CAMBRIDGE SERIES TRUST, 497, 1994-03-31

CAMBRIDGE SERIES TRUST
497, 1994-03-31

Previous: NUVEEN TAX EXEMPT UNIT TRUST SERIES 722, 497, 1994-03-31

Next: BT PYRAMID MUTUAL FUNDS, NSAR-AT, 1994-03-31

<PAGE>
PROSPECTUS
CAMBRIDGE SERIES TRUST
Cambridge Series Trust (the "Trust"), an open-end management investment
company (a mutual fund), offers investors interests in the six separate
diversified investment portfolios described below (collectively, the
"Portfolios," and each individually, the "Portfolio").
Cambridge Growth Portfolio -- a Portfolio advised by Kemper Financial
Services, Inc., seeking growth of capital through professional management and
diversification of investment securities having potential of capital
appreciation.
Cambridge Capital Growth Portfolio -- a Portfolio seeking long-term
appreciation of capital by investing primarily in common stock of companies
believed by Phoenix Investment Counsel, Inc., the Portfolio's Sub-Adviser, to
have appreciation potential.
Cambridge Government Income Portfolio -- a Portfolio advised by Pacific
Investment Management Company seeking current income by investing primarily in
securities which are either issued or guaranteed as to payment of principal and
interest by the U.S. government or its agencies or instrumentalities.
Cambridge Municipal Income Portfolio -- a Portfolio seeking to provide
investors with a high level of current income exempt from federal regular income
tax, consistent with preservation of capital, by investing, under normal market
conditions, at least 80% of its total assets in tax-exempt municipal securities
rated investment grade, or deemed by Van Kampen Merritt Management Inc., the
Portfolio's Sub-Adviser, to be of comparable quality.
Cambridge Income and Growth Portfolio -- a Portfolio advised by Wellington
Management Company seeking to provide a conservative combination of income and
growth of capital, consistent with capital protection.
Cambridge Global Portfolio -- a Portfolio advised by Scudder, Stevens &
Clark, Inc. seeking to provide growth of capital through a diversified portfolio
of marketable securities, primarily equity securities, including common stocks,
preferred stocks and debt securities convertible into common stocks.
There can be no assurance that any Portfolio will achieve its investment
objective. Each Portfolio may also invest in certain other types of securities
as further described in the prospectus.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This combined prospectus contains the information you should read and know
before you invest in any of the Portfolios of the Trust. Keep this prospectus
for future reference.
The Trust has also filed a combined Statement of Additional Information for
each Portfolio, dated March 29, 1994, with the Securities and Exchange
Commission. The information contained in the combined Statement of Additional
Information is incorporated by reference in this prospectus. You may request a
copy of the combined Statement of Additional Information free of charge, obtain
other information, or make inquiries about any of the Portfolios by writing the
particular Portfolio or Portfolios or by calling 1-800-382-0016.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS DATED MARCH 29, 1994

<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY OF PORTFOLIO EXPENSES................................................................................ 1
CAMBRIDGE SERIES TRUST
FINANCIAL HIGHLIGHTS
CLASS A SHARES............................................................................................... 4
CAMBRIDGE SERIES TRUST
FINANCIAL HIGHLIGHTS
CLASS B SHARES............................................................................................... 5
CAMBRIDGE FAMILY OF FUNDS.................................................................................... 6
INVESTMENT INFORMATION....................................................................................... 6
Investment Objectives and Policies......................................................................... 6
Cambridge Growth Portfolio................................................................................. 6
Cambridge Capital Growth Portfolio......................................................................... 7
Cambridge Government Income Portfolio...................................................................... 8
Cambridge Municipal Income Portfolio....................................................................... 8
Cambridge Income and Growth Portfolio...................................................................... 11
Cambridge Global Portfolio................................................................................. 13
Investment Practices....................................................................................... 15
NET ASSET VALUE.............................................................................................. 20
HOW TO BUY SHARES............................................................................................ 21
Minimum Investment Required................................................................................ 21
What Shares Cost........................................................................................... 22
When Net Asset Value is Determined......................................................................... 23
Purchases at Net Asset Value............................................................................... 23
Reducing the Sales Charge for Class A Shares............................................................... 23
Systematic Investment Program.............................................................................. 24
Certificates and Confirmations............................................................................. 25
Dividends.................................................................................................. 25
Capital Gains.............................................................................................. 25
Retirement Plans........................................................................................... 25
EXCHANGE PRIVILEGE........................................................................................... 25
REDEEMING SHARES............................................................................................. 26
Contingent Deferred Sales Charge........................................................................... 26
Through a Financial Institution............................................................................ 27
Directly from the Portfolios............................................................................... 28
Redemptions Before Purchase Instruments Clear.............................................................. 29
Systematic Withdrawal Program.............................................................................. 29
Accounts with Low Balances................................................................................. 29
CAMBRIDGE SERIES TRUST INFORMATION........................................................................... 30
INVESTMENT MANAGEMENT OF THE TRUST........................................................................... 30
Investment Adviser......................................................................................... 30
The Sub-Advisers........................................................................................... 31
Sub-Advisers' Profiles..................................................................................... 31
Distribution of Portfolio Shares........................................................................... 34
Administration of the Trust................................................................................ 35
Brokerage Transactions..................................................................................... 35
Shareholder Servicing Plan................................................................................. 36
Expenses of the Portfolios and the Class A and Class B Shares.............................................. 36
</TABLE>
i

<PAGE>
<TABLE>
<S> <C>
SHAREHOLDER INFORMATION...................................................................................... 37
Voting Rights.............................................................................................. 37
Massachusetts Partnership Law.............................................................................. 37
TAX INFORMATION.............................................................................................. 37
PERFORMANCE INFORMATION...................................................................................... 38
</TABLE>

<PAGE>
SUMMARY OF PORTFOLIO EXPENSES
SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
Cambridge Growth Portfolio............................................... 5.50% None
Cambridge Capital Growth Portfolio....................................... 5.50% None
Cambridge Government Income Portfolio.................................... 4.75% None
Cambridge Municipal Income Portfolio..................................... 4.75% None
Cambridge Income and Growth Portfolio.................................... 5.50% None
Cambridge Global Portfolio............................................... 5.50% None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)...................................... None None
Maximum Deferred Sales Load (as a percentage of original purchase
price or redemption proceeds, as applicable)............................. 1.00%(1) 1.00%(1)
Exchange Fee............................................................... None None
</TABLE>

ANNUAL PORTFOLIO OPERATING EXPENSES*
(As a percentage of average net assets)
<TABLE>
<CAPTION>
CAMBRIDGE CAMBRIDGE CAMBRIDGE CAMBRIDGE
CAMBRIDGE CAPITAL GOVERNMENT MUNICIPAL INCOME AND
GROWTH GROWTH INCOME INCOME GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
Investment Advisory Fee (after waiver)(2)....... 0.80% 0.80% 0.60% 0.53% 0.75%
12b-1 Fees...................................... None None None None None
Total Other Expenses (after waiver)(3).......... 0.61% 0.51% 0.41% 0.42% 0.62%
Shareholder Service Plan Fees................. 0.25% 0.25% 0.25% 0.25% 0.25%
Total Portfolio Operating Expenses(4)......... 1.66% 1.56% 1.26% 1.20% 1.62%
<CAPTION>
CAMBRIDGE CAMBRIDGE CAMBRIDGE CAMBRIDGE
CAMBRIDGE CAPITAL GOVERNMENT MUNICIPAL INCOME AND
GROWTH GROWTH INCOME INCOME GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
Investment Advisory Fee (after waiver)(2)....... 0.80% 0.80% 0.60% 0.53% 0.75%
12b-1 Fees...................................... 0.75% 0.75% 0.50% 0.50% 0.75%
Total Other Expenses (after waiver)(3).......... 0.61% 0.51% 0.41% 0.42% 0.62%
Shareholder Service Plan Fees................. 0.25% 0.25% 0.25% 0.25% 0.25%
Total Portfolio Operating Expenses(4)......... 2.41% 2.31% 1.76% 1.70% 2.37%
<CAPTION>

CAMBRIDGE
GLOBAL
PORTFOLIO
<S> <C>
CLASS A SHARES
Investment Advisory Fee (after waiver)(2)....... 0%
12b-1 Fees...................................... None
Total Other Expenses (after waiver)(3).......... 1.99%
Shareholder Service Plan Fees................. 0.25%
Total Portfolio Operating Expenses(4)......... 2.24%

CAMBRIDGE
GLOBAL
PORTFOLIO
<S> <C>
CLASS B SHARES
Investment Advisory Fee (after waiver)(2)....... 0%
12b-1 Fees...................................... 0.75%
Total Other Expenses (after waiver)(3).......... 1.99%
Shareholder Service Plan Fees................. 0.25%
Total Portfolio Operating Expenses(4)......... 2.99%
</TABLE>

(1) On Class A shares a contingent deferred sales charge ("CDSC") is applicable
only if shares over $1 million are purchased at NAV and redeemed within one
year. On Class B shares a CDSC is applicable only if shares purchased are
redeemed within one year of original purchase.
(2) The investment advisory fee on the Cambridge Municipal Income Portfolio has
been reduced to reflect the voluntary waiver of a portion of the investment
advisory fee by the investment adviser from October 1 to December 31, 1993.
The maximum investment advisory fee is 0.60% on the Cambridge Municipal
Income Portfolio. The investment advisory fee on the Cambridge Global
Portfolio has been reduced to reflect the voluntary waiver of the investment
advisory fee by the investment advisor for one year. The maximum
1

<PAGE>
investment advisory fee on the Cambridge Global Portfolio is 1.10% on the
first $75 million in Portfolio assets and 1.00% on Portfolio assets in
excess of $75 million.
(3) The estimated total other expenses have been reduced to reflect the
anticipated voluntary waiver of certain Portfolio expenses by the
administrator. After one year, the administrator can terminate this
voluntary waiver at any time in its sole discretion. Total other expenses
are estimated based on average expenses expected to be incurred during the
period ending September 30, 1994. During the course of this period, expenses
may be more or less than the average amount shown.
(4) The total Portfolio operating expenses for Class A shares, absent the
investment adviser's and the administrator's voluntary waivers of the
investment advisory fee and administrative fee for the Cambridge Municipal
Income Portfolio and administrative fees for the Cambridge Growth Portfolio,
Cambridge Capital Growth Portfolio, and Cambridge Government Income
Portfolio are estimated to be 1.71% on Cambridge Growth Portfolio, 1.61% on
Cambridge Capital Growth Portfolio, 1.28% on Cambridge Government Income
Portfolio, and 1.32% on Cambridge Municipal Income Portfolio. Such expenses
for Class B shares would be 2.46% on Cambridge Growth Portfolio, 2.36% on
Cambridge Capital Growth Portfolio, 1.78% on Cambridge Government Income
Portfolio, and 1.82% on Cambridge Municipal Income Portfolio. With respect
to the Cambridge Income and Growth Portfolio, the total Portfolio operating
expenses, absent the anticipated voluntary waiver of administrative fees and
the voluntary waivers of certain operating expenses are estimated to be
1.69% for Class A shares and 2.44% for Class B shares. With respect to the
Cambridge Global Portfolio, the total Portfolio operating expenses are
estimated to be 3.33% for Class A shares and 4.09% for Class B shares,
absent (i) the voluntary waiver of advisory fees by the investment adviser
for one year, (ii) the voluntary waiver of administrative fees by the
administrator for one year and (iii) the agreement by the investment adviser
to be liable for certain of the Portfolio's other operating expenses for one
year, as is necessary for the Portfolio's total operating expenses to be as
disclosed in the table.
* The Annual Portfolio Operating Expenses for Class A Shares were 1.66% for
Cambridge Growth Portfolio, 1.49% for Cambridge Capital Growth Portfolio,
1.04% for Cambridge Government Income Portfolio, 0.71% for the Cambridge
Municipal Income Portfolio and 1.56% for the Cambridge Income and Growth
Portfolio for the fiscal year ended September 30, 1993. Such expenses for
Class B Shares were 2.41% for Cambridge Growth Portfolio, 2.24% for Cambridge
Capital Growth Portfolio, 1.54% for Cambridge Government Income Portfolio,
1.21% for the Cambridge Municipal Income Portfolio and 2.31% for the
Cambridge Income and Growth Portfolio. The Annual Portfolio Operating
Expenses in the above table are based on expenses expected during the fiscal
year ending September 30, 1994.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF A PORTFOLIO WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "HOW TO BUY SHARES," "INVESTMENT MANAGEMENT OF THE TRUST," AND
"CAMBRIDGE SERIES TRUST INFORMATION."
Long-term Class B shareholders may pay more than the economic equivalent of
the maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
2

<PAGE>
EXAMPLE
<TABLE>
<CAPTION>
CAMBRIDGE CAMBRIDGE CAMBRIDGE CAMBRIDGE
CAMBRIDGE CAPITAL GOVERNMENT MUNICIPAL INCOME AND
GROWTH GROWTH INCOME INCOME GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment assuming (1) 5% annual
return and (2) no redemption at the end
of each time period:
CLASS A SHARES
1 year........................................ $ 71 $ 70 $ 60 $ 59 $ 71
3 years....................................... 104 102 86 84 103
5 years....................................... 140 135 113 110
10 years...................................... 241 230 193 186
CLASS B SHARES
1 year........................................ $ 24 $ 23 $ 18 $ 17 $ 24
3 years....................................... 75 72 55 54 74
5 years....................................... 12 124 95 92
10 years...................................... 275 265 207 201
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:
CLASS A SHARES
1 year........................................ $ 71 $ 70 $ 60 $ 59 $ 71
3 years....................................... 104 102 86 84 103
5 years....................................... 140 135 113 110
10 years...................................... 241 230 193 186
CLASS B SHARES
1 year........................................ $ 35 $ 34 $ 28 $ 28 $ 34
3 years....................................... 75 72 55 54 74
5 years....................................... 129 124 95 92
10 years...................................... 275 265 207 201
<CAPTION>
CAMBRIDGE
GLOBAL
PORTFOLIO
<S> <C>
You would pay the following expenses on a
$1,000 investment assuming (1) 5% annual
return and (2) no redemption at the end
of each time period:
CLASS A SHARES
1 year........................................ $ 76
3 years....................................... 121
5 years.......................................
10 years......................................
CLASS B SHARES
1 year........................................ $ 30
3 years....................................... 92
5 years.......................................
10 years......................................
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:
CLASS A SHARES
1 year........................................ $ 76
3 years....................................... 121
5 years.......................................
10 years......................................
CLASS B SHARES
1 year........................................ $ 40
3 years....................................... 92
5 years.......................................
10 years......................................
</TABLE>

The above examples should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
3

<PAGE>
CAMBRIDGE SERIES TRUST
FINANCIAL HIGHLIGHTS
CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by KPMG Peat Marwick, the Trust's
independent auditors. Their report dated November 12, 1993 on the Portfolios'
financial statements for the period ended September 30, 1993 is included in the
Combined Annual Report dated September 30, 1993, which is incorporated by
reference. This table should be read in conjunction with each of the Portfolio's
financial statements and notes thereto, which may be obtained free of charge
from the Trust.
<TABLE>
<CAPTION>
CAMBRIDGE
MUNICIPAL
CAMBRIDGE INCOME
CAMBRIDGE GROWTH CAMBRIDGE CAPITAL GOVERNMENT INCOME PORTFOLIO
PORTFOLIO GROWTH PORTFOLIO PORTFOLIO
SEPTEMBER
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 30,
1993 1992* 1993 1992* 1993 1992** 1993
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF
PERIOD $ 14.14 $ 14.18 $ 14.21 $ 14.18 $ 14.39 $ 14.30 $ 14.76
Income from investment operations
Net investment income (loss) (0.07) 0.03 0.14 0.08 1.06 0.44 0.92
Net realized and unrealized gain (loss)
on investments 2.65 (0.07) 1.02 0.03 (0.31) 0.09 1.32
Total from investment operations 2.58 (0.04) 1.16 0.11 0.75 0.53 2.24
Less distributions
Dividends from income -- -- (0.11) (0.08) (1.06) (0.44) (0.92)
Distributions from capital gains -- -- -- -- -- -- --
Distributions in excess of net
investment income (0.03)(d) -- -- -- (0.04)(d) -- (0.03)(d)
NET ASSET VALUE PER SHARE, END OF PERIOD $ 16.69 $ 14.14 $ 15.26 $ 14.21 $ 14.04 $ 14.39 $ 16.05
Total return**** 18.23% (0.28%)(a) 8.21% 0.78%(a) 5.41% 3.37%(a) 16.00%
Ratios to Average Net Assets
Expenses 1.66% 1.33%(b) 1.49% 1.14%(b) 1.04% 0.36%(b) 0.71%
Net investment income (loss) (0.49%) 0.59%(b) 0.96% 1.54%(b) 7.31% 8.00%(b) 5.92%
Expense adjustment(c) 0.12% 0.39% 0.10% 0.29% 0.18% 0.85% 0.68%
Supplemental Data
Net assets, end of period (000 omitted) $19,708 $11,464 $31,360 $20,864 $47,780 $36,740 $29,245
Portfolio turnover rate 137% 26% 192% 61% 102% 9% 88%
<CAPTION>
CAMBRIDGE
INCOME AND
GROWTH
PORTFOLIO
SEPTEMBER 30,
1992* 1993***
<S> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF
PERIOD $ 14.29 $ 14.14
Income from investment operations
Net investment income (loss) 0.32 0.09
Net realized and unrealized gain (loss)
on investments 0.47 0.73
Total from investment operations 0.79 0.82
Less distributions
Dividends from income (0.32) (0.08)
Distributions from capital gains -- --
Distributions in excess of net
investment income -- --
NET ASSET VALUE PER SHARE, END OF PERIOD $ 14.76 $ 14.88
Total return(dagger) 5.43%(a) 5.54%(a)
Ratios to Average Net Assets
Expenses 0.00%(b) 1.56%(a)
Net investment income (loss) 6.21%(b) 2.35%(b)
Expense adjustment(c) 1.26% 0.38%
Supplemental Data
Net assets, end of period (000 omitted) $18,801 $ 9,849
Portfolio turnover rate 0% 13%
</TABLE>

* Reflects operations for the period from April 29, 1992 (date of initial
public investment), to September 30, 1992.
** Reflects operations for the period from April 29, 1992 (date of initial
public investment) to September 30, 1992. For the period from the start of
business, March 31, 1992, to April 28, 1992, net investment income
aggregating $0.05 per share ($319) was distributed to the Portfolio's
investment adviser. Such distribution represented the net investment income
of the Portfolio prior to the initial public investment in Portfolio shares.
*** Reflects operations for the period from May 24, 1993 (date of initial public
investment) to September 30, 1993.
**** Based on net asset value.
(a) Cumulative total return based on net asset value.
(b) Computed on an annualized basis.
(c) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses.
(d) These distributions did not represent a return of capital for federal
income tax purposes for the year ended September 30, 1993.
Further information about each Portfolio's performance is contained in the
Combined Annual Report dated September 30, 1993, which can be obtained free of
charge.
4

<PAGE>
CAMBRIDGE SERIES TRUST
FINANCIAL HIGHLIGHTS
CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by KPMG Peat Marwick, the Trust's
independent auditors. Their report dated November 12, 1993 on the Portfolios'
financial statements for the period ended September 30, 1993 is included in the
Combined Annual Report dated September 30, 1993, which is incorporated by
reference. This table should be read in conjunction with each of the Portfolio's
financial statements and notes thereto, which may be obtained free of charge
from the Trust.
<TABLE>
<CAPTION>
CAMBRIDGE
MUNICIPAL
CAMBRIDGE GOVERNMENT INCOME
CAMBRIDGE GROWTH CAMBRIDGE CAPITAL PORTFOLIO
PORTFOLIO GROWTH PORTFOLIO INCOME PORTFOLIO
SEPTEMBER
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 30,
1993 1992* 1993 1992* 1993 1992* 1993
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF
PERIOD $ 14.14 $ 14.18 $ 14.22 $ 14.18 $ 14.40 $ 14.30 $ 14.78
Income from investment operations
Net investment income (loss) (0.14) (0.01) 0.05 0.46 0.99 0.41 0.82
Net realized and unrealized gain (loss)
on investments 2.59 (0.03) 1.02 0.04 (0.31) 0.10 1.32
Total from investment operations 2.45 (0.04) 1.07 0.50 0.68 0.51 2.14
Less distributions
Dividends from income -- -- (0.05) (0.46) (0.99) (0.41) (0.82)
Distributions from capital gains -- -- -- -- -- -- --
Distributions in excess of net
investment income -- -- (0.01)(d) -- (0.03)(d) -- (0.04)(d)
NET ASSET VALUE PER SHARE, END OF PERIOD $ 16.59 $ 14.14 $ 15.23 $ 14.22 $ 14.06 $ 14.40 $ 16.06
Total return(dagger) 17.33% (0.28%)(a) 7.52% 0.61%(a) 4.86% 3.24%(a) 15.27%
Ratios to Average Net Assets
Expenses 2.41% 2.07%(b) 2.24% 1.86%(b) 1.54% 0.83%(b) 1.21%
Net investment income (loss) (1.24%) (0.17%)(b) 0.21% 0.83%(b) 6.81% 7.53%(b) 5.42%
Expense adjustment(c) 0.12% 0.40% 0.10% 0.30% 0.18% 0.84% 0.68%
Supplemental Data
Net assets, end of period (000 omitted) $35,069 $13,828 $57,030 $25,468 $127,346 $65,661 $50,976
Portfolio turnover rate 137% 26% 192% 61% 102% 9% 88%
<CAPTION>
CAMBRIDGE
INCOME AND
GROWTH
PORTFOLIO
SEPTEMBER 30,
1992* 1993**
<S> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF
PERIOD $ 14.29 $ 14.14
Income from investment operations
Net investment income (loss) 0.29 0.05
Net realized and unrealized gain (loss)
on investments 0.49 0.77
Total from investment operations 0.78 0.82
Less distributions
Dividends from income (0.29) (0.05)
Distributions from capital gains -- --
Distributions in excess of net
investment income -- --
NET ASSET VALUE PER SHARE, END OF PERIOD $ 14.78 $ 14.91
Total return*** 5.28%(a) 5.54%(a)
Ratios to Average Net Assets
Expenses 0.50%(b) 2.31%(b)
Net investment income (loss) 5.80%(b) 1.60%(b)
Expense adjustment(c) 1.26% 0.38%
Supplemental Data
Net assets, end of period (000 omitted) $24,265 $18,127
Portfolio turnover rate 0% 13%
</TABLE>

* Reflects operations for the period from April 29, 1992 (date of initial
public investment) to September 30, 1992.
** Reflects operations for the period from May 24, 1993 (date of initial public
investment) to September 30, 1993.
*** Based on net asset value.
(a) Cumulative total return based on net asset value.
(b) Computed on an annualized basis.
(c) Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses.
(d) These distributions did not represent a return of capital for federal
income tax purposes for the year ended September 30, 1993.
Further information about each Portfolio's performance is contained in the
Combined Annual Report dated September 30, 1993, which can be obtained free of
charge.
5

<PAGE>
CAMBRIDGE FAMILY OF FUNDS
The Portfolios of the Trust, together with the Government Securities
Portfolio of the Cash Equivalent Fund which is advised by Kemper Financial
Services, Inc., comprise the Cambridge Family of Funds.
The Trust is managed by Cambridge Investment Advisors, Inc. which in turn
has entered into sub-advisory agreements for each of the Portfolios. Kemper
Financial Services, Inc. serves as the sub-adviser for Cambridge Growth
Portfolio; Phoenix Investment Counsel, Inc. serves as the sub-adviser for
Cambridge Capital Growth Portfolio; Pacific Investment Management Company serves
as the interim sub-adviser for Cambridge Government Income Portfolio; Van Kampen
Merritt Management Inc. serves as the sub-adviser for Cambridge Municipal
Portfolio; and Wellington Management Company serves as the sub-adviser for
Cambridge Income and Growth Portfolio. Scudder, Stevens and Clark, Inc. will
serve as the sub-adviser to the new Global Portfolio. Such sub-advisers have
over 255 years of investment experience and currently manage or supervise in
excess of $300 billion on behalf of over 11 million shareholder or client
accounts. The Cambridge Family of Funds provides flexibility and diversification
for an investor's investment planning needs. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give an investor access to as many as seven investment
vehicles.
The Cambridge Family of Funds may be utilized in connection with advisory
accounts of investment advisers registered under the Investment Advisers Act of
1940.
Information on the Cambridge Family of Funds may be obtained by calling
1-800-382-0016.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVES AND POLICIES
Set forth below is a description of the investment objectives and policies
of each Portfolio. The investment objectives of each Portfolio, along with those
investment policies which are identified as being fundamental, may not be
changed without the affirmative vote of a majority of the applicable Portfolio's
outstanding voting securities. All other investment policies of a Portfolio may
be changed by the Board of Trustees of the Trust without shareholder approval.
Shareholders will be notified before any material change in these policies
becomes effective. There can be no assurance that any Portfolio will achieve its
investment objective. For additional information concerning investment
techniques utilized by the Portfolios, see "Investment Practices."
CAMBRIDGE GROWTH PORTFOLIO
The investment objective of the Cambridge Growth Portfolio is growth of
capital through professional management and diversification of investments in
securities it believes to have potential of capital appreciation. The Portfolio
will be invested primarily in securities which Kemper Financial Services, Inc.
("KFS"), the Portfolio's Sub-Adviser, believes offer the potential for capital
appreciation. The Portfolio invests primarily in common stocks but can invest in
any securities with potential for capital growth.
In seeking to obtain capital appreciation, the Portfolio may trade to some
degree in securities for the short term. To this extent, the Portfolio will be
engaged in trading operations based on short-term market considerations as
distinct from long-term investment based upon fundamental valuation of
securities. However, the Portfolio will emphasize fundamental research in
attempting to identify under-valued situations which are anticipated will
appreciate over the longer term.
6

