As filed with the Securities and Exchange Commission on February 27, 
1998

Registration Nos. 33-11716
811-5018


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A

REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 

Post-Effective Amendment No. 20 

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 

Amendment No. 20

Concert Investment Series (Formerly Common Sense Trust)
(Exact Name of Registrant as Specified in
Declaration of Trust)
388 Greenwich Street, New York, New York 10013
(Address of Principal Executive Offices)(Zip Code)
(212) 816-6474
(Registrant's Telephone Number, Including Area Code)

CHRISTINA T. SYDOR, ESQ.
Secretary
Concert Investment Series
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)

COPIES TO:

	Legal Counsel	
	PFS Distributors, Inc.	
	3120 Breckinridge Blvd., Bldg. 1200	
	Duluth, Georgia 30199-0001	
	(770) 564-6141	
		

Approximate Date of Proposed Public Offering: Continuous



It is proposed that this filing will become effective:

	immediately upon filing pursuant to paragraph (b)

X	on February 28, 1998 pursuant to paragraph (b) of Rule 485

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

	on (date) pursuant to paragraph (a)(i)

	75 days after filing pursuant to paragraph (a)(ii)

	on (date) pursuant to paragraph (a)(ii) of Rule 485.

If appropriate, check the following box:

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

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



CONCERT INVESTMENT SERIES

EMERGING GROWTH FUND
INTERNATIONAL EQUITY FUND
GROWTH FUND
GROWTH AND INCOME FUND
GOVERNMENT FUND
MUNICIPAL BOND FUND


CROSS REFERENCE SHEET

Form N-1A Item
Part A	Prospectus Caption

 1.	Cover Page	Cover Page
 2.	Synopsis	Prospectus Summary
 3.	Condensed Financial Information	Financial Highlights
 4.	General Description of Registrant	Investment Objectives 
and Management 		Policies; 
Management of the Series;
		Additional 
Information  
 5.	Management of the Fund	Management of the 
Series
 6.	Capital Stock and Other Securities	Redemption of Shares; 
Dividends, 		
	Distributions and Taxes; Additional 		Information
 7.	Purchase of Securities Being Offered	Prospectus 
Summary;Purchase of 			Shares
 8.	Redemption or Repurchase	Redemption of Shares
 9.	Pending Legal Proceedings	Not applicable

	Statement of
Part B	 Additional Information Caption

10.	Cover Page	Cover Page
11.	Table of Contents	Table of Contents
12.	General Information and History	General Information
13.	Investment Objectives and Policies	Goals and Investment 
Policies;
		  Investment 
Restrictions
14.	Management of the Fund	General Information; 
Investment
		  Advisory Agreements
15.	Control Persons and Principal Holders of
	  Securities	Trustees and Officers
16.	Investment Advisory and Other Services	Investment Advisory 
Agreements;
		 Distributor; 
Portfolio Transactions
		 and Brokerage; Other 
Information



	Statement of
Part B	 Additional Information Caption

17.	Brokerage Allocation and Other Practices	Portfolio 
Transactions and Brokerage
18.	Capital Stock and Other Securities	See Prospectus under 
captions
		Redemption of Shares; 
Dividends, 		
	Distributions and Taxes
19.	Purchase, Redemption and Pricing of
	  Securities Being Offered	Determination of Net 
Asset Value;
		  Purchase and 
Redemption of Shares;
20.	Tax Status	Dividends, 
Distributions and Federal
		  Taxes
21.	Underwriters	Distributor
22.	Calculation of Performance Data	Fund Performance
23.	Financial Statements	Financial Statements

Part C

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


<PAGE>
 
   
PROSPECTUS                                            February 28, 1998     
 
--------------------------------------------------------------------------------
   
Concert Investment Series     
3100 Breckinridge Blvd., Bldg 200
Duluth, Georgia 30199-0062
(800) 544-5445
   
 Concert Investment Series (the "Series") (formerly Common Sense Trust) cur-
rently offers six professionally managed investment portfolios (each, a
"Fund").     
   
 Emerging Growth Fund (the "Emerging Growth Fund") seeks capital appreciation
by investing in a portfolio of securities consisting principally of common
stocks of small and medium sized companies considered by Mutual Management
Corp., the Fund's investment manager, to be emerging growth companies.     
   
 International Equity Fund (the "International Equity Fund") seeks total return
on its assets from growth of capital and income. The Fund seeks to achieve its
goal by investing at least 65% of its assets in a diversified portfolio of
equity securities of established non-United States issuers.     
   
 Growth Fund (the "Growth Fund") seeks capital appreciation through investments
in common stocks and options on common stocks. Any income realized on its
investments will be purely incidental to its goal of capital appreciation.     
   
 Growth and Income Fund (the "Growth and Income Fund") seeks reasonable growth
and income through investments in equity securities that provide dividend or
interest income, including common and preferred stocks and securities convert-
ible into common or preferred stocks.     
   
 Government Fund (the "Government Fund") seeks high current return consistent
with preservation of capital by investing in debt securities issued or guaran-
teed by the U.S. Government, its agencies or instrumentalities.     
   
 Municipal Bond Fund (the "Municipal Fund") seeks as high a level of current
interest income exempt from federal income tax as is consistent with the pres-
ervation of capital.     
   
 This Prospectus sets forth concisely certain information about the Series and
each of the Funds that prospective investors will find helpful in making an
investment decision. Investors are encouraged to read this Prospectus carefully
and retain it for future reference.     
   
 Additional information about each of the Funds is contained in a Statement of
Additional Information dated February 28, 1998, as amended or supplemented from
time to time, that is available upon request and without charge by calling or
writing the Series at the telephone number or address set forth above or by
contacting a Registered Representative of PFS Investments Inc. ("PFS Invest-
ments"). The Statement of Additional Information has been filed with the Secu-
rities and Exchange Commission (the "SEC") and is incorporated by reference
into this Prospectus in its entirety.     
 
PFS DISTRIBUTORS, INC.
Distributor
   
MUTUAL MANAGEMENT CORP.     
Investment Manager
 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
 
TABLE OF CONTENTS
 
<TABLE>   
<S>                                            <C>
PROSPECTUS SUMMARY                               3
--------------------------------------------------
FINANCIAL HIGHLIGHTS                             7
--------------------------------------------------
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES   15
--------------------------------------------------
RISK FACTORS AND SPECIAL CONSIDERATIONS         21
--------------------------------------------------
VALUATION OF SHARES                             28
--------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES              28
--------------------------------------------------
PURCHASE OF SHARES                              30
--------------------------------------------------
EXCHANGE PRIVILEGE                              35
--------------------------------------------------
REDEMPTION OF SHARES                            36
--------------------------------------------------
PERFORMANCE                                     37
--------------------------------------------------
MANAGEMENT OF THE SERIES                        37
--------------------------------------------------
DISTRIBUTOR                                     39
--------------------------------------------------
ADDITIONAL INFORMATION                          40
--------------------------------------------------
</TABLE>    
 
--------------------------------------------------------------------------------
   
 No person has been authorized to give any information or to make any represen-
tations in connection with this offering other than those contained in this
Prospectus and, if given or made, such other information and representations
must not be relied upon as having been authorized by the Series or the distrib-
utor. This Prospectus does not constitute an offer by the Series or the dis-
tributor to sell or a solicitation of an offer to buy any of the securities
offered hereby in any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction.     
 
--------------------------------------------------------------------------------
 
2
<PAGE>
 
PROSPECTUS SUMMARY
 
 The following summary is qualified in its entirety by detailed information
appearing elsewhere in this Prospectus and in the Statement of Additional
Information. Cross references in this summary are to headings in the Prospec-
tus. See "Table of Contents."
   
INVESTMENT OBJECTIVES The Series is an open-end, diversified management
investment company that currently offers six professionally managed investment
portfolios. The Emerging Growth Fund seeks capital appreciation; the
International Equity Fund seeks total return on its assets from growth of
capital and income; the Growth Fund seeks capital appreciation; the Growth and
Income Fund seeks reasonable growth and income; the Government Fund seeks high
current return consistent with preservation of capital; and the Municipal Fund
seeks current interest income exempt from federal income tax. There is,
however, no assurance that any Fund will be successful in achieving its goals.
See "Investment Objectives and Management Policies."     
   
ALTERNATIVE PURCHASE ARRANGEMENTS Each Fund offers two classes of shares
("Classes") to investors purchasing through PFS Investments Registered
Representatives designed to provide them with the flexibility of selecting an
investment best suited to their needs--the two classes of shares available are:
Class A shares and Class B shares. As of May 20, 1996, all of the previously
outstanding shares of the Growth Fund, the Growth and Income Fund, the
Government Fund and the Municipal Fund were redesignated as Class 1 shares
without any other changes, and Class A and Class B shares were authorized for
issuance. As of May 20, 1996, Class 1 shares were authorized for issuance for
the Emerging Growth Fund and the International Equity Fund. Each Fund offers
Class 1 shares only to accounts of previously established shareholders or
members of a family unit comprised of a husband, wife and minor children, and
Class 1 shareholders of a Fund exchanging their Class 1 shares for Class 1
shares of another Fund ("Eligible Class 1 Purchasers"). Each class of shares
represents an interest in the same portfolio of investments of a Fund. See
"Purchase of Shares" and "Redemption of Shares."     
   
 Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.00% with respect to the Emerging Growth Fund, Growth
Fund, Growth and Income Fund and International Equity Fund and up to 4.50% with
respect to the Government and Municipal Funds. The initial sales charge may be
reduced or waived for certain purchases. Purchases of Class A shares of
$500,000 or more will be made at net asset value with no initial sales charge,
but will be subject to a contingent deferred sales charge ("CDSC") of 1.00% on
redemptions made within 12 months of purchase. See "Prospectus Summary--Reduced
or No Initial Sales Charge." Class A shares of each Fund are subject to an
annual service fee of 0.25% of the average daily net assets of the Class.     
   
 Class B Shares. Class B shares of the Emerging Growth Fund, Growth Fund,
Growth and Income Fund and International Equity Fund are offered at net asset
value subject to a maximum CDSC of 5.00% of redemption proceeds, declining by
1.00% each year after the date of purchase to zero. Class B shares of the Gov-
ernment and Municipal Funds are offered at net asset value subject to a maximum
CDSC of 4.50% of redemption proceeds, declining by 0.50% the first year after
purchase and 1.00% each year thereafter to zero. The CDSC may be waived for
certain redemptions. Class B shares of the Emerging Growth Fund, Growth Fund,
Growth and Income Fund and International Equity Fund are subject to an annual
service fee of 0.25% and an annual distribution fee of 0.75% of the average
daily net assets of the Class. Class B shares of the Government Fund and Munic-
ipal Fund are subject to an annual service fee of 0.25% and an annual distribu-
tion fee of 0.75% of the average daily net assets of the Class. The Class B
shares' distribution fee may cause that Class to have higher expenses and pay
lower dividends than Class A shares.     
 
 Class B Shares Conversion Feature. Class B shares will convert automatically
to Class A shares, based on relative net asset value, eight years after the
date of the original purchase. Upon conversion, these shares will no longer be
subject to an annual distribution fee. In addition, a certain portion of Class
B shares that have been acquired through the reinvestment of dividends and dis-
tributions ("Class B Dividend Shares") will be converted at that time. See
"Purchase of Shares--Deferred Sales Charge Alternatives."
   
 Class B Shares of a Fund purchased prior to December 31, 1997 and subsequently
redeemed will remain subject to the CDSC at the rates applicable at the time of
purchase.     
   
 Class 1 Shares. Class 1 shares are offered to Eligible Class 1 Purchasers.
Class 1 shares of the Emerging Growth Fund, the International Equity Fund, the
Growth Fund and the Growth and Income Fund are offered at a sales charge of
8.50% of offering price; Class 1 shares of the Government Fund are offered at a
sales charge of 6.75% of offering price; and Class 1 shares of the Municipal
Fund are offered at a sales charge of 4.75% of offering price. The sales charge
is reduced on investments of $10,000 or more for the Emerging Growth Fund, the
International Equity Fund, the Growth Fund and the Growth and Income Fund,
$25,000 or more for the Government Fund, and $100,000 or more for the Municipal
Fund. See "Purchase of Shares--Class 1 Shares."     
   
 In deciding which Class of Fund shares to purchase, investors should consider
the following factors, as well as any other relevant facts and circumstances:
    
 Intended Holding Period. The decision as to which Class of shares is more ben-
eficial to an investor depends on the amount and intended duration of his or
her investment. Shareholders who are planning to establish a program of regular
investment may wish to
 
                                                                               3
<PAGE>
 
PROSPECTUS SUMMARY (CONTINUED)
   
consider Class A shares; as the investment accumulates shareholders may qualify
for reduced sales charges and the shares are subject to lower ongoing expenses
over the term of the investment. As an alternative, Class B shares are sold
without any initial sales charge so the entire purchase price is immediately
invested in a Fund. Any investment return on these additional invested amounts
may partially or wholly offset the higher annual expenses of this Class.
Because a Fund's future return cannot be predicted, however, there can be no
assurance that this would be the case.     
   
 Reduced or No Initial Sales Charge. The initial sales charge on Class A shares
may be waived for certain eligible purchasers, and the entire purchase price
will be immediately invested in a Fund. In addition, Class A share purchases of
$500,000 or more will be made at net asset value with no initial sales charge,
but will be subject to a CDSC of 1.00% on redemptions made within 12 months of
purchase. The $500,000 investment may be met by adding the purchase to the net
asset value of all Class A shares offered with a sales charge held in funds
sponsored by Smith Barney Inc. ("Smith Barney") listed under "Exchange Privi-
lege." Class A share purchases also may be eligible for a reduced initial sales
charge. See "Purchase of Shares." Because the ongoing expenses of Class A
shares may be lower than those for Class B shares, purchasers eligible to pur-
chase Class A shares at net asset value or at a reduced sales charge should
consider doing so.     
 
 PFS Investments Registered Representatives may receive different compensation
for selling different Classes of shares. Investors should understand that the
purpose of the CDSC on the Class B shares is the same as that of the initial
sales charge on the Class A shares.
   
 See "Purchase of Shares" and "Management of the Series" for a complete
description of the sales charges and service and distribution fees for each
Class of shares and "Valuation of Shares," "Dividends, Distribution and Taxes"
and "Exchange Privilege" for other differences between the Classes of shares.
       
PURCHASE OF SHARES Shares may be purchased through PFS Distributors, Inc.
("PFS"), the distributor of the Series' shares. See "Purchase of Shares."     
 
INVESTMENT MINIMUMS Investors in Class A and Class B shares may open an account
by making an initial investment of at least $1,000 for each account (except for
Systematic Investment Plan accounts), or $250 for an individual retirement
account ("IRA") or a Self-Employed Retirement Plan. Subsequent investments of
at least $50 may be made for each Class. For participants in retirement plans
qualified under Section 403(b)(7) or Section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), the minimum initial investment
requirement for Class A and Class B shares and the subsequent investment
requirement for each Class is $25. The minimum initial investment requirement
for Class A and Class B shares and the subsequent investment requirement for
all Classes through the Systematic Investment Plan described below is $25. See
"Purchase of Shares."
   
SYSTEMATIC INVESTMENT PLAN Each Fund offers shareholders a Systematic
Investment Plan under which they may authorize the automatic placement of a
purchase order each month for Fund shares in an amount of at least $25. See
"Purchase of Shares."     
 
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. See "Purchase of Shares" and
"Redemption of Shares."
   
MANAGEMENT OF EACH FUND Mutual Management Corp. ("MMC"), formerly known as
Smith Barney Mutual Funds Management Inc. serves as each Fund's investment
manager. MMC is a wholly owned subsidiary of Salomon Smith Barney Holdings Inc.
("Holdings"). Holdings is a wholly owned subsidiary of Travelers Group Inc.
("Travelers"), a diversified financial services holding company engaged,
through its subsidiaries, principally in four business segments: Investment
Services, including Asset Management, Consumer Finance Services, Life Insurance
Services and Property & Casualty Insurance Services.     
          
EXCHANGE PRIVILEGE Shares of each Class may be exchanged for shares of the same
Class of certain other Smith Barney Mutual Funds at the respective net asset
values next determined. See "Exchange Privilege."     
   
VALUATION OF SHARES Net asset value of each Fund for the prior day generally
will be quoted daily in the financial section of most newspapers and is also
available from PFS Shareholder Services (the "Sub-Transfer Agent"). See
"Valuation of Shares."     
   
DIVIDENDS AND DISTRIBUTIONS The Series intends to pay dividends from net
investment income monthly on shares of the Government Fund and Municipal Fund,
quarterly on shares of the Growth and Income Fund and annually on shares of the
Emerging Growth Fund, Growth Fund and International Equity Fund. Distributions
of net realized capital gains, if any, are paid annually for each Fund. See
"Dividends, Distributions and Taxes."     
 
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of each
Class will be reinvested automatically, unless otherwise specified by an
investor, in additional shares of the same Class at current net asset value.
Shares acquired by dividend and
 
4
<PAGE>
 
PROSPECTUS SUMMARY (CONTINUED)
 
distribution reinvestments will not be subject to any sales charge or CDSC.
Class B shares acquired through dividend and distribution reinvestments will
become eligible for conversion to Class A shares on a pro rata basis. See
"Dividends, Distributions and Taxes."
   
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the
investment objective of any Fund will be achieved. The value of the Funds'
investments, and thus the net asset value of Funds' shares, will fluctuate in
response to changes in market and economic conditions, as well as the
financial condition and prospects of issuers in which the Funds invest. For a
description of the risks involved in an investment in the Funds, see
"Investment Objectives and Management Policies."     
   
EACH FUND'S EXPENSES The following expense tables list the costs and expenses
an investor will incur as a shareholder of each Fund, based on the maximum
sales charge or maximum CDSC that may be incurred at the time of purchase or
redemption, each Fund's operating expenses for its most recent fiscal year:
    
<TABLE>   
<CAPTION>
                                                                                     APPLICABLE TO
                                                                               THE EMERGING GROWTH FUND,
                                                                                    THE GROWTH FUND,
                                                                                THE INTERNATIONAL EQUITY
                                                                                  FUND AND THE GROWTH
                                                                                    AND INCOME FUND
                                                                               --------------------------
                                                                                CLASS 1   CLASS A CLASS B
---------------------------------------------------------------------------------------------------------
   <S>                       <C>     <C>     <C>     <C>     <C>     <C>       <C>        <C>     <C>
   SHAREHOLDER TRANSACTION EXPENSES
   MAXIMUM SALES CHARGE IMPOSED ON PURCHASES
   (AS A PERCENTAGE OF OFFERING PRICE)........................................    8.50%    5.00%   None
   MAXIMUM CDSC (AS A PERCENTAGE OF ORIGINAL COST OR REDEMPTION PROCEEDS,
   WHICHEVER IS LOWER)........................................................    None     None*   5.00%
---------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                           APPLICABLE TO
                                                                                           THE MUNICIPAL
                                                                                             FUND AND
                                                                                          THE GOVERNMENT
                                                                     MUNICIPAL GOVERNMENT      FUND
                                                                       FUND       FUND    ---------------
                                                                      CLASS 1   CLASS 1   CLASS A CLASS B
---------------------------------------------------------------------------------------------------------
   <S>                       <C>     <C>     <C>     <C>     <C>     <C>       <C>        <C>     <C>
   SHAREHOLDER TRANSACTION EXPENSES
   MAXIMUM SALES CHARGE IMPOSED ON PURCHASES
   (AS A PERCENTAGE OF OFFERING PRICE)                                 4.75%      6.75%    4.50%   None
   MAXIMUM CDSC (AS A PERCENTAGE OF ORIGINAL COST OR REDEMPTION
   PROCEEDS, WHICHEVER IS LOWER)....................................   None       None     None*   4.50%
---------------------------------------------------------------------------------------------------------
<CAPTION>
                              EMERGING GROWTH FUND          GROWTH FUND          GROWTH AND INCOME FUND
                             ----------------------- ------------------------- --------------------------
                             CLASS 1 CLASS A CLASS B CLASS 1 CLASS A  CLASS B   CLASS 1   CLASS A CLASS B
---------------------------------------------------------------------------------------------------------
   <S>                       <C>     <C>     <C>     <C>     <C>     <C>       <C>        <C>     <C>
   ANNUAL FUND OPERATING
    EXPENSES
    (AS A PERCENTAGE OF
    AVERAGE NET ASSETS)
    Management fee.........   0.65%   0.65%   0.65%   0.60%   0.60%    0.60%      0.65%    0.65%   0.65%
    12b-1 fee**............   0.00    0.25    1.00    0.00    0.25     1.00       0.00     0.25    1.00
    Other expenses.........   0.74    0.79    0.79    0.28    0.23     0.23       0.23     0.22    0.23
---------------------------------------------------------------------------------------------------------
     Total Fund Operating
      Expenses.............   1.39%   1.69%   2.44%   0.88%   1.13%    1.88%      0.88%    1.12%   1.88%
---------------------------------------------------------------------------------------------------------
<CAPTION>
                              INTERNATIONAL EQUITY
                                      FUND                GOVERNMENT FUND            MUNICIPAL FUND
                             ----------------------- ------------------------- --------------------------
                             CLASS 1 CLASS A CLASS B CLASS 1 CLASS A  CLASS B   CLASS 1   CLASS A CLASS B
---------------------------------------------------------------------------------------------------------
   <S>                       <C>     <C>     <C>     <C>     <C>     <C>       <C>        <C>     <C>
   ANNUAL FUND OPERATING
    EXPENSES
    (AS A PERCENTAGE OF
    AVERAGE NET ASSETS)
    Management fee.........   1.00%   1.00%   1.00%   0.60%   0.60%    0.60%      0.60%    0.60%   0.60%
    12b-1 fee**............   0.00    0.25    1.00    0.00    0.25     1.00       0.00     0.25    1.00
    Other expenses.........   1.26    1.31    1.30    0.30    0.30     0.30       0.38     0.34    0.34
---------------------------------------------------------------------------------------------------------
     Total Fund Operating
      Expenses.............   2.26%   2.56%   3.30%   0.90%   1.15%    1.90%      0.98%    1.19%   1.94%
---------------------------------------------------------------------------------------------------------
</TABLE>    
  * Purchases of Class A shares of $500,000 or more will be made at net asset
    value with no sales charge, but will be subject to a CDSC of 1.00% on
    redemptions made within 12 months of purchase.
 ** Upon conversion of Class B shares to Class A shares, such shares will no
    longer be subject to a distribution fee.
          
 The sales charges and CDSCs set forth in the above tables are the maximum
charges imposed on purchases or redemptions of each of the Funds' shares and
investors may actually pay lower or no charges, depending on the amount pur-
chased and, in the case of     
 
                                                                              5
<PAGE>
 
PROSPECTUS SUMMARY (CONTINUED)
   
Class B and certain Class A shares, the length of time the shares are held.
See "Purchase of Shares" and "Redemption of Shares." PFS receives an annual
12b-1 service fee of 0.25% of the value of average daily net assets of Class A
shares of each Fund. PFS also receives with respect to Class B shares of each
Fund an annual 12b-1 fee of 1.00% of the value of average daily net assets of
that Class, consisting of a 0.75% distribution fee and a 0.25% service fee.
    
 EXAMPLE
   
 The following example is intended to assist an investor in understanding the
various costs that an investor in each of the Funds will bear directly or
indirectly. The example assumes payment by each Fund of operating expenses at
the levels set forth in the table above. See "Purchase of Shares," "Redemption
of Shares" and "Management of the Series."     
 
<TABLE>   
<CAPTION>
                                AN INVESTOR WOULD PAY THE FOLLOWING EXPENSES
                             ON A $1,000 INVESTMENT, ASSUMING (1) 5.00% ANNUAL
                         RETURN AND (2) REDEMPTION AT THE END OF EACH TIME PERIOD:
                        ------------------------------------------------------------------
                           1 YEAR          3 YEARS          5 YEARS          10 YEARS*
------------------------------------------------------------------------------------------
<S>                     <C>             <C>              <C>              <C>
Emerging Growth Fund
 Class 1                 $          98             $125             $155              $238
 Class A                            66              101              137               240
 Class B                            75               96              140               259
------------------------------------------------------------------------------------------
Growth Fund
 Class 1                            93              111              130               184
 Class A                            61               84              109               181
 Class B                            69               89              112               201
------------------------------------------------------------------------------------------
Growth and Income Fund
 Class 1                            93              111              130               184
 Class A                            62               87              114               190
 Class B                            69               89              112               203
------------------------------------------------------------------------------------------
International Equity
 Fund
 Class 1                           106              150              169               322
 Class A                            75              126              179               325
 Class B                            83              122              182               343
------------------------------------------------------------------------------------------
Government Fund
 Class 1                            76               94              114               171
 Class A                            56               80              105               178
 Class B                            64               90              113               203
------------------------------------------------------------------------------------------
Municipal Fund
 Class 1                            57               77               99               162
 Class A                            57               81              107               183
 Class B                            65               91              115               207
------------------------------------------------------------------------------------------
<CAPTION>
                              AN INVESTOR WOULD PAY THE FOLLOWING EXPENSES
                        ON THE SAME INVESTMENT, ASSUMING THE SAME ANNUAL RETURN
                        BUT WITHOUT A REDEMPTION AT THE END OF EACH TIME PERIOD:
                        ------------------------------------------------------------------
                           1 YEAR          3 YEARS          5 YEARS          10 YEARS*
------------------------------------------------------------------------------------------
<S>                     <C>             <C>              <C>              <C>
Emerging Growth Fund
 Class 1                 $          98   $          125             $155              $238
 Class A                            66              101              137               240
 Class B                            25               76              130               259
------------------------------------------------------------------------------------------
Growth Fund
 Class 1                            93              111              130               184
 Class A                            61               84              109               181
 Class B                            19               59              102               201
------------------------------------------------------------------------------------------
Growth and Income Fund
 Class 1                            93              111              130               184
 Class A                            62               87              114               190
 Class B                            19               59              102               203
------------------------------------------------------------------------------------------
International Equity
 Fund
 Class 1                           106              150              196               322
 Class A                            75              126              179               325
 Class B                            33              102              172               343
------------------------------------------------------------------------------------------
Government Fund
 Class 1                            76               94              114               171
 Class A                            56               80              105               178
 Class B                            19               60              103               203
------------------------------------------------------------------------------------------
Municipal Fund
 Class 1                            57               77               99               162
 Class A                            57               81              107               183
 Class B                            20               61              105               207
------------------------------------------------------------------------------------------
</TABLE>    
   
* Ten-year figures assume conversion of Class B Shares to Class A Shares at
  the end of the eighth year following the date of purchase.     
   
 The example also provides a means for the investor to compare expense levels
of funds with different fee structures over varying investment periods. To
facilitate such comparison, all funds are required to utilize a 5.00% annual
return assumption. However, a Fund's actual return will vary and may be
greater or less than 5.00%. THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESEN-
TATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.     
 
6
<PAGE>
 
FINANCIAL HIGHLIGHTS
   
 The following information has been audited by Ernst & Young LLP, independent
auditors, whose report thereon appears in the Series' annual report dated Octo-
ber 31, 1997. The information set out below should be read in conjunction with
the financial statements and related notes that also appear in the Series'
Annual Report to Shareholders, which is incorporated by reference into the
Statement of Additional Information.     
   
FOR A SHARE OF EACH CLASS OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIOD:     
          
EMERGING GROWTH FUND     
 
<TABLE>   
<CAPTION>
                                                              AUGUST 8, 1996
                                                               (COMMENCEMENT
                                              YEAR ENDED    OF DISTRIBUTION) TO
CLASS 1 SHARES                             OCTOBER 31, 1997  OCTOBER 31, 1996
-------------------------------------------------------------------------------
<S>                                        <C>              <C>
NET ASSET VALUE, BEGINNING OF THE PERIOD        $18.59            $17.89
-------------------------------------------------------------------------------
 Net Investment Loss                             (0.08)            (0.02)
 Net Realized and Unrealized Gain                 3.64              0.72
-------------------------------------------------------------------------------
Total from Investment Operations                  3.56              0.70
-------------------------------------------------------------------------------
NET ASSET VALUE, END OF THE PERIOD              $22.15            $18.59
-------------------------------------------------------------------------------
TOTAL RETURN(A)                                  19.15%             3.91%*
-------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (IN MILLIONS)       $    6            $  1.0
-------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets           1.39%             1.74%
Ratio of Net Investment Loss to Average
Net Assets                                       (0.63)            (1.09)
-------------------------------------------------------------------------------
PORTFOLIO TURNOVER                                 100%               80%
-------------------------------------------------------------------------------
Average Commission Paid Per Equity Share
Traded(b)                                       $ 0.03            $ 0.05
-------------------------------------------------------------------------------
</TABLE>    
   
*Non-Annualized.     
   
(a)Total Return is based upon net asset value which does not include payment of
  the maximum sales charge or contingent deferred sales charge.     
   
(b)Represents the average brokerage commissions paid per equity share traded
  during the period for trades where commissions were applicable.     
 
<TABLE>   
<CAPTION>
                                                            FEBRUARY 21, 1995
                                                              (COMMENCEMENT
                                                              OF INVESTMENT
                            YEAR ENDED       YEAR ENDED      OPERATIONS) TO
CLASS A SHARES           OCTOBER 31, 1997 OCTOBER 31, 1996 OCTOBER 31, 1995(A)
------------------------------------------------------------------------------
<S>                      <C>              <C>              <C>
NET ASSET VALUE,
BEGINNING OF THE PERIOD       $18.57           $15.12            $11.81
------------------------------------------------------------------------------
 Net investment loss           (0.16)           (0.18)            (0.24)
 Net realized and
 unrealized gain                3.66             3.63              3.55
------------------------------------------------------------------------------
Total from Investment
Operations                      3.50             3.45              3.31
------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD                        $22.08           $18.57            $15.12
------------------------------------------------------------------------------
TOTAL RETURN(B)                18.90%           22.82%            28.11 %(c)
------------------------------------------------------------------------------
NET ASSETS AT END OF
PERIOD (IN MILLIONS)          $  101           $   52            $   16
------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets(d)           1.69%            2.21%             2.75 %
Ratio of Net Investment
Loss to Average Net
Assets(d)                      (0.92)           (1.52)            (1.65)%
------------------------------------------------------------------------------
PORTFOLIO TURNOVER               100%              80%               83 %*
------------------------------------------------------------------------------
Average Commission Paid
Per Equity Share
Traded(e)                     $ 0.03           $ 0.05            $  --
------------------------------------------------------------------------------
</TABLE>    
   
*Non-Annualized.     
   
