-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, kUWTlFgv7Eq9C63cN56pME4ebxZtfADs9AnyElKvipFtz+6JG8JTigcEZ4woUiZJ /EYSqlVRq+UyDMdFVAx0XQ== 0000950118-94-000012.txt : 19940131 0000950118-94-000012.hdr.sgml : 19940131 ACCESSION NUMBER: 0000950118-94-000012 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19940128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMBRIDGE SERIES TRUST CENTRAL INDEX KEY: 0000883428 STANDARD INDUSTRIAL CLASSIFICATION: 0000 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 33 SEC FILE NUMBER: 033-45315 FILM NUMBER: 94503381 BUSINESS ADDRESS: STREET 1: FEDERATED INVESTORS TOWER STREET 2: C/O FEDERATED INVESTORS CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4122881401 485APOS 1 N1A DOCUMENT 1933 Act File No. 33-45315 1940 Act File No. 811-6550 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X Pre-Effective Amendment No. ________. . . . . . . Post-Effective Amendment No. 5 . . . . . . . X and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940. . . . . . . . . . . . . . . . . X Amendment No. 6 . . . . . . . . . . . . . . X CAMBRIDGE SERIES TRUST (Exact Name of Registrant as Specified in Charter) Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779 (Address of Principal Executive Offices) (412) 288-1900 (Registrant's Telephone Number) John W. McGonigle, Esquire Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779 (Name and Address of Agent for Service) It is proposed that this filing will become effective: immediately upon filing pursuant to paragraph (b) on ____________ pursuant to paragraph (b) X 60 days after filing pursuant to paragraph (a), or such earlier date as the Commission may declare the filing effective on ____________ pursuant to paragraph (a) of Rule 485. Registrant has filed with the Securities and Exchange Commission a declaration pursuant to Rule 24f-2 under the Investment Company Act of 1940, and: X filed the Notice required by that Rule on November 29, 1993; or intends to file the Notice required by that Rule on or about ___________ __, 1994; or during the most recent fiscal year did not sell any securities pursuant to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to Rule 24f-2(b)(2), need not file the Notice. Copies to: David M. Carter, Esquire Byron F. Bowman, Esquire Hunton & Williams 1001 Liberty Avenue Riverfront Plaza, East Tower Pittsburgh, PA 15222- 3779 951 East Byrd Street Richmond, VA 23219-4074 CROSS-REFERENCE SHEET This Amendment to the Registration Statement of Cambridge Series Trust, which consists of six portfolios ((1) Cambridge Growth Portfolio, (2) Cambridge Capital Growth Portfolio, (3) Cambridge Government Income Portfolio, (4) Cambridge Municipal Income Portfolio, (5) Cambridge Income and Growth Portfolio, and (6) Cambridge Global Portfolio; all six portfolios offering two separate classes of shares, (a) Class A and (b) Class B), relates only to two of the portfolios, Cambridge Government Income Portfolio and Cambridge Global Portfolio. A combined prospectus is being filed for the first five portfolios, a separate prospectus is being filed for the Cambridge Global Portfolio, and a combined Statement of Additional Information is being filed herewith for all six portfolios. The portfolios are comprised of the following: PART A. INFORMATION REQUIRED IN A PROSPECTUS. Prospectus Heading (Rule 404(c) Cross Reference) Item 1. Cover Page. . . . . . . . . . . (1-6) Cover Page. Item 2. Synopsis. . . . . . . . . . . . (1-6) Summary of Portfolio Expenses. Item 3. Condensed Financial Information (1-6) Financial Highlights; (1-6) Performance Information. Item 4. General Description of Registrant. . . . . . . . . . (1-6) Cambridge Family of Funds; (1-6) Investment Information; (1-6) Investment Objectives and Policies; (1-6) Investment Practices; (1,2,5,6) Currency Risks; (4) Risks of Lower-Grade Municipal Securities. Item 5. Management of the Fund. . . . .(1-6) Cambridge Series Trust Information; (1-6) Investment Management of the Trust; (1-6) General Information; (1-6) Board of Trustees; (1-6) Investment Adviser; (1-6) Investment Advisory Fees; (1-6) Investment Adviser's Profile; (1-6) The Sub-Advisers; (1-6) Sub-Advisory Fees; (1-6) Sub-Advisers' Profiles; (1-6) Administration of the Trust; (1-6) Brokerage Transactions; (1-6) Shareholder Servicing Plan; (1-6) Expenses of the Portfolios and Class A and Class B Shares. Item 6. Capital Stock and Other Securities. . . . . . . . . . . (1-6) Dividends; (1-6) Capital Gains; (1-6) Shareholder Information; (1-6) Voting Rights; (1-6) Massachusetts Partnership Law; (1-6) Tax Information. Item 7. Purchase of Securities Being Offered . . . . . . . . . . . .(1-6) Net Asset Value; (1-6) How to Buy Shares; (1-6) Alternative Purchase Arrangements; (1-6) Through a Financial Institution; (1-6) Distribution of Fund Shares; (1b-6b) Distribution Plan; (1-6) Minimum Investment Required; (1-6) What Shares Cost; (1-6) When Net Asset Value is Determined; (1-6) Purchases at Net Asset Value; (1a-6a) Reducing the Sales Charge for Class A Shares; (1-6) Systematic Investment Program; (1-6) Certificates and Confirmations; (1-6) Retirement Plans. Item 8. Redemption or Repurchase. . . .(1-6) Exchange Privilege; (1-6) Requirements for Exchange; (1-6) Tax Consequences; (1-6) Making an Exchange; (1-6) Telephone Instructions; (1-6) Redeeming Shares; (1-6) Contingent Deferred Sales Charge; (1-6) Through a Financial Institution; (1-6) Directly from the Portfolios; (1-6) Redemption Before Purchase Instruments Clear; (1-6) Systematic Withdrawal Program; (1-6) Accounts with Low Balances. Item 9. Pending Legal Proceedings. . . None. PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION. Prospectus Heading (Rule 404(c) Cross Reference) Item 10. Cover Page. . . . . . . . . . (1-6) Cover Page. Item 11. Table of Contents. . . . . . .(1-6) Table of Contents. Item 12. General Information and History. . . . . . . . . .(1-6) General Information About the Trust. Item 13. Investment Objectives and Policies. . . . . . . . . . . (1-6) Investment Objectives and Policies of the Portfolios; (1-6) Investment Limitations. Item 14. Management of the Fund. . . . (1-6) Management of the Trust. Item 15. Control Persons and Principal Holders of Securities . . . . Not applicable. Item 16. Investment Advisory and Other Services. . . . . . . . . . . (1-6) Investment Advisory Services; (1-6) Administrative Services; (1-6) Shareholder Servicing Plan. Item 17. Brokerage Allocation. . . . . (1-6) Brokerage Transactions. Item 18. Capital Stock and Other Securities. . . . . . . . . . Not applicable. Item 19. Purchase, Redemption and Pricing of Securities Being Offered . (1-6) How to Buy Shares; (1-6) Determining Net Asset Value; (1-6) Exchange Privilege; (1-6) Redeeming Shares. Item 20. Tax Status . . . . . . . . . .(1-6) Tax Status. Item 21. Underwriters. . . . . . . . . (1b-6b) Distribution Plan (Class B Shares). Item 22. Calculation of Performance Data. . . . . . . . . . . . . (1-6) Total Return; (1-6) Yield; (4) Tax-Equivalent Yield; (1-6) Performance Comparisons. Item 23. Financial Statements. . . . . (1-6) Incorporated into Part B by reference to Registrant's Annual Report dated September 30, 1993. SUBJECT TO COMPLETION, DATED JANUARY 28, 1994 Cambridge Global Portfolio (A Portfolio of Cambridge Series Trust) Prospectus Cambridge Global Portfolio (the "Portfolio") is a diversified, open-end management investment company, organized as a new portfolio of Cambridge Series Trust (the "Trust"). The investment objective of Cambridge Global Portfolio is long-term growth of capital through a diversified portfolio of marketable securities, primarily equity securities, including common stocks, preferred stocks and debt securities convertible into common stocks. The Portfolio invests on a worldwide basis in equity securities of companies which are incorporated in the United States or in foreign countries. It also may invest in the debt securities of U.S. and foreign issuers. Income is an incidental consideration. Scudder, Stevens & Clark, Inc. is the Portfolio's sub-adviser (the "Sub-Adviser"). There can be no assurance that the Portfolio will achieve its investment objective. The shares offered by this prospectus are not deposits or obligations of any bank, are not endorsed or guaranteed by any bank, and are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in these shares involves investment risks, including the possible loss of principal. This prospectus contains the information you should read and know before you invest in the Portfolio. Keep this prospectus for future reference. The Trust has also filed a combined Statement of Additional Information the Trust, dated , 1994, with the Securities and Exchange Commission. The information contained in the combined Statement of Additional Information is incorporated by reference in this prospectus. You may request a copy of the combined Statement of Additional Information free of charge, obtain other information, or make inquiries about the Trust by writing the Trust or by calling 1-800-382-0016. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated , 1994 Information contained herein is subject to completion of amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. Table of Contents Summary of Portfolio Expenses. . . . . . . . . . . . . . . . . 1 Cambridge Family of Funds. . . . . . . . . . . . . . . . . . . 3 Investment Information . . . . . . . . . . . . . . . . . . . . 3 Investment Objective and Policies. . . . . . . . . . . . . . 3 Investment Practices . . . . . . . . . . . . . . . . . . . . 5 Net Asset Value. . . . . . . . . . . . . . . . . . . . . . . . 8 How to Buy Shares. . . . . . . . . . . . . . . . . . . . . . . 8 Minimum Investment Required. . . . . . . . . . . . . . . . . 9 What Shares Cost . . . . . . . . . . . . . . . . . . . . . . 9 When Net Asset Value is Determined . . . . . . . . . . . . . 10 Purchases at Net Asset Value . . . . . . . . . . . . . . . . 10 Reducing the Sales Charge for Class A Shares . . . . . . . . 10 Systematic Investment Program. . . . . . . . . . . . . . . . 12 Certificates and Confirmations . . . . . . . . . . . . . . . 12 Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . 12 Capital Gains. . . . . . . . . . . . . . . . . . . . . . . . 12 Retirement Plans . . . . . . . . . . . . . . . . . . . . . . 12 Exchange Privilege . . . . . . . . . . . . . . . . . . . . . . 12 Redeeming Shares . . . . . . . . . . . . . . . . . . . . . . . 13 Contingent Deferred Sales Charge . . . . . . . . . . . . . . . 13 Through a Financial Institution. . . . . . . . . . . . . . . 14 Directly from the Portfolio. . . . . . . . . . . . . . . . . 15 Redemptions Before Purchase Instruments Clear. . . . . . . . 16 Systematic Withdrawal Program. . . . . . . . . . . . . . . . 16 Accounts with Low Balances . . . . . . . . . . . . . . . . . 16 Cambridge Series Trust Information . . . . . . . . . . . . . . 16 Investment Management of the Trust . . . . . . . . . . . . . . 17 Investment Adviser . . . . . . . . . . . . . . . . . . . . . 17 Sub-Adviser. . . . . . . . . . . . . . . . . . . . . . . . . 17 Sub-Adviser's Profile. . . . . . . . . . . . . . . . . . . . 18 Distribution of Portfolio Shares . . . . . . . . . . . . . . 18 Administration of the Trust. . . . . . . . . . . . . . . . . 19 Brokerage Transactions . . . . . . . . . . . . . . . . . . . 19 Shareholder Servicing Plan . . . . . . . . . . . . . . . . . 19 Expenses of the Portfolios and the Class A and Class B Shares 20 Shareholder Information. . . . . . . . . . . . . . . . . . . . 20 Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . 20 Massachusetts Partnership Law. . . . . . . . . . . . . . . . 21 Tax Information. . . . . . . . . . . . . . . . . . . . . . . . 21 Performance Information. . . . . . . . . . . . . . . . . . . . 21 Summary of Portfolio Expenses Shareholder Transaction Expenses Class A Shares Class B Shares Maximum Sales Load Imposed on Purchases (as a percentage of offering price). . . . 5.50% None Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price) . None None Maximum Deferred Sales Load (as a percentage of original purchase price or redemption proceeds, as applicable). . 1.00%(1) 1.00%(1) Exchange Fee . . . . . . . . . . . . . . . . None None Annual Portfolio Operating Expenses* (As a percentage of average net assets) Class A Shares Investment Advisory Fee. . . . . . . . . . . . . . . . . 1.10%(2) 12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . None Total Other Expenses (after waiver)(3) . . . . . . . . . [ ] Shareholder Service Plan Fees . . . . . . . . . . . 0.25 Total Portfolio Operating Expenses(4) . . . . . . . [ ] Class B Shares Investment Advisory Fee. . . . . . . . . . . . . . . . . 1.10%(2) 12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . 0.75 Total Other Expenses (after waiver)(3) . . . . . . . . . [ ] Shareholder Service Plan Fees . . . . . . . . . . . 0.25 Total Portfolio Operating Expenses(4) . . . . . . . [ ] (1) On Class A shares a contingent deferred sales charge ("CDSC") is applicable only if (1) shares are purchased during certain eligible periods with proceeds from the redemption or sale of shares of other investment companies at net asset value ("NAV") and redeemed within four years, or (2) shares over $1 million are purchased at NAV and redeemed within one year. On Class B shares a CDSC is applicable only if shares purchased are redeemed within one year of original purchase. (2) The investment advisory fee is 1.10% on the first $75 million in Portfolio assets and 1.00% on Portfolio assets in excess of $75. (3) The estimated total other expenses have been reduced to reflect the anticipated voluntary waiver of certain Portfolio expenses by the administrator. The administrator can terminate this voluntary waiver at any time in its sole discretion. Total other expenses are estimated based on average expenses expected to be incurred during the fiscal year ending September 30, 1994. During the course of this period, expenses may be more or less than the average amount shown. (4) The total Portfolio operating expenses, absent the voluntary waiver of administrative fees and the voluntary waivers of certain other operating expenses, are estimated to be % for Class A shares and % for Class B shares. * Expenses in this table are estimated based on average expenses expected to be incurred during the period ending September 30, 1994. During the course of this period, expenses may be more or less than the average amount shown. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of a Portfolio will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "How to Buy Shares," "Investment Management of the Trust," and "Cambridge Series Trust Information." Long-term Class B shareholders may pay more than the economic equivalent of the maximum front-end sales charges permitted under the rules of the National Association of Securities Dealers, Inc. EXAMPLE 1 year 3 years 5 years 10 years You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) no redemption at the end of each time period: Class A Shares . . . . . . Class B Shares . . . . . . The above examples should not be considered a representation of past or future expenses. Actual expenses may be greater or less than those shown. Cambridge Family of Funds The Portfolios of the Trust (consisting of the Portfolio, Cambridge Growth Portfolio, Cambridge Capital Growth Portfolio, Cambridge Government Income Portfolio, Cambridge Municipal Income Portfolio, and Cambridge Income and Growth Portfolio), together with the Cash Equivalent Fund (which includes the Money Market Portfolio, Government Securities Portfolio, and Tax-Exempt Portfolio, each of which is advised by Kemper Financial Services, Inc.), comprise the Cambridge Family of Funds. The Trust is managed by Cambridge Investment Advisors, Inc. which in turn has entered into sub-advisory agreements for each of the Portfolios. Kemper Financial Services, Inc. serves as the sub-adviser for Cambridge Growth Portfolio; Phoenix Investment Counsel, Inc. serves as the sub-adviser for Cambridge Capital Growth Portfolio; Pacific Investment Management Company serves as the interim sub-adviser for Cambridge Government Income Portfolio; Van Kampen Merritt Management Inc. serves as the sub-adviser for Cambridge Municipal Portfolio; and Wellington Management Company serves as the sub- adviser for Cambridge Income and Growth Portfolio. Scudder, Stevens and Clark, Inc. will serve as the sub-adviser to the new Global Portfolio. Such sub-advisers have over [ ] years of investment experience and currently manage or supervise in excess of $[ ] billion on behalf of over [ ] million shareholder or client accounts. The Cambridge Family of Funds provides flexibility and diversification for an investor's investment planning needs. It enables an investor to meet the challenges of changing market conditions by offering convenient exchange privileges which give an investor access to as many as nine investment vehicles. The Cambridge Family of Funds may be utilized in connection with advisory accounts of investment advisers registered under the Investment Advisers Act of 1940. Information on the Cambridge Family of Funds may be obtained by calling 1-800-382-0016. Investment Information Investment Objective and Policies Set forth below is a description of the investment objective and policies of the Portfolio. The investment objective of the Portfolio, along with those investment policies which are identified as being fundamental, may not be changed without the affirmative vote of a majority of the Portfolio's outstanding voting securities. All other investment policies of the Portfolio may be changed by the Board of Trustees of the Trust without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. There can be no assurance that any Portfolio will achieve its investment objective. For additional information concerning investment techniques utilized by the Portfolio, see "Investment Practices." Investment Objective. The investment objective of the Portfolio is to seek long-term growth of capital through a diversified portfolio of marketable securities, primarily equity securities, including common stocks, preferred stocks and debt securities convertible into common stocks. The Portfolio invests on a worldwide basis in equity securities of companies which are incorporated in the United States or in foreign countries. It also may invest in the debt securities of U.S. and foreign issuers. Income is an incidental consideration. Investment Policies. The Portfolio will invest in companies the Sub-Adviser believes will benefit from global economic trends, promising technologies or products and specific country opportunities resulting from changing geopolitical, currency, or economic relationships. It is expected that investments will be spread broadly around the world. The Portfolio will be invested usually in securities of at least three countries, one of which may be the United States. The Portfolio may be invested 100% in non-U.S. issues, and for temporary defensive purposes may be invested 100% in U.S. issues, although under normal circumstances it is expected that both foreign and U.S. investments will be represented in the Portfolio. It is expected that investments will include companies of varying size as measured by assets, sales, or capitalization. The Portfolio is designed for investors seeking worldwide equity opportunities, in developed, newly industrialized and developing countries (some of these developing countries are located in Latin America and Africa). The management of the Portfolio believes that there is substantial opportunity for long-term capital growth from a professionally managed portfolio of securities selected from the U.S. and foreign equity markets. The Portfolio affords the investor access to opportunities wherever they arise, without being constrained by the location of a company's headquarters or the trading market for its shares. Because the Portfolio invests globally, it provides the potential to augment returns available from the U.S. stock market. In addition, since U.S. and foreign markets do not always move in step with each other, a global portfolio will be more diversified than one invested solely in U.S. securities. Investing directly in foreign securities is impractical for many investors due to the difficulty of arranging for purchases and sales, obtaining current information, holding securities in safekeeping and converting the value of their investments from foreign currencies into dollars. The Portfolio manages these problems for the investor. With an investment in the Portfolio, however, the investor has a diversified worldwide investment portfolio which is managed actively by experienced professionals. The Portfolio generally will invest in equity securities of established companies listed on U.S. or foreign securities exchanges, but also may invest in securities traded over-the-counter. It also may invest in debt securities convertible into common stock, and convertible and non-convertible preferred stock, and fixed income securities of governments, government agencies, supranational agencies and companies when the Sub-Adviser believes the potential for appreciation will equal or exceed that available from investments in equity securities. These debt and fixed income securities will be predominantly investment-grade securities, that is, those rated Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's") or AAA, AA, A or BBB by Standard & Poor's Corporation ("S&P") or those of equivalent quality as determined by the Sub-Adviser, Scudder, Stevens & Clark, Inc. The Portfolio may not invest more than 5% of its total assets in debt securities rated Baa or below by Moody's, or BBB or below by S&P or deemed by the Sub-Adviser to be of comparable quality. The Portfolio may invest in zero coupon securities which pay no cash income and are sold at substantial discounts from their value at maturity. When held to maturity, their entire income, which consists of accretion of discount, comes from the difference between the issue price and their value at maturity. Zero coupon securities are subject to greater market value fluctuations from changing interest rates than debt obligations of comparable maturities which make current cash distributions of interest. Fixed income securities also may be held for temporary defensive purposes when the Sub-Adviser believes market conditions so warrant and for temporary investment. Similarly, the Portfolio may invest in cash equivalents (including foreign money market instruments, such as bankers' acceptances, certificates of deposit, commercial paper, short-term government and corporate obligations and repurchase agreements) for temporary defensive purposes and for liquidity. The Portfolio may invest in closed-end investment companies holding foreign securities. Risk Factors. The Portfolio is designed for long-term investors who can accept international investment risk. Since the Portfolio normally will be invested in both U.S. and foreign securities markets, changes in the Portfolio's share price may have a low correlation with movements in the U.S. markets. The Portfolio's share price will reflect the movements of both the different stock and bond markets in which it is invested and the currencies in which the investments are denominated; the strength or weakness of the U.S. dollar against foreign currencies may account for part of the Portfolio's investment performance. Because of the Portfolio's global investment policies and the investment considerations discussed above, investment in shares of the Portfolio should not be considered a complete investment program. See "Investment Practices -- Foreign Securities" below. The Portfolio will invest no more than 5% of its total assets in debt securities rated BBB or Baa or below or in unrated securities. Securities rated B and below are commonly referred to as "junk bonds." The lower the quality of such debt securities, the greater their risks render them like equity securities. The Portfolio may invest in securities which are rated as low as C by Moody's or D by Standard & Poor's at the time of purchase. Securities rated D may be in default with respect to payment of principal or interest. Investment Practices The Portfolio may engage in one or more of the following investment practices or may purchase one or more of the following investments. Dollar Roll Transactions. In order to enhance portfolio returns and manage prepayment risks, the Portfolio may engage in dollar roll transactions with respect to mortgage-related securities issued by GNMA, FNMA, and FHLMC. In a dollar roll transaction, the Portfolio sells a mortgage-related security to a financial institution, such as a bank or broker/dealer, and simultaneously agrees to repurchase a substantially similar (i.e., same type, coupon, and maturity) security from the institution at a later date at an agreed upon price. The mortgage-related securities that are repurchased will bear the same interest rate as those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories. During the period between the sale and repurchase, the Portfolio will not be entitled to receive interest and principal payments on the securities sold. Proceeds of the sale will be invested in short-term instruments, and the income from these investments, together with any additional fee income received on the sale, will generate income for the Portfolio exceeding the yield. When the Portfolio enters into a dollar roll transaction, liquid assets of the Portfolio, in a dollar amount sufficient to make payment for the obligations to be repurchased, are segregated at the trade date. These securities are marked to market daily and are maintained until the transaction is settled. Repurchase Agreements. The Portfolio may engage in repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell U.S. government securities or other securities to the Portfolio and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the original seller does not repurchase the securities from the Portfolio, the Portfolio could receive less than the repurchase price on any sale of such securities. Put and Call Options. The Portfolio may purchase exchange-listed and over- the-counter put and call options on its portfolio securities. Put and call options will be used as a hedge to attempt to protect securities which the Portfolio holds, or will be purchasing, against decreases or increases in value. The Portfolio may also write (sell) put and call options on all or any portion of its portfolio to generate income or enhance potential gain. The Portfolio will write call options on securities either held in its portfolio or for which it has the right to obtain without payment of further consideration or for which it has segregated cash in the amount of any additional consideration. In the case of put options written by the Portfolio, the Trust's custodian will segregate cash, U.S. Treasury obligations, or highly liquid debt securities with a value equal to or greater than the exercise price of the underlying securities. The Portfolio also may purchase and write call and put options on securities indices and other financial indices and on currencies. The Portfolio may generally purchase and write over-the-counter options on portfolio securities in negotiated transactions with the buyers or writers of the options since options on the portfolio securities held by the Portfolio are not traded on an exchange. The Portfolio purchases and writes options only with investment dealers and other financial institutions (such as commercial banks or savings and loan associations) deemed creditworthy by the Portfolio's Sub-Adviser. Over-the-counter options are two-party contracts with price and terms negotiated between buyer and seller. In contrast, exchange-traded options are third-party contracts with standardized strike prices and expiration dates and are purchased from a clearing corporation. Exchange-traded options have a continuous liquid market while over-the-counter options may not. Financial Futures and Options on Futures. The Portfolio may purchase and sell financial futures contracts to hedge all or a portion of its portfolio against changes in interest rates or securities prices. Futures contracts on securities call for the delivery of particular debt instruments issued or guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of the U.S. government at a certain time in the future. The seller of the contract agrees to make delivery of the type of instrument called for in the contract, and the buyer agrees to take delivery of the instrument at the specified future time. A futures contract on a securities index does not involve the actual delivery of securities, but merely requires the payment of a cash settlement based on changes in the securities index. The Portfolio may write call options and purchase put options on financial futures contracts as a hedge to attempt to protect securities in the Portfolio against decreases in value resulting from anticipated increases in market interest rates or broad declines in securities prices. When the Portfolio writes a call option on a futures contract, it is undertaking the obligation of selling the futures contract at a fixed price at any time during a specified period if the option is exercised. Conversely, as purchaser of a put option on a futures contract, a Portfolio is entitled (but not obligated) to sell a futures contract at the fixed price during the life of the option. The Portfolio may also write put options and purchase call options on financial futures contracts as a hedge against rising purchase prices of portfolio securities resulting from anticipated decreases in market interest rates or broad ascents in securities prices. The Portfolio will use these transactions to attempt to protect their ability to purchase portfolio securities in the future at price levels existing at the time it enters into the transactions. When the Portfolio writes a put option on a futures contract, it is undertaking to buy a particular futures contract at a fixed price at any time during a specified period if the option is exercised. As a purchaser of a call option on a futures contract, the Portfolio is entitled (but not obligated) to purchase a futures contract at a fixed price at any time during the life of the option. The Portfolio may not purchase or sell futures contracts or related options if immediately thereafter the sum of the amount of margin deposits on the Portfolio's existing futures positions and premiums paid for related options would exceed 5% of the market value of the Portfolio's total assets. When the Portfolio purchases futures contracts, an amount of cash and cash equivalents, equal to the underlying commodity value of the futures contracts (less any related margin deposits), will be deposited in a segregated account with the Trust's custodian to collateralize the position and thereby insure that the use of such futures contracts is unleveraged. When the Portfolio uses financial futures and options on financial futures as hedging devices, there is a risk that the prices of the securities subject to the futures contracts may not correlate perfectly with the prices of the securities in the Portfolio. This may cause the futures contract and any related options to react differently than the portfolio securities to market changes. In addition, the particular Sub-Adviser could be incorrect in its expectations about the direction or extent of market factors, such as interest rate or securities price movements. In these events, the Portfolio may lose money on the futures contract or option. It is not certain that a secondary market for positions in futures contracts or for options will exist at all times. Although the Sub-Adviser will consider liquidity before entering into options transactions, there is no assurance that a liquid secondary market on an exchange will exist for any particular futures contract or option at any particular time. A Portfolio's ability to establish and close out futures and options positions depends on this secondary market. Foreign Securities. Investments in foreign securities involve special risks that differ from those associated with investments in domestic securities. The risks associated with investments in foreign securities relate to political and economic developments abroad, as well as those that result from the differences between the regulation of domestic securities and issuers and foreign securities and issuers. These risks may include, but are not limited to, expropriation, confiscatory taxation, currency fluctuations, withholding taxes on interest, limitations on the use or transfer of Portfolio assets, political or social instability, ability to obtain or enforce court judgments abroad, and adverse diplomatic developments. Moreover, individual foreign economies may differ favorably or unfavorably from the domestic economy in such respects as growth of gross national product, the rate of inflation, capital reinvestment, resource self-sufficiency, and balance of payments position. Additional differences exist between investing in foreign and domestic securities. Examples of such differences include: less publicly available information about foreign issuers; credit risks associated with certain foreign governments; the lack of uniform financial accounting standards applicable to foreign issuers; less readily available market quotations on foreign issues; the likelihood that securities of foreign issuers may be less liquid or more volatile; generally higher foreign brokerage commissions; and unreliable mail service between countries. Currency Risks. The Portfolio may engage in currency transactions with counterparties in order to hedge the value of portfolio holdings denominated in particular currencies against fluctuations in relative value. Currency transactions include forward currency contracts, exchange listed currency futures, exchange listed and OTC options on currencies, and currency swaps. The Portfolio dealings in forward currency contracts and other currency transactions such as futures, options, options on futures and swaps will be limited to hedging involving either specific transactions or portfolio positions. Transaction hedging is entering into a currency transaction with respect to specific assets or liabilities of the Portfolio, which will generally arise in connection with the purchase or sale of its portfolio securities or the receipt of income therefrom. Position hedging is entering into a currency transaction with respect to portfolio security positions denominated or generally quoted in that currency. The use of currency transactions can result in the Portfolio incurring losses as a result of a number of factors including the imposition of exchange controls, suspension of settlements, or the inability to deliver or receive a specified currency. Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. These contracts are traded directly between currency traders (usually large commercial banks) and their customers. When the Portfolio enters into a contract for the purchase or sale of a security denominated in a foreign currency, it may want to establish the U.S. dollar cost or proceeds, as the case may be. By entering into a forward contract in U.S. dollars for the purchase or sale of the amount of foreign currency involved in an underlying security transaction, the Portfolio is able to protect itself against a possible loss between trade and settlement dates resulting from an adverse change in the relationship between the U.S. dollar and such foreign currency. However, this tends to limit potential gains which might result from a positive change in such currency relationships. The Portfolio will not enter into forward foreign currency exchange contracts or maintain a net exposure in such contracts where the Portfolio would be obligated to deliver an amount of foreign currency in excess of the value of the Portfolio's securities or other assets denominated in that currency or denominated in a currency or currencies that the Portfolio's Sub-Adviser believes will reflect a high degree of correlation with the currency with regard to price movements. The Portfolio generally does not enter into forward foreign currency exchange contracts with a term longer than one year. Restricted and Illiquid Securities. The Portfolio may invest up to 10% of its net assets in restricted securities. Restricted securities are any securities in which the Portfolio may otherwise invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. The Portfolio will limit investments in illiquid securities, including over-the-counter options and certain municipal leases and certain restricted securities not determined by the Board of Trustees to be liquid under guidelines adopted by the Board of Trustees pursuant to Securities Act Rule 144A, to 15% of their net assets. Swaps, Caps, Floors and Collars. The Portfolio may enter into interest rate, currency and index swaps and purchase or sell related caps, floors and collars. The Portfolio expects to enter into these transactions primarily to preserve a return or spread on a particular investment or portion of its portfolio, to protect against currency fluctuations, as a duration management technique or to protect against any increase in the price of securities the Portfolio anticipates purchasing at a later date. The Portfolio intends to use these transactions as hedges and not as speculative investments and will not sell interest rate caps or floors where it does not own securities or other instruments providing the income stream the Portfolio may be obligated to pay. Portfolio Turnover. The annual turnover rate of the Portfolio may vary from year to year and may also be affected by cash requirements for redemptions and repurchase of Portfolio shares and by the necessity of maintaining the Portfolio as a regulated investment company under the Internal Revenue Code, as amended, in order to receive certain favorable tax treatment. Higher portfolio turnover involves correspondingly greater brokerage commissions and other transaction costs. For additional information concerning the Portfolio's investment policies and limitations, see the combined Statement of Additional Information. Net Asset Value The Portfolio's net asset value per share fluctuates. The net asset value for Class A shares is determined by adding the interest of Class A shares in the market value of all securities and other assets of the Portfolio, subtracting the interest of Class A shares in the liabilities of the Portfolio and those attributable to Class A shares, and dividing the remainder by the total number of Class A shares outstanding. Likewise, the net asset value for Class B shares of the Portfolio is determined by adding the interest of Class B shares in the market value of all securities and other assets of the Portfolio, subtracting the interest of Class B shares in the liabilities of the Portfolio and those attributable to Class B shares, and dividing the remainder by the total number of Class B shares outstanding. The net asset value for Class A shares will, from time to time, exceed that of Class B shares due to the variance in daily net income realized by each class of shares. Such variance will reflect only accrued net income to which the shareholders of a particular class are entitled. How to Buy Shares Class A and Class B shares of the Portfolio are sold on days on which the New York Stock Exchange is open for business. Class A and Class B shares of the Portfolio may be purchased through a financial institution which has a sales agreement with the Distributor. The Portfolio reserves the right to reject any purchase request. Alternative Purchase Arrangements. The Portfolio offers two classes of shares, Class A and Class B shares. The Class A shares of the Portfolio are sold at net asset value plus an applicable sales charge, except under the circumstances described in the section entitled "What Shares Cost," and generally are redeemed at net asset value. However, a CDSC may be imposed on the redemption of the Class A shares of the Portfolio under the circumstances described in the section entitled "Contingent Deferred Sales Charge." The Class B shares of the Portfolio are sold at net asset value and are redeemed at net asset value. However, a CDSC may be imposed on the redemption of Class B shares of the Portfolio under the circumstances described in the section entitled "Contingent Deferred Sales Charge." Class A and Class B shares represent identical interests in the Portfolio and have the same rights and are identical in all respects, except that Class B shares of the Portfolio will pay a distribution fee, which will cause the net income attributable to Class B shares and the dividends payable on the Class B shares to be reduced by the amount of the distribution fee and incremental expenses associated with the distribution fee. As a result, the net asset value of Class B shares of the Portfolio will be reduced by such amount to the extent that the Portfolio has undistributed net income. Sales personnel may receive different compensation for selling Class A and Class B shares of the Portfolio. Through a Financial Institution. An investor may call his financial institution (such as a broker/dealer or bank) to place an order to purchase shares of the Portfolio. Orders through a financial institution are considered received when the Distributor is notified of the purchase order. Purchase orders through a registered broker/dealer must be received by the broker/dealer before 4:00 p.m. (Eastern time) and must be transmitted by the broker/dealer to the Distributor before 5:00 p.m. (Eastern time) in order for shares to be purchased at that day's price. Purchase orders through other types of financial institutions must be received by the financial institution and transmitted to the Portfolio before 4:00 p.m. (Eastern time) in order for shares to be purchased at that day's price. It is the financial institution's responsibility to transmit orders promptly. Investors who have previously opened an account with the Trust through a financial institution may purchase additional shares by mail or by Federal Reserve wire. To make such purchases, an investor should contact his financial institution for instructions. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and other financial institutions may be required to register as dealers pursuant to state law. Minimum Investment Required The minimum initial investment in Class A and Class B shares of the Portfolio is $1,000, unless the investment is in a retirement plan, in which case the minimum initial investment is $250. The minimum initial investment may be waived for shareholders purchasing shares pursuant to the Systematic Investment Program. Subsequent investments must be in amounts of at least $100, except for retirement plans, which must be in amounts of $50. The minimum initial investment may be waived for Trustees, emeritus trustees, employees and retired employees of the Trust, or directors, emeritus directors, employees and retired employees of the Distributor or affiliates thereof. What Shares Cost Class A Shares. Class A shares of the Portfolio are sold at their net asset value next determined after an order is received plus a sales charge as follows: Sales Charge Sales Charge as a Percentage as a Percentage of Public of Net Amount Dealer Offering Price Invested Commission Less than $50,000. . . . 5.50% 5.82% 4.75% $50,000 but less than $100,000 4.75 4.99 4.00 $100,000 but less than $250,000 3.75 3.90 3.00 $250,000 but less than $500,000 3.00 3.09 2.50 $500,000 but less than $1 million 2.00 2.04 1.75 $1 million or more . . . 0 0 (see below) Commissions will be paid to dealers who initiate and are responsible for purchases as set forth in the Statement of Additional Information. Under certain circumstances described under the section entitled "Redeeming Shares," shareholders may be charged a CDSC by the Distributor at the time Class A shares are redeemed. The Distributor, the Investment Adviser, or certain Sub-Advisers, or affiliates thereof, at their own expense and out of their own assets, may also provide other compensation to dealers in connection with sales of shares of the Portfolios. Compensation may also include, but is not limited to, financial assistance to dealers in connection with conferences, sales, or training programs for their employees, seminars for the public, advertising or sales campaigns, or other dealer-sponsored special events. In some instances, this compensation may be made available only to certain dealers whose representatives have sold or are expected to sell significant amounts of shares. Dealers may not use sales of the Trust's shares to qualify for this compensation to the extent such may be prohibited by the laws of any state or any self-regulatory agency, such as the National Association of Securities Dealers, Inc. None of the aforementioned other compensation shall be paid for by the Trust or its shareholders. Class B Shares. Class B shares of the Portfolio may be purchased at their net asset value next determined after an order is received, without the imposition of a sales charge. Class B shares will be subject to ongoing distribution fees as described in the section entitled "Distribution Plan." Under certain circumstances described under the section entitled "Redeeming Shares," shareholders may be charged a CDSC by the Distributor at the time Class B shares are redeemed. When Net Asset Value is Determined The net asset value of Class A and Class B shares of the Portfolio is determined as of 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Portfolio's securities that its net asset value might be materially affected; (ii) days during which no shares are tendered for redemption and no orders to purchase shares are received; and (iii) days on which the New York Stock Exchange is closed. Purchases at Net Asset Value Class A shares of the Portfolio may be purchased at their net asset value with no sales charge by advisory accounts through investment advisers registered under the Investment Advisers Act of 1940 or by bank trust departments purchasing on behalf of their clients. Trustees, emeritus trustees, employees, and retired employees of the Trust, or directors, emeritus directors, employees, or retired employees of the Distributor or affiliates thereof, or any financial institution who has a sales agreement with the Distributor with regard to the Trust, and their spouses and children under age 21 may also buy Class A shares at net asset value with no sales charge. Purchases with Proceeds from Redemption or Sale of Investment Company Shares. From the date of this prospectus to June 30, 1994, investors may purchase Class A shares of the Portfolio at net asset value, without a sales charge, with the proceeds from the redemption or sale of shares of another investment company (excluding money market funds or investment company shares subject to a deferred sales charge or CDSC) or from maturing certificates of deposit. The purchase must be made within 60 days of the redemption or sale, and Cambridge Distributors, Inc., must be notified of this eligibility for the net asset value purchased by the investor in writing or by his financial institution at the time the purchase is made. Cambridge Distributors, Inc., will offer to pay dealers an amount of up to 1.00% of the net asset value of Class A shares purchased by their clients or customers in this matter. Reducing the Sales Charge for Class A Shares The sales charge imposed on purchases of Class A shares of the Portfolio can be reduced through: . quantity discounts and accumulated purchases; . signing a 13-month letter of intent; . using the reinvestment privilege; or . concurrent purchases. Quantity Discounts and Accumulated Purchases. As shown in the sales charge tables, larger purchases reduce the sales charge paid. The Distributor will combine purchases of Class A shares made on the same day by the investor, his spouse, and his children under age 21 when the sales charge is calculated. If an additional purchase of Class A shares of a Portfolio is made, the Distributor will consider the previous purchases still invested in the Portfolios. For example, if a shareholder already owns Class A shares of one or more of the Portfolios having a current value of $40,000 and he purchases $10,000 or more of Class A shares of the Cambridge Global Portfolio at the current offering price, the sales charge on the additional purchase of Class A shares according to the schedule now in effect would be 4.75%, not 5.50%. To receive the sales charge reduction, Cambridge Distributors, Inc., must be notified by the shareholder in writing, or by his financial institution at the time that the purchase is made, that Class A shares of one or more of the Portfolios are already owned or that purchases are being combined. The particular Portfolio will reduce the sales charge after it confirms the purchases. Letter of Intent. If an investor intends to purchase at least $50,000 of Class A shares of one or more Portfolios within a 13-month period, the sales charge may be reduced by signing a letter of intent to that effect. The size of the reduction will depend upon the sales schedule applicable to the particular Portfolios. This letter of intent includes a provision for a sales charge adjustment, depending upon the amount actually purchased within the 13-month period, and a provision for the custodian to hold 5.50% or 4.75%, as the case may be, of the total amount intended to be purchased in escrow (in Class A shares) until such purchase is completed. The amount held in escrow will be applied to the shareholder's account at the end of the 13-month period unless the amount specified in the letter of intent is not purchased. In this event, an appropriate number of escrowed Class A shares may be redeemed in order to realize the difference in the sales charge. This letter of intent will not obligate the shareholder to purchase Class A shares, but if he does, each purchase during the period will be at the sales charge applicable to the total amount intended to be purchased. The letter of intent may be dated as of a prior date to include any purchases made within the past 90 days. Reinvestment Privilege. If Class A shares of the Portfolio have been redeemed, the shareholder has a one-time right, within 60 days, to reinvest the redemption proceeds at the next-determined net asset value without any sales charge. Cambridge Distributors, Inc., must be notified by the shareholder in writing or by his financial institution of the reinvestment in order to eliminate a sales charge. If the shareholder redeems his shares in the Portfolio, there may be tax consequences. Concurrent Purchases. For purposes of qualifying for a sales charge reduction, a shareholder has the privilege of combining concurrent purchases of Class A shares of two or more Portfolios, the purchase price of which includes a sales charge. For example, if a shareholder concurrently invested $70,000 in Class A shares of Cambridge Government Income Portfolio and $40,000 in Class A shares of the Cambridge Global Portfolio, the sales charge imposed upon the purchase of Class A shares of both Portfolios would be reduced in accordance with those schedules now in effect; that is, the shareholder would pay a sales charge of 4.00% on the purchase of Cambridge Government Income Portfolio shares and 3.75% on the purchase of Cambridge Global Portfolio shares. To receive this reduction on the sales charge, the Distributor must be notified by the shareholder in writing or by his financial institution at the time the concurrent purchases are made. The particular Portfolio or Portfolios will reduce the sales charge after it confirms the purchases. Systematic Investment Program Once an account with the Portfolio has been opened, shareholders may add to their investment in the Portfolio on a regular basis in a minimum amount of $100. Under the program, funds may be automatically withdrawn periodically from the shareholder's checking account and invested in additional shares of the Portfolio at the net asset value next determined after an order is received by the Distributor, plus the applicable sales charge imposed upon purchases of Class A shares. A shareholder may apply for participation in this program through his financial institution. However, a shareholder may purchase only the same class of shares under this program as that held in the existing account. Thus, for example, a shareholder who has an account in Class A shares of the Portfolio may only purchase Class A shares of Portfolio under this program. Certificates and Confirmations As transfer agent for the Portfolio, The Shareholder Services Group, Inc. ("TSSG"), maintains a share account for each shareholder. Share certificates are not issued unless requested in writing to TSSG. Detailed confirmations of each purchase, redemption, and distribution are sent to each shareholder. Dividends Dividends, if any, are declared and paid at least annually to all shareholders invested in the Portfolio on the record date. Dividends will be reinvested in additional shares of the same class on payment dates at the ex-dividend date net asset value without a sales charge unless cash payments are requested by shareholders in writing to the Trust. Capital Gains Capital gains realized by the Portfolio, if any, will be distributed at least once every 12 months. Retirement Plans Class A and Class B shares of the Portfolio can be purchased as an investment for retirement plans or for IRA accounts. For further details, including prototype retirement plans, contact the Portfolio and consult a tax adviser. Exchange Privilege Class A shares in each Portfolio may be exchanged for Class A shares in the other Portfolios at net asset value without a sales charge or a CDSC. Class B shares in each Portfolio may be exchanged for Class B shares in the other Portfolios at net asset value without a sales charge or a CDSC. Shares in the Cash Equivalent Fund, which includes the Money Market Portfolio, Government Securities Portfolio, and Tax-Exempt Portfolio, may be exchanged for Class A shares in each Portfolio at net asset value without a sales charge or CDSC, so long as the transferred shares have previously paid a sales charge with respect to Class A shares of the Portfolios (unless not applicable under the circumstances), and shares of the Cash Equivalent Fund may be exchanged for Class B shares in each Portfolio at net asset value without a CDSC. In addition, Class A and Class B shares of the Portfolios may be exchanged into shares of the Cash Equivalent Fund at net asset value without a sales charge or CDSC. If a shareholder making such an exchange qualifies for an elimination of the sales charge with respect to Class A shares of the Portfolios, Cambridge Distributors, Inc., must be notified in writing by the shareholder or his financial institution. Requirements for Exchange. Shareholders using this privilege must exchange shares having a net asset value of at least $1,000. Before the exchange, the shareholder must receive a prospectus of the Portfolio for which the exchange is being made. This privilege is available to shareholders resident in any state in which Class A or Class B shares of the Portfolio being acquired may be sold. Upon receipt of proper instructions and required supporting documents, shares submitted for exchange are redeemed and the proceeds invested in shares of the other Portfolio. The exchange privilege may be modified or terminated at any time. Shareholders will be notified of the modification or termination of the exchange privilege. Further information on the exchange privilege is available and the prospectus for the Cash Equivalent Fund may be obtained by calling 1-800-382-0016. Tax Consequences. An exercise of the exchange privilege is treated as a sale for federal income tax purposes. Depending on the circumstances, a short-term or long-term capital gain or loss may be realized. Making an Exchange. Instructions for exchanges may be given in writing or by telephone. Written instructions require a signature guarantee. Shareholders may have difficulty in making exchanges by telephone through brokers and other financial institutions during times of drastic economic or market changes. If a shareholder cannot contact his broker or other financial institution by telephone, it is recommended that an exchange request be made in writing and sent by overnight mail to Cambridge Family of Funds, c/o TSSG, One American Express Plaza, Providence, RI 02903. Telephone Instructions. Telephone instructions made by the investor may be carried out only if a telephone authorization form is completed by the investor and is on file with TSSG. If the instructions are given by a broker, a telephone authorization form completed by the broker must be on file with TSSG. Shares may be exchanged between two Portfolios by telephone only if both Portfolios have identical shareholder registrations. Any shares held in certificate form cannot be exchanged by telephone but must be forwarded to TSSG and deposited to the shareholder's account before being exchanged. Telephone exchange instructions may be recorded. Such instructions will be processed as of 4:00 p.m. (Eastern time) and must be received by the Distributor before that time for shares to be exchanged the same day. Shareholders exchanging into a Portfolio will not receive any dividend that is payable to shareholders of record on that date. This privilege may be modified or terminated at any time. If reasonable procedures are not followed by the Portfolios, they may be liable for losses due to unauthorized or fraudulent telephone instructions. Redeeming Shares The Portfolio redeems Class A and Class B shares at their net asset value next determined, less the applicable CDSC as described below, after TSSG receives the redemption request. Redemptions will be made on days on which the Portfolio computes its net asset value. Redemptions can be made through a financial institution or directly from the Portfolio. Redemption requests must be received in proper form. Contingent Deferred Sales Charge Class A Shares. Shareholders who purchased Class A shares of the Portfolio at net asset value (without a sales charge) with the proceeds from the redemption, sale, or maturity of other investments will be charged a CDSC by the Distributor of 1.00% for redemptions made within four years from the date of purchase of Class A shares. Also, as of the date of this prospectus, shareholders who purchase or who have purchased $1 million or more of the Class A shares of the Portfolio at net asset value, without a sales charge, will be subject to a CDSC by the Distributor of 1.00% for redemptions of such Class A shares made within one year from the date of purchase. (For those shareholders who purchased $1 million or more of the Class A shares of the Portfolio at net asset value, without a sales charge, prior to the date of this prospectus, the previous four-year redemption period will be waived and such shareholders will now only be subject to the one-year redemption period.) The CDSC will be calculated based upon the lesser of the original purchase price of the Class A shares being redeemed or the net asset value of those shares when redeemed. The CDSC will not be imposed on Class A shares acquired through reinvestment of dividends or distributions of long-term capital gains. Redemptions are deemed to have occurred in the following order: (1) Class A shares acquired through the reinvestment of dividends and long-term capital gains; (2) purchases of Class A shares occurring more than four years before the date of redemption; (3) purchases of $1 million or more of Class A shares occurring more than one year before the date of redemption; (4) purchases of Class A shares within the previous four years without the use of redemption proceeds as described above; (5) purchases of Class A shares within the previous one year through the use of redemption proceeds as described above; and (6) purchases of $1 million or more of Class A shares within the previous year without a sales charge. No CDSC will be imposed when a redemption results from a total or partial distribution from a qualified retirement plan, IRA, Keogh Plan, or a custodial account following retirement, attainment of age 59 1/2, separation from service (except for an IRA), or results from the death or permanent and total disability of the beneficial owner. Also, no CDSC will be imposed in connection with involuntary redemptions by the Portfolio of accounts with low balances (see "Accounts with Low Balances" below) or with respect to Class A shares purchased under the circumstances described in the section entitled "Purchases at Net Asset Value." Class B Shares. Shareholders who purchased Class B shares will be charged a CDSC by the Distributor of 1.00% for redemptions of Class B shares made within one year from the date of purchase. The CDSC will be calculated based upon the lesser of the original purchase price of the Class B shares or the net asset value of the Class B shares when redeemed. The CDSC will not be imposed on Class B shares acquired through reinvestment of dividends or distributions of long-term capital gains. Redemptions are deemed to have occurred in the following order: (1) Class B shares acquired through the reinvestment of dividends and long-term capital gains; (2) purchases of Class B shares occurring more than one year before the date of redemption; and (3) purchases of Class B shares within the previous year. No CDSC will be imposed when a redemption results from the total or partial distribution from a qualified retirement plan, IRA, Keogh Plan, or a custodial account following retirement, attainment of age 59 1/2, separation from service (except for an IRA), or the death or permanent and total disability of the beneficial owner. Additionally, no CDSC will be charged in connection with redemptions by the Portfolio of accounts with low balances (see "Accounts with Low Balances" below). Through a Financial Institution A shareholder may redeem Class A or Class B shares of the Portfolio by calling his financial institution (such as a broker/dealer or a bank) to request the redemption. Class A and Class B shares of the Portfolio will be redeemed at the net asset value next determined, less the applicable CDSC, after the Portfolio receives the redemption request from the financial institution. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions to the Portfolio. The financial institution may charge customary fees and commissions for this service. Redemption requests through a registered broker/dealer must be received by the broker/dealer before 4:00 p.m. (Eastern time) and must be transmitted by the broker/dealer to the Portfolio before 5:00 p.m. (Eastern time) in order for Class A and Class B shares to be redeemed at that day's net asset value. Redemption requests through other financial institutions must be received by the financial institution and transmitted to the particular Portfolio before 4:00 p.m. (Eastern time) in order for Class A and Class B shares to be redeemed at that day's net asset value. Directly from the Portfolio By Telephone. Shareholders may redeem their Class A and Class B shares of the Portfolio by calling 1-800-382-0016. The proceeds will be mailed to the shareholder's address of record or wire transferred to the shareholder's account at a domestic commercial bank that is a member of the Federal Reserve System, normally within one business day, but in no event longer than seven days after receipt of the request. The minimum amount for a wire transfer is $1,000. Each wire transfer may be subject to a fee of $10; additional fees may be charged by the recipient's financial institution or bank. If at any time the Trust shall determine it is necessary to terminate or modify this method of redemption, shareholders will be promptly notified. An authorization form permitting TSSG to accept telephone requests must first be completed. Authorization forms and information on this service are available from Cambridge Distributors, Inc. Telephone redemption instructions may be recorded. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption, such as redeeming by mail, should be considered. If reasonable procedures are not followed by the Portfolio, they may be liable for losses due to unauthorized or fraudulent telephone instructions. By Mail. Any shareholder may redeem Class A or Class B shares of the Portfolio by sending a written request to Cambridge Family of Funds, c/o TSSG, One American Express Plaza, Providence, RI 02903. The written request should include the shareholder's name, the name of the particular Portfolio from which Class A or Class B shares are being redeemed, the account number, and the share or dollar amount requested. If Class A or Class B share certificates have been issued, they must be properly endorsed and should be sent by registered or certified mail with the written request. Shareholders should call 1-800-382-0016 for assistance in redeeming by mail. Shareholders requesting a redemption of $50,000 or more, a redemption of any amount to be sent to an address other than that on record with the particular Portfolio, or a redemption payable other than to the shareholder of record must have signatures on written redemption requests guaranteed by: . a trust company or commercial bank whose deposits are insured by the Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit Insurance Corporation ("FDIC"); . a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; . a savings bank or savings and loan association whose deposits are insured by the Savings Association Insurance Fund ("SAIF"), which is administered by the FDIC; or . any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Portfolio does not accept signatures guaranteed by a notary public. The Trust and its transfer agent have adopted standards for accepting signature guarantees from the above institutions. The Trust may elect in the future to limit eligible signature guarantors to institutions that are members of a signature guarantee program. The Trust and its transfer agent reserve the right to amend these standards at any time without notice. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. Redemptions Before Purchase Instruments Clear When Class A or Class B shares are purchased by check or through the Pre-Authorized Check ("PAC"), the proceeds from the redemption of those shares are not available, and those shares may not be exchanged, until TSSG is reasonably certain that the purchase check has cleared, which could take up to ten calendar days. Systematic Withdrawal Program Shareholders who desire to receive payments of a predetermined amount not less than $100 may take advantage of the Systematic Withdrawal Program. Under this program, Class A and Class B shares of the Portfolio are redeemed to provide for periodic withdrawal payments in an amount directed by the shareholder. However, the aggregate withdrawals of Class B shares in any year are not subject to a CDSC and are generally limited to 10% of the value of the shareholder's account at the time of the establishment of the Systematic Withdrawal Program. Depending upon the amount of the withdrawal payments, the amount of dividends paid and capital gains distributions with respect to Class A or Class B shares of the Portfolio, and the fluctuation of the net asset value of Class A or Class B shares redeemed under this program, redemptions may reduce, and eventually deplete, the shareholder's investment in the Portfolio. For this reason, payments under the program should not be considered as yield or income on the shareholder's investment in the Portfolio. To be eligible to participate in this program, a shareholder must have an initial account value in the Portfolio of at least $10,000. A shareholder may apply for participation in this program through Cambridge Distributors, Inc. Due to the fact that Class A shares are normally sold with a sales charge, it may not be advisable for shareholders to be purchasing Class A shares while participating in the program. Accounts with Low Balances Due to the high cost of maintaining accounts with low balances, the Portfolio may redeem Class A and Class B shares in any account, except for retirement plans, and pay the proceeds to the shareholder if the account balance falls below the required minimum value of $1,000. This requirement does not apply, however, if the balance falls below $1,000 because of changes in the Portfolio's net asset value. Before Class A or Class B shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional Class A or Class B shares, as the case may be, to meet the required minimum value of $1,000. Cambridge Series Trust Information General Information. The Trust, an open-end, management investment company, was established as a Massachusetts business trust on January 20, 1992. The Trust's Declaration of Trust permits the Trust to offer separate series of shares of beneficial interest representing interests in separate Portfolios. The shares in any one Portfolio may be offered in separate classes. As of the date of the prospectus, the Board of Trustees of the Trust has established five Portfolios, each with two classes of shares, Class A and Class B shares. Board of Trustees. The Trust is managed by a Board of Trustees. The Trustees are responsible for managing the Trust's business affairs and for exercising all the Trust's powers, except those reserved for the shareholders. The Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. Investment Management of the Trust Investment Adviser The Trust is managed by Cambridge Investment Advisors, Inc. (the "Investment Adviser"), pursuant to an investment advisory agreement (the "Investment Advisory Agreement") with the Trust. The Investment Adviser, in turn, has entered into a sub-advisory agreement (the "Sub-Advisory Agreement") with Scudder, which has been selected as sub-adviser for the Portfolio (the "Sub-Adviser" or "Sub-Advisers"). It is the Investment Adviser's responsibility to select, subject to review and approval by the Trust's Board of Trustees, the Sub-Advisers for each of its Portfolios who have distinguished themselves in their respective areas of expertise in asset management and to review their continued performance. Subject to the supervision and direction of the Board of Trustees, the Investment Adviser provides investment management evaluation services principally by performing initial due diligence on the prospective Sub-Adviser for each Portfolio and thereafter monitoring each Sub-Adviser's performance through quantitative and qualitative analysis, as well as periodic in-person, telephonic and written consultations with each Sub-Adviser. In evaluating prospective Sub-Advisers, the Investment Adviser considers, among other factors, each Sub-Adviser's level of expertise; relative performance and consistency of performance over a minimum period of five years; level of adherence to investment discipline or philosophy; personnel, facilities and financial strength; and quality of service and client communications. The Investment Adviser has responsibility for communicating performance expectations and evaluations to the Sub-Advisers and ultimately recommending to the Board of Trustees of the Trust whether each Sub-Adviser's contract should be renewed, modified, or terminated. The Investment Adviser provides written reports to the Board of Trustees regarding the results of its evaluation and monitoring functions. The Investment Adviser is also responsible for conducting all operations of the Trust, except those operations contracted to the Sub-Advisers, custodian, transfer agent, and administrator. Although each Sub-Adviser's activities are subject to oversight by the Board of Trustees and the officers of the Trust, neither the Board of Trustees, the officers, nor the Investment Adviser evaluates the investment merits of each Sub-Adviser's individual security selections. Investment Advisory Fees. For performing its responsibilities, the Investment Adviser receives an annual investment advisory fee equal to 1.10% of the average daily net assets of the Portfolio up to and including $75 million and 1.00% of the average daily net assets of the Portfolio in excess of $75 million. Under the Investment Advisory Agreement, the Investment Adviser may, from time to time, voluntarily waive some or all of its investment advisory fee and may terminate any such voluntary waiver of some or all of its investment advisory fee at any time in its sole discretion. The Investment Adviser has undertaken to reimburse the Portfolio for a portion of the Portfolio's operating expenses in excess of limitations established by certain states. Investment Adviser's Profile. Cambridge Investment Advisors, Inc., located at 901 East Byrd Street, Richmond, Virginia 23219, serves as the Trust's Investment Adviser. It is a wholly-owned subsidiary of Investment Management Group, Inc., which, in turn, is a wholly-owned subsidiary of WFS Financial Corporation, Inc., a diversified financial services holding company. The Investment Adviser was incorporated under the laws of Virginia in 1991. Although prior to 1992 the Investment Adviser had not managed mutual funds, it has employed a group of Sub-Advisers which together have over [ years] of investment experience and currently manage or supervise in excess of $[ ] billion on behalf of over [ ] million shareholders or client accounts. Sub-Adviser The Sub-Adviser has complete discretion to purchase, manage, and sell portfolio securities for the Portfolio within the Portfolio's investment objectives, restrictions, and policies. Sub-Advisory Fees. The Investment Adviser pays the Sub-Adviser an annual fee expressed as a percentage of Portfolio assets: .55% on the first $75 million in Portfolio assets and .50% on assets over $75 million. No performance or incentive fees are paid to the Sub-Adviser. Under the Sub-Advisory Agreement, the Sub-Adviser may, from time to time, voluntarily waive some or all of its sub-advisory fee charged to the Investment Adviser and may terminate any such voluntary waiver at any time in its sole discretion. Sub-Adviser's Profile The Investment Adviser employs Scudder, Stevens & Clark, Inc., a Delaware corporation, to manage the investment and reinvestment of the assets of the Portfolio and to continuously review, supervise, and administer the Portfolio's investment program. The Sub-Adviser is located at 345 Park Avenue, New York, New York. The Sub-Adviser was founded in 1919 and, today, the Sub-Adviser manages in excess of $90 billion for many private accounts and over 70 mutual fund portfolios. Scudder has been a leader in international investment management for over 30 years. Assets of international investment company clients of Scudder exceeded $[ ] billion as of December 31, 1993. Lead portfolio manager, William E. Holzer, has responsibility for worldwide strategy and investment themes. Mr. Holzer, who has twenty years of experience in global investing, joined the Sub-Adviser in 1980. Alice Ho, portfolio manager, joined the Sub-Adviser in 1986 and has been involved with global investment management since that time. Distribution of Portfolio Shares Cambridge Distributors, Inc., having its principal office at 901 East Byrd Street, Richmond, Virginia 23219, is the principal distributor for Class A and Class B shares of the Portfolios. Cambridge Distributors, Inc., is a Virginia corporation organized on December 24, 1991, and is an affiliate of the Investment Adviser. Federated Securities Corp., located at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, acts as co-distributor for Class A and Class B shares of the Portfolios. In addition, Federated Securities Corp. provides certain marketing and distribution services. Federated Securities Corp. is an affiliate of the Sub-Adviser to the Cambridge Government Income Portfolio and of the Administrator. (Cambridge Distributors, Inc., and Federated Securities Corp. may be referred to collectively as the "Distributors" or individually as "Distributor.") Distribution Plan. Pursuant to the provisions of a distribution plan adopted in accordance with Rule 12b-1 under the Investment Company Act of 1940 (the "Plan"), Class B shares of the Portfolio will pay an amount computed at an annual rate of 0.75% of the average daily net asset value of Class B shares of the Portfolio to finance any activity which is principally intended to result in the sale of those Class B shares. The Distributor may, from time to time and for such periods as it deems appropriate, voluntarily reduce its compensation under the Plan by notice to the Class B shareholders of a the Portfolio. The Distributor may select financial institutions (such as a broker/dealer or bank) to provide sales support services as agents for their clients or customers who beneficially own Class B shares of the Portfolio. Financial institutions will receive fees from the Distributor based upon Class B shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Distributor. The Portfolio's Plan is a compensation type plan. As such, the Portfolio makes no payments to the Distributor except as described above. Therefore, the Portfolio does not pay for unreimbursed expenses of the Distributor, including amounts expended by the Distributor in excess of amounts received by it from the Portfolios, interest, carrying, or other financing charges in connection with excess amounts expended, or the Distributor's overhead expenses. However, the Distributor may be able to recover such amounts or may earn a profit from future payments made by the Portfolio under the Plan. Administration of the Trust Administrative Services. Cambridge Administrative Services (the "Administrator"), located at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, provides each Portfolio with certain administrative personnel and services necessary to operate each Portfolio, such as legal and accounting services. The Administrator provides these services at an annual rate of 0.125% on the first $1.5 billion of the average aggregate daily net assets of the Trust and 0.120% on assets in excess of $1.5 billion. The administrative fee received during any fiscal year shall aggregate at least 0.05% of average aggregate daily net assets plus $100,000 per Portfolio. The Administrator may voluntarily reimburse a portion of its administrative fee. Cambridge Administrative Services is a subsidiary of Federated Investors. Custodian, Transfer Agent, and Dividend Disbursing Agent. State Street Bank and Trust Company, P.O. Box 8602, Boston, Massachusetts 02266, is custodian for the securities and cash of each Portfolio. The Shareholder Services Group, Inc., P.O. Box 9653, Providence, Rhode Island 02940-9653, is transfer agent for Class A and Class B shares of the Portfolios and dividend disbursing agent for the Portfolios. Legal Counsel. Legal counsel is provided by Hunton & Williams, 951 East Byrd Street, Richmond, Virginia 23219-4074. Independent Auditors. The independent auditors for the Portfolios are KPMG Peat Marwick, One Boston Place, Boston, Massachusetts 02108. Brokerage Transactions When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, a Sub-Adviser looks for prompt execution of the order at the best overall terms available. In working with dealers, a Sub-Adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. In selecting among firms believed to meet these criteria, a Sub-Adviser may give consideration to those firms which have sold or are willing to sell shares of the Portfolios. A Sub-Adviser makes decisions on portfolio transactions and selects brokers and dealers subject to review by the Board of Trustees. Notwithstanding the foregoing, to the extent consistent with applicable provisions of the Investment Company Act of 1940, Rule 17e-1, and other rules and exemptions adopted by the Securities and Exchange Commission ("SEC") under that Act, the Board of Trustees of the Trust has determined that transactions for the Portfolios may be executed by affiliated brokers if, in the judgment of a Sub-Adviser, the use of an affiliated broker is likely to result in price and execution at least as favorable as those of other qualified brokers. Under rules adopted by the SEC, an affiliated broker may not execute transactions for the Portfolio on the floor of any national securities exchange, but may effect transactions by transmitting orders for execution, providing for clearance and settlement and arranging for the performance of the execution function by members of the exchange not associated with the affiliated broker. The broker will be required to pay fees charged by those persons performing the floor brokerage elements out of the brokerage compensation that it receives from the Portfolio. Shareholder Servicing Plan The Trust has adopted a Shareholder Servicing Plan (the "Service Plan") with respect to Class A and Class B shares of each Portfolio. Under the Service Plan, financial institutions will enter into shareholder service agreements with the Portfolios to provide administrative support services to their customers who from time to time may be owners of record or beneficial owners of Class A or Class B shares of one or more Portfolios. In return for providing these support services, a financial institution may receive payments from one or more Portfolios at a rate not exceeding 0.25% of the average daily net assets of the Class A or Class B shares of the particular Portfolio or Portfolios beneficially owned by the financial institution's customers for whom it is holder of record or with whom it has a servicing relationship. These administrative services may include, but are not limited to, the following functions: providing office space, equipment, telephone facilities, and various personnel, including clerical, supervisory, and computer, as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries regarding the Portfolios; assisting clients in changing dividend options, account designations, and addresses; and providing such other services as the Portfolios reasonably request. In addition to receiving payments under the Service Plan, financial institutions may be compensated by the Investment Adviser, a Sub-Adviser, and/or the Administrator, or affiliates thereof, for providing administrative support services to holders of Class A or Class B shares of the Portfolios. These payments will be made directly by the Investment Adviser, Sub-Adviser, and/or Administrator and will not be made from the assets of any of the Portfolios. Expenses of the Portfolios and the Class A and Class B Shares The holders of each class of shares pay their allocable portion of their respective Portfolio's expenses and the expenses of the Trust. The expenses of the Trust for which holders of Class A shares and Class B shares each pay their allocable portion include, but are not limited to: the cost of organizing the Trust and continuing its existence; registering the Trust; Trustees" fees; auditors" fees; the cost of meetings of the Trust; legal fees of the Trust; association membership dues; and such non-recurring and extraordinary items as may arise from time to time. Each Portfolio's expenses for which holders of Class A shares and Class B shares each pay their allocable portion include, but are not limited to: registering the Portfolio and Class A and Class B shares of the Portfolio; investment advisory services; taxes and commissions; custodian fees; insurance provisions; auditors" fees; and such non-recurring and extraordinary items as may arise from time to time. At present, the only expenses which are allocated specifically to Class A shares as a class are expenses under the Trust's Shareholder Servicing Plan, and the only expenses which are allocated specifically to Class B shares as a class are expenses under the Trust's Shareholder Servicing Plan and Rule 12b-1 Plan. However, the Board of Trustees reserves the right to allocate certain expenses to holders of Class A shares and Class B shares as it deems appropriate ("Class Expenses"). In any case, Class Expenses would be limited to: distribution fees; transfer agent fees as identified by the transfer agent as attributable to holders of Class A shares or Class B shares; fees under the Trust's Shareholder Servicing Plan; printing and postage expenses related to preparing and distributing materials such as shareholder reports, prospectuses, and proxies to current shareholders; registration fees paid to the SEC and to state securities commissions; expenses related to administrative personnel and services as required to support holders of Class A shares or Class B shares; legal fees relating solely to Class A shares or Class B shares; and Trustees" fees incurred as a result of issues relating solely to Class A shares or Class B shares. Shareholder Information Voting Rights Each Class A share and each Class B share of a Portfolio gives the shareholder one vote in Trustee elections and other matters submitted to shareholders of the Trust for vote. All shares of all classes of each Portfolio have equal voting rights, except that in matters affecting only a particular Portfolio or class, only shares of that Portfolio or class are entitled to vote. As a Massachusetts business trust, the Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or a Portfolio's operation and for the election of Trustees under certain circumstances. Trustees may be removed by a two-thirds vote of the number of Trustees prior to such removal or by a two-thirds vote of the shareholders at a special meeting. A special meeting of shareholders shall be called by the Trustees upon the written request of shareholders owning at least 10% of the Trust's outstanding shares of all series entitled to vote. Massachusetts Partnership Law Under certain circumstances, shareholders may be held personally liable under Massachusetts law for acts or obligations of the Trust on behalf of the Trust. To protect shareholders of the Portfolios, the Trust has filed legal documents with the state of Massachusetts that expressly disclaim the liability of shareholders of the Portfolios for such acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign on behalf of the Portfolios. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use the property of the Trust to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust cannot meet its obligations to indemnify shareholders and pay judgments against them from its assets. Tax Information General. The Portfolio does not anticipate having to pay federal income tax because it expects to meet the requirements of the Internal Revenue Code, as amended, applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Portfolio will be treated as a single, separate entity for federal income tax purposes so that income and losses (including capital gains and losses) realized by the Portfolio will not be combined for tax purposes with income and losses realized by any of the other Portfolios. Unless otherwise exempt, shareholders of the Portfolio, are required to pay federal income tax on any dividends and other distributions, including capital gains distributions, received. This applies whether dividends and distributions are received in cash or as additional shares. Distributions representing long-term capital gains, if any, will be taxable to shareholders as long-term capital gains irrespective of how long the shareholders have held the particular shares. No federal income tax is due on any dividends or any capital gain distributions earned in an IRA or qualified retirement plan or custodial account until distributed. Information on the tax status of dividends and distributions is provided annually. Performance Information From time to time, the Portfolio advertises its total return and yield, tax-equivalent yield. Total return represents the change, over a specified period of time, in the value of an investment in the Portfolio after reinvesting all income and capital gains distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. The yield of Class A and Class B shares of the Portfolio is calculated by dividing the net investment income per share (as defined by the Securities and Exchange Commission) earned by the Portfolio over a thirty-day period by the maximum offering price per Class A and Class B share on the last day of the period. The yield does not necessarily reflect income actually earned by the Portfolio and, therefore, may not correlate to the dividends or other distributions paid to shareholders. The performance information reflects the effect of the maximum sales load, in the case of Class A shares of the Portfolio, and other non-recurring charges, such as the CDSC, in the case of Class A and Class B shares of the Portfolio, which, if excluded, would increase the total return and yield. The Portfolio will include the performance information for both Class A and Class B shares in any advertisement or information that includes the performance data of the Portfolio. From time to time, the Trust may advertise its performance using certain reporting services and/or compare its performance to certain indices. Cambridge Global Portfolio A Diversified Portfolio of Cambridge Series Trust, an Open-End, Management Investment Company Prospectus Cambridge Series Trust Cambridge Series Trust (the "Trust"), an open-end management investment company (a mutual fund), offers investors interests in the five separate diversified investment portfolios described below (collectively, the "Portfolios," and each individually, the "Portfolio"). Cambridge Growth Portfolio-a Portfolio advised by Kemper Financial Services, Inc., seeking growth of capital through professional management and diversification of investment securities having potential of capital appreciation. Cambridge Capital Growth Portfolio-a Portfolio seeking long-term appreciation of capital by investing primarily in common stock of companies believed by Phoenix Investment Counsel, Inc., the Portfolio's Sub-Adviser, to have appreciation potential. Cambridge Government Income Portfolio-a Portfolio advised by Pacific Investment Management Company seeking current income by investing primarily in securities which are either issued or guaranteed as to payment of principal and interest by the U.S. government or its agencies or instrumentalities. Cambridge Municipal Income Portfolio-a Portfolio seeking to provide investors with a high level of current income exempt from federal regular income tax, consistent with preservation of capital, by investing, under normal market conditions, at least 80% of its total assets in tax-exempt municipal securities rated investment grade, or deemed by Van Kampen Merritt Management Inc., the Portfolio's Sub-Adviser, to be of comparable quality. Cambridge Income and Growth Portfolio-a Portfolio advised by Wellington Management Company seeking to provide a conservative combination of income and growth of capital, consistent with capital protection. There can be no assurance that any Portfolio will achieve its investment objective. Each Portfolio may also invest in certain other types of securities as further described in the prospectus. The shares offered by this prospectus are not deposits or obligations of any bank, are not endorsed or guaranteed by any bank, and are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in these shares involves investment risks, including the possible loss of principal. This combined prospectus contains the information you should read and know before you invest in any of the Portfolios of the Trust. Keep this prospectus for future reference. The Trust has also filed a combined Statement of Additional Information for each Portfolio, dated November 30, 1993, with the Securities and Exchange Commission. The information contained in the combined Statement of Additional Information is incorporated by reference in this prospectus. You may request a copy of the combined Statement of Additional Information free of charge, obtain other information, or make inquiries about any of the Portfolios by writing the particular Portfolio or Portfolios or by calling 1-800-382-0016. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated , 1994 Table of Contents Summary of Portfolio Expenses . . . . . . . . . . . . . . . . . . . . . 1 Cambridge Series Trust Financial Highlights Class A Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Cambridge Series Trust Financial Highlights Class B Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Cambridge Family of Funds . . . . . . . . . . . . . . . . . . . . . . . 6 Investment Information. . . . . . . . . . . . . . . . . . . . . . . . . 6 Investment Objectives and Policies. . . . . . . . . . . . . . . . . . 6 Cambridge Growth Portfolio. . . . . . . . . . . . . . . . . . . . . . 6 Cambridge Capital Growth Portfolio. . . . . . . . . . . . . . . . . . 7 Cambridge Government Income Portfolio . . . . . . . . . . . . . . . . 7 Cambridge Municipal Income Portfolio. . . . . . . . . . . . . . . . . 8 Cambridge Income and Growth Portfolio . . . . . . . . . . . . . . . . 11 Investment Practices. . . . . . . . . . . . . . . . . . . . . . . . . 12 Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 How to Buy Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Minimum Investment Required . . . . . . . . . . . . . . . . . . . . . 18 What Shares Cost. . . . . . . . . . . . . . . . . . . . . . . . . . . 19 When Net Asset Value is Determined. . . . . . . . . . . . . . . . . . 20 Purchases at Net Asset Value. . . . . . . . . . . . . . . . . . . . . 20 Reducing the Sales Charge for Class A Shares. . . . . . . . . . . . . 20 Systematic Investment Program . . . . . . . . . . . . . . . . . . . . 21 Certificates and Confirmations. . . . . . . . . . . . . . . . . . . . 21 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Capital Gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Retirement Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Exchange Privilege. . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Redeeming Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Contingent Deferred Sales Charge. . . . . . . . . . . . . . . . . . . 23 Through a Financial Institution . . . . . . . . . . . . . . . . . . . 24 Directly from the Portfolios. . . . . . . . . . . . . . . . . . . . . 24 Redemptions Before Purchase Instruments Clear . . . . . . . . . . . . 25 Systematic Withdrawal Program . . . . . . . . . . . . . . . . . . . . 26 Accounts with Low Balances. . . . . . . . . . . . . . . . . . . . . . 26 Cambridge Series Trust Information. . . . . . . . . . . . . . . . . . . 26 Investment Management of the Trust. . . . . . . . . . . . . . . . . . . 26 Investment Adviser. . . . . . . . . . . . . . . . . . . . . . . . . . 26 The Sub-Advisers. . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Sub-Advisers' Profiles. . . . . . . . . . . . . . . . . . . . . . . . 28 Distribution of Portfolio Shares. . . . . . . . . . . . . . . . . . . 30 Administration of the Trust . . . . . . . . . . . . . . . . . . . . . 30 Brokerage Transactions. . . . . . . . . . . . . . . . . . . . . . . . 31 Shareholder Servicing Plan. . . . . . . . . . . . . . . . . . . . . . 31 Expenses of the Portfolios and the Class A and Class B Shares . . . . 32 Shareholder Information . . . . . . . . . . . . . . . . . . . . . . . . 32 Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Massachusetts Partnership Law . . . . . . . . . . . . . . . . . . . . 33 Tax Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Performance Information . . . . . . . . . . . . . . . . . . . . . . . . 34 Summary of Portfolio Expenses Shareholder Transaction Expenses Class A Shares Class B Shares Maximum Sales Load Imposed on Purchases (as a percentage of offering price) Cambridge Growth Portfolio . . . . . . . 5.50% None Cambridge Capital Growth Portfolio . . . 5.50% None Cambridge Government Income Portfolio. . 4.75% None Cambridge Municipal Income Portfolio . . 4.75% None Cambridge Income and Growth Portfolio. . 5.50% None Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price). . . . None None Maximum Deferred Sales Load (as a percentage of original purchase price or redemption proceeds, as applicable) 1.00%(1) 1.00%(1) Exchange Fee. . . . . . . . . . . . . . . . . None None Annual Portfolio Operating Expenses (As a percentage of average net assets) Cambridge Cambridge Cambridge Cambridge Cambridge Capital Government Municipal Income and Growth Growth Income Income Growth Class A Shares Portfolio Portfolio Portfolio Portfolio Portfolio Investment Advisory Fee (after waiver)(2). . . . 0.80% 0.80% 0.60% 0.53% 0.75% 12b-1 Fees. . . . . . . . None None None None None Total Other Expenses (after waiver)(3). . . . . . . . 0.61% 0.51% 0.41% 0.42% 0.62% Shareholder Service Plan Fees 0.25% 0.25% 0.25% 0.25% 0.25% Total Portfolio Operating Expenses(4). . . . . . . . . 1.66% 1.56% 1.26% 1.20% 1.62% Cambridge Cambridge Cambridge Cambridge Cambridge Capital Government Municipal Income and Growth Growth Income Income Growth Class B Shares Portfolio Portfolio Portfolio Portfolio Portfolio* Investment Advisory Fee (after waiver)(2). . . . . 0.80% 0.80% 0.60% 0.53% 0.75% 12b-1 Fees. . . . . . . . . 0.75% 0.75% 0.50% 0.50% 0.75% Total Other Expenses (after waiver)(3). . . . . 0.61% 0.51% 0.41% 0.42% 0.62% Shareholder Service Plan Fees 0.25% 0.25% 0.25% 0.25% 0.25% Total Portfolio Operating Expenses(4). . . . . . . . . 2.41% 2.31% 1.76% 1.70% 2.37% (1) On Class A shares a contingent deferred sales charge ("CDSC") is applicable only if (1) shares are purchased during certain eligible periods with proceeds from the redemption or sale of shares of other investment companies at net asset value ("NAV") and redeemed within four years, or (2) shares over $1 million are purchased at NAV and redeemed within one year. On Class B shares a CDSC is applicable only if shares purchased are redeemed within one year of original purchase. (2) The investment advisory fee on the Cambridge Municipal Income Portfolio has been reduced to reflect the anticipated voluntary waiver of a portion of the investment advisory fee by the investment adviser. The investment adviser can terminate this voluntary waiver of fees at any time in its sole discretion. The maximum investment advisory fee is 0.60% on the Cambridge Municipal Income Portfolio. (3) The estimated total other expenses have been reduced to reflect the anticipated voluntary waiver of certain Portfolio expenses by the administrator. The administrator can terminate this voluntary waiver at any time in its sole discretion. Total other expenses are estimated based on average expenses expected to be incurred during the fiscal year ending September 30, 1994. During the course of this period, expenses may be more or less than the average amount shown. (4) The total Portfolio operating expenses for Class A shares, absent the voluntary waivers of the investment advisory fee and administrative fee for the Cambridge Municipal Income Portfolio and administrative fees for the Cambridge Growth Portfolio, Cambridge Capital Growth Portfolio, and Cambridge Government Income Portfolio are estimated to be 1.71% on Cambridge Growth Portfolio, 1.61% on Cambridge Capital Growth Portfolio, 1.28% on Cambridge Government Income Portfolio, and 1.32% on Cambridge Municipal Income Portfolio. Such expenses for Class B shares would be 2.46% on Cambridge Growth Portfolio, 2.36% on Cambridge Capital Growth Portfolio, 1.78% on Cambridge Government Income Portfolio, and 1.82% on Cambridge Municipal Income Portfolio. With respect to the Cambridge Income and Growth Portfolio, the total Portfolio operating expenses absent the anticipated voluntary waiver of administrative fees and the voluntary waivers of certain operating expenses are estimated to be 1.69% for Class A shares and 2.44% for Class B shares.
The Annual Portfolio Operating Expenses for Class A Shares were 1.66% for Cambridge Growth Portfolio, 1.49% for Cambridge Capital Growth Portfolio, 1.04% for Cambridge Government Income Portfolio, 0.71% for the Cambridge Municipal Income Portfolio and 1.56% for the Cambridge Income and Growth Portfolio for the fiscal year ended September 30, 1993. Such expenses for Class B Shares were 2.41% for Cambridge Growth Portfolio, 2.24% for Cambridge Capital Growth Portfolio, 1.54% for Cambridge Government Income Portfolio, 1.21% for the Cambridge Municipal Income Portfolio and 2.31% for the Cambridge Income and Growth Portfolio. The Annual Portfolio Operating Expenses in the above table are based on expenses expected during the fiscal year ending September 30, 1994. The purpose of this table is to assist an investor in understanding the various costs and expenses that a shareholder of a Portfolio will bear, either directly or indirectly. For more complete descriptions of the various costs and expenses, see "How to Buy Shares," "Investment Management of the Trust," and "Cambridge Series Trust Information." Long-term Class B shareholders may pay more than the economic equivalent of the maximum front-end sales charges permitted under the rules of the National Association of Securities Dealers, Inc. EXAMPLE Cambridge Cambridge Cambridge Cambridge Cambridge Capital Government Municipal Income and Growth Growth Income Income Growth Portfolio Portfolio Portfolio Portfolio Portfolio You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) no redemption at the end of each time period: Class A Shares 1 year . . . . . . . . . $ 71 $ 70 $ 60 $ 59 $ 71 3 years. . . . . . . . . 104 102 86 84 103 5 years. . . . . . . . . 140 135 113 110 10 years . . . . . . . . 241 230 193 186 Class B Shares 1 year . . . . . . . . . $ 24 $ 23 $ 18 $ 17 $ 24 3 years. . . . . . . . . 75 72 55 54 74 5 years. . . . . . . . . 129 124 95 92 10 years . . . . . . . . 275 265 207 201 You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time period: Class A Shares 1 year . . . . . . . . . $ 71 $ 70 $ 60 $ 59 $ 71 3 years. . . . . . . . . 104 102 86 84 103 5 years. . . . . . . . . 140 135 113 110 10 years . . . . . . . . 241 230 193 186 Class B Shares 1 year . . . . . . . . . $ 35 $ 34 $ 28 $ 28 $ 34 3 years. . . . . . . . . 75 72 55 54 74 5 years. . . . . . . . . 129 124 95 92 10 years . . . . . . . . 275 265 207 201
The above examples should not be considered a representation of past or future expenses. Actual expenses may be greater or less than those shown. Cambridge Series Trust Financial Highlights Class A Shares (For a share outstanding throughout each period) The following table has been audited by KPMG Peat Marwick, the Trust's independent auditors. Their report dated November 12, 1993 on the Portfolios" financial statements for the period ended September 30, 1993 is included in the Combined Annual Report dated September 30, 1993, which is incorporated by reference. This table should be read in conjunction with each of the Portfolio's financial statements and notes thereto, which may be obtained free of charge from the Trust. Cambridge Cambridge Cambridge Cambridge Government Cambridge Income and Growth Capital Growth Income Municipal Income Growth Portfolio Portfolio Portfolio Portfolio Portfolio September 30, September 30, September 30, September 30, September 30, 1993 1992* 1993 1992* 1993 1992** 1993 1992* 1993*** Net asset value per share, beginning of period $14.14 $14.18 $14.21 $14.18 $14.39 $14.30 $14.76 $14.29 $14.14 Income from investment operations Net investment income (loss) (0.07) 0.03 0.14 0.08 1.06 0.44 0.92 0.32 0.09 Net realized and unrealized gain (loss) on investments 2.65 (0.07) 1.02 0.03 (0.31) 0.09 1.32 0.47 0.73 Total from investment operations 2.58 (0.04) 1.16 0.11 0.75 0.53 2.24 0.79 0.82 Less distributions Dividends from income - - (0.11) (0.08) (1.06) (0.44) (0.92) (0.32) (0.08) Distributions from capital gains - - - - - - - - - Distributions in excess of net investment income (0.03)(d) - - - (0.04)(d) - (0.03)(d) - - Net asset value per share, end of period $16.69 $14.14 $15.26 $14.21 $14.04 $14.39 $16.05 $14.76 $14.88 Total return*** 18.23% (0.28%)(a) 8.21% 0.78%(a) 5.41% 3.37%(a) 16.00% 5.43%(a) 5.54%(a) Ratios to Average Net Assets Expenses 1.66% 1.33% 1.49% 1.14%(b) 1.04% 0.36%(b) 0.71% 0.00%(b) 1.56%(a) Net investment income (loss) (0.49%) 0.59%(b) 0.95% 1.54%(b) 7.31% 8.00%(b) 5.92% 6.21%(b) 2.35%(b) Expense adjust- ment(c) 0.12% 0.39% 0.10% 0.29% 0.18% 0.85% 0.68% 1.26% 0.38% Supplemental Data Net assets, end of period (000 omitted) $19,708 $11,464 $31,360 $20,864 $47,780 $36,740 $29,245 $18,801 $9,849 Portfolio turnover rate 137% 26% 192% 61% 102% 9% 88% 0% 13% * Reflects operations for the period from April 29, 1992 (date of initial public investment), to September 30, 1992. ** Reflects operations for the period from April 29, 1992 (date of initial public investment) to September 30, 1992. For the period from the start of business, March 31, 1992, to April 28, 1992, net investment income aggregating $0.05 per share ($319) was distributed to the Portfolio's investment adviser. Such distribution represented the net investment income of the Portfolio prior to the initial public investment in Portfolio shares. *** Reflects operations for the period from May 24, 1993 (date of initial public investment) to September 30, 1993. **** Based on net asset value. (a) Cumulative total return based on net asset value. (b) Computed on an annualized basis. (c) Increase/decrease in above expense/income ratios due to waivers or reimbursements of expenses. (d) These distributions did not represent a return of capital for federal income tax purposes for the year ended September 30, 1993.