<PAGE>
In seeking to achieve its objective, it will be the Portfolio's policy to
invest primarily in securities which it believes will offer the potential for
increasing the Portfolio's total asset value.
While it is anticipated that most investments will be in common stocks of
companies with above-average growth prospects, investments may also be made to a
limited degree in other common stocks and in convertible securities, such as
bonds and preferred stocks. There may be times when a significant portion of the
Portfolio's assets may be held temporarily in cash or defensive-type securities,
depending upon the Sub-Adviser's analysis of business and economic conditions
and the outlook for security prices. For these purposes, defensive-type
securities include high-grade debt securities (rated "A" or above); securities
issued by the U.S. government, its agencies or instrumentalities; and
high-quality money market instruments, including repurchase agreements.
Some of the factors the Sub-Adviser will consider in making investments for
the Portfolio are patterns of increasing growth in sales and earnings, the
development of new or improved products or services, favorable outlooks for
growth in the industry, the probability of increased operating efficiencies,
emphasis on research and development, cyclical conditions, or other signs that a
company is expected to show greater than average capital appreciation and
earnings growth.
CAMBRIDGE CAPITAL GROWTH PORTFOLIO
The investment objective of the Cambridge Capital Growth Portfolio is to
provide long-term appreciation of capital. Since income is not an objective, any
income generated by the investment of the Portfolio's assets will be incidental
to its objective. Phoenix Investment Counsel, Inc. ("PIC"), the Portfolio's
Sub-Adviser, intends to invest primarily in the common stock of companies
believed by management to have appreciation potential. However, since no one
class or type of security at all times necessarily affords the greatest promise
for capital appreciation, the Portfolio may invest any amount or proportion of
its assets in any class or type of security believed by the Sub-Adviser to offer
potential for capital appreciation over both the intermediate and long term.
Normally, the Portfolio's investments will consist largely of common stocks
selected for the promise that they offer appreciation of capital. However, the
Portfolio may also invest in preferred stocks, investment-grade bonds,
convertible preferred stocks, and convertible debentures if, in the judgment of
the Sub-Adviser, the investment would further its investment objective. It is
anticipated that investment in bonds during periods of historically high
interest rates or during periods of high interest rates during the interest rate
cycle will lead to capital gains in such bonds when interest rates fall, causing
the value of the bonds to increase. Each security held will be monitored to
determine whether it is contributing to the basic objective of long-term
appreciation of capital.
The Sub-Adviser believes that a portfolio of such securities provides the
most effective way to obtain capital appreciation, but when, for temporary
defensive purposes (as when market conditions for equity securities are
adverse), other types of investments appear advantageous on the basis of
combined considerations of risk and the protection of capital values,
investments may be made in fixed income securities with or without warrants or
conversion features. In an effort to protect its assets against major market
declines, or for other temporary defensive purposes, the Portfolio may actively
pursue a policy of retaining cash or investing part or all of its assets in
high-quality money market instruments and repurchase agreements.
Diversification is an important consideration in selecting investments for
the Portfolio. However, greater emphasis will be placed upon careful selection
of securities believed to have good potential for appreciation than upon wide
diversification.
7

<PAGE>
CAMBRIDGE GOVERNMENT INCOME PORTFOLIO
The investment objective of the Cambridge Government Income Portfolio is to
provide current income. The Portfolio, which is advised by Pacific Investment
Management Company ( "PIMCO"), pursues this objective by investing primarily in
securities which are either issued or guaranteed as to payment of principal and
interest by the U.S. government or its agencies or instrumentalities. The
Portfolio may also invest in certain mortgage-related securities. Under normal
circumstances, the Portfolio will invest at least 65% of the value of its total
assets in U.S. government securities.
The U.S. government securities in which the Portfolio invests include:
-- direct obligations of the U.S. Treasury, such as U.S. Treasury
bills, notes, and bonds; and
-- obligations of U.S. government agencies or instrumentalities, such
as Federal Home Loan Banks, Federal Farm Credit Banks, Federal
National Mortgage Association, Government National Mortgage
Association, and Federal Home Loan Mortgage Corporation.
The obligations of the U.S. government agencies or instrumentalities which
the Portfolio may buy 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 the agency or instrumentality; or
-- the credit of the agency or instrumentality issuing the
obligations.
Examples of agencies and instrumentalities whose obligations are
permissible investments but may not always receive financial support from the
U.S. government are: Federal Land Banks; Central Bank for Cooperatives; Federal
Intermediate Credit Banks; Federal Home Loan Banks; and Federal National
Mortgage Association. See "Investment Practices" for additional information
regarding mortgage-related securities, stripped mortgage securities, and dollar
roll transactions.
CAMBRIDGE MUNICIPAL INCOME PORTFOLIO
The investment objective of the Cambridge Municipal Income Portfolio is to
provide investors with a high level of current income exempt from federal
regular income tax, consistent with preservation of capital. Van Kampen Merritt
Management Inc. ("VKMMI"), serves as the Sub-Adviser to the Portfolio. Under
normal market conditions, the Portfolio will invest at least 80% of its total
assets in tax-exempt municipal securities rated investment grade, or deemed by
the Sub-Adviser to be of comparable quality, at the time of investment.
Investment-grade securities are securities rated BBB or higher by Standard
and Poor's Corporation ("S&P") or Baa or higher by Moody's Investors Service,
Inc. ("Moody's"), in the case of long-term obligations, or which have equivalent
ratings in the case of short-term obligations. Securities rated BBB by S&P are
regarded by S&P as having an adequate capacity to pay interest and repay
principal. Whereas such securities normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest or repay principal for
debt in this category than in higher rated categories. Securities rated Baa by
Moody's are considered by Moody's as medium-grade obligations. Such securities
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
8

<PAGE>
length of time. They lack outstanding investment characteristics and, in fact,
have speculative characteristics as well.
Up to 20% of the Portfolio's total assets may be invested in tax-exempt
municipal securities rated between BB and B- (inclusive) by S&P or between Ba
and B3 (inclusive) by Moody's (or equivalently rated short-term obligations) and
unrated tax-exempt securities that the Sub-Adviser considers to be of comparable
quality. These securities are below investment grade and are regarded by S&P, on
balance, as predominantly speculative with respect to the capacity to pay
interest and repay principal in accordance with the terms of the obligation.
While such securities will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. These securities are regarded by Moody's as
generally lacking characteristics of a desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the
securities' contract over any long period of time may be small. Debt securities
rated below investment grade are commonly referred to as "junk bonds." The
Portfolio will not invest in securities rated below B- by S&P or below B3 by
Moody's at the time of purchase. For a description of S&P's and Moody's ratings,
see the Appendix to the combined Statement of Additional Information.
From time to time, the Portfolio temporarily may also invest up to 10% of
its assets in tax-exempt money market funds, subject to the restrictions of
Section 12(d)(1)(A) of the Investment Company Act of 1940. Such instruments will
be treated as investments in municipal securities.
The Portfolio may invest a substantial portion of its assets in municipal
securities that pay interest that is subject to the federal alternative minimum
tax. The Portfolio may not be a suitable investment for investors who are
already subject to the federal alternative minimum tax or who would become
subject to the federal alternative minimum tax as a result of an investment in
the Portfolio.
MUNICIPAL SECURITIES. Tax-exempt municipal securities are debt obligations
issued by or on behalf of the governments of states, territories, or possessions
of the United States; the District of Columbia; their political subdivisions,
agencies, and instrumentalities; and certain interstate agencies, the interest
on which, in the opinion of bond counsel or other counsel to the issuer of such
securities, is exempt from federal regular income tax. Under normal market
conditions, up to 100%, but not less than 80%, of the Portfolio's assets will be
invested in such municipal securities. The foregoing is a fundamental policy of
the Portfolio and cannot be changed without approval of the shareholders of the
Portfolio.
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 faith, credit, and taxing power for the payment of
principal and interest. Revenue bonds are usually payable only from the revenues
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise tax or other specific revenue source.
Industrial development bonds are usually revenue bonds, the credit quality of
which is normally directly related to the credit standing of the industrial user
involved.
There are, in addition, a variety of hybrid and special types of municipal
securities, including variable rate securities, municipal notes, and municipal
leases. Variable rate securities bear rates of interest that are adjusted
periodically according to formulae intended to minimize fluctuation in values of
the instruments. Municipal notes include tax, revenue, and bond anticipation
notes of short maturity, generally less than three years, which are issued to
obtain temporary funds for various public purposes. Municipal leases are
obligations issued by state and local governments or authorities to finance the
acquisition of equipment and facilities and may be considered not to be liquid.
They may take the form of a lease, an installment purchase contract, a
conditional sales contract, or a participation certificate on any of the above.
A more detailed description of the types of municipal securities in which the
Portfolio may invest is included in the Statement of Additional Information.
9

<PAGE>
From time to time, proposals have been introduced before Congress that
would have the effect of reducing or eliminating the federal tax exemption on
municipal securities. If such a proposal were enacted, the ability of the
Portfolio to pay tax-exempt interest dividends might be adversely affected.
RISKS OF LOWER-GRADE MUNICIPAL SECURITIES. The Portfolio may invest up to
20% of its total assets in lower-grade tax-exempt municipal securities or in
unrated municipal securities considered by the Sub-Adviser to be of comparable
quality. Lower-grade municipal securities are rated between BB and B- by S&P or
between Ba and B3 by Moody's, in each case inclusive of such rating categories.
Higher yields are generally available from municipal securities of such grade.
With respect to such 20% of the Portfolio's total assets, the Portfolio has not
established any limit on the percentage of its portfolio which may be invested
in securities in any one rating category.
Investment in lower-grade municipal securities involves special risks as
compared with investment in higher-grade municipal securities. The market for
lower-grade municipal securities is considered to be less liquid than the market
for investment-grade municipal securities, which may adversely affect the
ability of the Portfolio to dispose of such securities in a timely manner at a
price which reflects the value of such securities. The market price for less
liquid securities tends to be more volatile than the market price for more
liquid securities. Illiquid securities and the absence of readily available
market quotations with respect thereto may make the valuation of such securities
more difficult, and the judgment of the Trust's officers and Trustees may play a
greater role in the valuation of the Portfolio's securities. Lower-grade
municipal securities generally involve greater credit risk than higher-grade
municipal securities and are more sensitive to adverse economic changes,
significant increases in interest rates, and individual issuer developments.
Because issuers of lower-grade municipal securities frequently choose not to
seek a rating of their municipal securities, the Portfolio will rely more
heavily on the Sub-Adviser's ability to determine the relative investment
quality of such securities than if the Portfolio invested exclusively in
higher-grade municipal securities. The Portfolio may, if deemed appropriate by
the Sub-Adviser, retain a security whose rating has been downgraded below B- by
S&P or below B3 by Moody's, or whose rating has been withdrawn. More detailed
information concerning the risks associated with instruments in lower-grade
municipal securities is included in the Statement of Additional Information.
The Sub-Adviser seeks to minimize the risks involved in investing in
lower-grade municipal securities through diversification and careful investment
analysis. To the extent that there is no established retail market for some of
the lower-grade municipal securities in which the Portfolio may invest, trading
in such securities may be relatively inactive. During periods of reduced market
liquidity and in the absence of readily available market quotations for
lower-grade municipal securities held in the Portfolio, the ability to value the
Portfolio's securities becomes more difficult and the use of judgment may play a
greater role in the valuation of the Portfolio's securities due to the reduced
availability of reliable objective data. The effects of adverse publicity and
investor perceptions may be more pronounced for securities for which no
established market exists as compared with the effects on securities for which
such a market does exist. Further, the Portfolio may have more difficulty
selling such securities in a timely manner and at their stated value than would
be the case for securities for which an established market does exist.
Investors should carefully consider the risks of owning shares of an
investment company which invests in lower-grade municipal securities before
making an investment in the Portfolio. The higher yield on certain securities
held by the Portfolio reflects a greater possibility that the financial
condition of the issuer, or adverse changes in general economic conditions, or
both, may impair the ability of the issuer to make payments of income and
principal.
10

<PAGE>
CONCENTRATION. The Portfolio generally will not invest more than 25% of its
total assets in any industry, nor will the Portfolio generally invest more than
5% of its assets in the securities of any single issuer. Governmental issuers of
municipal securities are not considered part of any "industry." However,
municipal securities backed only by the assets and revenues of nongovernmental
users may for this purpose be deemed to be issued by such nongovernmental users,
and the 25% limitation would apply to such obligations. It is nonetheless
possible that the Portfolio may invest more than 25% of its assets in a broader
segment of the municipal securities market, such as revenue obligations of
hospitals and other health care facilities, housing agency revenue obligations,
or airport revenue obligations if the Sub-Adviser determines that the yields
available from obligations in a particular segment of the market justify the
additional risks associated with a large investment in such segment. Although
such obligations could be supported by the credit of governmental users, or by
the credit of nongovernmental users engaged in a number of industries, economic,
business, political, and other developments generally affecting the revenues of
such users (for example, proposed legislation or pending court decisions
affecting the financing of such projects and market factors affecting the demand
for their services or products) may have a general adverse effect on all
municipal securities in such a market segment. The Portfolio reserves the right
of investing more than 25% of its assets in industrial development bonds or in
issuers located in any individual state, although the Sub-Adviser has no present
intention to invest more than 25% of the Portfolio's assets in issuers located
in the same state. If the Portfolio were to invest more than 25% of its assets
in issuers located in one individual state, it would be more susceptible to
adverse economic, business, or regulatory conditions in that state.
CAMBRIDGE INCOME AND GROWTH PORTFOLIO
The investment objective of the Cambridge Income and Growth Portfolio is to
provide a conservative combination of income and growth of capital, consistent
with capital protection. To achieve the Portfolio's objective, Wellington
Management Company ("WMC"), the Portfolio's Sub-Adviser, will invest the
Portfolio's assets in a diversified portfolio of equity securities of companies
that it believes exhibit sound fundamental characteristics and investment-grade
fixed-income securities, as well as U.S. government securities, as described
below. The Portfolio's holdings in common stocks provide long-term appreciation
potential and dividend growth, while diversification into bonds provides current
income and reduces the overall volatility of returns. The Portfolio will
typically exhibit less investment risk than a portfolio consisting entirely of
common stocks.
The Sub-Adviser will manage the allocation of assets among asset classes
based upon its judgment of the projected investment environment for financial
assets, relative fundamental values and attractiveness of each asset class, and
expected future returns of each asset class. The Sub-Adviser will base its asset
allocation decisions on fundamental analysis and will not attempt to make
short-term market timing decisions among asset classes. As a result, changes in
allocation to stocks and bonds are expected to be gradual, and the Portfolio
will normally have some portion of its assets invested in each asset class at
all times. The Portfolio does not have percentage limitations on the amount
allocated to each asset class.
Within the equity asset class, the Portfolio seeks to achieve long-term
appreciation of capital and a moderate income level by selecting investments
which have attractive dividend yields, improving fundamentals, and are
reasonably valued by the market. Accordingly, the Portfolio's equity investments
will generally be focused on stocks of companies which the Sub-Adviser believes
have the potential to provide above-average potential total returns and which
sell at below-average price/earnings multiples. These equity investment
decisions are based primarily on the Sub-Adviser's fundamental research and
security valuations. The primary equity investment universe for the Portfolio
will consist of companies with large market capitalizations.
Within the fixed income asset class, the Portfolio seeks to provide as high
a level of current income as is consistent with prudent investment risk.
Investment management of the fixed income asset class will focus on
11

<PAGE>
relative value and yield spreads among security types and among quality, issues,
and industry sectors, call protection, and credit research. Credit research on
corporate bonds is based on both quantitative and qualitative criteria
established by the Sub-Adviser, such as an issuer's industry, operating and
financial profiles, business strategy, management quality, and projected
financial and business conditions.
The Portfolio will contain a broadly diversified mix of investments
including the following acceptable investments:
EQUITY SECURITIES. The Portfolio may invest in common stocks and other
equity securities, such as preferred stocks and debt securities with conversion
privileges or warrants. The Portfolio may also invest in equity securities,
including convertible debt securities, of real estate related companies and real
estate investment trusts. The Portfolio will limit its investment in real estate
investment trusts to 10% of its total assets. All real estate securities will be
publicly traded, primarily on an exchange.
REAL ESTATE SECURITIES. Although the Portfolio's investments in real estate
will be limited to publicly traded securities secured by real estate or
interests therein or issued by companies which invest in real estate or
interests therein, the Portfolio may be subject to risks associated with direct
ownership of real estate. These include declines in the value of real estate,
risks related to general and local economic conditions and increases in interest
rates.
Other risks associated with real estate investments include the fact that
equity and mortgage real estate investment trusts are dependent upon management
skill, are not diversified, and are, therefore, subject to the risk of financing
single projects or a limited number of projects. They are also subject to heavy
cash flow dependency, defaults by borrowers, and self-liquidation.
Additionally, equity real estate investment trusts may be affected by any
changes in the value of the underlying property owned by the trust, and mortgage
real estate investment trusts may be affected by the quality of any credit
extended.
FIXED INCOME SECURITIES. The debt securities in which the Portfolio
invests, including zero-coupon securities, will be rated at the time of purchase
within the four highest bond ratings by Moody's or S&P or, if unrated, deemed to
be of equivalent quality by the Sub-Adviser. While bonds carrying the fourth
highest quality rating ("Baa" by Moody's or "BBB" by S&P) are considered as
investment grade and are viewed to have adequate capacity for payment of
principal and interest, investments in such securities involve a higher degree
of risk than that associated with investments in debt securities in the higher
rating categories, and such bonds lack outstanding investment characteristics
and have speculative characteristics as well. For example, changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade
bonds. If a security's rating is reduced below the required minimum after the
Portfolio has purchased it, the Portfolio is not required to sell the security,
but may consider doing so. A description of the rating categories is contained
in the Appendix to the combined Statement of Additional Information.
U.S. GOVERNMENT SECURITIES. The Portfolio may invest in securities issued
or guaranteed as to principal or interest by the U.S. government or its agencies
or instrumentalities, including mortgage-related securities. These U.S.
government securities include:
(Bullet) direct obligations of the U.S. Treasury, such as U.S. Treasury
bills, notes, and bonds; and
12

<PAGE>
(Bullet) obligations of U.S. government agencies or instrumentalities, such
as Federal Home Loan Banks, Federal Farm Credit Banks, Federal
National Mortgage Association, Government National Mortgage
Association, and Federal Home Loan Mortgage Corporation.
The obligations of the U.S. government agencies or instrumentalities which
the Portfolio may buy are backed by:
(Bullet) the full faith and credit of the U.S. Treasury;
(Bullet) the issuer's right to borrow from the U.S. Treasury;
(Bullet) the discretionary authority of the U.S. government to purchase
certain obligations of the agency or instrumentality; or
(Bullet) the credit of the agency or instrumentality issuing the
obligations.
Examples of agencies and instrumentalities whose obligations are
permissible investments but may not always receive financial support from the
U.S. government are: Federal Land Banks; Central Bank for Cooperatives; Federal
Intermediate Credit Banks; Federal Home Loan Banks; and Federal National
Mortgage Association. See "Investment Practices" for additional information
regarding mortgage-related securities, stripped mortgage securities, and dollar
roll transactions.
CAMBRIDGE GLOBAL PORTFOLIO
The investment objective of the Cambridge Global Portfolio is to seek
long-term growth of capital through a diversified portfolio of marketable
securities, primarily equity securities, including common stocks, preferred
stocks and debt securities convertible into common stocks, and warrants. The
Portfolio invests on a worldwide basis in equity securities of companies which
are incorporated in the United States or in foreign countries. It also may
invest in the debt securities of U.S. and foreign issuers. Income is an
incidental consideration.
The Portfolio will invest in companies the Sub-Adviser believes will
benefit from global economic trends, promising technologies or products and
specific country opportunities resulting from changing geopolitical, currency,
or economic relationships. It is expected that investments will be spread
broadly around the world. Under normal circumstances, the Portfolio will invest
at least 65% of the value of its total assets in securities of at least three
countries, one of which may be the United States. The Portfolio may be invested
100% in non-U.S. issues, and for temporary defensive purposes may be invested
100% in U.S. issues, although under normal circumstances it is expected that
both foreign and U.S. investments will be represented in the Portfolio. It is
expected that investments will include companies of varying size as measured by
assets, sales, or capitalization.
The Portfolio is designed for investors seeking worldwide equity
opportunities in developed, newly industrialized and developing countries (some
of these developing countries are located in Latin America and Africa). The
management of the Portfolio believes that there is substantial opportunity for
long-term capital growth from a professionally managed portfolio of securities
selected from the U.S. and foreign equity markets. The Portfolio affords the
investor access to opportunities wherever they arise, without being constrained
by the location of a company's headquarters or the trading market for its
shares. Because the Portfolio invests globally, it provides the potential to
augment returns available from the U.S. stock market. In addition, since U.S.
and foreign markets do not always move in step with each other, a global
portfolio will be more diversified than one invested solely in U.S. securities.
Investing directly in foreign securities is impractical for many investors
due to the difficulty of arranging for purchases and sales, obtaining current
information, holding securities in safekeeping and converting the value of
13

<PAGE>
their investments from foreign currencies into dollars. The Portfolio manages
these problems for the investor. With an investment in the Portfolio, however,
the investor has a diversified worldwide investment portfolio which is managed
actively by experienced professionals.
The Portfolio generally will invest in equity securities of established
companies listed on U.S. or foreign securities exchanges, but also may invest in
securities traded over-the-counter. It also may invest in debt securities
convertible into common stock, and convertible and non-convertible preferred
stock, and fixed income securities of governments, government agencies,
supranational agencies and companies when the Sub-Adviser believes the potential
for appreciation will equal or exceed that available from investments in equity
securities. These debt and fixed income securities will be predominantly
investment-grade securities, that is, those rated Aaa, Aa, A or Baa by Moody's
or AAA, AA, A or BBB by S&P or those of equivalent quality as determined by the
Sub-Adviser, Scudder, Stevens & Clark, Inc. The Portfolio may not invest more
than 5% of its total assets in debt securities rated Baa or below by Moody's, or
BBB or below by S&P or deemed by the Sub-Adviser to be of comparable quality.
The Portfolio may invest in zero coupon securities which pay no cash income
and are sold at substantial discounts from their value at maturity. When held to
maturity, their entire income, which consists of accretion of discount, comes
from the difference between the issue price and their value at maturity. Zero
coupon securities are subject to greater market value fluctuations from changing
interest rates than debt obligations of comparable maturities which make current
cash distributions of interest. Fixed income securities also may be held for
temporary defensive purposes when the Sub-Adviser believes market conditions so
warrant and for temporary investment. Similarly, the Portfolio may invest in
cash equivalents (including foreign money market instruments, such as bankers'
acceptances, certificates of deposit, commercial paper rated P-1 or above by
Moody's or A-1 or above by S&P or those of equivalent quality as determined by
the Sub-Adviser, short-term government obligations, and short-term corporate
obligations rated A or above by Moody's or S&P or those of equivalent quality as
determined by the Sub-Adviser) for temporary defensive purposes and for
liquidity. The Portfolio may invest in closed-end investment companies holding
foreign securities.
RISK FACTORS. The Portfolio is designed for long-term investors who can
accept international investment risk. Since the Portfolio normally will be
invested in both U.S. and foreign securities markets, changes in the Portfolio's
share price may have a low correlation with movements in the U.S. markets. The
Portfolio's share price will reflect the movements of both the different stock
and bond markets in which it is invested and the currencies in which the
investments are denominated; the strength or weakness of the U.S. dollar against
foreign currencies may account for part of the Portfolio's investment
performance. Because of the Portfolio's global investment policies and the
investment considerations discussed above, investment in shares of the Portfolio
should not be considered a complete investment program. See "Investment
Practices -- Foreign Securities" below.
The Portfolio will invest no more than 5% of its total assets in debt
securities rated BBB or Baa or below or in unrated securities. Securities rated
BB or Ba and below are commonly referred to as "junk bonds." The lower the
quality of such debt securities, the greater their risks render them like equity
securities. The Portfolio may invest in securities which are rated as low as C
by Moody's or D by S&P at the time of purchase. Securities rated D may be in
default with respect to payment of principal or interest.
CURRENCY RISKS. The Portfolio may engage in currency transactions with
counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency
futures, exchange listed and OTC
14

<PAGE>
options on currencies, and currency swaps. The Portfolio dealings in forward
currency contracts and other currency transactions such as futures, options,
options on futures and swaps will be limited to hedging involving either
specific transactions or portfolio positions. Transaction hedging is entering
into a currency transaction with respect to specific assets or liabilities of
the Portfolio, which will generally arise in connection with the purchase or
sale of its portfolio securities or the receipt of income therefrom. Position
hedging is entering into a currency transaction with respect to portfolio
security positions denominated or generally quoted in that currency. The use of
currency transactions can result in the Portfolio incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency.
SWAPS, CAPS, FLOORS AND COLLARS. The Portfolio may enter into interest
rate, currency and index swaps and purchase or sell related caps, floors and
collars. The Portfolio expects to enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of its
portfolio, to protect against currency fluctuations, as a duration management
technique or to protect against any increase in the price of securities the
Portfolio anticipates purchasing at a later date. The Portfolio intends to use
these transactions as hedges and not as speculative investments and will not
sell interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Portfolio may be obligated to pay.
INVESTMENT PRACTICES
Except as noted otherwise below, each of the Portfolios may engage in one
or more of the following investment practices or may purchase one or more of the
following investments.
MORTGAGE-RELATED SECURITIES. The mortgage-related securities in which the
Cambridge Government Income Portfolio and Cambridge Income and Growth Portfolio
invest are generally issued by Government National Mortgage Association
("GNMA"), Federal National Mortgage Association ("FNMA"), and Federal Home Loan
Mortgage Corporation ("FHLMC"), or are privately issued (such as collateralized
mortgage obligations described below), and are actively traded. The underlying
mortgages which collateralize mortgage-related securities issued by GNMA are
fully guaranteed by the Federal Housing Administration ("FHA") or Veterans
Administration ("VA"), while those collateralizing mortgage-related securities
issued by FHLMC or FNMA are typically conventional residential mortgages
conforming to strict underwriting size and maturity constraints.
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 Portfolios as income, and the capital portion will be
reinvested.
Unlike conventional bonds, mortgage-related securities pay back principal
over the life of the mortgage-related securities rather than at maturity. At the
time that a holder of a mortgage-related security reinvests the payments and any
unscheduled prepayment 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 mortgage-related securities. As a consequence, mortgage-related
securities may be a less effective means of "locking-in" long-term interest
rates than other types of U.S. government securities.
The Portfolios may also invest in certain collateralized mortgage
obligations ("CMOs") which are rated AAA by a nationally recognized statistical
rating organization and which are issued by private entities such as investment
banking firms and companies related to the construction industry. The CMOs in
which the Portfolios 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
15

