor paid no administrative fees to brokers and administrators
(financial institutions).
DETERMINING NET ASSET VALUE

Net asset values of The U.S. Government Securities Fund, The Style Manager:
Large Cap Fund, The Style Manager Fund, The Virginia Municipal Bond Fund
and The Maryland Municipal Bond Fund generally change each day. The
Treasury Money Market Fund, The Money Market Fund, and The Tax-Free Money
Market Fund attempt to stabilize the value of their Shares at $1.00. The
days on which the net asset value is calculated by these Funds are
described in the prospectus.

DETERMINING MARKET VALUE OF SECURITIES
The market value of The U.S. Government Securities Fund's portfolio
securities are determined as follows:
oaccording to the mean between the over-the-counter bid and asked
prices provided by an independent pricing service, if available, or
at fair value as determined in good faith by the Fund's Board of
Trustees; or
ofor short-term obligations with remaining maturities of 60 days or
less at the time of purchase at amortized cost unless the Board of
Trustees determines that particular circumstances of the security
indicate otherwise.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading
in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, trading characteristics, and other market data.
The market value of portfolio securities of The Style Manager: Large Cap
Fund and The Style Manager Fund is determined as follows:
ofor equity securities, according to the last sale price on a
national securities exchange, if available;
oin the absence of recorded sales for listed equity securities,
according to the mean between the last closing bid and asked prices;
ofor unlisted equity securities, the latest bid prices;
ofor bonds and other fixed income securities, as determined by an
independent pricing service;
ofor short-term obligations, according to the mean between bid and
asked prices as furnished by an independent pricing service or for

short-term obligations with remaining maturities of 60 days or less
at the time of purchase at amortized cost; or
ofor all other securities, at fair value as determined in good faith
by the Board of Trustees.
The U.S. Government Securities Fund, The Style Manager: Large Cap Fund, and
The Style Manager Fund will value futures contracts, options, and put
options on futures and at their market values established by the exchanges
at the close of option trading on such exchanges unless the Board of
Trustees determine in good faith that another method of valuing option
positions is necessary to appraise their fair value. Over-the-counter put
options will be valued at the mean between the bid and the asked prices.
USE OF THE AMORTIZED COST METHOD
With respect to The Treasury Money Market Fund, The Money Market Fund, and
The Tax-Free Money Market Fund, the Trustees have decided that the best
method for determining the value of portfolio instruments is amortized
cost. Under this method, portfolio instruments are valued at the
acquisition cost as adjusted for amortization of premium or accumulation of
discount rather than at current market value.
A Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the
`Rule'') promulgated by the Securities and Exchange Commission under the
Investment Company Act of 1940. Under the Rule, the Trustees must establish
procedures reasonably designed to stabilize the net asset value per share,
as computed for purposes of distribution and redemption, at $1.00 per
Share, taking into account current market conditions and a Fund's
investment objective.
Under the Rule, a Fund is permitted to purchase instruments which are
subject to demand features or standby commitments. As defined by the Rule,

a demand feature entitles a Fund to receive the principal amount of the
instrument from the issuer or a third party on (1) no more than 30 days'
notice or (2) at specified intervals not exceeding one year on no more than
30 days' notice. A standby commitment entitles a Fund to achieve same day
settlement and to receive an exercise price equal to the amortized cost of
the underlying instrument plus accrued interest at the time of exercise.
The Funds acquire instruments subject to demand features and standby
commitments to enhance the instrument's liquidity. The Funds treat demand
features and standby commitments as a part of the underlying instruments,
because the Funds do not acquire them for speculative purposes and cannot
transfer them separately from the underlying instruments. Therefore,
although the Rule defines demand features and standby commitments as
`puts'', the Fund does not consider them to be separate investments for
purposes of its investment policies.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between
the amortized cost value per share and the net asset value per share
based upon available indications of market value. The Trustees will
decide what, if any, steps should be taken if there is a difference of
more than .5% between the two. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that a Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risks and
have received the requisite rating from one or more nationally

recognized statistical rating organizations. If the instruments are
not rated, the Trustees must determine that they are of comparable
quality. The Rule also requires a Fund to maintain a dollar-weighted
average portfolio maturity (not more than 90 days) appropriate to the
objective of maintaining a stable net asset value of $1.00 per Share.
In addition, no instrument with a remaining maturity of more than 397
days can be purchased by a Fund.
Should the disposition of a portfolio security result in a dollar-
weighted average portfolio maturity of more than 90 days, a Fund will
invest its available cash to reduce the average maturity to 90 days or
less as soon as possible.
A Fund may attempt to increase yield by trading portfolio securities to
take advantage of short-term market variations. Under the amortized cost
method of valuation, neither the amount of daily income nor the net asset
value is affected by any unrealized appreciation or depreciation of the
portfolio.
In periods of declining interest rates, the indicated daily yield on
Shares, computed by dividing the annualized daily income on a Fund's
portfolio by the net asset value computed as above, may tend to be higher
than a similar computation made by using a method of valuation based upon
market prices and estimates.
In periods of rising interest rates, the indicated daily yield on Shares
computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
VALUING MUNICIPAL SECURITIES
With respect to The Virginia Municipal Bond Fund, The Maryland Municipal
Bond Fund, and The Tax-Free Money Market Fund, the Board of Trustees uses
an independent pricing service to value municipal securities. The

independent pricing service takes into consideration: yield; stability;
risk; quality; coupon rate; maturity; type of issue; trading
characteristics; special circumstances of a security or trading market; and
any other factors or market data it considers relevant in determining
valuations for normal institutional size trading units of debt securities
and does not rely exclusively on quoted prices.
USE OF AMORTIZED COST
With respect to The Virginia Municipal Bond Fund and The Maryland Municipal
Bond Fund, the Board of Trustees has decided that the fair value of debt
securities purchased by a Fund with remaining maturities of 60 days or less
at the time of purchase shall be their amortized cost value, unless the
particular circumstances of the security indicate otherwise. Under this
method, portfolio instruments and assets are valued at the acquisition cost
as adjusted for amortization of premium or accumulation of discount rather
than at current market value. The Executive Committee continually assesses
this method of valuation and recommends changes where necessary to assure
that the Fund's portfolio instruments are valued at their fair value as
determined in good faith by the Trustees.
REDEEMING SHARES