Further information about each Portfolio's performance is contained in the Combined Annual Report dated September 30, 1993, which can be obtained free of charge. Cambridge Series Trust Financial Highlights Class B Shares (For a share outstanding throughout each period) The following table has been audited by KPMG Peat Marwick, the Trust's independent auditors. Their report dated November 12, 1993 on the Portfolios" financial statements for the period ended September 30, 1993 is included in the Combined Annual Report dated September 30, 1993, which is incorporated by reference. This table should be read in conjunction with each of the Portfolio's financial statements and notes thereto, which may be obtained free of charge from the Trust. Cambridge Cambridge Cambridge Cambridge Cambridge Government Municipal Income and Growth Capital Growth Income Income Growth Portfolio Portfolio Portfolio Portfolio Portfolio September 30, September 30, September 30, September 30, September 30, 1993 1992* 1993 1992* 1993 1992** 1993 1992* 1993**** Net asset value per share, beginning of period $14.14 $14.18 $14.22 $14.18 $14.40 $14.30 $14.78 $14.29 $14.14 Income from investment operations Net investment income (loss) (0.14) (0.01) 0.05 0.46 0.99 0.41 0.82 0.29 0.05 Net realized and unrealized gain (loss) on investments 2.59 (0.03) 1.02 0.04 (0.31) 0.10 1.32 0.49 0.77 Total from investment operations 2.45 (0.04) 1.07 0.50 0.68 0.51 2.14 0.78 0.82 Less distributions Dividends from income - - (0.05) (0.46) (0.99) (0.41) (0.82) (0.29) (0.05) Distributions from capital gains - - - - - - - - - Distributions in excess of net investment income - - (0.01)(d) - (0.03)(d) - (0.04)(d) - - Net asset value per share, end of period $16.59 $14.14 $15.23 $14.22 $14.06 $14.40 $16.06 $14.78 $14.91 Total return**** 17.33% (0.28%)(a) 7.52% 0.61%(a) 4.86% 3.24%(a) 15.27% 5.28%(a) 5.54%(a) Ratios to Average Net Assets Expenses 2.41% 2.07%(b) 2.24% 1.86%(b) 1.54% 0.83%(b) 1.21% 0.50%(b) 2.31%(b) Net investment income (loss) (1.24%) (0.17%)(b) 0.21% 0.83%(b) 6.81% 7.53%(b) 5.42% 5.80%(b) 1.60%(b) Expense adjust- ment(c) 0.12% 0.40% 0.10% 0.30% 0.18% 0.84% 0.68% 1.26% 0.38% Supplemental Data Net assets, end of period (000 omitted) $35,069 $13,828 $57,030 $25,468 $127,346 $65,661 $50,976 $24,265 $18,127 Portfolio turnover rate 137% 26% 192% 61% 102% 9% 88% 0% 13% * Reflects operations for the period from April 29, 1992 (date of initial public investment) to September 30, 1992. ** Reflects operations for the period from May 24, 1993 (date of initial public investment) to September 30, 1993. *** Based on net asset value. (a) Cumulative total return based on net asset value. (b) Computed on an annualized basis. (c) Increase/decrease in above expense/income ratios due to waivers or reimbursements of expenses. (d) These distributions did not represent a return of capital for federal income tax purposes for the year ended September 30, 1993.
Further information about each Portfolio's performance is contained in the Combined Annual Report dated September 30, 1993, which can be obtained free of charge. Cambridge Family of Funds The Portfolios, together with the Cash Equivalent Fund (which includes the Money Market Portfolio, Government Securities Portfolio, and Tax-Exempt Portfolio, each of which is advised by Kemper Financial Services, Inc.), comprise the Cambridge Family of Funds. The Trust is managed by Cambridge Investment Advisors, Inc. which in turn has entered into sub-advisory agreements for each of the Portfolios. Kemper Financial Services, Inc. serves as the sub-adviser for Cambridge Growth Portfolio; Phoenix Investment Counsel, Inc. serves as the sub-adviser for Cambridge Capital Growth Portfolio; Pacific Investment Management Company serves as the interim sub-adviser for Cambridge Government Income Portfolio; Van Kampen Merritt Management Inc. serves as the sub-adviser for Cambridge Municipal Portfolio; and Wellington Management Company serves as the sub- adviser for Cambridge Income and Growth Portfolio. Scudder, Stevens and Clark, Inc. will serve as the sub-adviser to the new Global Portfolio. Such sub- advisers have over [ ] years of investment experience and currently manage or supervise in excess of $[ ] billion on behalf of over [ ] million shareholder or client accounts. The Cambridge Family of Funds provides flexibility and diversification for an investor's investment planning needs. It enables an investor to meet the challenges of changing market conditions by offering convenient exchange privileges which give an investor access to as many as eight investment vehicles. The Cambridge Family of Funds may be utilized in connection with advisory accounts of investment advisers registered under the Investment Advisers Act of 1940. Information on the Cambridge Family of Funds may be obtained by calling 1-800-382-0016. Investment Information Investment Objectives and Policies Set forth below is a description of the investment objectives and policies of each Portfolio. The investment objectives of each Portfolio, along with those investment policies which are identified as being fundamental, may not be changed without the affirmative vote of a majority of the applicable Portfolio's outstanding voting securities. All other investment policies of a Portfolio may be changed by the Board of Trustees of the Trust without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. There can be no assurance that any Portfolio will achieve its investment objective. For additional information concerning investment techniques utilized by the Portfolios, see "Investment Practices." Cambridge Growth Portfolio The investment objective of the Cambridge Growth Portfolio is growth of capital through professional management and diversification of investments in securities it believes to have potential of capital appreciation. The Portfolio will be invested primarily in securities which Kemper Financial Services, Inc. ("KFS"), the Portfolio's Sub-Adviser, believes offer the potential for capital appreciation. The Portfolio invests primarily in common stocks but can invest in any securities with potential for capital growth. In seeking to obtain capital appreciation, the Portfolio may trade to some degree in securities for the short term. To this extent, the Portfolio will be engaged in trading operations based on short-term market considerations as distinct from long-term investment based upon fundamental valuation of securities. However, the Portfolio will emphasize fundamental research in attempting to identify under-valued situations which are anticipated will appreciate over the longer term. In seeking to achieve its objective, it will be the Portfolio's policy to invest primarily in securities which it believes will offer the potential for increasing the Portfolio's total asset value. While it is anticipated that most investments will be in common stocks of companies with above-average growth prospects, investments may also be made to a limited degree in other common stocks and in convertible securities, such as bonds and preferred stocks. There may be times when a significant portion of the Portfolio's assets may be held temporarily in cash or defensive-type securities, depending upon the Sub-Adviser's analysis of business and economic conditions and the outlook for security prices. For these purposes, defensive-type securities include high-grade debt securities (rated "A" or above); securities issued by the U.S. government, its agencies or instrumentalities; and high-quality money market instruments, including repurchase agreements. Some of the factors the Sub-Adviser will consider in making investments for the Portfolio are patterns of increasing growth in sales and earnings, the development of new or improved products or services, favorable outlooks for growth in the industry, the probability of increased operating efficiencies, emphasis on research and development, cyclical conditions, or other signs that a company is expected to show greater than average capital appreciation and earnings growth. Cambridge Capital Growth Portfolio The investment objective of the Cambridge Capital Growth Portfolio is to provide long-term appreciation of capital. Since income is not an objective, any income generated by the investment of the Portfolio's assets will be incidental to its objective. Phoenix Investment Counsel, Inc. ("PIC"), the Portfolio's Sub-Adviser, intends to invest primarily in the common stock of companies believed by management to have appreciation potential. However, since no one class or type of security at all times necessarily affords the greatest promise for capital appreciation, the Portfolio may invest any amount or proportion of its assets in any class or type of security believed by the Sub-Adviser to offer potential for capital appreciation over both the intermediate and long term. Normally, the Portfolio's investments will consist largely of common stocks selected for the promise that they offer appreciation of capital. However, the Portfolio may also invest in preferred stocks, investment-grade bonds, convertible preferred stocks, and convertible debentures if, in the judgment of the Sub-Adviser, the investment would further its investment objective. It is anticipated that investment in bonds during periods of historically high interest rates or during periods of high interest rates during the interest rate cycle will lead to capital gains in such bonds when interest rates fall, causing the value of the bonds to increase. Each security held will be monitored to determine whether it is contributing to the basic objective of long-term appreciation of capital. The Sub-Adviser believes that a portfolio of such securities provides the most effective way to obtain capital appreciation, but when, for temporary defensive purposes (as when market conditions for equity securities are adverse), other types of investments appear advantageous on the basis of combined considerations of risk and the protection of capital values, investments may be made in fixed income securities with or without warrants or conversion features. In an effort to protect its assets against major market declines, or for other temporary defensive purposes, the Portfolio may actively pursue a policy of retaining cash or investing part or all of its assets in high-quality money market instruments and repurchase agreements. Diversification is an important consideration in selecting investments for the Portfolio. However, greater emphasis will be placed upon careful selection of securities believed to have good potential for appreciation than upon wide diversification. Cambridge Government Income Portfolio The investment objective of the Cambridge Government Income Portfolio is to provide current income. The Portfolio, which is advised by Pacific Investment Management Company ("PIMCO"), pursues this objective by investing primarily in securities which are either issued or guaranteed as to payment of principal and interest by the U.S. government or its agencies or instrumentalities. The Portfolio may also invest in certain mortgage-related securities. Under normal circumstances, the Portfolio will invest at least 65% of the value of its total assets in U.S. government securities. The U.S. government securities in which the Portfolio invests include: . direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes, and bonds; and . obligations of U.S. government agencies or instrumentalities, such as Federal Home Loan Banks, Federal Farm Credit Banks, Federal National Mortgage Association, Government National Mortgage Association, and Federal Home Loan Mortgage Corporation. The obligations of the U.S. government agencies or instrumentalities which the Portfolio may buy are backed by: . the full faith and credit of the U.S. Treasury; . the issuer's right to borrow from the U.S. Treasury; . the discretionary authority of the U.S. government to purchase certain obligations of the agency or instrumentality; or . the credit of the agency or instrumentality issuing the obligations. Examples of agencies and instrumentalities whose obligations are permissible investments but may not always receive financial support from the U.S. government are: Federal Land Banks; Central Bank for Cooperatives; Federal Intermediate Credit Banks; Federal Home Loan Banks; and Federal National Mortgage Association. See "Investment Practices" for additional information regarding mortgage-related securities, stripped mortgage securities, and dollar roll transactions. Cambridge Municipal Income Portfolio The investment objective of the Cambridge Municipal Income Portfolio is to provide investors with a high level of current income exempt from federal regular income tax, consistent with preservation of capital. Van Kampen Merritt Management Inc. ("VKMMI"), serves as the Sub-Adviser to the Portfolio. Under normal market conditions, the Portfolio will invest at least 80% of its total assets in tax-exempt municipal securities rated investment grade, or deemed by the Sub-Adviser to be of comparable quality, at the time of investment. Investment-grade securities are securities rated BBB or higher by Standard and Poor's Corporation ("S&P") or Baa or higher by Moody's Investors Service, Inc. ("Moody's"), in the case of long-term obligations, or which have equivalent ratings in the case of short-term obligations. Securities rated BBB by S&P are regarded by S&P as having an adequate capacity to pay interest and repay principal. Whereas such securities normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest or repay principal for debt in this category than in higher rated categories. Securities rated Baa by Moody's are considered by Moody's as medium-grade obligations. Such securities are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. They lack outstanding investment characteristics and, in fact, have speculative characteristics as well. Up to 20% of the Portfolio's total assets may be invested in tax-exempt municipal securities rated between BB and B-(inclusive) by S&P or between Ba and B3 (inclusive) by Moody's (or equivalently rated short-term obligations) and unrated tax-exempt securities that the Sub-Adviser considers to be of comparable quality. These securities are below investment grade and are regarded by S&P, on balance, as predominantly speculative with respect to the capacity to pay interest and repay principal in accordance with the terms of the obligation. While such securities will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. These securities are regarded by Moody's as generally lacking characteristics of a desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the securities" contract over any long period of time may be small. Debt securities rated below investment grade are commonly referred to as "junk bonds." The Portfolio will not invest in securities rated below B- by S&P or below B3 by Moody's at the time of purchase. For a description of S&P's and Moody's ratings, see the Appendix to the combined Statement of Additional Information. From time to time, the Portfolio temporarily may also invest up to 10% of its assets in tax-exempt money market funds, subject to the restrictions of Section 12(d)(1)(A) of the Investment Company Act of 1940. Such instruments will be treated as investments in municipal securities. The Portfolio may invest a substantial portion of its assets in municipal securities that pay interest that is subject to the federal alternative minimum tax. The Portfolio may not be a suitable investment for investors who are already subject to the federal alternative minimum tax or who would become subject to the federal alternative minimum tax as a result of an investment in the Portfolio. Municipal Securities. Tax-exempt municipal securities are debt obligations issued by or on behalf of the governments of states, territories, or possessions of the United States; the District of Columbia; their political subdivisions, agencies, and instrumentalities; and certain interstate agencies, the interest on which, in the opinion of bond counsel or other counsel to the issuer of such securities, is exempt from federal regular income tax. Under normal market conditions, up to 100%, but not less than 80%, of the Portfolio's assets will be invested in such municipal securities. The foregoing is a fundamental policy of the Portfolio and cannot be changed without approval of the shareholders of the Portfolio. The two principal classifications of municipal securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its faith, credit, and taxing power for the payment of principal and interest. Revenue bonds are usually payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue source. Industrial development bonds are usually revenue bonds, the credit quality of which is normally directly related to the credit standing of the industrial user involved. There are, in addition, a variety of hybrid and special types of municipal securities, including variable rate securities, municipal notes, and municipal leases. Variable rate securities bear rates of interest that are adjusted periodically according to formulae intended to minimize fluctuation in values of the instruments. Municipal notes include tax, revenue, and bond anticipation notes of short maturity, generally less than three years, which are issued to obtain temporary funds for various public purposes. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities and may be considered not to be liquid. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation certificate on any of the above. A more detailed description of the types of municipal securities in which the Portfolio may invest is included in the Statement of Additional Information. From time to time, proposals have been introduced before Congress that would have the effect of reducing or eliminating the federal tax exemption on municipal securities. If such a proposal were enacted, the ability of the Portfolio to pay tax-exempt interest dividends might be adversely affected. Risks of Lower-Grade Municipal Securities. The Portfolio may invest up to 20% of its total assets in lower-grade tax-exempt municipal securities or in unrated municipal securities considered by the Sub-Adviser to be of comparable quality. Lower-grade municipal securities are rated between BB and B-by S&P or between Ba and B3 by Moody's, in each case inclusive of such rating categories. Higher yields are generally available from municipal securities of such grade. With respect to such 20% of the Portfolio's total assets, the Portfolio has not established any limit on the percentage of its portfolio which may be invested in securities in any one rating category. Investment in lower-grade municipal securities involves special risks as compared with investment in higher-grade municipal securities. The market for lower-grade municipal securities is considered to be less liquid than the market for investment-grade municipal securities, which may adversely affect the ability of the Portfolio to dispose of such securities in a timely manner at a price which reflects the value of such securities. The market price for less liquid securities tends to be more volatile than the market price for more liquid securities. Illiquid securities and the absence of readily available market quotations with respect thereto may make the valuation of such securities more difficult, and the judgment of the Trust's officers and Trustees may play a greater role in the valuation of the Portfolio's securities. Lower-grade municipal securities generally involve greater credit risk than higher-grade municipal securities and are more sensitive to adverse economic changes, significant increases in interest rates, and individual issuer developments. Because issuers of lower-grade municipal securities frequently choose not to seek a rating of their municipal securities, the Portfolio will rely more heavily on the Sub-Adviser's ability to determine the relative investment quality of such securities than if the Portfolio invested exclusively in higher-grade municipal securities. The Portfolio may, if deemed appropriate by the Sub-Adviser, retain a security whose rating has been downgraded below B-by S&P or below B3 by Moody's, or whose rating has been withdrawn. More detailed information concerning the risks associated with instruments in lower-grade municipal securities is included in the Statement of Additional Information. The Sub-Adviser seeks to minimize the risks involved in investing in lower-grade municipal securities through diversification and careful investment analysis. To the extent that there is no established retail market for some of the lower-grade municipal securities in which the Portfolio may invest, trading in such securities may be relatively inactive. During periods of reduced market liquidity and in the absence of readily available market quotations for lower-grade municipal securities held in the Portfolio, the ability to value the Portfolio's securities becomes more difficult and the use of judgment may play a greater role in the valuation of the Portfolio's securities due to the reduced availability of reliable objective data. The effects of adverse publicity and investor perceptions may be more pronounced for securities for which no established market exists as compared with the effects on securities for which such a market does exist. Further, the Portfolio may have more difficulty selling such securities in a timely manner and at their stated value than would be the case for securities for which an established market does exist. Investors should carefully consider the risks of owning shares of an investment company which invests in lower-grade municipal securities before making an investment in the Portfolio. The higher yield on certain securities held by the Portfolio reflects a greater possibility that the financial condition of the issuer, or adverse changes in general economic conditions, or both, may impair the ability of the issuer to make payments of income and principal. Concentration. The Portfolio generally will not invest more than 25% of its total assets in any industry, nor will the Portfolio generally invest more than 5% of its assets in the securities of any single issuer. Governmental issuers of municipal securities are not considered part of any "industry." However, municipal securities backed only by the assets and revenues of nongovernmental users may for this purpose be deemed to be issued by such nongovernmental users, and the 25% limitation would apply to such obligations. It is nonetheless possible that the Portfolio may invest more than 25% of its assets in a broader segment of the municipal securities market, such as revenue obligations of hospitals and other health care facilities, housing agency revenue obligations, or airport revenue obligations if the Sub-Adviser determines that the yields available from obligations in a particular segment of the market justify the additional risks associated with a large investment in such segment. Although such obligations could be supported by the credit of governmental users, or by the credit of nongovernmental users engaged in a number of industries, economic, business, political, and other developments generally affecting the revenues of such users (for example, proposed legislation or pending court decisions affecting the financing of such projects and market factors affecting the demand for their services or products) may have a general adverse effect on all municipal securities in such a market segment. The Portfolio reserves the right of investing more than 25% of its assets in industrial development bonds or in issuers located in any individual state, although the Sub-Adviser has no present intention to invest more than 25% of the Portfolio's assets in issuers located in the same state. If the Portfolio were to invest more than 25% of its assets in issuers located in one individual state, it would be more susceptible to adverse economic, business, or regulatory conditions in that state. Cambridge Income and Growth Portfolio The investment objective of the Cambridge Income and Growth Portfolio is to provide a conservative combination of income and growth of capital, consistent with capital protection. To achieve the Portfolio's objective, Wellington Management Company ("WMC"), the Portfolio's Sub-Adviser, will invest the Portfolio's assets in a diversified portfolio of equity securities of companies that it believes exhibit sound fundamental characteristics and investment-grade fixed-income securities, as well as U.S. government securities, as described below. The Portfolio's holdings in common stocks provide long-term appreciation potential and dividend growth, while diversification into bonds provides current income and reduces the overall volatility of returns. The Portfolio will typically exhibit less investment risk than a portfolio consisting entirely of common stocks. The Sub-Adviser will manage the allocation of assets among asset classes based upon its judgment of the projected investment environment for financial assets, relative fundamental values and attractiveness of each asset class, and expected future returns of each asset class. The Sub-Adviser will base its asset allocation decisions on fundamental analysis and will not attempt to make short-term market timing decisions among asset classes. As a result, changes in allocation to stocks and bonds are expected to be gradual, and the Portfolio will normally have some portion of its assets invested in each asset class at all times. The Portfolio does not have percentage limitations on the amount allocated to each asset class. Within the equity asset class, the Portfolio seeks to achieve long-term appreciation of capital and a moderate income level by selecting investments which have attractive dividend yields, improving fundamentals, and are reasonably valued by the market. Accordingly, the Portfolio's equity investments will generally be focused on stocks of companies which the Sub-Adviser believes have the potential to provide above-average potential total returns and which sell at below-average price/earnings multiples. These equity investment decisions are based primarily on the Sub-Adviser's fundamental research and security valuations. The primary equity investment universe for the Portfolio will consist of companies with large market capitalizations. Within the fixed income asset class, the Portfolio seeks to provide as high a level of current income as is consistent with prudent investment risk. Investment management of the fixed income asset class will focus on relative value and yield spreads among security types and among quality, issues, and industry sectors, call protection, and credit research. Credit research on corporate bonds is based on both quantitative and qualitative criteria established by the Sub-Adviser, such as an issuer's industry, operating and financial profiles, business strategy, management quality, and projected financial and business conditions. The Portfolio will contain a broadly diversified mix of investments including the following acceptable investments: Equity Securities. The Portfolio may invest in common stocks and other equity securities, such as preferred stocks and debt securities with conversion privileges or warrants. The Portfolio may also invest in equity securities, including convertible debt securities, of real estate related companies and real estate investment trusts. The Portfolio will limit its investment in real estate investment trusts to 10% of its total assets. All real estate securities will be publicly traded, primarily on an exchange. Real Estate Securities. Although the Portfolio's investments in real estate will be limited to publicly traded securities secured by real estate or interests therein or issued by companies which invest in real estate or interests therein, the Portfolio may be subject to risks associated with direct ownership of real estate. These include declines in the value of real estate, risks related to general and local economic conditions and increases in interest rates. Other risks associated with real estate investments include the fact that equity and mortgage real estate investment trusts are dependent upon management skill, are not diversified, and are, therefore, subject to the risk of financing single projects or a limited number of projects. They are also subject to heavy cash flow dependency, defaults by borrowers, and self-liquidation. Additionally, equity real estate investment trusts may be affected by any changes in the value of the underlying property owned by the trust, and mortgage real estate investment trusts may be affected by the quality of any credit extended. Fixed Income Securities. The debt securities in which the Portfolio invests, including zero-coupon securities, will be rated at the time of purchase within the four highest bond ratings by Moody's or S&P or, if unrated, deemed to be of equivalent quality by the Sub-Adviser. While bonds carrying the fourth highest quality rating ("Baa" by Moody's or "BBB" by S&P) are considered as investment grade and are viewed to have adequate capacity for payment of principal and interest, investments in such securities involve a higher degree of risk than that associated with investments in debt securities in the higher rating categories, and such bonds lack outstanding investment characteristics and have speculative characteristics as well. For example, changes in economic conditions or other circumstances are more likely to lead to a weakened capacity to make principal and interest payments than is the case with higher grade bonds. If a security's rating is reduced below the required minimum after the Portfolio has purchased it, the Portfolio is not required to sell the security, but may consider doing so. A description of the rating categories is contained in the Appendix to the combined Statement of Additional Information. U.S. Government Securities. The Portfolio may invest in securities issued or guaranteed as to principal or interest by the U.S. government or its agencies or instrumentalities, including mortgage-related securities. These U.S. government securities include: . direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes, and bonds; and . obligations of U.S. government agencies or instrumentalities, such as Federal Home Loan Banks, Federal Farm Credit Banks, Federal National Mortgage Association, Government National Mortgage Association, and Federal Home Loan Mortgage Corporation. The obligations of the U.S. government agencies or instrumentalities which the Portfolio may buy are backed by: . the full faith and credit of the U.S. Treasury; . the issuer's right to borrow from the U.S. Treasury; . the discretionary authority of the U.S. government to purchase certain obligations of the agency or instrumentality; or . the credit of the agency or instrumentality issuing the obligations. Examples of agencies and instrumentalities whose obligations are permissible investments but may not always receive financial support from the U.S. government are: Federal Land Banks; Central Bank for Cooperatives; Federal Intermediate Credit Banks; Federal Home Loan Banks; and Federal National Mortgage Association. See "Investment Practices" for additional information regarding mortgage-related securities, stripped mortgage securities, and dollar roll transactions. Investment Practices Except as noted otherwise below, each of the Portfolios may engage in one or more of the following investment practices or may purchase one or more of the following investments. Mortgage-Related Securities. The mortgage-related securities in which the Cambridge Government Income Portfolio and Cambridge Income and Growth Portfolio invest are generally issued by Government National Mortgage Association ("GNMA"), Federal National Mortgage Association ("FNMA"), and Federal Home Loan Mortgage Corporation ("FHLMC"), or are privately issued (such as collateralized mortgage obligations described below), and are actively traded. The underlying mortgages which collateralize mortgage-related securities issued by GNMA are fully guaranteed by the Federal Housing Administration ("FHA") or Veterans Administration ("VA"), while those collateralizing mortgage-related securities issued by FHLMC or FNMA are typically conventional residential mortgages conforming to strict underwriting size and maturity constraints. Mortgage-related securities provide for a periodic payment consisting of both interest and principal. The interest portion of these payments will be distributed by the Portfolios as income, and the capital portion will be reinvested. Unlike conventional bonds, mortgage-related securities pay back principal over the life of the mortgage-related securities rather than at maturity. At the time that a holder of a mortgage-related security reinvests the payments and any unscheduled prepayment of principal that it receives, the holder may receive a rate of interest which is actually lower than the rate of interest paid on the existing mortgage-related securities. As a consequence, mortgage-related securities may be a less effective means of "locking-in" long-term interest rates than other types of U.S. government securities. The Portfolios may also invest in certain collateralized mortgage obligations ("CMOs") which are rated AAA by a nationally recognized statistical rating organization and which are issued by private entities such as investment banking firms and companies related to the construction industry. The CMOs in which the Portfolios may invest may be: (i) privately