<PAGE>
principal and interest are guaranteed by the issuer and such guarantee is
collateralized by U.S. government securities; or (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 any agency or instrumentality of the U.S. government.
While mortgage-related securities generally entail less risk of a decline
during periods of rapidly rising interest rates, mortgage-related securities 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 mortgage-related securities are purchased at a premium, mortgage foreclosures
and unscheduled principal payments may result in some loss of a holder's
principal investment to the extent of the premium paid. Conversely, if
mortgage-related securities 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.
STRIPPED MORTGAGE SECURITIES. The Cambridge Government Income Portfolio may
invest up to 10% of its assets in stripped mortgage securities. Stripped
mortgage securities are derivative multiclass securities which may be issued by
agencies or instrumentalities of the U.S. government, or by private originators
of, or investors in, mortgage loans, such as savings and loan associations,
mortgage banks, commercial banks, investment banks, and special purpose
subsidiaries of the foregoing organizations. The market volatility of stripped
mortgage securities tends to be greater than the market volatility of the other
types of mortgage-related securities in which the Portfolios invest.
Principal-only stripped mortgage securities are used primarily to hedge against
interest rate risk to the capital assets of the Portfolios in a changing
interest rate environment. If the mortgage assets which underlie the stripped
mortgage securities were to experience greater than anticipated prepayments of
principal, a Portfolio could fail to fully recoup its initial investment in
these securities, even if they are rated in the highest rating categories (e.g.,
AAA or Aaa by S&P or Moody's, respectively).
DOLLAR ROLL TRANSACTIONS. In order to enhance portfolio returns and manage
prepayment risks, the Cambridge Government Income Portfolio, Cambridge Income
and Growth Portfolio and Cambridge Global Portfolio may engage in dollar roll
transactions with respect to mortgage-related securities issued by GNMA, FNMA,
and FHLMC. In a dollar roll transaction, a Portfolio sells a mortgage-related
security to a financial institution, such as a bank or broker/dealer, and
simultaneously agrees to repurchase a substantially similar (i.e., same type,
coupon, and maturity) security from the institution at a later date at an agreed
upon price. The mortgage-related securities that are repurchased will bear the
same interest rate as those sold, but generally will be collateralized by
different pools of mortgages with different prepayment histories. During the
period between the sale and repurchase, the Portfolios will not be entitled to
receive interest and principal payments on the securities sold. Proceeds of the
sale will be invested in short-term instruments, and the income from these
investments, together with any additional fee income received on the sale, will
generate income for the Portfolios exceeding the yield. When a Portfolio enters
into a dollar roll transaction, liquid assets of the Portfolio, in a dollar
amount sufficient to make payment for the obligations to be repurchased, are
segregated at the trade date. These securities are marked to market daily and
are maintained until the transaction is settled.
MONEY MARKET INSTRUMENTS. In order to invest cash which is awaiting
long-term investment, to maintain liquidity, or for temporary defensive
purposes, each of the Portfolios may purchase money market instruments. To the
extent that investments in money market instruments are not for defensive
purposes, each of the Portfolios, except the Cambridge Municipal Income
Portfolio, agrees to limit its investment in these securities to 35% of its
total assets. To the extent the Cambridge Municipal Income Portfolio invests in
money market instruments for other than defensive purposes, it will limit its
investment in these securities to 20% of its total assets. For these
16

<PAGE>
purposes, money market instruments will be limited to short-term obligations of
the U.S. government or its agencies or instrumentalities; certificates of
deposit, time deposits, and bankers' acceptances issued by banks or savings and
loan associations having assets of at least $500 million as of the end of their
most recent fiscal year; short-term corporate debt securities; and high-quality
commercial paper. Each of the Portfolios may also invest up to 10% of its assets
in shares of money market funds whose investments are limited to money market
instruments which each Portfolio could purchase directly.
REPURCHASE AGREEMENTS. Each Portfolio, other than the Cambridge Municipal
Income Portfolio, may engage in 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 the
Portfolio 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 the Portfolio, the Portfolio could receive less than the
repurchase price on any sale of such securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. Each Portfolio may purchase
securities on a when-issued or delayed delivery basis. In when-issued and
delayed delivery transactions, the Portfolio relies on the seller to complete
the transaction. The seller's failure to complete the transaction may cause the
Portfolio to miss a price or yield considered to be advantageous.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income,
each Portfolio, other than the Cambridge Municipal Income Portfolio, may lend
portfolio securities up to one-third of the value of its total assets to
broker/dealers, banks, or other institutional borrowers of securities on a
short-term basis. A Portfolio will only enter into loan arrangements with
broker/dealers, banks, or other institutions which the particular Sub-Adviser
has determined are creditworthy under guidelines established by the Trust's
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.
BORROWING. Each of the Portfolios may, under certain circumstances, borrow
money directly or through reverse repurchase agreements (arrangements in which
the Portfolio sells a money market instrument for a percentage of its cash value
with an agreement to buy it back on a set date) or pledge securities. The
Cambridge Municipal Income Portfolio may borrow up to 5% of its total assets and
may pledge up to 10% of the value of those assets to secure such borrowings.
Under certain circumstances, each remaining Portfolio may borrow up to one-third
of the value of its net assets and pledge up to 10% of the value of those assets
to secure such borrowings.
PUT AND CALL OPTIONS. Each of the Portfolios, except the Cambridge
Municipal Income Portfolio and Cambridge Income and Growth Portfolio, may
purchase put and call options on its portfolio securities. However, the
Cambridge Growth Portfolio will only invest in options that are traded on
securities exchanges and for which it pays a premium (cost of option). Put and
call options will be used as a hedge to attempt to protect securities which the
particular Portfolio holds, or will be purchasing, against decreases or
increases in value. Each of the Portfolios, except the Cambridge Growth
Portfolio and Cambridge Income and Growth Portfolio, may also write (sell) put
and call options on all or any portion of its portfolio to generate income or
enhance potential gain. The Portfolios will write call options on securities
either held in their portfolios or for which they have the right to obtain
without payment of further consideration or for which they have segregated cash
in the amount of any additional consideration. In the case of put options
written by the Portfolios, the Trust's custodian will segregate cash, U.S.
Treasury obligations, or high quality debt securities with a value equal to or
greater than the exercise price of the underlying securities.
17

<PAGE>
The Cambridge Global Portfolio also may purchase and write call and put
options on securities indices and other financial indices and on currencies.
Each of the Portfolios, except the Cambridge Growth Portfolio and Cambridge
Income and Growth Portfolio, may generally purchase and write over-the-counter
options on portfolio securities in negotiated transactions with the buyers or
writers of the options since options on the portfolio securities held by the
Portfolios are not traded on an exchange. The Portfolios 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
particular Portfolio's Sub-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.
FINANCIAL FUTURES AND OPTIONS ON FUTURES. Each Portfolio may purchase and
sell financial futures contracts to hedge all or a portion of its portfolio
against changes in interest rates or securities prices. Futures contracts on
securities call for the delivery of particular debt instruments issued or
guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of
the U.S. government 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. A futures contract on a securities index does not involve the actual
delivery of securities, but merely requires the payment of a cash settlement
based on changes in the securities index.
The Portfolios (except the Cambridge Income and Growth Portfolio) may write
call options and purchase put options on financial futures contracts as a hedge
to attempt to protect securities in each portfolio against decreases in value
resulting from anticipated increases in market interest rates or broad declines
in securities prices. When a Portfolio writes a call option on a futures
contract, it is undertaking the obligation of selling the 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 Portfolio is
entitled (but not obligated) to sell a futures contract at the fixed price
during the life of the option.
The Portfolios (except the Cambridge Income and Growth Portfolio) may also
write put options and purchase call options on financial futures contracts as a
hedge against rising purchase prices of portfolio securities resulting from
anticipated decreases in market interest rates or broad ascents in securities
prices. The Portfolios will use these transactions to attempt to protect their
ability to purchase portfolio securities in the future at price levels existing
at the time it enters into the transactions. When a Portfolio writes a put
option on a futures contract, it is undertaking to buy a particular futures
contract at a fixed price at any time during a specified period if the option is
exercised. As a purchaser of a call option on a futures contract, the Portfolio
is entitled (but not obligated) to purchase a futures contract at a fixed price
at any time during the life of the option.
A Portfolio may not purchase or sell futures contracts or related options
if immediately thereafter the sum of the amount of margin deposits on the
Portfolio's existing futures positions and premiums paid for related options
would exceed 5% of the market value of the Portfolio's total assets. When a
Portfolio 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
Trust's custodian to collateralize the position and thereby insure that the use
of such futures contracts is unleveraged.
18

<PAGE>
When a Portfolio 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 that Portfolio. This may cause the futures contract and any
related options to react differently than the portfolio securities to market
changes. In addition, the particular Sub-Adviser could be incorrect in its
expectations about the direction or extent of market factors, such as interest
rate or securities price movements. In these events, the Portfolio 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 Sub-Adviser will consider liquidity before entering into
options transactions, there is no assurance that a liquid secondary market on an
exchange will exist for any particular futures contract or option at any
particular time. A Portfolio's ability to establish and close out futures and
options positions depends on this secondary market.
FOREIGN SECURITIES. The Cambridge Growth Portfolio, Cambridge Capital
Growth Portfolio, Cambridge Income and Growth Portfolio and Cambridge Global
Portfolio may invest in foreign securities. The Cambridge Growth Portfolio,
Cambridge Capital Growth Portfolio, and Cambridge Income and Growth Portfolio
will limit investments in foreign securities not publicly traded in the United
States to less than 10%, 15%, and 10% of their total assets, respectively.
Investments in foreign securities involve special risks that differ from
those associated with investments in domestic securities. The risks associated
with investments in foreign securities relate to political and economic
developments abroad, as well as those that result from the differences between
the regulation of domestic securities and issuers and foreign securities and
issuers. These risks may include, but are not limited to, expropriation,
confiscatory taxation, currency fluctuations, withholding taxes on interest,
limitations on the use or transfer of Portfolio assets, political or social
instability, ability to obtain or enforce court judgments abroad, and adverse
diplomatic developments. Moreover, individual foreign economies may differ
favorably or unfavorably from the domestic economy in such respects as growth of
gross national product, the rate of inflation, capital reinvestment, resource
self-sufficiency, and balance of payments position.
Additional differences exist between investing in foreign and domestic
securities. Examples of such differences include: less publicly available
information about foreign issuers; credit risks associated with certain foreign
governments; the lack of uniform financial accounting standards applicable to
foreign issuers; less readily available market quotations on foreign issues; the
likelihood that securities of foreign issuers may be less liquid or more
volatile; generally higher foreign brokerage commissions; and unreliable mail
service between countries.
CURRENCY RISKS. Foreign securities are denominated in foreign currencies.
Therefore, the value in U.S. dollars of the Portfolios' assets and income may be
affected by changes in exchange rates and regulations. Although the Portfolios
value their assets daily in U.S. dollars, they will not convert their holdings
of foreign currencies to U.S. dollars daily. When a Portfolio converts its
holdings to another currency, it may incur conversion costs. Foreign exchange
dealers realize a profit on the difference between the prices at which they buy
and sell currencies.
The Cambridge Growth Portfolio, Cambridge Capital Growth Portfolio,
Cambridge Income and Growth Portfolio and Cambridge Global Portfolio will engage
in foreign currency exchange transactions in connection with their investments
in foreign securities. These Portfolios will conduct their foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or through forward contracts
to purchase or sell foreign currencies.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are
19

<PAGE>
traded directly between currency traders (usually large commercial banks) and
their customers. When a Portfolio enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may want to establish
the U.S. dollar cost or proceeds, as the case may be. By entering into a forward
contract in U.S. dollars for the purchase or sale of the amount of foreign
currency involved in an underlying security transaction, a Portfolio is able to
protect itself against a possible loss between trade and settlement dates
resulting from an adverse change in the relationship between the U.S. dollar and
such foreign currency. However, this tends to limit potential gains which might
result from a positive change in such currency relationships.
A Portfolio will not enter into forward foreign currency exchange contracts
or maintain a net exposure in such contracts where the Portfolio would be
obligated to deliver an amount of foreign currency in excess of the value of the
Portfolio's securities or other assets denominated in that currency or
denominated in a currency or currencies that the Portfolio's Sub-Adviser
believes will reflect a high degree of correlation with the currency with regard
to price movements. The Portfolios generally do not enter into forward foreign
currency exchange contracts with a term longer than one year.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Portfolios will
limit their respective investments 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, and invest more than
10% of total assets in investment companies in general. The Portfolios 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. It should be noted that
investment companies incur certain expenses such as management fees, and
therefore any investment by a Portfolio in shares of another investment company
would be subject to duplicative expenses.
RESTRICTED AND ILLIQUID SECURITIES. The Portfolios may invest up to 10% of
their net assets in restricted securities. Restricted securities are any
securities in which the Portfolios may otherwise invest pursuant to its
investment objective and policies but which are subject to restrictions on
resale under federal securities laws. The Portfolios will limit investments in
illiquid securities, including over-the-counter options and certain municipal
leases and certain restricted securities not determined by the Board of Trustees
to be liquid under guidelines adopted by the Board of Trustees pursuant to
Securities Act Rule 144A, to 15% of their net assets.
PORTFOLIO TURNOVER. The annual turnover rate of the Portfolios may vary
from year to year and may also be affected by cash requirements for redemptions
and repurchase of Portfolio shares and by the necessity of maintaining the
Portfolios as regulated investment companies under the Internal Revenue Code, as
amended, in order to receive certain favorable tax treatment. With respect to
the Cambridge Government Income Portfolio, the Portfolio may trade or dispose of
portfolio securities as considered necessary to meet its investment objective.
Higher portfolio turnover involves correspondingly greater brokerage commissions
and other transaction costs.
For additional information concerning the Portfolios' investment policies
and limitations, see the combined Statement of Additional Information.
NET ASSET VALUE
Each Portfolio's net asset value per share fluctuates. The net asset value
per share for Class A shares of each Portfolio is determined by dividing the net
assets attributable to the Class A shares by the total number of Class A shares
outstanding. Likewise, the net asset value per share for Class B shares of each
Portfolio is determined by dividing the net assets attributable to the Class B
shares by the total number of Class B shares outstanding. The
20

<PAGE>
net asset value for Class A shares will, from time to time, differ from that of
Class B shares due to the variance in daily net income realized by and dividends
paid on each class of shares.
HOW TO BUY SHARES
Class A and Class B shares of the Portfolios are sold on days on which the
New York Stock Exchange is open for business. Class A and Class B shares of each
Portfolio may be purchased through a financial institution which has a sales
agreement with the Distributor. Each Portfolio reserves the right to reject any
purchase request.
ALTERNATIVE PURCHASE ARRANGEMENTS. Each Portfolio offers two classes of
shares, Class A and Class B shares. The Class A shares of each Portfolio are
sold at net asset value plus an applicable sales charge, except under the
circumstances described in the section entitled "What Shares Cost," and
generally are redeemed at net asset value. However, a CDSC may be imposed on the
redemption of the Class A shares of each Portfolio under the circumstances
described in the section entitled "Contingent Deferred Sales Charge." The Class
B shares of each Portfolio are sold at net asset value and are redeemed at net
asset value. However, a CDSC may be imposed on the redemption of Class B shares
of each Portfolio under the circumstances described in the section entitled
"Contingent Deferred Sales Charge." Class A and Class B shares represent
identical interests in the Portfolios and have the same rights and are identical
in all respects, except that Class B shares of each Portfolio will pay a
distribution fee, which will cause the net income attributable to Class B shares
and the dividends payable on the Class B shares to be reduced by the amount of
the distribution fee and incremental expenses associated with the distribution
fee. As a result, the net asset value of Class B shares of each Portfolio will
be reduced by such amount to the extent that the particular Portfolio has
undistributed net income. Sales personnel may receive different compensation for
selling Class A and Class B shares of the Portfolios.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial
institution (such as a broker/dealer or bank) to place an order to purchase
shares of a particular Portfolio. Orders through a financial institution are
considered received when the Distributor is notified of the purchase order.
Purchase orders through a registered broker/dealer must be received by the
broker/dealer before 4:00 p.m. (Eastern time) and must be transmitted by the
broker/dealer to the Distributor before 5:00 p.m. (Eastern time) in order for
shares to be purchased at that day's price. Purchase orders through other types
of financial institutions must be received by the financial institution and
transmitted to the particular Portfolio before 4:00 p.m. (Eastern time) in order
for shares to be purchased at that day's price. It is the financial
institution's responsibility to transmit orders promptly.
Investors who have previously opened an account with the Trust through a
financial institution may purchase additional shares by mail or by Federal
Reserve wire. To make such purchases, an investor should contact his financial
institution for instructions.
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 other
financial institutions may be required to register as dealers pursuant to state
law.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Class A and Class B shares of each
Portfolio is $1,000, unless the investment is in a retirement plan, in which
case the minimum initial investment is $250. The minimum initial investment may
be waived for shareholders purchasing shares pursuant to the Systematic
Investment Program. Subsequent investments must be in amounts of at least $100,
except for retirement plans, which must be in amounts of $50. The minimum
initial investment may be waived for Trustees, emeritus trustees, employees and
retired
21

<PAGE>
employees of the Trust, or directors, emeritus directors, employees and retired
employees of the Distributor or affiliates thereof.
WHAT SHARES COST
CLASS A SHARES. Class A shares of the Cambridge Growth Portfolio, Cambridge
Capital Growth Portfolio, and Cambridge Income and Growth Portfolio are sold at
their net asset value next determined after an order is received plus a sales
charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE OF A PERCENTAGE OF
PUBLIC OFFERING NET AMOUNT
PRICE INVESTED DEALER COMMISSION
<S> <C> <C> <C>
Less than $50,000............................................ 5.50% 5.82% 4.75%
$50,000 but less than $100,000............................... 4.75% 4.99% 4.00%
$100,000 but less than $250,000.............................. 3.75% 3.90% 3.00%
$250,000 but less than $500,000.............................. 3.00% 3.09% 2.50%
$500,000 but less than $1 million............................ 2.00% 2.04% 1.75%
$1 million or more........................................... 0% 0% (see below)
</TABLE>

Commissions will be paid to dealers who initiate and are responsible for
purchases as set forth in the Statement of Additional Information.
Class A shares of the Cambridge Government Income Portfolio and Cambridge
Municipal Income Portfolio are sold at their net asset value next determined
after an order is received plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE AS
AS A PERCENTAGE A PERCENTAGE OF
OF PUBLIC NET AMOUNT
OFFERING PRICE INVESTED DEALER COMMISSION
<S> <C> <C> <C>
Less than $100,000........................................... 4.75% 4.99% 4.00%
$100,000 but less than $250,000.............................. 4.00% 4.17% 3.25%
$250,000 but less than $500,000.............................. 3.00% 3.09% 2.50%
$500,000 but less than $1 million............................ 2.00% 2.04% 1.75%
$1 million or more........................................... 0% 0% (see below)
</TABLE>

Commissions will be paid to dealers who initiate and are responsible for
purchases as set forth in the Statement of Additional Information.
Under certain circumstances described under the section entitled "Redeeming
Shares," shareholders may be charged a CDSC by the Distributor at the time Class
A shares are redeemed.
The Distributor, the Investment Adviser, or certain Sub-Advisers, or
affiliates thereof, at their own expense and out of their own assets, may also
provide other compensation to dealers in connection with sales of shares of the
Portfolios. Compensation may also include, but is not limited to, financial
assistance to dealers in connection with conferences, sales, or training
programs for their employees, seminars for the public, advertising or sales
campaigns, or other dealer-sponsored special events. In some instances, this
compensation may be made available only to certain dealers whose representatives
have sold or are expected to sell significant amounts of shares. Dealers may not
use sales of the Trust's shares to qualify for this compensation to the extent
such may be prohibited by the laws of any state or any self-regulatory agency,
such as the National Association of Securities Dealers, Inc. None of the
aforementioned other compensation shall be paid for by the Trust or its
shareholders.
22

<PAGE>
CLASS B SHARES. Class B shares of each Portfolio may be purchased at their
net asset value next determined after an order is received, without the
imposition of a sales charge. Class B shares will be subject to ongoing
distribution fees as described in the section entitled "Distribution Plan."
Under certain circumstances described under the section entitled "Redeeming
Shares," shareholders may be charged a CDSC by the Distributor at the time Class
B shares are redeemed.
WHEN NET ASSET VALUE IS DETERMINED
The net asset value of Class A and Class B shares of each Portfolio is
determined as of 4:00 p.m. (Eastern time), Monday through Friday, except on: (i)
days on which there are not sufficient changes in the value of a Portfolio's
securities that its net asset value might be materially affected; (ii) days
during which no shares are tendered for redemption and no orders to purchase
shares are received; and (iii) days on which the New York Stock Exchange is
closed.
PURCHASES AT NET ASSET VALUE
Class A shares of the Portfolios may be purchased at their net asset value
with no sales charge by advisory accounts through investment advisers registered
under the Investment Advisers Act of 1940 or by bank trust departments
purchasing on behalf of their clients. Trustees, emeritus trustees, employees,
and retired employees of the Trust, or directors, emeritus directors, employees,
or retired employees of the Distributor or affiliates thereof, or any financial
institution who has a sales agreement with the Distributor with regard to the
Trust, and their spouses and children under age 21 may also buy Class A shares
at net asset value with no sales charge.
PURCHASES WITH PROCEEDS FROM REDEMPTION OR SALE OF INVESTMENT COMPANY
SHARES. From the date of this prospectus to June 30, 1994 (subject to earlier
termination upon notice by the Distributor), investors may purchase Class A
shares of the Cambridge Global Portfolio at net asset value, without a sales
charge, with the proceeds from the redemption or sale of shares of another
investment company (excluding money market funds or investment company shares
subject to a deferred sales charge or CDSC) or from maturing certificates of
deposit. The purchase must be made within 60 days of the redemption or sale, and
the Distributor must be notified of this eligibility for the net asset value
purchased by the investor in writing or by his financial institution at the time
the purchase is made. The Distributor will offer to pay dealers an amount of up
to 1.00% of the net asset value of Class A shares purchased by their clients or
customers in this matter.
REDUCING THE SALES CHARGE FOR CLASS A SHARES
The sales charge imposed on purchases of Class A shares of the Portfolios
can be reduced through:
-- quantity discounts and accumulated purchases;
-- signing a 13-month letter of intent;
-- using the reinvestment privilege; or
-- concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the sales charge
tables, larger purchases reduce the sales charge paid. The Distributor will
combine purchases of Class A shares made on the same day by the investor, his
spouse, and his children under age 21 when the sales charge is calculated.
If an additional purchase of Class A shares of a Portfolio is made, the
Distributor will consider the previous purchases still invested in the
Portfolios. For example, if a shareholder already owns Class A shares of one or
23

<PAGE>
more of the Portfolios having a current value of $40,000 and he purchases
$10,000 or more of Class A shares of the Cambridge Growth Portfolio at the
current offering price, the sales charge on the additional purchase of Class A
shares according to the schedule now in effect would be 4.75%, not 5.50%.
To receive the sales charge reduction, Cambridge Distributors, Inc. must be
notified by the shareholder in writing, or by his financial institution at the
time that the purchase is made, that Class A shares of one or more of the
Portfolios are already owned or that purchases are being combined. The
particular Portfolio will reduce the sales charge after it confirms the
purchases.
LETTER OF INTENT. If an investor intends to purchase at least $50,000 of
Class A shares of one or more Portfolios within a 13-month period, the sales
charge may be reduced by signing a letter of intent to that effect. The size of
the reduction will depend upon the sales schedule applicable to the particular
Portfolios. This letter of intent includes a provision for a sales charge
adjustment, depending upon the amount actually purchased within the 13-month
period, and a provision for the custodian to hold 5.50% or 4.75%, as the case
may be, of the total amount intended to be purchased in escrow (in Class A
shares) until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at
the end of the 13-month period unless the amount specified in the letter of
intent is not purchased. In this event, an appropriate number of escrowed Class
A shares may be redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase Class A
shares, but if he does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. The letter of
intent may be dated as of a prior date to include any purchases made within the
past 90 days.
REINVESTMENT PRIVILEGE. If Class A shares of any of the Portfolios have
been redeemed, the shareholder has a one-time right, within 60 days, to reinvest
the redemption proceeds at the next-determined net asset value without any sales
charge. Cambridge Distributors, Inc. must be notified by the shareholder in
writing or by his financial institution of the reinvestment in order to
eliminate a sales charge. If the shareholder redeems his shares in any of the
Portfolios, there may be tax consequences.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge
reduction, a shareholder has the privilege of combining concurrent purchases of
Class A shares of two or more Portfolios, the purchase price of which includes a
sales charge. For example, if a shareholder concurrently invested $70,000 in
Class A shares of Cambridge Government Income Portfolio and $40,000 in Class A
shares of the Cambridge Growth Portfolio, the sales charge imposed upon the
purchase of Class A shares of both Portfolios would be reduced in accordance
with those schedules now in effect; that is, the shareholder would pay a sales
charge of 4.00% on the purchase of Cambridge Government Income Portfolio shares
and 3.75% on the purchase of Cambridge Growth Portfolio shares.
To receive this reduction on the sales charge, the Distributor must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The particular Portfolio or Portfolios
will reduce the sales charge after it confirms the purchases.
SYSTEMATIC INVESTMENT PROGRAM
Once an account with a Portfolio has been opened, shareholders may add to
their investment in that Portfolio on a regular basis in a minimum amount of
$100. Under the program, funds may be automatically withdrawn periodically from
the shareholder's checking account and invested in additional shares of the
particular Portfolio at the net asset value next determined after an order is
received by the Distributor, plus the applicable sales charge imposed upon
purchases of Class A shares. A shareholder may apply for participation in this
program
24