(a)Based on average month-end shares outstanding.     
   
(b)Total Return is based upon net asset value which does not include payment of
  the maximum sales charge or contingent deferred sales charge.     
   
(c)Total Return from March 17, 1995 (date the Fund's investment strategy was
  implemented) through October 31, 1995 without annualization.     
   
(d) If Van Kampen American Capital Asset Management ("VKAC"), the Fund's
    investment manager during this period had not waived fees for the period
    ended October 31, 1995, the total return would have been lower and the
    Ratios of Expenses to Average Net Assets and Net Investment Loss to Average
    Net Assets would have been 3.37% and (2.27%) for Class A shares and 4.11%
    and (3.07%) for Class B shares, respectively.     
   
(e) Represents the average brokerage commissions paid per equality share traded
    during the period for trades where commissions were applicable. This
    disclosure was not required in fiscal years prior to 1996.     
 
 
                                                                               7
<PAGE>
 
FINANCIAL HIGHLIGHTS (CONTINUED)
   
EMERGING GROWTH FUND     
 
<TABLE>   
<CAPTION>
                                                            FEBRUARY 21, 1995
                                                              (COMMENCEMENT
                                                              OF INVESTMENT
                            YEAR ENDED       YEAR ENDED      OPERATIONS) TO
CLASS B SHARES           OCTOBER 31, 1997 OCTOBER 31, 1996 OCTOBER 31, 1995(A)
------------------------------------------------------------------------------
<S>                      <C>              <C>              <C>
NET ASSET VALUE,
BEGINNING OF THE PERIOD       $18.34           $15.04            $11.81
------------------------------------------------------------------------------
 Net investment loss           (0.27)           (0.27)            (0.35)
 Net realized and
 unrealized gain                3.56             3.57              3.58
------------------------------------------------------------------------------
Total from Investment
Operations                      3.29             3.30              3.23
------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD                        $21.63           $18.34            $15.04
------------------------------------------------------------------------------
TOTAL RETURN(B)                17.94%           21.94%            27.43%(c)
------------------------------------------------------------------------------
NET ASSETS AT END OF
PERIOD (IN MILLIONS)          $   80           $   39            $   11
------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets(d)           2.44%            2.96%             3.49%
Ratio of Net Investment
Loss to Average Net
Assets(d)                      (1.67)           (2.27)            (2.45)
------------------------------------------------------------------------------
PORTFOLIO TURNOVER               100%              80%               83%*
------------------------------------------------------------------------------
Average Commission Paid
Per Equity Share
Traded(e)                     $ 0.03           $ 0.05            $  --
------------------------------------------------------------------------------
</TABLE>    
   
*Non-Annualized.     
   
(a)Based on average month-end shares outstanding.     
   
(b)Total Return is based upon net asset value which does not include payment of
  the maximum sales charge or contingent deferred sales charge.     
   
(c)Total Return from March 17, 1995 (date the Fund's investment strategy was
  implemented) through October 31, 1995 without annualization.     
   
(d) If VKAC, the Fund's investment manager during this period had not waived
    fees for the period ended October 31, 1995, the total return would have
    been lower and the Ratios of Expenses to Average Net Assets and Net
    Investment Loss to Average Net Assets would have been 3.37% and (2.27%) for
    Class A shares and 4.11% and (3.07%) for Class B shares, respectively.     
   
(e) Represents the average brokerage commissions paid per equality share traded
    during the period for trades where commissions were applicable. This
    disclosure was not required in fiscal years prior to 1996.     
 
8
<PAGE>
 
FINANCIAL HIGHLIGHTS (CONTINUED)
   
GROWTH FUND     
 
<TABLE>   
<CAPTION>
                                                  YEAR ENDED OCTOBER 31
                          -------------------------------------------------------------------------------
CLASS 1 SHARES             1997    1996    1995    1994    1993    1992    1991    1990     1989    1988
----------------------------------------------------------------------------------------------------------
<S>                       <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>      <C>     <C>
NET ASSET VALUE,
BEGINNING OF THE PERIOD   $17.98  $17.46  $15.31  $16.26  $16.02  $15.47  $11.26  $13.15   $10.81  $ 9.37
----------------------------------------------------------------------------------------------------------
 Net investment income      0.17     .19    0.16    0.13    0.12    0.13    0.19    0.20     0.19    0.10
 Net realized and
 unrealized gain/loss       4.33    2.91    3.18    0.21    2.01    1.39    4.24   (1.35)    2.26    1.44
----------------------------------------------------------------------------------------------------------
Total from Investment
Operations                  4.50    3.10    3.34    0.34    2.13    1.52    4.43   (1.05)    2.45    1.54
----------------------------------------------------------------------------------------------------------
LESS:
 Distributions from net
 investment income          0.18    0.18    0.16    0.11    0.12    0.17    0.22    0.20     0.11     --
 Distributions from and
 in Excess of Net
 Realized Gain              1.35    2.40    1.03    1.18    1.76    0.80     --     0.64      --     0.10
----------------------------------------------------------------------------------------------------------
Total Distributions         1.53    2.58    1.19    1.29    1.88    0.97    0.22    0.84     0.11    0.10
----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
THE PERIOD                $20.94  $17.98  $17.46  $15.31  $16.26  $16.02  $15.47  $11.26   $13.15  $10.81
----------------------------------------------------------------------------------------------------------
TOTAL RETURN(A)            26.93%  19.94%  24.01%   2.04%  14.27%   9.83%  39.90%  (8.73%)  22.90%  16.51%
----------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF THE
PERIOD (IN MILLIONS)      $3,547  $3,005  $2,612  $2,170  $2,066  $1,648  $1,312  $  866   $  768  $  492
----------------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets          0.88%   0.93%   1.00%   1.09%   1.14%   1.18%   1.26%   1.53%    1.63%   1.93%
Ratio of Net Investment
Income to Average Net
Assets                      0.86    1.08    1.04    0.89    0.80    0.91    1.44    1.79     1.75    1.30
----------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER           165%    202%    230%    164%    166%    134%    100%     99%     101%     63%
----------------------------------------------------------------------------------------------------------
Average Commission Paid
Per Equity Share
Traded(b)                 $ 0.03  $ 0.06     -0-     -0-     -0-     --      --      --       --      --
----------------------------------------------------------------------------------------------------------
</TABLE>    
 
<TABLE>   
<CAPTION>
                                     CLASS A SHARES                       CLASS B SHARES
                          ------------------------------------ ------------------------------------
                             YEAR ENDED       PERIOD ENDED        YEAR ENDED       PERIOD ENDED
                          OCTOBER 31, 1997 OCTOBER 31, 1996(C) OCTOBER 31, 1997 OCTOBER 31, 1996(C)
---------------------------------------------------------------------------------------------------
<S>                       <C>              <C>                 <C>              <C>
NET ASSET VALUE,
BEGINNING OF THE PERIOD        $17.96            $16.63             $17.93            $16.63
---------------------------------------------------------------------------------------------------
 Net investment
 income/loss                     0.15               .02                .01              (.01)
 Net realized and
 unrealized gain                 4.30              1.31               4.28              1.31
---------------------------------------------------------------------------------------------------
Total from Investment
Operations                       4.45              1.33               4.29              1.30
---------------------------------------------------------------------------------------------------
LESS:
 Distributions from net
 investment income               0.16               -0-                .11               -0-
 Distributions from net
 realized gain                   1.36               -0-               1.35               -0-
---------------------------------------------------------------------------------------------------
Total Distributions              1.52               -0-               1.46               -0-
---------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD                         $20.89            $17.96             $20.75            $17.93
---------------------------------------------------------------------------------------------------
TOTAL RETURN(A)                 26.65%             8.00%*            25.66%             7.82%*
---------------------------------------------------------------------------------------------------
NET ASSETS AT END OF THE
PERIOD (IN MILLIONS)           $  109            $   49             $  126            $   74
---------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets               1.13%             1.17%              1.88%             1.93%
Ratio of Net Investment
Income/Loss to Average
Net Assets                       0.57              0.46              (0.16)            (0.29)
---------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER                165%              202%               165%              202%
---------------------------------------------------------------------------------------------------
Average Commission Paid
Per Equity Share
Traded(b)                      $ 0.03            $ 0.06             $ 0.03            $ 0.06
---------------------------------------------------------------------------------------------------
</TABLE>    
   
*Non-Annualized.     
   
(a)Total Return is based upon net asset value which does not include payment
  of the maximum sales charge or contingent deferred sales charge.     
   
(b) Presents the average brokerage commission paid per equity share traded
    during the period for trades where commissions were applicable. This
    disclosure was not required in fiscal years prior to 1996.     
   
(c)Class A and Class B shares commenced distribution on August 18, 1996.     
       
                                                                              9
<PAGE>
 
FINANCIAL HIGHLIGHTS (CONTINUED)
   
GROWTH AND INCOME FUND     
 
<TABLE>   
<CAPTION>
                                                  YEAR ENDED OCTOBER 31
                          -------------------------------------------------------------------------------
CLASS 1 SHARES             1997    1996    1995    1994    1993    1992    1991    1990     1989    1988
----------------------------------------------------------------------------------------------------------
<S>                       <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>      <C>     <C>
NET ASSET VALUE,
BEGINNING OF THE PERIOD   $18.11  $16.95  $15.77  $17.13  $15.54  $14.70  $11.49  $12.51   $10.49  $ 9.84
----------------------------------------------------------------------------------------------------------
 Net investment income      0.24    0.31    0.36    0.29    0.29    0.28    0.31    0.30     0.31    0.27
 Net realized and
 unrealized gain/loss       4.23    2.94    2.72   (0.21)   1.88    1.28    3.22   (0.99)    2.00    0.65
----------------------------------------------------------------------------------------------------------
Total from Investment
Operations                  4.47    3.25    3.08    0.08    2.17    1.56    3.53    (.69)    2.31    0.92
----------------------------------------------------------------------------------------------------------
LESS:
 Distributions from net
 investment income          0.30    0.34    0.30    0.28    0.28    0.30    0.32    0.33     0.29    0.24
 Distributions from and
 in Excess of Net
 Realized Gain              2.18    1.76    1.60    1.16    0.30    0.42     --     0.00       --    0.03
----------------------------------------------------------------------------------------------------------
Total Distributions         2.48    2.10    1.90    1.44    0.58    0.72    0.32     .33     0.29    0.27
----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
THE PERIOD                $20.10  $18.11  $16.95  $15.77  $17.13  $15.54  $14.70  $11.49   $12.51  $10.49
----------------------------------------------------------------------------------------------------------
TOTAL RETURN(A)            27.35%  20.58%  22.45%   0.51%  14.13%  10.85%  31.68%  (5.84%)  22.38%   9.55%
----------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF THE
PERIOD (IN MILLIONS)      $1,097  $  943  $  828  $  713  $  712  $  591  $  500  $  367   $  278  $  168
----------------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets          0.88%   0.91%   0.96%   1.02%   1.05%   1.09%   1.14%   1.37%    1.39%   1.57%
Ratio of Net Investment
Income to Average Net
Assets                      1.25    1.78    2.27    1.84    1.76    1.84    2.29    2.55     2.81    3.04
----------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER            93%    121%    117%     88%     51%     32%     42%     48%      26%     64%
----------------------------------------------------------------------------------------------------------
Average Commission Paid
Per Equity Share
Traded(b)                 $ 0.03  $ 0.06     -0-     -0-     -0-      --      --      --       --      --
----------------------------------------------------------------------------------------------------------
</TABLE>    
 
<TABLE>   
<CAPTION>
                                     CLASS A SHARES                       CLASS B SHARES
                          ------------------------------------ ------------------------------------
                             YEAR ENDED       PERIOD ENDED        YEAR ENDED       PERIOD ENDED
                          OCTOBER 31, 1997 OCTOBER 31, 1996(C) OCTOBER 31, 1997 OCTOBER 31, 1996(C)
---------------------------------------------------------------------------------------------------
<S>                       <C>              <C>                 <C>              <C>
NET ASSET VALUE,
BEGINNING OF PERIOD            $18.11            $17.19             $18.09            $17.19
---------------------------------------------------------------------------------------------------
 Net investment income           0.20              0.07               0.06              0.04
 Net realized and
 unrealized gain                 4.23              0.91               4.22              0.90
---------------------------------------------------------------------------------------------------
Total from Investment
Operations                       4.43              0.98               4.28              0.94
---------------------------------------------------------------------------------------------------
LESS:
 Distributions from net
 investment income               0.25              0.06               0.11              0.04
 Distributions from net
 realized gain                   2.18               -0-               2.18               -0-
---------------------------------------------------------------------------------------------------
Total Distributions              2.43              0.06               2.29              0.04
---------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
THE PERIOD                     $20.10            $18.11             $20.07            $18.09
---------------------------------------------------------------------------------------------------
TOTAL RETURN(A)                 27.04%             5.72%             26.08%             5.49%*
---------------------------------------------------------------------------------------------------
NET ASSETS AT END OF THE
PERIOD (IN MILLIONS)           $   80            $   33             $   99            $   52
---------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets               1.12%             1.16%              1.88%             1.91%
Ratio of Net Investment
Income to Average Net
Assets                           0.96              1.78               0.22              1.05
---------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER                 93%              121%                93%              121%
---------------------------------------------------------------------------------------------------
Average Commission Paid
Per Equity Share
Traded(b)                      $ 0.03            $ 0.06             $ 0.03            $ 0.06
---------------------------------------------------------------------------------------------------
</TABLE>    
   
*Non-Annualized.     
   
(a)Total Return is based upon net asset value which does not include payment
  of the maximum sales charge or contingent deferred sales charge.     
   
(b) Represents the average brokerage commission paid per equity share traded
    during the period for trades where commissions were applicable. This
    disclosure was not required in fiscal years prior to 1996.     
   
(c)Class A and Class B shares commenced distribution on August 18, 1996.     
       
10
<PAGE>
 
FINANCIAL HIGHLIGHTS (CONTINUED)
   
INTERNATIONAL EQUITY FUND     
 
<TABLE>   
<CAPTION>
                                                              AUGUST 8, 1996
                                                               (COMMENCEMENT
                                                                    OF
                                              YEAR ENDED     DISTRIBUTION) TO
CLASS 1 SHARES                             OCTOBER 31, 1997 OCTOBER 31, 1996(A)
-------------------------------------------------------------------------------
<S>                                        <C>              <C>
NET ASSET VALUE, BEGINNING OF THE PERIOD        $16.52            $16.00
-------------------------------------------------------------------------------
 Net investment loss                             (0.17)            (0.03)
 Net realized and unrealized gain                 1.81               .55
-------------------------------------------------------------------------------
Total from Investment Operations                  1.64               .52
-------------------------------------------------------------------------------
NET ASSET VALUE, END OF THE PERIOD              $18.16            $16.52
-------------------------------------------------------------------------------
TOTAL RETURN*(B)                                  9.99%             3.25%**
-------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (IN MILLIONS)       $    2            $  0.2
-------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets*          2.26%             2.50%
Ratio of Net Investment Loss to Average
Net Assets*                                      (1.24)            (1.31)
-------------------------------------------------------------------------------
PORTFOLIO TURNOVER                                  57%               78%**
-------------------------------------------------------------------------------
Average Commission Paid Per Equity Share
Traded(c)                                       $ 0.02            $ 0.03
*If certain expenses had not been waived
or reimbursed by VKAC, Total Return would
have been lower and the ratios would have
been as follows:
Ratio of expenses to average net assets            N/A              3.87%
Ratio of net investment loss to average
net assets                                         N/A             (2.67)
-------------------------------------------------------------------------------
</TABLE>    
   
** Non-Annualized     
   
(a) Based on average month-end shares outstanding.     
   
(b) Total Return is based upon net asset value which does not include payment
    of the maximum sales charge or contingent deferred sales charge.     
   
(c) Represents the average brokerage commissions paid per equity share traded
    during the period for trades where commissions were applicable.     
   
N/A = Not Applicable     
 
<TABLE>   
<CAPTION>
                                                             FEBRUARY 21, 1995
                                                               (COMMENCEMENT
                                                               OF INVESTMENT
                             YEAR ENDED       YEAR ENDED      OPERATIONS) IN
CLASS A SHARES            OCTOBER 31, 1997 OCTOBER 31, 1996 OCTOBER 31, 1995(A)
-------------------------------------------------------------------------------
<S>                       <C>              <C>              <C>
NET ASSET VALUE,
BEGINNING OF THE PERIOD        $16.54           $13.86            $11.81
-------------------------------------------------------------------------------
 Net investment loss            (0.26)           (0.19)            (0.14)
 Net realized and
 unrealized gain                 1.85             2.87              2.19
-------------------------------------------------------------------------------
Total from Investment
Operations                       1.59             2.68              2.05
-------------------------------------------------------------------------------
NET ASSET VALUE, END OF
THE PERIOD                     $18.14           $16.54            $13.86
-------------------------------------------------------------------------------
TOTAL RETURN*(B)                 9.74%           19.34%            16.28%**(c)
-------------------------------------------------------------------------------
NET ASSETS AT END OF
PERIOD (IN MILLIONS)           $   17           $   10            $    7
-------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets*              2.56%            2.75%             3.64%
Ratio of Net Investment
Loss to Average Net
Assets*                         (1.59)           (1.56)            (1.40)
-------------------------------------------------------------------------------
PORTFOLIO TURNOVER                 57%              78%               17%**
-------------------------------------------------------------------------------
Average Commission Paid
Per Equity Share
Traded(d)                      $ 0.02           $ 0.03               --
*If certain expenses had
not been waived or
reimbursed by VKAC,
Total Return would have
been lower and the
ratios would have been
as follows:
Ratio of expenses to
average net assets                N/A             4.12%             5.97%
Ratio of net investment
loss to average net
assets                            N/A            (2.92)            (3.73)
-------------------------------------------------------------------------------
</TABLE>    
   
** Non-Annualized     
   
(a) Based on average month-end shares outstanding.     
   
(b) Total Return is based upon net asset value which does not include payment
    of the maximum sales charge or contingent deferred sales charge.     
   
(c) Total Return from March 17, 1995 (date the Fund's investment strategy was
    implemented) through October 31, 1995 without annualization.     
   
(d) Represents the average brokerage commissions paid per equity share traded
    during the period for trades where commissions were applicable.     
   
N/A = Not Applicable     
 
 
                                                                              11
<PAGE>
 
FINANCIAL HIGHLIGHTS (CONTINUED)
   
INTERNATIONAL EQUITY FUND     
<TABLE>   
<CAPTION>
                                                             FEBRUARY 21, 1995
                                                               (COMMENCEMENT
                                                               OF INVESTMENT
                             YEAR ENDED       YEAR ENDED      OPERATIONS) IN
CLASS B SHARES            OCTOBER 31, 1997 OCTOBER 31, 1996 OCTOBER 31, 1995(A)
-------------------------------------------------------------------------------
<S>                       <C>              <C>              <C>
NET ASSET VALUE,
BEGINNING OF THE PERIOD        $16.36           $13.79            $11.81
-------------------------------------------------------------------------------
 Net investment loss            (0.32)           (0.25)            (0.21)
 Net realized and
 unrealized gain                 1.76             2.82              2.19
-------------------------------------------------------------------------------
Total from Investment
Operations                       1.44             2.57              1.98
-------------------------------------------------------------------------------
NET ASSET VALUE, END OF
THE PERIOD                     $17.81           $16.36            $13.79
-------------------------------------------------------------------------------
TOTAL RETURN*(B)                 8.93%           18.64%            15.69%**(c)
-------------------------------------------------------------------------------
NET ASSETS AT END OF
PERIOD (IN MILLIONS)           $   14           $    8            $    3
-------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets*              3.30%            3.50%             4.33%
Ratio of Net Investments
Loss to Average Net
Assets*                         (2.34)           (2.31)            (2.80)
-------------------------------------------------------------------------------
PORTFOLIO TURNOVER                 57%              78%               17%**
-------------------------------------------------------------------------------
Average Commission Paid
Per Equity Share
Traded(d)                      $ 0.02           $ 0.03               --
*If certain expenses had
not been waived or
reimbursed by VKAC,
Total Return would have
been lower and the
ratios would have been
as follows:
Ratios of expenses to
average net assets                N/A             4.87%             6.67%
Ratio of net investment
loss to average net
assets                            N/A            (3.67)            (5.13)
-------------------------------------------------------------------------------
</TABLE>    
   
** Non-Annualized     
   
(a) Based on average month-end shares outstanding.     
   
(b) Total Return is based upon net asset value which does not include payment
    of the maximum sales charge or contingent deferred sales charge.     
   
(c) Total Return from March 17, 1995 (date the Fund's investment strategy was
    implemented) through October 31, 1995 without annualization.     
   
(d) Represents the average brokerage commissions paid per equity share traded
    during the period for trades where commissions were applicable.     
   
N/A = Not Applicable     
       
12
<PAGE>
 
FINANCIAL HIGHLIGHTS (CONTINUED)
   
GOVERNMENT FUND     
 
<TABLE>   
<CAPTION>
                                                  YEAR ENDED OCTOBER 31
                          -------------------------------------------------------------------------------
CLASS 1 SHARES             1997    1996    1995    1994     1993    1992    1991    1990    1989    1988
----------------------------------------------------------------------------------------------------------
<S>                       <C>     <C>     <C>     <C>      <C>     <C>     <C>     <C>     <C>     <C>
NET ASSET VALUE,
BEGINNING OF THE PERIOD   $10.41  $10.67  $ 9.99  $11.80   $11.56  $11.47  $10.79  $11.46  $11.13  $11.08
----------------------------------------------------------------------------------------------------------
 Net investment income      0.69    0.70    0.70    0.69     0.76    0.86    0.90    0.95    1.03    0.94
 Net realized and
 unrealized gain/loss       0.17   (0.25)   0.68   (1.36)    0.43    0.16    0.68   (0.44)   0.33    0.04
----------------------------------------------------------------------------------------------------------
Total from Investment
Operations                  0.86    0.45    1.38   (0.67)    1.19    1.02    1.58    0.51    1.36    0.98
----------------------------------------------------------------------------------------------------------
LESS:
 Distributions from and
 in excess of net
 investment income          0.68    0.72    0.70    0.69     0.76    0.86    0.90    0.96    1.03    0.93
 Distributions from and
 in Excess of Net
 Realized Gain               --      --      --     0.45     0.19    0.07     -0-    0.22     -0-     -0-
----------------------------------------------------------------------------------------------------------
Total Distributions         0.68    0.72    0.70    1.14     0.95    0.93    0.90    1.18    1.03    0.93
----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
THE PERIOD                $10.58  $10.40  $10.67  $ 9.99   $11.80  $11.56  $11.47  $10.79  $11.46  $11.13
----------------------------------------------------------------------------------------------------------
TOTAL RETURN(A)             8.56%   4.58%  14.27%  (5.45%)  10.55%   9.32%  15.16%   4.94%  12.87%   9.20%
----------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF THE
PERIOD (IN MILLIONS)      $  241  $  288  $  329  $  335   $  370  $  282  $  189  $  141  $  101  $   71
----------------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets          0.90%   0.84%   0.83%   0.89%    0.89%   0.95%   0.96%   1.09%   1.20%   1.44%
Ratio of Net Investment
Income to Average Net
Assets                      6.69    6.79    6.84    7.06     7.35    7.46    8.15    8.78    9.29    8.55
----------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER           104%    276%    214%    256%     218%    112%     39%     28%     29%     51%
----------------------------------------------------------------------------------------------------------
</TABLE>    
 
<TABLE>   
<CAPTION>
                                     CLASS A SHARES                       CLASS B SHARES
                          ------------------------------------ ------------------------------------
                             YEAR ENDED       PERIOD ENDED        YEAR ENDED       PERIOD ENDED
                          OCTOBER 31, 1997 OCTOBER 31, 1996(B) OCTOBER 31, 1997 OCTOBER 31, 1996(B)
---------------------------------------------------------------------------------------------------
<S>                       <C>              <C>                 <C>              <C>
NET ASSET VALUE,
BEGINNING OF THE PERIOD        $10.41            $10.32             $10.41            $10.32
---------------------------------------------------------------------------------------------------
 Net investment income           0.67              0.15               0.59              0.14
 Net realized and
 unrealized gain                 0.17              0.09               0.17              0.09
---------------------------------------------------------------------------------------------------
Total from Investment
Operations                       0.84              0.24               0.76              0.23
---------------------------------------------------------------------------------------------------
Less Distributions from
and in Excess of Net
Investment Income                0.66              0.15               0.59              0.14
---------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
THE PERIOD                     $10.58            $10.41             $10.58            $10.41
---------------------------------------------------------------------------------------------------
TOTAL RETURN(A)                  8.35%             2.36%*             7.55%             2.18%*
---------------------------------------------------------------------------------------------------
NET ASSETS AT END OF THE
PERIOD (IN MILLIONS)           $   14            $   11             $   12            $   14
---------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets               1.15%             1.09%              1.90%             1.84%
Ratio of Net Investment
Income to Average Net
Assets                           6.44              6.50               5.69              5.74
---------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER                104%              276%               104%              276%
---------------------------------------------------------------------------------------------------
</TABLE>    
   
* Non-Annualized.     
   
(a) Total return is based upon net asset value which does not include payment
    of the maximum sales charge or contingent deferred sales charge.     
   
(b) Class A and Class B commenced distribution on August 8, 1995.     
       
                                                                              13
<PAGE>
 
FINANCIAL HIGHLIGHTS (CONTINUED)
   
MUNICIPAL BOND FUND     
 
<TABLE>   
<CAPTION>
                                                  YEAR ENDED OCTOBER 31
                          --------------------------------------------------------------------------------
CLASS 1 SHARES             1997    1996    1995    1994     1993    1992    1991    1990    1989   1988(B)
-----------------------------------------------------------------------------------------------------------
<S>                       <C>     <C>     <C>     <C>      <C>     <C>     <C>     <C>     <C>     <C>
NET ASSET VALUE,
BEGINNING OF THE PERIOD   $13.83  $13.77  $12.89  $14.07   $13.03  $12.84  $12.18  $12.37  $12.26  $11.91
-----------------------------------------------------------------------------------------------------------
 Net investment income      0.69    0.70    0.74    0.71     0.73    0.72    0.76    0.76    0.77    0.19
 Net realized and
 unrealized gain/loss       0.39    0.11    0.87   (1.18)    1.04    0.22    0.65   (0.18)   0.10    0.31
-----------------------------------------------------------------------------------------------------------
Total from Investment
Operations                  1.08    0.81    1.61   (0.47)    1.77    0.94    1.41    0.58    0.87    0.50
-----------------------------------------------------------------------------------------------------------
LESS:
 Distributions from net
 investments income         0.66    0.71    0.73    0.71     0.73    0.75    0.75    0.77    0.76    0.15
 Distributions from and
 in excess of net
 realized gain              0.04    0.04     --      --       --      --      --      --      --      --
-----------------------------------------------------------------------------------------------------------
Total Distributions         0.70    0.75    0.73    0.71     0.73    0.75    0.75    0.77    0.76    0.15
-----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
THE PERIOD                $14.21  $13.83  $13.77  $12.89   $14.07  $13.03  $12.84  $12.18  $12.37  $12.26
-----------------------------------------------------------------------------------------------------------
TOTAL RETURN(A)             8.04%   6.09%  12.72%  (3.38%)  13.84%   7.57%  11.79%   4.77%   7.31%   4.26%*
-----------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF THE
PERIOD (IN MILLIONS)      $  104  $  119  $  119  $  112   $   96  $   60  $   43  $   37  $   25  $    6
-----------------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets          0.98%   1.05%   0.96%   0.99%    0.96%   1.14%   1.15%   1.25%   1.25%   1.91%
Ratio of Net Investment
Income to Average Net
Assets                      4.93    5.13    5.58    5.27     5.29    5.56    6.08    6.21    6.28    5.55
-----------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER            50%     80%     49%      4%       4%      6%      1%      4%      0%      5%*
-----------------------------------------------------------------------------------------------------------
</TABLE>    
 
<TABLE>   
<CAPTION>
                                     CLASS A SHARES                       CLASS B SHARES
                          ------------------------------------ ------------------------------------
                             YEAR ENDED       PERIOD ENDED        YEAR ENDED       PERIOD ENDED
                          OCTOBER 31, 1997 OCTOBER 31, 1996(B) OCTOBER 31, 1997 OCTOBER 31, 1996(B)
---------------------------------------------------------------------------------------------------
<S>                       <C>              <C>                 <C>              <C>
NET ASSET VALUE,
BEGINNING OF THE PERIOD        $13.83            $13.78             $13.82            $13.78
---------------------------------------------------------------------------------------------------
 Net investment income           0.65              0.11               0.54              0.09
 Net realized and
 unrealized gain                 0.40              0.04               0.40              0.04
---------------------------------------------------------------------------------------------------
Total from Investment
Operations                       1.05              0.15               0.94              0.13
---------------------------------------------------------------------------------------------------
LESS:
 Distributions from net
 investments income              0.63              0.10               0.52              0.09
 Distributions from net
 realized gains                  0.04               --                0.04               --
---------------------------------------------------------------------------------------------------
Total Distributions              0.67              0.10               0.56              0.09
---------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
THE PERIOD                     $14.21            $13.83             $14.20            $13.82
---------------------------------------------------------------------------------------------------
TOTAL RETURN(A)                  7.77%             1.12%*             6.98%             0.93%*
---------------------------------------------------------------------------------------------------
NET ASSETS AT END OF THE
PERIOD (IN MILLIONS)           $    9            $    2             $    3            $  0.7
---------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets               1.19%             1.30%              1.94%             2.05%
Ratio of Net Investment
Income to Average Net
Assets                           4.79              4.82               4.04              4.06
---------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER                 50%               80%                50%               80%
---------------------------------------------------------------------------------------------------
</TABLE>    
   
* Non-Annualized.     
   