issued securities which are collateralized by pools of mortgages in which each mortgage is guaranteed as to payment of principal and interest by an agency or instrumentality of the U.S. government; (ii) privately issued securities which are collateralized by pools of mortgages in which payment of principal and interest are guaranteed by the issuer and such guarantee is collateralized by U.S. government securities; or (iii) other privately issued securities in which the proceeds of the issuance are invested in mortgage-backed securities, and payment of the principal and interest are supported by the credit of any agency or instrumentality of the U.S. government. While mortgage-related securities generally entail less risk of a decline during periods of rapidly rising interest rates, mortgage-related securities may also have less potential for capital appreciation than other similar investments (e.g., investments with comparable maturities) because, as interest rates decline, the likelihood increases that mortgages will be prepaid. Furthermore, if mortgage-related securities are purchased at a premium, mortgage foreclosures and unscheduled principal payments may result in some loss of a holder's principal investment to the extent of the premium paid. Conversely, if mortgage-related securities are purchased at a discount, both a scheduled payment of principal and an unscheduled prepayment of principal would increase current and total returns and would accelerate the recognition of income, which would be taxed as ordinary income when distributed to shareholders. Stripped Mortgage Securities. The Cambridge Government Income Portfolio and the Cambridge Income and Growth Portfolio may invest in stripped mortgage securities. Stripped mortgage securities are derivative multiclass securities which may be issued by agencies or instrumentalities of the U.S. government, or by private originators of, or investors in, mortgage loans, such as savings and loan associations, mortgage banks, commercial banks, investment banks, and special purpose subsidiaries of the foregoing organizations. The market volatility of stripped mortgage securities tends to be greater than the market volatility of the other types of mortgage-related securities in which the Portfolios invest. Principal-only stripped mortgage securities are used primarily to hedge against interest rate risk to the capital assets of the Portfolios in a changing interest rate environment. If the mortgage assets which underlie the stripped mortgage securities were to experience greater than anticipated prepayments of principal, a Portfolio could fail to fully recoup its initial investment in these securities, even if they are rated in the highest rating categories (e.g., AAA or Aaa by S&P or Moody's, respectively). Dollar Roll Transactions. In order to enhance portfolio returns and manage prepayment risks, the Cambridge Government Income Portfolio and Cambridge Income and Growth Portfolio may engage in dollar roll transactions with respect to mortgage-related securities issued by GNMA, FNMA, and FHLMC. In a dollar roll transaction, a Portfolio sells a mortgage-related security to a financial institution, such as a bank or broker/dealer, and simultaneously agrees to repurchase a substantially similar (i.e., same type, coupon, and maturity) security from the institution at a later date at an agreed upon price. The mortgage-related securities that are repurchased will bear the same interest rate as those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories. During the period between the sale and repurchase, the Portfolios will not be entitled to receive interest and principal payments on the securities sold. Proceeds of the sale will be invested in short-term instruments, and the income from these investments, together with any additional fee income received on the sale, will generate income for the Portfolios exceeding the yield. When a Portfolio enters into a dollar roll transaction, liquid assets of the Portfolio, in a dollar amount sufficient to make payment for the obligations to be repurchased, are segregated at the trade date. These securities are marked to market daily and are maintained until the transaction is settled. Money Market Instruments. In order to invest cash which is awaiting long-term investment, to maintain liquidity, or for temporary defensive purposes, each of the Portfolios may purchase money market instruments. To the extent that investments in money market instruments are not for defensive purposes, each of the Portfolios, except the Cambridge Municipal Income Portfolio, agrees to limit its investment in these securities to 35% of its total assets. To the extent the Cambridge Municipal Income Portfolio invests in money market instruments for other than defensive purposes, it will limit its investment in these securities to 20% of its total assets. For these purposes, money market instruments will be limited to short-term obligations of the U.S. government or its agencies or instrumentalities; certificates of deposit, time deposits, and bankers" acceptances issued by banks or savings and loan associations having assets of at least $500 million as of the end of their most recent fiscal year; short-term corporate debt securities; and high-quality commercial paper. Each of the Portfolios may also invest up to 10% of its assets in shares of money market funds whose investments are limited to money market instruments which each Portfolio could purchase directly. Repurchase Agreements. Each Portfolio, other than the Cambridge Municipal Income Portfolio, may engage in repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell U.S. government securities or other securities to the Portfolio and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the original seller does not repurchase the securities from the Portfolio, the Portfolio could receive less than the repurchase price on any sale of such securities. When-Issued and Delayed Delivery Transactions. Each Portfolio may purchase securities on a when-issued or delayed delivery basis. In when-issued and delayed delivery transactions, the Portfolio relies on the seller to complete the transaction. The seller's failure to complete the transaction may cause the Portfolio to miss a price or yield considered to be advantageous. Lending of Portfolio Securities. In order to generate additional income, each Portfolio, other than the Cambridge Municipal Income Portfolio, may lend portfolio securities up to one-third of the value of its total assets to broker/dealers, banks, or other institutional borrowers of securities on a short-term basis. A Portfolio will only enter into loan arrangements with broker/dealers, banks, or other institutions which the particular Sub-Adviser has determined are creditworthy under guidelines established by the Trust's Board of Trustees and will receive collateral in the form of cash or U.S. government securities equal to at least 100% of the value of the securities loaned. Borrowing. Each of the Portfolios may, under certain circumstances, borrow money directly or through reverse repurchase agreements (arrangements in which the Portfolio sells a money market instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities. The Cambridge Municipal Income Portfolio may borrow up to 5% of its total assets and may pledge up to 10% of the value of those assets to secure such borrowings. Under certain circumstances, each remaining Portfolio may borrow up to one-third of the value of its net assets and pledge up to 10% of the value of those assets to secure such borrowings. Put and Call Options. Each of the Portfolios, except the Cambridge Municipal Income Portfolio and Cambridge Income and Growth Portfolio, may purchase put and call options on its portfolio securities. However, the Cambridge Growth Portfolio will only invest in options that are traded on securities exchanges and for which it pays a premium (cost of option). Put and call options will be used as a hedge to attempt to protect securities which the particular Portfolio holds, or will be purchasing, against decreases or increases in value. Each of the Portfolios, except the Cambridge Growth Portfolio and Cambridge Income and Growth Portfolio, may also write (sell) put and call options on all or any portion of its portfolio to generate income or enhance potential gain. The Portfolios will write call options on securities either held in their portfolios or for which they have the right to obtain without payment of further consideration or for which they have segregated cash in the amount of any additional consideration. In the case of put options written by the Portfolios, the Trust's custodian will segregate cash, U.S. Treasury obligations, or highly liquid debt securities with a value equal to or greater than the exercise price of the underlying securities. Each of the Portfolios, except the Cambridge Growth Portfolio and Cambridge Income and Growth Portfolio, may generally purchase and write over-the-counter options on portfolio securities in negotiated transactions with the buyers or writers of the options since options on the portfolio securities held by the Portfolios are not traded on an exchange. The Portfolios purchase and write options only with investment dealers and other financial institutions (such as commercial banks or savings and loan associations) deemed creditworthy by the particular Portfolio's Sub-Adviser. Over-the-counter options are two-party contracts with price and terms negotiated between buyer and seller. In contrast, exchange-traded options are third-party contracts with standardized strike prices and expiration dates and are purchased from a clearing corporation. Exchange-traded options have a continuous liquid market while over-the-counter options may not. Financial Futures and Options on Futures. Each Portfolio may purchase and sell financial futures contracts to hedge all or a portion of its portfolio against changes in interest rates or securities prices. Futures contracts on securities call for the delivery of particular debt instruments issued or guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of the U.S. government at a certain time in the future. The seller of the contract agrees to make delivery of the type of instrument called for in the contract, and the buyer agrees to take delivery of the instrument at the specified future time. A futures contract on a securities index does not involve the actual delivery of securities, but merely requires the payment of a cash settlement based on changes in the securities index. The Portfolios (except the Cambridge Income and Growth Portfolio) may write call options and purchase put options on financial futures contracts as a hedge to attempt to protect securities in each portfolio against decreases in value resulting from anticipated increases in market interest rates or broad declines in securities prices. When a Portfolio writes a call option on a futures contract, it is undertaking the obligation of selling the futures contract at a fixed price at any time during a specified period if the option is exercised. Conversely, as purchaser of a put option on a futures contract, a Portfolio is entitled (but not obligated) to sell a futures contract at the fixed price during the life of the option. The Portfolios (except the Cambridge Income and Growth Portfolio) may also write put options and purchase call options on financial futures contracts as a hedge against rising purchase prices of portfolio securities resulting from anticipated decreases in market interest rates or broad ascents in securities prices. The Portfolios will use these transactions to attempt to protect their ability to purchase portfolio securities in the future at price levels existing at the time it enters into the transactions. When a Portfolio writes a put option on a futures contract, it is undertaking to buy a particular futures contract at a fixed price at any time during a specified period if the option is exercised. As a purchaser of a call option on a futures contract, the Portfolio is entitled (but not obligated) to purchase a futures contract at a fixed price at any time during the life of the option. A Portfolio may not purchase or sell futures contracts or related options if immediately thereafter the sum of the amount of margin deposits on the Portfolio's existing futures positions and premiums paid for related options would exceed 5% of the market value of the Portfolio's total assets. When a Portfolio purchases futures contracts, an amount of cash and cash equivalents, equal to the underlying commodity value of the futures contracts (less any related margin deposits), will be deposited in a segregated account with the Trust's custodian to collateralize the position and thereby insure that the use of such futures contracts is unleveraged. When a Portfolio uses financial futures and options on financial futures as hedging devices, there is a risk that the prices of the securities subject to the futures contracts may not correlate perfectly with the prices of the securities in that Portfolio. This may cause the futures contract and any related options to react differently than the portfolio securities to market changes. In addition, the particular Sub-Adviser could be incorrect in its expectations about the direction or extent of market factors, such as interest rate or securities price movements. In these events, the Portfolio may lose money on the futures contract or option. It is not certain that a secondary market for positions in futures contracts or for options will exist at all times. Although the Sub-Adviser will consider liquidity before entering into options transactions, there is no assurance that a liquid secondary market on an exchange will exist for any particular futures contract or option at any particular time. A Portfolio's ability to establish and close out futures and options positions depends on this secondary market. Foreign Securities. The Cambridge Growth Portfolio, Cambridge Capital Growth Portfolio, and Cambridge Income and Growth Portfolio may invest in foreign securities. The Cambridge Growth Portfolio, Cambridge Capital Growth Portfolio, and Cambridge Income and Growth Portfolio will limit investments in foreign securities not publicly traded in the United States to less than 10%, 15%, and 10% of their total assets, respectively. Investments in foreign securities involve special risks that differ from those associated with investments in domestic securities. The risks associated with investments in foreign securities relate to political and economic developments abroad, as well as those that result from the differences between the regulation of domestic securities and issuers and foreign securities and issuers. These risks may include, but are not limited to, expropriation, confiscatory taxation, currency fluctuations, withholding taxes on interest, limitations on the use or transfer of Portfolio assets, political or social instability, ability to obtain or enforce court judgments abroad, and adverse diplomatic developments. Moreover, individual foreign economies may differ favorably or unfavorably from the domestic economy in such respects as growth of gross national product, the rate of inflation, capital reinvestment, resource self-sufficiency, and balance of payments position. Additional differences exist between investing in foreign and domestic securities. Examples of such differences include: less publicly available information about foreign issuers; credit risks associated with certain foreign governments; the lack of uniform financial accounting standards applicable to foreign issuers; less readily available market quotations on foreign issues; the likelihood that securities of foreign issuers may be less liquid or more volatile; generally higher foreign brokerage commissions; and unreliable mail service between countries. Currency Risks. Foreign securities are denominated in foreign currencies. Therefore, the value in U.S. dollars of the Portfolios" assets and income may be affected by changes in exchange rates and regulations. Although the Portfolios value their assets daily in U.S. dollars, they will not convert their holdings of foreign currencies to U.S. dollars daily. When a Portfolio converts its holdings to another currency, it may incur conversion costs. Foreign exchange dealers realize a profit on the difference between the prices at which they buy and sell currencies. The Cambridge Growth Portfolio, Cambridge Capital Growth Portfolio, and Cambridge Income and Growth Portfolio will engage in foreign currency exchange transactions in connection with their investments in foreign securities. These Portfolios will conduct their foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market or through forward contracts to purchase or sell foreign currencies. Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. These contracts are traded directly between currency traders (usually large commercial banks) and their customers. When a Portfolio enters into a contract for the purchase or sale of a security denominated in a foreign currency, it may want to establish the U.S. dollar cost or proceeds, as the case may be. By entering into a forward contract in U.S. dollars for the purchase or sale of the amount of foreign currency involved in an underlying security transaction, a Portfolio is able to protect itself against a possible loss between trade and settlement dates resulting from an adverse change in the relationship between the U.S. dollar and such foreign currency. However, this tends to limit potential gains which might result from a positive change in such currency relationships. A Portfolio will not enter into forward foreign currency exchange contracts or maintain a net exposure in such contracts where the Portfolio would be obligated to deliver an amount of foreign currency in excess of the value of the Portfolio's securities or other assets denominated in that currency or denominated in a currency or currencies that the Portfolio's Sub-Adviser believes will reflect a high degree of correlation with the currency with regard to price movements. The Portfolios generally do not enter into forward foreign currency exchange contracts with a term longer than one year. Restricted and Illiquid Securities. The Portfolios may invest up to 10% of their net assets in restricted securities. Restricted securities are any securities in which the Portfolios may otherwise invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities laws. The Portfolios will limit investments in illiquid securities, including over-the-counter options and certain municipal leases and certain restricted securities not determined by the Board of Trustees to be liquid under guidelines adopted by the Board of Trustees pursuant to Securities Act Rule 144A, to 15% of their net assets. Portfolio Turnover. The annual turnover rate of the Portfolios may vary from year to year and may also be affected by cash requirements for redemptions and repurchase of Portfolio shares and by the necessity of maintaining the Portfolios as regulated investment companies under the Internal Revenue Code, as amended, in order to receive certain favorable tax treatment. With respect to the Cambridge Government Income Portfolio, the Portfolio may trade or dispose of portfolio securities as considered necessary to meet its investment objective. Higher portfolio turnover involves correspondingly greater brokerage commissions and other transaction costs. For additional information concerning the Portfolios" investment policies and limitations, see the combined Statement of Additional Information. Net Asset Value Each Portfolio's net asset value per share fluctuates. The net asset value for Class A shares of each Portfolio is determined by adding the interest of Class A shares in the market value of all securities and other assets of the particular Portfolio, subtracting the interest of Class A shares in the liabilities of the particular Portfolio and those attributable to Class A shares, and dividing the remainder by the total number of Class A shares outstanding. Likewise, the net asset value for Class B shares of each Portfolio is determined by adding the interest of Class B shares in the market value of all securities and other assets of the particular Portfolio, subtracting the interest of Class B shares in the liabilities of the particular Portfolio and those attributable to Class B shares, and dividing the remainder by the total number of Class B shares outstanding. The net asset value for Class A shares will, from time to time, exceed that of Class B shares due to the variance in daily net income realized by each class of shares. Such variance will reflect only accrued net income to which the shareholders of a particular class are entitled. How to Buy Shares Class A and Class B shares of the Portfolios are sold on days on which the New York Stock Exchange is open for business. Class A and Class B shares of each Portfolio may be purchased through a financial institution which has a sales agreement with the Distributor. Each Portfolio reserves the right to reject any purchase request. Alternative Purchase Arrangements. Each Portfolio offers two classes of shares, Class A and Class B shares. The Class A shares of each Portfolio are sold at net asset value plus an applicable sales charge, except under the circumstances described in the section entitled "What Shares Cost," and generally are redeemed at net asset value. However, a CDSC may be imposed on the redemption of the Class A shares of each Portfolio under the circumstances described in the section entitled "Contingent Deferred Sales Charge." The Class B shares of each Portfolio are sold at net asset value and are redeemed at net asset value. However, a CDSC may be imposed on the redemption of Class B shares of each Portfolio under the circumstances described in the section entitled "Contingent Deferred Sales Charge." Class A and Class B shares represent identical interests in the Portfolios and have the same rights and are identical in all respects, except that Class B shares of each Portfolio will pay a distribution fee, which will cause the net income attributable to Class B shares and the dividends payable on the Class B shares to be reduced by the amount of the distribution fee and incremental expenses associated with the distribution fee. As a result, the net asset value of Class B shares of each Portfolio will be reduced by such amount to the extent that the particular Portfolio has undistributed net income. Sales personnel may receive different compensation for selling Class A and Class B shares of the Portfolios. Through a Financial Institution. An investor may call his financial institution (such as a broker/dealer or bank) to place an order to purchase shares of a particular Portfolio. Orders through a financial institution are considered received when the Distributor is notified of the purchase order. Purchase orders through a registered broker/dealer must be received by the broker/dealer before 4:00 p.m. (Eastern time) and must be transmitted by the broker/dealer to the Distributor before 5:00 p.m. (Eastern time) in order for shares to be purchased at that day's price. Purchase orders through other types of financial institutions must be received by the financial institution and transmitted to the particular Portfolio before 4:00 p.m. (Eastern time) in order for shares to be purchased at that day's price. It is the financial institution's responsibility to transmit orders promptly. Investors who have previously opened an account with the Trust through a financial institution may purchase additional shares by mail or by Federal Reserve wire. To make such purchases, an investor should contact his financial institution for instructions. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and other financial institutions may be required to register as dealers pursuant to state law. Minimum Investment Required The minimum initial investment in Class A and Class B shares of each Portfolio is $1,000, unless the investment is in a retirement plan, in which case the minimum initial investment is $250. The minimum initial investment may be waived for shareholders purchasing shares pursuant to the Systematic Investment Program. Subsequent investments must be in amounts of at least $100, except for retirement plans, which must be in amounts of $50. The minimum initial investment may be waived for Trustees, emeritus trustees, employees and retired employees of the Trust, or directors, emeritus directors, employees and retired employees of the Distributor or affiliates thereof. What Shares Cost Class A Shares. Class A shares of the Cambridge Growth Portfolio, Cambridge Capital Growth Portfolio, and Cambridge Income and Growth Portfolio are sold at their net asset value next determined after an order is received plus a sales charge as follows: Sales Charge Sales Charge as a Percentage as a Percentage of Public of Net Amount Offering Price Invested Dealer Commission Less than $50,000. . . . . . . . . 5.50% 5.82% 4.75% $50,000 but less than $100,000 . . 4.75% 4.99% 4.00% $100,000 but less than $250,000. . 3.75% 3.90% 3.00% $250,000 but less than $500,000. . 3.00% 3.09% 2.50% $500,000 but less than $1 million. 2.00% 2.04% 1.75% $1 million or more . . . . . . . . 0% 0% (see below)
Commissions will be paid to dealers who initiate and are responsible for purchases as set forth in the Statement of Additional Information. Class A shares of the Cambridge Government Income Portfolio and Cambridge Municipal Income Portfolio are sold at their net asset value next determined after an order is received plus a sales charge as follows: Sales Charge Sales Charge as a Percentage as a Percentage of Public of Net Amount Offering Price Invested Dealer Commission Less than $100,000 . . . . . . 4.75% 4.99% 4.00% $100,000 but less than $250,000 4.00% 4.17% 3.25% $250,000 but less than $500,000 3.00% 3.09% 2.50% $500,000 but less than $1 million 2.00% 2.04% 1.75% $1 million or more . . . . . . 0% 0% (see below)
Commissions will be paid to dealers who initiate and are responsible for purchases as set forth in the Statement of Additional Information. Under certain circumstances described under the section entitled "Redeeming Shares," shareholders may be charged a CDSC by the Distributor at the time Class A shares are redeemed. The Distributor, the Investment Adviser, or certain Sub-Advisers, or affiliates thereof, at their own expense and out of their own assets, may also provide other compensation to dealers in connection with sales of shares of the Portfolios. Compensation may also include, but is not limited to, financial assistance to dealers in connection with conferences, sales, or training programs for their employees, seminars for the public, advertising or sales campaigns, or other dealer-sponsored special events. In some instances, this compensation may be made available only to certain dealers whose representatives have sold or are expected to sell significant amounts of shares. Dealers may not use sales of the Trust's shares to qualify for this compensation to the extent such may be prohibited by the laws of any state or any self-regulatory agency, such as the National Association of Securities Dealers, Inc. None of the aforementioned other compensation shall be paid for by the Trust or its shareholders. Class B Shares. Class B shares of each Portfolio may be purchased at their net asset value next determined after an order is received, without the imposition of a sales charge. Class B shares will be subject to ongoing distribution fees as described in the section entitled "Distribution Plan." Under certain circumstances described under the section entitled "Redeeming Shares," shareholders may be charged a CDSC by the Distributor at the time Class B shares are redeemed. When Net Asset Value is Determined The net asset value of Class A and Class B shares of each Portfolio is determined as of 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of a Portfolio's securities that its net asset value might be materially affected; (ii) days during which no shares are tendered for redemption and no orders to purchase shares are received; and (iii) days on which the New York Stock Exchange is closed. Purchases at Net Asset Value Class A shares of the Portfolios may be purchased at their net asset value with no sales charge by advisory accounts through investment advisers registered under the Investment Advisers Act of 1940 or by bank trust departments purchasing on behalf of their clients. Trustees, emeritus trustees, employees, and retired employees of the Trust, or directors, emeritus directors, employees, or retired employees of the Distributor or affiliates thereof, or any financial institution who has a sales agreement with the Distributor with regard to the Trust, and their spouses and children under age 21 may also buy Class A shares at net asset value with no sales charge. Reducing the Sales Charge for Class A Shares The sales charge imposed on purchases of Class A shares of the Portfolios can be reduced through: . quantity discounts and accumulated purchases; . signing a 13-month letter of intent; . using the reinvestment privilege; or . concurrent purchases. Quantity Discounts and Accumulated Purchases. As shown in the sales charge tables, larger purchases reduce the sales charge paid. The Distributor will combine purchases of Class A shares made on the same day by the investor, his spouse, and his children under age 21 when the sales charge is calculated. If an additional purchase of Class A shares of a Portfolio is made, the Distributor will consider the previous purchases still invested in the Portfolios. For example, if a shareholder already owns Class A shares of one or more of the Portfolios having a current value of $40,000 and he purchases $10,000 or more of Class A shares of the Cambridge Growth Portfolio at the current offering price, the sales charge on the additional purchase of Class A shares according to the schedule now in effect would be 4.75%, not 5.50%. To receive the sales charge reduction, Cambridge Distributors, Inc., must be notified by the shareholder in writing, or by his financial institution at the time that the purchase is made, that Class A shares of one or more of the Portfolios are already owned or that purchases are being combined. The particular Portfolio will reduce the sales charge after it confirms the purchases. Letter of Intent. If an investor intends to purchase at least $50,000 of Class A shares of one or more Portfolios within a 13-month period, the sales charge may be reduced by signing a letter of intent to that effect. The size of the reduction will depend upon the sales schedule applicable to the particular Portfolios. This letter of intent includes a provision for a sales charge adjustment, depending upon the amount actually purchased within the 13-month period, and a provision for the custodian to hold 5.50% or 4.75%, as the case may be, of the total amount intended to be purchased in escrow (in Class A shares) until such purchase is completed. The amount held in escrow will be applied to the shareholder's account at the end of the 13-month period unless the amount specified in the letter of intent is not purchased. In this event, an appropriate number of escrowed Class A shares may be redeemed in order to realize the difference in the sales charge. This letter of intent will not obligate the shareholder to purchase Class A shares, but if he does, each purchase during the period will be at the sales charge applicable to the total amount intended to be purchased. The letter of intent may be dated as of a prior date to include any purchases made within the past 90 days. Reinvestment Privilege. If Class A shares of any of the Portfolios have been redeemed, the shareholder has a one-time right, within 60 days, to reinvest the redemption proceeds at the next-determined net asset value without any sales charge. Cambridge Distributors, Inc., must be notified by the shareholder in writing or by his financial institution of the reinvestment in order to eliminate a sales charge. If the shareholder redeems his shares in any of the Portfolios, there may be tax consequences. Concurrent Purchases. For purposes of qualifying for a sales charge reduction, a shareholder has the privilege of combining concurrent purchases of Class A shares of two or more Portfolios, the purchase price of which includes a sales charge. For example, if a shareholder concurrently invested $70,000 in Class A shares of Cambridge Government Income Portfolio and $40,000 in Class A shares of the Cambridge Growth Portfolio, the sales charge imposed upon the purchase of Class A shares of both Portfolios would be reduced in accordance with those schedules now in effect; that is, the shareholder would pay a sales charge of 4.00% on the purchase of Cambridge Government Income Portfolio shares and 3.75% on the purchase of Cambridge Growth Portfolio shares. To receive this reduction on the sales charge, the Distributor must be notified by the shareholder in writing or by his financial institution at the time the concurrent purchases are made. The particular Portfolio or Portfolios will reduce the sales charge after it confirms the purchases. Systematic Investment Program Once an account with a Portfolio has been opened, shareholders may add to their investment in that Portfolio on a regular basis in a minimum amount of $100. Under the program, funds may be automatically withdrawn periodically from the shareholder's checking account and invested in additional shares of the particular Portfolio at the net asset value next determined after an order is received by the Distributor, plus the applicable sales charge imposed upon purchases of Class A shares. A shareholder may apply for participation in this program through his financial institution. However, a shareholder may purchase only the same class of shares under this program as that held in the existing account. Thus, for example, a shareholder who has an account in Class A shares of a Portfolio may only purchase Class A shares of that Portfolio under this program. Certificates and Confirmations As transfer agent for the Portfolios, The Shareholder Services Group, Inc. ("TSSG"), maintains a share account for each shareholder. Share certificates are not issued unless requested in writing to TSSG. Detailed confirmations of each purchase, redemption, and distribution are sent to each shareholder. Dividends Dividends, if any, are declared daily and paid monthly to all shareholders invested in the Cambridge Government Income Portfolio and the Cambridge Municipal Income Portfolio on the record date. Any dividends for the Cambridge Income and Growth Portfolio are declared and paid quarterly