<PAGE>
through his financial institution. However, a shareholder may purchase only the
same class of shares under this program as that held in the existing account.
Thus, for example, a shareholder who has an account in Class A shares of a
Portfolio may only purchase Class A shares of that Portfolio under this program.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Portfolios, The Shareholder Services Group, Inc.
("TSSG"), maintains a share account for each shareholder. Share certificates are
not issued unless requested in writing to TSSG.
Detailed confirmations of each purchase, redemption, and distribution are
sent to each shareholder.
DIVIDENDS
Dividends, if any, are declared daily and paid monthly to all shareholders
invested in the Cambridge Government Income Portfolio and the Cambridge
Municipal Income Portfolio on the record date. Any dividends for the Cambridge
Income and Growth Portfolio are declared and paid quarterly to all shareholders
invested in the Cambridge Income and Growth Portfolio on the record date.
Dividends, if any, are declared and paid semi-annually to all shareholders
invested in the Cambridge Capital Growth Portfolio on the record date, and
dividends, if any, are declared and paid annually to all shareholders invested
in the Cambridge Growth Portfolio and the Cambridge Global Portfolio on the
record date. Dividends will be reinvested in additional shares of the same class
and Portfolio on payment dates at the ex-dividend date net asset value without a
sales charge unless cash payments are requested by shareholders in writing to
the Trust.
CAPITAL GAINS
Capital gains realized by each Portfolio, if any, will be distributed at
least once every 12 months.
RETIREMENT PLANS
Class A and Class B shares of the Portfolios can be purchased as an
investment for retirement plans or for IRA accounts. For further details,
including prototype retirement plans, contact the Portfolios and consult a tax
adviser.
EXCHANGE PRIVILEGE
Class A shares in each Portfolio may be exchanged for Class A shares in the
other Portfolios at net asset value without a sales charge or a CDSC. Class B
shares in each Portfolio may be exchanged for Class B shares in the other
Portfolios at net asset value without a sales charge or a CDSC. Shares of the
Government Securities Portfolio of the Cash Equivalent Fund may be exchanged for
Class A shares in each Portfolio at net asset value without a sales charge or
CDSC, so long as the transferred shares have previously paid a sales charge with
respect to Class A shares of the Portfolios (unless not applicable under the
circumstances), and shares of the Government Securities Portfolio of the Cash
Equivalent Fund may be exchanged for Class B shares in each Portfolio at net
asset value without a CDSC. In addition, Class A and Class B shares of the
Portfolios may be exchanged into shares of the Government Securities Portfolio
of the Cash Equivalent Fund at net asset value without a sales charge or CDSC.
If a shareholder making such an exchange qualifies for an elimination of
the sales charge with respect to Class A shares of the Portfolios, Cambridge
Distributors, Inc. must be notified in writing by the shareholder or his
financial institution.
25

<PAGE>
REQUIREMENTS FOR EXCHANGE. Shareholders using this privilege must exchange
shares having a net asset value of at least $1,000. Before the exchange, the
shareholder must receive a prospectus of the Portfolio for which the exchange is
being made.
This privilege is available to shareholders resident in any state in which
Class A or Class B shares of the Portfolio being acquired may be sold. Upon
receipt of proper instructions and required supporting documents, shares
submitted for exchange are redeemed and the proceeds invested in shares of the
other Portfolio. The exchange privilege may be modified or terminated at any
time. Shareholders will be notified of the modification or termination of the
exchange privilege.
Further information on the exchange privilege is available and the
prospectus for the Government Securities Portfolio of the Cash Equivalent Fund
may be obtained by calling 1-800-382-0016.
TAX CONSEQUENCES. An exercise of the exchange privilege is treated as a
sale for federal income tax purposes. Depending on the circumstances, a
short-term or long-term capital gain or loss may be realized.
MAKING AN EXCHANGE. Instructions for exchanges may be given in writing or
by telephone. Written instructions require a signature guarantee. Shareholders
may have difficulty in making exchanges by telephone through brokers and other
financial institutions during times of drastic economic or market changes. If a
shareholder cannot contact his broker or other financial institution by
telephone, it is recommended that an exchange request be made in writing and
sent by overnight mail to Cambridge Family of Funds, c/o TSSG, One American
Express Plaza, Providence, RI 02903.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may be
carried out only if a telephone authorization form is completed by the investor
and is on file with TSSG. If the instructions are given by a broker, a telephone
authorization form completed by the broker must be on file with TSSG. Shares may
be exchanged between two Portfolios by telephone only if both Portfolios have
identical shareholder registrations.
Any shares held in certificate form cannot be exchanged by telephone but
must be forwarded to TSSG and deposited to the shareholder's account before
being exchanged. Telephone exchange instructions may be recorded. Such
instructions will be processed as of 4:00 p.m. (Eastern time) and must be
received by the Distributor before that time for shares to be exchanged the same
day. Shareholders exchanging into a Portfolio will not receive any dividend that
is payable to shareholders of record on that date. This privilege may be
modified or terminated at any time.
If reasonable procedures are not followed by the Portfolios, they may be
liable for losses due to unauthorized or fraudulent telephone instructions.
REDEEMING SHARES
Each Portfolio redeems Class A and Class B shares at their net asset value
next determined, less the applicable CDSC as described below, after TSSG
receives the redemption request. Redemptions will be made on days on which each
Portfolio computes its net asset value. Redemptions can be made through a
financial institution or directly from each Portfolio. Redemption requests must
be received in proper form.
CONTINGENT DEFERRED SALES CHARGE
CLASS A SHARES. As of the date of this prospectus, shareholders who
purchase or who have purchased $1 million or more of the Class A shares of any
Portfolio at net asset value, without a sales charge, will be subject to a CDSC
by the Distributor of 1.00% for redemptions of such Class A shares made within
one year from the
26

<PAGE>
date of purchase. (For those shareholders who purchased $1 million or more of
the Class A shares of any Portfolio at net asset value, without a sales charge,
prior to the date of this prospectus, the previous four-year redemption period
will be waived and such shareholders will now only be subject to the one-year
redemption period.) The CDSC will be calculated based upon the lesser of the
original purchase price of the Class A shares being redeemed or the net asset
value of those shares when redeemed.
The CDSC will not be imposed on Class A shares acquired through
reinvestment of dividends or distributions of long-term capital gains.
Redemptions are deemed to have occurred in the following order: (1) Class A
shares acquired through the reinvestment of dividends and long-term capital
gains; (2) purchases of Class A shares occurring more than four years before the
date of redemption; (3) purchases of $1 million or more of Class A shares
occurring more than one year before the date of redemption; (4) purchases of
Class A shares within the previous four years without the use of redemption
proceeds as described above; (5) purchases of Class A shares within the previous
one year through the use of redemption proceeds as described above; and (6)
purchases of $1 million or more of Class A shares within the previous year
without a sales charge.
No CDSC will be imposed when a redemption results from a total or partial
distribution from a qualified retirement plan, IRA, Keogh Plan, or a custodial
account following retirement, attainment of age 59 1/2, separation from service
(except for an IRA), or results from the death or permanent and total disability
of the beneficial owner. Also, no CDSC will be imposed in connection with
involuntary redemptions by the Portfolios of accounts with low balances (see
"Accounts with Low Balances" below) or with respect to Class A shares purchased
under the circumstances described in the section entitled "Purchases at Net
Asset Value."
CLASS B SHARES. Shareholders who purchased Class B shares will be charged a
CDSC by the Distributor of 1.00% for redemptions of Class B shares made within
one year from the date of purchase. The CDSC will be calculated based upon the
lesser of the original purchase price of the Class B shares or the net asset
value of the Class B shares when redeemed.
The CDSC will not be imposed on Class B shares acquired through
reinvestment of dividends or distributions of long-term capital gains.
Redemptions are deemed to have occurred in the following order: (1) Class B
shares acquired through the reinvestment of dividends and long-term capital
gains; (2) purchases of Class B shares occurring more than one year before the
date of redemption; and (3) purchases of Class B shares within the previous
year.
No CDSC will be imposed when a redemption results from the total or partial
distribution from a qualified retirement plan, IRA, Keogh Plan, or a custodial
account following retirement, attainment of age 59 1/2, separation from service
(except for an IRA), or the death or permanent and total disability of the
beneficial owner. Additionally, no CDSC will be charged in connection with
redemptions by the Portfolios of accounts with low balances (see "Accounts with
Low Balances" below).
Any period during which Class A shares and Class B shares are invested in
the Government Securities Portfolio of the Cash Equivalent Fund is not taken
into account when determining whether a CDSC is imposed upon redemption.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Class A or Class B shares of the Portfolios by
calling his financial institution (such as a broker/dealer or a bank) to request
the redemption. Class A and Class B shares of the Portfolios will be redeemed at
the net asset value next determined, less the applicable CDSC, after the
particular Portfolio receives
27

<PAGE>
the redemption request from the financial institution. The financial institution
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions to the particular Portfolio. The financial
institution may charge customary fees and commissions for this service.
Redemption requests through a registered broker/dealer must be received by the
broker/dealer before 4:00 p.m. (Eastern time) and must be transmitted by the
broker/dealer to the particular Portfolio before 5:00 p.m. (Eastern time) in
order for Class A and Class B shares to be redeemed at that day's net asset
value. Redemption requests through other financial institutions must be received
by the financial institution and transmitted to the particular Portfolio before
4:00 p.m. (Eastern time) in order for Class A and Class B shares to be redeemed
at that day's net asset value.
DIRECTLY FROM THE PORTFOLIOS
BY TELEPHONE. Shareholders may redeem their Class A and Class B shares of
the Portfolios by calling
1-800-382-0016. The proceeds will be mailed to the shareholder's address of
record or wire transferred to the shareholder's account at a domestic commercial
bank that is a member of the Federal Reserve System, normally within one
business day, but in no event longer than seven days after receipt of the
request. The minimum amount for a wire transfer is $1,000. Each wire transfer
may be subject to a fee of $10; additional fees may be charged by the
recipient's financial institution or bank. If at any time the Trust shall
determine it is necessary to terminate or modify this method of redemption,
shareholders will be promptly notified.
An authorization form permitting TSSG to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Cambridge Distributors, Inc. Telephone redemption instructions
may be recorded.
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 redeeming by mail, should be considered.
If reasonable procedures are not followed by the Portfolios, they may be
liable for losses due to unauthorized or fraudulent telephone instructions.
BY MAIL. Any shareholder may redeem Class A or Class B shares of the
Portfolios by sending a written request to Cambridge Family of Funds, c/o TSSG,
One American Express Plaza, Providence, RI 02903. The written request should
include the shareholder's name, the name of the particular Portfolio from which
Class A or Class B shares are being redeemed, the account number, and the share
or dollar amount requested.
If Class A or Class B share certificates have been issued, they must be
properly endorsed and should be sent by registered or certified mail with the
written request. Shareholders should call 1-800-382-0016 for assistance in
redeeming by mail.
Shareholders requesting a redemption of $50,000 or more, a redemption of
any amount to be sent to an address other than that on record with the
particular Portfolio, 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
the Bank Insurance Fund ("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 and loan association whose deposits are
insured by the Savings Association Insurance Fund ("SAIF"), which
is administered by the FDIC; or
28

<PAGE>
-- any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934.
The Portfolios do not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Trust may elect in the
future to limit eligible signature guarantors to institutions that are members
of a signature guarantee program. The Trust and its transfer agent reserve the
right to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but
in no event more than seven days, after receipt of a proper written redemption
request, except as described in the paragraph below.
REDEMPTIONS BEFORE PURCHASE INSTRUMENTS CLEAR
When Class A or Class B shares are purchased by check or through the
Pre-Authorized Check ("PAC"), the proceeds from the redemption of those shares
are not available, and those shares may not be exchanged, until TSSG is
reasonably certain that the purchase check has cleared, which could take up to
ten calendar days.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not
less than $100 may take advantage of the Systematic Withdrawal Program. Under
this program, Class A and Class B shares of the Portfolios are redeemed to
provide for periodic withdrawal payments in an amount directed by the
shareholder. However, the aggregate withdrawals of Class B shares in any year
are not subject to a CDSC and are generally limited to 10% of the value of the
shareholder's account at the time of the establishment of the Systematic
Withdrawal Program. Depending upon the amount of the withdrawal payments, the
amount of dividends paid and capital gains distributions with respect to Class A
or Class B shares of the Portfolios, and the fluctuation of the net asset value
of Class A or Class B shares redeemed under this program, redemptions may
reduce, and eventually deplete, the shareholder's investment in the particular
Portfolio. For this reason, payments under the program should not be considered
as yield or income on the shareholder's investment in the particular Portfolio.
To be eligible to participate in this program, a shareholder must have an
initial account value in the particular Portfolio of at least $10,000.
A shareholder may apply for participation in this program through Cambridge
Distributors, Inc. Due to the fact that Class A shares are normally sold with a
sales charge, it may not be advisable for shareholders to be purchasing Class A
shares while participating in the program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the
Portfolios may redeem Class A and Class B shares in any account, except for
retirement plans, and pay the proceeds to the shareholder if the account balance
falls below the required minimum value of $1,000. This requirement does not
apply, however, if the balance falls below $1,000 because of changes in any
particular Portfolio's net asset value. Before Class A or Class B shares are
redeemed to close an account, the shareholder is notified in writing and allowed
30 days to purchase additional Class A or Class B shares, as the case may be, to
meet the required minimum value of $1,000.
29

<PAGE>
CAMBRIDGE SERIES TRUST INFORMATION
GENERAL INFORMATION. The Trust, an open-end, management investment company,
was established as a Massachusetts business trust on January 20, 1992. The
Trust's Declaration of Trust permits the Trust to offer separate series of
shares of beneficial interest representing interests in separate Portfolios. The
shares in any one Portfolio may be offered in separate classes. As of the date
of the prospectus, the Board of Trustees of the Trust has established six
Portfolios, each with two classes of shares, Class A and Class B shares.
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The
Trustees are responsible for managing the Trust's business affairs and for
exercising all the Trust's powers, 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 MANAGEMENT OF THE TRUST
INVESTMENT ADVISER
The Trust is managed by Cambridge Investment Advisors, Inc. (the
"Investment Adviser"), pursuant to an investment advisory agreement (the
"Investment Advisory Agreement") with the Trust. The Investment Adviser, in
turn, has entered into a sub-advisory agreement (the "Sub-Advisory Agreement")
with each sub-adviser selected for the Portfolios (the "Sub-Adviser" or
"Sub-Advisers"). It is the Investment Adviser's responsibility to select,
subject to review and approval by the Trust's Board of Trustees, the
Sub-Advisers for each of its Portfolios who have distinguished themselves in
their respective areas of expertise in asset management and to review their
continued performance.
Subject to the supervision and direction of the Board of Trustees, the
Investment Adviser provides investment management evaluation services
principally by performing initial due diligence on the prospective Sub-Adviser
for each Portfolio and thereafter monitoring each Sub-Adviser's performance
through quantitative and qualitative analysis, as well as periodic in-person,
telephonic and written consultations with each Sub-Adviser. In evaluating
prospective Sub-Advisers, the Investment Adviser considers, among other factors,
each Sub-Adviser's level of expertise; relative performance and consistency of
performance over a minimum period of five years; level of adherence to
investment discipline or philosophy; personnel, facilities and financial
strength; and quality of service and client communications. The Investment
Adviser has responsibility for communicating performance expectations and
evaluations to the Sub-Advisers and ultimately recommending to the Board of
Trustees of the Trust whether each Sub-Adviser's contract should be renewed,
modified, or terminated. The Investment Adviser provides written reports to the
Board of Trustees regarding the results of its evaluation and monitoring
functions. The Investment Adviser is also responsible for conducting all
operations of the Trust, except those operations contracted to the Sub-Advisers,
custodian, transfer agent, and administrator. Although each Sub-Adviser's
activities are subject to oversight by the Board of Trustees and the officers of
the Trust, neither the Board of Trustees, the officers, nor the Investment
Adviser evaluates the investment merits of each Sub-Adviser's individual
security selections.
INVESTMENT ADVISORY FEES. The Investment Adviser receives an annual
investment advisory fee from each Portfolio. For performing its
responsibilities, the Investment Adviser receives an annual investment advisory
fee not to exceed the following percentages of the average daily net assets of
the particular Portfolio: Cambridge Growth Portfolio, 0.80%; Cambridge Capital
Growth Portfolio, 0.80%; Cambridge Government Income Portfolio, 0.60%; Cambridge
Municipal Income Portfolio, 0.60%; and Cambridge Income and Growth Portfolio,
30

<PAGE>
0.75%. The annual investment advisory fee for the Global Portfolio is equal to
1.10% of the average daily net assets of the Portfolio up to and including $75
million and 1.00% of the average daily net assets of the Portfolio in excess of
$75 million. The advisory fee for the Cambridge Growth Portfolio, Cambridge
Capital Growth Portfolio, Cambridge Income and Growth Portfolio and Cambridge
Global Portfolio, while higher than the advisory fee paid by other mutual funds
in general, is comparable to the advisory fees paid by many mutual funds with
similar objectives and policies. Under the Investment Advisory Agreement, the
Investment Adviser may, from time to time, voluntarily waive some or all of its
investment advisory fee and may terminate any such voluntary waiver of some or
all of its investment advisory fee at any time in its sole discretion. The
Investment Adviser has undertaken to reimburse the respective Portfolios for a
portion of the Portfolios' operating expenses in excess of limitations
established by certain states.
INVESTMENT ADVISER'S PROFILE. Cambridge Investment Advisors, Inc., located
at 901 East Byrd Street, Richmond, Virginia 23219, serves as the Trust's
Investment Adviser. It is a wholly-owned subsidiary of Investment Management
Group, Inc., which, in turn, is a wholly-owned subsidiary of WFS Financial
Corporation, Inc., a diversified financial services holding company. The
Investment Adviser was incorporated under the laws of Virginia in 1991. Although
prior to 1992 the Investment Adviser had not managed mutual funds, it has
employed a group of Sub-Advisers which together have over 255 years of
investment experience and currently manage or supervise in excess of $300
billion on behalf of over 11 million shareholders or client accounts.
THE SUB-ADVISERS
As discussed below under the section entitled "Sub-Advisers' Profiles,"
each Portfolio has a separate Sub-Adviser. Each Sub-Adviser has complete
discretion to purchase, manage, and sell portfolio securities for the Portfolio
to which it serves as Sub-Adviser within the particular Portfolio's investment
objectives, restrictions, and policies.
SUB-ADVISORY FEES. The Investment Adviser pays each Sub-Adviser an annual
fee not to exceed the following percentage of Portfolio assets: Cambridge Growth
Portfolio, 0.40%; Cambridge Capital Growth Portfolio, 0.40%; Cambridge
Government Income Portfolio, 0.30%; and Cambridge Municipal Income Portfolio,
0.30%. The Sub-Adviser to the Cambridge Income and Growth Portfolio receives
from the Investment Adviser an annual fee expressed as a percentage of that
Portfolio's assets as follows: 0.325% on the first $50 million in Portfolio
assets, 0.275% on the next $150 million in assets, 0.225% on the next $300
million in assets, and 0.200% on assets over $500 million. The Sub-Adviser to
the Cambridge Global Portfolio receives from the Investment Adviser an annual
fee expressed as a percentage of that Portfolio's assets as follows: .55% on the
first $75 million in Portfolio assets, and .50% on assets over $75 million. No
performance or incentive fees are paid to the Sub-Adviser. Under the
Sub-Advisory Agreement, the Sub-Adviser may, from time to time, voluntarily
waive some or all of its sub-advisory fee charged to the Investment Adviser and
may terminate any such voluntary waiver at any time in its sole discretion. No
performance or incentive fees are paid to the Sub-Advisers. Under certain
Sub-Advisory Agreements, the particular Sub-Adviser may, from time to time,
voluntarily waive some or all of its sub-advisory fee charged to the Investment
Adviser and may terminate any such voluntary waiver at any time in its sole
discretion.
SUB-ADVISERS' PROFILES
CAMBRIDGE GROWTH PORTFOLIO. Under the terms of a Sub-Advisory Agreement
between Kemper Financial Services, Inc. ("KFS"), and the Investment Adviser, KFS
serves as the Sub-Adviser to the Cambridge Growth Portfolio. KFS is located at
120 South LaSalle Street, Chicago, Illinois 60603, and is a majority-owned
subsidiary of Kemper Corporation, a diversified insurance and financial services
holding company. KFS is one of the
31

<PAGE>
largest investment managers in the country. KFS has been engaged in the
management of investment funds for more than 40 years. In addition to serving as
Sub-Adviser for the Cambridge Growth Portfolio, KFS and its affiliates provide
investment advice and manage investment portfolios for the Kemper Insurance
Companies, The Kemper Funds, and other corporate, pension, profit sharing and
individual accounts and acts as investment adviser or principal underwriter for
25 open-end and 6 closed-end investment companies with 58 separate investment
portfolios, representing more than 3.3 million shareholder accounts. Total
assets under management by KFS and its affiliates are approximately $70 billion.
Stephen E. Lewis has been co-manager of the Cambridge Growth Portfolio
since 1992. Mr. Lewis joined KFS in 1971 and is currently a Senior Vice
President of the firm. He has served as co-portfolio manager of the Kemper
Growth Fund since 1991; previously, he had been Director of Equity Research
since 1987. Mr. Lewis is a Chartered Financial Analyst and received his M.B.A.
from the Wharton Graduate Division of the University of Pennsylvania.
Michael K. Arends has been co-manager of the Cambridge Growth Portfolio
since 1992. Mr. Arends joined KFS in 1983, and is currently First Vice President
of the firm. He has served as co-portfolio manager of the Kemper Growth Fund
since 1991; previously, he had been Associate Director of Research from 1987
through 1991. Mr. Arends is a Chartered Financial Analyst and Certified Public
Accountant and received his M.B.A. from Indiana University.
CAMBRIDGE CAPITAL GROWTH PORTFOLIO. Under the terms of a Sub-Advisory
Agreement between Phoenix Investment Counsel, Inc. ("PIC"), and the Investment
Adviser, PIC serves as the Sub-Adviser to the Cambridge Capital Growth
Portfolio. PIC is located at One American Row, Hartford, Connecticut 06115-2520.
PIC was originally organized in 1932 as John P. Chase, Inc., and has been
engaged in the management of mutual funds since 1958. Total assets under
management by PIC are currently $10 billion.
All of the outstanding stock of PIC is owned by Phoenix Equity Planning
Corporation ("Equity Planning"), an indirect subsidiary of Phoenix Home Life
Mutual Insurance Company ( "Phoenix Home Life") of Hartford, Connecticut.
Phoenix Home Life is in the business of writing ordinary and group life and
health insurance and annuities. Its principal offices are located at One
American Row, Hartford, Connecticut 06115. Equity Planning is registered as a
broker/dealer in 50 states and has its principal offices at 100 Bright Meadow
Boulevard, P.O. Box 2200, Enfield, Connecticut 06083-2200.
Catherine Dudley has been the portfolio manager of the Cambridge Capital
Growth Portfolio since its inception in 1992. Ms. Dudley joined PIC in 1985 and
has been a Vice President since 1990. Ms. Dudley is a Chartered Financial
Analyst and received B.A.s in Economics and German from the University of
Connecticut.
CAMBRIDGE GOVERNMENT INCOME PORTFOLIO. Under the terms of an interim
Sub-Advisory Agreement between PIMCO and the Investment Adviser, PIMCO serves as
Sub-Adviser to the Cambridge Government Income Portfolio. The terms of this
agreement, including compensation, are identical to those of the previous
sub-advisory agreement between Federated Advisers and the Trust, except that the
agreement will terminate upon the earlier to occur of (1) 120 days from
commencement of the agreement or (2) final adjournment of the meeting of the
shareholders of the Cambridge Government Income Portfolio held for the purpose
of approving a new advisory agreement with PIMCO. It is currently anticipated
that this shareholders meeting will be held during the first quarter of 1994.
PIMCO, established in 1971, provides investment advisory services to investment
companies, pension plans, foundations, endowments and other institutions located
both in the U.S. and abroad. As of November 30, 1993, PIMCO had over $52.6
billion of assets under management, of which approximately $26.0 billion were
invested in U.S. Government securities. PIMCO, a wholly owned subsidiary of
Pacific Mutual Life Insurance Company, is located at 840 Newport Center Drive,
Suite 360, Newport Beach, California 92660.
32

<PAGE>
David H. Edington serves as the portfolio manager of the Cambridge
Government Income Portfolio. An Executive Vice President of PIMCO, Mr. Edington
joined the firm in 1987. He received a Bachelor's degree in Engineering from the
California Polytechnic State University and a Master's degree in Management from
the Sloan School of Management at M.I.T.
CAMBRIDGE MUNICIPAL INCOME PORTFOLIO. Under the terms of a Sub-Advisory
Agreement between Van Kampen Merritt Management Inc. ("VKMMI") and the
Investment Adviser, VKMMI serves as the Sub-Adviser to the Cambridge Municipal
Income Portfolio. VKMMI, located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181, was incorporated in 1990 and commenced operations in 1992. VKMMI
currently provides investment advice to a wide variety of individual,
institutional, and investment company clients. VKMMI is a wholly-owned
subsidiary of The Van Kampen Merritt Companies, Inc., which, in turn, is a
wholly-owned subsidiary of VKM Holding, Inc. VKM Holding, Inc. is indirectly
controlled by Clayton & Dubilier Associates IV Limited Partnership, the general
partners of which are Joseph L. Rice, III, B. Charles Ames, Alberto Cribiore,
Donald J. Gogel, and Hubbard C. Howe, each of whom is a principal of Clayton,
Dubilier & Rice, Inc., a New York-based private investment firm.
The current Sub-Advisory Agreement between VKMMI and the Investment Adviser
was approved by shareholders of the Portfolio on February 5, 1993. On February
17, 1993, the Sub-Advisory Agreement between the Portfolios' previous
sub-adviser, Van Kampen Merritt Investment Advisory Corp. ("Advisory Corp."),
and the Investment Adviser terminated. The rate of the sub-advisory fee to be
paid to VKMMI under the current Sub-Advisory Agreement is identical to that paid
to Advisory Corp. under the former Sub-Advisory Agreement, and the terms of the
two contracts are substantially identical. VKMMI is staffed by personnel
formerly employed by Advisory Corp. and continues to use the resources of
Advisory Corp. in managing client accounts. As of June 30, 1993, VKMMI, together
with Advisory Corp., managed or supervised approximately $37.5 billion of
assets.
David C. Johnson has been co-manager of the Cambridge Municipal Income
Portfolio since 1992. Mr. Johnson joined Van Kampen Merritt in 1989, and is
currently First Vice President of the firm. He has served as portfolio manager
of the VKM Municipal Income Portfolio since 1989 and is responsible for the
municipal fund desk. He was previously associated with The Chicago Corporation,
where he marketed financial futures and options. Mr. Johnson received his M.B.A.
from Loyola University.
William V. Grady has been co-manager of the Cambridge Municipal Income
Portfolio since 1992. Mr. Grady is Vice President of Van Kampen Merritt, which
he joined in 1992. He is portfolio manager for several national and speciality
state funds. He was previously associated with Municipal Bond Investors
Assurance Corporation where he structured insured tax-exempt financings for two
years, and was employed by CIGNA Investments Inc. from 1984-1990 as a portfolio
manager and research analyst. Mr. Grady is a Chartered Financial Analyst and
received his B.B.A. in Finance from the University of Notre Dame.
CAMBRIDGE INCOME AND GROWTH PORTFOLIO. The Investment Adviser employs
Wellington Management Company ("WMC") to manage the investment and reinvestment
of the assets of the Cambridge Income and Growth Portfolio and to continuously
review, supervise, and administer the Portfolio's investment program. WMC,
located at 75 State Street, Boston, Massachusetts 02109, is a professional
investment counseling firm which provides investment services to investment
companies, employee benefit plans, endowments, foundations, and other
institutions and individuals. As of September 30, 1993, WMC had discretionary
investment management authority with respect to approximately $80.0 billion in
assets. WMC and its predecessor organizations have provided investment advisory
services to investment companies since 1933 and to investment counseling clients
since 1960.
33