(a) Total Return is based upon Net Asset Value which does not include payment
    of the maximum sales charge or contingent deferred sales charge.     
   
(b) Class A and Class B shares commenced distribution on August 18, 1996.     
       
14
<PAGE>
 
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
          
 Although each Fund of the Series has a different goal which it pursues through
separate investment policies described below, each Fund, except the Interna-
tional Equity Fund, will not purchase any securities issued by any company pri-
marily engaged in the manufacture of alcohol or tobacco. The differences in
goals and investment policies among the Funds can be expected to affect the
return of each Fund and the degree of market and financial risk to which each
Fund is subject. The goal and investment policies, the percentage limitations,
and the kinds of securities in which each Fund may invest are generally not
fundamental policies and may be changed by the Trustees. Further information
about each Fund's investment policies, including a list of those restrictions
which may not be changed without the approval of shareholders appears in the
Statement of Additional Information.     
    
 EMERGING GROWTH FUND     
   
 The goal of the Emerging Growth Fund is to seek capital appreciation by
investing in a portfolio of securities consisting principally of common stocks
of small and medium sized companies considered by MMC to be emerging growth
companies. Any ordinary income received from portfolio securities is entirely
incidental. There can, of course, be no assurance that the objective of capital
appreciation will be realized; therefore, full consideration should be given to
the risks inherent in the investment techniques that MMC may use to achieve
such objective.     
   
 Under normal conditions, the Fund invests at least 65% of its total assets in
common stocks of small and medium sized companies, both domestic and foreign,
in the early stages of their life cycle that MMC believes have the potential to
become major enterprises. Investments in such companies may offer greater
opportunities for growth of capital than larger, more established companies,
but also may involve certain special risks. Emerging growth companies often
have limited product lines, markets, or financial resources, and they may be
dependent upon one or a few key people for management. The securities of such
companies may be subject to more abrupt or erratic market movements than secu-
rities of larger, more established companies or the market averages in general.
While the Fund will invest primarily in common stocks, to a limited extent, it
may invest in other securities such as preferred stocks, convertible securities
and warrants.     
   
 The Fund does not limit its investment to any single group or type of securi-
ty. The Fund may also invest in special situations involving new management,
special products and techniques, unusual developments, mergers or liquidations.
Investments in unseasoned companies and special situations often involve much
greater risks than are inherent in ordinary investments, because securities of
such companies may be more likely to experience unexpected fluctuations in
price.     
   
 The Fund's primary approach is to seek what MMC believes to be unusually
attractive growth investments on an individual company basis. The Fund may
invest in securities that have above average volatility of price movement.
Because prices of common stocks and other securities fluctuate, the value of an
investment in the Fund will vary based upon the Fund's investment performance.
The Fund attempts to reduce overall exposure to risk from declines in securi-
ties prices by spreading its investments over many different companies in a
variety of industries. There is, however, no assurance that the Fund will be
successful in achieving its objective.     
   
 The Fund may hold a portion of its assets in high grade short-term debt secu-
rities and high grade corporate or government bonds in order to provide liquid-
ity. Such investments may be increased by the Fund up to 100% of its assets,
when deemed appropriate by MMC for temporary defensive purposes. Short-term
investments may include repurchase agreements with banks or broker-dealers. The
Fund may invest up to 20% of its total assets in securities of foreign issuers.
See "Risk Factors and Special Considerations."     
    
 INTERNATIONAL EQUITY FUND     
   
 The goal of the International Equity Fund is to seek total return on its
assets from growth of capital and income. The Fund seeks to achieve its goal by
investing at least 65% of its assets in a diversified portfolio of equity secu-
rities of established non-United States issuers.     
   
 Under normal market conditions, the Fund invests at least 65% of its total
assets in a diversified portfolio of equity securities consisting of dividend
and non-dividend paying common stock, preferred stock, convertible debt and
rights and warrants to such securities and up to 35% of the Fund's assets in
bonds, notes and debt securities (consisting of securities issued in the
Eurocurrency markets or obligations of the United States or foreign governments
and their political subdivisions) of established non-United States issuers.
Investments may be made for capital appreciation or for income or any combina-
tion of both for the purpose of achieving a higher overall return than might
otherwise be obtained solely from investing for growth of capital or for
income. There is no limitation on the percentage or amount of the Fund's assets
which may be invested for growth or income and, therefore, from time to time
the investment emphasis may be placed solely or primarily on growth of capital
or solely or primarily on income.     
 
 
                                                                              15
<PAGE>
 
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
   
 In seeking to achieve its goal, the Fund presently expects to invest its
assets primarily in common stocks of established non-United States companies
which in the opinion of MMC have potential for growth of capital. However,
there is no requirement that the Fund invest exclusively in common stocks or
other equity securities and, if deemed advisable, the Fund may invest up to 35%
of its assets in bonds, notes and other debt securities (including securities
issued in the Eurocurrency markets or obligations of the United States or for-
eign governments and their political subdivisions). When MMC believes that the
return on debt securities will equal or exceed the return on common stocks, the
Fund may, in seeking its goal of total return, substantially increase its hold-
ings (up to a maximum of 35% of its assets) in such debt securities. In deter-
mining whether the Fund will be invested for capital appreciation or for income
or any combination of both, MMC regularly analyzes a broad range of interna-
tional equity and fixed income markets in order to assess the degree of risk
and level of return that can be expected from each market.     
   
 In general, the prices of debt securities vary inversely with interest rates.
If interest rates rise, debt security prices generally fall; if interest rates
fall, debt security prices generally rise. In addition, for a given change in
interest rates, longer-maturity debt securities fluctuate more in price (gain-
ing or losing more in value) than shorter-maturity debt securities, and gener-
ally offer higher yields than shorter-maturity debt securities, all other fac-
tors, including credit quality, being equal.     
   
 The Fund will generally invest its assets broadly among countries and will
normally have represented in the portfolio business activities in not less than
three different foreign countries. Except as stated below, the Fund will invest
at least 65% of its assets in companies organized or governments located in any
area of the world other than the United States, such as the Far East (e.g.,
Japan, Hong Kong, Singapore, Malaysia), Western Europe (e.g., United Kingdom,
Germany, The Netherlands, France, Italy, Switzerland), Eastern Europe (e.g.,
Hungary, Poland, The Czech Republic and the countries of the former Soviet
Union), Central and South America (e.g., Mexico, Chile and Venezuela), Austra-
lia, Canada and such other areas and countries as MMC may determine from time
to time. Allocation of the Fund's investments will depend upon the relative
attractiveness of the international markets and particular issuers. Concentra-
tion of the Fund's assets in one or a few countries or currencies will subject
the Fund to greater risks than if the Fund's assets were not geographically
concentrated.     
   
 Under unusual economic or market conditions as determined by MMC, for defen-
sive purposes the Fund may temporarily invest all or a major portion of its
assets in U.S. Government securities or in debt or equity securities of compa-
nies incorporated in and having their principal business activities in the
United States. To the extent the Fund's assets are invested for temporary
defensive purposes, such assets will not be invested in a manner designed to
achieve the Fund's investment goal.     
   
 In determining the appropriate distribution of investments among various coun-
tries and geographic regions, MMC ordinarily considers the following factors:
prospects for relative economic growth between countries; expected levels of
inflation; government policies influencing business conditions; the outlook for
currency relationships; and the range of individual investment opportunities
available to international investors. In the future, if any other relevant fac-
tors arise they will also be considered. In analyzing companies for investment,
MMC ordinarily looks for one or more of the following characteristics: an
above-average earnings growth per share; high return on invested capital;
healthy balance sheet; sound financial and accounting policies and overall
financial strength; strong competitive advantages; effective research and prod-
uct development and marketing; efficient service; pricing flexibility; strength
of management; and general operating characteristics which will enable the com-
pany to compete successfully in its market place. Ordinarily, MMC will not view
a company as being sufficiently well established to be considered for inclusion
in the Fund's portfolio unless the company, together with any predecessors, has
been operating for at least three fiscal years. However, the Fund may invest up
to 5% of its assets in such "unseasoned" issuers.     
   
 It is expected that portfolio securities will ordinarily be traded on a stock
exchange or other market in the country in which the issuer is principally
based, but may also be traded on markets in other countries including, in many
cases, the United States securities exchanges and over-the-counter markets.
       
 To the extent that the Fund's assets are not otherwise invested as described
above, the assets may be held in cash, in any currency, or invested in United
States as well as foreign high quality money market instruments and
equivalents.     
    
 GROWTH FUND     
   
 The goal of the Growth Fund is to seek capital appreciation through invest-
ments in common stocks and options on common stocks. Any income realized on its
investments will be purely incidental to its goal of capital appreciation.     
   
 Portfolio securities are selected by MMC using an investment research process
blending traditional security analysis and quantitative security techniques.
Such process includes focusing on securities of companies that MMC believes
either: (1) experienced above-average and consistent long-term growth of earn-
ings and have excellent prospects for outstanding future growth in earnings;
(2) are presently experiencing or expected to have a material increase in prof-
its and sales; (3) are undervalued either in that such securities are     
 
16
<PAGE>
 
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
   
selling at prices that do not reflect the current market value of its securi-
ties and there is reason to expect realization of this potential in the form of
increased equity values or that the potential improving prospects of the secu-
rity is not reflected in the price of the security; (4) will experience a fun-
damental change in structure that potentially may result in higher earnings; or
(5) will produce new products, new services or new processes. The Fund may
invest in options and other securities that have above average volatility of
price movement. Because prices of common stocks, options and other investments
fluctuate, the value of an investment in the Fund will vary based upon the
Fund's investment performance. The Fund attempts to reduce overall exposure to
risk from declines in securities prices by spreading its investments over many
different companies in a variety of industries and by using stock index options
and stock index futures and options thereon, as discussed in the Statement of
Additional Information. There is no assurance that the Fund will be successful
in achieving its goal.     
   
 The Fund may hold a portion of its assets in high grade short-term debt secu-
rities and high grade corporate or government bonds in order to provide liquid-
ity. The amount of assets the Fund may hold for liquidity purposes is based on
market conditions and the need to meet redemption requests. Such investments
may be increased by the Fund, up to 100% of its assets, when deemed appropriate
by MMC for temporary defensive purposes. A description of the ratings of com-
mercial paper and bonds is contained in the Appendix to the Statement of Addi-
tional Information. Short-term investments may include repurchase agreements
with banks or broker-dealers. See "Risk Factors and Special Considerations."
       
 Certain policies of the Fund, such as purchasing and selling options on
stocks, purchasing options on stock indices and purchasing stock index futures
contracts and options thereon involve inherently greater investment risk and
could result in more volatile price fluctuations. Options, futures contracts
and related options are described in "Risk Factors and Special Considerations"
and the Statement of Additional Information. The Fund may also invest up to 20%
of its total assets in securities of foreign issuers and in investment compa-
nies. See "Risk Factors and Special Considerations." Since the Fund may take
substantial risks in seeking its goal of capital appreciation, it is not suit-
able for investors unable or unwilling to assume such risks.     
    
 GROWTH AND INCOME FUND     
   
 The goal of the Growth and Income Fund is to seek reasonable growth and income
through investments in equity securities that provide dividend or interest
income, including common and preferred stocks and securities convertible into
common and preferred stocks.     
   
 Portfolio securities are selected by MMC using an investment research process
blending traditional security analysis and quantitative security selection
techniques. Such process includes focusing on securities of companies that MMC
believes either: (1) experienced above-average and consistent long-term growth
of earnings and have excellent prospects for outstanding future growth in earn-
ings; (2) are presently experiencing or expected to have a material increase in
profits and sales; (3) are undervalued either in that such securities are sell-
ing at prices that do not reflect the current market value of its securities
and there is reason to expect realization of this potential in the form of
increased equity values or that the potential improving prospects of the secu-
rity is not reflected in the price of the security; (4) will experience a fun-
damental change in structure that potentially may result in higher earnings; or
(5) will produce new products, new services or new processes. In general, the
Fund intends to invest primarily in securities that have yielded a dividend or
interest income to security holders within the past twelve months; however, it
may invest in non-income producing investments held for anticipated increase in
value. There is no assurance that the Fund will be successful in achieving its
goal.     
   
 Convertible securities rank senior to common stocks in a corporation's capital
structure. They are consequently of higher quality and entail less risk than
the corporation's common stock, although the extent to which such risk is
reduced depends in large measure upon the degree to which the convertible secu-
rity sells above its value as fixed income security. The Fund may purchase con-
vertible securities rated Ba or lower by Moody's or BB or lower by S&P or in
non-rated securities considered by MMC to be of comparable quality. Although
the Fund selects these securities primarily on the basis of their equity char-
acteristics, investors should be aware that debt securities rated in these cat-
egories are considered high risk securities; the rating agencies consider them
speculative, and payment of interest and principal is not considered well
assured. To the extent that such convertible securities are acquired by the
Fund, there is a greater risk as to the timely payment of the principal of, and
timely payment of interest or dividends on, such securities than in the case of
higher rated convertible securities.     
   
 Although the portfolio turnover rate will not be considered a limiting factor,
the Fund does not intend to engage in trading directed at realizing short-term
profits. Nevertheless, changes in the portfolio will be made promptly when
determined to be advisable by reason of developments not foreseen at the time
of the investment decision, and usually without reference to the length of time
the security has been held.     
 
                                                                              17
<PAGE>
 
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
   
 The Fund may hold a portion of its assets in high grade short-term debt secu-
rities and high grade corporate or government bonds in order to provide liquid-
ity. The amount of assets the Fund may hold for liquidity purposes is based on
market conditions and the need to meet redemption requests. Such investment may
be increased by the Fund, up to 100% of its assets, when deemed appropriate by
MMC for temporary defensive purposes. Short-term investments may include repur-
chase agreements with banks or broker-dealers. See "Risk Factors and Special
Considerations." The Fund may also invest up to 20% of its total assets in
securities of foreign issuers and in investment companies. See "Risk Factors
and Special Considerations." The Fund may engage in portfolio management strat-
egies and techniques involving options, futures contracts and options on
futures. Options, futures contracts and related options are described in "Risk
Factors and Special Considerations" and the Statement of Additional Informa-
tion.     
    
 GOVERNMENT FUND     
   
 The goal of the Government Fund is to seek high current return consistent with
preservation of capital. The Fund invests primarily in debt securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities. In
order to hedge against changes in interest rates, the Fund may purchase or sell
options on U.S. Government securities and engage in transactions involving
interest rate futures contracts and options on such contracts. See "Risk Fac-
tors and Special Considerations" and the Statement of Additional Information
for further discussion. The Fund may invest in repurchase agreements fully col-
lateralized by U.S. Government securities. The Fund may also purchase or sell
U.S. Government securities on a forward commitment basis. See "Risk Factors and
Special Considerations." The Fund is not designed for investors seeking long-
term capital appreciation. Shares of the Fund are not insured or guaranteed by
the U.S. Government, its agencies or instrumentalities or by any other person
or entity. There is no assurance that the Fund will be successful in achieving
its goal.     
   
 The Fund may also engage in transactions involving obligations issued or guar-
anteed by U.S. Government agencies and instrumentalities which are supported by
any of the following: (a) the full faith and credit of the U.S. Government
(such as Government National Mortgage Association ("GNMA") Certificates), (b)
the right of the issuer to borrow an amount limited to a specific line of
credit from the U.S. Government, (c) discretionary authority of the U.S. Gov-
ernment agency or instrumentality, or (d) the credit of the instrumentality.
Agencies and instrumentalities include, but are not limited to: Federal Land
Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks and Federal National Mort-
gage Association ("FNMA"). The Fund expects in any event that at all times at
least 80% of its assets will be invested in U.S. Government securities.     
   
 Securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities include: (1) U.S. Treasury obligations, which differ in their
interest rates, maturities and times of issuance: U.S. Treasury bills (maturity
of one year or less), U.S. Treasury notes (maturity of one to ten years), and
U.S. Treasury bonds (generally maturities of greater than ten years), including
the principal components or the interest components issued by the U.S. Govern-
ment under the Separate Trading of Registered Interest and Principal of Securi-
ties program (i.e. "STRIPS"), all of which are backed by the full faith and
credit of the United States; and (2) obligations issued or guaranteed by U.S.
Government agencies or instrumentalities, including government guaranteed mort-
gage-related securities, some of which are backed by the full faith and credit
of the U.S. Treasury, some of which are supported by the right of the issue to
borrow from the U.S. Government and some of which are backed only by the credit
of the issuer itself.     
   
 Mortgage loans made by banks, savings and loan institutions, and other lenders
are often assembled into pools, which are issued or guaranteed by an agency or
instrumentality of the U.S. Government, though not necessarily by the U.S. Gov-
ernment itself. Interests in such pools are what this Prospectus calls "mort-
gage-related securities."     
   
 Mortgage-related securities include, but are not limited to, obligations
issued or guaranteed by GNMA, FNMA and the Federal Home Loan Mortgage Corpora-
tion ("FHLMC"). GNMA is a wholly owned corporate instrumentality of the United
States whose securities and guarantees are backed by the full faith and credit
of the United States. FNMA, a federally chartered and privately-owned corpora-
tion, and FHLMC, a federal corporation, are instrumentalities of the United
States. The securities and guarantees of FNMA and FHLMC are not backed,
directly or indirectly, by the full faith and credit of the United States.
Although the Secretary of the Treasury of the United States has discretionary
authority to lend FNMA up to $2.25 billion outstanding at any time, neither the
United States nor any agency thereof is obligated to finance FNMA's or FHLMC's
operations or to assist FNMA or FHLMC in any other manner. Securities of FNMA
and FHLMC include those issued in principal only or interest only components.
       
 Mortgage-related securities are characterized by monthly payments to the hold-
er, reflecting the monthly payments made by the borrowers who received the
underlying mortgage loans. The payments to the securityholders (such as the
Fund), like the payments on the underlying loans, represent both principal and
interest. Although the underlying mortgage loans are for specified periods of
time, such as 20 or 30 years, the borrowers can, and typically do, pay them off
sooner. Thus, the securityholders frequently receive prepayments of principal,
in addition to the principal which is part of the regular monthly payment. A
borrower is more likely to prepay a     
 
18
<PAGE>
 
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
   
mortgage which bears a relatively high rate of interest. This means that in
times of declining interest rates, some of the Fund's higher yielding securi-
ties might be converted to cash, and the Fund will be forced to accept lower
interest rates when that cash is used to purchase additional securities. The
increased likelihood of prepayment when interest rates decline also limits mar-
ket price appreciation of mortgage-related securities. If the Fund buys mort-
gage-related securities at a premium, mortgage foreclosures or mortgage prepay-
ments may result in a loss to the Fund of up to the amount of the premium paid
since only timely payment of principal and interest is guaranteed.     
   
 In general, the prices of debt securities vary inversely with interest rates.
If interest rates rise, debt security prices generally fall; if interest rates
fall, debt security prices generally rise. In addition, for a given change in
interest rates, longer-maturity debt securities fluctuate more in price (gain-
ing or losing more in value) than shorter-maturity debt securities, and gener-
ally offer higher yields than shorter-maturity debt securities, all other fac-
tors, including credit quality, being equal. This potential for a decline in
prices of debt securities due to rising interest rates is referred to herein as
"market risk." While the Fund has no policy limiting the maturities of the debt
securities in which it may invest, MMC seeks to moderate market risk by gener-
ally maintaining a portfolio duration within a range of approximately four to
six years. Duration is a measure of the expected life of a debt security that
was developed as a more precise alternative to the concept of "term to maturi-
ty." Duration incorporates a debt security's yield, coupon interest payments,
final maturity and call features into one measure.     
   
 Traditionally a debt security's "term to maturity" has been used as a proxy
for the sensitivity of the security's price to changes in interest rates (which
is the "interest rate risk" or "price volatility" of the security). However,
"term to maturity" measures only the time until a debt security provides its
final payment taking no account of the pattern of the security's payments of
interest or principal prior to maturity. Duration measures the length of the
time interval between the present and the time when the interest and principal
payments are scheduled to be received (or in the case of a callable bond,
expected to be received), weighing them by the present value of the cash to be
received at each future point in time. In general, the lower the coupon rate of
interest or the longer the maturity, or the lower the yield-to-maturity of a
debt security, the longer its duration; conversely, the higher the coupon rate
of interest, the shorter the maturity or the higher the yield-to-maturity of a
debt security, the shorter its duration.     
   
 With respect to some securities, there may be some situations where even the
standard duration calculation does not properly reflect the interest rate expo-
sure of a security. In these and other similar situations, MMC will use more
sophisticated analytical techniques that incorporate the economic life of a
security into the determination of its interest rate exposure. The duration is
likely to vary from time to time as MMC pursues its strategy of striving to
maintain an active balance between seeking to maximize income and endeavoring
to maintain the value of the Fund's capital. Thus, the objective of providing
high current return consistent with preservation of capital to shareholders is
tempered by seeking to avoid undue market risk and thus provide reasonable
total return as well as high distributed return. There is, of course, no assur-
ance that MMC will be successful in achieving such results for the Fund.     
   
 The Fund generally purchases debt securities at a premium over the principal
or face value in order to obtain higher current income. The amount of any pre-
mium declines during the term of the security to zero at maturity. Such decline
generally is reflected in the market price of the security and thus in the
Fund's net asset value. Any such decline is realized for accounting purposes as
a capital loss at maturity or upon resale. Prior to maturity or resale, such
decline in value could be offset, in whole or part, or increased by changes in
the value of the security due to changes in interest rate levels.     
   
 The principal reason for selling call or put options is to obtain, through the
receipt of premiums, a greater return than would be realized on the underlying
securities alone. By selling options, the Fund reduces its potential for capi-
tal appreciation on debt securities if interest rates decline. Thus, if market
prices of debt securities increase, the Fund would receive a lower total return
from its optioned positions than it would have received if the options had not
been sold. The purpose of selling options is intended to improve the Fund's
total return and not to "enhance" monthly distributions. During periods when
the Fund has capital loss carryforwards, any capital gains generated from such
transactions will be retained in the Fund. See "Risk Factors and Special Con-
siderations" and the Statement of Additional Information for further discus-
sion.     
   
 The purchase and sale of options may result in a high portfolio turnover rate.
The Fund's turnover rate is shown in the table of Financial Highlights. See
"Risk Factors and Special Considerations" for a discussion of the effect of a
Fund's portfolio turnover.     
    
 MUNICIPAL FUND     
   
 The goal of the Municipal Fund is to seek as high a level of current interest
income exempt from federal income tax as is consistent with the preservation of
capital. Because the value of and yield on municipal bonds fluctuate, there can
be no assurance that the Fund's goal will be achieved.     
 
                                                                              19
<PAGE>
 
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
   
 The Fund seeks to achieve its objective by investing in a diversified portfo-
lio of obligations issued by or on behalf of states, territories or possessions
of the United States and the District of Columbia and their political subdivi-
sions, agencies and instrumentalities, the interest from which, in the opinion
of bond counsel for the issuer, is exempt from federal income tax ("Municipal
Bonds"). It is a fundamental policy of the Fund under normal conditions to
invest at least 80% of its assets in Municipal Bonds which are considered tax-
exempt. The Fund does not independently evaluate the tax-exempt status of the
Municipal Bonds in which it invests. The Fund invests principally in Municipal
Bonds rated at the time of purchase within the three highest grades assigned by
Moody's or S&P. Ratings at the time of purchase determine which securities may
be acquired, and a subsequent reduction in rating does not require the Fund to
dispose of a security. At least 75% of the Fund's total assets will be invested
in Municipal Bonds rated "A" or higher. The Fund may invest up to 25% of its
total assets in Municipal Bonds rated "Baa" by Moody's or "BBB" by S&P or any
non-rated Municipal Bonds having characteristics similar to Municipal Bonds
rated "Baa" or "BBB." Municipal Bonds rated BBB or Baa may have speculative
characteristics so that changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity to make principal and interest
payments than in the case of higher grade Municipal Bonds. The market prices of
Municipal Bonds generally fluctuate with changes in interest rates so that the
value of investments in such securities can be expected to decrease as interest
rates rise and increase as interest rates fall. Because investment in lower
rated securities involves greater investment risks, achievement of the Fund's
goal may be more dependent on MMC's credit analysis than would be the case if
the Fund invested only in higher rated securities. Non-rated Municipal Bonds
are not necessarily of lower quality than rated Municipal Bonds, but the market
for rated Municipal Bonds is often broader. The Fund may seek to hedge against
changes in interest rates through transactions in listed futures contracts
related to U.S. Government securities, Municipal Bonds or to an index of Munic-
ipal Bonds, and options on such contracts. See the Statement of Additional
Information for discussion of futures contracts and options.     
   
 On a temporary basis, due to market conditions or pending investment in Munic-
ipal Bonds, the Fund may invest up to 100% of its assets in "Temporary Invest-
ments" consisting of short-term municipal notes rated MIG 1 through MIG 4 by
Moody's or SP-1 or SP-2 by S&P; tax-exempt commercial paper rated P-1 or P-2 in
the case of Moody's or A-1 or A-2 by S&P; securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities; corporate bonds and
debentures; certificates of deposit and bankers' acceptances of domestic banks
with assets of $500 million or more and having deposits insured by the Federal
Deposit Insurance Corporation; commercial paper and repurchase agreements. The
income on corporate bonds and debentures, certificates of deposit and bankers'
acceptances, commercial paper and repurchase agreements is taxable. See the
Appendix in the Statement of Additional Information for discussion of ratings
of commercial paper and bonds.     
   
 The Fund may invest up to 10% of its net assets in illiquid securities which
include Municipal Bonds issued in limited placements under which the Fund rep-
resents that it is purchasing for investment purposes only, repurchase agree-
ments maturing in more than seven days and other securities subject to legal or
contractual restrictions on resale. Municipal Bonds acquired in limited place-
ments generally may be resold only in a privately negotiated transaction to one
or more other institutional investors. Restricted securities are generally pur-
chased at a discount from the market price of unrestricted securities of the
same issuer. Investments in restricted securities are not readily marketable
without some time delay. A Fund position in restricted securities might
adversely affect the liquidity and marketability of such securities. Such limi-
tations could result in the Fund's inability to realize a favorable price upon
disposition, and in some cases might make disposition of such securities at the
time desired by the Fund impossible. The 10% limitation applies at the time the
purchase commitment is made. See "Risk Factors and Special Considerations."
       
 Variations in the quality and maturity of the Fund's portfolio investments can
be expected to affect the Fund's yield and the degree of market and financial
risk to which the Fund is subject. Generally, Municipal Bonds with longer matu-
rities tend to produce higher yields and are subject to greater market fluctua-
tions as a result of changes in interest rates than Municipal Bonds with
shorter maturities and lower yields. The market value of Municipal Bonds gener-
ally rises when interest rates decline and falls when interest rates rise. Gen-
erally lower rated Municipal Bonds provide a higher yield than higher rated
Municipal Bonds of similar maturity but are subject to greater market and
financial risk. The Fund is not limited as to the maturities of the Municipal
Bonds in which it invests. Such securities may have remaining maturities of up
to 30 years or more.     
   
 Municipal Bonds. Municipal Bonds include debt obligations of a state, terri-
tory or a possession of the United States and the District of Columbia and
their political subdivisions, agencies and instrumentalities issued to obtain
funds for various public purposes, including the construction of a wide range
of public facilities such as airports, highways, bridges, schools, hospitals,
housing, mass transportation, streets and water and sewer works. Other public
purposes for which Municipal Bonds may be issued include refunding outstanding
obligations, obtaining funds for general operating expenses and obtaining funds
to lend to other public institutions and facilities. Certain types of Municipal
Bonds are issued to obtain funding for privately operated facilities.     
   
 Many new issues of Municipal Bonds are sold on a "when issued" basis. While
the Fund has ownership rights to the bonds, the Fund does not have to pay for
them until they are delivered, normally 15 to 45 days later. To meet that pay-
ment obligation, the Fund     
 
20
<PAGE>
 
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES (CONTINUED)
   
sets aside with the custodian sufficient cash or high grade securities equal to
the amount that will be due. When the Fund engages in when-issued and delayed
delivery transactions, the Fund relies on the buyer or seller, as the case may
be, to consummate the trade. Failure of the buyer or seller to do so may result
in the Fund missing the opportunity of obtaining a price considered to be
advantageous. See "Risk Factors and Special Considerations."     
   
 The yields of Municipal Bonds depend on, among other things, general money
market conditions, general conditions of the Municipal Bond market, size of a
particular offering, the maturity of the obligation and rating of the issue.
The ratings of Moody's and S&P represent their opinions of the quality of the
Municipal Bonds they undertake to rate. It should be emphasized, however, that
ratings are general and are not absolute standards of quality. Consequently,
Municipal Bonds with the same maturity, coupon and rating may have different
yields while Municipal Bonds of the same maturity and coupon with different
ratings may have the same yield. A description of the ratings is included in
the Statement of Additional Information.     
   
 Among the various types of Municipal Bonds are general obligation bonds, reve-
nue or special obligation bonds, industrial development bonds, pollution con-
trol bonds, variable rate demand notes, and short-term tax-exempt municipal
obligations such as tax anticipation notes.     
   
 General obligation bonds are backed by the taxing power of the issuing munici-
pality. Revenue bonds are backed by the revenues of a project or facility--
tolls from a toll-bridge, for example. Industrial development revenue bonds are
a specific type of revenue bond backed by the credit and security of a private
user. The Fund's ability to achieve its goal depends to a great extent on the
ability of these various issuers to meet their scheduled payments of principal
and interest.     
   