Each Fund redeems Shares at the next computed net asset value after a Fund
receives the redemption request, less a contingent deferred sales charge,
if applicable. Redemption procedures are explained in the prospectus under
`Redeeming Trust Shares.''
REDEMPTION IN KIND
Although the Trust intends to redeem Shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part
by a distribution of securities from a Fund's portfolio.

Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in a
manner the Board of Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940 under which a Fund is obligated to redeem Shares for
any one shareholder in cash only up to the lesser of $250,000 or 1% of any
class' net asset value during any 90-day period. Although a Fund reserves
the right to redeem Shares in kind, it will activate this right only after
providing 60 days' notice to shareholders.
MASSACHUSETTS PARTNERSHIP LAW

Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders for
such acts or obligations of the Trust. These documents require notice of
this disclaimer to be given in each agreement, obligation, or instrument
the Trust or its Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for
obligations of the Trust, the Trust is required to use its property to
protect or compensate the shareholder. On request, the Trust will defend
any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability
as a shareholder will occur only if the Trust cannot meet its obligations
to indemnify shareholders and pay judgments against them from its assets.

TAX STATUS

THE FUNDS' TAX STATUS
The Funds will pay no federal income tax because they expect to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, each Fund must,
among other requirements:
oderive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
oderive less than 30% of its gross income from the sale of securities
held less than three months;
oinvest in securities within certain statutory limits; and
odistribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
With respect to The U.S. Government Securities Fund, The Style Manager:
Large Cap Fund, The Style Manager Fund, The Treasury Money Market Fund and
The Money Market Fund, shareholders are subject to federal income tax on
dividends received as cash or additional shares. No portion of any income
dividend paid by a Fund is eligible for the dividends received deduction
available to corporations. These dividends, and any short-term capital
gains, are taxable as ordinary income.
With respect to The Virginia Municipal Bond Fund, The Maryland Municipal
Bond Fund, and The Tax-Free Money Market Fund, no portion of any income
dividend paid by a Fund is eligible for the dividends received deduction
available to corporations.

CAPITAL GAINS
Capital gains experienced by The Treasury Money Market Fund and The
Money Market Fund could result in an increase in dividends. Capital
losses could result in a decrease in dividends. If, for some
extraordinary reason, these Funds realize net long-term capital gains,
such net long-term capital gains will be distributed at least once
every 12 months.
With respect to The U.S. Government Securities Fund, The Style Manager:
Large Cap Fund, and The Style Manager Fund long-term capital gains
distributed to shareholders will be treated as long-term capital gains
regardless of how long shareholders have held Shares.
With respect to The Maryland Municipal Bond Fund, The Virginia Municipal
Bond Fund, and The Tax-Free Money Market Fund, capital gains or losses may
be realized by a Fund on the sale of portfolio securities and as a result
of discounts from par value on securities held to maturity. Sales would
generally be made because of:
othe availability of higher relative yields;
odifferentials in market values;
onew investment opportunities;
ochanges in creditworthiness of an issuer; or
oan attempt to preserve gains or limit losses.
Distribution of long-term capital gains are taxed as such, whether they are
taken in cash or reinvested, and regardless of the length of time the
shareholder has owned the Shares.
TOTAL RETURN

The average annual total return for The U.S. Government Securities Fund,
The Style Manager: Large Cap Fund, The Virginia Municipal Bond Fund, and

The Maryland Municipal Bond Fund, for the fiscal year ended September 30,
1996 and for the period from October 12, 1990 (effective date of each
Fund's registration statement) to September 30, 1996 was 4.05% and 7.30%,
respectively; 11.55% and 10.73%, respectively; 2.86% and 6.40%,
respectively; 2.61% and 5.78%, respectively for Trust Shares and 1.70% and
7.14%, respectively; 9.08% and 10.57%, respectively; 0.59% and 6.24%,
respectively; 0.33% and 1.62%, respectively for Investment Shares. For the
fiscal year ended September 30, 1996 and for the period from March 7, 1995
(date of initial public investment) to September 30, 1995, The Style
Manager Fund's average annual total return was 7.98% and 18.48%,
respectively.
The average annual total return for Shares of each Fund is the average
compounded rate of return for a given period that would equate a $1,000
initial investment to the ending redeemable value of that investment. The
ending redeemable value is computed by multiplying the number of shares
owned at the end of the period by the net asset value per share at the end
of the period. The number of shares owned at the end of the period is based
on the number of shares purchased at the beginning of the period with
$1,000, adjusted over the period by any additional shares, assuming the
monthly/quarterly reinvestment of all dividends and distributions.
YIELD

The yield for the seven-day period ended September 30, 1996 for The
Treasury Money Market Fund and The Money Market Fund was 4.61% and 3.87%,
respectively, for Trust Shares and 4.36% and 3.62%, respectively, for
Investment Shares. The yield for the seven-day period ended September 30,
1996 for The Tax-Free Money Market Fund was 3.05%.