<PAGE>
Paul D. Kaplan, Senior Vice President of WMC, and Arnold C. Schneider III,
Senior Vice President of WMC, have served as portfolio managers to the Portfolio
since its inception in May 1993, when WMC became Sub-Adviser to the Portfolio.
Mr. Kaplan manages the fixed-income and U.S. government securities portion of
the Portfolio, and Mr. Schneider manages the equity securities portion of the
Portfolio. Mr. Kaplan has been a portfolio manager with WMC since 1982 and Mr.
Schneider has been a portfolio manager with WMC since 1987.
CAMBRIDGE GLOBAL PORTFOLIO. The Investment Adviser employs Scudder, Stevens
& Clark, Inc. ("Scudder"), a Delaware corporation, to manage the investment and
reinvestment of the assets of the Cambridge Global Portfolio and to continuously
review, supervise, and administer the Portfolio's investment program. Scudder is
located at 345 Park Avenue, New York, New York. Scudder was founded in 1919 and,
today, the Sub-Adviser manages in excess of $90 billion for many private
accounts and over 70 mutual fund portfolios.
Scudder has been a leader in international investment management for over
30 years. Assets of international investment company clients of Scudder exceeded
$4 billion as of December 31, 1993.
Lead portfolio manager, William E. Holzer, has responsibility for worldwide
strategy and investment themes. Mr. Holzer, who has twenty years of experience
in global investing, joined Scudder in 1980. Alice Ho, portfolio manager, joined
Scudder in 1986 and has been involved with global investment management since
that time.
DISTRIBUTION OF PORTFOLIO SHARES
Cambridge Distributors, Inc., having its principal office at 901 East Byrd
Street, Richmond, Virginia 23219, is the principal distributor for Class A and
Class B shares of the Portfolios. Cambridge Distributors, Inc. is a Virginia
corporation organized on December 24, 1991 and is an affiliate of the Investment
Adviser. (Cambridge Distributors, Inc. is referred to as "Distributor.")
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan
adopted in accordance with Rule 12b-1 under the Investment Company Act of 1940
(the "Plan"), Class B shares of the Cambridge Growth Portfolio, Cambridge
Capital Growth Portfolio, Cambridge Income and Growth Portfolio and Cambridge
Global Portfolio will pay an amount computed at an annual rate of 0.75% of the
average daily net asset value of Class B shares of the particular Portfolio to
finance any activity which is principally intended to result in the sale of
those Class B shares. The Class B shares of the Cambridge Government Income
Portfolio and the Cambridge Municipal Income Portfolio will pay an amount
computed at an annual rate of 0.50% of the average daily net asset value of
Class B shares of the particular Portfolio to finance any activity which is
principally intended to result in the sale of those Class B shares.
The Distributor may, from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan by notice to the
Class B shareholders of a particular Portfolio.
The Distributor may select financial institutions (such as a broker/dealer
or bank) to provide sales support services as agents for their clients or
customers who beneficially own Class B shares of the Portfolios. Financial
institutions will receive fees from the Distributor based upon Class B 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
Distributor.
The Plan is a compensation type plan. As such, the Portfolios make no
payments to the Distributor except as described above. Therefore, the Portfolios
do not pay for unreimbursed expenses of the Distributor, including amounts
expended by the Distributor in excess of amounts received by it from the
Portfolios, interest, carrying,
34

<PAGE>
or other financing charges in connection with excess amounts expended, or the
Distributor's overhead expenses. However, the Distributor may be able to recover
such amounts or may earn a profit from future payments made by the Portfolios
under the Plan.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Cambridge Administrative Services (the
"Administrator"), located at Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779, provides each Portfolio with certain administrative personnel and
services necessary to operate each Portfolio, such as legal and accounting
services. The Administrator provides these services at an annual rate of 0.125%
on the first $1.5 billion of the average aggregate daily net assets of the Trust
and 0.120% on assets in excess of $1.5 billion. The administrative fee received
during any fiscal year shall aggregate at least 0.05% of average aggregate daily
net assets plus $100,000 per Portfolio. The Administrator may voluntarily
reimburse a portion of its administrative fee. Cambridge Administrative Services
is a subsidiary of Federated Investors.
CUSTODIAN, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT. State Street Bank
and Trust Company, P.O. Box 8602, Boston, Massachusetts 02266, is custodian for
the securities and cash of each Portfolio. The Shareholder Services Group, Inc.,
P.O. Box 9653, Providence, Rhode Island 02940-9653, is transfer agent for Class
A and Class B shares of the Portfolios and dividend disbursing agent for the
Portfolios.
LEGAL COUNSEL. Legal counsel is provided by Hunton & Williams, 951 East
Byrd Street, Richmond, Virginia 23219-4074.
INDEPENDENT AUDITORS. The independent auditors for the Portfolios are KPMG
Peat Marwick, One Boston Place, Boston, Massachusetts 02108.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, a Sub-Adviser looks for prompt execution of the order at
the best overall terms available. In working with dealers, a Sub-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. In selecting among firms believed to meet these criteria, a
Sub-Adviser may give consideration to those firms which have sold or are willing
to sell shares of the Portfolios. A Sub-Adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to review by the Board of
Trustees.
Notwithstanding the foregoing, to the extent consistent with applicable
provisions of the Investment Company Act of 1940, Rule 17e-1, and other rules
and exemptions adopted by the Securities and Exchange Commission ("SEC") under
that Act, the Board of Trustees of the Trust has determined that transactions
for the Portfolios may be executed by affiliated brokers if, in the judgment of
a Sub-Adviser, the use of an affiliated broker is likely to result in price and
execution at least as favorable as those of other qualified brokers. Under rules
adopted by the SEC, an affiliated broker may not execute transactions for a
Portfolio on the floor of any national securities exchange, but may effect
transactions by transmitting orders for execution, providing for clearance and
settlement and arranging for the performance of the execution function by
members of the exchange not associated with the affiliated broker. The broker
will be required to pay fees charged by those persons performing the floor
brokerage elements out of the brokerage compensation that it receives from a
Portfolio.
35

<PAGE>
SHAREHOLDER SERVICING PLAN
The Trust has adopted a Shareholder Servicing Plan (the "Service Plan")
with respect to Class A and Class B shares of each Portfolio. Under the Service
Plan, financial institutions will enter into shareholder service agreements with
the Portfolios to provide administrative support services to their customers who
from time to time may be owners of record or beneficial owners of Class A or
Class B shares of one or more Portfolios. In return for providing these support
services, a financial institution may receive payments from one or more
Portfolios at a rate not exceeding 0.25% of the average daily net assets of the
Class A or Class B shares of the particular Portfolio or Portfolios beneficially
owned by the financial institution's customers for whom it is holder of record
or with whom it has a servicing relationship. These 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 Portfolios; assisting clients
in changing dividend options, account designations, and addresses; and providing
such other services as the Portfolios reasonably request.
In addition to receiving payments under the Service Plan, financial
institutions may be compensated by the Investment Adviser, a Sub-Adviser, and/or
the Administrator, or affiliates thereof, for providing administrative support
services to holders of Class A or Class B shares of the Portfolios. These
payments will be made directly by the Investment Adviser, Sub-Adviser, and/or
Administrator and will not be made from the assets of any of the Portfolios.
EXPENSES OF THE PORTFOLIOS AND THE CLASS A AND CLASS B SHARES
The holders of each class of shares pay their allocable portion of their
respective Portfolio's expenses and the expenses of the Trust.
The expenses of the Trust for which holders of Class A shares and Class B
shares each 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 the Trust; legal
fees of the Trust; association membership dues; and such non-recurring and
extraordinary items as may arise from time to time.
Each Portfolio's expenses for which holders of Class A shares and Class B
shares each pay their allocable portion include, but are not limited to:
registering the Portfolio and Class A and Class B shares of the Portfolio;
investment advisory services; taxes and commissions; custodian fees; insurance
provisions; auditors' fees; transfer agent fees; accounting and investor
servicing fees; and such non-recurring and extraordinary items as may arise from
time to time.
At present, the only expenses which are allocated specifically to Class A
shares as a class are expenses under the Trust's Shareholder Servicing Plan, and
the only expenses which are allocated specifically to Class B shares as a class
are expenses under the Trust's Shareholder Servicing Plan and Rule 12b-1 Plan.
However, the Board of Trustees reserves the right to allocate certain expenses
to holders of Class A shares and Class B 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 Class A shares or Class B shares; fees under the Trust's Shareholder
Servicing Plan; 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 SEC and to state securities
commissions; expenses related to administrative personnel and services as
required to support holders of Class A shares or Class B shares; legal fees
relating solely to Class A
36

<PAGE>
shares or Class B shares; and Trustees' fees incurred as a result of issues
relating solely to Class A shares or Class B shares.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each Class A share and each Class B share of a Portfolio gives the
shareholder one vote in Trustee elections and other matters submitted to
shareholders of the Trust for vote. All shares of all classes of each Portfolio
have equal voting rights, except that in matters affecting only a particular
Portfolio or class, only shares of that Portfolio 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 Trust's or a Portfolio's operation and for the election of
Trustees under certain circumstances.
Trustees may be removed by a two-thirds vote of the number of Trustees
prior to such removal or by a two-thirds vote of the shareholders at a special
meeting. A special meeting of shareholders shall be called by the Trustees upon
the written request of shareholders owning at least 10% of the Trust's
outstanding shares of all series entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable
under Massachusetts law for acts or obligations of the Trust on behalf of the
Trust. To protect shareholders of the Portfolios, the Trust has filed legal
documents with the state of Massachusetts that expressly disclaim the liability
of shareholders of the Portfolios 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 on behalf
of the Portfolios.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations, the Trust is required by the Declaration of Trust to use
the property of the Trust 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 INFORMATION
GENERAL. The Portfolios do not anticipate having to pay federal income tax
because each Portfolio expects to meet the requirements of the Internal Revenue
Code, as amended, applicable to regulated investment companies and to receive
the special tax treatment afforded to such companies.
Each Portfolio will be treated as a single, separate entity for federal
income tax purposes so that income and losses (including capital gains and
losses) realized by a Portfolio will not be combined for tax purposes with
income and losses realized by any of the other Portfolios.
Unless otherwise exempt, shareholders of the Portfolios, other than
Cambridge Municipal Income Portfolio, which is discussed below, are required to
pay federal income tax on any dividends and other distributions, including
capital gains distributions, received. This applies whether dividends and
distributions are received in cash or as additional shares. Distributions
representing long-term capital gains, if any, will be taxable to shareholders as
long-term capital gains irrespective of how long the shareholders have held the
particular shares. No federal
37

<PAGE>
income tax is due on any dividends or any capital gain distributions earned in
an IRA or qualified retirement plan or custodial account until distributed.
CAMBRIDGE MUNICIPAL INCOME PORTFOLIO. With respect to the Cambridge
Municipal Income Portfolio, shareholders are not required to pay the federal
regular income tax on any dividends received from the Portfolio that represent
net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of
1986, dividends representing net interest earned on some municipal bonds may be
included in calculating the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum
taxable income for individuals and 20% for corporations, 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.
The Tax Reform Act of 1986 treats interest on certain "private activity"
bonds issued after August 7, 1986, as a tax preference item. Unlike traditional
governmental purpose municipal bonds, which finance roads, schools, libraries,
prisons and other public facilities, private activity bonds provide benefits to
private parties. The Portfolio may purchase all types of municipal bonds,
including private activity bonds.
In addition, in the case of a corporate shareholder, dividends of the
Portfolio which represent interest on municipal bonds may be subject to the 20%
corporate alternative minimum tax because the dividends are included in a
corporation's "adjusted current earnings." The corporate alternative minimum tax
treats 75% of the excess of a taxpayer's pre-tax "adjusted current earnings"
over the taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Portfolio dividend, and alternative minimum taxable income does
not include the portion of the Portfolio's dividend attributable to municipal
bonds which are not private activity bonds, the difference will be included in
the calculation of the corporation's alternative minimum tax.
Dividends of the Portfolio representing net interest income earned on some
temporary investments and any realized net short-term gains are taxed as
ordinary income.
Information on the tax status of dividends and distributions is provided
annually.
PERFORMANCE INFORMATION
From time to time, each Portfolio advertises its total return, yield, and,
as applicable, tax-equivalent yield.
Total return represents the change, over a specified period of time, in the
value of an investment in a particular Portfolio 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 Class A and Class B shares of each Portfolio is calculated by
dividing the net investment income per share (as defined by the SEC) earned by
the particular Portfolio over a thirty-day period by the maximum offering price
per Class A and Class B share of that Portfolio on the last day of the period.
This number is then annualized using semi-annual compounding. With respect to
the Cambridge Municipal Income Portfolio, the tax-equivalent yield of the
Portfolio is calculated similarly to the yield but is adjusted to reflect the
taxable yield that the Portfolio would have had to earn to equal its actual
yield, assuming a specific tax rate. The
38

<PAGE>
yield and tax-equivalent yield do not necessarily reflect income actually earned
by each Portfolio and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information reflects the effect of the maximum sales load,
in the case of Class A shares of each Portfolio, and other non-recurring
charges, such as the CDSC, in the case of Class A and Class B shares of each
Portfolio, which, if excluded, would increase the total return, yield and, as
applicable, tax-equivalent yield. Each Portfolio will include the performance
information for both Class A and Class B shares in any advertisement or
information that includes the performance data of the particular Portfolio.
From time to time, the Trust may advertise its performance using certain
reporting services and/or compare its performance to certain indices.
39

<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
40

<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
41

<PAGE>
CAMBRIDGE SERIES TRUST
PROSPECTUS
AN OPEN-END MANAGEMENT
INVESTMENT COMPANY
- -- Cambridge Growth Portfolio
- -- Cambridge Capital Growth Portfolio
- -- Cambridge Government Income Portfolio
- -- Cambridge Municipal Income Portfolio
- -- Cambridge Income and Growth Portfolio
- -- Cambridge Global Portfolio
March 29, 1994

Cambridge Series Trust
Cambridge Growth Portfolio
Cambridge Capital Growth Portfolio
Cambridge Government Income Portfolio
Cambridge Municipal Income Portfolio
Cambridge Income and Growth Portfolio
Cambridge Global Portfolio

Statement of Additional Information

This combined Statement of Additional Information should be read with the
combined Prospectus of Cambridge Series Trust (the "Trust") dated March 29,
1994. This Statement is not a prospectus itself. To receive a copy of the
Prospectus, write to the Trust or call 1-800-382-0016.

Statement dated March 29, 1994

Table of Contents

General Information About Brokerage Transactions 20
the Trust 1
How to Buy Shares 21
Investment Objectives and
Policies of the Distribution Plan (Class B Shares) 21
Portfolios 1
Conversion to Federal Funds 22
Repurchase Agreements 1
Purchases at Net Asset Value 22
When-Issued and Delayed
Delivery Transactions 1 Determining Net Asset
Value 22
Lending of Portfolio Securities 1
Determining Market Value
Bank Instruments 2 of Securities 22

Restricted Securities 2 Exchange Privilege 23

Lower-Grade Municipal
Securities 2 Redeeming Shares 23

Zero-Coupon Securities 4 Contingent Deferred Sales Charge 23

Reverse Repurchase Agreements 5 Redemptions in Kind 23

Futures and Options
Transactions 5 Tax Status 24

Futures Contracts 5 The Portfolios' Tax Status 24

Put Options on Futures
Contracts 5 Shareholders' Tax Status 25

Call Options on Futures
Contracts 6 Total Return 25

"Margin" in Futures
Transactions 6 Yield 26

Regulatory Restrictions 7 Tax-Equivalent Yield
(Municipal Income Portfolio) 26
Purchasing Put Options on
Portfolio Securities 7
Tax-Equivalency Table 26
Writing Covered Call
Options on Portfolio
Securities 7 Performance Comparisons 27

Over-the-Counter Options 7 Financial Statements 29

Collateralized Mortgage
Obligations (CMOs) 7 Appendix 30

Convertible Securities 8

Warrants 8

Dollar Rolls 8

Swaps, Caps, Floors and Collars 9

High Yield, High Risk Debt
Securities 10

Indexed Securities 10

Currency Transactions 11

Risk of Currency Transactions 12

Eurodollar Instruments 12

Portfolio Turnover 12

Investment Limitations 12

Management of the Trust 15

Officers and Trustees 15

Ownership of Portfolios 16

Trustee Liability 16

Investment Advisory
Services 16

Investment Adviser 16

Investment Adviser Fees 17

The Sub-Advisers 17

Distribution of Portfolio
Shares 19

Administrative Services 19

Shareholder Servicing Plan 19

General Information About the Trust

The Trust was established as a Massachusetts business trust on January 20,
1992. As of the date of this Statement, the Trust consists of two classes
of shares of beneficial interest, Class A and Class B shares, in each of
the following six separate portfolios of securities (collectively, the

"Portfolios" and each individually, the "Portfolio"): Cambridge Growth
Portfolio ("Growth Portfolio"); Cambridge Capital Growth Portfolio
("Capital Growth Portfolio"); Cambridge Government Income Portfolio
("Government Income Portfolio"); Cambridge Municipal Income Portfolio
("Municipal Income Portfolio"); and Cambridge Income and Growth Portfolio
("Income and Growth Portfolio"); and Cambridge Global Portfolio ("Global
Portfolio").

Investment Objectives and Policies of the Portfolios

The Prospectus discusses the objective of each Portfolio and the policies
it employs to achieve those objectives. The following discussion
supplements the description of the Portfolios' investment policies in the
Prospectus. The Portfolios' respective investment objectives cannot be
changed without approval of shareholders. Except as noted, the investment
policies described below may be changed by the Board of Trustees without
shareholder approval. Shareholders will be notified before any material
change in these policies becomes effective.

Repurchase Agreements

The Portfolios 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 Portfolio might be
delayed pending court action. The Portfolios believe that, under the
regular procedures normally in effect for custody of a Portfolio's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of a Portfolio and allow retention or
disposition of such securities. The Portfolios 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 Board of Trustees.

When-Issued and Delayed Delivery Transactions

The Portfolios may engage in when-issued and delayed delivery transactions.
These transactions are arrangements in which a Portfolio purchases
securities with payment and delivery scheduled for a future time. A
Portfolio engages in when-issued and delayed delivery transactions only for
the purpose of acquiring portfolio securities consistent with its
investment objective and policies, not for investment leverage, but a
Portfolio may sell such securities prior to settlement date if such a sale
is considered to be advisable. No income accrues to the Portfolios on
securities in connection with such transactions prior to the date the
Portfolios actually take delivery of securities. In when-issued and
delayed delivery transactions, a Portfolio relies on the seller to complete
the transaction. The seller's failure to complete the transaction may
cause a Portfolio to miss a price or yield considered to be advantageous.

These transactions are made to secure what is considered to be an
advantageous price or yield for a Portfolio. 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. No fees or
other expenses, other than normal transaction costs, are incurred.
However, liquid assets of a Portfolio sufficient to make payment for the
securities to be purchased are segregated at the trade date. These
securities are marked to market daily and are maintained until the
transaction is settled. As a matter of policy, the Portfolios, other than
the Municipal Income Portfolio, 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 a Portfolio lends 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
Portfolio. During the time portfolio securities are on loan, the borrower
pays a Portfolio any dividends or interest paid on such securities. Loans
are subject to termination at the option of a Portfolio or the borrower. A
Portfolio 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.

A Portfolio would 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.

Bank Instruments

The Portfolios may invest in the instruments of banks and savings and loans
whose deposits are insured by the Bank Insurance Fund or the Savings
Association Insurance Fund, both of which are administered by the Federal
Deposit Insurance Corporation ("FDIC"), such as certificates of deposit,
demand and time deposits, savings shares, and bankers' acceptances.
However, the above-mentioned 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 Portfolios may invest in:

(bullet) Eurodollar Certificates of Deposit ("ECDs") issued by foreign
branches of U.S. or foreign banks;

(bullet) Eurodollar Time Deposits ("ETDs"), which are U.S.
dollar-denominated deposits in foreign branches of U.S. or foreign
banks;

(bullet) Canadian Time Deposits, which are U.S. dollar-denominated deposits
issued by branches of major Canadian banks located in the U.S.; and

(bullet) Yankee 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 U.S.

Restricted Securities

The Portfolios may invest in restricted securities. Restricted securities
are any securities in which each Portfolio may otherwise invest pursuant to
its investment objective and policies but which are subject to restriction
on resale under federal securities law.

The ability of the Board of Trustees to determine the liquidity of certain
restricted securities is permitted under a Securities and Exchange
Commission ("SEC") Staff position set forth in the adopting release for
Rule 144A under the Securities Act of 1933 (the "Rule"). The Rule is a
non-exclusive, safe-harbor for certain secondary market transactions
involving securities subject to restrictions on resale under federal
securities laws. The Rule provides an exemption from registration for
resales of otherwise restricted securities to qualified institutional
buyers. The Rule was expected to further enhance the liquidity of the
secondary market for securities eligible for resale under the Rule. The
Trust, on behalf of the Portfolios, believes that the Staff of the SEC has
left the question of determining the liquidity of all restricted securities
(eligible for resale under Rule 144A) for determination of the Trust's
Board of Trustees. The Board of Trustees considers the following criteria
in determining the liquidity of certain restricted securities.

(bullet) the frequency of trades and quotes for the security;

(bullet) the number of dealers willing to purchase or sell the security
and the number of other potential buyers;

(bullet) dealer undertakings to make a market in the security; and

(bullet) the nature of the security and the nature of the marketplace trades.

Lower-Grade Municipal Securities

In normal circumstances, at least 80% of the Municipal Income Portfolio's
total assets will be invested in investment-grade tax-exempt municipal
securities and up to 20% of the Municipal Income Portfolio's total assets
may be invested in lower-grade tax-exempt municipal securities. The amount
of available information about the financial condition of municipal

securities issuers is generally less extensive than that for corporate
issuers with publicly traded securities, and the market for tax-exempt
municipal securities is considered to be generally less liquid than the
market for corporate debt obligations. Liquidity relates to the ability of
a Portfolio to sell a security in a timely manner at a price which reflects
the value of that security. As discussed below, the market for lower-grade
tax-exempt municipal securities is considered generally to be less liquid
than the market for investment-grade tax-exempt municipal securities.
Further, municipal securities in which the Municipal Income Portfolio may
invest include special obligation bonds, lease obligations, participation
certificates and variable rate instruments. The market for such securities
may be particularly less liquid. The relative illiquidity of some of the
Municipal Income Portfolio's securities may adversely affect the ability of
the Municipal Income Portfolio to dispose of such securities in a timely
manner and at a price which reflects the value of such security in the
Trust's judgment. Although the issuer of some such municipal securities
may be obligated to redeem such securities at face value, such redemption
could result in capital losses to the Municipal Income Portfolio to the
extent that such municipal securities were purchased by the Municipal
Income Portfolio at a premium to face value. The market for less liquid
securities tends to be more volatile than the market for more liquid
securities, and market values of relatively illiquid securities may be more
susceptible to change as a result of adverse publicity and investor
perceptions than are the market values of higher grade, more liquid
securities.

The Municipal Income Portfolio's net asset value will change with changes
in the value of its portfolio securities. Because the Municipal Income
Portfolio will invest primarily in fixed income municipal securities, the
Municipal Income Portfolio's net asset value can be expected to change as
general levels of interest rates fluctuate. When interest rates decline,
the value of a portfolio invested in fixed income securities can be
expected to rise. Conversely, when interest rates rise, the value of a
portfolio invested in fixed income securities can be expected to decline.
Net asset value and market value may be volatile due to the Municipal
Income Portfolio's investment in lower-grade and less liquid municipal
securities. Volatility may be greater during periods of general economic
uncertainty.

To the extent that there is no established retail market for some of the
securities in which the Municipal Income Portfolio may invest, there may be
relatively inactive trading in such securities and the ability of the Trust
to accurately value such securities may be adversely affected. During
periods of reduced market liquidity and in the absence of readily available
market quotations for securities held in the Municipal Income Portfolio,
the responsibility of the Trust to value the Municipal Income Portfolio's
securities becomes more difficult and the Trust's judgment may play a
greater role in the valuation of the Municipal Income Portfolio's
securities due to the reduced availability of reliable objective data. To
the extent that the Municipal Income Portfolio invests in illiquid

securities and securities which are restricted as to resale, the Municipal
Income Portfolio may incur additional risks and costs. Illiquid and
restricted securities are particularly difficult to dispose of. When
determining whether municipal leases purchased by the Municipal Income
Portfolio will be classified as a liquid or illiquid security, the Board of
Trustees has directed the Sub-Adviser to consider the following factors:
the frequency of trades and quotes for the security; the volatility of
quotations and trade prices for the security; the number of dealers willing
to purchase or sell the security and the number of potential purchases;
dealer undertaking to make a market in the security; the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics
of transfer); the rating of the security and the financial condition and
prospects of the issuer of the security; whether the lease can be
terminated by the lessee; the potential recovery, if any, from a sale of
the leased property upon termination of the lease; the lessee's general
credit strength (e.g., its debt, administrative, economic and financial
characteristics and prospects); 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"); any credit enhancement or
legal recourse provided upon an event of nonappropriation or other
termination of the lease; and such other factors as may be relevant to the
Portfolio's ability to dispose of the security.

Lower-grade tax-exempt municipal securities generally involve greater
credit risk than higher-grade municipal securities. A general economic
downturn or a significant increase in interest rates could severely disrupt
the market for lower-grade tax-exempt municipal securities and adversely
affect the market value of such securities. In addition, in such
circumstances, the ability of issuers of lower-grade tax-exempt municipal
securities to repay principal and to pay interest, to meet projected
financial goals and to obtain additional financing may be adversely
affected. Such consequences could lead to an increased incidence of
default for such securities and adversely affect the value of the lower-
grade tax-exempt municipal securities in the Municipal Income Portfolio
and, thus, the Portfolio's net asset value. The secondary market prices of
lower-grade tax-exempt municipal securities are less sensitive to changes
in interest rates than are those for higher rated tax-exempt municipal
securities, but are more sensitive to adverse economic changes or
individual issuer developments. Adverse publicity and investors'
perceptions, whether or not based on rational analysis, may also affect the
value and liquidity of lower-grade tax-exempt municipal securities.