 The Fund considers investments in Municipal Bonds not to be subject to concen-
tration policies and may invest a relatively high percentage of its assets in
Municipal Bonds issued by entities having similar characteristics. The issuers
may be located in the same geographic area or may pay their interest obliga-
tions from revenue of similar projects such as hospitals, utility systems and
housing finance agencies. This may make the Fund's investments more susceptible
to similar economic, political or regulatory occurrences. As the similarity in
issuers increases, the potential for fluctuation in the Fund's per share net
asset value also increases. The Fund may invest more than 25% of its total
assets in industrial development revenue bonds, but it does not intend to
invest more than 25% of its assets in industrial development revenue bonds
issued for companies in the same industry or state. Sizeable investments in
such obligations could involve an increased risk to the Fund should any of such
issuers of any such relate projects or facilities experience financial diffi-
culties.     
   
 From time to time, proposals have been introduced before Congress for the pur-
pose of restricting or eliminating the federal income tax exemption for inter-
est on Municipal Bonds. It may be expected that similar proposals may be intro-
duced in the future. If any such proposals were to be enacted, the ability of
the Fund to pay "exempt-interest" dividends may be adversely affected and the
Fund would re-evaluate its investment objective and policies and consider
changes in its structure.     
   
 Interest on certain "private-activity bonds" issued after August 7, 1986, is
an item of tax preference subject to the alternative minimum tax on individuals
and corporations. THE FUND WILL NOT PURCHASE ANY PRIVATE ACTIVITY BONDS SUBJECT
TO THE ALTERNATIVE MINIMUM TAX.     
   
 The Omnibus Budget Reconciliation Act of 1993, which was signed into law on
August 10, 1993, included certain provisions intended to prevent the conversion
of ordinary income into capital gain. One such provision affects tax-exempt
securities by requiring that gains on certain debt instruments purchased at a
market discount be treated as ordinary income to the extent of the accrued mar-
ket discount. The law extends this treatment to market discount bonds issued
before July 18, 1984 and to tax-exempt bonds, if the bonds are acquired after
April 30, 1993. Such bonds were exempt from the market discount rules under
prior law.     
       
RISK FACTORS AND SPECIAL CONSIDERATIONS
          
 Repurchase Agreements (All Funds). Each Fund may enter into repurchase agree-
ments with broker-dealers or domestic banks. A repurchase agreement is a short-
term investment in which the purchaser (e.g., the Fund) acquires ownership of a
debt security and the seller agrees to repurchase the obligation at a future
time and set price, thereby determining the yield during the purchaser's hold-
ing period. Repurchase agreements involve certain risks in the event of a
default by the other party. No Fund will invest in repurchase agreements matur-
ing in more than seven days if any such investment, together with any other
illiquid securities held by such Fund, exceeds in the case of the Emerging
Growth Fund and the International Equity Fund, 15% of the value of the Fund's
net assets and, in the case of the Growth Fund, the Growth and Income Fund, the
Government Fund and the Municipal Fund 10% of the value of the Fund's net
assets. The International Equity Fund may enter into repurchase agreements of
up to 25% of its assets but the Fund currently does not expect that it will
enter into repurchase agreements on more than 5% of its assets. See the State-
ment of Additional Information.     
 
                                                                              21
<PAGE>
 
RISK FACTORS AND SPECIAL CONSIDERATIONS (CONTINUED)
   
 For the purpose of investing in repurchase agreements, MMC may aggregate the
cash that certain funds advised or subadvised by MMC or its affiliates would
otherwise invest separately into a joint account. The cash in the joint account
is then invested in repurchase agreements and the funds that contributed to the
joint account share pro rata in the net revenue generated. MMC believes that
the joint account produces efficiencies and economies of scale that may con-
tribute to reduced transaction costs, higher returns, higher quality invest-
ments and greater diversity of investments for a Fund than would be available
to a Fund investing separately. The manner in which the joint account is man-
aged is subject to conditions set forth in an SEC exemptive order authorizing
this practice, which conditions are designed to ensure the fair administration
of the joint account and to protect the amounts in that account.     
   
 Adjusting Investment Exposure (All Funds). The Funds can use various tech-
niques to increase or decrease their exposure to changing security prices,
interest rates, commodity prices, or other factors that affect security values.
These techniques may involve derivative securities such as options, futures
contracts, swaps, and forward commitments, all as discussed more fully below.
       
 Options, Futures and Related Options (All Funds). The Funds expect to utilize
options, futures contracts and options thereon in several different ways,
depending upon the status of a Fund's portfolio and MMC's expectations concern-
ing the securities markets.     
   
 For example, in times of stable or rising security prices, a Fund generally
seeks to obtain maximum exposure to the securities markets, i.e., to be "fully
invested." Nevertheless, even when a Fund is fully invested, prudent management
requires that at least a small portion of assets be available as cash to honor
redemption requests and for other short-term needs. A Fund may also have cash
on hand that has not yet been invested. The portion of a Fund's assets that is
invested in cash equivalents does not fluctuate with security market prices, so
that, in times of rising market prices, a Fund may underperform the market in
proportion to the amount of cash equivalents in its portfolio. By purchasing
futures contracts, however, a Fund can compensate for the cash portion of its
assets and obtain equivalent performance to investing 100% of its assets in
equity securities.     
   
 If MMC forecasts a market decline, a Fund may take a defensive position,
reducing its exposure to the securities markets by increasing its cash posi-
tion. By selling futures contracts instead of portfolio securities, a similar
result can be achieved to the extent that the performance of the futures con-
tracts correlates to the performance of a Fund's portfolio securities. Sale of
futures contracts could frequently be accomplished more rapidly and at less
cost than the actual sale of securities. Once the desired hedged position has
been effected, a Fund could then liquidate securities in a more deliberate man-
ner, reducing its futures position simultaneously to maintain the desired bal-
ance, or it could maintain the hedged position.     
   
 As an alternative to selling futures contracts, a Fund can purchase puts (or
futures puts) to hedge the portfolio's risk in a declining market. Since the
value of a put increases as the index declines below a specified level, the
portfolio's value is protected against a market decline to the degree the per-
formance of the index correlates with the performance of a Fund's investment
portfolio. If the market remains stable or advances, a Fund can refrain from
exercising the put and its portfolio will participate in the advance, having
incurred only the premium cost for the put.     
   
 In many cases, a Fund could achieve results similar to those available from
options and futures contracts without investing in the options and futures mar-
kets. For example, instead of hedging portfolio securities it owned with
options and futures contracts, the Fund could sell the securities and invest
the proceeds in money market instruments. In other cases, however, the options
and futures markets provide investment or risk management opportunities that
are not available from direct investments in securities. In addition, some
strategies can be implemented with greater ease and at lower cost by utilizing
the options and futures markets.     
   
 The International Equity Fund may enter into futures contracts and options for
non-hedging purposes, subject to applicable law. Such transactions may be con-
sidered a form of speculation.     
   
 Potential Risks of Options, Futures and Related Options (All Funds). The pur-
chase and sale of options and futures contracts involve risks different from
those involved with direct investments in underlying securities. While utiliza-
tion of options, futures contracts and similar instruments may be advantageous
to a Fund, if MMC is not successful in employing such instruments in managing a
Fund's investments, a Fund's performance will be worse than if a Fund did not
make such investments. In addition, a Fund would pay commissions and other
costs in connection with such investments, which may increase a Fund's expenses
and reduce its return.     
   
 Each Fund other than the Municipal Fund may write or purchase options in pri-
vately negotiated transactions ("OTC Options") as well as listed options. OTC
Options can be closed out only by agreement with the other party to the trans-
action. Any OTC Option purchased by a Fund will be considered an illiquid secu-
rity. Any OTC Option written by a Fund will be with a qualified dealer pursuant
    
22
<PAGE>
 
RISK FACTORS AND SPECIAL CONSIDERATIONS (CONTINUED)
   
to an agreement under which the Fund may repurchase the option at a formula
price. Such options will be considered illiquid to the extent that the formula
price exceeds the intrinsic value of the option. Each Fund other than the
International Equity Fund may not purchase or sell futures contracts or related
options for which the aggregate initial margin and premiums exceed 5% of the
fair market value of the Fund's assets. The International Equity Fund may enter
into transactions in futures contracts and options on futures contracts only
(i) for bona fide hedging purposes (as defined in the regulations of the Com-
modity Futures Trading Commission (the "CFTC")), or (ii) for non-hedging pur-
poses provided that the aggregate initial margin and premiums on such non-hedg-
ing positions does not exceed 5% of the liquidation value of the Fund's assets.
       
 In order to prevent leverage in connection with the purchase of futures con-
tracts thereon by the Fund, appropriate securities as required by the 1940 Act
equal to the market value of the obligation under the futures contracts (less
any related margin deposits) will be maintained in a segregated account with
the Fund's custodian. The Growth Fund, the Growth and Income Fund, the Govern-
ment Fund and the Municipal Fund may not invest more than 10% of their net
assets in illiquid securities and repurchase agreements which have a maturity
of longer than seven days; the Emerging Growth Fund and the International
Equity Fund are limited to 15% of their net assets. The successful use of
futures and options is dependent upon the ability of MMC to predict changes in
interest rates. The daily deposit requirements in futures contracts create an
ongoing greater potential financial risk than do option purchase transactions,
where the exposure is limited to the cost of the premium for the option. Trans-
actions in futures and options on futures for non-hedging purposes involve
greater risks and could result in losses which are not offset by gains on other
portfolio assets. A more complete discussion of the potential risks involved in
transactions involving options or futures contracts and related options, is
contained in the Statement of Additional Information.     
   
 Special Risks Associated with Futures Transactions (All Funds). There are sev-
eral risks connected with the use of futures contracts as a hedging device.
These include the risk of imperfect correlation between movements in the price
of the futures contracts and of the underlying securities, the risk of market
distortion, the illiquidity risk and the risk of error in anticipating price
movement.     
   
 Currency Transactions (International Equity Fund). In order to protect the
dollar equivalent value of its portfolio securities against declines resulting
from currency value fluctuations and changes in interest rate or other market
changes, the Fund may enter into the following hedging transactions: forward
foreign currency contracts, interest rate and currency swaps and various
futures contracts and related options contracts. The Fund will enter into vari-
ous currency transactions, i.e., forward foreign currency contracts, currency
swaps, foreign currency or currency index futures contracts and put and call
options on such contracts or on currencies. A forward foreign currency contract
involves an obligation to purchase or sell a specific currency for a set price
at a future date. A currency swap is an arrangement whereby each party
exchanges one currency for another on a particular date and agrees to reverse
the exchange on a later date at a specific exchange rate. Forward foreign cur-
rency contracts and currency swaps are established in the interbank market con-
ducted directly between currency traders (usually large commercial banks or
other financial institutions) on behalf of their customers. Futures contracts
are similar to forward contracts except that they are traded on an organized
exchange and the obligations thereunder may be offset by taking an equal but
opposite position to the original contract, with profit or loss determined by
the relative prices between the opening and offsetting positions. The Fund may
enter into these currency contracts and swaps in primarily the following cir-
cumstances to "lock in" the U.S. dollar equivalent price of a security the Fund
is contemplating to buy or sell that is denominated in a non-U.S. currency; or
to protect against a decline against the U.S. dollar of the currency of a par-
ticular country to which the Fund has exposure. The Fund may seek to achieve
the same economic result by using from time to time for such hedging a currency
different from the one of the given portfolio security as long as, in the view
of MMC, such currency is essentially correlated to the currency of the relevant
portfolio security based on historic and expected exchange rate patterns.     
   
 Interest Rate Transactions (International Equity Fund). The Fund will enter
into various interest rate transactions (i.e., futures contracts in various
financial instruments and interest rate related indices, put and call options
on such futures contracts and on such financial instruments and interest rate
swaps). The Fund will enter into these transactions primarily to " lock-in" a
return or spread on a particular investment or portion of its portfolio and to
protect against any increase in the price of securities the Fund anticipates
purchasing at a later date. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitment to pay or receive inter-
est (e.g., an exchange of floating rate payments for fixed rate payments). The
Fund will not enter into an interest rate swap transaction in which its inter-
est commitment is greater or measured differently than the interest receivable
on specific portfolio securities. Interest rate swaps may be combined with cur-
rency swaps to take advantage of rate differentials in different markets on the
same or similar securities.     
   
 Market Index Transactions (International Equity Fund). The Fund may enter into
various market index contracts (i.e., index futures contracts on particular
non-U.S. securities markets or industry segments and related put and call
options). These contracts are used primarily to protect the value of the Fund's
securities against a decline in a particular market or industry in which it is
invested.     
 
                                                                              23
<PAGE>
 
   
RISK FACTORS AND SPECIAL CONSIDERATIONS (CONTINUED)     
   
 Potential Risks of Currency Transactions, Interest Rate Transactions and Mar-
ket Index Transactions (International Equity Fund). The Fund will engage in
these transactions primarily as a means to hedge risks associated with manage-
ment of its portfolio. All of the foregoing transactions present certain risks.
In particular, the variable degree of correlation between price movements of
futures contracts and dollar equivalent price movements in the currency or
security being hedged creates the possibility that losses on the hedge may be
greater than gains in the value of the Fund's securities. In addition, these
instruments may not be liquid in all circumstances and are generally closed out
by entering into offsetting transactions rather than by disposing of the Fund's
obligations. As a result, in volatile markets, the Fund may not be able to
close out a transaction without incurring losses. Although the contemplated use
of these contracts should tend to minimize the risk of loss due to a decline in
the value of the hedged currency or security, at the same time they tend to
limit any potential gain which might result from an increase in the value of
such currency or security.     
   
 With respect to interest rate swaps, the Fund recognizes that such arrange-
ments are relatively illiquid and will include the principal amount of the
obligations owed to it under a swap as an illiquid security for purposes of the
Fund's investment restrictions except to the extent a third party (such as a
large commercial bank) has guaranteed the Fund's ability to offset the swap at
any time.     
   
 Securities of Foreign Issuers (All Funds except Government Fund and Municipal
Fund). The International Equity Fund invests at least 65% of its total assets
in the equity securities of foreign issuers and the Emerging Growth Fund, the
Growth Fund and the Growth and Income Fund may invest up to 20% of the value of
their total assets in securities of foreign governments and companies of devel-
oped and emerging markets countries.     
   
 Investments in securities of foreign entities and securities denominated in
foreign currencies involve risks not typically involved in domestic investment,
including fluctuations in foreign exchange rates, future foreign political and
economic developments, and the possible imposition of exchange controls or
other foreign or United States governmental laws or restrictions applicable to
such investments. Since each Fund may invest in securities denominated or
quoted in currencies other than the U.S. dollar, changes in foreign currency
exchange rates may affect the value of investments in the portfolio and the
accrued income and unrealized appreciation or depreciation of investments.
Changes in foreign currency rates relative to the U.S. dollar will affect the
U.S. dollar value of the Fund's assets denominated in that currency and the
Fund's yield on such assets.     
   
 Each Fund may also purchase foreign securities in the form of American Deposi-
tary Receipts ("ADRs") and European Depositary Receipts ("EDRs") or other secu-
rities representing underlying shares of foreign companies. ADRs are publicly
traded on exchanges or over-the-counter in the United States and are issued
through "sponsored" or "unsponsored" arrangements. In a sponsored ADR arrange-
ment, the foreign issuer assumes the obligation to pay some or all of the
depositary's transaction fees, whereas under an unsponsored arrangement, the
foreign issuer assumes no obligation and the depositary's transaction fees are
paid by the ADR holders. In addition, less information is available in the
United States about an unsponsored ADR than about a sponsored ADR, and the
financial information about a company may not be reliable for an unsponsored
ADR as it is for a sponsored ADR. Each Fund may invest in ADRs through both
sponsored and unsponsored arrangements. For further information on ADRs and
EDRs, investors should refer to the Statement of Additional Information.     
   
 With respect to certain foreign countries, there is the possibility of expro-
priation of assets, confiscatory taxation, political or social instability or
diplomatic developments which could affect investment in those countries. There
may be less publicly available information about a foreign security than about
a United States security, and foreign entities may not be subject to account-
ing, auditing and financial reporting standards and requirements comparable to
those of United States entities. In addition, certain foreign investments made
by the Fund may be subject to foreign withholding taxes, which would reduce the
Fund's total return on such investments and the amounts available for distribu-
tions by the Fund to its shareholders. See "Dividends, Distributions and Tax-
es." Foreign financial markets, while growing in volume, have, for the most
part, substantially less volume than United States markets, and securities of
many foreign companies are less liquid and their prices more volatile than
securities of comparable domestic companies. The foreign markets also have dif-
ferent clearance and settlement procedures, and in certain markets there have
been times when settlements have been unable to keep pace with the volume of
securities transactions making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when assets of the Fund
are not invested and no return is earned thereon. The inability of each Fund to
make intended security purchases due to settlement problems could cause the
Fund to miss attractive investment opportunities. Inability to dispose of port-
folio securities due to settlement problems could result either in losses to
the Fund due to subsequent declines in value of the portfolio security or, if
the Fund has entered into a contract to sell the security, could result in pos-
sible liability to the purchaser. Costs associated with transactions in foreign
securities, including custodial costs and foreign brokerage commissions, are
generally higher than with transactions in United States securities. In addi-
tion, each Fund will incur cost in connection with conversions between various
currencies. There is generally less government supervision and regulation of
exchanges, financial institutions and issuers in foreign countries than there
are in the United States. These risks may be intensified in the case of invest-
ments in developing or emerging markets. In many developing markets, there is
less government supervision and regulation of business and industry practices,
stock exchanges, brokers and listed companies than in the United States. The
foreign securities markets of many of the countries in which the Fund may
invest may also be smaller, less liquid, and subject to greater price volatil-
ity than those in the United States.     
 
24
<PAGE>
 
   
RISK FACTORS AND SPECIAL CONSIDERATIONS (CONTINUED)     
   
Finally, in the event of a default on any such foreign debt obligations, it may
be more difficult for the Fund to obtain or to enforce a judgment against the
issuers of such securities.     
   
 The Emerging Growth Fund, the International Equity Fund, the Growth Fund and
the Growth and Income Fund may invest in the securities of developing coun-
tries. A developing country generally is considered to be a country that is in
the initial stages of its industrialization cycle. Investing in the equity and
fixed-income markets of developing countries involves exposure to economic
structures that are generally less diverse and mature, and to political systems
that can be expected to have less stability, than those of developed countries.
Historical experience indicates that the markets of developing countries have
been more volatile than the markets of the more mature economics of developed
countries; however, such markets often have provided higher rates of return to
investors.     
   
 One or more of the risk discussed above could affect adversely the economy of
a developing market or a Fund's investments in such a market. In Eastern
Europe, for example, upon the accession to power of Communist regimes in the
past, the governments of a number of Eastern European countries expropriated a
large amount of property. The claims of many property owners against those gov-
ernments were never finally settled. There can be no assurance that any invest-
ments that the Fund might make in such emerging markets would not be expropri-
ated, nationalized or otherwise confiscated at some time in the future. In such
an event, the Fund could lose its entire investment in the market involved.
Moreover, changes in the leadership or policies of such markets could halt the
expansion or reverse the liberalization of foreign investment policies now
occurring in certain of these markets and adversely affect existing investment
opportunities.     
   
 Forward Commitments (Government Fund). The Fund may purchase or sell U.S. Gov-
ernment securities on a "when-issued" or "delayed delivery" basis ("Forward
Commitments"). These transactions occur when securities are purchased or sold
by the Fund with payment and delivery taking place in the future, frequently a
month or more after such transactions. The price is fixed on the date of the
commitment, and the seller continues to accrue interest on the securities cov-
ered by the Forward Commitment until delivery and payment take place. At the
time of settlement, the market value of the securities may be more or less than
the purchase or sale price.     
   
 The Fund may either settle a Forward Commitment by taking delivery of the
securities or may either resell or repurchase a Forward Commitment on or before
the settlement date in which event the Fund may reinvest the proceeds in
another Forward Commitment. The Fund's use of Forward Commitments may increase
its overall investment exposure and thus its potential for gain or loss. When
engaging in Forward Commitments, the Fund relies on the other party to complete
the transaction; should the other party fail to do so, the Fund might lose a
purchase or sale opportunity that could be more advantageous than alternative
opportunities at the time of the failure.     
   
 The Fund maintains a segregated account (which is marked to market daily) of
appropriate securities as required by the 1940 Act covered by the Forward Com-
mitment with the Fund's custodian in an aggregate amount equal to the amount of
its commitment as long as the obligation to purchase or sell continues.     
   
 Loans of Portfolio Securities (All Funds). Each Fund may lend portfolio secu-
rities to unaffiliated brokers, dealers and financial institutions provided
that (a) immediately after any such loan, the value of the securities loaned
does not exceed 10% of the total value of that Fund's assets (15% in the case
of the Emerging Growth Fund and the International Equity Fund), and (b) any
securities loan is collateralized in accordance with applicable regulatory
requirements. MMC believes the risk of loss on such transaction is slight,
because, if a borrower was to default for any reason, the collateral should
satisfy the obligation. See the Statement of Additional Information.     
   
 Variable Rate Demand Notes (Municipal Fund). The Fund may invest in variable
rate demand notes ("VRDNs") which are tax-exempt obligations which contain a
floating or variable interest rate adjustment formula and which are subject to
an unconditional right of demand to receive payment of the principal balance
plus accrued interest either at any time or at specified intervals not exceed-
ing one year and in either case upon no more than seven days' notice. The
interest rates are adjustable at intervals ranging from daily ("floating rate")
to up to one year to some prevailing market rate for similar investments, such
adjustment formula being calculated to maintain the market value of the VRDN at
approximately the par value of the VRDN upon the adjustment date. The adjust-
ments are typically based upon the prime rate of a bank or some other appropri-
ate interest rate adjustment index.     
     
 The Fund may also invest in VRDNs in the form of participation interests
("Participating VRDNs") in variable rate tax-exempt obligations held by a
financial institution, typically a commercial bank ("institution"). Participat-
ing VRDNs provide the Fund with a specified undivided interest (up to 100%) in
the underlying obligation and the right to demand payment of the unpaid princi-
pal balance plus accrued interest on the Participating VRDNs from the institu-
tion upon a specified number of days' notice, not to exceed seven days. The
Fund has an undivided interest in the underlying obligation and thus partici-
pates on the same basis as the institution in such      
 
                                                                              25
<PAGE>
 
   
RISK FACTORS AND SPECIAL CONSIDERATIONS (CONTINUED)     
   
obligation except that the institution typically retains fees out of the inter-
est paid on the obligation for servicing the obligation and issuing the repur-
chase commitment.     
   
 Stand-by Commitments (Municipal Fund). The Fund may acquire stand-by commit-
ments with respect to Municipal Bonds held by it. Under a stand-by commitment,
a bank or dealer from which Municipal Bonds are acquired agrees to purchase
from the Fund, at the Fund's option, the Municipal Bonds at a specified price.
Such commitments are sometimes called "liquidity puts."     
   
 The amount payable to the Fund upon its exercise of a stand-by commitment is
normally (i) the Fund's acquisition cost of the Municipal Bonds (excluding any
accrued interest which the Fund paid on their acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period. Stand-by
commitments generally can be acquired when the remaining maturity of the under-
lying Municipal Bonds is not greater than one year, and are exercisable by the
Fund at any time before the maturity of such obligations.     
   
 The Fund's right to exercise stand-by commitments is unconditional and unqual-
ified. A stand-by commitment generally is not transferable by the Fund,
although the Fund can sell the underlying Municipal Bonds to a third party at
any time.     
   
 The Fund expects that stand-by commitments will generally be available without
the payment of any direct or indirect consideration. However, if necessary or
advisable, the Fund may pay for a stand-by commitment either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to the commitment (thus reducing the yield to maturity otherwise available for
the same securities). The total amount paid in either manner for outstanding
stand-by commitments held in the Fund will not exceed one-half of one percent
of the value of the Fund's total asses calculated immediately after each stand-
by commitment is acquired. The Fund intends to enter into stand-by commitments
only with banks and dealers which, in MMC's opinion, present minimal credit
risks.     
   
 The Fund would acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The acquisition of a stand-by commitment would not affect the valua-
tion of the underlying Municipal Bonds which would continue to be valued in
accordance with the method of valuation employed by the Fund. Stand-by commit-
ments acquired by the Fund would be valued at zero in determining net asset
value. Where the Fund paid any consideration directly or indirectly for a
stand-by commitment, the cost would be reflected as unrealized depreciation for
the period during which the commitment was held by the Fund.     
   
 Delayed Delivery and When-Issued Securities (Municipal Fund). Municipal Bonds
may at times be purchased or sold on a "delayed delivery" or a "when issued"
basis. These transactions arise when securities are purchased or sold by the
Fund with payment and delivery taking place in the future, often a month or
more after the purchase. The payment obligation and the interest rate are each
fixed at the time the Fund enters into the commitment. The Fund will only make
commitments to purchase such securities with the intention of actually acquir-
ing the securities, but the Fund may sell these securities prior to settlement
date if it is deemed advisable. Purchasing Municipal Bonds on a when-issued
basis involves the risk that the yields available in the market when the deliv-
ery takes place may actually be higher than those obtained in the transaction
itself; if yields so increase, the value of the when-issued obligation will
generally decrease. The Fund maintains a separate account at its custodian bank
consisting of appropriate securities as required by the 1940 Act (valued on a
daily basis) equal to all times to the amount of any when-issued commitment.
       
 Restricted Securities (All Funds). The Emerging Growth Fund and the Interna-
tional Equity Fund may each invest up to 15% of their net assets in restricted
securities and other illiquid assets and the Growth Fund, the Growth and Income
Fund, the Government Fund and the Municipal Bond Fund may each invest up to 5%
of their net assets. As used herein, restricted securities are those that have
been sold in the United States without registration under the Securities Act of
1933 and are thus subject to restrictions on resale. Excluded from the limita-
tion, however, are any restricted securities which are eligible for resale pur-
suant to Rule 144A under the Securities Act of 1933 and which have been deter-
mined to be liquid by the Trustees or by MMC pursuant to board-approved guide-
lines. The determination of liquidity is based on the volume of reported trad-
ing in the institutional secondary market for each security. This investment
practice could have the effect of increasing the level of illiquidity in each
Fund to the extent that qualified institutional buyers become for a time unin-
terested in purchasing these restricted securities. These difficulties and
delays could result in a Fund's inability to realize a favorable price upon
disposition of restricted securities, and in some cases might make disposition
of such securities at the time desired by the Fund impossible. Since market
quotations are not readily available for restricted securities, such securities
will be valued by a method that the Trustees believe accurately reflects fair
value.     
   
 Notwithstanding the foregoing, due to various state regulations, the Emerging
Growth Fund and the International Equity Fund will not invest more than 10% of
each Fund's net assets in restricted securities; restricted securities eligible
for resale pursuant to Rule 144A are not included within this limitation. In
the event that the Fund's shares cease to be qualified under the laws of such
states or if such regulations are amended or otherwise cease to be operative,
the Funds would not be subject to this 10% restriction.     
 
26
<PAGE>
 
RISK FACTORS AND SPECIAL CONSIDERATIONS (CONTINUED)
   
 Portfolio Turnover (All Funds). Each Fund may purchase or sell securities
without regard to the length of time the security has been held and thus may
experience a high rate of portfolio turnover. A 100% turnover rate would occur,
for example, if all the securities in a portfolio were replaced in a period of
one year. Under certain market conditions, the Growth Fund and the Government
Fund may experience a high rate of portfolio turnover. This may occur, for
example, if the Fund writes a substantial number of covered call options and
the market prices of the underlying securities appreciate. The rate of portfo-
lio turnover is not a limiting factor when MMC deems it desirable to purchase
or sell securities or to engage in options transactions. The annual turnover
rates of the Growth Fund, the Government Fund and the Municipal Bond Fund are
not expected to exceed 400%; and the annual turnover rates of the Emerging
Growth Fund, the International Equity Fund and the Growth and Income Fund are
not expected to exceed 100%. High portfolio turnover involves correspondingly
greater transaction costs, including any brokerage commissions, which are borne
directly by the respective Fund and may increase the recognition of short-term,
rather than long-term, capital gains if securities are held for one year or
less and may be subject to applicable income taxes. See "Dividends, Distribu-
tions and Taxes."     
   
 Portfolio Transactions and Brokerage Practices (All Funds). MMC is responsible
for the placement of orders for the purchase and sale of portfolio securities
for the Series and the negotiation of brokerage commissions on such transac-
tions. Brokerage firms are selected on the basis of their professional capabil-
ity for the type of transaction and the value and quality of execution services
rendered on a continuous basis. Orders may be directed to any broker including,
to the extent and in the manner permitted by applicable law, Smith Barney and
Robinson Humphrey, Inc. ("Robinson Humphrey"). Smith Barney and Robinson
Humphrey may be considered affiliated persons of PFS because they are each an
indirect subsidiary of Travelers Group Inc. ("Travelers"). Smith Barney and
Robinson Humphrey are subject to SEC regulations which state that to effect any
such transaction, the commissions, fees or other remuneration received by Smith
Barney and Robinson Humphrey must be reasonable and fair compared to the com-
missions, fees or other remuneration paid to other brokers in connection with
comparable transactions involving similar securities, futures or options on
futures being purchased or sold on an exchange during a comparable period of
time. This standard would allow Smith Barney and Robinson Humphrey to receive
no more than the remuneration that would be expected to be received by an unaf-
filiated broker in a commensurate arms-length transaction. Furthermore, the
Trustees of the Series, including a majority of the Trustees who are not "in-
terested" Trustees, have adopted procedures that are reasonably designed to
provide that any commissions, fees or other remuneration paid to Smith Barney
and Robinson Humphrey are consistent with the foregoing standard. Brokerage
transactions with Smith Barney and Robinson Humphrey are also subject to such
fiduciary standards as may be imposed upon Smith Barney and Robinson Humphrey
by applicable law. U.S. Government securities in which the Series invests are
traded in the over-the-counter market. Such securities are generally traded on
a net basis with a dealer acting as principal for its own account without a
stated commission, although the prices of the securities usually include a
profit to the dealer. MMC is authorized to place portfolio transactions with
broker-dealers participating in the distribution of shares of the Series if it
reasonably believes that the quality of the execution and any commission are
comparable to that available from other qualified firms. MMC is authorized to
pay higher commissions to brokerage firms that provide it with investment and
research information than to firms which do not provide such service if they
determine that such commissions are reasonable in relation to the overall serv-
ices provided. The information received may be used by MMC in managing the
assets of other advisory accounts managed by MMC as well as in the management
of the assets of the Series.     
       