The U.S. Government Securities Fund, The Style Manager: Large Cap Fund, The
Virginia Municipal Bond Fund and The Maryland Municipal Bond Fund's yield
for the thirty-day period ended September 30, 1996 was 5.68%, 2.05%, 4.26%
and 3.97%, respectively, for Trust Shares and 5.43%, 1.76%, 4.01% and
3.62%, respectively, for Investment Shares. The yield for the thirty-day
period ended September 30, 1996 for The Style Manager Fund was 2.92%.
The Treasury Money Market Fund, The Money Market Fund, and The Tax-Free
Money Market Fund calculate yield daily, based upon the seven days ending
on the day of the calculation, called the `base period.'' This yield is
computed by:
odetermining the net change in the value of a hypothetical account
with a balance of one share at the beginning of the base period,
with the net change excluding capital changes but including the
value of any additional Shares purchased with dividends earned from
the original one share and all dividends declared on the original
and any purchased Shares;
odividing the net change in the account's value by the value of the
account at the beginning of the base period to determine the base
period return; and
omultiplying the base period return by 365/7.
The yield for Shares of The U.S. Government Securities Fund, The Style
Manager: Large Cap Fund, The Style Manager Fund, The Virginia Municipal
Bond Fund and The Maryland Municipal Bond Fund is determined by dividing
the net investment income per share (as defined by the Securities and
Exchange Commission) earned by the class of shares over a thirty-day period
by the maximum offering price per share of the class of shares on the last
day of the period. The yield of the Investment Shares of the Fund is
determined each day by dividing the net investment income per share (as

defined by the Securities and Exchange Commission) earned by the class of
shares over a thirty-day period by the maximum offering price per share of
the class of shares on the last day of the period. This value is then
annualized using semiannual compounding. This means that the amount of
income generated during the thirty-day period is assumed to be generated
each month over a 12-month period and is reinvested every six months. The
yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
With respect to The U.S. Government Securities Fund and The Style Manager:
Large Cap Fund, the yield will be calculated separately for Investment
Shares and Trust Shares. Because Investment Shares are subject to a 12b-1
fee, the net yield for Trust Shares for the same period will exceed that of
Investment Shares.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in a
Fund, the performance will be reduced for those shareholders paying those
fees.
EFFECTIVE YIELD

The effective yield for the seven-day period ended September 30, 1996 for
The Treasury Money Market Fund and The Money Market Fund was 4.72% and
5.03%, respectively, for Trust Shares and 4.46% and 4.77%, respectively,
for Investment Shares. The effective yield for the period ended September
30, 1995 for The Tax-Free Money Market Fund was 3.09%.

The effective yield of The Treasury Money Market Fund, The Money Market
Fund, and The Tax-Free Money Market Fund is computed by compounding the
unannualized base period return by:
oadding 1 to the base period return;
oraising the sum to the 365/7th power; and
osubtracting 1 from the result.
TAX-EQUIVALENT YIELD

The tax-equivalent yield for both classes of shares for The Virginia
Municipal Bond Fund, The Maryland Municipal Bond Fund, and The Tax-Free
Money Market Fund is calculated similarly to the yield, but is adjusted to
reflect the taxable yield that either class would have had to earn to equal
its actual yield, assuming a 28% tax rate and also assuming that income
earned by the Fund is 100% tax-exempt.
The tax-equivalent yield for the Trust Shares for the thirty-day period
ended September 30, 1996 was 5.57% for The Virginia Municipal Bond Fund and
7.03% for The Maryland Municipal Bond Fund. The tax-equivalent yield for
the Investment Shares was 5.92% for The Virginia Municipal Bond Fund and
7.51% for The Maryland Municipal Bond Fund for the same period. The tax-
equivalent yield for The Tax-Free Money Market Fund for the same period was
4.2%.
TAX-EQUIVALENCY TABLES
Both classes of shares may also use a tax-equivalency table in
advertising and sales literature. The interest earned by the municipal
bonds in the Fund's portfolio generally remains free from federal
regular income tax, and is often free from state and local taxes as
well. As the tables below indicate, a `tax-free'' investment is an

attractive choice for investors, particularly in times of narrow
spreads between tax-free and taxable yields.

TAXABLE YIELD EQUIVALENT FOR 1996
MULTISTATE MUNICIPAL FUNDS

FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%

JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750

SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750

Tax-Exempt
Yield Taxable Yield Equivalent

4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%

Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional
state and local taxes paid on comparable taxable investments were not
used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an
indicator of past or future performance of Fund shares.
* Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.

TAXABLE YIELD EQUIVALENT FOR 1996

STATE OF VIRGINIA

COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
20.75% 33.75% 36.75% 41.75% 45.35%

JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750

SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750

Tax-Exempt
Yield Taxable Yield Equivalent

3.50% 4.42% 5.28% 5.53% 6.01% 6.40%
4.00% 5.05% 6.04% 6.32% 6.87% 7.32%
4.50% 5.68% 6.79% 7.11% 7.73% 8.23%
5.00% 6.31% 7.55% 7.91% 8.58% 9.15%
5.50% 6.94% 8.30% 8.70% 9.44% 10.06%
6.00% 7.57% 9.06% 9.49% 10.30% 10.98%
6.50% 8.20% 9.81% 10.28% 11.16% 11.89%
7.00% 8.83% 10.57% 11.07% 12.02% 12.81%
7.50% 9.46% 11.32% 11.86% 12.88% 13.72%
8.00% 10.09% 12.08% 12.65% 13.73% 14.64%

TAXABLE YIELD EQUIVALENT FOR 1996
STATE OF MARYLAND
INCLUDING LOCAL INCOME TAX

COMBINED FEDERAL, STATE, AND COUNTY INCOME TAX BRACKET:
22.50% 35.50% 38.50% 43.50% 47.10%

JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN: 40,100 96,900 147,700 263,750 $263,750

SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN: 24,000 58,150 121,300 263,750 $263,750

TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT

5.50% 7.10% 8.53% 8.94% 9.73% 10.40%
6.00% 7.74% 9.30% 9.76% 10.62% 11.34%
6.50% 8.39% 10.08% 10.57% 11.50% 12.29%

NOTE: THE MAXIMUM MARGINAL TAX RATE FOR EACH BRACKET WAS USED IN
CALCULATING THE TAXABLE YIELD EQUIVALENT. FURTHERMORE, ADDITIONAL
STATE AND LOCAL TAXES PAID ON COMPARABLE TAXABLE INVESTMENTS WERE NOT
USED TO INCREASE FEDERAL DEDUCTIONS. THE LOCAL INCOME TAX RATE IS
ASSUMED TO BE 50% OF THE STATE RATE FOR ALL COUNTIES EXCLUDING
ALLEGANY, BALITMORE, MONTGOMERY, PRINCE GEORGE'S, QUEEN ANNE'S, ST.
MARY'S, SOMERSET, TALBOT, WICOMICO, AND WORCESTER.
The charts above are for illustrative purposes only. They are not an
indicator of past or future performance of either class of shares.
*Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local taxes.

PERFORMANCE COMPARISONS

Cap Fund, The Style Manager Fund, The Virginia Municipal Bond Fund
and Maryland Municipal Bond Fund;
ochanges in each Fund's or each class of Shares' expenses;
othe relative amount of The Treasury Money Market Fund's and The
Money Market Fund's cash flow; and
ovarious other factors.
In the case of The U.S. Government Securities Fund, The Style Manager:
Large Cap Fund, The Style Manager Fund, The Virginia Municipal Bond Fund
and The Maryland Municipal Bond Fund, either class of shares' performance
fluctuates on a daily basis largely because net earnings and offering price
per Share fluctuate daily. Both net earnings and offering price per Share
are factors in the computation of yield and total return. `The Style
Manager Fund and The Style Manager: Large Cap Fund may also from time to
time provide information on, or use quotations from, studies of investment
analysts dealing with the management of equity portfolios on the basis of
`style'' selection (i.e., value vs. growth) and stock ``size'' (i.e., large
cap vs. small cap) and may also use historical data demonstrating the
performance records of the value, growth, large cap and small cap
components of the equity market, and combinations thereof.''
From time to time, the Funds may provide information on certain markets or
countries and specific equity securities and quote published editorial
comments and/or information from newspapers, magazines, investment
newsletters and other publications such as The Wall Street Journal, Money
Magazine, Forbes, Barron's, USA Today and Mutual Fund Investors. We may
also compare the historical returns on various investments, performance
indexes of those investments or economic indicators. In addition, the Funds
may reprint articles about the Fund and provide them to prospective
shareholders. The Broker/Dealer may also make available economic, financial

and investment reports to shareholders and prospective shareholders. In
order to describe these reports, the Funds may include descriptive
information on the reports in advertising literature sent to the public
prior to the mailing of a prospectus. Performance information may be quoted
numerically or may be represented in a table, graph, chart or other
illustration. It should be noted that such performance ratings and
comparison may be made with funds which may have different investment
restrictions, objectives, policies or techniques than the Funds, and that
such other funds or market indicators may be comprised of securities that
differ significantly from the Funds' investments.
The financial publications and/or indices which the Funds use in
advertising may include, but are not limited to:
THE U.S. GOVERNMENT SECURITIES FUND
oMERRILL LYNCH COMPOSITE 1-5 YEAR TREASURY INDEX is comprised of
approximately 66 issues of U.S. Treasury securities maturing between
1 and 4.99 years, with coupon rates of 4.25% or more. These total
return figures are calculated for one, three, six, and twelve month
periods and year-to-date and include the value of the bond plus
income and any price appreciation or depreciation.
oSALOMON BROTHERS 3-5 YEARS GOVERNMENT INDEX quotes total returns for
U.S. Treasury issues (excluding flower bonds) which have maturities
of three to five years. These total returns are year-to-date figures
which are calculated each month following January 1.
oLIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes income into account any
change in net asset value over a specific period of time. From time

to time, the Trust will quote its Lipper ranking in the U.S.
Government funds category in advertising and sales literature.

oMERRILL LYNCH 3-5 YEAR TREASURY INDEX is comprised of approximately
24 issues of intermediate-term U.S. government and U.S. Treasury
securities with maturities between 3 and 4.99 years and coupon rates
above 4.25%. Index returns are calculated as total returns for
periods of one, three, six and twelve months as well as year-to-
date.
oMERRILL LYNCH 3-YEAR TREASURY YIELD CURVE INDEX is an unmanaged
index comprised of the most recently issued 3-year U.S. Treasury
notes. Index returns are calculated as total returns for periods of
one, three, six, and twelve months as well as year-to-date.
oLEHMAN BROTHERS GOVERNMENT INTERMEDIATE INDEX is an unmanaged index
comprised of all publicly issued, non-convertible domestic debt of
the U.S. government, or any agency thereof, or any quasi-federal
corporation and of corporate debt guaranteed by the U.S. government.
Only notes and bonds with a minimum outstanding principal of $1
million and maturities of 1-10 years.
o3 YEAR TREASURY NOTES Source: Wall Street Journal, Bloomberg
Financial Markets, and Telerate.
oMORNINGSTAR, INC., an independent rating service, is the publisher
of the bi-weekly Mutual Fund Values. Mutual Fund Values rates more
than 1,000 NASDAQ-listed mutual funds of all types, according to
their risk-adjusted returns. The maximum rating is five stars, and
ratings are effective for two weeks.