Yields on the Municipal Income Portfolio's securities can be expected to
fluctuate over time. In addition, periods of economic uncertainty and
changes in interest rates can be expected to result in increased volatility
of the market prices of the lower-grade tax-exempt municipal securities in
the Municipal Income Portfolio's portfolio and, thus, in the net asset
value of the Portfolio. Net asset value and market value may be volatile

due to the Municipal Income Portfolio's investment in lower-grade and less
liquid municipal securities. Volatility may be greater during periods of
general economic uncertainty. The Municipal Income Portfolio may incur
additional expenses to the extent it is required to seek recovery upon a
default in the payment of interest or a repayment of principal on its
portfolio holdings, and the Municipal Income Portfolio may be unable to
obtain full recovery thereof. In the event that an issuer of securities
held by the Municipal Income Portfolio experiences difficulties in the
timely payment of principal or interest, and such issuer seeks to
restructure the terms of its borrowings, the Municipal Income Portfolio may
incur additional expenses and may determine to invest additional capital
with respect to such issuer or the project or projects to which the
Municipal Income Portfolio's securities relate. Recent and proposed
legislation may have an adverse impact on the market for lower-grade tax-
exempt municipal securities. Recent legislation requires federally-insured
savings and loan associations to divest their investments in lower-grade
bonds. Other legislation has, from time to time, been proposed which, if
enacted, could have an adverse impact on the market for lower-grade tax-
exempt municipal securities.

The Municipal Income Portfolio will rely on the Sub-Adviser's judgment,
analysis, and experience in evaluating the creditworthiness of an issue.
In this evaluation, the Sub-Adviser will take into consideration, among
other things, the issuer's financial resources, its sensitivity to economic
conditions and trends, its operating history, the quality of the issuer's
management and regulatory matters. The Sub-Adviser also may consider,
although it does not rely primarily on, the credit ratings of Standard &
Poor's Corporation ("S&P") and Moody's Investors Service, Inc. ("Moody's"),
in evaluating tax-exempt municipal securities. Such ratings evaluate only
the safety of principal and interest payments, not market value risk.
Additionally, because the creditworthiness of an issuer may change more
rapidly than is able to be timely reflected in changes in credit ratings,
the Sub-Adviser continuously monitors the issuers of tax-exempt municipal
securities held in the Municipal Income Portfolio. The Municipal Income
Portfolio may, if deemed appropriate by the Sub-Adviser, retain a security
whose rating has been downgraded below B-by S&P or below B3 by Moody's, or
whose rating has been withdrawn.

Because issuers of lower-grade tax-exempt municipal securities frequently
choose not to seek a rating of their municipal securities, the Sub-Adviser
will be required to determine the relative investment quality of many of
the municipal securities in the Municipal Income Portfolio. Further,
because the Municipal Income Portfolio may invest up to 20% of its total
assets in these lower-grade municipal securities, achievement by the
Municipal Income Portfolio of its investment objective may be more
dependent upon the Sub-Adviser's investment analysis than would be the case
if the Municipal Income Portfolio were investing exclusively in higher-
grade municipal securities. The relative lack of financial information
available with respect to issuers of municipal securities may adversely
affect the Sub-Adviser's ability to successfully conduct the required

investment analysis.

Zero-Coupon Securities

Zero-coupon securities in which the Income and Growth and Global Portfolios
may invest are debt obligations which are generally issued at a discount
and payable in full at maturity, and do not provide for current payments of
interest prior to maturity. Zero-coupon securities usually trade at a deep
discount from their face or par value and are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest. As a
result, the net asset value of shares of a Portfolio investing in zero-
coupon securities may fluctuate over a greater range than shares of other
Portfolios and other mutual funds investing in securities making current
distributions of interest and having similar maturities.

Zero-coupon securities may include U.S. Treasury bills issued directly by
the U.S. Treasury or other short-term debt obligations, and longer-term
bonds or notes and their unmatured interest coupons which have been
separated by their holder, typically a custodian bank or investment
brokerage firm. A number of securities firms and banks have stripped the
interest coupons from the underlying principal (the "corpus") of U.S.
Treasury securities and resold them in custodial receipt programs with a
number of different names, including Treasury Income Growth Receipts
("TIGRS") and Certificates of Accrual on Treasuries ("CATS"). The
underlying U.S. Treasury bonds and notes themselves are held in book-entry
form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof.

In addition, the Treasury has facilitated transfers of ownership of zero-
coupon securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities
through the Federal Reserve book-entry recordkeeping system. The Federal
Reserve program as established by the Treasury Department is known as
"STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities." Under the STRIPS program, a Portfolio will be able to have its
beneficial ownership of U.S. Treasury zero-coupon securities recorded
directly in the book-entry recordkeeping system in lieu of having to hold
certificates or other evidence of ownership of the underlying U.S. Treasury
securities.

When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The
principal or corpus is sold at a deep discount because the buyer receives
only the right to receive a future fixed payment on the security and does
not receive any rights to periodic cash interest payments. Once stripped
or separated, the corpus and coupons may be sold separately. Typically,
the coupons are sold separately or grouped with other coupons with like
maturity dates and sold in such bundled form. Purchasers of stripped

obligations acquire, in effect, discount obligations that are economically
identical to the zero-coupon securities issued directly by the obligor.

Reverse Repurchase Agreements

The Portfolios may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Portfolio 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 Portfolio 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 the Portfolio 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 the
Portfolio will be able to avoid selling portfolio instruments at a
disadvantageous time.

When effecting reverse repurchase agreements, liquid assets of the
Portfolio, 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.

Futures and Options Transactions

The Portfolios may engage in futures and options hedging transactions. The
Income and Growth Portfolio will not, however, utilize options on its
futures. In an effort to reduce fluctuations in the net asset value of
shares of a Portfolio, a Portfolio 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 Portfolio may
also write covered call options on portfolio securities to attempt to
increase its current income. A Portfolio 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 the
exchange on which the position was established.

Futures Contracts

The Portfolios may engage in transactions in 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. However, a stock index
futures contract is an agreement pursuant 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. No
physical delivery of the underlying securities in the index is made.

The purpose of the acquisition or sale of a futures contract by a Portfolio
is to protect the Portfolio from fluctuations in the value of its
securities caused by anticipated changes in interest rates or market
conditions without necessarily buying or selling the securities. For
example, in the fixed income securities market, price generally moves
inversely to interest rates. A rise in rates generally means a drop in
price. Conversely, a drop in rates generally means a rise in price. In
order to hedge their holdings of fixed income securities against a rise in
market interest rates, Government Income Portfolio, Municipal Income
Portfolio, Income and Growth Portfolio and Global Portfolio could enter
into contracts to deliver securities at a predetermined price (i.e., "go
short") to protect themselves against the possibility that the prices of
their fixed income securities may decline during the anticipated holding
period. Any of these Portfolios would "go long" (i.e., agree to purchase
securities in the future at a predetermined price) to hedge against a
decline in market interest rates.

Put Options on Futures Contracts

The Portfolios, with the exception of the Income and Growth Portfolio, may
engage in transactions in put options on futures contracts. A Portfolio
may purchase listed put options on 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. A Portfolio would purchase put options on
futures contracts to protect portfolio securities against decreases in
value resulting from market factors, such as an anticipated increase in
interest rates.

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 Portfolio
will normally close out its option by selling an identical option. If the
hedge is successful, the proceeds received by a Portfolio upon the sale of
the second option may be large enough to offset both the premium paid by
the Portfolio for the original option plus the decrease in value of the
hedged securities. Alternatively, a Portfolio 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 Portfolio
would then deliver the futures contract in return for payment of the strike
price. If the Portfolio 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.

When a Portfolio sells a put on a futures contract, it receives a cash
premium which can be used in whatever way is deemed most advantageous to
the Portfolio. In exchange for such premium, the Portfolio grants to the
purchaser of the put the right to receive from the Portfolio, at the strike
price, a short position in such futures contract, even though the strike
price upon exercise of the option is greater than the value of the futures
position received by such holder. If the value of the underlying futures
position is not such that exercise of the option would be profitable to the
option holder, the option will generally expire without being exercised.
The Portfolio has no obligation to return premiums paid to it whether or
not the option is exercised. It will generally be the policy of each
Portfolio, in order to avoid the exercise of an option sold by it, to
cancel its obligation under the option by entering into a closing purchase
transaction, if available, unless it is determined to be in such
Portfolio's interest to deliver the underlying futures position. A closing
purchase transaction consists of the purchase by the Portfolio of an option
having the same term as the option sold by the Portfolio, and has the
effect of canceling the Portfolio's position as a seller. The premium
which the Portfolio will pay in executing a closing purchase transaction
may be higher than the premium received when the option was sold, depending
in large part upon the relative price of the underlying futures position at
the time of each transaction.

Call Options on Futures Contracts

The Portfolios, with the exception of the Income and Growth Portfolio, may
engage in transactions in call options on futures contracts. In addition
to purchasing put options on futures, the Portfolios may write listed call
options on futures contracts to hedge their respective portfolios against,
for example, an increase in market interest rates. When a Portfolio 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 market interest rates rise (in the case of the Government
Income Portfolio, Municipal Income Portfolio and Global Portfolio) or as
stock prices fall (in the case of the Growth Portfolio, Capital Growth
Portfolio and Global Portfolio), causing the prices of futures to go down,
a Portfolio's obligation under a call option on a future (to sell a futures
contract) costs less to fulfill, causing the value of a Portfolio's call
option position to increase. In other words, as the underlying future's
price goes down below the strike price, the buyer of the option has no
reason to exercise the call, so that a Portfolio keeps the premium received
for the option. This premium can help substantially to offset the drop in
value of a Portfolio's portfolio securities. Prior to the expiration of a
call written by a Portfolio, or exercise of it by the buyer, a Portfolio
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 a Portfolio for the initial option. The net premium income of
a Portfolio will then help offset the decrease in value of the hedged
securities.

When a Portfolio purchases a call on a financial futures contract, it
receives in exchange for the payment of a cash premium the right, but not
the obligation to enter into the underlying futures contract at a strike
price determined at the time the call was purchased, regardless of the
comparative market value of such futures position at the time the option is
exercised. The holder of a call option has the right to receive a long (or
buyer's) position in the underlying futures contract.

A Portfolio 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 (including cash or cash
equivalents) 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, a Portfolio 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, the Portfolios do not pay or
receive money upon the purchase or sale of a futures contract. Rather, the
Portfolios are required to deposit an amount of "initial margin" in cash or
U.S. Treasury bills with the 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
contracts initial margin does not involve a borrowing by a Portfolio 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 a Portfolio
upon termination of the futures contract, assuming all contractual
obligations have been satisfied.

A futures contract held by a Portfolio is valued daily at the official
settlement price of the exchange on which it is traded. Each day a
Portfolio 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 a Portfolio but is instead settlement between a Portfolio and the
broker of the amount one would owe the other if the futures contract
expired. In computing its daily net asset value, a Portfolio will mark to
market its open futures positions. The Portfolios are also required to
deposit and maintain margin when they write call options on futures
contracts.

Regulatory Restrictions

To the extent required to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid status as a "commodity pool operator," the
Portfolios will not enter into a futures contract, or purchase an option

thereon, if immediately thereafter the initial margin deposits for futures
contracts held by a Portfolio, plus premiums paid by it for open options of
futures, would exceed 5% of the total assets of the Portfolio. The
Portfolios will not engage in transactions in futures contracts or options
thereon for speculation, but only to attempt to hedge against changes in
market conditions affecting the values of assets which the Portfolios hold
or intend to purchase. When futures contracts or options thereon are
purchased in order to protect against a price increase on securities or
other assets intended to be purchased later, it is anticipated that at
least 75% of such intended purchases will be completed. When other futures
contracts or options thereon are purchased, the underlying value of such
contracts will at all times not exceed the sum of (1) accrued profit on
such contracts held by the broker; (2) cash or high-quality money market
instruments set aside in an identifiable manner; and (3) cash proceeds from
investments due in 30 days or less.

Purchasing Put Options on Portfolio Securities

With the exception of the Income and Growth Portfolio, the Portfolios may
purchase put options on portfolio securities to protect against price
movements in particular securities in their respective portfolios. A put
option gives a Portfolio, 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

The Capital Growth, Government Income, and Municipal Income and Global
Portfolios may write covered call options to generate income. As a writer
of a call option, a Portfolio has the obligation upon exercise of the
option during the option period to deliver the underlying security upon
payment of the exercise price. A Portfolio 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

The Capital Growth, Government Income, and Municipal Income and Global
Portfolios 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 a Portfolio 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.

Collateralized Mortgage Obligations (CMOs)

The Government Income and Income and Growth Portfolios may invest in CMOs.
Privately issued CMOs generally represent an ownership interest in a pool
of 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.

Convertible Securities

The Growth, Capital Growth, Income and Growth and Global Portfolios may
invest in 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 a variety of investment strategies.

A Portfolio will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock when, in the Sub-
Adviser's opinion, the investment characteristics of the underlying common
shares will assist the Portfolio in achieving its investment objectives.
Otherwise, the Portfolio may hold or trade convertible securities. In
selecting convertible securities for the Portfolio, the Portfolio's Sub-
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, the Portfolio's
Sub-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

The Growth, Capital Growth, and Income and Growth and Global Portfolios may
invest in 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. A
Portfolio will not invest more than 5% of the value of its total assets in
warrants. No more than 2% of this 5% may be warrants which are not listed
on the New York or American Stock Exchanges. Warrants acquired in units or
attached to securities may be deemed to be without value for purposes of
this policy.

Dollar Rolls

The Government Income and Global Portfolios may enter into "dollar roll"
transactions, which consist of the sale by the Government Income Portfolio
or Global Portfolio to a bank or broker/dealer (the "counterparty") of GNMA
certificates or other mortgage-backed securities together with a commitment
to purchase similar, but not identical, securities at a future date, at the
same price. The counterparty receives all principal and interest payments,
including prepayments, made on the security while the counterparty is the
holder. The Government Income and Global Portfolios receive a fee from the
counterparty as consideration for entering into the commitment to purchase.
Dollar rolls may be renewed over a period of several months with a
different repurchase price and a cash settlement made at each renewal
without physical delivery of securities. Moreover, the transaction may be
preceded by a firm commitment agreement pursuant to which the Government
Income Portfolio or Global Portfolio agrees to buy a security on a future
date.

The Government Income and Global Portfolios will not use such transactions
for leveraging purposes and, accordingly, will segregate cash, U.S.
Government securities or other high grade debt obligations in an amount
sufficient to meet its purchase obligations under the transactions. The
Government Income and Global Portfolios will also maintain asset coverage
of at least 300% for all outstanding firm commitments, dollar rolls and
other borrowings.

Dollar rolls are treated for purposes of the Investment Company Act of 1940
as borrowings of the Government Income and Global Portfolios because they
involve the sale of a security coupled with an agreement to repurchase.
Like all borrowings, a dollar roll involves costs to the Government Income
and Global Portfolios. For example, while the Government Income and Global
Portfolios receive a fee as consideration for agreeing to repurchase the
security, the Government Income and Global Portfolios forgo the right to
receive all principal and interest payments while the counterparty holds
the security. These payments to the counterparty may exceed the fee
received by the Government Income and Global Portfolios, thereby
effectively charging the Government Income and Global Portfolios interest

on its respective borrowing. Further, although the Government Income and
Global Portfolios can estimate the amount of expected principal prepayment
over the term of the dollar roll, a variation in the actual amount of
prepayment could increase or decrease the cost of the Government Income and
Global Portfolio's borrowing.

The entry into dollar rolls involves potential risks of loss which are
different from those of the securities underlying the transactions. For
example, if the counterparty becomes insolvent, the Government Income and
Global Portfolios' right to purchase from the counterparty might be
restricted. Additionally, the value of such securities may change
adversely before the Government Income and Global Portfolios are able to
purchase them. Similarly, the Government Income and Global Portfolios may
be required to purchase securities in connection with a dollar roll at a
higher price than may otherwise be available on the open market. Since, as
noted above, the counterparty is required to deliver a similar, but not
identical security to the Government Income and Global Portfolios, the
security which the Government Income and Global Portfolios are required to
buy under the dollar roll may be worth less than an identical security.
Finally, there can be no assurance that the Government Income and Global
Portfolios' use of the cash that it receives from a dollar roll will
provide a return that exceeds borrowing costs.

The Board of Trustees of the Trust on behalf of the Government Income and
Global Portfolios have adopted guidelines to ensure that those securities
received are substantially identical to those sold. To reduce the risk of
default, the Government Income and Global Portfolios will engage in such
transactions only with banks and broker-dealers selected pursuant to such
guidelines.

Swaps, Caps, Floors and Collars

The Global Portfolio may enter into interest rate, currency and index swaps
and the purchase or sale of related caps, floors and collars. The Global
Portfolio expects to enter into these transactions primarily to preserve a
return or spread on a particular investment or portion of its portfolio, to
protect against currency fluctuations, as a duration management technique
or to protect against any increase in the price of securities the Global
Portfolio anticipates purchasing at a later date. The Global Portfolio
intends to use these transactions as hedges and not as speculative
investments and will not sell interest rate caps or floors where it does
not own securities or other instruments providing the income stream the
Global Portfolio may be obligated to pay. Interest rate swaps involve the
exchange by the Global Portfolio with another party of their respective
commitments to pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments with respect to a notional amount of
principal. A currency swap is an agreement to exchange cash flows on a
notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash
flows on a notional amount based on changes in the values of the reference

indices. The purchase of a cap entitles the purchaser to receive payments
on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or
amount. The purchase of a floor entitles the purchaser to receive payments
on a notional principal amount from the party selling such floor to the
extent that a specified index falls below a predetermined interest rate or
amount. A collar is a combination of a cap and a floor that preserves a
certain return within a predetermined range of interest rates or values.

The Global Portfolio will usually enter into swaps on a net basis, i.e.,
the two payment streams are netted out in a cash settlement on the payment
date or dates specified in the instrument, with the Global Portfolio
receiving or paying, as the case may be, only the net amount of the two
payments. Inasmuch as these swaps, caps, floors and collars are entered
into for good faith hedging purposes, the Global Portfolio and its Sub-
Adviser believe such obligations do not constitute senior securities under
the Investment Company Act of 1940 and, accordingly, will not treat them as
being subject to its borrowing restrictions. The Global Portfolio will not
enter into any swap, cap, floor or collar transaction unless, at the time
of entering into such transaction, the unsecured long-term debt of the
Counterparty, combined with any credit enhancements, is rated at least A by
S&P or Moody's or has an equivalent rating from a NRSRO or is determined to
be of equivalent credit quality by the Global Portfolio's Sub-Adviser. If
there is a default by the Counterparty, the Global Portfolio may have
contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are more
recent innovations for which standardized documentation has not yet been
fully developed and, accordingly, they are less liquid than swaps.

High Yield, High Risk Debt Securities

The Global Portfolio may invest up to 5% of its net assets in securities
rated Baa/BBB or lower and in unrated securities of equivalent quality in
the Sub-Adviser's judgment. The Global Portfolio may invest in debt
securities which are rated as low as C by Moody's or D by S&P. Such
securities may be in default with respect to payment of principal or
interest.

Below investment grade securities (rated below Baa by Moody's and below BBB
by S&P) or unrated securities of equivalent quality in the Sub-Adviser's
judgment, carry a high degree of risk (including the possibility of default
or bankruptcy of the issuers of such securities), generally involve greater
volatility of price and risk of principal and income, and may be less
liquid, than securities in the higher rating categories and are considered
speculative. The lower the ratings of such debt securities, the greater
their risks render them like equity securities. See the Appendix to this
Statement of Additional Information for a more complete description of the

ratings assigned by ratings organizations and their respective
characteristics.

An economic downturn could disrupt the high yield market and impair the
ability of issuers to repay principal and interest. Also, an increase in
interest rates would likely have a greater adverse impact on the value of
such obligations than on higher quality debt securities. During an
economic downturn or period of rising interest rates, highly leveraged
issues may experience financial stress which could adversely affect their
ability to service their principal and interest payment obligations.
Prices and yields of high yield securities will fluctuate over time and,
during periods of economic uncertainty, volatility of high yield securities
may adversely affect the Global Portfolio's net asset value. In addition,
investments in high yield zero coupon or pay-in-kind bonds, rather than
income-bearing high yield securities, may be more speculative and may be
subject to greater fluctuations in value due to changes in interest rates.

The trading market for high yield securities may be thin to the extent that
there is no established retail secondary market. A thin trading market may
limit the ability of the Global Portfolio to accurately value high yield
securities in its portfolio and to dispose of those securities. Adverse
publicity and investor perceptions may decrease the values and liquidity of
high yield securities. These securities may also involve special
registration responsibilities, liabilities and costs, and liquidity and
valuation difficulties.

Credit quality in the high-yield securities market can change suddenly and
unexpectedly, and even recently issued credit ratings may not fully reflect
the actual risks posed by a particular high-yield security. For these
reasons, it is the policy of the Sub-Adviser not to rely exclusively on
ratings issued by established credit rating agencies, but to supplement
such ratings with its own independent and on-going review of credit
quality. The achievement of the Global Portfolio's investment objective by
investment in such securities may be more dependent on the Sub-Adviser's
credit analysis than is the case for higher quality bonds. Should the
rating of a portfolio security be downgraded, the Sub-Adviser will
determine whether it is in the best interest of the Global Portfolio to
retain or dispose of such security.

Prices for below investment-grade securities may be affected by legislative
and regulatory developments. For example, new federal rules require
savings and loan institutions to gradually reduce their holdings of this
type of security. Also, recent legislation restricts the issuer's tax
deduction for interest payments on these securities. Such legislation may
significantly depress the prices of outstanding securities of this type.

Indexed Securities

The Global Portfolio may invest in indexed securities, the value of which
is linked to currencies, interest rates, commodities, indices or other

financial indicators ("reference instruments"). Most indexed securities
have maturities of three years or less.

Indexed securities differ from other types of debt securities in which the
Global Portfolio may invest in several respects. First, the interest rate
or, unlike other debt securities, the principal amount payable at maturity
of an indexed security may vary based on changes in one or more specified
reference instruments, such as an interest rate compared with a fixed
interest rate or the currency exchange rates between two currencies
(neither of which need be the currency in which the instrument is
denominated). The reference instrument need not be related to the terms of
the indexed security. For example, the principal amount of a U.S. dollar
denominated indexed security may vary based on the exchange rate of two
foreign currencies. An indexed security may be positively or negatively
indexed; that is, its value may increase or decrease if the value of the
reference instrument increases. Further, the change in the principal
amount payable or the interest rate of an indexed security may be a
multiple of the percentage change (positive or negative) in the value of
the underlying reference instrument(s).

Investment in indexed securities involves certain risks. In addition to
the credit risk of the security's issuer and the normal risks of price
changes in response to changes in interest rates, the principal amount of
indexed securities may decrease as a result of changes in the value of
reference instruments. Further, in the case of certain indexed securities
in which the interest rate is linked to a reference instrument, the
interest rate may be reduced to zero, and any further declines in the value
of the security may then reduce the principal amount payable on maturity.
Finally, indexed securities may be more volatile than the reference
instruments underlying indexed securities.

Currency Transactions

The Global Portfolio may engage in currency transactions with
counterparties in order to hedge the value of portfolio holdings
denominated in particular currencies against fluctuations in relative
value. Currency transactions include forward currency contracts, exchange
listed currency futures, exchange listed and OTC options on currencies, and
currency swaps. A forward currency contract involves a privately
negotiated obligation to purchase or sell (with delivery generally
required) a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at
a price set at the time of the contract. A currency swap is an agreement
to exchange cash flows based on the notional difference among two or more
currencies and operates similarly to an interest rate swap, which is
described below. A Global Portfolio may enter into currency transactions
with counterparties which have received (or the guarantors of the
obligations which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or
(except for OTC currency options) are determined to be of equivalent credit

quality by the Sub-Adviser.

The Global Portfolio dealings in forward currency contracts and other
currency transactions such as futures, options, options on futures and
swaps will be limited to hedging involving either specific transactions or
portfolio positions. Transaction hedging is entering into a currency
transaction with respect to specific assets or liabilities of the Global
Portfolio, which will generally arise in connection with the purchase or
sale of its portfolio securities or the receipt of income therefrom.
Position hedging is entering into a currency transaction with respect to
portfolio security positions denominated or generally quoted in that
currency.

The Global Portfolio will not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended
wholly or partially to offset other transactions, than the aggregate market
value (at the time of entering into the transaction) of the securities held
in its portfolio that are denominated or generally quoted in or currently
convertible into such currency, other than with respect to proxy hedging as
described below.

The Global Portfolio may also cross-hedge currencies by entering into
transactions to purchase or sell one or more currencies that are expected
to decline in value relative to other currencies to which the Global
Portfolio has or in which a Global Portfolio expects to have portfolio
exposure.

To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Global Portfolio may also
engage in proxy hedging. Proxy hedging is often used when the currency to
which the Portfolio is exposed is difficult to hedge or to hedge against
the dollar. Proxy hedging entails entering into a forward contract to sell
a currency whose changes in value are generally considered to be linked to
a currency or currencies in which some or all of the Global Portfolio's
securities are or are expected to be denominated, and to buy U.S. dollars.
The amount of the contract would not exceed the value of the Global
Portfolio's securities denominated in linked currencies. For example, if
the Sub-Adviser considers that the Austrian schilling is linked to the
German deutschemark (the "D-mark"), the Global Portfolio holds securities
denominated in schillings and the Sub-Adviser believes that the value of
schillings will decline against the U.S. dollar, the Sub-Adviser may enter
into a contract to sell D-marks and buy dollars. Currency hedging involves
some of the same risks and considerations as other transactions with
similar instruments. Currency transactions can result in losses to the
Global Portfolio if the currency being hedged fluctuates in value to a
degree or in a direction that is not anticipated. Further, there is the
risk that the perceived linkage between various currencies may not be
present or may not be present during the particular time that the Global
Portfolio is engaging in proxy hedging. Except when the Global Portfolio
enters into a forward contract for the purchase or sale of a security

denominated in a particular currency, which requires no segregation, a
currency contract which obligates the Global Portfolio to buy or sell
currency will generally require the Global Portfolio to hold an amount of
that currency or liquid securities denominated in that currency equal to
the Global Portfolio's obligations or to segregate liquid high grade assets
equal to the amount of the Global Portfolio's obligation.