          
 Short Sales Against the Box (Emerging Growth Fund, International Equity Fund,
Growth Fund and Growth and Income Fund). Each Fund may from time to time make
short sales of securities it owns or has the right to acquire through conver-
sion or exchange of other securities it owns. A short sale is "against the box"
to the extent that the Fund contemporaneously owns or has the right to obtain
at no added cost securities identical to those sold short. In a short sale, the
Fund does not immediately deliver the securities sold and does not receive the
proceeds from the sale. The Fund is said to have a short position in the secu-
rities sold until it delivers the securities sold, at which time it receives
the proceeds of the sale. The Fund may not make short sales or maintain a short
position if to do so would cause more than 25% of its total assets, taken at
market value, to be held as collateral for such sales.     
   
 To secure its obligation to deliver the securities sold short, the Fund will
deposit in escrow in a separate account with its custodian an equal amount of
the securities sold short or securities convertible into or exchangeable for
such securities. The Fund may close out a short position by purchasing and
delivering an equal amount of the securities sold short, rather than by deliv-
ering securities already held by the Fund, because the Fund may want to con-
tinue to receive interest and dividend payments on securities in its portfolio
that are convertible into the securities sold short. However, the Fund will not
purchase and deliver new securities to satisfy its short order if such purchase
and sale would cause the Fund to derive more than 30% of its gross income from
the sale of securities held for less than three months.     
   
 Leverage (International Equity Fund). The Fund may borrow from banks, on a
secured or unsecured basis, up to 25% of the value of its assets. If the Fund
borrows and uses the proceeds to make additional investments, income and appre-
ciation from such investments will improve its performance if they exceed the
associated borrowing costs but impair its performance if they are less than
such borrowing costs. This speculative factor is known as "leverage."     
 
                                                                              27
<PAGE>
 
   
RISK FACTORS AND SPECIAL CONSIDERATIONS (CONTINUED)     
   
 Leverage creates an opportunity for increased returns to shareholders of the
Fund but, at the same time, creates special risk considerations. For example,
leverage may exaggerate changes in the net asset value of the Fund's shares and
in the Fund's yield. Although the principal or stated value of such borrowings
will be fixed, the Fund's assets may change in value during the time the bor-
rowing is outstanding. Leverage will create interest or dividend expenses for
the Fund which can exceed the income from the assets retained. To the extent
the income or other gain derived from securities purchased with borrowed funds
exceed the interest or dividends the Fund will have to pay in respect thereof,
the Fund's net income or other gain will be greater than if leverage had not
been used. Conversely, if the income or other gain from the incremental assets
is not sufficient to cover the cost of leverage, the net income or other gain
of the Fund will be less than if leverage had not been used. If the amount of
income from the incremental securities is insufficient to cover the cost of
borrowing, securities might have to be liquidated to obtain required funds.
Depending on market or other conditions, such liquidations could be disadvanta-
geous to the Fund.     
   
 Year 2000. (All Funds). The investment management services provided to each
Fund by MMC and the services provided to shareholders by PFS, the Series' Dis-
tributor, depend on the smooth functioning of their computer systems. Many com-
puter software systems in use today cannot recognize the year 2000, but revert
to 1900 or some other date, due to the manner in which dates were encoded and
calculated. That failure could have a negative impact on each Fund's opera-
tions, including the handling of securities trades, pricing and account servic-
es. MMC and PFS have advised each Fund that they have been reviewing all of
their computer systems and actively working on necessary changes to their sys-
tems to prepare for the year 2000 and expect that their systems will be compli-
ant before that date. In addition, MMC has been advised by each Fund's custodi-
an, transfer agent and accounting service agent that they are also in the proc-
ess of modifying their systems with the same goal. There can, however, be no
assurance that MMC, PFS or any other service provider will be successful, or
that interaction with other non-complying computer systems will not impair Fund
services at that time.     
       
       
VALUATION OF SHARES
   
 Each Fund's net asset value per share is determined as of the close of regular
trading on the NYSE on each day that the NYSE is open, by dividing the value of
the Fund's net assets attributable to each Class by the total number of shares
of the Class outstanding.     
   
 Generally, the Fund's investments are valued at market value or, in the
absence of a market value with respect to any securities, at fair value as
determined by or under the direction of the Series Board of Trustees. Portfolio
securities that are traded primarily on a domestic stock exchange are valued at
the last sale price on that exchange or, if there were no sales during the day,
at the current quoted bid price. Over-the-counter securities are valued on the
basis of the bid price at the close of business on each day. Investments in
U.S. government securities (other than short-term securities) are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Short-term investments that mature in 60 days or less are valued at amortized
cost whenever the Trustees determine that amortized cost reflects fair value of
those investments. An option generally is valued at the last sale price or, in
the absence of the last sale price, the last offer price. The value of a
futures contract equals the unrealized gain or loss on the contract, which is
determined by marking the contract to the current settlement price for a like
contract acquired on the day on which the futures contract is being valued. A
settlement price may not be used if the market makes a limit move with respect
to a particular commodity or if the underlying securities market experiences
significant price fluctuations after the determination of the settlement price.
In such event, the futures contract will be valued at a fair market price to be
determined by or under the direction of the Board of Trustees. Further informa-
tion regarding the Series's valuation policies with respect to the Fund is con-
tained in the Statement of Additional Information.     
 
DIVIDENDS, DISTRIBUTIONS AND TAXES
   
 Unless the shareholder instructs otherwise, all dividends and capital gain
distributions of each Fund are automatically reinvested in additional shares of
the same class of such Fund. Dividends and distributions paid by a Fund have
the effect of reducing the net asset value per share on the record date by the
amount of the dividend or distribution. Therefore, a dividend or distribution
paid shortly after a purchase of shares by an investor would represent, in sub-
stance, a return of capital to the shareholder (to the extent it is paid on the
shares so purchased), even though it would be subject to income taxes, as dis-
cussed below.     
          
 Dividends and Distributions of the Emerging Growth Fund, the International
Equity Fund and the Growth Fund. It is each Fund's policy to distribute sub-
stantially all its net investment income (that is, its income other than its
net realized capital gains) and net realized capital gains,if any, once a year,
normally at the end of the year in which earned or at the beginning of next
year.     
 
28
<PAGE>
 
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
          
 Dividends and Distributions of the Growth and Income Fund. The Fund's policy
is to distribute its net investment income (that is, its income other than its
net realized capital gains) quarterly, and to declare and pay its net realized
capital gains, if any, once a year, normally at the end of the year in which
earned or at the beginning of the next year.     
          
 Dividends and Distributions of the Government Fund. The Fund declares and pays
monthly income dividends (that is, its income other than net realized capital
gains) on shares of the Fund and declares and pays its net realized capital
gains, if any, once a year, normally at the end of the year in which earned or
at the beginning of next year.     
   
 In computing interest income, the Fund does not amortize debt discount or pre-
miums resulting from the purchase of debt securities. Thus in the case of U.S.
Government securities purchased at a premium, interest income is greater than
it would be if the premium was amortized.     
   
 Dividends and Distributions of the Municipal Fund. The Fund declares and pays
monthly income dividends (that is, its income other than net realized capital
gains) on shares of the Fund and declares and pays its net realized capital
gains, if any, once a year, normally at the end of the year in which earned or
at the beginning of next year.     
   
 Net long-term gains realized from transactions in futures and related options
transactions may be paid out more frequently (with short-term gains) as may be
determined from time to time by the Trustees, but only after appropriate regu-
latory approval is first obtained. There is no assurance that such regulatory
approval will be obtained.     
   
 In order to avoid the application of a 4% nondeductible excise tax on certain
undistributed amounts of ordinary income and capital gains, the Fund may make
an additional distribution shortly before December 31 in each year of any
undistributed ordinary income or capital gains and expects to pay any other
dividends and distributions necessary to avoid the application of this tax.
       
 The per share dividends on Class B shares of a Fund may be lower than the per
share dividends on Class A shares principally as a result of the distribution
fee applicable with respect to Class B shares. Distributions of capital gains,
if any, will be in the same amount for Class A and Class B shares.     
   
 Taxes. Each Fund has qualified and intends to qualify as a "regulated invest-
ment company" under the Code. By so qualifying and by distributing all of its
net investment income and net realized capital gains within the time periods
specified in the Code, each Fund would not be required to pay any federal
income tax. Dividends from net investment income and distributions from any net
realized short-term capital gains are taxable to shareholders as ordinary
income. All such dividends are taxable to the shareholder whether or not rein-
vested in shares. However, shareholders not subject to tax on their income will
not be required to pay tax on amounts distributed to them.     
   
 In addition, the Municipal Fund intends to invest in sufficient Municipal
Bonds to permit payment of "exempt-interest dividends" (as defined in the
Code). Dividends paid by the Fund from the net tax-exempt interest earned from
Municipal Securities qualify as exempt-interest dividends if, at the close of
each quarter of the fiscal year, at least 50% of the value of the total assets
of the Fund consists of Municipal Bonds. See "Federal Tax Information" in the
Statement of Additional Information.     
   
 Exempt-interest dividends paid to shareholders are not includable in the
shareholder's gross income for federal income tax purposes. The percentage of
the total dividends paid by the Fund during any taxable year that qualify as
exempt-interest dividends will be the same for all shareholders of the Fund
receiving dividends during such year.     
   
 Dividends and interest received by the Emerging Growth Fund, the International
Equity Fund, the Growth Fund and the Growth and Income Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. It is impossible to determine the rate of foreign tax in advance since
the amount of a Fund's assets to be invested in various countries is not known.
Such foreign taxes would reduce the income of the Fund distributed to share-
holders.     
   
 If, at the end of the International Equity Fund's taxable year, more than 50%
of the value of its total assets consists of stock or securities of foreign
corporations, the Fund may make an election pursuant to which foreign income
taxes paid by it will be treated as paid directly by its shareholders. The Fund
will make this election only if it deems the election to be in the best inter-
ests of its shareholders, and will notify shareholders in writing each year if
it makes the election and the amount of foreign taxes to be treated as paid by
the shareholders. If the Fund makes such an election, the amount of such for-
eign taxes would be included in the income of shareholders, and a shareholder
other than a foreign corporation or non-resident alien individual could claim
either a credit or, provided the shareholder itemizes deductions, a deduction
for U.S. federal income tax purposes for such foreign taxes. Shareholders who
choose to utilize a credit (rather than a deduction) for foreign taxes will be
subject to the limitation that the credit may not exceed the     
 
                                                                              29
<PAGE>
 
   
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)     
   
shareholders' U.S. tax (determined without regard to the availability of the
credit) attributed to their total foreign source taxable income. For this pur-
pose, the portion of dividends and distributions paid by the Fund from its for-
eign source income will be treated as foreign source income. The Fund's gains
and losses from the sale of securities and from certain foreign currency gains
and losses will generally be treated as derived from U.S. sources. The limita-
tion on the foreign tax credit is applied separately to foreign source "passive
income," such as the portion of dividends received from the Fund that qualifies
as foreign source income. In addition, the foreign tax credit is allowed to
offset only 90% of the alternative minimum tax imposed on corporations and
individuals. Because of these limitations, shareholders may be unable to claim
a credit for the full amount of their proportionate share of the foreign income
taxes paid by the Fund.     
   
 The foregoing is a brief summary of some of the federal income tax considera-
tions affecting the Series and its investors who are U.S. residents or U.S.
corporations. Investors should consult their tax advisors for more detailed tax
advice including state and local tax considerations. Foreign investors should
consult their own counsel for further information as to the U.S. and their
country of residence or citizenship tax consequences of receipt of dividends
and distributions from the Series.     
   
 Shareholders are notified annually of the federal tax status of dividends and
capital gains distributions, including information as to the portion (including
short-term capital gains) taxable as ordinary income, and the portion taxable
as long-term capital gains. TO AVOID BEING SUBJECT TO A 31% FEDERAL BACKUP
WITHHOLDING ON DIVIDENDS, DISTRIBUTIONS AND REDEMPTION PAYMENTS, SHAREHOLDERS
MUST FURNISH THE FUND WITH THEIR CORRECT TAXPAYER IDENTIFICATION NUMBER. Share-
holders are urged to consult their tax advisers with specific reference to
their own tax situation.     
   
 State and Local Taxes. The exemption of interest income for federal income tax
purposes may not result in similar exemptions under the laws of a particular
state or local taxing authority. Income distributions may be taxable to share-
holders under state or local law as dividend income even though a portion of
such distributions may be derived from interest on tax-exempt obligations
which, if realized directly, would be exempt from such income taxes. It is rec-
ommended that shareholders consult their tax advisers for information in this
regard. The Municipal Fund will report annually to its shareholders the per-
centage and source, on a state-by-state basis, of interest income earned on
Municipal Bonds held by the Fund during the preceding year. Distributions paid
by the Fund from sources other than tax-exempt interest are generally subject
to taxation at the state and local levels.     
   
 Tax Treatment of Options and Futures Transactions. Gains or losses on each
Fund's transactions in certain listed options (except certain equity options)
on securities or indices, futures or options on futures generally are treated
as 60% long-term and 40% short-term, and positions held by a Fund at the end of
its fiscal year generally are required to be marked to market, with the result
that unrealized gains and losses are treated as though they were realized.
Gains and losses realized by a Fund on transactions in over-the-counter options
generally are short-term capital gains or losses unless the option is exercised
in which case the character of the gain or loss is determined by the holding
period of the underlying security. The Code contains certain "straddle" rules
which require deferral of losses incurred in certain transactions involving
hedged positions to the extent a Fund has unrealized gains in offsetting posi-
tions and generally terminate the holding period of the subject position. Addi-
tional information is set forth in the Statement of Additional Information.
    
PURCHASE OF SHARES
 
 
 GENERAL
   
 Each Fund offers two Classes of shares to investors purchasing through PFS
Investments Registered Representatives. Class A shares are sold to investors
with an initial sales charge and Class B shares are sold without an initial
sales charge but are subject to a CDSC payable upon certain redemptions. As of
May 20, 1996, all of the previously outstanding shares of the Growth Fund, the
Growth and Income Fund, the Government Fund, and the Municipal Fund were
redesignated as Class 1 shares without any other changes, and Class A and Class
B shares were authorized for issuance. As of May 20, 1996, Class 1 shares were
authorized for issuance for the Emerging Growth Fund and the International
Equity Fund. Each Fund offers Class 1 shares only to Eligible Class 1 Purchas-
ers. Each class of shares represents an interest in the same portfolio of
investments of a Fund. See "Prospectus Summary--Alternative Purchase Arrange-
ments" for a discussion of factors to consider in selecting which Class of
shares to purchase.     
   
 Initial purchases of shares of each Fund of the Series must be made through a
PFS Investments Registered Representative by completing the appropriate appli-
cation found in this Prospectus. The completed application should be forwarded
to the Sub-Transfer Agent, 3100 Breckinridge Blvd., Bldg. 200, Duluth, Georgia
30199-0062. Checks drawn on foreign banks must be payable in U.S. dollars and
have the routing number of the U.S. bank encoded on the check. Subsequent
investments may be sent directly to the Sub-Transfer Agent.     
 
30
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
   
 Investors in Class A and Class B shares may open an account by making an ini-
tial investment of at least $1,000 for each account in each Class (except for
Systematic Investment Plan accounts), or $250 for an IRA or a Self-Employed
Retirement Plan in a Fund. Subsequent investments of at least $50 may be made
for each Class. For participants in retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Code, the minimum initial investment
requirement for Class A and Class B shares and the subsequent investment
requirement for each Class in a Fund is $25. For each Fund's Systematic Invest-
ment Plan, the minimum initial investment requirement for Class A and Class B
shares and the subsequent investment requirement for each Class is $25. There
are no minimum investment requirements in Class A shares for employees of Trav-
elers and its subsidiaries, including Smith Barney, Directors or Trustees of
any of the Smith Barney Mutual Funds, and their spouses and children. The
Series reserves the right to waive or change minimums, to decline any order to
purchase its shares and to suspend the offering of shares from time to time.
Shares purchased will be held in the shareholder's account by the Sub-Transfer
Agent. Share certificates are issued only upon a shareholder's written request
to the Sub-Transfer Agent. A shareholder who has insufficient funds to complete
any purchase, will be charged a fee of $25 per returned purchase by PFS or the
Sub-Transfer Agent.     
          
 Purchase orders received by the Sub-Transfer Agent prior to the close of regu-
lar trading on the NYSE, on any day a Fund calculates its net asset value, are
priced according to the net asset value determined on that day.     
 
 SYSTEMATIC INVESTMENT PLAN
   
 Shareholders may make additions to their accounts at any time by purchasing
shares through a service known as the Systematic Investment Plan. Under the
Systematic Investment Plan, the Sub-Transfer Agent is authorized through preau-
thorized transfers of $25 or more to charge the regular bank account or other
financial institution indicated by the shareholder on a monthly basis to pro-
vide systematic additions to the shareholder's Fund account. A shareholder who
has insufficient funds to complete the transfer will be charged a fee of up to
$25 by PFS or the Sub-Transfer Agent. A shareholder who places a stop payment
on a transfer or the transfer is returned because the account has been closed,
will also be charged a fee of $25 by PFS or the Sub-Transfer Agent.     
 
 INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
   
 The sales charges applicable to purchases of Class A shares of the Emerging
Growth Fund, International Equity Fund, Growth Fund and Growth and Income Fund
are as follows:     
 
<TABLE>
<CAPTION>
                                SALES CHARGE
                       ---------------------------------       DEALERS'
                            % OF             % OF         REALLOWANCE AS % OF
AMOUNT OF INVESTMENT   OFFERING PRICE   AMOUNT INVESTED     OFFERING PRICE
-----------------------------------------------------------------------------
<S>                    <C>              <C>               <C>
Less than  $ 25,000         5.00%            5.26%               4.50%
$ 25,000 -  49,999          4.00             4.17                3.60
  50,000 -  99,999          3.50             3.63                3.15
 100,000 - 249,999          3.00             3.09                2.70
 250,000 - 499,999          2.00             2.04                1.80
 500,000 and over            *                 *                   *
-----------------------------------------------------------------------------
</TABLE>
   
 The sales charges applicable to purchases of Class A shares of the Government
Fund and the Municipal Fund are as follows:     
 
<TABLE>
<CAPTION>
                                SALES CHARGE
                       ---------------------------------       DEALERS'
                            % OF             % OF         REALLOWANCE AS % OF
AMOUNT OF INVESTMENT   OFFERING PRICE   AMOUNT INVESTED     OFFERING PRICE
-----------------------------------------------------------------------------
<S>                    <C>              <C>               <C>
Less than  $ 25,000         4.50%            4.71%               4.05%
$ 25,000 -  49,999          4.00             4.17                3.60
  50,000 -  99,999          3.50             3.63                3.15
 100,000 - 249,999          2.50             2.56                2.25
 250,000 - 499,999          1.50             1.52                1.35
 500,000 and over            *                 *                   *
-----------------------------------------------------------------------------
</TABLE>
   
* Purchases of Class A shares of $500,000 or more will be made at net asset
  value without any initial sales charge, but will be subject to a CDSC of
  1.00% on redemptions made within 12 months of purchase. The CDSC on Class A
  shares is payable to PFS, which in turn, pays PFS Investments to compensate
  its Registered Representatives whose clients make purchases of $500,000 or
  more. The CDSC is waived in the same circumstances in which the CDSC applica-
  ble to Class B shares is waived. See "Deferred Sales Charge Alternatives" and
  "Waivers of CDSC."     
   
 Members of the selling group may receive up to 90% of the sales charge and may
be deemed to be underwriters of the Series as defined in the Securities Act of
1933, as amended.     
 
                                                                              31
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
   
 The reduced sales charges shown above apply to the aggregate of purchases of
Class A Shares of a Fund made at one time by "any person", which includes an
individual and his or her immediate family, or a trustee or other fiduciary of
a single trust estate or single fiduciary account.     
 
 INITIAL SALES CHARGE WAIVERS
   
 Purchases of Class A shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales of Class A shares to (i) Board
members and employees of Travelers and its subsidiaries and any of the Smith
Barney Mutual Funds (including retired Board Members and employees); the imme-
diate families of such persons (including the surviving spouse of a deceased
Board Member or employee); and to a pension, profit-sharing or other benefit
plan for such persons; and (ii) employees of members of the National Associa-
tion of Securities Dealers, Inc., provided such sales are made upon the assur-
ance of the purchaser that the purchase is made for investment purposes and
that the securities will not be resold except through redemption or repurchase;
(b) offers of Class A shares to any other investment company to effect the com-
bination of such company with the Fund by merger, acquisition of assets or oth-
erwise; (c) purchases by shareholders who have redeemed Class A shares in a
Fund (or Class A shares of another fund of the Smith Barney Mutual Funds that
are sold with a maximum sales charge equal to or greater than the maximum sales
charge of the Fund) and who wish to reinvest their redemption proceeds in the
Fund, provided the reinvestment is made within 60 calendar days of the redemp-
tion; (d) purchases by accounts managed by registered investment advisory sub-
sidiaries of Travelers; (e) sales through PFS Investments Registered Represent-
atives where the amounts invested represent the redemption proceeds from
investment companies, on the condition that (i) the redemption has occurred no
more than 60 days prior to the purchase of the shares, (ii) the shareholder
paid an initial sales charge on such redeemed shares and (iii) the shares
redeemed were not subject to a deferred sales charge; (f) direct rollovers by
plan participants of distributions from a 401(k) plan enrolled in the Smith
Barney 401(k) Program (note: subsequent investments will be subject to the
applicable sales charge; (g) purchases by separate accounts used to fund cer-
tain unregistered variable annuity contracts; and (h) purchases by investors
participating in a Smith Barney fee based arrangement. PFS Investments may pay
its Registered Representatives an amount equal to 0.40% of the amount invested
if the purchase represents redemption proceeds from an investment company dis-
tributed by an entity other than PFS. In order to obtain such discounts, the
purchaser must provide sufficient information at the time of purchase to permit
verification that the purchase would qualify for the elimination of the sales
charge.     
   
 In addition, Class A shares of the Funds may be purchased at net asset value
by the PFS Primerica Corporation Savings and Retirement Plan (the "Primerica
Plan") for its participants, subject to the provisions of the Employee Retire-
ment Income Security Act of 1974, as amended ("ERISA"). Class A shares so pur-
chased are purchased for investment purposes and may not be resold except by
redemption or repurchase by or on behalf of the Primerica Plan. Class A shares
are also offered at net asset value to accounts opened for shareholders by PFS
Investments Registered Representatives where the amounts invested represent the
redemption proceeds from investment companies distributed by an entity other
than PFS, if such redemption has occurred no more than 60 days prior to the
purchase of shares of the Series, and the shareholder paid an initial sales
charge and was not subject to a deferred sales charge on the redeemed account.
Class A shares are offered at net asset value to such persons because of antic-
ipated economies in sales efforts and sales related expenses. The Series may
terminate, or amend the terms of, offering shares of the Series at net asset
value to such persons at any time. PFS may pay PFS Investments Registered Rep-
resentatives through whom purchases are made at net asset value an amount equal
to 0.40% of the amount invested if the purchase represents redemption proceeds
from an investment company distributed by an entity other than PFS. Contact the
Sub-Transfer Agent at (800) 544-5445 for further information and appropriate
forms.     
 
 VOLUME DISCOUNTS
   
 The "Amount of Investment" referred to in the sales charge table set forth
above under "Initial Sales Charge Alternative--Class A Shares" includes the
purchase of Class A shares in a Fund and of other funds sponsored by Smith Bar-
ney that are offered with a sales charge listed under "Exchange Privilege." A
person eligible for a volume discount includes: an individual; members of a
family unit comprising a husband, wife and minor children; a trustee or other
fiduciary purchasing for a single fiduciary account including pension, profit-
sharing and other employee benefit trusts qualified under Section 401(a) of the
Code; or multiple custodial accounts where more than one beneficiary is
involved if purchases are made by salary reduction and/or payroll deduction for
qualified and nonqualified accounts and transmitted by a common employer enti-
ty. Employer entity for payroll deduction accounts may include trade and craft
associations and any other similar organizations.     
 
 LETTER OF INTENT
   
 A Letter of Intent for amounts of $50,000 or more provides an opportunity for
an investor to obtain a reduced sales charge by aggregating investments over a
13-month period, provided that the investor refers to such Letter when placing
orders. For purposes of a Letter of Intent, the "Amount of Investment" as
referred to in the preceding sales charge table includes purchases of all Class
A shares of each Fund and other Smith Barney Mutual Funds offered with a sales
charge over a 13-month period based on the total amount of     
 
32
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
intended purchases plus the value of all Class A shares previously purchased
and still owned. An alternative is to compute the 13-month period starting up
to 90 days before the date of execution of a Letter of Intent. Each investment
made during the period receives the reduced sales charge applicable to the
total amount of the investment goal. If the goal is not achieved within the
period, the investor must pay the difference between the sales charges applica-
ble to the purchases made and the charges previously paid, or an appropriate
number of escrowed shares will be redeemed. Please contact a PFS Investments
Registered Representative to obtain a Letter of Intent application.
 
 DEFERRED SALES CHARGE ALTERNATIVES
   
 CDSC Shares are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in a Fund. A CDSC, however, may be imposed on certain
redemptions of these shares. "CDSC Shares" are: (i) Class B shares and
(ii) Class A shares that were purchased without an initial sales charge but
subject to a CDSC.     
   
 Any applicable CDSC will be assessed on an amount equal to the lesser of the
original cost of the shares being redeemed or their net asset value at the time
of redemption. CDSC Shares that are redeemed will not be subject to a CDSC to
the extent that the value of such shares represents: (a) capital appreciation
of Fund assets; (b) reinvestment of dividends or capital gain distributions;
(c) with respect to Class B shares, shares redeemed more than five years after
their purchase; or (d) with respect to Class A shares that are CDSC Shares,
shares redeemed more than 12 months after their purchase.     
 
 Class A shares that are CDSC Shares are subject to a 1.00% CDSC if redeemed
within 12 months of purchase. In circumstances in which the CDSC is imposed on
Class B shares, the amount of the charge will depend on the number of years
since the shareholder made the purchase payment from which the amount is being
redeemed. Solely for purposes of determining the number of years since a pur-
chase payment, all purchase payments made during a month will be aggregated and
deemed to have been made on the last day of the preceding Smith Barney state-
ment month. The following table sets forth the rates of the charge for redemp-
tions of Class B shares by shareholders.
 
<TABLE>   
<CAPTION>
                                     CDSC
                      APPLICABLE TO EMERGING GROWTH FUND,           CDSC
YEARS SINCE PURCHASE   INTERNATIONAL EQUITY FUND, GROWTH  APPLICABLE TO GOVERNMENT
PAYMENT WAS MADE        FUND AND GROWTH AND INCOME FUND   FUND AND MUNICIPAL FUND
----------------------------------------------------------------------------------
<S>                   <C>                                 <C>
     First                           5.00%                          4.50%
     Second                          4.00                           4.00
     Third                           3.00                           3.00
     Fourth                          2.00                           2.00
     Fifth                           1.00                           1.00
     Sixth and
     thereafter                      0.00                           0.00
----------------------------------------------------------------------------------
</TABLE>    
 
 Class B shares will convert automatically to Class A shares eight years after
the date on which they were purchased and thereafter will no longer be subject
to any distribution fees. There will also be converted at that time such pro-
portion of Class B Dividend Shares owned by the shareholder as the total number
of his or her Class B shares converting at the time bears to the total number
of outstanding Class B shares (other than Class B Dividend Shares) owned by the
shareholder. See "Prospectus Summary--Alternative Purchase Arrangements--Class
B Shares Conversion Feature."
   
 Class B shares of a Fund purchased prior to December 31, 1997 and subsequently
redeemed will remain subject to the CDSC at the rates applicable at the time of
purchase.     
   
 In determining the applicability of any CDSC or the conversion feature
described above, it will be assumed that a redemption is made first of shares
representing capital appreciation, next of shares representing the reinvestment
of dividends and capital gain distributions and finally of other shares held by
the shareholder for the longest period of time. The length of time that CDSC
Shares acquired through an exchange have been held will be calculated from the
date that the shares exchanged were initially acquired in one of the other
Smith Barney Mutual Funds, and Fund shares being redeemed will be considered to
represent, as applicable, capital appreciation or dividend and capital gain
distribution reinvestments in such other funds. For Federal income tax purpos-
es, the amount of the CDSC will reduce the gain or increase the loss, as the
case may be, on the amount realized on redemption. The amount of any CDSC will
be paid to PFS.     
 
 To provide an example, assume an investor purchased 100 Class B shares at $10
per share for a cost of $1,000. Subsequently, the investor acquired 5 addi-
tional shares through dividend reinvestment. During the fifteenth month after
the purchase, the investor decided to redeem $500 of his or her investment.
Assuming at the time of the redemption the net asset value had appreciated to
$12 per share, the value of the investor's shares would be $1,260 (105 shares
at $12 per share). The CDSC would not be applied to the amount that represents
appreciation ($200) and the value of the reinvested dividend shares ($60).
Therefore, $240 of the $500 redemption proceeds ($500 minus $260) would be
charged at a rate of 4.00% (the applicable rate for Class B shares) for a total
deferred sales charge of $9.60.
 
                                                                              33
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
 
 
 WAIVERS OF CDSC
   
 The CDSC will be waived on: (a) exchanges (see "Exchange Privilege"); (b)
automatic cash withdrawals in amounts equal to or less than 1.00% per month of
the value of the shareholder's shares at the time the withdrawal plan commences
(see "Automatic Cash Withdrawal Plan"); (c) redemptions of shares within twelve
months following the death or disability of the shareholder; (d) redemption of
shares made in connection with qualified distributions from retirement plans or
IRAs upon the attainment of age 59 1/2; (e) involuntary redemptions; and (f)
redemptions of shares to effect a combination of the Fund with any investment
company by merger, acquisition of assets or otherwise. In addition, a share-
holder who has redeemed shares from other Smith Barney Mutual Funds may, under
certain circumstances, reinvest all or part of the redemption proceeds within
60 days and receive pro rata credit for any CDSC imposed on the prior redemp-
tion.     
 