to all shareholders invested in the Cambridge Income and Growth Portfolio on the record date. Dividends, if any, are declared and paid semi-annually to all shareholders invested in the Cambridge Capital Growth Portfolio on the record date, and dividends, if any, are declared and paid annually to all shareholders invested in the Cambridge Growth Portfolio on the record date. Dividends will be reinvested in additional shares of the same class and Portfolio on payment dates at the ex-dividend date net asset value without a sales charge unless cash payments are requested by shareholders in writing to the Trust. Capital Gains Capital gains realized by each Portfolio, if any, will be distributed at least once every 12 months. Retirement Plans Class A and Class B shares of the Portfolios can be purchased as an investment for retirement plans or for IRA accounts. For further details, including prototype retirement plans, contact the Portfolios and consult a tax adviser. Exchange Privilege Class A shares in each Portfolio may be exchanged for Class A shares in the other Portfolios at net asset value without a sales charge or a CDSC. Class B shares in each Portfolio may be exchanged for Class B shares in the other Portfolios at net asset value without a sales charge or a CDSC. Shares in the Cash Equivalent Fund, which includes the Money Market Portfolio, Government Securities Portfolio, and Tax-Exempt Portfolio, may be exchanged for Class A shares in each Portfolio at net asset value without a sales charge or CDSC, so long as the transferred shares have previously paid a sales charge with respect to Class A shares of the Portfolios (unless not applicable under the circumstances), and shares of the Cash Equivalent Fund may be exchanged for Class B shares in each Portfolio at net asset value without a CDSC. In addition, Class A and Class B shares of the Portfolios may be exchanged into shares of the Cash Equivalent Fund at net asset value without a sales charge or CDSC. If a shareholder making such an exchange qualifies for an elimination of the sales charge with respect to Class A shares of the Portfolios, Cambridge Distributors, Inc., must be notified in writing by the shareholder or his financial institution. Requirements for Exchange. Shareholders using this privilege must exchange shares having a net asset value of at least $1,000. Before the exchange, the shareholder must receive a prospectus of the Portfolio for which the exchange is being made. This privilege is available to shareholders resident in any state in which Class A or Class B shares of the Portfolio being acquired may be sold. Upon receipt of proper instructions and required supporting documents, shares submitted for exchange are redeemed and the proceeds invested in shares of the other Portfolio. The exchange privilege may be modified or terminated at any time. Shareholders will be notified of the modification or termination of the exchange privilege. Further information on the exchange privilege is available and the prospectus for the Cash Equivalent Fund may be obtained by calling 1-800-382-0016. Tax Consequences. An exercise of the exchange privilege is treated as a sale for federal income tax purposes. Depending on the circumstances, a short-term or long-term capital gain or loss may be realized. Making an Exchange. Instructions for exchanges may be given in writing or by telephone. Written instructions require a signature guarantee. Shareholders may have difficulty in making exchanges by telephone through brokers and other financial institutions during times of drastic economic or market changes. If a shareholder cannot contact his broker or other financial institution by telephone, it is recommended that an exchange request be made in writing and sent by overnight mail to Cambridge Family of Funds, c/o TSSG, One American Express Plaza, Providence, RI 02903. Telephone Instructions. Telephone instructions made by the investor may be carried out only if a telephone authorization form is completed by the investor and is on file with TSSG. If the instructions are given by a broker, a telephone authorization form completed by the broker must be on file with TSSG. Shares may be exchanged between two Portfolios by telephone only if both Portfolios have identical shareholder registrations. Any shares held in certificate form cannot be exchanged by telephone but must be forwarded to TSSG and deposited to the shareholder's account before being exchanged. Telephone exchange instructions may be recorded. Such instructions will be processed as of 4:00 p.m. (Eastern time) and must be received by the Distributor before that time for shares to be exchanged the same day. Shareholders exchanging into a Portfolio will not receive any dividend that is payable to shareholders of record on that date. This privilege may be modified or terminated at any time. If reasonable procedures are not followed by the Portfolios, they may be liable for losses due to unauthorized or fraudulent telephone instructions. Redeeming Shares Each Portfolio redeems Class A and Class B shares at their net asset value next determined, less the applicable CDSC as described below, after TSSG receives the redemption request. Redemptions will be made on days on which each Portfolio computes its net asset value. Redemptions can be made through a financial institution or directly from each Portfolio. Redemption requests must be received in proper form. Contingent Deferred Sales Charge Class A Shares. Shareholders who purchased Class A shares of the Portfolios at net asset value (without a sales charge) with the proceeds from the redemption, sale, or maturity of other investments will be charged a CDSC by the Distributor of 1.00% for redemptions made within four years from the date of purchase of Class A shares. Also, as of the date of this prospectus, shareholders who purchase or who have purchased $1 million or more of the Class A shares of any Portfolio at net asset value, without a sales charge, will be subject to a CDSC by the Distributor of 1.00% for redemptions of such Class A shares made within one year from the date of purchase. (For those shareholders who purchased $1 million or more of the Class A shares of any Portfolio at net asset value, without a sales charge, prior to the date of this prospectus, the previous four-year redemption period will be waived and such shareholders will now only be subject to the one-year redemption period.) The CDSC will be calculated based upon the lesser of the original purchase price of the Class A shares being redeemed or the net asset value of those shares when redeemed. The CDSC will not be imposed on Class A shares acquired through reinvestment of dividends or distributions of long-term capital gains. Redemptions are deemed to have occurred in the following order: (1) Class A shares acquired through the reinvestment of dividends and long-term capital gains; (2) purchases of Class A shares occurring more than four years before the date of redemption; (3) purchases of $1 million or more of Class A shares occurring more than one year before the date of redemption; (4) purchases of Class A shares within the previous four years without the use of redemption proceeds as described above; (5) purchases of Class A shares within the previous one year through the use of redemption proceeds as described above; and (6) purchases of $1 million or more of Class A shares within the previous year without a sales charge. No CDSC will be imposed when a redemption results from a total or partial distribution from a qualified retirement plan, IRA, Keogh Plan, or a custodial account following retirement, attainment of age 59 1/2, separation from service (except for an IRA), or results from the death or permanent and total disability of the beneficial owner. Also, no CDSC will be imposed in connection with involuntary redemptions by the Portfolios of accounts with low balances (see "Accounts with Low Balances" below) or with respect to Class A shares purchased under the circumstances described in the section entitled "Purchases at Net Asset Value." Class B Shares. Shareholders who purchased Class B shares will be charged a CDSC by the Distributor of 1.00% for redemptions of Class B shares made within one year from the date of purchase. The CDSC will be calculated based upon the lesser of the original purchase price of the Class B shares or the net asset value of the Class B shares when redeemed. The CDSC will not be imposed on Class B shares acquired through reinvestment of dividends or distributions of long-term capital gains. Redemptions are deemed to have occurred in the following order: (1) Class B shares acquired through the reinvestment of dividends and long-term capital gains; (2) purchases of Class B shares occurring more than one year before the date of redemption; and (3) purchases of Class B shares within the previous year. No CDSC will be imposed when a redemption results from the total or partial distribution from a qualified retirement plan, IRA, Keogh Plan, or a custodial account following retirement, attainment of age 59 1/2, separation from service (except for an IRA), or the death or permanent and total disability of the beneficial owner. Additionally, no CDSC will be charged in connection with redemptions by the Portfolios of accounts with low balances (see "Accounts with Low Balances" below). Through a Financial Institution A shareholder may redeem Class A or Class B shares of the Portfolios by calling his financial institution (such as a broker/dealer or a bank) to request the redemption. Class A and Class B shares of the Portfolios will be redeemed at the net asset value next determined, less the applicable CDSC, after the particular Portfolio receives the redemption request from the financial institution. The financial institution is responsible for promptly submitting redemption requests and providing proper written redemption instructions to the particular Portfolio. The financial institution may charge customary fees and commissions for this service. Redemption requests through a registered broker/dealer must be received by the broker/dealer before 4:00 p.m. (Eastern time) and must be transmitted by the broker/dealer to the particular Portfolio before 5:00 p.m. (Eastern time) in order for Class A and Class B shares to be redeemed at that day's net asset value. Redemption requests through other financial institutions must be received by the financial institution and transmitted to the particular Portfolio before 4:00 p.m. (Eastern time) in order for Class A and Class B shares to be redeemed at that day's net asset value. Directly from the Portfolios By Telephone. Shareholders may redeem their Class A and Class B shares of the Portfolios by calling 1-800-382-0016. The proceeds will be mailed to the shareholder's address of record or wire transferred to the shareholder's account at a domestic commercial bank that is a member of the Federal Reserve System, normally within one business day, but in no event longer than seven days after receipt of the request. The minimum amount for a wire transfer is $1,000. Each wire transfer may be subject to a fee of $10; additional fees may be charged by the recipient's financial institution or bank. If at any time the Trust shall determine it is necessary to terminate or modify this method of redemption, shareholders will be promptly notified. An authorization form permitting TSSG to accept telephone requests must first be completed. Authorization forms and information on this service are available from Cambridge Distributors, Inc. Telephone redemption instructions may be recorded. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption, such as redeeming by mail, should be considered. If reasonable procedures are not followed by the Portfolios, they may be liable for losses due to unauthorized or fraudulent telephone instructions. By Mail. Any shareholder may redeem Class A or Class B shares of the Portfolios by sending a written request to Cambridge Family of Funds, c/o TSSG, One American Express Plaza, Providence, RI 02903. The written request should include the shareholder's name, the name of the particular Portfolio from which Class A or Class B shares are being redeemed, the account number, and the share or dollar amount requested. If Class A or Class B share certificates have been issued, they must be properly endorsed and should be sent by registered or certified mail with the written request. Shareholders should call 1-800-382-0016 for assistance in redeeming by mail. Shareholders requesting a redemption of $50,000 or more, a redemption of any amount to be sent to an address other than that on record with the particular Portfolio, or a redemption payable other than to the shareholder of record must have signatures on written redemption requests guaranteed by: . a trust company or commercial bank whose deposits are insured by the Bank Insurance Fund ("BIF"), which is administered by the Federal Deposit Insurance Corporation ("FDIC"); . a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; . a savings bank or savings and loan association whose deposits are insured by the Savings Association Insurance Fund ("SAIF"), which is administered by the FDIC; or . any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Portfolios do not accept signatures guaranteed by a notary public. The Trust and its transfer agent have adopted standards for accepting signature guarantees from the above institutions. The Trust may elect in the future to limit eligible signature guarantors to institutions that are members of a signature guarantee program. The Trust and its transfer agent reserve the right to amend these standards at any time without notice. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. Redemptions Before Purchase Instruments Clear When Class A or Class B shares are purchased by check or through the Pre-Authorized Check ("PAC"), the proceeds from the redemption of those shares are not available, and those shares may not be exchanged, until TSSG is reasonably certain that the purchase check has cleared, which could take up to ten calendar days. Systematic Withdrawal Program Shareholders who desire to receive payments of a predetermined amount not less than $100 may take advantage of the Systematic Withdrawal Program. Under this program, Class A and Class B shares of the Portfolios are redeemed to provide for periodic withdrawal payments in an amount directed by the shareholder. However, the aggregate withdrawals of Class B shares in any year are not subject to a CDSC and are generally limited to 10% of the value of the shareholder's account at the time of the establishment of the Systematic Withdrawal Program. Depending upon the amount of the withdrawal payments, the amount of dividends paid and capital gains distributions with respect to Class A or Class B shares of the Portfolios, and the fluctuation of the net asset value of Class A or Class B shares redeemed under this program, redemptions may reduce, and eventually deplete, the shareholder's investment in the particular Portfolio. For this reason, payments under the program should not be considered as yield or income on the shareholder's investment in the particular Portfolio. To be eligible to participate in this program, a shareholder must have an initial account value in the particular Portfolio of at least $10,000. A shareholder may apply for participation in this program through Cambridge Distributors, Inc. Due to the fact that Class A shares are normally sold with a sales charge, it may not be advisable for shareholders to be purchasing Class A shares while participating in the program. Accounts with Low Balances Due to the high cost of maintaining accounts with low balances, the Portfolios may redeem Class A and Class B shares in any account, except for retirement plans, and pay the proceeds to the shareholder if the account balance falls below the required minimum value of $1,000. This requirement does not apply, however, if the balance falls below $1,000 because of changes in any particular Portfolio's net asset value. Before Class A or Class B shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional Class A or Class B shares, as the case may be, to meet the required minimum value of $1,000. Cambridge Series Trust Information General Information. The Trust, an open-end, management investment company, was established as a Massachusetts business trust on January 20, 1992. The Trust's Declaration of Trust permits the Trust to offer separate series of shares of beneficial interest representing interests in separate Portfolios. The shares in any one Portfolio may be offered in separate classes. As of the date of the prospectus, the Board of Trustees of the Trust has established five Portfolios, each with two classes of shares, Class A and Class B shares. Board of Trustees. The Trust is managed by a Board of Trustees. The Trustees are responsible for managing the Trust's business affairs and for exercising all the Trust's powers, except those reserved for the shareholders. The Executive Committee of the Board of Trustees handles the Board's responsibilities between meetings of the Board. Investment Management of the Trust Investment Adviser The Trust is managed by Cambridge Investment Advisors, Inc. (the "Investment Adviser"), pursuant to an investment advisory agreement (the "Investment Advisory Agreement") with the Trust. The Investment Adviser, in turn, has entered into a sub-advisory agreement (the "Sub-Advisory Agreement") with each sub-adviser selected for the Portfolios (the "Sub-Adviser" or "Sub-Advisers"). It is the Investment Adviser's responsibility to select, subject to review and approval by the Trust's Board of Trustees, the Sub-Advisers for each of its Portfolios who have distinguished themselves in their respective areas of expertise in asset management and to review their continued performance. Subject to the supervision and direction of the Board of Trustees, the Investment Adviser provides investment management evaluation services principally by performing initial due diligence on the prospective Sub-Adviser for each Portfolio and thereafter monitoring each Sub-Adviser's performance through quantitative and qualitative analysis, as well as periodic in-person, telephonic and written consultations with each Sub-Adviser. In evaluating prospective Sub-Advisers, the Investment Adviser considers, among other factors, each Sub-Adviser's level of expertise; relative performance and consistency of performance over a minimum period of five years; level of adherence to investment discipline or philosophy; personnel, facilities and financial strength; and quality of service and client communications. The Investment Adviser has responsibility for communicating performance expectations and evaluations to the Sub-Advisers and ultimately recommending to the Board of Trustees of the Trust whether each Sub-Adviser's contract should be renewed, modified, or terminated. The Investment Adviser provides written reports to the Board of Trustees regarding the results of its evaluation and monitoring functions. The Investment Adviser is also responsible for conducting all operations of the Trust, except those operations contracted to the Sub-Advisers, custodian, transfer agent, and administrator. Although each Sub-Adviser's activities are subject to oversight by the Board of Trustees and the officers of the Trust, neither the Board of Trustees, the officers, nor the Investment Adviser evaluates the investment merits of each Sub-Adviser's individual security selections. Investment Advisory Fees. The Investment Adviser receives an annual investment advisory fee from each Portfolio. For performing its responsibilities, the Investment Adviser receives an annual investment advisory fee not to exceed the following percentages of the average daily net assets of the particular Portfolio: Cambridge Growth Portfolio, 0.80%; Cambridge Capital Growth Portfolio, 0.80%; Cambridge Government Income Portfolio, 0.60%; Cambridge Municipal Income Portfolio, 0.60%; and Cambridge Income and Growth Portfolio, 0.75%. The advisory fee for the Cambridge Growth Portfolio, Cambridge Capital Growth Portfolio, and Cambridge Income and Growth Portfolio, while higher than the advisory fee paid by other mutual funds in general, is comparable to the advisory fees paid by many mutual funds with similar objectives and policies. Under the Investment Advisory Agreement, the Investment Adviser may, from time to time, voluntarily waive some or all of its investment advisory fee and may terminate any such voluntary waiver of some or all of its investment advisory fee at any time in its sole discretion. The Investment Adviser has undertaken to reimburse the respective Portfolios for a portion of the Portfolios" operating expenses in excess of limitations established by certain states. Investment Adviser's Profile. Cambridge Investment Advisors, Inc., located at 901 East Byrd Street, Richmond, Virginia 23219, serves as the Trust's Investment Adviser. It is a wholly-owned subsidiary of Investment Management Group, Inc., which, in turn, is a wholly-owned subsidiary of WFS Financial Corporation, Inc., a diversified financial services holding company. The Investment Adviser was incorporated under the laws of Virginia in 1991. Although prior to 1992 the Investment Adviser had not managed mutual funds, it has employed a group of Sub-Advisers which together have over 185 years of investment experience and currently manage or supervise in excess of $210 billion on behalf of over 10.5 million shareholders or client accounts. The Sub-Advisers As discussed below under the section entitled "Sub-Advisers" Profiles," each Portfolio has a separate Sub-Adviser. Each Sub-Adviser has complete discretion to purchase, manage, and sell portfolio securities for the Portfolio to which it serves as Sub-Adviser within the particular Portfolio's investment objectives, restrictions, and policies. Sub-Advisory Fees. The Investment Adviser pays each Sub-Adviser an annual fee not to exceed the following percentage of Portfolio assets: Cambridge Growth Portfolio, 0.40%; Cambridge Capital Growth Portfolio, 0.40%; Cambridge Government Income Portfolio, 0.30%; and Cambridge Municipal Income Portfolio, 0.30%. The Sub-Adviser to the Cambridge Income and Growth Portfolio receives from the Investment Adviser an annual fee expressed as a percentage of that Portfolio's assets as follows: 0.325% on the first $50 million in Portfolio assets, 0.275% on the next $150 million in assets, 0.225% on the next $300 million in assets, and 0.200% on assets over $500 million. No performance or incentive fees are paid to the Sub-Advisers. Under certain Sub-Advisory Agreements, the particular Sub-Adviser may, from time to time, voluntarily waive some or all of its sub-advisory fee charged to the Investment Adviser and may terminate any such voluntary waiver at any time in its sole discretion. Sub-Advisers' Profiles Cambridge Growth Portfolio. Under the terms of a Sub-Advisory Agreement between Kemper Financial Services, Inc. ("KFS"), and the Investment Adviser, KFS serves as the Sub-Adviser to the Cambridge Growth Portfolio. KFS is located at 120 South LaSalle Street, Chicago, Illinois 60603, and is a majority-owned subsidiary of Kemper Corporation, a diversified insurance and financial services holding company. KFS is one of the largest investment managers in the country. KFS has been engaged in the management of investment funds for more than 40 years. In addition to serving as Sub-Adviser for the Cambridge Growth Portfolio, KFS and its affiliates provide investment advice and manage investment portfolios for the Kemper Insurance Companies, The Kemper Funds, and other corporate, pension, profit sharing and individual accounts and acts as investment adviser or principal underwriter for 25 open-end and 6 closed-end investment companies with 58 separate investment portfolios, representing more than 3.3 million shareholder accounts. Total assets under management by KFS and its affiliates are approximately $70 billion. Stephen E. Lewis has been co-manager of the Cambridge Growth Portfolio since 1992. Mr. Lewis joined Kemper Financial Services in 1971 and is currently a Senior Vice President of the firm. He has served as co-portfolio manager of the Kemper Growth Fund since 1991; previously, he had been Director of Equity Research since 1987. Mr. Lewis is a Chartered Financial Analyst and received his M.B.A. from the Wharton Graduate Division of the University of Pennsylvania. Michael K. Arends has been co-manager of the Cambridge Growth Portfolio since 1992. Mr. Arends joined Kemper Financial Services in 1983, and is currently First Vice President of the firm. He has served as co-portfolio manager of the Kemper Growth Fund since 1991; previously, he had been Associate Director of Research from 1987 through 1991. Mr. Arends is a Chartered Financial Analyst and Certified Public Accountant and received his M.B.A. from Indiana University. Cambridge Capital Growth Portfolio. Under the terms of a Sub-Advisory Agreement between Phoenix Investment Counsel, Inc. ("PIC"), and the Investment Adviser, PIC serves as the Sub-Adviser to the Cambridge Capital Growth Portfolio. PIC is located at One American Row, Hartford, Connecticut 06115-2520. PIC was originally organized in 1932 as John P. Chase, Inc., and has been engaged in the management of mutual funds since 1958. Total assets under management by PIC are currently $10 billion. All of the outstanding stock of PIC is owned by Phoenix Equity Planning Corporation ("Equity Planning"), an indirect subsidiary of Phoenix Home Life Mutual Insurance Company ("Phoenix Home Life") of Hartford, Connecticut. Phoenix Home Life is in the business of writing ordinary and group life and health insurance and annuities. Its principal offices are located at One American Row, Hartford, Connecticut 06115. Equity Planning is registered as a broker/dealer in 50 states and has its principal offices at 100 Bright Meadow Boulevard, P.O. Box 2200, Enfield, Connecticut 06083-2200. Catherine Dudley has been the portfolio manager of the Cambridge Capital Growth Portfolio since its inception in 1992. Ms. Dudley joined Phoenix Investment Counsel in 1985 and has been a Vice President since 1990. Ms. Dudley is a Chartered Financial Analyst and received B.A.s in Economics and German from the University of Connecticut. Cambridge Government Income Portfolio. Under the terms of an interim Sub-Advisory Agreement between PIMCO and the Investment Adviser, PIMCO serves as Sub-Adviser to the Cambridge Government Income Portfolio. The terms of this agreement, including compensation, are identical to those of the previous sub-advisory agreement between Federated Advisers and the Trust, except that the agreement will terminate upon the earlier to occur of (1) 120 days from commencement of the agreement or (2) final adjournment of the meeting of the shareholders of the Cambridge Government Income Portfolio held for the purpose of approving a new advisory agreement with PIMCO. It is currently anticipated that this shareholders meeting will be held during the first quarter of 1994. PIMCO, established in 1971, provides investment advisory services to investment companies, pension plans, foundations, endowments and other institutions located both in the U.S. and abroad. As of November 30, 1993, PIMCO had over $52.6 billion of assets under management, of which approximately $26.0 billion were invested in U.S. Government securities. PIMCO, a wholly owned subsidiary of Pacific Mutual Life Insurance Company, is located at 840 Newport Center Drive, Suite 360, Newport Beach, California 92660. David H. Edington serves as the portfolio manager of the Cambridge Government Income Portfolio. An Executive Vice President of PIMCO, Mr. Edington joined the firm in 1987. He received a Bachelor's degree in Engineering from the California Polytechnic State University and a Master's degree in Management from the Sloan School of Management at M.I.T. Cambridge Municipal Income Portfolio. Under the terms of a Sub-Advisory Agreement between Van Kampen Merritt Management Inc. ("VKMMI") and the Investment Adviser, VKMMI serves as the Sub-Adviser to the Cambridge Municipal Income Portfolio. VKMMI, located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181, was incorporated in 1990 and commenced operations in 1992. VKMMI currently provides investment advice to a wide variety of individual, institutional, and investment company clients. VKMMI is a wholly-owned subsidiary of The Van Kampen Merritt Companies, Inc., which, in turn, is a wholly-owned subsidiary of VKM Holding, Inc. VKM Holding, Inc., is indirectly controlled by Clayton & Dubilier Associates IV Limited Partnership, the general partners of which are Joseph L. Rice, III, B. Charles Ames, Alberto Cribiore, Donald J. Gogel, and Hubbard C. Howe, each of whom is a principal of Clayton, Dubilier & Rice, Inc., a New York-based private investment firm. The current Sub-Advisory Agreement between VKMMI and the Investment Adviser was approved by shareholders of the Portfolio on February 5, 1993. On February 17, 1993, the Sub-Advisory Agreement between the Portfolios" previous sub-adviser, Van Kampen Merritt Investment Advisory Corp. ("Advisory Corp."), and the Investment Adviser terminated. The rate of the sub-advisory fee to be paid to VKMMI under the current Sub-Advisory Agreement is identical to that paid to Advisory Corp. under the former Sub-Advisory Agreement, and the terms of the two contracts are substantially identical. VKMMI is staffed by personnel formerly employed by Advisory Corp. and continues to use the resources of Advisory Corp. in managing client accounts. As of June 30, 1993, VKMMI, together with Advisory Corp., managed or supervised approximately $37.5 billion of assets. David C. Johnson has been co-manager of the Cambridge Municipal Income Portfolio since 1992. Mr. Johnson joined Van Kampen Merritt in 1989, and is currently First Vice President of the firm. He has served as portfolio manager of the VKM Municipal Income Portfolio since 1989 and is responsible for the municipal fund desk. He was previously associated with The Chicago Corporation, where he marketed financial futures and options. Mr. Johnson received his M.B.A. from Loyola University. William V. Grady has been co-manager of the Cambridge Municipal Income Portfolio since 1992. Mr. Grady is Vice President of Van Kampen Merritt, which he joined in 1992. He is portfolio manager for several national and speciality state funds. He was previously associated with Municipal Bond Investors Assurance Corporation where he structured insured tax-exempt financings for two years, and was employed by CIGNA Investments Inc. from 1984-1990 as a portfolio manager and research analyst. Mr. Grady is a Chartered Financial Analyst, and received his B.B.A. in Finance from the University of Notre Dame. Cambridge Income and Growth Portfolio. The Investment Adviser employs Wellington Management Company ("WMC") to manage the investment and reinvestment of the assets of the Cambridge Income and Growth Portfolio and to continuously review, supervise, and administer the Portfolio's investment program. WMC, located at 75 State Street, Boston, Massachusetts 02109, is a professional investment counseling firm which provides investment services to investment companies, employee benefit plans, endowments, foundations, and other institutions and individuals. As of September 30, 1993, WMC had discretionary investment management authority with respect to approximately $80.0 billion in assets. WMC and its predecessor organizations have provided investment advisory services to investment companies since 1933 and to investment counseling clients since 1960. Paul D. Kaplan, Senior Vice President of WMC, and Arnold C. Schneider III, Senior Vice President of WMC, have served as portfolio managers to the Portfolio since its inception in May 1993, when WMC became Sub-Adviser to the Portfolio. Mr. Kaplan manages the fixed-income and U.S. government securities portion of the Portfolio, and Mr. Schneider manages the equity securities portion of the Portfolio. Mr. Kaplan has been a portfolio manager with WMC since 1982 and Mr. Schneider has been a portfolio manager with WMC since 1987. Distribution of Portfolio Shares Cambridge Distributors, Inc., having its principal office at 901 East Byrd Street, Richmond, Virginia 23219, is the principal distributor for Class A and Class B shares of the Portfolios. Cambridge Distributors, Inc., is a Virginia corporation organized on December 24, 1991, and is an affiliate of the Investment Adviser. Federated Securities Corp., located at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, acts as co-distributor for Class A and Class B shares of the Portfolios. In addition, Federated Securities Corp. provides certain marketing and distribution services. Federated Securities Corp. is an affiliate of the Sub-Adviser to the Cambridge Government Income Portfolio and of the Administrator. (Cambridge Distributors, Inc., and Federated Securities Corp. may be referred to collectively as the "Distributors" or individually as "Distributor.") Distribution Plan. Pursuant to the provisions of a distribution plan adopted in accordance with Rule 12b-1 under the Investment Company Act of 1940 (the "Plan"), Class B shares of the Cambridge Growth Portfolio, Cambridge Capital Growth Portfolio, and Cambridge Income and Growth Portfolio will pay an amount computed at an annual rate of 0.75% of the average daily net asset value of Class B shares of the particular Portfolio to finance any activity which is principally intended to result in the sale of those Class B shares. The Class B shares of the Cambridge Government Income Portfolio and the Cambridge Municipal Income Portfolio will pay an amount computed at an annual rate of 0.50% of the average daily net asset value of Class B shares of the particular Portfolio to finance any activity which is principally intended to result in the sale of those Class B shares. The Distributor may, from time to time and for such periods as it deems appropriate, voluntarily reduce its compensation under the Plan by notice to the Class B shareholders of a particular Portfolio. The Distributor may select financial institutions (such as a broker/dealer or bank) to provide sales support services as agents for their clients or customers who beneficially own Class B shares of the Portfolios. Financial institutions will receive fees from the Distributor based upon Class B shares owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the Distributor. The Plan is a compensation type plan. As such, the Portfolios make no payments to the Distributor except as described above. Therefore, the Portfolios do not pay for unreimbursed expenses of