Risk of Currency Transactions

Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy,
purchases and sales of currency and related instruments can be negatively
affected by government exchange controls, blockages, and manipulations or
exchange restrictions imposed by governments. These can result in losses
to the Global Portfolio if it is unable to deliver or receive currency or
funds in settlement of obligations and could also cause hedges it has
entered into to be rendered useless, resulting in full currency exposure as
well as incurring transaction costs. Buyers and sellers of currency
futures are subject to the same risks that apply to the use of futures
generally. Further, settlement of a currency futures contract for the
purchase of most currencies must occur at a bank based in the issuing
nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to
the maintenance of a liquid market which may not always be available.
Currency exchange rates may fluctuate based on factors extrinsic to that
country's economy.

Eurodollar Instruments

The Global Portfolio may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or
options thereon which are linked to the London Interbank Offered Rate
("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to
obtain a fixed rate for the lending of funds and sellers to obtain a fixed
rate for borrowings. The Global Portfolio might use Eurodollar futures
contracts and options thereon to hedge against changes in LIBOR, to which
many interest rate swaps and fixed income instruments are linked.

Portfolio Turnover

The annual turnover rate of the Portfolios may vary from year to year, and
may also be affected by cash requirements for redemptions and repurchases
of Portfolio shares and by the necessity of maintaining the Portfolios as
regulated investment companies under the Internal Revenue Code, as amended,
in order to receive certain favorable tax treatment.

The Portfolios 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 each Portfolio's investment objective. During the
fiscal year ended September 30, 1993, and the period from April 29, 1992
(date of initial public investment), to September 30, 1992, the respective
portfolio turnover rates for the indicated Portfolios were as follows:
Growth Portfolio, 137% and 26%; Capital Growth Portfolio, 192% and 61%;
Government Income Portfolio, 102% and 9%; and Municipal Income Portfolio,
88% and 0%. During the period May 24, 1993 (date of initial public
investment), to September 30, 1993, the portfolio turnover rate for the
Income and Growth Portfolio was 19% for the equity portion and 0% for the
debt portion. The difference between the portfolio turnover rates for the
fiscal year ended September 30, 1992, and September 30, 1993, for the
Growth Portfolio and Capital Growth Portfolio were a result of the fact
that the first fiscal year was substantially less than twelve months and
that, since the period ended September 30, 1992, was the initial start-up
period for the Portfolios, the portfolio turnover would be expected to be
substantially less than on a fund with a longer operating history. It is
anticipated that the portfolio turnover rate for the first year of the
Global Portfolio's operations will not exceed 100%.

Investment Limitations

Issuing Senior Securities and Borrowing Money

The Portfolios will not issue senior securities except that a Portfolio
(other than the Municipal Income Portfolio) 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; and except to the
extent that a Portfolio may enter into futures contracts. The Municipal
Income Portfolio may borrow money from banks for temporary purposes in
amounts up to 5% of its total assets. The Portfolios 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 it to meet redemption requests when
the liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Portfolios will not purchase any securities while any
borrowings in excess of 5% of its total assets are outstanding. During the
period any reverse repurchase agreements are outstanding, the Government
Income Portfolio 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. Notwithstanding this
restriction, the Portfolios may enter into when-issued and delayed delivery
transactions.

Selling Short and Buying on Margin

The Portfolios will not sell any securities short or purchase any
securities on margin, but may obtain such short-term credits as are
necessary for clearance of purchases and sales of securities. The deposit
or payment by a Portfolio of initial or variation margin in connection with
futures contracts or related options transactions is not considered the
purchase of a security on margin.

Pledging Assets

The Portfolios will not mortgage, pledge, or hypothecate any assets, except
to secure permitted borrowings. In these cases the Portfolios may pledge
assets having a value of 10% of assets taken at cost. For purposes of this
restriction, (a) the deposit of assets in escrow in connection with the
writing of covered put or call options and the purchase of securities on a
when-issued basis; and (b) collateral arrangements with respect to (i) the
purchase and sale of stock options (and options on stock indexes) and (ii)
initial or variation margin for futures contracts, will not be deemed to be
pledges of a Portfolio's assets. Margin deposits for the purchase and sale
of futures contracts and related options are not deemed to be a pledge.

Lending Cash or Securities

The Portfolios will not lend any of their respective assets except
portfolio securities up to one-third of the value of total assets. (The
Municipal Income Portfolio will not lend portfolio securities.) This shall
not prevent a Portfolio from purchasing or holding U.S. government
obligations, money market instruments, variable amount demand master notes,
bonds, debentures, notes, certificates of indebtedness, or other debt
securities, entering into repurchase agreements, or engaging in other
transactions where permitted by a Portfolio's investment objective,
policies and limitations or Declaration of Trust. The Municipal Income
Portfolio will not make loans except to the extent the obligations the
Portfolio may invest in are considered to be loans.

Investing in Restricted Securities

The Portfolios will not invest more than 10% of the value of their net
assets in restricted securities.

Investing in Commodities

None of the Portfolios will invest in commodities, except to the extent
that the Portfolios may engage in transactions involving futures contracts
or options on futures contracts, and except to the extent the securities
the Municipal Income Portfolio invests in are considered interests in
commodities or commodities contracts or to the extent the Portfolio
exercises its rights under agreements relating to such municipal
securities.

Investing in Real Estate

None of the Portfolios will purchase or sell real estate, including limited
partnership interests, except to the extent the securities the Income and
Growth Portfolio and Municipal Income Portfolio may invest in are
considered to be interests in real estate or to the extent the Municipal
Income Portfolio exercises its rights under agreements relating to such
municipal securities (in which case the Portfolio may liquidate real estate
acquired as a result of a default on a mortgage), although the Portfolios
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 respective total assets, a
Portfolio will not purchase securities issued by 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), if as a result more than 5% of the
value of its total assets would be invested in the securities of that
issuer. A Portfolio will not acquire more than 10% of the outstanding
voting securities of any one issuer.

Concentration of Investments

A Portfolio will not invest 25% or more of the value of its respective
total assets in any one industry (other than securities issued by the U.S.
government, its agencies or instrumentalities). As described in the
Prospectus, the Municipal Income Portfolio may from time to time invest
more than 25% of its assets in a particular segment of the municipal bond
market; however, that Portfolio will not invest more than 25% of its assets
in industrial development bonds in a single industry except as described in
the Prospectus.

Underwriting

A Portfolio will not underwrite any issue of securities, except as a
Portfolio 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 Portfolio without
approval of holders of a majority of that Portfolio's shares. The
following limitations may be changed by the Board of Trustees without
shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.

Investing in Illiquid Securities

The Portfolios will not invest more than 15% of the value of their
respective net assets in illiquid securities, including repurchase
agreements providing for settlement more than seven days after notice;
over-the-counter options; certain restricted securities not determined by
the Trustees to be liquid; and non-negotiable fixed income time deposits
with maturities over seven days.

Investing in Securities of Other Investment Companies

The Portfolios will limit their respective investments 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 Portfolios 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. It should be noted that
investment companies incur certain expenses such as management fees, and
therefore any investment by a Portfolio in shares of another investment
company would be subject to duplicative expenses.

Investing in New Issuers

Except for the Municipal Income Portfolio, no Portfolio will invest more
than 5% of the value of its respective total assets in securities of
issuers which have records of less than three years of continuous
operations, including the operation of any predecessor. The Municipal
Income Portfolio will not invest more than 5% of its total assets in
industrial development bonds where the payment of principal and interest is

the responsibility of companies with less than three years of operating
history.

Investing in Issuers Whose Securities are Owned by Officers and Trustees of
the Trust

A Portfolio will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust, the Investment Adviser, or Sub-Adviser
own individually more than 1/2 of 1% of the issuer's securities or together
own more than 5% of the issuer's securities.

Investing in Minerals

A Portfolio will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, except it may purchase the
securities of issuers which invest in or sponsor such programs and except
pursuant to the exercise by the Municipal Income Portfolio of its rights
under agreements relating to municipal securities.

Arbitrage Transactions

A Portfolio will not enter into transactions for the purpose of engaging in
arbitrage.

Purchasing Securities to Exercise Control

A Portfolio will not purchase securities of a company for the purpose of
exercising control or management, except to the extent that exercise by the
Municipal Income Portfolio of its rights under agreements related to
municipal securities would be deemed to constitute such control or
management.

None of the Portfolios borrowed money or loaned portfolio securities in
excess of 5% of the value of its net assets during the last fiscal year,
and no Portfolio has any present intent to do so in the coming fiscal year.

Except with respect to the Portfolios' 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.

To comply with registration requirements in certain states, the Portfolios
(1) will limit the aggregate value of the assets underlying covered call
options or put options written by a Portfolio to not more than 25% of its
net assets, (2) will limit the premiums paid for options purchased by a
Portfolio to 5% of its net assets, (3) will limit the margin deposits on
futures contracts entered into by a Portfolio to 5% of its net assets, and
(4) will limit investment in warrants to 5% of its net assets. No more
than 2% will be warrants which are not listed on the New York or American
Stock Exchanges. Also to comply with certain state restrictions, the
Growth Portfolio, Capital Growth Portfolio, and Income and Growth Portfolio
will limit their investment in restricted securities to 5% of total assets.
(If state requirements change, these restrictions may be revised without
shareholder notification.)

Management of the Trust

Officers and Trustees

Officers and Trustees are listed with their addresses, principal
occupations, and present positions, including any affiliation with
Cambridge Administrative Services, Cambridge Distributors, Inc., Cambridge
Investment Advisors, Inc., and WFS Financial, Inc.

<TABLE>

Positions with Principal Occupations
Name and Address the Trust During Past Five Years
<S> <C> <C>
Daniel J. Ludeman* ** Chairman Chairman, Investment Management Group, Inc.; Managing Director, WFS
901 E. Byrd Street and Trustee Financial Corp.; formerly, Managing Director, Wheat, First Securities.
Richmond, Virginia 23219

Peter J. Quinn, Jr.* ** President President, Cambridge Investment Advisors, Inc., and
901 E. Byrd Street and Trustee Cambridge Distributors, Inc.; Director, Investment
Richmond, Virginia 23219 Management Group, Inc.; Managing Director, WFS
Financial Corporation; formerly, Senior Vice
President/Director of Mutual Funds, Wheat, First Securities.
Paul F. Costello Senior Vice Senior Vice President, Cambridge Investment Advisors, Inc.,
901 E. Byrd Street President, and Cambridge Distributors, Inc.; Director,
Richmond, Virginia 23219 Treasurer, Investment Management Group., Inc.; President,
and Secretary Mentor Series Trust and Cash
Resource Trust; formerly, Director, President
and Chief Executive Officer, First Variable
Life Insurance Company; President and Chief Financial Officer,
Variable Investors Series Trust; President and
Treasurer, Atlantic Capital & Research, Inc.; Vice President and
Treasurer, Variable Stock Fund, Inc., Monarch Investment Series
Trust, and GEICO Tax Advantage Series Trust; Vice President,
Monarch Life Insurance Company, GEICO Investment Services
Company, Inc., Monarch Investment Services Company, Inc.,
and Springfield Life Insurance Company.

Arnold H. Dreyfuss Trustee Formerly, Chairman and Chief Executive
5100 Cary Street Road Officer, Hamilton Beach/Proctor-Silex, Inc.;
Richmond, Virginia 23225 Director, Mentor Growth Fund.

Thomas F. Keller Trustee Dean, The Fuqua School of Business, Duke
Duke University University, Durham, NC.
Durham, North Carolina 27706

Louis W. Moelchert, Jr. Trustee Vice President for Business & Finance,
University of Richmond University of Richmond, Richmond, VA.
Richmond, Virginia 23173

Stanley F. Pauley Trustee Chairman, E. R. Carpenter Company, Inc.
P.O. Box 27205
Richmond, Virginia 23261

Troy A. Peery, Jr.** Trustee President, Heilig-Meyers Company;
2235 Staples Mill Road Member, Board of Directors, ACME Markets.
Richmond, Virginia 23230

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

**
Members of the Executive Committee. The Executive Committee of the Board
of Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
</TABLE>

Ownership of Portfolios

Officers and Trustees own less than 1% of the outstanding Class A shares
and Class B shares of each Portfolio.

As of November 17, 1993, no shareholder of record owned 5% or more of the
outstanding shares of any Portfolio.

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

Investment Adviser

The Trust's Investment Adviser is Cambridge Investment Advisors, Inc. It
is the Investment Adviser's responsibility to select, subject to review and
approval by the Trust's Board of Trustees and shareholders, the sub-
advisers for the Portfolios (collectively, the "Sub-Advisers" and each
individually the "Sub-Adviser") who have distinguished themselves in their
respective areas of expertise in asset management and to review their
continued performance. Cambridge Investment Advisors, Inc., is a wholly-
owned subsidiary of Investment Management Group, Inc., which in turn is a
wholly-owned subsidiary of WFS Financial, Inc.

The Investment Adviser and the Sub-Advisers shall not be liable 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.

Investment Adviser Fees

For performing its responsibilities, the Investment Adviser receives an
annual investment advisory fee from each Portfolio as described in the
Prospectus. The Investment Adviser, in turn, made payments to the Sub-
Advisers for their services as stated in the section entitled "The Sub-
Advisers."

During the fiscal year ended September 30, 1993, and for the period from
April 29, 1992 (date of initial public investment), to September 30, 1992,

the Investment Adviser earned and waived advisory fees as follows:
<TABLE>

1993 1992

Investment Investment Investment Investment
Advisory Advisory Advisory Advisory
Portfolio Fee Fee Waiver Fee Fee Waiver
<S> <C> <C> <C> <C>
Growth Portfolio . . . . . . . . $ 316,743 $ 18,450 $ 62,102 $ 3,881
Capital Growth Portfolio . . . . 570,705 35,435 98,674 6,167
Government Income Portfolio . . . 885,963 230,311 145,774 145,774
Municipal Income Portfolio . . . 378,268 374,138 64,430 64,430
Income and Growth Portfolio* . . 45,081 - - -

* For the period May 24, 1993 (date of initial public investment), to
September 30, 1993.
</TABLE>

The Investment Adviser receives an annual investment advisory fee equal to
1.10% of the average daily net assets of the Global Portfolio up to and
including $75 million and 1.00% of the average daily net assets of the
Global Portfolio in excess of $75 million.

State Expense Limitations

The Investment Adviser has undertaken to comply with the expense limitation
established by certain states for investment companies whose shares are
registered for sale in those states. If a Portfolio's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses) exceed
2 1/2% per year of the first $30 million of average net assets, 2% per year
of the next $70 million of average net assets, and 1 1/2% per year of the
remaining average net assets, the Investment Adviser will reimburse the
particular Portfolio for its expenses over the limitation.

If a Portfolio's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the amount
of the excess, subject to an annual adjustment. If the expense limitation
is exceeded, the amount to be reimbursed by the Investment Adviser will be
limited, in any single fiscal year, by the amount of the investment
advisory fee.

This arrangement is not part of the Investment Advisory Agreement and may

be amended or rescinded in the future.

The Sub-Advisers

Pursuant to a Sub-Advisory Agreement entered into between the Investment
Adviser and each Sub-Adviser, each Portfolio is advised by a Sub-Adviser
who has complete discretion to purchase and sell portfolio securities for
the Portfolio to which it serves as the Sub-Adviser within the particular
Portfolio's investment objective, restrictions, and policies.

Kemper Financial Services, Inc. ("KFS"), serves as the Sub-Adviser to the
Growth Portfolio under the terms of a Sub-Advisory Agreement between the
Investment Adviser and KFS. KFS is a wholly-owned subsidiary of Kemper
Financial Companies, Inc. ("KFC"). KFC is a business corporation
incorporated under the laws of the State of Delaware. It was founded in
1986 and is a financial services holding company and a subsidiary of Kemper
Corporation. Kemper Corporation was incorporated under the laws of the
State of Delaware in 1968 and is a diversified insurance and financial
services holding company. During the fiscal year ended September 30, 1993,
and for the period from April 29, 1992 (date of initial public investment),
to September 30, 1992, KFS earned $158,980 and $31,051, respectively, as
its sub-advisory fee for services it provided on behalf of the Growth
Portfolio.

Phoenix Investment Counsel, Inc. ("PIC"), serves as the Sub-Adviser to the
Capital Growth Portfolio under the terms of a Sub-Advisory Agreement
between the Investment Adviser and PIC. PIC is a wholly-owned subsidiary
of Phoenix Equity Planning Corporation, which was incorporated under the
laws of the State of Connecticut in 1968, and is registered as a broker-
dealer in fifty states. Phoenix Equity Planning Corporation is an indirect
subsidiary of Phoenix Home Life Mutual Insurance Company. Phoenix Home
Life Mutual Insurance Company has been engaged in the business of writing
ordinary and group life and health insurance and annuities since 1861.
During the fiscal year ended September 30, 1993, and for the period from
April 29, 1992 (date of initial public investment), to September 30, 1992,
PIC earned $286,476 and $49,337, respectively, as its sub-advisory fee for
services it provided on behalf of the Capital Growth Portfolio.

Pacific Investment Management Company ("PIMCO") serves as the interim Sub-
Adviser to the Government Income Portfolio under the terms of a Sub-
Advisory Agreement between the Investment Adviser and PIMCO. Federated
Advisers is a wholly-owned subsidiary of Federated Investors. The terms of
this agreement, including compensation, are identical to those of the
previous sub-advisory agreement between Federated Advisers and the Trust,
except that the agreement will terminate upon the earlier to occur of (1)
120 days from commencement of the agreement or (2) final adjournment of the
meeting of the shareholders of the Government Income Portfolio held for the
purpose of approving a new advisory agreement with PIMCO. It is currently
anticipated that this shareholders meeting will be held during the first

quarter of 1994. PIMCO, established in 1971, provides investment advisory
services to investment companies, pension plans, foundations, endowments
and other institutions located both in the U.S. and abroad. As of November
30, 1993, PIMCO had over $52.6 billion of assets under management, of which
approximately $26.0 billion were invested in U.S. Government securities.
PIMCO, a wholly owned subsidiary of Pacific Mutual Life Insurance Company,
is located at 840 Newport Center Drive, Suite 360, Newport Beach,
California 92660. Prior to PIMCO's serving as the Sub-Adviser to the
Government Income Portfolio, the Sub-Adviser to this Portfolio was
Federated Advisers. During the fiscal year ended September 30, 1993, and
for the period from April 29, 1992 (date of initial public investment), to
September 30, 1992, Federated Advisers earned $442,982 and $72,887,
respectively, as its sub-advisory fee for services it provided on behalf of
the Government Income Portfolio, of which $42,481 and $72,887,
respectively, were voluntarily waived.

Van Kampen Merritt Management Inc. ("VKMMI") serves as the Sub-Adviser to
the Municipal Income Portfolio under the terms of a Sub-Advisory Agreement
between the Investment Adviser and VKMMI. VKMMI is a wholly-owned
subsidiary of The Van Kampen Merritt Companies, Inc., which, in turn, is a
wholly-owned subsidiary of VKM Holding, Inc. VKM Holding, Inc., is
indirectly controlled by Clayton & Dubilier Associates IV Limited
Partnership, the general partners of which are Joseph L. Rice, III, B.
Charles Ames, Alberto Cribiore, Donald J. Gogel, and Hubbard C. Howe, each
of whom is a principal of Clayton, Dubilier & Rice, Inc., a New York-based
private investment firm. During the period from February 17, 1993, to
September 30, 1993, VKMMI earned $132,315 as its sub-advisory fee for
services it provided on behalf of the Municipal Income Portfolio, of which
$130,250 was voluntarily waived. For the period from October 1, 1992, to
February 16, 1993, and from April 29, 1992 (date of initial public
investment), to September 30, 1992, Van Kampen Merritt Investment Advisory
Corp., the Portfolio's former sub-adviser, earned $56,819 and $32,215,
respectively, as its sub-advisory fees for services it provided on behalf
of the Portfolio, all of which were voluntarily waived.

Wellington Management Company ("WMC") serves as the Sub-Adviser to the
Income and Growth Portfolio under the terms of a Sub-Advisory Agreement
between the Investment Adviser and WMC. WMC is a professional investment
counseling firm which provides investment services to investment companies,
employee benefit plans, endowments, foundations, and other institutions and
individuals. During the period from May 24, 1993 (date of initial public
investment), to September 30, 1993, WMC earned $22,521 as it sub-advisory
fee for services it provided on behalf of the Income and Growth Portfolio.

Scudder, Stevens & Clark, Inc. ("Scudder") serves as the Sub-Adviser to the
Global Portfolio under the terms of a Sub-Advisory Agreement between the
Investment Adviser and Scudder. Scudder is an investment counseling firm
which was established as a partnership in 1919. In 1953, Scudder
introduced Scudder International Fund, the first mutual fund registered
with the Commission in the U.S. investing internationally in securities of

issuers in several foreign countries. The Investment Adviser pays the
Sub-Adviser an annual fee expressed as a percentage of Global Portfolio
assets: .55% on the first $75 million in Global Portfolio assets and .50%
on assets over $75 million.

Distribution of Portfolio Shares

Cambridge Distributors, Inc., is the principal distributor of Portfolio
shares, as explained in the prospectus. Federated Securities Corp. is the
co-distributor of Portfolio shares. During the fiscal year ended September
30, 1993, the distributors, both affiliated parties of the Trust, received
the following commissions and other compensation:
<TABLE>
Net Underwriting Compensation on
Discounts and Redemption and Brokerage *Other
Name of Principal Underwriter Commissions Repurchases Commissions Compensation
<S> <C> <C> <C> <C>
Cambridge Distributors, Inc. . . $240,655 $196,488 $ - $1,823,243
Federated Securities Corp. . . . $ - $ - $ - $ -

*
"Other Compensation" represents $1,250,734 for services performed under the
Trust's Distribution Plan and $572,509 for services performed under the
Trust's Shareholder Servicing Plan.
</TABLE>

Administrative Services

Cambridge Administrative Services, which is a subsidiary of Federated
Investors, provides administrative personnel and services to the Portfolios
for the fees set forth in the Prospectus. During the fiscal year ended
September 30, 1993, and for the period from April 29, 1992 (date of initial
public investment), to September 30, 1992, the Portfolios incurred costs
for administrative services as follows:

<TABLE>
1993 1992
Administrative Administrative Administrative Administrative
Portfolio Fee Fee Waiver Fee Fee Waiver
<S> <C> <C> <C> <C>
Growth Portfolio . . . . . . . . $ 55,468 $20,121 $ 9,713 $ 5,051
Capital Growth Portfolio . . . . 104,427 36,269 15,410 8,013
Government Income Portfolio . . . 184,593 41,518 30,370 30,370
Municipal Income Portfolio . . . 97,110 34,261 13,423 13,423
Income and Growth Portfolio* . . 7,514 3,005 - -

*
For the period May 24, 1993 (date of initial public investment), to
September 30, 1993.
</TABLE>

Shareholder Servicing Plan

The Trust has adopted a Shareholder Servicing Plan (the "Service Plan")
with respect to both classes of shares of each Portfolio. Pursuant to the
Service Plan, financial institutions will enter into shareholder service
agreements with the Portfolios to provide administrative support services
to their customers who from time to time may be owners of record or
beneficial owners of shares of one or more Portfolios. In return for
providing these support services, a financial institution may receive
payments from one or more Portfolios at a rate not exceeding .25% of the
average daily net assets of the Class A or Class B shares of the particular
Portfolio or Portfolios beneficially owned by the financial institution's
customers for whom it is holder of record or with whom it has a servicing
relationship. The Service Plan is designed to stimulate financial
institutions to render administrative support services to the Portfolios
and their shareholders. These administrative support services 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 Portfolios;
assisting clients in changing dividend options, account designations and
addresses; and providing such other services as the Portfolios reasonably
request.

Among the benefits the Board of Trustees expects to achieve in adopting the
Service Plan are the following: (1) an efficient and effective
administrative system; (2) a more efficient use of shareholder assets by
having them rapidly invested in the Portfolios, through an automatic
transfer of funds from a demand deposit account to an investment account,
with a minimum of delay and administrative detail; and (3) an efficient and
reliable shareholder records system and prompt responses to shareholder
requests and inquiries concerning their accounts.

In addition to receiving payments under the Service Plan, financial
institutions may be compensated by the Investment Adviser, a Sub-Adviser,
and/or the administrator, or affiliates thereof, for providing
administrative support services to holders of Class A or Class B shares of
the Portfolios. These payments will be made directly by the Investment
Adviser, a Sub-Adviser, and/or the administrator and will not be made from
the assets of any of the Portfolios.

During the fiscal year ended September 30, 1993, and for the period from
April 29, 1992 (date of initial public investment), to September 30, 1992,
the Portfolios incurred shareholder service fees under the Service Plan
(all of which was received by the Distributor) as follows:

Portfolio 1993 1992
Growth Portfolio . . . . . . . . . . . . . . . . $98,981 $19,407
Capital Growth Portfolio . . . . . . . . . . . . 178,345 30,836
Government Income Portfolio . . . . . . . . . . 369,151 60,739
Municipal Income Portfolio . . . . . . . . . . . 157,611 26,846
Income and Growth Portfolio* . . . . . . . . . . 15,027 -

*
For the period May 24, 1993 (date of initial public investment), to
September 30, 1993.

Brokerage Transactions

When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, a Sub-Adviser looks for prompt execution of the
order at the best overall terms available. In working with dealers, a Sub-
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. A Sub-Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to
guidelines established by the Board of Trustees.

A Sub-Adviser may select brokers and dealers who offer brokerage and
research services. These services may be furnished directly to the
Portfolios or to a Sub-Adviser and may include:

(bullet) advice as to the advisability of investing in securities;

(bullet) security analysis and reports;

(bullet) economic studies;

(bullet) receipt of quotations for portfolio evaluations; and

(bullet) similar services.

A Sub-Adviser and its affiliates exercise reasonable 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 a Sub-Adviser in
advising a Portfolio and other accounts. To the extent that receipt of
these services may supplant services for which a Sub-Adviser or its

affiliates might otherwise have been paid, it would tend to reduce their
expenses, but it is not expected that such reduction will be material.