 CDSC waivers will be granted subject to confirmation by PFS of the sharehold-
er's status or holdings, as the case may be.
    
 CLASS 1 SHARES     
   
 Class 1 shares are offered to Eligible Class 1 Share Purchasers at the next
determined net asset value plus a sales charge, as set forth below.     
          
EMERGING GROWTH FUND, INTERNATIONAL EQUITY FUND, GROWTH FUND AND GROWTH AND
INCOME FUND     
 
<TABLE>   
<CAPTION>
                                                                         REALLOWED
                                                                          TO PFS
                                                                        INVESTMENTS
                                         AS % OF         AS % OF        (AS A % OF
                                        NET AMOUNT       OFFERING        OFFERING
SIZE OF INVESTMENT                       INVESTED         PRICE           PRICE)*
-----------------------------------------------------------------------------------
<S>                                     <C>              <C>            <C>
Less than $10,000                          9.29%           8.50%           7.00%
$   10,000 but less than $   25,000        8.40%           7.75%           6.25%
$   25,000 but less than $   50,000        6.38%           6.00%           5.00%
$   50,000 but less than $  100,000        4.71%           4.50%           3.75%
$  100,000 but less than $  250,000        3.63%           3.50%           3.00%
$  250,000 but less than $  400,000        2.56%           2.50%           2.00%
$  400,000 but less than $  600,000        2.04%           2.00%           1.60%
$  600,000 but less than $5,000,000        1.01%           1.00%           0.75%
$5,000,000 or more                         0.25%           0.25%           0.20%
-----------------------------------------------------------------------------------
</TABLE>    
   
Government Fund     
 
<TABLE>   
<CAPTION>
                                                                         REALLOWED
                                                                          TO PFS
                                                                        INVESTMENTS
                                         AS % OF         AS % OF        (AS A % OF
                                        NET AMOUNT       OFFERING        OFFERING
SIZE OF INVESTMENT                       INVESTED         PRICE           PRICE)*
-----------------------------------------------------------------------------------
<S>                                     <C>              <C>            <C>
Less than $25,000                          7.24%           6.75%           6.00%
$   25,000 but less than $   50,000        6.10%           5.75%           5.00%
$   50,000 but less than $  100,000        4.44%           4.25%           3.50%
$  100,000 but less than $  250,000        3.63%           3.50%           2.75%
$  250,000 but less than $  500,000        2.56%           2.50%           2.00%
$  500,000 but less than $1,000,000        2.04%           2.00%           1.60%
$1,000,000 but less than $2,500,000        1.01%           1.00%           0.75%
$2,500,000 but less than $5,000,000        0.50%           0.50%           0.40%
$5,000,000 or more                         0.25%           0.25%           0.20%
-----------------------------------------------------------------------------------
</TABLE>    
   
Municipal Bond Fund     
 
<TABLE>   
<CAPTION>
                                                                         REALLOWED
                                                                          TO PFS
                                                                        INVESTMENTS
                                         AS % OF         AS % OF        (AS A % OF
                                        NET AMOUNT       OFFERING        OFFERING
SIZE OF INVESTMENT                       INVESTED         PRICE           PRICE)*
-----------------------------------------------------------------------------------
<S>                                     <C>              <C>            <C>
Less than $100,000                         4.99%           4.75%           4.25%
$  100,000 but less than $  250,000        3.90%           3.75%           3.25%
$  250,000 but less than $  500,000        3.09%           3.00%           2.50%
$  500,000 but less than $1,000,000        2.04%           2.00%           1.60%
$1,000,000 but less than $2,500,000        1.01%           1.00%           0.75%
$2,500,000 but less than $5,000,000        0.50%           0.50%           0.40%
$5,000,000 or more                         0.25%           0.25%           0.20%
-----------------------------------------------------------------------------------
</TABLE>    
   
* Additionally, PFS will pay to PFS Investments a promotional fee calculated as
  a percentage of the sales charge reallowed to PFS Investments. The percentage
  used in the calculation is 3%.     
 
34
<PAGE>
 
PURCHASE OF SHARES (CONTINUED)
   
 PFS Investments may be deemed to be an underwriter for purposes of the Securi-
ties Act of 1933. From time to time, PFS or its affiliates may also pay for
certain non-cash sales incentives provided to PFS Investments Registered Repre-
sentatives. Such incentives do not have any effect on the net amount invested.
In addition to the reallowances from the applicable public offering price
described above, PFS may, from time to time, pay or allow additional
reallowances or promotional incentives, in the form of cash or other compensa-
tion to PFS Investments Registered Representatives that sell shares of the
Series.     
   
 Class 1 shares of the Series may be purchased at net asset value by the
Primerica Plan for Eligible Class 1 Purchasers participating in the Primerica
Plan, subject to the provisions of ERISA. Shares so purchased are purchased for
investment purposes and may not be resold except by redemption or repurchase by
or on behalf of the Primerica Plan. Class 1 Shares are also offered at net
asset value to accounts opened for shareholders by PFS Investments Registered
Representatives where the amounts invested represent the redemption proceeds
from investment companies distributed by an entity other than the PFS, if such
redemption has occurred no more than 60 days prior to the purchase of shares of
the Series and the shareholder paid an initial sales charge and was not subject
to a deferred sales charge on the redeemed account. Shares are offered at net
asset value to such persons because of anticipated economies in sales efforts
and sales related expenses. The Series may terminate, or amend the terms of,
offering shares of the Series at net asset value to such persons at any time.
PFS may pay PFS Investment Registered Representatives through whom purchases
are made at net asset value an amount equal to 0.40% of the amount invested if
the purchase represents redemption proceeds from an investment company distrib-
uted by an entity other than the PFS. Contact the Sub-Transfer Agent at (800)
544-5445 for further information and appropriate forms.     
   
 Investors purchasing Class 1 shares may under certain circumstances be enti-
tled to reduced sales charges. The circumstances under which such investors may
pay reduced sales charges are the same as those described above under "Pur-
chases of Shares--"Volume Discounts" and "Letter of Intent."     
 
EXCHANGE PRIVILEGE
   
 Shares of each class of a Fund may be exchanged at the net asset value next
determined for shares of the same class in the following funds, to the extent
shares are offered for sale in the shareholder's state of residence, except,
however, for exchanges of Class 1 shares into a fund which does not offer Class
1 shares which, may be made for Class A shares of such fund. Exchanges are sub-
ject to minimum investment requirements and all shares are subject to the other
requirements of the fund into which exchanges are made.     
 
 FUND NAME
    
 .Concert Peachtree Growth Fund     
 
 .Concert Social Awareness Fund
 
 .Smith Barney Appreciation Fund Inc.
    
 .Smith Barney Concert Allocation Series Inc.--Balanced Portfolio     
    
 .Smith Barney Concert Allocation Series Inc.--Conservative Portfolio     
    
 .Smith Barney Concert Allocation Series Inc.-- Growth Portfolio     
    
 .Smith Barney Concert Allocation Series Inc.--High Growth Portfolio     
    
 .Smith Barney Concert Allocation Series Inc.--Income Portfolio     
       
 .Smith Barney Investment Grade Bond Fund
 
 .*Smith Barney Money Funds, Inc.--Cash Portfolio
 
 .**Smith Barney Exchange Reserve Fund
--------------------------------------------------------------------------------
   
* Available for exchange with Class A shares of a Fund.     
   
** Available for exchange with Class B shares of a Fund.     
   
 Class A Exchanges. Class A shareholders of each Fund who wish to exchange all
or a portion of their shares for Class A shares in any of the funds identified
above may do so without imposition of any charge.     
   
 Class B Exchanges. In the event a Class B shareholder wishes to exchange all
or a portion of his or her shares into any of the funds imposing a higher CDSC
than that imposed by a Fund, the exchanged Class B shares will be subject to
the higher applicable CDSC. Upon an exchange, the new Class B shares will be
deemed to have been purchased on the same date as the Class B shares of the
Fund that have been exchanged.     
 
                                                                              35
<PAGE>
 
EXCHANGE PRIVILEGE (CONTINUED)
   
 Additional Information Regarding the Exchange Privilege. Although the
exchange privilege is an important benefit, excessive exchange transactions
can be detrimental to a Fund's performance and its shareholders. The Series
may determine that a pattern of frequent exchanges is excessive and contrary
to the best interests of each Fund's other shareholders. In this event, the
Series may, at its discretion, decide to limit additional purchases and/or
exchanges by the shareholder. Upon such a determination by the Series, the
Series will provide notice in writing or by telephone to the shareholder at
least 15 days prior to suspending the exchange privilege and during the 15 day
period the shareholder will be required to (a) redeem his or her shares in the
Fund or (b) remain invested in the Fund or exchange into any of the Smith Bar-
ney Mutual Funds ordinarily available, which position the shareholder would be
expected to maintain for a significant period of time. All relevant factors
will be considered in determining what constitutes an abusive pattern of
exchanges.     
   
 Exchanges will be processed at the net asset value next determined. Redemp-
tion procedures discussed below are also applicable for exchanging shares, and
exchanges will be made upon receipt of all supporting documents in proper
form. If the account registration of the shares of the fund being acquired is
identical to the registration of the shares of the fund exchanged, no signa-
ture guarantee is required. A capital gain or loss for tax purposes will be
realized upon the exchange, depending upon the cost or other basis of shares
redeemed. Before exchanging shares, investors should read the current prospec-
tus describing the shares to be acquired. Each Fund reserves the right to mod-
ify or discontinue exchange privileges upon 60 days' prior notice to share-
holders.     
 
REDEMPTION OF SHARES
   
 Shareholders may redeem for cash some or all of their shares of a Fund at any
time by sending a written request in proper form directly to the Sub-Transfer
Agent, PFS Shareholder Services, at 3100 Breckinridge Blvd, Bldg. 200, Duluth,
Georgia 30199-0062. If you should have any questions concerning how to redeem
your account after reviewing the information below, please contact the Sub-
Transfer Agent at (800) 544-5445, Spanish-speaking representatives (800) 544-
7278 or TDD Line for the Hearing Impaired (800) 824-1721.     
 
 As described under "Purchase of Shares," redemptions of Class B shares are
subject to a CDSC.
 
 The request for redemption must be signed by all persons in whose names the
shares are registered. Signatures must conform exactly to the account regis-
tration. If the proceeds of the redemption exceed $50,000, or if the proceeds
are not paid to the record owner(s) at the record address, if the sharehold-
er(s) has had an address change in the past 45 days, or if the shareholder(s)
is a corporation, sole proprietor, partnership, trust or fiduciary, signa-
ture(s) must be guaranteed by one of the following: a bank or trust company; a
broker-dealer; a credit union; a national securities exchange, registered
securities association or clearing agency; a saving and loan association; or a
federal savings bank.
 
 Generally, a properly completed Redemption Form with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. For example, in the case of shareholders
holding certificates, the certificates for the shares being redeemed must
accompany the redemption request. Additional documentary evidence of authority
is also required by the Sub-Transfer Agent in the event redemption is
requested by a corporation, partnership, trust, fiduciary, executor or admin-
istrator. Additionally, if a shareholder requests a redemption from a Retire-
ment Plan account (IRA, SEP or 403(b)(7)), such request must state whether or
not federal income tax is to be withheld from the proceeds of the redemption
check.
   
 A shareholder may utilize the Sub-Transfer Agent's FAX to redeem their
account as long as a signature guarantee or other documentary evidence is not
required. Redemption requests should be properly signed by all owners of the
account and faxed to the Sub-Transfer Agent at (800) 554-2374. Facsimile
redemptions may not be available if the shareholder cannot reach the Sub-
Transfer Agent by FAX, whether because all telephone lines are busy or for any
other reason; in such case, a shareholder would have to use the Fund's regular
redemption procedure described above. Facsimile redemptions received by the
Sub-Transfer Agent prior to 4:00 p.m. Eastern time on a regular business day
will be processed at the net asset value per share determined that day.     
   
 In all cases, the redemption price is the net asset value per share of the
Fund next determined after the request for redemption is received in proper
form by the Sub-Transfer Agent. Payment for shares redeemed will be made by
check mailed within three days after acceptance by the Sub-Transfer Agent of
the request and any other necessary documents in proper order. Such payment
may be postponed or the right of redemption suspended as provided by the rules
of the SEC. If the shares to be redeemed have been recently purchased by check
or draft, the Sub-Transfer Agent may hold the payment of the proceeds until
the purchase check or draft has cleared, usually a period of up to 15 days.
Any taxable gain or loss will be recognized by the shareholder upon redemption
of shares.     
 
36
<PAGE>
 
REDEMPTION OF SHARES (CONTINUED)
   
 After following the above-stated redemption guidelines, a shareholder(s) may
elect to have the redemption proceeds wire-transferred directly to the share-
holder's bank account of record (defined as a currently established pre-autho-
rized draft on the shareholder's account with no changes within the previous 45
days), as long as the bank account is registered in the same name(s) as the
account with the Series. If the proceeds are not to be wired to the bank
account of record, or mailed to the registered owner(s), a signature guarantee
will be required from all shareholder(s). A $25 service fee will be charged by
the Sub-Transfer Agent to help defray the administrative expense of executing a
wire redemption. Redemption proceeds will normally be wired to the designated
bank account on the next business day following the redemption, and should
ordinarily be credited to the shareholder's bank account by the shareholder's
bank within 48 to 72 hours.     
 
 AUTOMATIC CASH WITHDRAWAL PLAN
   
 Each Fund offers shareholders an automatic cash withdrawal plan, under which
shareholders who own shares with a value of at least $10,000 may elect to
receive cash payments of at least $50 monthly or quarterly. Retirement plan
accounts are eligible for automatic cash withdrawal plans only where the share-
holder is eligible to receive qualified distributions and has an account value
of at least $5,000. The withdrawal plan will be carried over on exchanges
between funds or Classes of a Fund. Any applicable CDSC will not be waived on
amounts withdrawn by a shareholder that exceed 1.00% per month of the value of
the shareholder's shares subject to the CDSC at the time the withdrawal plan
commences. For further information regarding the automatic cash withdrawal
plan, shareholders should contact the Sub-Transfer Agent.     
   
 The Series reserves the right to involuntarily liquidate any shareholder's
account in a Fund if the aggregate net asset value of the shares held in that
Fund account is less than $500. (If a shareholder has more than one account in
a Fund, each account must satisfy the minimum account size.) The Series, howev-
er, will not redeem shares based solely on market reductions in net asset val-
ue. Before the Series exercises such right, shareholders will receive written
notice and will be permitted 60 days to bring accounts up to the minimum to
avoid involuntary liquidation.     
 
PERFORMANCE
   
 From time to time a Fund may include its total return, average annual total
return, yield and current dividend return in advertisements and/or other types
of sales literature. These figures are computed separately for Class A and
Class B shares of each Fund. These figures are based on historical earnings and
are not intended to indicate future performance. Total return is computed for a
specified period of time assuming deduction of the maximum sales charge, if
any, from the initial amount invested and reinvestment of all income dividends
and capital gain distributions on the reinvestment dates at prices calculated
as stated in this Prospectus, then dividing the value of the investment at the
end of the period so calculated by the initial amount invested and subtracting
100%. The standard average annual total return, as prescribed by the SEC is
derived from this total return, which provides the ending redeemable value.
Such standard total return information may also be accompanied with nonstandard
total return information for differing periods computed in the same manner but
without annualizing the total return or taking sales charges into account. The
yield of a Fund's Class refers to the net investment income earned by invest-
ments in the Class over a 30-day period. This net investment income is then
annualized, i.e., the amount of income earned by the investments during that
30-day period is assumed to be earned each 30-day period for twelve periods and
is expressed as a percentage of the investments. The yield is calculated
according to a formula prescribed by the SEC to facilitate comparison with
yields quoted by other investment companies. The Government Fund and Municipal
Fund calculate current dividend return for each of its Classes by annualizing
the most recent monthly distribution and dividing by the net asset value or the
maximum public offering price (including sales charge) on the last day of the
period for which current dividend return is presented. Each Class' current div-
idend return may vary from time to time depending on market conditions, the
composition of the investment portfolio and its operating expenses. These fac-
tors and possible differences in the methods used in calculating current divi-
dend return should be considered when comparing current return of a Class to
yields published for other investment companies and other investment vehicles.
Each Fund may also include comparative performance information in advertising
or marketing its shares. Such performance information may include data from
Lipper Analytical Services, Inc. and other financial publications.     
 
MANAGEMENT OF THE SERIES
    
 BOARD OF TRUSTEES     
   
 Overall responsibility for management and supervision of each Fund rests with
the Series's Board of Trustees. The Trustees approve all significant agreements
between the Series and the companies that furnish services to the Series and
each Fund, including agreements with the Series's distributor, investment man-
ager and administrator, custodian and transfer agent. The day-to-day operations
of each     
 
                                                                              37
<PAGE>
 
MANAGEMENT OF THE SERIES (CONTINUED)
   
Fund are delegated to MMC. The Statement of Additional Information contains
background information regarding each Trustee and executive officer of the
Series.     
       
 INVESTMENT MANAGER
   
 Investment Manager. Effective December 31, 1997, MMC replaced Van Kampen
American Capital Asset Management, Inc. as investment adviser to each Fund of
the Series. MMC provides investment advisory and management services to
investment companies affiliated with Smith Barney and, prior to December 31,
1997 was the Sub-Advisor to the International Equity Fund. MMC is a wholly
owned subsidiary of Salomon Smith Barney Holdings Inc. ("Holdings"). Holdings
is a wholly owned subsidiary of Travelers Group Inc., a diversified financial
services holding company engaged, through its subsidiaries, principally in
four business segments: Investment Services including Asset Management, Con-
sumer Finance Services, Life Insurance Services and Property & Casualty Insur-
ance Services.     
   
 An investment advisory agreement with MMC and the Series, on behalf of each
Fund has been approved by the Board of Trustees of the Series at a meeting
held on June 10, 1997 and by shareholders of each Fund at a meeting held on
December 18, 1997. MMC, located at 388 Greenwich Street, New York, New York,
10013, was formed in 1968 and renders investment advice to investment compa-
nies which had aggregate assets under management as of January 31, 1998, in
excess of $94 billion. MMC also furnishes each Fund with bookkeeping, account-
ing and administrative services, office space and equipment, and the services
of the officers and employees of the Series.     
   
 Under separate investment advisory Agreements with each Fund, the Series pays
MMC an annual fee for the Emerging Growth Fund, the Growth Fund and the Growth
and Income Fund, calculated separately for each Fund at the following rates:
0.65% of the first $1 billion of the Fund's average daily net assets; 0.60% of
the next $1 billion of the Fund's average daily net assets; 0.55% of the next
$1 billion of the Fund's average daily net assets; 0.50% of the next $1 bil-
lion of the Fund's average daily net assets; and 0.45% of the Fund's average
daily net assets in excess of $4 billion. The Series pays MMC an annual fee
for the International Equity Fund at the rate of 1.00% of the Fund's average
daily net assets. This fee is higher than that charged by most other mutual
funds but the Series believes it is justified by the special international
nature of the Fund and is not necessarily higher than the fees charged by cer-
tain mutual funds with investment objectives and policies similar to those of
the Fund. The Series pays MMC an annual fee for the Government Fund of 0.60%
of the first $1 billion of the Fund's average daily net assets; 0.55% of the
next $1 billion of the Fund's average daily net assets; 0.50% of the next $1
billion of the Fund's average daily net assets; 0.45% of the next $1 billion
of the Fund's average daily net assets; 0.40% of the next $1 billion of the
Fund's average daily net assets; and 0.35% of the Fund's average daily net
assets in excess of $5 billion. For the Municipal Fund, the Series pays MMC an
annual fee of 0.60% of the first $1 billion of the Fund's average daily net
assets; 0.55% of the next $1 billion of the Fund's average daily net assets;
0.50% of the next $1 billion of the Fund's average daily net assets; and 0.45%
of the Fund's average daily net assets over $3 billion. The fee is computed
daily and payable monthly with respect to each Fund. Each of the investment
advisory agreements described above is referred to in this Prospectus as an
"Advisory Agreement" and together, as the "Advisory Agreements."     
   
 MMC may, from time to time, agree to waive their respective investment advi-
sory fees or any portion thereof or elect to reimburse a Fund for ordinary
business expenses in excess of an agreed upon amount.     
       
       
 PORTFOLIO MANAGEMENT
          
 The following persons are primarily responsible for the day-to-day operation
of the Fund indicated beside their name and business experience:     
   
 Emerging Growth Fund--Sandip Bhagat; Investment Officer of MMC and President
of Travelers Investment Management Company, an affiliate of MMC.     
   
 Growth Fund--Larry Weissman; Investment Officer of MMC and Managing Director
of Smith Barney since October, 1997; Prior to that time, Portfolio Manager of
Neuberger & Berman, LLC since 1995; Prior to that, Portfolio Manager of Col-
lege Retirement Equities Fund since 1991.     
   
 Growth and Income Fund--R. Jay Gerken; Investment Officer of MMC and Managing
Director of Smith Barney.     
   
 Government Fund--James E. Conroy; Investment Officer of MMC and Managing
Director of Smith Barney.     
   
 Municipal Fund--Joseph P. Deane; Investment Officer of MMC and Managing
Director of Smith Barney.     
   
 International Equity Fund--Maurits Edersheim, Jeffrey Russell, James Conheady
and Rein Van der Does, all Investment Officers of MMC and Managing Directors
of Smith Barney.     
   
 Management's discussion and analysis and additional performance information
regarding the Series during the fiscal year ended October 31, 1997 is included
in the Annual Report dated October 31, 1997. A copy of the Annual Report may
be obtained upon request and without charge from a PFS Investments Registered
 Representative or by writing or calling the Series at the address or phone
number listed on page one of this Prospectus.     
 
38
<PAGE>
 
DISTRIBUTOR
   
 PFS, located at 3100 Breckinridge Blvd., Bldg 200, Duluth, Georgia 30199-0062,
distributes shares of each Fund as a principal underwriter and as such conducts
a continuous offering pursuant to a best efforts arrangement requiring PFS to
take and pay for only such securities as may be sold to the public.     
   
 Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment company
to directly or indirectly pay expenses associated with the distribution of its
shares ("distribution expenses") and servicing its shareholders in accordance
with a plan adopted by the investment company's board of directors and approved
by its shareholders. Pursuant to such Rule, the Trustees of the Series, and the
shareholders of Class A and Class B of each Fund have adopted two Distribution
Plans (hereinafter referred to as the "Class A Plan" and the "Class B Plan.")
Each Distribution Plan is in compliance with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. ("NASD Rules") applicable to
mutual fund sales charges. The NASD Rules limit the annual distribution costs
and service fees that a mutual fund may impose on a class of shares. The NASD
Rules also limit the aggregate amount which the Fund may pay for such distribu-
tion costs. Under the Class A Plan, a Fund pays 0.25% per annum of its average
daily net assets attributable to such class of shares to PFS as a service fee.
The service fee is intended to cover personal services provided to Class A
shareholders of a Fund by representatives of PFS Investments and the mainte-
nance of their accounts.     
   
 Under the Class B Plan, Class B shares of each Fund are subject to a combined
annual distribution fee and service fee at the rate of 1.00% of a Fund's aggre-
gate average daily net assets attributable to such class of shares. Payments by
each Fund to PFS under the Class B Plan are used to make service fee payments
to PFS Investments of 0.25% per annum of average daily net assets. Each Fund
pays PFS 0.75% of the aggregate average daily net assets of Class B shares, as
compensation for providing sales and promotional activities and services. Such
activities and services relate to the sale, promotion and marketing of the
Class B shares. The expenditures of PFS may consist of sales commissions to PFS
Investments for selling Class B shares, compensation, sales incentives and pay-
ments to sales and marketing personnel, and the payment of expenses incurred in
its sales and promotional activities, including advertising expenditures
related to the Class B shares of a Fund and the costs of preparing and distrib-
uting promotional materials with respect to such Class B shares.     
   
 PFS receives the proceeds of the initial sales charge, if any, paid upon the
purchase of Class A shares and the contingent deferred sales charge paid upon
certain redemptions of Class B shares, and may use these proceeds for any of
the distribution and service expenses described above.     
   
 During the period they are in effect, the Class A Plan and the Class B Plan
obligate each Fund to pay service fees and distribution fees to PFS as compen-
sation for its service and distribution activities, not as reimbursement for
specific expenses incurred. Thus, even if PFS's expenses exceed its service or
distribution fees for any Fund, the Fund will not be obligated to pay more than
those fees and, if PFS's expenses are less than such fees, it will retain its
full fees and realize a profit. Each Fund will pay the service fees and distri-
bution fees to PFS until either the applicable Plan is terminated or not
renewed. In that event, PFS's expenses in excess of service fees and distribu-
tion fees received or accrued through the termination date will be PFS's sole
responsibility and not obligations of a Fund. In their annual consideration of
the continuation of each Fund's Plans, the Trustees will review each Plan and
PFS's corresponding expenses for each class separately.     
   
 Actual distribution expenditures paid by PFS with respect to Class B shares
for any given year are expected to exceed the fees received pursuant to the
Class B Plan and payments received pursuant to contingent deferred sales
charges. Such excess will be carried forward and may be reimbursed by the Fund
or its shareholders from payments received through contingent deferred sales
charges in future years and from payments under the Class B Plan so long as
such Plan is in effect. For example, if in a fiscal year PFS incurred distribu-
tion expenses under the Class B Plan of $1 million, of which $500,000 was
recovered in the form of contingent deferred sales charges paid by investors
and $400,000 was reimbursed in the form of payments made by the Fund to PFS
under the Class B Plan, the balance of $100,000, would be subject to recovery
in future fiscal years from such sources.     
   
 If the Class B Plan was terminated or not continued, the Fund would not be
contractually obligated and has no liability to pay PFS for any expenses not
previously reimbursed by the Fund or recovered through contingent deferred
sales charges.     
          
 PFS Investments may be deemed to be an underwriter for purposes of the Securi-
ties Act of 1933. From time to time, PFS or its affiliates may also pay for
certain non-cash sales incentives provided to PFS Investments Registered Repre-
sentatives. Such incentives do not have any effect on the net amount invested.
In addition to the reallowances from the applicable public offering price
described above, PFS may from time to time, pay or allow additional
reallowances or promotional incentives, in the form of cash or other compensa-
tion to PFS Investments Registered Representatives that sell shares of each
Fund.     
       
                                                                              39
<PAGE>
 
ADDITIONAL INFORMATION
   
 The Series was organized on January 29, 1987 under the laws of the Common-
wealth of Massachusetts and is a business entity commonly known as a "Massachu-
setts business trust." It is a diversified, open-end management investment com-
pany authorized to issue an unlimited number of Class A, Class B and Class 1
shares of beneficial interest of $.01 par value, in the Funds. Shares issued
are fully paid, non-assessable and have no preemptive or conversion rights. In
the event of liquidation of any Fund, shareholders of such Fund are entitled to
share pro rata in the net assets of the Fund available for distribution to
shareholders.     
   
 Shareholders are entitled to one vote for each full share held and to frac-
tional votes for fractional shares held in the election of Trustees (to the
extent hereafter provided) and on other matters submitted to the vote of share-
holders. Each class of shares represents interest in the assets of each Fund
and has identical voting, dividend, liquidation and other rights on the same
terms and conditions, except that the distribution fees and service fees and
any incremental transfer agency fees related to each class of shares of each
Fund are borne solely by that class, and each class of shares of each Fund has
exclusive voting rights with respect to provisions of the Plan which pertains
to that class of each Fund. All shares have equal voting rights, except that
only shares of the respective Fund are entitled to vote on matters concerning
only that Fund. There will normally be no meetings of shareholders for the pur-
pose of electing Trustees unless and until such time as less than a majority of
the Trustees holding office have been elected by shareholders, at which time
the Trustees then in office will call a shareholders' meeting for the election
of Trustees. Shareholders may, in accordance with the Declaration of Trust,
cause a meeting of shareholders to be held for the purpose of voting on the
removal of Trustees. Except as set forth above, the Trustees shall continue to
hold office and appoint successor Trustees.     
   
 PNC Bank, National Association ("PNC") serves as custodian for each Fund other
than the International Equity Fund, and The Chase Manhattan Bank ("Chase")
serves as custodian for the International Equity Fund. First Data Investor
Services Group, Inc. ("First Data") serves as transfer agent for the Funds.
    
          
 PNC is located at 17th and Chestnut Streets, Philadelphia, Pennsylvania 19103.
       
 Chase is located at Chase Metrotech Center, Brooklyn, New York 11245.     
    
 First Data is located at Exchange Place, Boston, Massachusetts 02109.     
   
 The Sub-Transfer Agent is located at 3100 Breckinridge Blvd., Bldg 200,
Duluth, Georgia 30199-0062.     
   
 The Series intends to send its shareholders a semi-annual report and an
audited annual report, which will include listings of the investment securities
held by the Series at the end of the period covered. In an effort to reduce the
Series' printing and mailing costs, the Series plans to consolidate the mailing
of its semi-annual and annual reports by household. This consolidation means
that a household having multiple accounts with the identical address of record
will receive a single copy of each report. Shareholders who do not want this
consolidation to apply to their account should contact the Sub-Transfer Agent.
Also available at the shareholder's request, is an Account Transcript identify-
ing every financial transaction in an account since it was opened. To defray
administrative expenses involved with providing multiple years worth of infor-
mation, there is a $15 charge for each Account Transcript requested.     
 
  Additional copies of tax forms are available at the shareholder's request. A
$10 fee for each tax form will be assessed.
   
  Additional information regarding the Sub-Transfer Agent's services may be
obtained by contacting the Client Services Department at (800) 544-5445.     
 