the Distributor, including amounts expended by the Distributor in excess of amounts received by it from the Portfolios, interest, carrying, or other financing charges in connection with excess amounts expended, or the Distributor's overhead expenses. However, the Distributor may be able to recover such amounts or may earn a profit from future payments made by the Portfolios under the Plan. Administration of the Trust Administrative Services. Cambridge Administrative Services (the "Administrator"), located at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, provides each Portfolio with certain administrative personnel and services necessary to operate each Portfolio, such as legal and accounting services. The Administrator provides these services at an annual rate of 0.125% on the first $1.5 billion of the average aggregate daily net assets of the Trust and 0.120% on assets in excess of $1.5 billion. The administrative fee received during any fiscal year shall aggregate at least 0.05% of average aggregate daily net assets plus $100,000 per Portfolio. The Administrator may voluntarily reimburse a portion of its administrative fee. Cambridge Administrative Services is a subsidiary of Federated Investors. Custodian, Transfer Agent, and Dividend Disbursing Agent. State Street Bank and Trust Company, P.O. Box 8602, Boston, Massachusetts 02266, is custodian for the securities and cash of each Portfolio. The Shareholder Services Group, Inc., P.O. Box 9653, Providence, Rhode Island 02940-9653, is transfer agent for Class A and Class B shares of the Portfolios and dividend disbursing agent for the Portfolios. Legal Counsel. Legal counsel is provided by Hunton & Williams, 951 East Byrd Street, Richmond, Virginia 23219-4074. Independent Auditors. The independent auditors for the Portfolios are KPMG Peat Marwick, One Boston Place, Boston, Massachusetts 02108. Brokerage Transactions When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, a Sub-Adviser looks for prompt execution of the order at the best overall terms available. In working with dealers, a Sub-Adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. In selecting among firms believed to meet these criteria, a Sub-Adviser may give consideration to those firms which have sold or are willing to sell shares of the Portfolios. A Sub-Adviser makes decisions on portfolio transactions and selects brokers and dealers subject to review by the Board of Trustees. Notwithstanding the foregoing, to the extent consistent with applicable provisions of the Investment Company Act of 1940, Rule 17e-1, and other rules and exemptions adopted by the Securities and Exchange Commission ("SEC") under that Act, the Board of Trustees of the Trust has determined that transactions for the Portfolios may be executed by affiliated brokers if, in the judgment of a Sub-Adviser, the use of an affiliated broker is likely to result in price and execution at least as favorable as those of other qualified brokers. Under rules adopted by the SEC, an affiliated broker may not execute transactions for a Portfolio on the floor of any national securities exchange, but may effect transactions by transmitting orders for execution, providing for clearance and settlement and arranging for the performance of the execution function by members of the exchange not associated with the affiliated broker. The broker will be required to pay fees charged by those persons performing the floor brokerage elements out of the brokerage compensation that it receives from a Portfolio. Shareholder Servicing Plan The Trust has adopted a Shareholder Servicing Plan (the "Service Plan") with respect to Class A and Class B shares of each Portfolio. Under the Service Plan, financial institutions will enter into shareholder service agreements with the Portfolios to provide administrative support services to their customers who from time to time may be owners of record or beneficial owners of Class A or Class B shares of one or more Portfolios. In return for providing these support services, a financial institution may receive payments from one or more Portfolios at a rate not exceeding 0.25% of the average daily net assets of the Class A or Class B shares of the particular Portfolio or Portfolios beneficially owned by the financial institution's customers for whom it is holder of record or with whom it has a servicing relationship. These administrative services may include, but are not limited to, the following functions: providing office space, equipment, telephone facilities, and various personnel, including clerical, supervisory, and computer, as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries regarding the Portfolios; assisting clients in changing dividend options, account designations, and addresses; and providing such other services as the Portfolios reasonably request. In addition to receiving payments under the Service Plan, financial institutions may be compensated by the Investment Adviser, a Sub-Adviser, and/or the Administrator, or affiliates thereof, for providing administrative support services to holders of Class A or Class B shares of the Portfolios. These payments will be made directly by the Investment Adviser, Sub-Adviser, and/or Administrator and will not be made from the assets of any of the Portfolios. Expenses of the Portfolios and the Class A and Class B Shares The holders of each class of shares pay their allocable portion of their respective Portfolio's expenses and the expenses of the Trust. The expenses of the Trust for which holders of Class A shares and Class B shares each pay their allocable portion include, but are not limited to: the cost of organizing the Trust and continuing its existence; registering the Trust; Trustees" fees; auditors" fees; the cost of meetings of the Trust; legal fees of the Trust; association membership dues; and such non-recurring and extraordinary items as may arise from time to time. Each Portfolio's expenses for which holders of Class A shares and Class B shares each pay their allocable portion include, but are not limited to: registering the Portfolio and Class A and Class B shares of the Portfolio; investment advisory services; taxes and commissions; custodian fees; insurance provisions; auditors" fees; and such non-recurring and extraordinary items as may arise from time to time. At present, the only expenses which are allocated specifically to Class A shares as a class are expenses under the Trust's Shareholder Servicing Plan, and the only expenses which are allocated specifically to Class B shares as a class are expenses under the Trust's Shareholder Servicing Plan and Rule 12b-1 Plan. However, the Board of Trustees reserves the right to allocate certain expenses to holders of Class A shares and Class B shares as it deems appropriate ("Class Expenses"). In any case, Class Expenses would be limited to: distribution fees; transfer agent fees as identified by the transfer agent as attributable to holders of Class A shares or Class B shares; fees under the Trust's Shareholder Servicing Plan; printing and postage expenses related to preparing and distributing materials such as shareholder reports, prospectuses, and proxies to current shareholders; registration fees paid to the SEC and to state securities commissions; expenses related to administrative personnel and services as required to support holders of Class A shares or Class B shares; legal fees relating solely to Class A shares or Class B shares; and Trustees" fees incurred as a result of issues relating solely to Class A shares or Class B shares. Shareholder Information Voting Rights Each Class A share and each Class B share of a Portfolio gives the shareholder one vote in Trustee elections and other matters submitted to shareholders of the Trust for vote. All shares of all classes of each Portfolio have equal voting rights, except that in matters affecting only a particular Portfolio or class, only shares of that Portfolio or class are entitled to vote. As a Massachusetts business trust, the Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust's or a Portfolio's operation and for the election of Trustees under certain circumstances. Trustees may be removed by a two-thirds vote of the number of Trustees prior to such removal or by a two-thirds vote of the shareholders at a special meeting. A special meeting of shareholders shall be called by the Trustees upon the written request of shareholders owning at least 10% of the Trust's outstanding shares of all series entitled to vote. Massachusetts Partnership Law Under certain circumstances, shareholders may be held personally liable under Massachusetts law for acts or obligations of the Trust on behalf of the Trust. To protect shareholders of the Portfolios, the Trust has filed legal documents with the state of Massachusetts that expressly disclaim the liability of shareholders of the Portfolios for such acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign on behalf of the Portfolios. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use the property of the Trust to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust cannot meet its obligations to indemnify shareholders and pay judgments against them from its assets. Tax Information General. The Portfolios do not anticipate having to pay federal income tax because each Portfolio expects to meet the requirements of the Internal Revenue Code, as amended, applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. Each Portfolio will be treated as a single, separate entity for federal income tax purposes so that income and losses (including capital gains and losses) realized by a Portfolio will not be combined for tax purposes with income and losses realized by any of the other Portfolios. Unless otherwise exempt, shareholders of the Portfolios, other than Cambridge Municipal Income Portfolio, which is discussed below, are required to pay federal income tax on any dividends and other distributions, including capital gains distributions, received. This applies whether dividends and distributions are received in cash or as additional shares. Distributions representing long-term capital gains, if any, will be taxable to shareholders as long-term capital gains irrespective of how long the shareholders have held the particular shares. No federal income tax is due on any dividends or any capital gain distributions earned in an IRA or qualified retirement plan or custodial account until distributed. Cambridge Municipal Income Portfolio. With respect to the Cambridge Municipal Income Portfolio, shareholders are not required to pay the federal regular income tax on any dividends received from the Portfolio that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on some municipal bonds may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The alternative minimum tax, equal to up to 28% of alternative minimum taxable income for individuals and 20% for corporations, applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. The Tax Reform Act of 1986 treats interest on certain "private activity" bonds issued after August 7, 1986, as a tax preference item. Unlike traditional governmental purpose municipal bonds, which finance roads, schools, libraries, prisons and other public facilities, private activity bonds provide benefits to private parties. The Portfolio may purchase all types of municipal bonds, including private activity bonds. In addition, in the case of a corporate shareholder, dividends of the Portfolio which represent interest on municipal bonds may be subject to the 20% corporate alternative minimum tax because the dividends are included in a corporation's "adjusted current earnings." The corporate alternative minimum tax treats 75% of the excess of a taxpayer's pre-tax "adjusted current earnings" over the taxpayer's alternative minimum taxable income as a tax preference item. "Adjusted current earnings" is based upon the concept of a corporation's "earnings and profits." Since "earnings and profits" generally includes the full amount of any Portfolio dividend, and alternative minimum taxable income does not include the portion of the Portfolio's dividend attributable to municipal bonds which are not private activity bonds, the difference will be included in the calculation of the corporation's alternative minimum tax. Dividends of the Portfolio representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. Information on the tax status of dividends and distributions is provided annually. Performance Information From time to time, each Portfolio advertises its total return, yield, and, as applicable, tax-equivalent yield. Total return represents the change, over a specified period of time, in the value of an investment in a particular Portfolio after reinvesting all income and capital gains distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. The yield of Class A and Class B shares of each Portfolio is calculated by dividing the net investment income per share (as defined by the Securities and Exchange Commission) earned by the particular Portfolio over a thirty-day period by the maximum offering price per Class A and Class B share of that Portfolio on the last day of the period. This number is then annualized using semi-annual compounding. With respect to the Cambridge Municipal Income Portfolio, the tax-equivalent yield of the Portfolio is calculated similarly to the yield but is adjusted to reflect the taxable yield that the Portfolio would have had to earn to equal its actual yield, assuming a specific tax rate. The yield and tax-equivalent yield do not necessarily reflect income actually earned by each Portfolio and, therefore, may not correlate to the dividends or other distributions paid to shareholders. The performance information reflects the effect of the maximum sales load, in the case of Class A shares of each Portfolio, and other non-recurring charges, such as the CDSC, in the case of Class A and Class B shares of each Portfolio, which, if excluded, would increase the total return, yield and, as applicable, tax-equivalent yield. Each Portfolio will include the performance information for both Class A and Class B shares in any advertisement or information that includes the performance data of the particular Portfolio. From time to time, the Trust may advertise its performance using certain reporting services and/or compare its performance to certain indices. [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] Cambridge Series Trust Prospectus An Open-End Management Investment Company . Cambridge Growth Portfolio . Cambridge Capital Growth Portfolio . Cambridge Government Income Portfolio . Cambridge Municipal Income Portfolio . Cambridge Income and Growth Portfolio January , 1994 SUBJECT TO COMPLETION, DATED JANUARY 28, 1994 Cambridge Series Trust Cambridge Growth Portfolio Cambridge Capital Growth Portfolio Cambridge Government Income Portfolio Cambridge Municipal Income Portfolio Cambridge Income and Growth Portfolio Cambridge Global Portfolio Statement of Additional Information This combined Statement of Additional Information should be read with the combined Prospectus of Cambridge Series Trust (the "Trust") dated , 1994. This Statement is not a prospectus itself. To receive a copy of the Prospectus, write to the Trust or call 1-800-382- 0016. Statement dated , 1994 Information contained herein is subject to completion of amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. Table of Contents General Information About the Trust 1 Investment Objectives and Policies of the Portfolios 1 Repurchase Agreements 1 When-Issued and Delayed Delivery Transactions 1 Lending of Portfolio Securities1 Bank Instruments 2 Restricted Securities 2 Lower-Grade Municipal Securities 2 Zero-Coupon Securities 4 Reverse Repurchase Agreements 5 Futures and Options Transactions 5 Futures Contracts 5 Put Options on Futures Contracts 5 Call Options on Futures Contracts 6 "Margin" in Futures Transactions 7 Regulatory Restrictions 7 Purchasing Put Options on Portfolio Securities 7 Writing Covered Call Options on Portfolio Securities 7 Over-the-Counter Options 7 Collateralized Mortgage Obligations (CMOs) 8 Convertible Securities 8 Warrants 8 Dollar Rolls 8 Swaps, Caps, Floors and Collars 9 10 High Yield, High Risk Debt Securities 10 Indexed Securities 10 Currency Transactions 11 Risk of Currency Transactions 11 Eurodollar Instruments 12 Portfolio Turnover 12 Investment Limitations 12 Management of the Trust 15 Officers and Trustees 15 Ownership of Portfolios 16 Trustee Liability 16 Investment Advisory Services 16 Investment Adviser 16 Investment Adviser Fees 16 The Sub-Advisers 17 Distribution of Portfolio Shares 18 Administrative Services 19 Shareholder Servicing Plan 19 Brokerage Transactions 20 How to Buy Shares 21 Distribution Plan (Class B Shares) 21 Conversion to Federal Funds 21 Purchases at Net Asset Value 22 Determining Net Asset Value 22 Determining Market Value of Securities 22 Exchange Privilege 22 Redeeming Shares 23 Contingent Deferred Sales Charge 23 Redemptions in Kind 23 Tax Status 23 The Portfolios' Tax Status 23 Shareholders' Tax Status 24 Total Return 25 Yield 25 Tax-Equivalent Yield (Municipal Income Portfolio) 26 Tax-Equivalency Table 26 Performance Comparisons 27 Financial Statements 29 Appendix 30 General Information About the Trust The Trust was established as a Massachusetts business trust on January 20, 1992. As of the date of this Statement, the Trust consists of two classes of shares of beneficial interest, Class A and Class B shares, in each of the following six separate portfolios of securities (collectively, the "Portfolios" and each individually, the "Portfolio"): Cambridge Growth Portfolio ("Growth Portfolio"); Cambridge Capital Growth Portfolio ("Capital Growth Portfolio"); Cambridge Government Income Portfolio ("Government Income Portfolio"); Cambridge Municipal Income Portfolio ("Municipal Income Portfolio"); and Cambridge Income and Growth Portfolio ("Income and Growth Portfolio"); and Cambridge Global Portfolio ("Global Portfolio"). Investment Objectives and Policies of the Portfolios The Prospectus discusses the objective of each Portfolio and the policies it employs to achieve those objectives. The following discussion supplements the description of the Portfolios' investment policies in the Prospectus. The Portfolios' respective investment objectives cannot be changed without approval of shareholders. Except as noted, the investment policies described below may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. Repurchase Agreements The Portfolios or their custodian will take possession of the securities subject to repurchase agreements and these securities will be marked to market daily. In the event that a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by a Portfolio might be delayed pending court action. The Portfolios believe that, under the regular procedures normally in effect for custody of a Portfolio's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of a Portfolio and allow retention or disposition of such securities. The Portfolios will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the adviser to be creditworthy pursuant to guidelines established by the Board of Trustees. When-Issued and Delayed Delivery Transactions The Portfolios may engage in when-issued and delayed delivery transactions. These transactions are arrangements in which a Portfolio purchases securities with payment and delivery scheduled for a future time. A Portfolio engages in when-issued and delayed delivery transactions only for the purpose of acquiring portfolio securities consistent with its investment objective and policies, not for investment leverage, but a Portfolio may sell such securities prior to settlement date if such a sale is considered to be advisable. No income accrues to the Portfolios on securities in connection with such transactions prior to the date the Portfolios actually take delivery of securities. In when-issued and delayed delivery transactions, a Portfolio relies on the seller to complete the transaction. The seller's failure to complete the transaction may cause a Portfolio to miss a price or yield considered to be advantageous. These transactions are made to secure what is considered to be an advantageous price or yield for a Portfolio. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of a Portfolio sufficient to make payment for the securities to be purchased are segregated at the trade date. These securities are marked to market daily and are maintained until the transaction is settled. As a matter of policy, the Portfolios, other than the Municipal Income Portfolio, do not intend to engage in when- issued and delayed delivery transactions to an extent that would cause the segregation of more than 20% of the total value of their respective assets. Lending of Portfolio Securities The collateral received when a Portfolio lends portfolio securities must be valued daily and, should the market value of the loaned securities increase, the borrower must furnish additional collateral to the particular Portfolio. During the time portfolio securities are on loan, the borrower pays a Portfolio any dividends or interest paid on such securities. Loans are subject to termination at the option of a Portfolio or the borrower. A Portfolio may pay reasonable administrative and custodial fees in connection with a loan and may pay a negotiated portion of the interest earned on the cash or equivalent collateral to the borrower or placing broker. A Portfolio would not have the right to vote securities on loan, but would terminate the loan and regain the right to vote if that were considered important with respect to the investment. Bank Instruments The Portfolios may invest in the instruments of banks and savings and loans whose deposits are insured by the Bank Insurance Fund or the Savings Association Insurance Fund, both of which are administered by the Federal Deposit Insurance Corporation ("FDIC"), such as certificates of deposit, demand and time deposits, savings shares, and bankers' acceptances. However, the above-mentioned instruments are not necessarily guaranteed by those organizations. In addition to domestic bank obligations, such as certificates of deposit, demand and time deposits, savings shares, and bankers' acceptances, the Portfolios may invest in: . Eurodollar Certificates of Deposit ("ECDs") issued by foreign branches of U.S. or foreign banks; . Eurodollar Time Deposits ("ETDs"), which are U.S. dollar-denominated deposits in foreign branches of U.S. or foreign banks; . Canadian Time Deposits, which are U.S. dollar-denominated deposits issued by branches of major Canadian banks located in the U.S.; and . Yankee Certificates of Deposit ("Yankee CDs"), which are U.S. dollar- denominated certificates of deposit issued by U.S. branches of foreign banks and held in the U.S. Restricted Securities The Portfolios may invest in restricted securities. Restricted securities are any securities in which each Portfolio may otherwise invest pursuant to its investment objective and policies but which are subject to restriction on resale under federal securities law. The ability of the Board of Trustees to determine the liquidity of certain restricted securities is permitted under a Securities and Exchange Commission ("SEC") Staff position set forth in the adopting release for Rule 144A under the Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive, safe-harbor for certain secondary market transactions involving securities subject to restrictions on resale under federal securities laws. The Rule provides an exemption from registration for resales of otherwise restricted securities to qualified institutional buyers. The Rule was expected to further enhance the liquidity of the secondary market for securities eligible for resale under the Rule. The Trust, on behalf of the Portfolios, believes that the Staff of the SEC has left the question of determining the liquidity of all restricted securities (eligible for resale under Rule 144A) for determination of the Trust's Board of Trustees. The Board of Trustees considers the following criteria in determining the liquidity of certain restricted securities. . the frequency of trades and quotes for the security; . the number of dealers willing to purchase or sell the security and the number of other potential buyers; . dealer undertakings to make a market in the security; and . the nature of the security and the nature of the marketplace trades. Lower-Grade Municipal Securities In normal circumstances, at least 80% of the Municipal Income Portfolio's total assets will be invested in investment-grade tax-exempt municipal securities and up to 20% of the Municipal Income Portfolio's total assets may be invested in lower-grade tax- exempt municipal securities. The amount of available information about the financial condition of municipal securities issuers is generally less extensive than that for corporate issuers with publicly traded securities, and the market for tax-exempt municipal securities is considered to be generally less liquid than the market for corporate debt obligations. Liquidity relates to the ability of a Portfolio to sell a security in a timely manner at a price which reflects the value of that security. As discussed below, the market for lower-grade tax-exempt municipal securities is considered generally to be less liquid than the market for investment-grade tax-exempt municipal securities. Further, municipal securities in which the Municipal Income Portfolio may invest include special obligation bonds, lease obligations, participation certificates and variable rate instruments. The market for such securities may be particularly less liquid. The relative illiquidity of some of the Municipal Income Portfolio's securities may adversely affect the ability of the Municipal Income Portfolio to dispose of such securities in a timely manner and at a price which reflects the value of such security in the Trust's judgment. Although the issuer of some such municipal securities may be obligated to redeem such securities at face value, such redemption could result in capital losses to the Municipal Income Portfolio to the extent that such municipal securities were purchased by the Municipal Income Portfolio at a premium to face value. The market for less liquid securities tends to be more volatile than the market for more liquid securities, and market values of relatively illiquid securities may be more susceptible to change as a result of adverse publicity and investor perceptions than are the market values of higher grade, more liquid securities. The Municipal Income Portfolio's net asset value will change with changes in the value of its portfolio securities. Because the Municipal Income Portfolio will invest primarily in fixed income municipal securities, the Municipal Income Portfolio's net asset value can be expected to change as general levels of interest rates fluctuate. When interest rates decline, the value of a portfolio invested in fixed income securities can be expected to rise. Conversely, when interest rates rise, the value of a portfolio invested in fixed income securities can be expected to decline. Net asset value and market value may be volatile due to the Municipal Income Portfolio's investment in lower-grade and less liquid municipal securities. Volatility may be greater during periods of general economic uncertainty. To the extent that there is no established retail market for some of the securities in which the Municipal Income Portfolio may invest, there may be relatively inactive trading in such securities and the ability of the Trust to accurately value such securities may be adversely affected. During periods of reduced market liquidity and in the absence of readily available market quotations for securities held in the Municipal Income Portfolio, the responsibility of the Trust to value the Municipal Income Portfolio's securities becomes more difficult and the Trust's judgment may play a greater role in the valuation of the Municipal Income Portfolio's securities due to the reduced availability of reliable objective data. To the extent that the Municipal Income Portfolio invests in illiquid securities and securities which are restricted as to resale, the Municipal Income Portfolio may incur additional risks and costs. Illiquid and restricted securities are particularly difficult to dispose of. When determining whether municipal leases purchased by the Municipal Income Portfolio will be classified as a liquid or illiquid security, the Board of Trustees has directed the Sub-Adviser to consider the following factors: the frequency of trades and quotes for the security; the volatility of quotations and trade prices for the security; the number of dealers willing to purchase or sell the security and the number of potential purchases; dealer undertaking to make a market in the security; the nature of the security and the nature of the marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of transfer); the rating of the security and the financial condition and prospects of the issuer of the security; whether the lease can be terminated by the lessee; the potential recovery, if any, from a sale of the leased property upon termination of the lease; the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an "event of nonappropriation"); any credit enhancement or legal recourse provided upon an event of nonappropriation or other termination of the lease; and such other factors as may be relevant to the Portfolio's ability to dispose of the security. Lower-grade tax-exempt municipal securities generally involve greater credit risk than higher-grade municipal securities. A general economic downturn or a significant increase in interest rates could severely disrupt the market for lower-grade tax-exempt municipal securities and adversely affect the market value of such securities. In addition, in such circumstances, the ability of issuers of lower-grade tax-exempt municipal securities to repay principal and to pay interest, to meet projected financial goals and to obtain additional financing may be adversely affected. Such consequences could lead to an increased incidence of default for such securities and adversely affect the value of the lower-grade tax-exempt municipal securities in the Municipal Income Portfolio and, thus, the Portfolio's net asset value. The secondary market prices of lower-grade tax-exempt municipal securities are less sensitive to changes in interest rates than are those for higher rated tax-exempt municipal securities, but are more sensitive to adverse economic changes or individual issuer developments. Adverse publicity and investors' perceptions, whether or not based on rational analysis, may also affect the value and liquidity of lower-grade tax-exempt municipal securities. Yields on the Municipal Income Portfolio's securities can be expected to fluctuate over time. In addition, periods of economic uncertainty and changes in interest rates can be expected to result in increased volatility of the market prices of the lower- grade tax- exempt municipal securities in the Municipal Income Portfolio's portfolio and, thus, in the net asset value of the Portfolio. Net asset value and market value may be volatile due to the Municipal Income Portfolio's investment in lower-grade and less liquid municipal securities. Volatility may be greater during periods of general economic uncertainty. The Municipal Income Portfolio may incur additional expenses to the extent it is required to seek recovery upon a default in the payment of interest or a repayment of principal on its portfolio holdings, and the Municipal Income Portfolio may be unable to obtain full recovery thereof. In the event that an issuer of securities held by the Municipal Income Portfolio experiences difficulties in the timely payment of principal or interest, and such issuer seeks to restructure the terms of its borrowings, the Municipal Income Portfolio may incur additional expenses and may determine to invest additional capital with respect to such issuer or the project or projects to which the Municipal Income Portfolio's securities relate. Recent and proposed legislation may have an adverse impact on the market for lower-grade tax-exempt municipal securities. Recent legislation requires federally-insured savings and loan associations to divest their investments in lower-grade bonds. Other legislation has, from time to time, been proposed which, if enacted, could have an adverse impact on the market for lower-grade tax-exempt municipal securities. The Municipal Income Portfolio will rely on the Sub-Adviser's judgment, analysis, and experience in evaluating the creditworthiness of an issue. In this evaluation, the Sub- Adviser will take into consideration, among other things, the issuer's financial resources, its sensitivity to economic conditions and trends, its operating history, the quality of the issuer's management and regulatory matters. The Sub-Adviser also may consider, although it does not rely primarily on, the credit ratings of Standard & Poor's Corporation ("S&P") and Moody's Investors Service, Inc. ("Moody's"), in evaluating tax- exempt municipal securities. Such ratings evaluate only the safety of principal and interest payments, not market value risk. Additionally, because the creditworthiness of an issuer may change more rapidly than is able to be timely reflected in changes in credit ratings, the Sub-Adviser continuously monitors the issuers of tax-exempt municipal securities held in the Municipal Income Portfolio. The Municipal Income Portfolio may, if deemed appropriate by the Sub-Adviser, retain a security whose rating has been downgraded below B-by S&P or below B3 by Moody's, or whose rating has been withdrawn. Because issuers of lower-grade tax-exempt municipal securities frequently choose not to seek a rating of their municipal securities, the Sub-Adviser will be required to determine the relative investment quality of many of the municipal securities in the Municipal Income Portfolio. Further, because the Municipal Income Portfolio may invest up to 20% of its total assets in these lower-grade municipal securities, achievement by the Municipal Income Portfolio of its investment objective may be more dependent upon the Sub- Adviser's investment analysis than would be the case if the Municipal Income Portfolio were investing exclusively in higher-grade municipal securities. The relative lack of financial information available with respect to issuers of municipal securities may adversely affect the Sub-Adviser's ability to successfully conduct the required investment analysis. Zero-Coupon Securities Zero-coupon securities in which the Income and Growth and Global Portfolios may invest are debt obligations which are generally issued at a discount and payable