During the fiscal year ended September 30, 1993, and for the period from
April 29, 1992 (date of initial public investment), to September 30, 1992,
the Portfolios paid brokerage commissions on brokerage transactions as
follows:

Portfolio 1993 1992
Growth Portfolio . . . . . . . . . . . . . . . . $173,167 $ 40,337
Capital Growth Portfolio . . . . . . . . . . . . 334,227 75,352
Government Income Portfolio . . . . . . . . . . - -
Municipal Income Portfolio . . . . . . . . . . . - -
Income and Growth Portfolio* . . . . . . . . . . 25,668 -

*
For the period May 24, 1993 (date of initial public investment), to
September 30, 1993.

Wheat First Butcher & Singer Capital Markets ("Wheat First"), an affiliated
party of the Investment Adviser, received for the fiscal year ended
September 30, 1993, and for the period from April 29, 1992 (date of initial
public investment), to September 30, 1992, brokerage commissions of
$120,726 and $42,656, respectively, for services performed on behalf of
certain of the Portfolios, as follows:

1993 1992
Growth Portfolio . . . . . . . . . . . . . . . . $ 3,297 $ -
Capital Growth Portfolio . . . . . . . . . . . . 113,126 42,656
Income and Growth Portfolio* . . . . . . . . . . 4,303 -

*
For the period May 24, 1993 (date of initial public investment), to
September 30, 1993.

During the fiscal year ended September 30, 1993, with respect to the Growth
Portfolio, the brokerage commissions received by Wheat First represented
1.90% of the aggregate brokerage commissions paid by the Portfolio and
represented 2.12% of the Portfolio's transactions effected through brokers.
Also during the same period, the brokerage commissions received by Wheat
First on behalf of the Capital Growth Portfolio represented 32.86% of the
aggregate brokerage commissions paid by the Portfolio and represented
38.45% of the Portfolio's transactions effected through brokers. With
respect to the Income and Growth Portfolio, during the period May 24, 1993
(date of initial public investment), to September 30, 1993, the brokerage
commissions received by Wheat First represented 16.76% of the aggregate
brokerage commissions paid by the Portfolio and represented 10.64% of the
Portfolio's transactions effected through brokers.

The Portfolios' brokerage Transactions with affiliated broker-dealers will
comply with Rule 17e-1 under the 1940 Act.

How to Buy Shares

Except under certain circumstances described in the Prospectus, Class A
shares of the Portfolios are sold at their net asset value plus an
applicable sales charge on days the New York Stock Exchange is open for
business. Class B shares of the Portfolios are sold at their net asset
value with no sales charge on days the New York Stock Exchange is open for
business. The procedure for purchasing Class A and Class B shares of the
Portfolios is explained in the Prospectus under the section entitled "How
to Buy Shares."

Dealers will be compensated on purchases of Class A shares in accordance to
the following schedule:

Amount of Purchase Dealer Commission
Less than $2 million . 1.00%
$2 million but less than $3 million .80%
$3 million but less than $50 million .50%
$50 million but less than $100 million .25%
$100 million or more . .15%

The above commission will be paid by the Distributor and not the Trust or
its shareholders.

Distribution Plan (Class B Shares)

With respect to the Class B shares of the Portfolios, the Trust has adopted
a Plan pursuant to Rule 12b-1, which was promulgated by the SEC under the
Investment Company Act of 1940 (the "Plan"). The Plan provides for payment
of fees to the Distributor to finance any activity which is principally
intended to result in the sale of Class B shares of the Portfolios. Such
activities may include the advertising and marketing of Class B shares;
preparing, printing and distributing prospectuses and sales literature to
prospective shareholders, brokers or administrators; and implementing and
operating the Plan. Pursuant to the Plan, the Distributor may pay fees to
brokers for distribution services as to Class B shares.

The Board of Trustees expects that the adoption of the Plan will result in
the sale of a sufficient number of Class B shares of the Portfolios so as
to allow each Portfolio to achieve economic viability. It is also
anticipated that an increase in the size of each Portfolio will facilitate
more efficient portfolio management and assist each Portfolio in seeking to
achieve its investment objective.

Pursuant to the Plan, during the fiscal year ended September 30, 1993, and
for the period from April 29, 1992 (date of initial public investment), to
September 30, 1992, financial institutions (such as a broker/dealer or
bank) received fees for services provided on behalf of Class B shares of
the Portfolios as follows, all of which was received by the Distributor:

Portfolio 1993 1992
Growth Portfolio . . . . . . . . . . . . . . . . $178,568 $28,703
Capital Growth Portfolio . . . . . . . . . . . . 326,101 48,323
Government Income Portfolio . . . . . . . . . . 512,241 73,217
Municipal Income Portfolio . . . . . . . . . . . 193,150 27,412
Income and Growth Portfolio* . . . . . . . . . . 26,967 -

* For the period May 24, 1993 (date of initial public investment), to
September 30, 1993.

Conversion to Federal Funds

The Shareholder Services Group, Inc., acts as the shareholder's agent in
depositing checks and converting them to federal funds.

Purchases at Net Asset Value

Class A shares of the Portfolios may be purchased at net asset value,
without a sales charge, by the following: advisory accounts through
registered investment advisers; bank trust departments purchasing on behalf
of their clients; Trustees, emeritus trustees, employees and retired
employees of the Trust; or directors, emeritus directors, employees and
retired employees of the Distributor, or affiliates thereof, or any
financial institution who has a sales agreement with the Distributor with
regard to the Trust. Spouses and children under age 21 of the foregoing
persons may also buy Class A shares of the Portfolios at net asset value
with no sales charge.

Determining Net Asset Value

Net asset value generally changes each day. The days on which net asset
value is calculated by each Portfolio are described in the Prospectus. Net
asset value will not be calculated on days on which the New York Stock
Exchange is closed.

Determining Market Value of Securities

Market values of each Portfolio's portfolio securities are determined as
follows:

(bullet) according to the last sale price on a national securities exchange,
if available;

(bullet) in the absence of recorded sales for equity securities, according to
the mean between the last closing bid and asked prices, and for bonds
and other fixed income securities as determined by an independent
pricing service; or

(bullet) for short-term obligations, according to the prices as furnished
by an independent pricing service or for short-term obligations with
maturities of less than 60 days, at amortized cost, or at fair value
as determined in good faith by the Board of Trustees.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider yield, quality,
coupon rate, maturity, type of issue, trading characteristics, and other
market data.

Over-the-counter put options will be valued at the mean between the bid and
the asked prices. Covered call options will be valued at the last sale
price on the national exchange on which such option is traded. Unlisted
call options will be valued at the latest bid price as provided by brokers.

Following the calculation of security values in terms of currency in which
the market quotation used is expressed ("local currency"), the valuing
agent shall calculate these values in terms of U.S. dollars on the basis of
the conversion of the local currencies (if other than U.S.) into U.S.
dollars at the rates of exchange prevailing at the value time as determined
by the valuing agent.

Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of
business on each business day in New York (i.e., a day on which the
Exchange is open). In addition, European or Far Eastern securities trading
generally or in a particular country or countries may not take place on all
business days in New York. Furthermore, trading takes place in Japanese
markets on certain Saturdays and in various foreign markets on days which
are not business days in New York and on which the Global Portfolio's net
asset value is not calculated. The Global Portfolio calculates net asset
value per share, and therefore effects sales, redemptions and repurchases
of its shares, as of the close of the Exchange once on each day on which
the Exchange is open. Such calculation does not take place
contemporaneously with the determination of the prices of the majority of
the portfolio securities used in such calculation. If events materially
affecting the value of such securities occur between the time when their
price is determined and the time when the Global Portfolio's net asset
value is calculated, such securities will be valued at fair value as
determined in good faith by the Board of Trustees.

Exchange Privilege

The SEC has issued an order exempting the Trust from certain provisions of

the Investment Company Act of 1940. As a result, shareholders of the
Portfolios are allowed to exchange all or some of their Class A or Class B
shares with no sales charge or contingent deferred sales charge ("CDSC"),
as described in the Prospectus. For a complete description of the exchange
privilege, see the section in the Prospectus entitled "Exchange Privilege."

Redeeming Shares

The Portfolios redeem shares at the next computed net asset value, less the
applicable CDSC, after the particular Portfolio receives the redemption
request. Redemption procedures are explained in the Prospectus under the
section entitled "Redeeming Shares." Although The Shareholder Services
Group, Inc., does not charge for telephone redemptions, it reserves the
right to charge a fee for the cost of wire-transferred redemptions.

Contingent Deferred Sales Charge

During certain periods, Class A shares of the Portfolios were eligible to
be purchased at net asset value (without a sales charge) with the proceeds
from the redemption, sale, or maturity of other investments and may,
therefore, be subject to a CDSC as explained in the prospectus. The
eligible period for the Income and Growth Portfolio was prior to July 31,
1993. For the Growth Portfolio, Capital Growth Portfolio, Government
Income Portfolio, and Municipal Income Portfolio, these eligible periods
were (1) prior to June 30, 1992, and (2) from December 1, 1992, through and
including January 31, 1993.

Redemptions in Kind

Although the Trust intends to redeem Class A and Class B 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 the respective
Portfolio's investment portfolio. To the extent available, such securities
will be readily marketable.

Redemption in kind will be made in conformity with applicable SEC rules,
taking such securities at the same value employed in determining net asset
value and selecting the securities in a manner that the 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, with respect to each Portfolio, the Trust
is obligated to redeem Class A or Class B shares for any one shareholder in
cash only up to the lesser of $250,000 or 1% of the respective class's net
asset value during any 90-day period.

Tax Status

The Portfolios' Tax Status

The Portfolios expect to pay no federal income tax because they expect to
meet the requirements of Subchapter M of the Internal Revenue Code, as
amended, applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies. To qualify for this
treatment, each Portfolio must, among other requirements:

(bullet) derive at least 90% of its gross income from dividends, interest and
gains from the sale of securities;

(bullet) derive less than 30% of its gross income from the sale of securities
held less than three months;

(bullet) invest in securities within certain statutory limits; and

(bullet) distribute to its shareholders at least 90% of its net income earned
during the year.

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

The Global Portfolio intends to qualify for and may make the election
permitted under Section 853 of the Internal Revenue Code so that
shareholders may (subject to limitations) be able to claim a credit or
deduction on their federal income tax returns for, and may be required to
treat as part of the amounts distributed to them, their pro rata portion of
qualified taxes paid by the Portfolio to foreign countries (which taxes
relate primarily to investment income). The Global Portfolio may make an
election under Section 853 of the Internal Revenue Code, provided that more
than 50% of the value of the total assets of the Global Portfolio at the
close of the taxable year consists of securities in foreign corporations.
The foreign tax credit available to shareholders is subject to certain
limitations imposed by the Internal Revenue Code.

If the Global Portfolio invests in stock of certain foreign investment
companies, the Global Portfolio may be subject to U.S. federal income
taxation on a portion of any "excess distribution" with respect to, or gain
from the disposition of, such stock. The tax would be determined by
allocating such distribution or gain ratably to each day of the Global
Portfolio's holding period for the stock. The distribution or gain so

allocated to any taxable year of the Global Portfolio, other than the
taxable year of the excess distribution or disposition, would be taxed to
the Global Portfolio at the highest ordinary income rate in effect for such
year, and the tax would be further increased by an interest charge to
reflect the value of the tax deferral deemed to have resulted from the
ownership of the foreign company's stock. Any amount of distribution or
gain allocated to the taxable year of the distribution or disposition would
be included in the Global Portfolio's investment company taxable income
and, accordingly, would not be taxable to the Global Portfolio to the
extent distributed by the Global Portfolio as a dividend to its
shareholders.

Proposed regulations have been issued which may allow the Global Portfolio
to make an election to mark to market its shares of these foreign
investment companies in lieu of being subject to U.S. federal income
taxation. At the end of each taxable year to which the election applies,
the Global Portfolio would report as ordinary income the amount by which
the fair market value of the foreign company's stock exceed the Global
Portfolio's adjusted basis in these shares. No mark to market losses would
be recognized. The effect of the election would be to treat excess
distributions and gain on dispositions as ordinary income which is not
subject to a fund level tax when distributed to shareholders as a dividend.
Alternatively, the Global Portfolio may elect to include as income and gain
their share of the ordinary earnings and net capital gain of certain
foreign investment companies in lieu of being taxed in the manner described
above.

Many futures contracts (including foreign currency futures contracts)
entered into by the Global Portfolio, certain forward foreign currency
contracts, and all listed nonequity options written or purchased by the
Global Portfolio (including options on debt securities, options on futures
contracts, options on securities indices and options on broad-based stock
indices) will be governed by Section 1256 of the Internal Revenue Code.
Absent a tax election to the contrary, gain or loss attributable to the
lapse, exercise or closing out of any such position generally will be
treated as 60% long-term and 40% short-term capital gain or loss, and on
the last trading day of the Global Portfolio's fiscal year, all outstanding
Section 1256 positions will be marked to market (i.e., treated as if such
positions were closed out at their closing price on such day), with any
resulting gain or loss recognized. Under certain circumstances, entry into
a futures contract to sell a security may constitute a short sale for
federal income tax purposes, causing an adjustment in the holding period of
the underlying security or a substantially identical security in the Global
Portfolio. Under Section 988 of the Internal Revenue Code, discussed
below, foreign currency gains or loss from foreign currency related forward
contracts, certain futures and similar financial instruments entered into
or acquired by a Global Portfolio will be treated as ordinary income or
loss.

Under the Internal Revenue Code, gains or losses attributable to

fluctuations in exchange rates which occur between the time the Global
Portfolio accrues receivables or liabilities denominated in a foreign
currency and the time the Global Portfolio actually collects such
receivables, or pays such liabilities, generally are treated as ordinary
income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain futures and
forward contracts, gains or losses attributable to fluctuations in the
value of foreign currency between the date of acquisition of the security
or contract and the date of disposition are also treated as ordinary gain
or loss. These gains or losses, referred to under the Internal Revenue
Code as "Section 988" gains or losses, may increase or decrease the amount
of the Global Portfolio's investment company taxable income to be
distributed to its shareholders as ordinary income.

A portion of the difference between the issue price of zero coupon
securities and their face value ("original issue discount") is considered
to be income to a Portfolio each year, even though the Portfolio will not
receive cash interest payments from these securities. This original issue
discount imputed income will comprise a part of the investment company
taxable income of the Portfolios which must be distributed to shareholders
in order to maintain the qualification of the Portfolios as regulated
investment companies and to avoid federal income tax at the level of the
Portfolios.

Shareholders' Tax Status

Except as described below for the Municipal Income Portfolio, unless
otherwise exempt, shareholders are subject to federal income tax on
dividends and capital gains received as cash or additional shares. With
respect to the Government Income and Municipal Income Portfolios, no
portion of any income dividend paid by a Portfolio is expected to be
eligible for the dividends received deduction available to corporations.
With respect to the Growth, Capital Growth, Income and Growth and Global
Portfolios, the dividends received deduction for corporations will apply to
ordinary income distributions to the extent the distribution represents
amounts that would qualify for the dividends received deduction to a
particular Portfolio if that Portfolio were a regular corporation and to
the extent designated by a Portfolio as so qualifying. These dividends and
any short-term capital gains are taxable as ordinary income.

Capital Gains

Shareholders will pay federal tax on long-term capital gains distributed to
them regardless of how long they have held the shares of the particular
Portfolio.

Shareholders of the Municipal Income Portfolio are not required to pay the
federal regular income tax on any dividends received from the Portfolio
that represent net interest on tax-exempt municipal bonds. However, under
the Tax Reform Act of 1986, dividends representing net interest earned on
some municipal bonds may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for
corporations.

For a more complete discussion of shareholders' tax status, including a
discussion of the individual alternative minimum tax and the corporate
alternative minimum tax, see the section of the prospectus entitled "Tax
Information."

Total Return

The average annual total return for both classes of shares of the following
Portfolios for the fiscal year ended September 30, 1993, were as follows:

Since Inception*
Portfolio Class A Class B Class A Class B
Growth Portfolio . . . . . 11.75% 16.34% 7.90% 11.71%
Capital Growth Portfolio . 2.24% 6.54% 2.13% 5.71%
Government Income Portfolio 0.38% 3.81% 2.68% 5.76%
Municipal Income Portfolio 10.52% 14.19% 11.33% 14.64%

*
For the period from April 29, 1992 (date of initial public investment), to
September 30, 1993.

The average annual total return for a Portfolio 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 maximum offering price 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, less any applicable sales load, adjusted over the period by any
additional shares, assuming the monthly, quarterly, or semi-annual (as
applicable) reinvestment of all dividends and distributions. Any
applicable CDSC is deducted from the ending value of the investment based
on the lesser of the original purchase price or the net asset value of
shares redeemed.

The cumulative total return for Class A and Class B shares of the Income
and Growth Portfolio for the period from May 24, 1993 (date of initial
public investment), to September 30, 1993, were -0.33% and 4.55%,
respectively.

Cumulative total return reflects a Portfolio's total performance over a
specific period of time. This total return assumes and is reduced by the
payment of the maximum sales load and CDSC. The Portfolio's total return
is representative of only four months of activity since the Portfolio's
effective date.

Yield

The thirty-day yield for both classes of shares of the Portfolios for the
period ending September 30, 1993, were as follows:

Portfolio Class A Class B
Growth Portfolio . . . . . -0.69% -1.48%
Capital Growth Portfolio . 0.42% -0.30%
Government Income Portfolio 2.66% 2.29%
Municipal Income Portfolio 5.14% 4.90%
Income and Growth Portfolio* 1.66% 1.00%

*
For the period May 24, 1993 (date of initial public investment), to
September 30, 1993.

The yield for both classes of each Portfolio is determined by dividing the
net investment income per share (as defined by the SEC) earned by the
particular Portfolio over a thirty-day period by the maximum offering price
per share of the particular Portfolio on the last day of the period. This
value is then annualized using semi-annual compounding. This means that
the amount of income generated during the thirty-day period is assumed to
be generated each month over a twelve-month period and is reinvested every
six months. The yield does not necessarily reflect income actually earned
by the particular Portfolio because of certain adjustments required by the
SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.

To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in a
Portfolio, the performance will be reduced for those shareholders paying
those fees.

Tax-Equivalent Yield (Municipal Income Portfolio)

The tax-equivalent yield for Class A shares of the Municipal Income
Portfolio for the thirty-day period ended September 30, 1993, was 8.51%.
The tax-equivalent yield for the Class B shares was 8.11% for the same
period.

The tax-equivalent yield for both classes of the Municipal Income Portfolio
is calculated similarly to the yield, but is adjusted to reflect the

taxable yield that the Portfolio would have had to earn to equal its actual
yield, assuming a 39.6% tax rate (the maximum effective federal rate for
individuals) and assuming that income is 100% tax-exempt.

Tax-Equivalency Table

The Portfolio may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal bonds in the Portfolio's
investment portfolio generally remains free from federal regular income
tax* but may be subject to state and local taxes. Capital gains, if any,
are subject to federal, state and local tax. As the table below indicates,
a "tax-fee" investment is an attractive choice for investors, particularly
in times of narrow spreads between tax-free and taxable yields.

<TABLE>
Taxable Yield Equivalent for 1993
Federal Income Tax Bracket:
15.00% 28.00% 31.00% 36.00% 39.60%
<S> <C> <C> <C> <C> <C>
Joint Return: $1-36,900 $36,901-89,150 $89,151-140,000 $140,001-250,000 Over $250,000
Single Return: $1-22,100 $22,101-53,500 $53,501-115,000 $115,001-250,000 Over $250,000
</TABLE>

Tax-Exempt
Yield Taxable Yield Equivalent

2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00 3.53 4.17 4.35 4.69 4.97
3.50 4.12 4.86 5.07 5.47 5.79
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
8.50 10.00 11.81 12.32 13.28 14.07

Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent.

The table above is for illustrative purposes only. It is not an indicator
of past or future performance of the Portfolio.

*
Some portion of the Portfolio's income maybe subject to the federal

alternative minimum tax and state and local taxes.

Performance Comparisons

The performance of Class A and Class B shares of each Portfolio depends
upon such variables as:

(bullet) portfolio quality;

(bullet) average portfolio maturity;

(bullet) type of instruments in which the particular Portfolio is invested;

(bullet) changes in the expenses of the Trust or Class A or Class B shares
of a particular Portfolio; and

(bullet) various other factors.

The performance of each Portfolio's Class A and Class B shares fluctuates
on a daily basis largely because net earnings and net asset value per share
fluctuate daily. Both net earnings and net asset value per share are
factors in the computation of yield and total return for each class of the
Portfolios.

From time to time each Portfolio may advertise its performance of both
classes of shares of the Portfolios compared to similar funds or portfolios
using certain indices, reporting services, and financial publications.
These may include the following:

(bullet) Lipper 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 specified period of time.
From time to time, a Portfolio will quote its Lipper
ranking in advertising and sales literature.

(bullet) Dow Jones Industrial Average ("DJIA") is an unmanaged index
representing share prices of major industrial corporations,
public utilities, and transportation companies. Produced by
the Dow Jones & Company, it is cited as a principal indicator of
market conditions.

(bullet) Standard & 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, can be used to compare
to the total returns of funds whose portfolios are invested
primarily in common stocks. In addition, the Standard & Poor's
index assumes reinvestments of all dividends paid by stocks
listed on its index. Taxes due on any of these distributions are
not included, nor are brokerage or other fees calculated,
in the Standard & Poor's figures.

(bullet) Consumer Price Index is generally considered to be a measure of
inflation.

(bullet) CDA Mutual Fund Growth Index is a weighted performance average
of other mutual funds with growth of capital objectives.

(bullet) Lipper Growth Fund Index is an average of the net asset-valuated
total returns for the top 30 growth funds tracked by Lipper Analytical
Services, Inc., an independent mutual fund rating service.

Shearson Lehman Government/Corporate (Total) Index is comprised
of approximately 5,000 issues, which include non-convertible bonds
publicly issued by the U.S. government or its agencies; corporate bonds
guaranteed by the U.S. government and quasi-federal corporations; and
publicly issued, fixed-rate, non-convertible domestic bonds of
companies in industry, public utilities and finance. The average
maturity of these bonds approximates nine years. Tracked by Shearson
Lehman Brothers Inc., the index calculates total returns for one
month, three month, twelve month and ten year periods and year-to-date.

(bullet) Shearson Lehman Government 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 a minimum maturity of one year are included.

(bullet) Morningstar, 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.

(bullet) Russell Growth 1000 (Russell 1000 Index) is a broadly diversified
index consisting of approximately 1,000 common stocks of companies
with market

values between $20 million and $300 million that can be used to compare the
total returns of funds whose portfolios are invested primarily in growth
common stocks.

(bullet) Shearson Lehman Aggregate Bond Index is a total return index measuring
both the capital price changes and income provided by the underlying
universe of securities, weighted by market value outstanding. The
Aggregate Bond Index is comprised of the Shearson Lehman Government
Bond Index, Corporate Bond Index, Mortgage-Backed Securities Index,
and Yankee Bond Index. These indices include: U.S. Treasury
obligations, including bonds and notes; U.S. agency obligations,
including those of the Federal Farm Credit Bank, Federal Land Bank,
and the Bank for Cooperatives; foreign obligations; and
U.S. investment-grade corporate debt and mortgage-backed obligations.
All corporate debt included in the Aggregate Bond Index has a
minimum S&P rating of BBB, a minimum Moody's rating of Baa, or a
minimum Fitch rating of BBB.

(bullet) Salomon Brothers Mortgage-Backed Securities Index-15 Years includes
the average of all 15-year mortgage securities, which include Federal
Home Loan Mortgage Corporation (Freddie Mac), Federal National
Mortgage Association (Fannie Mae), and Government National Mortgage
Association (Ginnie Mae).

(bullet) Shearson Lehman Municipal Bond Index is a total return
performance benchmark for the long-term, investment-grade
tax-exempt bond market. Returns and attributes for the
Index are calculated semi-monthly using approximately 21,000
municipal bonds, which are priced by Muller Data Corporation.

From time to time, the Global Portfolio may advertise its performance of
both classes of shares of the Portfolio compared to similar funds or
portfolios using certain indices, reporting services, and financial
publications. These may include the following: Morgan Stanley Capital
International World Index, The Morgan Stanley Capital International EAFE
(Europe, Australia, Far East) index, J. P. Morgan Global Traded Bond Index,
Salomon Brothers World Government Bond Index, and the Standard & Poor's 500
Composite Stock Price Index (S&P 500). The Global Portfolio also may
compare its performance to the performance of unmanaged stock and bond
indices, including the total returns of foreign government bond markets in
various countries. All index returns are translated into U.S. dollars.
The total return calculation for these unmanaged indices may assume the
reinvestment of dividends and any distributions, if applicable, may include
withholding taxes, and generally do not reflect deductions for
administrative and management costs.

Investors may use such indices or reporting services in addition to the
Trust's Prospectus to obtain a more complete view of a particular
Portfolio's performance before investing. Of course, when comparing a

Portfolio's performance to any index, conditions such as composition of the
index and prevailing market conditions should be considered in assessing
the significance of such comparisons. When comparing funds using reporting
services, or total return and yield, investors should take into
consideration any relevant differences in funds, such as permitted
portfolio compositions and methods used to value portfolio securities and
compute net asset value.

Advertisements and other sales literature for the Trust 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
the Trust based on monthly reinvestment of dividends over a specified
period of time.

From time to time the Portfolios may advertise their performance, using
charts, graphs, and descriptions, compared to federally insured bank
products, including certificates of deposit and time deposits, and to money
market funds using the Lipper Analytical Service money market instruments
average.

Advertisements may quote performance information which does not reflect the
effect of the sales load.

Financial Statements

The financial statements for the fiscal year ended September 30, 1993, are
incorporated herein by reference to the combined Annual Report of the Trust
dated September 30, 1993 (File Nos. 33-45315 and 811-6550). You may
request a copy of the combined Annual Report free of charge by writing the
Trust or by calling 1-800-382-0016.

Appendix

Moody's Investors Service, Inc., Long-Term Municipal Debt Ratings

Aaa-bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt 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 sometime 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.

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

Standard and Poor's Corporation Long-Term Municipal Debt Ratings

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 effects 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
exposure to adverse conditions.

Plus (+) or Minus (-): The ratings from "A" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

Moody's Investors Service, Inc., 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 broadbased 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.

Standard and 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.

Fitch Investors Service, Inc., Short-Term Debt Ratings

F-1+-Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1-Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.

F-2-Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment.

Moody's Investors Service, Inc., Commercial Paper Ratings

P-1-Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: conservative capitalization structures with moderate
reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources
of alternate liquidity.

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

Standard and Poor's Corporation Commercial Paper Ratings

A-1-This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
sign designation.

A-2-Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated A-1.