40
STATEMENT OF ADDITIONAL INFORMATION

CONCERT INVESTMENT SERIES
388 Greenwich Street
New York, NY 10013

   
February 28, 1998
    

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

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

TABLE OF CONTENTS

   
<TABLE>
							Page
<S>							<C>
General Information	
Goals and Investment Policies	
Investment Restrictions	
Trustees and Officers	
Investment Advisory Agreements	
Distributor	
Portfolio Turnover	
Distribution Plans	
Portfolio Transactions and Brokerage	
Determination of Net Asset Value	
Purchase and Redemption of Shares	
Exchange Privilege	
Dividends, Distributions and Federal Taxes	
Other Information	
Financial Statements	
Appendix -- Commercial Paper, Bond and Other Short- and Long-Term 
Ratings	
Municipal Bond
</TABLE>
    


GENERAL INFORMATION


   
	Mutual Management Corp. formerly Smith Barney Mutual Funds 
Management Inc. (the "Adviser") was incorporated on March 12, 1968 
and renders investment management advice to investment companies 
with aggregate assets under management in excess of $94 billion as 
of January 31, 1998. The Adviser is an affiliate of Smith Barney 
Inc. and a wholly-owned subsidiary of Salomon Smith Barney 
Holdings Inc. which in turn is a wholly-owned subsidiary of 
Travelers Group Inc. ("Travelers"). Travelers is engaged primarily 
in investment services, including asset management, consumer 
finance services, life insurance services and property and 
casualty insurance services.
    

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


   
	As of February 12, 1998, no person was known to own 
beneficially or of record as much as five percent of the 
outstanding shares of any Fund of the Trust.
    

   
    


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

GOALS AND INVESTMENT POLICIES

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

Emerging Growth Fund

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

International Equity Fund

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

Growth Fund

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

Growth and Income Fund

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

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

Government Fund

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

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

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

	--	interest paid on the Fund's portfolio 
securities;

	--	premiums earned upon the expiration of options 
written;

	--	net profits from closing transactions; and

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Municipal Bond Fund

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

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

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

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

	On a temporary basis, due to market conditions, the Fund may 
invest in Municipal Notes which include demand notes and 
short-term municipal obligations (such as tax anticipation notes, 
revenue anticipation notes, construction loan notes and short-term 
discount notes) and tax-exempt commercial paper, provided that 
such obligations have the ratings described in the Prospectus. 
Demand notes are obligations which normally have a stated maturity 
in excess of one year, but permit any holder to demand payment of 
principal plus accrued interest upon a specified number of days' 
notice. Frequently, such obligations are secured by letters of 
credit or other credit support arrangement provided by banks. The 
issuer of such notes normally has a corresponding right, after a 
given period, to prepay at its discretion the outstanding 
principal of the note plus accrued interest upon a specified 
number of days' notice to the noteholders. The interest rate on a 
demand note may be based on a known lending rate, such as a bank's 
prime rate, and may be adjusted when such rate changes, or the 
interest rate on a demand note may be a market rate that is 
adjusted at specified intervals. Participation interests in 
variable rate demand notes will be purchased only if, in the 
opinion of counsel, interest income on such interest will be 
tax-exempt when distributed as dividends to shareholders.

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

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

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

Repurchase Agreements

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

Reverse Repurchase Agreements

	The International Equity Fund may invest in reverse 
repurchase agreements. The International Equity Fund does not 
currently intend to commit more than 5.00% of its net assets to 
reverse repurchase agreements. The Fund may enter into reverse 
repurchase agreements with broker/dealers and other financial 
institutions. Such agreements involve the sale of portfolio 
securities with an agreement to repurchase the securities at an 
agreed-upon price, date and interest payment and are considered to 
be borrowings by the International Equity Fund and are subject to 
the borrowing limitations set forth under "Investment 
Restrictions." Since the proceeds of reverse repurchase agreements 
are invested, this would introduce the speculative factor known as 
"leverage." The securities purchased with the funds obtained from 
the agreement and securities collateralizing the agreement will 
have maturity dates no later than the repayment date. Generally, 
the effect of such a transaction is that the International Equity 
Fund can recover all or most of the cash invested in the portfolio 
securities involved during the term of the reverse repurchase 
agreement, while in many cases it will be able to keep some of the 
interest income associated with those securities. Such 
transactions are only advantageous if the Fund has an opportunity 
to earn a greater rate of interest on the cash derived from the 
transaction than the interest cost of obtaining that cash. 
Opportunities to realize earnings from the use of the proceeds 
equal to or greater than the interest required to be paid may not 
always be available, and the Fund intends to use the reverse 
repurchase technique only when the Adviser believes it will be 
advantageous to the International Equity Fund. The use of reverse 
repurchase agreements may exaggerate any interim increase or 
decrease in the value of the Fund's assets. The Fund's custodian 
bank will maintain a separate account for the Fund with securities 
having a value equal to or greater than such commitments.

Commercial Bank Obligations

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

Commercial Paper

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

Options, Futures Contracts and Related Options

Selling Call and Put Options (The Emerging Growth Fund, the 
International Equity Fund, the Growth Fund, the Growth and Income 
Fund and the Government Fund)

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

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

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

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

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

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

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

Purchasing Call and Put Options (The Emerging Growth Fund, the 
International Equity Fund, the Growth Fund, the Growth and Income 
Fund and the Government Fund)

	A Fund may purchase call options to protect (e.g., hedge) 
against anticipated increases in the prices of securities it 
wishes to acquire. Alternatively, call options may be purchased 
for their leverage potential. Since the premium paid for a call 
option is typically a small fraction of the price of the 
underlying security, a given amount of funds will purchase call 
options covering a much larger quantity of such security than 
could be purchased directly. By purchasing call options, a Fund 
can benefit from any significant increase in the price of the 
underlying security to a greater extent than had it invested the 
same amount in the security directly. However, because of the very 
high volatility of option premiums, a Fund could bear a 
significant risk of losing the entire premium if the price of the 
underlying security did not rise sufficiently, or if it did not do 
so before the option expired.

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

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

Options on Stock Indexes (The Emerging Growth Fund, the 
International Equity Fund, the Growth Fund and the Growth and 
Income Fund)

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

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

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

Foreign Currency Options (The International Equity Fund)

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

	The value of a foreign currency option is dependent upon the 
value of the underlying foreign currency relative to the 
U.S. dollar. As a result, the price of the option position may 
vary with changes in the value of either or both currencies and 
has no relationship to the investment merits of a foreign 
security. Because foreign currency transactions occurring in the 
interbank market (conducted directly between currency traders, 
usually large commercial banks, and their customers) involve 
substantially larger amounts than those that may be involved in 
the use of foreign currency options, investors may be 
disadvantaged by having to deal in an odd lot market (generally 
consisting of transactions of less than $1 million) for the 
underlying foreign currencies at prices that are less favorable 
than for round lots.

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

Futures Contracts

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

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

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

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

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

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

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

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

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

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

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

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

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

	Persons who trade in futures contracts may be broadly 
classified as "hedgers" and "speculators." Hedgers, whose business 
activity involves investment or other commitment in securities or 
other obligations, use the futures market to offset unfavorable 
changes in value that may occur because of fluctuations in the 
value of the securities and obligations held or committed to be 
acquired by them or fluctuations in the value of the currency in 
which the securities or obligations are denominated. Debtors and 
other obligors may also hedge the interest cost of their 
obligations. The speculator, like the hedger, generally expects 
neither to deliver nor to receive the financial instrument 
underlying the futures contract, but, unlike the hedger, hopes to 
profit from fluctuations in prevailing interest rates or currency 
exchange rates.

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

	Special Risks Associated with Futures Transactions. There 
are several risks connected with the use of futures contracts as a 
hedging device. These include the risk of imperfect correlation 
between movements in the price of the futures contracts and of the 
underlying securities, the risk of market distortion, the 
illiquidity risk and the risk of error in anticipating price 
movement.

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

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

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

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

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

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

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

	A Fund pays commissions on futures contracts and options 
transactions.

Options on Futures Contracts

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

	Risks of Transactions in Options on Stock Index Futures. In 
addition to the risks described above which apply to all options 
transactions, there are several special risks relating to options 
on stock index futures. The Advisers will not purchase options on 
stock index futures on any Exchange unless and until, in the 
Adviser's opinion, the market for such options has developed 
sufficiently that the risks in connection with options on futures 
transactions are no greater than the risks in connection with 
stock index futures transactions. Compared to the use of stock 
index futures, the purchase of options on stock index futures 
involves less potential risk to the Growth Fund because the 
maximum amount at risk is the premium paid for the options (plus 
transaction costs). However there may be circumstances, such as 
when there is no movement in the level of the index, when the use 
of an option on a stock index future would result in a loss to the 
Fund when the use of a stock index future would not.

Forward Commitments (The Government Fund Only)

	Relative to a Forward Commitment purchase, the Fund 
maintains a segregated account (which is marked to market daily) 
of appropriate securities as required by the 1940 Act (which may 
have maturities which are longer than the term of the Forward 
Commitment) with the Fund's custodian in an aggregate amount equal 
to the amount of its commitment as long as the obligation to 
purchase continues. Since the market value of both the securities 
subject to the Forward Commitment and the securities held in the 
segregated account may fluctuate, the use of the Forward 
Commitments may magnify the impact of interest rate changes on the 
Fund's net asset value.

	A Forward Commitment sale is covered if the Fund owns or has 
the right to acquire the underlying securities subject to the 
Forward Commitment. A Forward Commitment sale is for cross-hedging 
purposes if it is not covered, but is designed to provide a hedge 
against a decline in value of a security which the Fund owns or 
has the right to acquire. In either circumstance, the Fund 
maintains in a segregated account (which is marked to market 
daily) either the security covered by the Forward Commitment or 
appropriate securities as required by the 1940 Act (which may have 
maturities which are longer than the term of the Forward 
Commitment) with the Fund's custodian in an aggregate amount equal 
to the amount of its commitment as long as the obligation to sell 
continues. By entering into a Forward Commitment sale transaction, 
the Fund forgoes or reduces the potential for both gain and loss 
in the security which is being hedged by the Forward Commitment 
sale.

Forward Currency Contracts and Options on Currency (The 
International Equity Fund)

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

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

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

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

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

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

Interest Rate Transactions (The International Equity Fund)

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

	The Fund may enter into interest rate swaps, caps and floors 
on either an asset-based or liability-based basis, depending on 
whether it is hedging its assets or its liabilities, and will 
usually enter into interest rate swaps on a net basis, i.e., the 
two payment streams are netted but, with the Fund receiving or 
paying, as the case may be, only the net amount of the two 
payments. Inasmuch as these hedging transactions are entered into 
for good faith hedging purposes, the Adviser and the Fund believe 
such obligations do not constitute senior securities and, 
accordingly will not treat them as being subject to its borrowing 
restrictions. The net amount of the excess, if any, of the Fund's 
obligations over its entitlements with respect to each interest 
rate swap will be accrued on a daily basis and an amount of cash 
or liquid securities having an aggregate net asset value at least 
equal to the accrued excess will be maintained in a segregated 
account by a custodian that satisfies the requirements of the 1940 
Act. The Fund will not enter into any interest rate swap, cap or 
floor transaction unless the unsecured senior debt or the 
claims-paying ability of the other party thereto is rated in the 
highest rating category of at least one nationally recognized 
rating organization at the time of entering into such transaction. 
If there is a default by the other party to such a transaction, 
the Fund will have contractual remedies pursuant to the agreements 
related to the transaction. The swap market has grown 
substantially in recent years with a large number of banks and 
investment banking firms acting both as principals and as agents 
utilizing swap documentation. As a result, the swap market has 
become relatively liquid. Caps and floors are more recent 
innovations for which standardized documentation has not yet been 
developed and, accordingly, they are less liquid than swaps.

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

Use of Segregated and Other Special Accounts (The International 
Equity Fund)

   
	Use of many hedging and other strategic transactions 
including currency and market index transactions by the Fund will 
require, among other things, that the Fund segregate cash, liquid 
securities or other assets with its Custodian, or a designated 
sub-custodian, to the extent the Fund's obligations are not 
otherwise "covered" through ownership of the underlying security, 
financial instrument or currency. In general, either the full 
amount of any obligation by the Fund to pay or deliver securities 
or assets must be covered at all times by the securities, 
instruments or currency required to be delivered, or, subject to 
any regulatory restrictions, appropriate securities as required by 
the 1940 Act at least equal to the current amount of the 
obligation must be segregated with the custodian or sub-custodian. 
The segregated assets cannot be sold or transferred unless 
equivalent assets are substituted in their place or it is no 
longer necessary to segregate them. A call option on securities 
written by the Fund, for example, will require the Fund to hold 
the securities subject to the call (or securities convertible into 
the needed securities without additional consideration) or to 
segregate liquid securities sufficient to purchase and deliver the 
securities if the call is exercised. A call option sold by the 
Fund on an index will require the Fund to own portfolio securities 
that correlate with the index or to segregate liquid securities 
equal to the excess of the index value over the exercise price on 
a current basis. A put option on securities written by the Fund 
will require the Fund to segregate liquid securities equal to the 
exercise price. Except when the Fund enters into a forward 
contract in connection with the purchase or sale of a security 
denominated in a foreign currency or for other non-speculative 
purposes, which requires no segregation, a currency contract that 
obligates the Fund to buy or sell a foreign currency will 
generally require the Fund to hold an amount of that currency, 
liquid securities denominated in that currency equal to the Fund's 
obligations or to segregate liquid securities equal to the amount 
of the Fund's obligations.
    

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

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

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

Loans of Portfolio Securities

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

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

INVESTMENT RESTRICTIONS

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

The following restrictions apply to all Funds:

	A Fund shall not:

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

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

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

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

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

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



The following restrictions apply to the Growth Fund, the Growth 
and Income Fund, the Government Fund and the Municipal Bond Fund:

	A Fund shall not:

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

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

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

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

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

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

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

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

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

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


	The Trust has adopted additional investment restrictions, 
with respect to the above referenced Funds, which may be changed 
by the Trustees without a vote of shareholders, as follows:

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

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

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

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

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

The following restrictions apply to the Emerging Growth Fund and 
the International Equity Fund:

	A Fund shall not:

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

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

	The Trust has adopted additional investment restrictions 
with respect to the Emerging Growth Fund and the International 
Equity Fund, which may be changed by the Trustees without a vote 
of shareholders. These restrictions provide that a Fund shall not:

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

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

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

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

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

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

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

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

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

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

	Foreign Investments for Funds Other than the International 
Equity Fund.  The Emerging Growth Fund may not invest in the 
securities of a foreign issuer if, at the time of acquisition, 
more than 20% of the value of the Fund's total assets would be 
invested in such securities.

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

TRUSTEES AND OFFICERS

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

TRUSTEES

   
	DONALD M. CARLTON, Trustee. Radian International L.L.C., 
8501 N. Mopac Blvd., Building No. 6, Austin, Texas 78759. 
President and Chief Executive of Radian International L.L.C. 
(chemical engineering). Director of National Instruments Corp. and 
Central and Southwest Corporation. Formerly Director of The 
Hartford Steam Boiler Inspection and Insurance Company 
(insurance/engineering services); 60.

	A. BENTON COCANOUGHER, Trustee. Texas A & M University, 
601 Blocker Bldg., College Station, Texas 77843-4113. Dean of 
College of Business Administration and Graduate School of Business 
of Texas A & M University; Director of Randall's Food Markets, 
Inc.; Director of First American Bank; and Director of First 
American Savings Bank; 59.

	STEPHEN RANDOLPH GROSS, Trustee. 2625 Cumberland Parkway, 
Suite 400, Atlanta, Georgia 30339. Managing Partner of Gross, 
Collins & Cress, P.C. (accounting firm); Director of Charter Bank 
& Trust; 50.

	HEATH B. McLENDON,* Trustee. Managing Director of Smith 
Barney; President and Director of the Adviser and Travelers 
Investment Adviser, Inc. ("TIA"); Chairman of Smith Barney 
Strategy Advisers Inc. Prior to July 1993, Senior Executive Vice 
President of Shearson Lehman Brothers Inc., Vice Chairman of 
Shearson Asset Management, Director of Pan-Agora Asset Management, 
Inc. and Pan-Agora Asset Management Limited; 64.

	ALAN G. MERTEN, Trustee. George Mason University, 4400 
University Drive, Fairfax, Virginia 22030-4444. President of 
George Mason University. Director of Comshare, Inc. (information 
technology), and Tompkins County Trust Company, Ithaca, New York; 
formerly The Anne and Elmer Lindseth Dean of Johnson Graduate 
School of Management of Cornell University; 56.

	R. RICHARDSON PETTIT, Trustee. Department of Finance, 
College of Business, University of Houston, 4800 Calhoun, Houston, 
Texas 77204-6283. Duncan Professor of Finance of the University 
of Houston; formerly Hanson Distinguished Professor of Business of 
the University of Washington; 55.

	ALAN B. SHEPARD, JR., Trustee. 1512 Bonifacio Road, P.O. Box 
63, Pebble Beach, California 93953-0063. President of Seven 
Fourteen Enterprises, Inc. (investments); Partner of Houston 
Partners (venture capital); Director and Vice Chairman of 
Kwik-Kopy Corporation (printing); Director of Allied Waste 
Industries (waste treatment).(1)(2); 74
    

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

OFFICERS

   
	Heath B. McLendon, President (See description under 
"Trustees").

	Lewis E. Daidone, Senior Vice President and Treasurer (Age 
40). Managing Director of Smith Barney; Director and Senior Vice 
President of MMC and TIA.  Mr. Daidone serves as Senior Vice 
President and Treasurer of 42 Smith Barney Mutual Funds.  His 
address is 388 Greenwich Street, New York, New York 10013.

	Sandip A. Bhagat, Vice President and Investment Officer (Age 
37). President of TIMCO; prior to 1995, Senior Portfolio Manager 
for TIMCO. His address is One Tower Square, Hartford, Connecticut 
06183-2030. 

	James E. Conroy,  Vice President and Investment Officer (Age 
46).  Managing Director of Smith Barney; prior to July 1993, 
Managing Director of  Shearson Lehman Advisors ("SLA").  Mr. 
Conroy serves as Investment Officer of four Smith Barney Mutual 
Funds.  His address is 388 Greenwich Street, New York, New York 
10013.

	Joseph P. Deane, Vice President and Investment Officer (Age 
50).  Managing Director of Smith Barney; prior to July 1993, 
Managing Director of SLA.  Mr. Deane serves as Investment Officer 
of 8 Smith Barney Mutual Funds.  His address is 388 Greenwich 
Street, New York, New York  10013.

	R. Jay Gerken, Vice President and Investment Officer (Age 
46).  Managing Director of Smith Barney; prior to July 1993, 
Managing Director of SLA. Mr. Gerken is Vice President and 
Investment Officer of two other Smith Barney Mutual Funds. His 
address is 388 Greenwich Street, New York, New York 10013. 

	Jeffrey Russell, Vice President and Investment Officer (Age 
40). Managing Director of Smith Barney;  Mr. Russell is Vice 
President and Investment Officer of six other Smith Barney Mutual 
Funds. His address is 388 Greenwich Street, New York, New York 
10013.

	Larry Weissman, Vice President and Investment Officer; (Age 
36 ).  Managing Director of Smith Barney; Prior to October 1997, 
Portfolio Manager of Newberger & Berman LLC; Prior to 1995, 
Portfolio Manager of College Retirement Equities Fund.

	Christina T. Sydor, Secretary (Age 47). Managing Director of 
Smith Barney; General Counsel and Secretary of MMC and TIA.  Ms. 
Sydor also serves as Secretary of 42 Smith Barney Mutual Funds.  
Her address is 388 Greenwich Street, New York, New York 10013.
    

   
	As of February 12, 1998, the Trustees and officers of the 
Trust as a group own less than one percent of the outstanding 
shares of each Fund of the Trust. The Trustees who are not 
affiliated with the Adviser or Distributor initially will be 
compensated by the Trust at the annual rate of $      plus a fee 
of $      per day for each Board meeting attended. During the 
fiscal period ended October 31, 1997, the Trustees who were not 
affiliated with the Adviser received as a group $19,936, $16,741, 
$191,675, $80,659, $30,342, and $21,772 in Trustees' fees from the 
Emerging Growth Fund, the International Equity Fund, the Growth 
Fund, the Growth and Income Fund, the Government Fund, and the 
Municipal Bond Fund respectively, in addition to certain 
out-of-pocket expenses.
    

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


COMPENSATION TABLE

   
<TABLE>
<CAPTION>
											Total(1)		Number of
									Pension or	Compensation	of Funds
									Retirement	From		For Which
									Benefits		Registrant	Trustee
					Aggregate Compensation		Accrued as	and Fund	Serves
					From Registrant(3)		Part of Fund	Paid		Within Fund
Name of Person		EM	INT	G	G/I	GVT	MB	Expenses(4)	to Directors	Complex
<S>			<C>	<C>	<C>	<C>	<C>	<C>	<C>		<C>
Dr. Donald M. Carlton	$2,464	$2,173	$15,811		$7,600	$3,082	$2,575	-	$33,703	1
Dr. A. Benton Cocanougher	2,210	1,949	14,181		6,816	2,764	2,309	-	30,229	1
Stephen Randolph Gross	2,692	2,375	17,278		8,305	3,368	2,814	-	36,832	1
Dr. Norman Hackerman(2)	   388	   137	16,.274		5,360	1,731	  652	-	24,543	0
Heath B. McLendon*	-	-	-		-	-	-	-	-	42
Robert D. H. Harvey(2)	407	   144	17,078		5,625	1,817	  684	-	25,757	0
Dr. Alan G. Merten		2,134	1,882	13,692		6,581	2,669	2,230	-	29,187	1
Dr. Steven Muller(2)	2,210	1,949	14,181		6,816	2,764	2,309	-	30,239	0
Dr. F. Robert Paulsen(2)	1,981	1,444	22,881		9,094	3,040	2,050	-	40,490	0
Dr. R. Richardson Pettit	2,184	2,184	14,018		6,738	2,733	2,283	-	30,139	1
Alan B. Shepard, Jr.	2,553	2,251	16,381		7,874	3,139	2,668	-	34,920	1
Miller Upton(2)		  383	  136	16,069		5,293	1,709	  644	-	24,254	0
Benjamin N. Woodson(2)	  330	  117	13,834		4,557	1,472	  554	-	20,863	0
</TABLE>
--------------------------------------
*Represents Interested Trustee.

 (1)	Amounts reflected are for the calendar year ended 
December 31, 1997.

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

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

(4)	Retirement Benefits accrued are $3,406, $777, $173,126, 
$62,617, $21,389, and $7,794, per the Emerging 	Growth Fund, the 
International Equity Fund, the Growth Fund, the Growth and Income 
Fund, the Government 	Fund and the Municipal Bond Fund, 
respectively, as part of each Fund's expenses.
    

Legend:

EM	= Emerging Growth Fund
INT	= International Equity Fund
G	= Growth Fund
G/I	= Growth and Income Fund
GVT	= Government Fund
MB	= Municipal Bond Fund

Legal Counsel

	Sullivan & Worcester LLP

INVESTMENT ADVISORY AGREEMENTS

   
	The Trust and the Adviser are parties to a separate 
Investment Advisory Agreement for each Fund (each, an "Advisory 
Agreement" and together, the "Advisory Agreements").  An 
investment advisory agreement with the Adviser and the Trust, on 
behalf of each Fund had been approved by the Board of Trustees of 
the Trust at a meeting held on June 10, 1997 and by shareholders 
of each Fund at a meeting held on December 18, 1997.  Under the 
Advisory Agreements, the Trust retains the Adviser to manage the 
investment of its assets and to place orders for the purchase and 
sale of its portfolio securities. The Adviser is responsible for 
obtaining and evaluating economic, statistical, and financial data 
and for formulating and implementing investment programs in 
furtherance of each Fund's investment objectives. The Adviser also 
furnishes at no cost to the Trust (except as noted herein) the 
services of sufficient executive and clerical personnel for the 
Trust as are necessary to prepare registration statements, 
prospectuses, shareholder reports, and notices and proxy 
solicitation materials. In addition, the Adviser furnishes at no 
cost to the Trust the services of a President of the Trust, one or 
more Vice Presidents as needed, and a Secretary. 
    

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

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

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

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

   
<TABLE>
<CAPTION>
		Emerging	International		Growth &		Municipal
		Growth		Equity	Growth		Income	Government	Bond
<S>		<C>		<C>		<C>	<C>	<C>		<C>	
October 31, 1997
Accounting Services	$37,198	$21,601	$420,043	$161,748	$55,786	$39,999
Gross Advisory Fees	904,959	267,897	20,533,544	7,574,209	1,702,968	704,693
Contractual Expense
  Reimbursement	--	--	--	--	--	--
Voluntary Expense
  Reimbursement	--	--	--	--	--	--

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

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

   
	For these periods, Van Kampen American Capital Asset 
Management Inc. ("VKAC") served as the Trust's investment adviser.  
Effective December 31, 1997, Mutual Management Corp. (formerly 
Smith Barney Mutual Funds Management Inc.) replaced VKAC as 
investment adviser to each Fund of the Trust.
    

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

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

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

DISTRIBUTOR

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


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

   
<TABLE>
<CAPTION>
		Emerging	International		Growth &		Municipal
		Growth		Equity		Growth	Income	Government	Bond
<S>		<C>		<C>		<C>	<C>	<C>		<C>
October 31, 1997
Total Underwriting
  Commissions	$3,846,082	$608,726	$18,002,508	$6,979,966	$808,858	$487,303
Amount Retained By
  Distributor	251,247	37,018	2,787,423	825,118	98,702	87,157
Amount Received By PFS
  Investments	3,594,835	571,708	15,215,088	6,154,848	710,156	400,146

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

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

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



PORTFOLIO TURNOVER

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

DISTRIBUTION PLANS

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

	With respect to the Class A Plan, each Fund is authorized to 
pay the Distributor, as compensation for the Distributor's 
services, a service fee at an annual rate of 0.25% of the average 
daily net assets of the Fund's Class A shares. Such fee shall be 
calculated and accrued daily and paid monthly. With respect to the 
Class A Plan, the Distributor intends to make payments thereunder 
only to compensate PFS Investments for personal service and the 
maintenance of shareholder accounts. With respect to the Class B 
Plan, authorized payments by each Fund include payments at an 
annual rate of 0.25% of the average daily net assets of the 
Class B shares to the Distributor for payments for personal 
service and/or the maintenance of shareholder accounts. With 
respect to the Class B Plan, authorized payments by each Fund also 
include payments at an annual rate of 0.75% of the average daily 
net assets of the Class B shares to the Distributor as 
compensation for providing sales and promotional activities and 
services.

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

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

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

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

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

   
	For the fiscal year ended October 31, 1997, the aggregate 
expenses for the Emerging Growth Fund under the Fund's Class A 
Plan were $193,021 or 0.25%, respectively, of the Class A shares' 
average net assets. Such expenses were paid to reimburse the 
Distributor for payments made to Service Organizations for 
servicing Fund shareholders and for administering the Class A 
Plan. For the fiscal year ended October 31, 1997, the Fund's 
aggregate expenses under the Class B Plan were $587,117 or 1.00% 
of the Class B shares' average net assets. Such expenses were paid 
to reimburse the Distributor for the following payments: $146,779 
for commissions and transaction fees paid to broker-dealers and 
other Service Organizations in respect of sales of Class B shares 
of the Fund and $440,338 for fees paid to Service Organizations 
for servicing Class B shareholders and administering the Class B 
Plan.
    

   
	For the fiscal year ended October 31, 1997, the aggregate 
expenses for the International Equity Fund under the Fund's 
Class A Plan were $36,192  or 0.25%, respectively, of the Class A 
shares' average net assets. Such expenses were paid to reimburse 
the Distributor for payments made to Service Organizations for 
servicing Fund shareholders and for administering the Class A 
Plan. For the fiscal year ended October 31, 1997, the Fund's 
aggregate expenses under the Class B Plan were $113,854 or 1.00% 
of the Class B shares' average net assets. Such expenses were paid 
to reimburse the Distributor for the following payments: $28,464 
for commissions and transaction fees paid to broker-dealers and 
other Service Organizations in respect of sales of Class B shares 
of the Fund and $85,390 for fees paid to Service Organizations for 
servicing Class B shareholders and administering the Class B Plan.
    

   
	For the fiscal year ended October 31, 1997, the aggregate 
expenses for the Growth Fund under the Class A Plan were $192,932 
or 0.25%, respectively, of the Class A shares' average net assets. 
Such expenses were paid to reimburse the Distributor for payments 
made to Service Organizations for servicing Fund shareholders and 
for administering the Class A Plan. For the fiscal year ended 
October  31, 1997, the Fund's aggregate expenses under the Class B 
Plan were $999,572 or 1.00% of the Class B shares' average net 
assets. Such expenses were paid to reimburse the Distributor for 
the following payments: $249,893 for commissions and transaction 
fees paid to broker-dealers and other Service Organizations in 
respect of sales of Class B shares of the Fund and $749,679 for 
fees paid to Service Organizations for servicing Class B 
shareholders and administering the Class B Plan.
    

   
	For the fiscal year ended October 31, 1997, the aggregate 
expenses for the Growth and Income Fund under the Fund's Class A 
Plan were $137,612  or 0.25%, respectively, of the Class A shares' 
average net assets. Such expenses were paid to reimburse the 
Distributor for payments made to Service Organizations for 
servicing Fund shareholders and for administering the Class A 
Plan. For the fiscal year ended October 31, 1997, the Fund's 
aggregate expenses under the Class B Plan were $752,643 or 1.00% 
of the Class B shares' average net assets. Such expenses were paid 
to reimburse the Distributor for the following payments: $188,161 
for commissions and transaction fees paid to broker-dealers and 
other Service Organizations in respect of sales of Class B shares 
of the Fund and $564,482 for fees paid to Service Organizations 
for servicing Class B shareholders and administering the Class B 
Plan.
    