THE STYLE MANAGER: LARGE CAP FUND AND THE STYLE MANAGER FUND
oLIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change
in net asset value over a specific period of time. From time to
time, the Fund will quote its Lipper ranking in the ``growth and
income funds'' category in advertising and sales literature.
oDOW JONES INDUSTRIAL AVERAGE (``DJIA'') represents share prices of
selected blue-chip industrial corporations as well as public utility
and transportation companies. The DJIA indicates daily changes in
the average price of stocks in any of its categories. It also
reports total sales for each group of industries. Because it
represents the top corporations of America, the DJIA index is a
leading economic indicator for the stock market as a whole.
oSTANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a
composite index of common stocks in industry, transportation, and
financial and public utility companies, compares total returns of
funds whose portfolios are invested primarily in common stocks. In
addition, the Standard & Poor's index assumes reinvestment of all
dividends paid by stocks listed on the index. Taxes due on any of
these distributions are not included, nor are brokerage or other
fees calculated in the Standard & Poor's figures.
oMORNINGSTAR, INC., an independent rating service, is the publisher
of the bi-weekly Mutual Fund Values. Mutual Fund Values rates more
than 1,000 NASDAQ-listed mutual funds of all types, according to
their risk-adjusted returns. The maximum rating is five stars, and
ratings are effective for two weeks.

THE VIRGINIA MUNICIPAL BOND FUND AND THE MARYLAND MUNICIPAL BOND FUND
oLIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change
in net asset value over a specific period of time. From time to
time, the Fund will quote its Lipper ranking in the ``general
municipal bond funds'' category in advertising and sales literature.
oMORNINGSTAR, INC., an independent rating service, is the publisher
of the bi-weekly Mutual Fund Values. Mutual Fund Values rates more
than 1,000 NASDAQ-listed mutual funds of all types, according to
their risk-adjusted returns. The maximum rating is five stars, and
ratings are effective for two weeks.
THE TREASURY MONEY MARKET FUND
oLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, the Fund
will quote its Lipper ranking in the ``short-term U.S. government
funds'' category in advertising and sales literature.
oSALOMON 30-DAY TREASURY BILL INDEX is a weekly quote of the most
representative yields for selected securities, issued by the U.S.
Treasury, maturing in 30 days.
THE MONEY MARKET FUND
oLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, the Fund

will quote its Lipper ranking in the ``money market instruments
fund'' category in advertising and sales literature.
oBANK RATE MONITOR NATIONAL INDEX, Miami, Florida, is a financial
reporting service which publishes weekly average rates of 50 leading
bank and thrift institution money market deposit accounts. The rates
published in the index are an average of the personal account rates
offered on the Wednesday prior to the date of publication by ten of
the largest banks and thrifts in each of the five largest Standard
Metropolitan Statistical Areas. Account minimums range upward from
$2,500 in each institution and compounding methods vary. If more
than one rate is offered, the lowest rate is used. Rates are subject
to change at any time specified by the institution. Investors may
use such indices or reporting services in addition to either class
of shares' prospectus to obtain a more complete view of the Share's
performance before investing. Of course, when comparing performance
of either class of shares to any index, factors such as portfolio
composition and prevailing market conditions should be considered in
assessing the significance of such comparisons.
THE TAX-FREE MONEY MARKET FUND
oLIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, the Fund
will quote its Lipper ranking in the ``Tax-Free Money Market Funds''
category in advertising and sales literature.
oIBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of
hundreds of money market funds on a weekly basis, and through its

Money Market Insight publication, reports monthly and 12-month-to-
date investment results for the same money funds.
oMONEY, A MONTHLY MAGAZINE, regularly ranks money market funds in
various categories based on the latest available seven-day compound
effective yield. From time to time, the Fund will quote its Money
ranking in advertising and sales literature.
oSALOMON BROTHERS SIX-MONTH PRIME MUNI NOTES is an index of selected
municipal notes, maturing in six months, whose yields are chosen as
representative of this market. Calculations are made weekly and
monthly.
oSALOMON BROTHERS ONE-MONTH TAX-EXEMPT COMMERCIAL PAPER is an index
of selected tax-exempt commercial paper issues, maturing in one
month, whose yields are chosen as representative of this particular
market. It is a weekly quote of the most representative yields for
selected securities, issued by the U.S. Treasury, maturing in 30
days. Calculations are made weekly and monthly. Ehrlich-Bober & Co.,
Inc. also tracks this Salomon Brothers Index.
Advertisements and other sales literature for both classes of shares may
quote total returns which are calculated on non-standardized base periods.
These total returns also represent the historic change in the value of an
investment in either class of shares based on monthly reinvestment of
dividends over a specified period of time.
FINANCIAL STATEMENTS

without charge by contacting Signet Trust Company at the address located on
the back cover of the combined prospectus or by calling 804-771-7470.

APPENDIX

STANDARD AND POOR'S RATINGS GROUP MUNICIPAL BOND RATING DEFINITIONS
AAA Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is
extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only
in small degree.
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effect of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of
the obligation. BB indicates the lowest degree of speculation
and CC the highest degree of speculation. While such debt will

likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures
to adverse conditions.
CI The rating CI is reserved for income bonds on which no interest
is being paid.
D Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears.
MOODY'S INVESTORS SERVICE, INC. MUNICIPAL BOND RATING DEFINITIONS
AAA Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as `gilt edge.'' Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long
term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
some time in the future.

BAA Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
BA Bonds which are Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small. Caa-Bonds which are rated Caa are of poor standing.
Such issues may be in default or there may be present elements of
danger with respect to principal or interest.
CA Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay

interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated
in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
NR NR indicates that Fitch does not the specific issue.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in AAA category.
STANDARD & POOR'S CORPORATION, MUNICIPAL NOTE RATINGS
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will
be given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, SHORT-TERM LOAN RATINGS
MIG1/VMIG1 This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for
refinancing.
MIG2/VMIG2 This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.

THE VIRTUS FUNDS

INVESTMENT SHARES
CONSISTS OF EIGHT PORTFOLIOS:
THE U. S. GOVERNMENT SECURITIES FUND;
THE STYLE MANAGER: LARGE CAP FUND;
THE STYLE MANAGER FUND;
THE VIRGINIA MUNICIPAL BOND FUND;
THE MARYLAND MUNICIPAL BOND FUND;
THE TREASURY MONEY MARKET FUND;
THE MONEY MARKET FUND; AND
THE TAX-FREE MONEY MARKET FUND.
STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information should be read with the Prospectus
for the Investment Shares (`Investment Shares'') of The Virtus Funds (the
`Trust''), dated January 31, 1997. This Statement is not a prospectus
itself. You may request a copy of a prospectus or a paper copy of this
Statement of Additional Information, if you have received it
electronically, free of charge by writing to the Trust or calling toll-free
1-800-723-9512.

FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779

Statement dated January 31, 1997

Federated Securities Corp. is the distributor of the Funds
and is a subsidiary of Federated Investors.
CUSIP 927913202
CUSIP 927913848
CUSIP 927913400
CUSIP 927913871
CUSIP 927913509
CUSIP 927913889
CUSIP 927913707
CUSIP 927913806

2102608B-R (1/97)

TABLE OF CONTENTS

GENERAL INFORMATION ABOUT THE TRUST 1

INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS 1

THE U.S. GOVERNMENT SECURITIES FUND 1

Types of Investments 1
THE STYLE MANAGER: LARGE CAP FUND AND THE STYLE
MANAGER FUND 2

Commercial Paper 4
Bank Instruments 4
THE VIRGINIA MUNICIPAL BOND FUND AND THE MARYLAND
MUNICIPAL BOND FUND 5

Acceptable Investments 5
Types of Acceptable Investments 5
THE TREASURY MONEY MARKET FUND 5

Types of Investments 5
THE MONEY MARKET FUND 6

Types of Investments 6
THE TAX-FREE MONEY MARKET FUND 6

PORTFOLIO INVESTMENTS AND STRATEGIES 6

Repurchase Agreements 6
Reverse Repurchase Agreements 6
When-Issued and Delayed Delivery Transactions 6
Lending of Portfolio Securities 7

Restricted and Illiquid Securities 7
Participation Interests 7
Variable Rate Municipal Securities 8
Municipal Leases 8
Temporary Investments 8
Adjustable Rate Mortgage Securities 8
Portfolio Turnover 9
INVESTMENT LIMITATIONS 9

VIRTUS FUNDS MANAGEMENT 13

Fund Ownership 16
Officers and Trustees Compensation 17
Trustee Liability 17
INVESTMENT ADVISORY SERVICES 18

Adviser to the Trust 18
Advisory Fees 18
Sub-Adviser to The Style Manager: Large Cap
Fund and The Style Manager Fund 18
Sub-Advisory Fees 18
OTHER SERVICES 19

Administrative Services 19
Custodian 19
Transfer Agent 19
Independent Auditors 19
BROKERAGE TRANSACTIONS 19

PURCHASING SHARES 20

Distribution Plan 20
Conversion to Federal Funds 20
DETERMINING NET ASSET VALUE 21

Determining Market Value of Securities 21
Use of the Amortized Cost Method 21
Valuing Municipal Securities 22
Use of Amortized Cost 22
REDEEMING SHARES 22

Redemption in Kind 23
MASSACHUSETTS PARTNERSHIP LAW 23

TAX STATUS 23

The Funds' Tax Status 23
Shareholders' Tax Status 23
TOTAL RETURN 24

YIELD 24

EFFECTIVE YIELD 25

TAX-EQUIVALENT YIELD 25

PERFORMANCE COMPARISONS 29

The U.S. Government Securities Fund 29
The Style Manager: Large Cap Fund and
The Style Manager Fund 30
The Virginia Municipal Bond Fund and The
Maryland Municipal Bond Fund 30

The Treasury Money Market Fund 30
The Money Market Fund 31
The Tax-Free Money Market Fund 31
FINANCIAL STATEMENTS 31

APPENDIX 32

GENERAL INFORMATION ABOUT THE TRUST

The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated June 20, 1990. As of the date of this Statement,
the Trust consists of eight separate portfolios of securities
(collectively, the `Funds'', individually, a ``Fund'') which are as
follows: The U. S. Government Securities Fund, The Style Manager: Large Cap
Fund, The Style Manager Fund, The Virginia Municipal Bond Fund, The
Maryland Municipal Bond Fund, The Treasury Money Market Fund, The Money
Market Fund, and The Tax-Free Money Market Fund. On October 1, 1992, the
name of the Trust was changed from `The SBK Select Series'' to ``Signet
Select Funds.''On August 15, 1994, the name of the Trust was changed from
`Signet Select Funds'' to ``The Medalist Funds.'' On February 15, 1995, the
name of the Trust was changed from "The Medalist Funds" to "The Virtus
Funds."
With the exception of The Tax-Free Money Market Fund and The Style Manager
Fund, which offer a single class of shares, the Funds are offered in two
classes, Investment Shares and Trust Shares. This Combined Statement of
Additional Information relates only to the Investment Shares of those Funds
offering classes and to shares of The Tax-Free Money Market Fund and The
Style Manager Fund.
INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS

THE STYLE MANAGER: LARGE CAP FUND AND THE STYLE MANAGER FUND

put options on portfolio securities and listed put options on futures
contracts, and writing call options on futures contracts. A Fund may
also write covered call options on portfolio securities to attempt to
increase its current income. The Fund will maintain its positions in
securities, option rights, and segregated cash subject to puts and
calls until the options are exercised, closed, or have expired. An
option position on financial futures contracts may be closed out only
on an exchange which provides a secondary market from options of the
same series.
FINANCIAL FUTURES CONTRACTS
A futures contract is a firm commitment by two parties: the seller,
who agrees to make delivery of the specific type of security called
for in the contract (`going short'') and the buyer, who agrees to
take delivery of the security (`going long'') at a certain time in
the future. Financial futures contracts call for the delivery of
shares of common stocks represented in a particular index.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
A Fund may purchase listed put options on financial futures contracts.
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified
price, the purchase of a put option on a futures contract entitles
(but does not obligate) its purchaser to decide on or before a future
date whether to assume a short position at the specified price.

Prior to the expiration of a call written by a Fund, or exercise of it
by the buyer, the Fund may close out the option by buying an identical
option. If the hedge is successful, the cost of the second option will
be less than the premium received by the Fund for the initial option.
The net premium income of the Fund will then substantially offset the
decrease in value of the hedged securities.
A Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds
the current market value of its securities portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the
futures contracts. If this limitation is exceeded at any time, the
Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
``MARGIN''IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, a Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of `initial margin'' in
cash or U.S. Treasury bills with its custodian (or the broker, if
legally permitted). The nature of initial margin in futures
transactions is different from that of margin in securities
transactions in that futures contract initial margin does not involve
the borrowing of funds by the Fund to finance the transactions.
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

THE VIRGINIA MUNICIPAL BOND FUND AND THE MARYLAND MUNICIPAL BOND FUND

PORTFOLIO INVESTMENTS AND STRATEGIES

Cap Fund do not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
RESTRICTED AND ILLIQUID SECURITIES
The Funds may invest in restricted securities. Restricted securities are
any securities in which a Fund may otherwise invest pursuant to its
investment objective and policies but which are subject to restriction on
resale under federal securities law. However, The U.S. Government
Securities Fund, The Style Manager: Large Cap Fund, The Style Manager Fund,
The Virginia Municipal Bond Fund and The Maryland Municipal Bond Fund will
limit investments in illiquid securities, including certain restricted
securities determined by the Trustees not to be liquid, and repurchase
agreements providing for settlement in more than seven days after notice,
to 15% of its net assets. In the case of The Virginia Municpal Bond Fund
and The Maryland Municipal Bond Fund, illiquid securities will include
participation interests and variable rate municipal securities without a
demand feature or with a demand feature of longer than seven days and which
the adviser believes cannot be sold within seven days. The Treasury Money
Market Fund, The Money Market Fund, and The Tax-Free Money Market Fund will
limit investments in illiquid securities, including certain securities
determined by the Trustees not to be liquid, and repurchase agreements
providing for settlement in more than seven days after notice, and in the
case of The Money Market Fund, specifically including non-negotiable fixed
income time deposits with maturities over seven days, to 10% of their net
assets.
The U.S. Government Securities Fund, The Style Manager: Large Cap Fund, The
Style Manager Fund, and The Money Market Fund may invest in commercial
paper issued in reliance on the exemption from registration afforded by

VARIABLE RATE MUNICIPAL SECURITIES
The Virginia Municipal Bond Fund, The Maryland Municipal Bond Fund, and The
Tax-Free Money Market Fund invest in variable municipal securities.
Variable interest rates generally reduce changes in the market value of
municipal securities from their original purchase prices. Accordingly, as
interest rates decrease or increase, the potential for capital appreciation
or depreciation is less for variable rate municipal securities than for
fixed income obligations.
Many municipal securities with variable interest rates purchased by the The
Tax-Free Money Market Fund are subject to repayment of principal (usually
within seven days) on the The Tax-Free Money Market Fund's demand. For
purposes of determining the Fund's average maturity, the maturities of
these variable rate demand municipal securities (including participation
interests) are the longer of the periods remaining until the next

readjustment of their interest rates or the periods remaining until their
principal amounts can be recovered buy exercising the right to demand
payment. The terms of these variable rate demand instruments require
payment of principal and accrued interest from the issuer of the municipal
obligations, the issuer of the participation interests or a guarantor of
either issuer.
MUNICIPAL LEASES
The Virginia Municipal Bond Fund, The Maryland Municipal Bond Fund, and The
Tax-Free Money Market Fund may purchase municipal securities in the form of
participation interests which represent undivided proportional interests in
lease payments by a governmental or nonprofit entity. The lease payments
and other rights under the lease provide for and secure the payments on the
certificates. Lease obligations may be limited by municipal charter or the
nature of the appropriation for the lease. In particular, lease obligations
may be subject to periodic appropriation. If the entity does not
appropriate funds for future lease payments, the entity cannot be compelled
to make such payments. Furthermore, a lease may provide that the
certificate trustee cannot accelerate lease obligations upon default. The
trustee would only be able to enforce lease payments as they became due. In
the event of a default or failure of appropriation, it is unlikely that the
trustee would be able to obtain an acceptable substitute source of payment.
In determining the liquidity of municipal lease securities, the adviser,
under the authority delegated by the Board of Trustees, will base its
determination on the following factors: (a) whether the lease can be
terminated by the lessee; (b) the potential recovery, if any, from a sale
of the leased property upon termination of the lease; (c) the lessee's
general credit strength (e.g., its debts, administrative, economic and
financial characteristics, and prospects); (d) the likelihood that the