   
	For the fiscal year ended October 31, 1997, the aggregate 
expenses for the Government Fund under the Fund's Class A Plan 
were $30,357 or 0.25%, respectively, of the Class A shares' 
average net assets. Such expenses were paid to reimburse the 
Distributor for payments made to Service Organizations for 
servicing Fund shareholders and for administering the Class A 
Plan. For the fiscal year ended October 31, 1997, the Fund's 
aggregate expenses under the Class B Plan were $128,349 or 1.00% 
of the Class B shares' average net assets. Such expenses were paid 
to reimburse the Distributor for the following payments: $32,087 
for commissions and transaction fees paid to broker-dealers and 
other Service Organizations in respect of sales of Class B shares 
of the Fund and $96,262 for fees paid to Service Organizations for 
servicing Class B shareholders and administering the Class B Plan.
    

   
	For the fiscal year ended October 31, 1997, the aggregate 
expenses for the Municipal Bond Fund under the Fund's Class A Plan 
were $13,371 or 0.25%, respectively, of the Class A shares' 
average net assets. Such expenses were paid to reimburse the 
Distributor for payments made to Service Organizations for 
servicing Fund shareholders and for administering the Class A 
Plan. For the fiscal year ended October 31, 1997, the Fund's 
aggregate expenses under the Class B Plan were $16,121 or 1.00% of 
the Class B shares' average net assets.  Such expenses were paid 
to reimburse the Distributor for the following payments: $4,030 
for commissions and transaction fees paid to broker-dealers and 
other Service Organizations in respect of sales of Class B shares 
of the Fund and $12,091 for fees paid to Service Organizations for 
servicing Class B shareholders and administering the Class B Plan.
    

PORTFOLIO TRANSACTIONS AND BROKERAGE

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

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

	Pursuant to provisions of the relevant Advisory Agreement, 
the Trustees have authorized the Adviser to cause the Trust to 
incur brokerage commissions in an amount higher than the lowest 
available rate in return for research services provided to the 
Adviser. The Adviser is of the opinion that the continued receipt 
of supplemental investment research services from dealers is 
essential to its provision of high quality portfolio management 
services to the Trust. The Adviser undertakes that such higher 
commissions will not be paid by the Trust unless (a) the Adviser 
determines in good faith that the amount is reasonable in relation 
to the services in terms of the particular transaction or in terms 
of the Adviser's overall responsibilities with respect to the 
accounts as to which it exercises investment discretion, (b) such 
payment is made in compliance with the provisions of 
Section 28(e) and other applicable state and federal laws, and (c) 
in the opinion of the Adviser, the total commissions paid by the 
Trust are reasonable in relation to the expected benefits to the 
Trust over the long term. The investment advisory fees paid by the 
Trust under the Advisory Agreements are not reduced as a result of 
the Adviser's receipt of research services.

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

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

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



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

   
<TABLE>
<CAPTION>
	Emerging	International		Growth &			Municipal
	Growth		Equity		Growth	Income		Government	Bond
<S>	<C>		<C>		<C>	<C>		<C>		<C>
1997
Total Brokerage Commissions	$185,242		$10,105,482	$2,428,087	$140,190 	--
Commissions for Research
  Services	77,926	--	3,257,868	759,080		--
Value of Research
  Transactions	90,303,044	--	1,471,817,568	612,451,022	--	--

1996
Total Brokerage Commissions	$    99,218	$94,895	$   10,114,647	$  
2,273,725	$160,181	--	
Commissions for Research
  Services	73,884	--	3,194,442	896,669	--	--	
Value of Research
  Transactions	13,016,975	--	2,657,952,353	821,323,593	--	--	

1995
Total Brokerage Commissions	$    33,144	$51,642	$11,276,872	$2,443,026	$125,499	--	
Commissions for Research
  Services	27,920	--	2,878,071	880,873	--	--	
Value of Research
  Transactions	24,893,286	--	1,995,983,303	524,158,962	--	--	
</TABLE>
    

	The Funds may from time to time place brokerage transactions 
with brokers that may be considered affiliated persons of the 
Adviser or the Distributor. Such affiliated persons include Smith 
Barney Inc. ("Smith Barney") and Robinson Humphrey, Inc. 
("Robinson Humphrey", [Effective October 31, 1996, Morgan Stanley 
Group Inc. ("Morgan Stanley") became an affiliate of VKAC.  
Effective May 31, 1997, Dean Witter Discover & Co. ("Dean Witter") 
became an affiliate of VKAC.]  The negotiated commission paid to 
an affiliated broker on any transaction would be comparable to 
that payable to a non-affiliated broker in a similar transaction.



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

Commissions Paid:

   
<TABLE>
<CAPTION>
			Robinson	Smith	Morgan	Dean
Fiscal 1997 Commissions	Humphrey	Barney	Stanley	Witter
<S>			<C>		<C>	<C>	<C>				
Emerging Growth	--	--	--	--
International Equity	--	--	$  9,368	--
Growth			$4,500	$327,320	  20,688	$17,100
Growth & Income	--	    90,639	     375	--
Government		--	    27,848	--	--
Municipal Bond		--	--	--	--
				
				
Fiscal 1997 Percentage				
				
Emerging Growth	--	--	--	--
International Equity	--	--	8.14%	--
Growth			0.04%	3.24%	0.20%	0.17%
Growth & Income	--	3.73%	0.02%	--
Government		--	19.86%	--	--
Municipal Bond		--	--	--	--
				
				
Valuation of transactions with				
affiliates to total transactions				
				
Emerging Growth	--	--	--	--
International Equity	--	--	1.43%	--
Growth	0%		0.04%	0%	0.28%
Growth & Income	--	--	0%	--
Government		--	2.34%	--	--
Municipal Bond		--	--	--	--
				
				
Fiscal 1996 Commissions				
				
Emerging Growth	--	$   1,835		
International Equity	--	--		
Growth			$7,200	 240,982		
Growth & Income	2,400	   92,761		
Government		--	   28,322		
Municipal Bond		--	--		
</TABLE>

<TABLE>
<CAPTION>
			Robinson	Smith
Fiscal 1996 Percentages	Humphrey	Barney
<S>			<C>		<C>
Emerging Growth	--	 1.87%
International Equity	--	--
Growth	0.07%	 2.38%
Growth & Income	0.10%	 4.08%
Government	--	17.68%
Municipal Bond	--	--
</TABLE>

<TABLE>
<CAPTION>
 Value of transactions with	Robinson	Smith
affiliates to total transactions	 Humphrey	Barney
<S>				<S>		<S>
Emerging Growth	--	--
International Equity	--	--
Growth	--	0.002%
Growth & Income	--	0.027%
Government	--	4.65%
Municipal Bond	--	5.35%
</TABLE>

<TABLE>
<CAPTION>
			Robinson	Smith
Fiscal 1995 Commissions	Humphrey	Barney
<C>			<S>		<S>
Emerging Growth	$   --	$     310
International Equity	--	    1,077
Growth	5,250	253,827
Growth & Income	  189	118,952
Government	--	  20,942
Municipal Bond	--	--
</TABLE>

<TABLE>
<CAPTION>
			Robinson	Smith
Fiscal 1995 Percentages	Humphrey	Barney
<S>			<C>		<C>
Commissions with affiliates
to total commissions
	Emerging Growth	--	  0.94%
	International Equity	--	  2.10%
	Growth	0.05%	  2.25%
	Growth & Income	0.01%	  4.87%
	Government	--	16.69%
	Municipal Bond	--	--
</TABLE>

<TABLE>
<CAPTION>
 Value of transactions with	Robinson	Smith
affiliates to total transactions	 Humphrey	Barney
<S>				<C>		<C>
Emerging Growth	--	0.35%
International Equity	--	1.23%
Growth	0.03%	7.40%
Growth & Income	--	10.52%
Government	--	15.55%
Municipal Bond	--	--
</TABLE>
    

DETERMINATION OF NET ASSET VALUE

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



The Emerging Growth Fund, The International Equity Fund, The 
Growth Fund and The Growth and Income Fund Net Asset Valuation

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

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

Government Fund Net Asset Valuation

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

The Municipal Bond Fund Net Asset Valuation

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


General

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

PURCHASE AND REDEMPTION OF SHARES

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

Purchase of Shares

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

Alternative Sales Arrangement

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

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

Investments by Mail

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

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


Cumulative Purchase Discount

	The reduced sales load reflected in the sales charge table 
as shown in the Prospectus applies to purchases of Class A and 
Class 1 shares of the Emerging Growth Fund, the International 
Equity Fund, the Growth Fund, the Growth and Income Fund, the 
Government Fund and the Municipal Bond Fund. An aggregate 
investment includes all shares of all of the above Funds and 
shares of other Common Sense Funds previously purchased and still 
owned, plus the shares being purchased. The current offering price 
is used to determine the value of all such shares. The same 
reduction is applicable to purchases under a Letter of Intent as 
described in the next paragraph. PFS Investments must notify the 
Distributor at the time an order is placed for a purchase which 
would qualify for the reduced charge on the basis of previous 
purchases. Similar notification must be given in writing when such 
an order is placed by mail. The reduced sales charge will not be 
applied if such notification is not furnished at the time of the 
order. The reduced sales charge will also not be applied unless 
the records of the Distributor or the Transfer Agent confirm the 
investor's representations concerning his holdings.

Letter of Intent

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

Waiver of Contingent Deferred Sales Charge ("CDSC")

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

  (a)  Redemption Upon Disability or Death

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

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

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

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

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


  (c)  Redemption Pursuant to the Trust's Systematic Withdrawal 
Plan

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

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

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

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

  (e)  Redemption by Adviser

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

Redemption of Shares

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

EXCHANGE PRIVILEGE

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

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

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

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

DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES

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

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

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

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

	Although exempt-interest dividends generally may be treated 
by the Municipal Bond Fund's shareholders as items of interest 
excluded from their gross income, each shareholder is advised to 
consult his or her tax adviser with respect to whether 
exempt-interest dividends retain this exclusion if the shareholder 
should be treated as a "substantial user" or a "related person" 
with respect to any of the tax-exempt obligations held by the 
Fund. "Substantial user" is defined under U.S. Treasury 
Regulations to include a non-exempt person who regularly uses in 
his trade or business a part of any facilities financed with the 
tax-exempt obligations and whose gross revenues derived from such 
facilities exceed five percent of the total revenues derived from 
the facilities by all users, or who occupies more than five 
percent of the usable area of the facilities or for whom the 
facilities or a part thereof were specifically constructed, 
reconstructed or acquired. Examples of "related persons" include 
certain related natural persons, affiliated corporations, a 
partnership and its partners and an S corporation and its 
shareholders.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

	The Code generally provides with respect to straddles 
(i) "loss deferral" rules which may postpone recognition for tax 
purposes of losses from certain closing purchase transactions or 
other dispositions of a position in the straddle to the extent of 
unrealized gains in the offsetting position, (ii) "wash sale" 
rules which may postpone recognition for tax purposes of losses 
where a position is sold and a new offsetting position is acquired 
within a prescribed period and (iii) "short sale" rules which may 
terminate the holding period of securities owned by the Fund when 
offsetting positions are established and which may convert certain 
losses from short-term to long-term.

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

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

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



OTHER INFORMATION
Performance Information

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

   
<TABLE>
<CAPTION>
					Class 1	Class A	Class B
					Shares	Shares	Shares	
<S>					<C>	<C>	<C>
Emerging Growth Fund

i)	total return for one year period ended
	10/31/97	9.01%	
	12.37%		12.94%
ii)	total return for five year period ended
	10/31/97	--			--		 --
iii)	total return since inception
	(based on inception date of 2/21/95)	--		
	23.55%		24.46%
iv)	total return since inception
	(based on inception date of 8/08/96)  	10.68%			--			--

International Equity Fund

i)	total return for one year period ended
	10/31/97	0.66%		
	3.72%	   	3.93%
ii)	total return for five year period ended
	10/31/97	--		--			--
iii)	total return since inception
	(based on inception date of 3/17/95)	--	      	14.83%	 	15.60%

iv)	total return since inception
	(based on inception date of 8/08/96)	3.10%	 	--				--

Growth Fund

i)	total return for one year period ended
	10/31/97	16.15%	19.66%	20.66%
ii)	total return for five year period ended
	10/31/97	15.03%	    -- 
			    --
iii)	Total return for the ten year period ended 
	10/31/97	15.00%	    --	     --

iv)	total return since inception
	(based on inception date of 4/14/87)	12.02%	    --	     --
v)	total return since inception
	(based on inception date of 5/03/94)                                      
--                        17.22%               17.86%
</TABLE>

<TABLE>
<CAPTION>
					Class 1	Class A	Class B
					Shares	Shares	Shares
<S>					<C>	<C>	<C>
Growth and Income Fund

i)	total return for one year period ended
	10/31/97	16.54%	     20.08%		21.08%
ii)	total return for five year period ended
	10/31/97	14.57%	--		--
ii)	total return since inception
	(based on inception date of 4/14/87)	11.43%	--			--
iv)	total return since inception
	(based on inception date of 5/03/94)	     --      		16.86%	17.42%

Government Fund

i)	total return for one year period ended
	10/31/97	      1.26%	     3.19%	                3.55%
ii)	total return for five year period ended
	10/31/97	     4.80%	--	                            --
iii)	total return since inception
	(based on inception date of 4/14/87)	    6.93%	--	                            --
iv)	total return since inception
	(based on inception date of 5/03/94)	--	                              
4.43%             4.29%
v)	yield	  5.42%	       5.30%	             4.79%

Municipal Bond Fund

i)	total return for one year period ended
	10/31/97	2.90%	      2.93%	             2.98%
ii)	total return for five year period ended
	10/31/97	6.24%	--	                       --
iii)	total return since inception
	(based on inception date of 7/13/88)	7.20%	--	                       --
iv)	total return since inception
	(based on inception date of 8/08/96)	--	                              
3.29%            3.22%
v)	yield	--	--	                      --
vi)	tax equivalent yield	--	--	                      --
</TABLE>
    

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

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

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

Shareholder Services

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

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

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

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

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

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

	Simplified Employee Pension Plan (SEP) and Salary Reduction 
Simplified Employee Pension Plan (SARSEP). A SEP/SARSEP is a means 
for an employer to provide retirement contributions to IRAs for 
all employees, without the complicated reporting and record 
keeping involved in a qualified plan. Employees covered by a 
SEP/SARSEP can use the same IRA to receive their own allowable IRA 
contribution.

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

Custody of Assets

   
	Effective December 31, 1997, securities owned by the Trust 
and all cash, including proceeds from the sale of shares of the 
Trust and of securities in the Trust's investment portfolio, are 
held by PNC Bank, National Association, located at 17th and 
Chestnut Streets, Philadelphia, PA  19103, as Custodian for each 
Fund other than the International Equity Fund.  Chase Manhattan 
Bank, located at Chase Metrotech Center, Brooklyn, NY  11245 
serves as Custodian for the International Equity Fund. 
    

Shareholder Reports

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

Independent Auditors

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

Shareholder and Trustee Responsibility

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

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




10






Part C. Other Information

Item 24.  Financial Statements and Exhibits.

	(a)	Financial Statements
		Included in the Prospectus:
			Financial Highlights

		Included in the Statement of Additional Information:
			Report of Independent Auditors*
			Financial Statements*
			Notes to Financial Statements*
____________________________
* The  Registrant's Annual Report for the  year
ended October 31, 1997 and  the  Report  of
Independent  Accountants are incorporated  by
reference  to the Definitive 30b-1  filed  on
December 18, 1997  as 
Accession  #950131-97-7344.


	(b)	Exhibits

		 1.1		Agreement and Declaration of Trust dated 
January 29, 1987. (Incorporated herein by 
reference to Form N-1A of Registrant's 
Post-Effective Amendment No. 18, filed on 
February 28, 1997.)

		 1.2		Certificate of Designation of Common Sense 
Money Market Fund dated September 30, 1987. 
(Incorporated herein by reference to 
Form N-1A of Registrant's Post-Effective 
Amendment No. 18, filed on February 28, 
1997.)

		 1.3		Certificate of Designation Common Sense 
Municipal Bond Fund dated April 4, 1988. 
(Incorporated herein by reference to 
Form N-1A of Registrant's Post-Effective 
Amendment No. 18, filed on February 28, 
1997.)

		 1.4		Certificate of Resolution dated January 8, 
1992. (Incorporated herein by reference to 
Form N-1A of Registrant's Post-Effective 
Amendment No. 18, filed on February 28, 
1997.)

		 1.5		Certificate of Amendment dated January 20, 
1994. (Incorporated herein by reference to 
Form N-1A of Registrant's Post-Effective 
Amendment No. 18, filed on February 28, 
1997.)

		 1.6		Certificate of Designation of Common Sense II 
Aggressive Opportunity Fund dated January 27, 
1994. (Incorporated herein by reference to 
Form N-1A of Registrant's Post-Effective 
Amendment No. 18, filed on February 28, 
1997.)

		 1.7		Certificate of Designation of Common Sense II 
Government Fund dated January 27, 1994. 
(Incorporated herein by reference to 
Form N-1A of Registrant's Post-Effective 
Amendment No. 18, filed on February 28, 
1997.)

		 1.8		Certificate of Designation of Common Sense II 
Growth Fund dated January 27, 1994. 
(Incorporated herein by reference to 
Form N-1A of Registrant's Post-Effective 
Amendment No. 18, filed on February 28, 
1997.)

		 1.9		Certificate of Designation of Common Sense II 
Growth and Income Fund dated January 27, 
1994. (Incorporated herein by reference to 
Form N-1A of Registrant's Post-Effective 
Amendment No. 18, filed on February 28, 
1997.)

		 1.10		Certificate of Amendment of the Agreement and 
Declaration of Trust dated May 10, 1996. 
(Incorporated herein by reference to 
Form N-1A of Registrant's Post-Effective 
Amendment No. 18, filed on February 28, 
1997.)


		 1.11		Amended and Restated Certificate of 
Designation of Common Sense II Emerging 
Growth Fund dated May 10, 1996. (Incorporated 
herein by reference to Form N-1A of 
Registrant's Post-Effective Amendment No. 18, 
filed on February 28, 1997.)

		 1.12		Amended and Restated Certificate of 
Designation of Common Sense II International 
Equity Fund dated May 10, 1996. (Incorporated 
herein by reference to Form N-1A of 
Registrant's Post-Effective Amendment No. 18, 
filed on February 28, 1997.)

		 1.13		Amended and Restated Certificate of 
Designation of Common Sense Money Market Fund 
dated May 10, 1996. (Incorporated herein by 
reference to Form N-1A of Registrant's 
Post-Effective Amendment No. 18, filed on 
February 28, 1997.)

		 1.14		Amended and Restated Certificate of 
Designation of Common Sense Municipal Bond 
Fund dated May 10, 1996. (Incorporated herein 
by reference to Form N-1A of Registrant's 
Post-Effective Amendment No. 18, filed on 
February 28, 1997.)

		 1.15		Certificate of Amendment Amending the Amended 
and Restated Certificate of Designation of 
Common Sense Emerging Growth Fund dated 
July 2, 1996. (Incorporated herein by 
reference to Form N-1A of Registrant's 
Post-Effective Amendment No. 18, filed on 
February 28, 1997.)

		 1.16		Certificate of Amendment Amending the Amended 
and Restated Certificate of Designation of 
Common Sense International Equity Fund dated 
July 2, 1996. (Incorporated herein by 
reference to Form N-1A of Registrant's 
Post-Effective Amendment No. 18, filed on 
February 28, 1997.)

		 2		Bylaws as amended July 10, 1996. 
(Incorporated herein by reference to 
Form N-1A of Registrant's Post-Effective 
Amendment No. 18, filed on February 28, 
1997.)

		 3		Not Applicable


		 4.1		Specimen copy of Share of Beneficial Interest 
in Common Sense Trust for Class A shares. 
(Incorporated herein by reference to Form 
N-1A of Registrant's Post-Effective Amendment 
No. 17, filed on March 21, 1996.)

		 4.2		Specimen copy of Share of Beneficial Interest 
in Common Sense Trust for Class B shares. 
(Incorporated herein by reference to Form 
N-1A of Registrant's Post-Effective Amendment 
No. 17, filed on March 21, 1996.)

		 4.3		Specimen copy of Share of Beneficial Interest 
in Common Sense Trust for Class 1 shares. 
(Incorporated herein by reference to Form 
N-1A of Registrant's Post-Effective Amendment 
No. 17, filed on March 21, 1996.)

	 5.1		Form of Investment Advisory Agreement for  Concert Investment Series.


		 6.1		Form of Underwriting Agreement for Common 
Sense Trust(Incorporated herein by reference 
to Form N-1A of Registrant's Post-Effective 
Amendment No. 17, filed on March 21, 1996.).

		 6.2		Form of Selling Agreement with PFS 
Investments, Inc. (Incorporated herein by 
reference to Form N-1A of Registrant's 
Post-Effective Amendment No. 17, filed on 
March 21, 1996.)

		 7		Not applicable.

		 8.1		Form of Custodian Agreements filed herein.

		 8.2		Form of Transfer Agency Agreement filed 
herein.

		 8.3 		Form of Sub-Transfer Agency Agreement filed herein.
	
		10		Not applicable

		11		Consent of Independent Auditors is filed 
herein.

		13.1		Investment Letter for Common Sense Funds. 
(Incorporated by reference to Exhibit 13 
filed with Pre-Effective Amendment No. 2, 
filed March 31, 1987.)

		13.2		Investment Letter for Common Sense II Funds 
dated May 2, 1994. (Incorporated herein by 
reference to Exhibit 13.2 filed with 
Post-Effective Amendment No. 12, filed 
October 28, 1994.)

		13.3		Investment Letter for Common Sense II 
Emerging Growth Fund and Common Sense II 
International Equity Fund (Incorporated 
herein by reference to Exhibit 13.3 filed 
with Post-Effective Amendment No. 15, filed 
August 11, 1995).

		14.1		Individual Retirement Account Application. 
(Incorporated by reference to Exhibit 14.1 
with Post-Effective Amendment No. 9, filed 
November 10, 1993.)

		14.2		403(b)(7) Custodial Account Application. 
(Incorporated by reference to Exhibit 14.2 
with Post-Effective Amendment No. 9, filed 
November 10, 1993.)

		14.3		Simplified Employee Pension Account 
Application. (Incorporated by reference to 
Exhibit 14.3 filed with Post-Effective 
Amendment No. 9, filed November 10, 1993.)

		15.1		Form of Class A Distribution Plan 
(Incorporated herein by reference to 
Form N-1A of Registrant's Post-Effective 
Amendment No. 17, filed on March 21, 1996.).

		15.2		Form of Class B Distribution 
Plan(Incorporated herein by reference to 
Form N-1A of Registrant's Post-Effective 
Amendment No. 17, filed on March 21, 1996.).

		15.3		Form of Servicing Agreement for Class A 
shares of Common Sense Trust (Incorporated 
herein by reference to Form N-1A of 
Registrant's Post-Effective Amendment No. 17, 
filed on March 21, 1996.).

		15.4		Form of Servicing Agreement for Class B 
shares of Common Sense Trust(Incorporated 
herein by reference to Form N-1A of 
Registrant's Post-Effective Amendment No. 17, 
filed on March 21, 1996.).

		16	Computation Measure for Performance 
Information (Incorporated 
herein by reference to Form N-1A of 
Registrant's Post-Effective Amendment No. 17, 
filed on March 21, 1996.).

		18		Rule 18f-3 Plan. (Incorporated herein by 
reference to Form N-1A of Registrant's 
Post-Effective Amendment No. 18, filed on 
February 28, 1997.)

		27		Financial Data Schedules.

+  To be filed by further amendment.

Item 25.  Persons Controlled by or under Common Control with 
Registrant.

	None

Item 26.  Number of Holders of Securities.

As of February 12, 1998

	(1)	(2)
	Title of Class	Number of Record Holders

Shares of Beneficial Interest, $0.01 par value	Class A	Class B	Class 1

Emerging Growth Fund	33,070	27,848	1,041
International Equity Fund	5,246	4,745	347
Growth Fund	40,506	35,901	471,899
Growth and Income Fund	14,797	16,376	105,841
Government Fund	2,493	1,814	20,429
Municipal Bond Fund	1,582	377	8,867

Item 27.  Indemnification.

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

Item 28.  Business and Other Connections of Investment Adviser

Investment Adviser - Mutual Management Corp. ("MMC)
(Formerly known as Smith Barney Mutual Funds Management
Inc.)

MMC,  through its predecessors, has been in the investment
counseling  business  since 1934  and  was  incorporated  in
December 1968 under the laws of the State of Delaware. MMC
is  a  wholly owned subsidiary of Salomon Smith Barney 
Holdings Inc.,which  in  turn  is a wholly owned subsidiary 
of  Travelers Group   Inc.("Travelers"). MMC is registered as an 
investment adviser under the  Investment Advisers Act of 1940  
(the  "Advisers Act").

The  list  required  by  this Item 28  of  the  officer  and
directors of MMC together with information as to any other
business,   profession,  vocation   or   employment   of   a
substantial nature engaged in by such officer and  directors
during  the  past  two  fiscal  years,  is  incorporated  by
reference  to Schedules A and D of FORM ADV filed  by  MMC
pursuant to the Advisers Act (SEC File No. 801-8314).

Item 29.  Principal Underwriters.

	(a) PFS  Distributors ("PFS") currently acts as distributor
for: Concert Investment Series; Concert Social 
Awareness Fund; Concert Peachtree Growth Fund; 
Smith Barney Appreciation Fund, Inc.
Smith Barney Concert Allocation Series Inc;
Smith  Barney Money Funds, Inc. - Cash Portfolio;
Smith Barney Exchange Reserve Fund;
and Smith Barney Investment Grade Bond Fund.

On  May 8, 1995, PFS changed its name from Common Sense
Distributors to PFS Distributors, its current name. The
information  required by this Item 29 with  respect  to
each   director,  officer  and  partner   of   PFS   is
incorporated  by reference to Schedule A  of  FORM  BD,
filed by PFS pursuant to the Securities Exchange Act of
1934 (SEC File No. 8-37352).


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

	Inapplicable.

Item 30.  Location of Books and Records.

	All accounts, books and other documents required by 
Section 31(a) of the Investment Company Act of 1940 and the Rules 
thereunder to be maintained (i) by Registrant will be maintained at 
its offices, located at Mutual Management Corp., 388 Greenwich 
Street, 22nd Floor, New York, NY 10013, PFS Shareholder Services, 
3100 Breckinridge Blvd., Bldg. 200, Duluth, Georgia 30199-0062, or at 
PNC Bank,National Association, 17th and Chestnut Streets, 
Philadelphia, Pennsylvania 19103 or Chase Manhattan Bank, Chase 
Metrotech Center, Brooklyn, New York 11245; (ii) by the Adviser, will 
be maintained at its offices, located at Mutual Management Corp., 
388 Greenwich Street, 22nd Floor, New York, NY 10013; and (iii) by 
the Distributor, the principal underwriter, will be maintained at its 
offices located at PFS Distributors, Inc., 3120 Breckinridge Blvd., 
Bldg. 1200, Duluth, Georgia 30199-0001.



Item 31.  Management Services.

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

Item 32.  Undertakings.

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

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



SIGNATURES
   	Pursuant to the requirements of the Securities Act of 1933, as 
amended, 
and the Investment Company Act of 1940, as amended, the Registrant 
has duly 
caused this Post-Effective Amendment No. 20 to its Registration 
Statement on 
Form N-1A to be signed on its behalf by the undersigned, thereunto 
duly 
authorized, in the City of New York, on the 
    
   27th day of February, 
1998. 
    

						CONCERT INVESTMENT SERIES

						By	/s/ HEATH B. MCLENDON
							_________________
							Heath B. McLendon
							Chairman of the Board and
							Chief Executive Officer


	We, the undersigned, hereby severally constitute and appoint 
Heath B. McLendon, Christina T. Sydor and Robert Vegliante and each 
of them singly, our true and lawful attorneys, with full power to 
them and each of them to sign for us, and in our hands and in the 
capacities indicated below, any and all Amendments to this 
Registration Statement and to file the same, with all exhibits 
thereto, and other documents therewith, with the Securities and 
Exchange Commission, granting unto said attorneys and each of them, 
acting alone, full authority and power to do and perform each and 
every act and thing requisite or necessary to be done in the 
premises, as fully to all intents and purposes as he might or could 
do in person, hereby ratifying and confirming all that said attorneys 
or any of them may lawfully do or cause to be done by virtue thereof.

	WITNESS our hands on the date set forth below.

	Pursuant to the requirements of the Securities Act of 1933, as 
amended, this Amendment to the Registration Statement and the above 
Power of Attorney has been signed below by the following persons in 
the capacities and as of the dates indicated.



Signature:



Title:

Date:

/s/Heath B. McLendon

Chairman of the 
Board

February 27, 1998

Heath B. McLendon

(Chief Executive 
Officer)





/s/ Lewis E. Daidone

Senior Vice 
President and

February 27, 1998

Lewis E. Daidone

Treasurer(Chief 
Financial 





and Accounting 
Officer)








DONALD M. CARLTON
(Donald M. Carlton)	Trustee		February 
27, 1998

A. BENTON COCANOUGHER
(A. Benton Cocanougher)		Trustee		February 
27, 1998

STEPHEN R. GROSS
(Stephen R. Gross)		Trustee		February 
27, 1998

ALAN G. MERTEN
(Alan G. Merten)		Trustee		February 
27, 1998

R. RICHARDSON PETTIT
(R. Richardson Pettit)		Trustee		February 
27, 1998

ALAN B. SHEPARD, JR.
(Alan B. Shepard, Jr.)		Trustee		February 
27, 1998



 

EXHIBIT INDEX


5.1	Form of Investment Advisory Agreement for  Concert Investment Series.

8.1	Form of Custodian Agreements filed herein.

 8.2	Form of Transfer Agency Agreement filed 
herein.

 8.3 	Form of Sub-Transfer Agency Agreement filed herein.
	

11.Consent of Independent Auditors is filed 
herein.
	
27.		Financial Data Schedules is filed herein..