PORTFOLIO TURNOVER
The Funds will not attempt to set or meet a portfolio turnover rate since
any turnover would be incidental to transactions undertaken in an attempt
to achieve a Fund's investment objective. The Style Manager: Large Cap Fund
and The Style Manager Fund may experience greater portfolio turnover than
would be expected with a portfolio of higher-rated securities. A high
portfolio turnover will result in increased transaction costs to the Fund.
For the fiscal years ended September 30, 1996, 1995, and 1994, the
portfolio turnover rates were 118%, 82% and 227%, respectively, for The
U.S. Government Securities Fund; 151%, 208% and 205%, respectively, for The
Style Manager: Large Cap Fund; 129%, 26% and 29%, respectively, for The
Virginia Municipal Bond Fund; and 138%, 21% and 27%, respectively, for The
Maryland Municipal Bond Fund. For the fiscal year ended September 30, 1996
and for the period from March 7, 1995, (date of initial public investment)
to September 30, 1995 The Style Manager Fund's portfolio turnover rate was
112% and 92%, respectively.
INVESTMENT LIMITATIONS

ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Funds will not issue senior securities except that a Fund may
borrow money directly or through reverse repurchase agreements in
amounts up to one-third of the value of its net assets, including the

amount borrowed. The Funds will not borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate
management of the portfolio by enabling a Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. A Fund will not purchase any
securities while any borrowings in excess of 5% of its total assets
are outstanding. With respect to The U.S. Government Securities Fund,
The Style Manager: Large Cap Fund, The Style Manager Fund, The
Virginia Municipal Bond Fund, The Maryland Municipal Bond Fund, The
Treasury Money Market Fund, and The Money Market Fund, during the
period any reverse repurchase agreements are outstanding, the Funds
will restrict the purchase of portfolio securities to money market
instruments maturing on or before the expiration date of the reverse
repurchase agreements, but only to the extent necessary to assure
completion of the reverse repurchase agreements.
SELLING SHORT AND BUYING ON MARGIN
The Funds will not purchase any securities on margin but they may
obtain such short-term credits as may be necessary for clearance of
transactions. With respect to The U.S. Government Securities Fund, The
Style Manager: Large Cap Fund, and The Style Manager Fund, the deposit
or payment by the Fund of initial or variation margin in connection
with financial futures contracts or related options transactions is
not considered the purchase of a security on margin. The Virginia
Municipal Bond Fund, The Maryland Municipal Bond Fund, The Treasury
Money Market Fund, The Money Market Fund, and The Tax-Free Money
Market Fund may not sell any securities short.

Treasury Money Market Fund and The Money Market Fund will purchase
securities of closed-end investment companies only in open market
transactions involving only customary broker's commissions. However,
these limitations are not applicable if the securities are acquired in
a merger, consolidation, reorganization, or acquisition of assets.
With respect to The Treasury Money Market Fund and The Money Market
Fund, the Funds will limit their investments and the securities of
other investment companies to those of The Money Market Funds having
investment objectives and policies similar to their own. The Virginia
Municipal Bond Fund and The Maryland Municipal Bond Fund will invest
in other investment companies primarily for the purposes of investing
short-term cash which has not yet been invested in other portfolio
instruments. The adviser will waive its investment advisory fee on
assets invested in securities of open-end investment companies.
PURCHASING SECURITIES TO EXERCISE CONTROL
A Fund will not purchase securities of a company for the purpose of
exercising control or management.
SELLING SHORT
Neither The U.S. Government Securities Fund, The Style Manager: Large
Cap Fund, nor The Style Manager Fund will sell securities short unless
(1) it owns, or has a right to acquire, an equal amount of such
securities, or (2) it has segregated an amount of its other assets
equal to the lesser of the market value of the securities sold short
or the amount required to acquire such securities. The segregated
amount will not exceed 10% of The U.S. Government Securities Fund's
nor The Style Manager: Large Cap Fund's net assets.

With respect to The Style Manager Fund, the segregated amount will not
exceed 5% of the Fund's net assets. The dollar amount of short sales
at any one time shall not exceed 5% of the Fund's net assets and the
value of securities of any one issuer in which the Fund is short may
not exceed the lesser of 2% of the value of the Fund's net assets or
2% of the securities of any class of any issuer.
While in a short position, the Fund will retain the securities, rights
or segregated assets.
DEALING IN PUTS AND CALLS
The Virginia Municipal Bond Fund, The Maryland Municipal Bond Fund,
and The Tax-Free Money Market Fund will not invest in puts, calls,
straddles, spreads, or any combination of them except that The
Virginia Municipal Bond Fund and The Maryland Municipal Bond Fund may
purchase put options on municipal securities in an amount up to 5% of
its total assets or may purchase municipal securities accompanied by
agreements of sellers to repurchase them at a Fund's option.
Except with respect to the Funds' policy of borrowing money, if a
percentage limitation is adhered to at the time of investment, a later
increase or decrease in percentage resulting from any change in value
or net assets will not result in a violation of such restriction.
The U.S. Government Securities Fund, The Style Manager: Large Cap Fund
and The Style Manager Fund have no present intent to borrow money,
pledge securities, sell securities short, or invest in restricted or
illiquid securities in excess of 5% of the value of their respective
net assets in the coming fiscal year. These Funds (1) will limit the
aggregate value of the assets underlying covered call options or put
options written by a Fund to not more than 25% of its net assets, (2)
will limit the premiums paid for options purchased by a Fund to 20% of