in full at maturity, and do not provide for current payments of interest prior to maturity. Zero- coupon securities usually trade at a deep discount from their face or par value and are subject to greater market value fluctuations from changing interest rates than debt obligations of comparable maturities which make current distributions of interest. As a result, the net asset value of shares of a Portfolio investing in zero-coupon securities may fluctuate over a greater range than shares of other Portfolios and other mutual funds investing in securities making current distributions of interest and having similar maturities. Zero-coupon securities may include U.S. Treasury bills issued directly by the U.S. Treasury or other short-term debt obligations, and longer-term bonds or notes and their unmatured interest coupons which have been separated by their holder, typically a custodian bank or investment brokerage firm. A number of securities firms and banks have stripped the interest coupons from the underlying principal (the "corpus") of U.S. Treasury securities and resold them in custodial receipt programs with a number of different names, including Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes themselves are held in book-entry form at the Federal Reserve Bank or, in the case of bearer securities (i.e., unregistered securities which are owned ostensibly by the bearer or holder thereof), in trust on behalf of the owners thereof. In addition, the Treasury has facilitated transfers of ownership of zero-coupon securities by accounting separately for the beneficial ownership of particular interest coupons and corpus payments on Treasury securities through the Federal Reserve book-entry recordkeeping system. The Federal Reserve program as established by the Treasury Department is known as "STRIPS" or "Separate Trading of Registered Interest and Principal of Securities." Under the STRIPS program, a Portfolio will be able to have its beneficial ownership of U.S. Treasury zero-coupon securities recorded directly in the book- entry recordkeeping system in lieu of having to hold certificates or other evidence of ownership of the underlying U.S. Treasury securities. When debt obligations have been stripped of their unmatured interest coupons by the holder, the stripped coupons are sold separately. The principal or corpus is sold at a deep discount because the buyer receives only the right to receive a future fixed payment on the security and does not receive any rights to periodic cash interest payments. Once stripped or separated, the corpus and coupons may be sold separately. Typically, the coupons are sold separately or grouped with other coupons with like maturity dates and sold in such bundled form. Purchasers of stripped obligations acquire, in effect, discount obligations that are economically identical to the zero-coupon securities issued directly by the obligor. Reverse Repurchase Agreements The Portfolios may also enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement, the Portfolio transfers possession of a portfolio instrument to another person, such as a financial institution, broker, or dealer, in return for a percentage of the instrument's market value in cash, and agrees that on a stipulated date in the future the Portfolio will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. The use of reverse repurchase agreements may enable the Portfolio to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but the ability to enter into reverse repurchase agreements does not ensure that the Portfolio will be able to avoid selling portfolio instruments at a disadvantageous time. When effecting reverse repurchase agreements, liquid assets of the Portfolio, in a dollar amount sufficient to make payment for the obligations to be purchased, are segregated at the trade date. These securities are marked to market daily and are maintained until the transaction is settled. Futures and Options Transactions The Portfolios may engage in futures and options hedging transactions. The Income and Growth Portfolio will not, however, utilize options on its futures. In an effort to reduce fluctuations in the net asset value of shares of a Portfolio, a Portfolio may attempt to hedge all or a portion of its portfolio by buying and selling financial futures contracts, buying put options on portfolio securities and listed put options on futures contracts, and writing call options on futures contracts. A Portfolio may also write covered call options on portfolio securities to attempt to increase its current income. A Portfolio will maintain its positions in securities, option rights, and segregated cash subject to puts and calls until the options are exercised, closed, or have expired. An option position on financial futures contracts may be closed out only on the exchange on which the position was established. Futures Contracts The Portfolios may engage in transactions in futures contracts. A futures contract is a firm commitment by two parties: the seller who agrees to make delivery of the specific type of security called for in the contract ("going short") and the buyer who agrees to take delivery of the security ("going long") at a certain time in the future. However, a stock index futures contract is an agreement pursuant to which two parties agree to take or make delivery of an amount of cash equal to the difference between the value of the index at the close of the last trading day of the contract and the price at which the index contract was originally written. No physical delivery of the underlying securities in the index is made. The purpose of the acquisition or sale of a futures contract by a Portfolio is to protect the Portfolio from fluctuations in the value of its securities caused by anticipated changes in interest rates or market conditions without necessarily buying or selling the securities. For example, in the fixed income securities market, price generally moves inversely to interest rates. A rise in rates generally means a drop in price. Conversely, a drop in rates generally means a rise in price. In order to hedge their holdings of fixed income securities against a rise in market interest rates, Government Income Portfolio, Municipal Income Portfolio, and Income and Growth Portfolio [Global Portfolio] could enter into contracts to deliver securities at a predetermined price (i.e., "go short") to protect themselves against the possibility that the prices of their fixed income securities may decline during the anticipated holding period. Any of these Portfolios would "go long" (i.e., agree to purchase securities in the future at a predetermined price) to hedge against a decline in market interest rates. Put Options on Futures Contracts The Portfolios, with the exception of the Income and Growth Portfolio, may engage in transactions in put options on futures contracts. A Portfolio may purchase listed put options on futures contracts. Unlike entering directly into a futures contract, which requires the purchaser to buy a financial instrument on a set date at a specified price, the purchase of a put option on a futures contract entitles (but does not obligate) its purchaser to decide on or before a future date whether to assume a short position at the specified price. A Portfolio would purchase put options on futures contracts to protect portfolio securities against decreases in value resulting from market factors, such as an anticipated increase in interest rates. Generally, if the hedged portfolio securities decrease in value during the term of an option, the related futures contracts will also decrease in value and the option will increase in value. In such an event, a Portfolio will normally close out its option by selling an identical option. If the hedge is successful, the proceeds received by a Portfolio upon the sale of the second option may be large enough to offset both the premium paid by the Portfolio for the original option plus the decrease in value of the hedged securities. Alternatively, a Portfolio may exercise its put option to close out the position. To do so, it would simultaneously enter into a futures contract of the type underlying the option (for a price less than the strike price of the option) and exercise the option. The Portfolio would then deliver the futures contract in return for payment of the strike price. If the Portfolio neither closes out nor exercises an option, the option will expire on the date provided in the option contract, and only the premium paid for the contract will be lost. When a Portfolio sells a put on a futures contract, it receives a cash premium which can be used in whatever way is deemed most advantageous to the Portfolio. In exchange for such premium, the Portfolio grants to the purchaser of the put the right to receive from the Portfolio, at the strike price, a short position in such futures contract, even though the strike price upon exercise of the option is greater than the value of the futures position received by such holder. If the value of the underlying futures position is not such that exercise of the option would be profitable to the option holder, the option will generally expire without being exercised. The Portfolio has no obligation to return premiums paid to it whether or not the option is exercised. It will generally be the policy of each Portfolio, in order to avoid the exercise of an option sold by it, to cancel its obligation under the option by entering into a closing purchase transaction, if available, unless it is determined to be in such Portfolio's interest to deliver the underlying futures position. A closing purchase transaction consists of the purchase by the Portfolio of an option having the same term as the option sold by the Portfolio, and has the effect of canceling the Portfolio's position as a seller. The premium which the Portfolio will pay in executing a closing purchase transaction may be higher than the premium received when the option was sold, depending in large part upon the relative price of the underlying futures position at the time of each transaction. Call Options on Futures Contracts The Portfolios, with the exception of the Income and Growth Portfolio, may engage in transactions in call options on futures contracts. In addition to purchasing put options on futures, the Portfolios may write listed call options on futures contracts to hedge their respective portfolios against, for example, an increase in market interest rates. When a Portfolio writes a call option on a futures contract, it is undertaking the obligation of assuming a short futures position (selling a futures contract) at the fixed strike price at any time during the life of the option if the option is exercised. As market interest rates rise (in the case of the Government Income Portfolio, Municipal Income Portfolio and Global Portfolio) or as stock prices fall (in the case of the Growth Portfolio, Capital Growth Portfolio and Global Portfolio), causing the prices of futures to go down, a Portfolio's obligation under a call option on a future (to sell a futures contract) costs less to fulfill, causing the value of a Portfolio's call option position to increase. In other words, as the underlying future's price goes down below the strike price, the buyer of the option has no reason to exercise the call, so that a Portfolio keeps the premium received for the option. This premium can help substantially to offset the drop in value of a Portfolio's portfolio securities. Prior to the expiration of a call written by a Portfolio, or exercise of it by the buyer, a Portfolio may close out the option by buying an identical option. If the hedge is successful, the cost of the second option will be less than the premium received by a Portfolio for the initial option. The net premium income of a Portfolio will then help offset the decrease in value of the hedged securities. When a Portfolio purchases a call on a financial futures contract, it receives in exchange for the payment of a cash premium the right, but not the obligation to enter into the underlying futures contract at a strike price determined at the time the call was purchased, regardless of the comparative market value of such futures position at the time the option is exercised. The holder of a call option has the right to receive a long (or buyer's) position in the underlying futures contract. A Portfolio will not maintain open positions in futures contracts it has sold or call options it has written on futures contracts if, in the aggregate, the value of the open positions (marked to market) exceeds the current market value of its securities portfolio (including cash or cash equivalents) plus or minus the unrealized gain or loss on those open positions, adjusted for the correlation of volatility between the hedged securities and the futures contracts. If this limitation is exceeded at any time, a Portfolio will take prompt action to close out a sufficient number of open contracts to bring its open futures and options positions within this limitation. "Margin" in Futures Transactions Unlike the purchase or sale of a security, the Portfolios do not pay or receive money upon the purchase or sale of a futures contract. Rather, the Portfolios are required to deposit an amount of "initial margin" in cash or U.S. Treasury bills with the custodian (or the broker, if legally permitted). The nature of initial margin in futures transactions is different from that of margin in securities transactions in that futures contracts initial margin does not involve a borrowing by a Portfolio to finance the transactions. Initial margin is in the nature of a performance bond or good faith deposit on the contract which is returned to a Portfolio upon termination of the futures contract, assuming all contractual obligations have been satisfied. A futures contract held by a Portfolio is valued daily at the official settlement price of the exchange on which it is traded. Each day a Portfolio pays or receives cash, called "variation margin," equal to the daily change in value of the futures contract. This process is known as "marking to market." Variation margin does not represent a borrowing or loan by a Portfolio but is instead settlement between a Portfolio and the broker of the amount one would owe the other if the futures contract expired. In computing its daily net asset value, a Portfolio will mark to market its open futures positions. The Portfolios are also required to deposit and maintain margin when they write call options on futures contracts. Regulatory Restrictions To the extent required to comply with Commodity Futures Trading Commission Regulation 4.5 and thereby avoid status as a "commodity pool operator," the Portfolios will not enter into a futures contract, or purchase an option thereon, if immediately thereafter the initial margin deposits for futures contracts held by a Portfolio, plus premiums paid by it for open options of futures, would exceed 5% of the total assets of the Portfolio. The Portfolios will not engage in transactions in futures contracts or options thereon for speculation, but only to attempt to hedge against changes in market conditions affecting the values of assets which the Portfolios hold or intend to purchase. When futures contracts or options thereon are purchased in order to protect against a price increase on securities or other assets intended to be purchased later, it is anticipated that at least 75% of such intended purchases will be completed. When other futures contracts or options thereon are purchased, the underlying value of such contracts will at all times not exceed the sum of (1) accrued profit on such contracts held by the broker; (2) cash or high- quality money market instruments set aside in an identifiable manner; and (3) cash proceeds from investments due in 30 days or less. Purchasing Put Options on Portfolio Securities With the exception of the Income and Growth Portfolio, the Portfolios may purchase put options on portfolio securities to protect against price movements in particular securities in their respective portfolios. A put option gives a Portfolio, in return for a premium, the right to sell the underlying security to the writer (seller) at a specified price during the term of the option. Writing Covered Call Options on Portfolio Securities The Capital Growth, Government Income, and Municipal Income [and Global] Portfolios may write covered call options to generate income. As a writer of a call option, a Portfolio has the obligation upon exercise of the option during the option period to deliver the underlying security upon payment of the exercise price. A Portfolio may only sell call options either on securities held in its portfolio or on securities which it has the right to obtain without payment of further consideration (or has segregated cash in the amount of any additional consideration). Over-the-Counter Options The Capital Growth, Government Income, and Municipal Income [and Global] Portfolios may purchase and write over-the-counter options on portfolio securities in negotiated transactions with the buyers or writers of the options for those options on portfolio securities held by a Portfolio and not traded on an exchange. Over-the-counter options are two-party contracts with price and terms negotiated between buyer and seller. In contrast, exchange-traded options are third-party contracts with standardized strike prices and expiration dates and are purchased from a clearing corporation. Exchange-traded options have a continuous liquid market while over-the- counter options may not. Collateralized Mortgage Obligations (CMOs) The Government Income and Income and Growth Portfolios may invest in CMOs. Privately issued CMOs generally represent an ownership interest in a pool of federal agency mortgage pass-through securities such as those issued by the Government National Mortgage Association. The terms and characteristics of the mortgage instruments may vary among pass-through mortgage loan pools. The market for such CMOs has expanded considerably since its inception. The size of the primary issuance market and the active participation in the secondary market by securities dealers and other investors make government-related pools highly liquid. Convertible Securities The Growth, Capital Growth, Income and Growth and Global Portfolios may invest in convertible securities. Convertible securities are fixed income securities which may be exchanged or converted into a predetermined number of the issuer's underlying common stock at the option of the holder during a specified time period. Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of "usable" bonds and warrants or a combination of the features of several of these securities. The investment characteristics of each convertible security vary widely, which allows convertible securities to be employed for a variety of investment strategies. A Portfolio will exchange or convert the convertible securities held in its portfolio into shares of the underlying common stock when, in the Sub-Adviser's opinion, the investment characteristics of the underlying common shares will assist the Portfolio in achieving its investment objectives. Otherwise, the Portfolio may hold or trade convertible securities. In selecting convertible securities for the Portfolio, the Portfolio's Sub- Adviser evaluates the investment characteristics of the convertible security as a fixed income instrument and the investment potential of the underlying equity security for capital appreciation. In evaluating these matters with respect to a particular convertible security, the Portfolio's Sub-Adviser considers numerous factors, including the economic and political outlook, the value of the security relative to other investment alternatives, trends in the determinants of the issuer's profits, and the issuer's management capability and practices. Warrants The Growth, Capital Growth, and Income and Growth [and Global] Portfolios may invest in warrants. Warrants are basically options to purchase common stock at a specific price (usually at a premium above the market value of the optioned common stock at issuance) valid for a specific period of time. Warrants may have a life ranging from less than a year to twenty years or may be perpetual. However, most warrants have expiration dates after which they are worthless. In addition, if the market price of the common stock does not exceed the warrant's exercise price during the life of the warrant, the warrant will expire as worthless. Warrants have no voting rights, pay no dividends, and have no rights with respect to the assets of the corporation issuing them. The percentage increase or decrease in the market price of the warrant may tend to be greater than the percentage increase or decrease in the market price of the optioned common stock. A Portfolio will not invest more than 5% of the value of its total assets in warrants. No more than 2% of this 5% may be warrants which are not listed on the New York or American Stock Exchanges. Warrants acquired in units or attached to securities may be deemed to be without value for purposes of this policy. Dollar Rolls The Global Portfolio may enter into "dollar roll" transactions, which consist of the sale by the Global Portfolio to a bank or broker/dealer (the "counterparty") of GNMA certificates or other mortgage-backed securities together with a commitment to purchase similar, but not identical, securities at a future date, at the same price. The counterparty receives all principal and interest payments, including prepayments, made on the security while the counterparty is the holder. The Global Portfolio receives a fee from the counterparty as consideration for entering into the commitment to purchase. Dollar rolls may be renewed over a period of several months with a different repurchase price and a cash settlement made at each renewal without physical delivery of securities. Moreover, the transaction may be preceded by a firm commitment agreement pursuant to which the Global Portfolio agrees to buy a security on a future date. The Global Portfolio will not use such transactions for leveraging purposes and, accordingly, will segregate cash, U.S. Government securities or other high grade debt obligations in an amount sufficient to meet its purchase obligations under the transactions. The Global Portfolio will also maintain asset coverage of at least 300% for all outstanding firm commitments, dollar rolls and other borrowings. Dollar rolls are treated for purposes of the Investment Company Act of 1940 as borrowings of the Global Portfolio because they involve the sale of a security coupled with an agreement to repurchase. Like all borrowings, a dollar roll involves costs to the Global Portfolio. For example, while the Global Portfolio receives a fee as consideration for agreeing to repurchase the security, the Global Portfolio forgoes the right to receive all principal and interest payments while the counterparty holds the security. These payments to the counterparty may exceed the fee received by the Global Portfolio, thereby effectively charging the Global Portfolio interest on its borrowing. Further, although the Global Portfolio can estimate the amount of expected principal prepayment over the term of the dollar roll, a variation in the actual amount of prepayment could increase or decrease the cost of the Global Portfolio's borrowing. The entry into dollar rolls involves potential risks of loss which are different from those of the securities underlying the transactions. For example, if the counterparty becomes insolvent, the Global Portfolio's right to purchase from the counterparty might be restricted. Additionally, the value of such securities may change adversely before the Global Portfolio is able to purchase them. Similarly, the Global Portfolio may be required to purchase securities in connection with a dollar roll at a higher price than may otherwise be available on the open market. Since, as noted above, the counterparty is required to deliver a similar, but not identical security to the Global Portfolio, the security which the Global Portfolio is required to buy under the dollar roll may be worth less than an identical security. Finally, there can be no assurance that the Global Portfolio's use of the cash that it receives from a dollar roll will provide a return that exceeds borrowing costs. The Board of Trustees of the Trust on behalf of the Global Portfolio have adopted guidelines to ensure that those securities received are substantially identical to those sold. To reduce the risk of default, the Global Portfolio will engage in such transactions only with banks and broker-dealers selected pursuant to such guidelines. Swaps, Caps, Floors and Collars The Global Portfolio may enter into interest rate, currency and index swaps and the purchase or sale of related caps, floors and collars. The Global Portfolio expects to enter into these transactions primarily to preserve a return or spread on a particular investment or portion of its portfolio, to protect against currency fluctuations, as a duration management technique or to protect against any increase in the price of securities the Global Portfolio anticipates purchasing at a later date. The Global Portfolio intends to use these transactions as hedges and not as speculative investments and will not sell interest rate caps or floors where it does not own securities or other instruments providing the income stream the Global Portfolio may be obligated to pay. Interest rate swaps involve the exchange by the Global Portfolio with another party of their respective commitments to pay or receive interest, e.g., an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal. A currency swap is an agreement to exchange cash flows on a notional amount of two or more currencies based on the relative value differential among them and an index swap is an agreement to swap cash flows on a notional amount based on changes in the values of the reference indices. The purchase of a cap entitles the purchaser to receive payments on a notional principal amount from the party selling such cap to the extent that a specified index exceeds a predetermined interest rate or amount. The purchase of a floor entitles the purchaser to receive payments on a notional principal amount from the party selling such floor to the extent that a specified index falls below a predetermined interest rate or amount. A collar is a combination of a cap and a floor that preserves a certain return within a predetermined range of interest rates or values. The Global Portfolio will usually enter into swaps on a net basis, i.e., the two payment streams are netted out in a cash settlement on the payment date or dates specified in the instrument, with the Global Portfolio receiving or paying, as the case may be, only the net amount of the two payments. Inasmuch as these swaps, caps, floors and collars are entered into for good faith hedging purposes, the Global Portfolio and its Sub- Adviser believe such obligations do not constitute senior securities under the Investment Company Act of 1940 and, accordingly, will not treat them as being subject to its borrowing restrictions. The Global Portfolio will not enter into any swap, cap, floor or collar transaction unless, at the time of entering into such transaction, the unsecured long-term debt of the Counterparty, combined with any credit enhancements, is rated at least A by S&P or Moody's or has an equivalent rating from a NRSRO or is determined to be of equivalent credit quality by the Global Portfolio's Sub-Adviser. If there is a default by the Counterparty, the Global Portfolio may have contractual remedies pursuant to the agreements related to the transaction. The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid. Caps, floors and collars are more recent innovations for which standardized documentation has not yet been fully developed and, accordingly, they are less liquid than swaps. High Yield, High Risk Debt Securities The Global Portfolio may invest up to 5% of its net assets in securities rated Baa/BBB or lower and in unrated securities of equivalent quality in the Sub-Adviser's judgment. The Global Portfolio may invest in debt securities which are rated as low as C by Moody's or D by S&P. Such securities may be in default with respect to payment of principal or interest. Below investment grade securities (rated below Baa by Moody's and below BBB by S&P) or unrated securities of equivalent quality in the Sub-Adviser's judgment, carry a high degree of risk (including the possibility of default or bankruptcy of the issuers of such securities), generally involve greater volatility of price and risk of principal and income, and may be less liquid, than securities in the higher rating categories and are considered speculative. The lower the ratings of such debt securities, the greater their risks render them like equity securities. See the Appendix to this Statement of Additional Information for a more complete description of the ratings assigned by ratings organizations and their respective characteristics. An economic downturn could disrupt the high yield market and impair the ability of issuers to repay principal and interest. Also, an increase in interest rates would likely have a greater adverse impact on the value of such obligations than on higher quality debt securities. During an economic downturn or period of rising interest rates, highly leveraged issues may experience financial stress which could adversely affect their ability to service their principal and interest payment obligations. Prices and yields of high yield securities will fluctuate over time and, during periods of economic uncertainty, volatility of high yield securities may adversely affect the Global Portfolio's net asset value. In addition, investments in high yield zero coupon or pay- in-kind bonds, rather than income-bearing high yield securities, may be more speculative and may be subject to greater fluctuations in value due to changes in interest rates. The trading market for high yield securities may be thin to the extent that there is no established retail secondary market. A thin trading market may limit the ability of the Global Portfolio to accurately value high yield securities in its portfolio and to dispose of those securities. Adverse publicity and investor perceptions may decrease the values and liquidity of high yield securities. These securities may also involve special registration responsibilities, liabilities and costs, and liquidity and valuation difficulties. Credit quality in the high-yield securities market can change suddenly and unexpectedly, and even recently issued credit ratings may not fully reflect the actual risks posed by a particular high-yield security. For these reasons, it is the policy of the Sub- Adviser not to rely exclusively on ratings issued by established credit rating agencies, but to supplement such ratings with its own independent and on-going review of credit quality. The achievement of the Global Portfolio's investment objective by investment in such securities may be more dependent on the Sub-Adviser's credit analysis than is the case for higher quality bonds. Should the rating of a portfolio security be downgraded, the Sub- Adviser will determine whether it is in the best interest of the Global Portfolio to retain or dispose of such security. Prices for below investment-grade securities may be affected by legislative and regulatory developments. For example, new federal rules require savings and loan institutions to gradually reduce their holdings of this type of security. Also, recent legislation restricts the issuer's tax deduction for interest payments on these securities. Such legislation may significantly depress the prices of outstanding securities of this type. Indexed Securities The Global Portfolio may invest in indexed securities, the value of which is linked to currencies, interest rates, commodities, indices or other financial indicators ("reference instruments"). Most indexed securities have maturities of three years or less. Indexed securities differ from other types of debt securities in which the Global Portfolio may invest in several respects. First, the interest rate or, unlike other debt securities, the principal amount payable at maturity of an indexed security may vary based on changes in one or more specified reference instruments, such as an interest rate compared with a fixed interest rate or the currency exchange rates between two currencies (neither of which need be the currency in which the instrument is denominated). The reference instrument need not be related to the terms of the indexed security. For example, the principal amount of a U.S. dollar denominated indexed security may vary based on the exchange rate of two foreign currencies. An indexed security may be positively or negatively indexed; that is, its value may increase or decrease if the value of the reference instrument increases. Further, the change in the principal amount payable or the interest rate of an indexed security may be a multiple of the percentage change (positive or negative) in the value of the underlying reference instrument(s). Investment in indexed securities involves certain risks. In addition to the credit risk of the security's issuer and the normal risks of price changes in response to changes in interest rates, the principal amount of indexed securities may decrease as a result of changes in the value of reference instruments. Further, in the case of certain indexed securities in which the interest rate is linked to a reference instrument, the interest rate may be reduced to zero, and any further declines in the value of the security may then reduce the principal amount payable on maturity. Finally, indexed securities may be more volatile than the reference instruments underlying indexed securities. Currency Transactions The Global Portfolio may engage in currency transactions with Counterparties in order to hedge the value of portfolio holdings denominated in particular currencies against fluctuations in relative value. Currency transactions include forward currency contracts, exchange listed currency futures, exchange listed and OTC options on currencies, and currency swaps. A forward currency contract involves a privately negotiated obligation to purchase or sell (with delivery generally required) a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. A currency swap is an agreement to exchange cash flows based on the notional difference among two or more currencies and operates similarly to an interest rate swap, which is described below. A Global Portfolio may enter into currency transactions with Counterparties which have received (or the guarantors of the obligations which have received) a credit rating of A-1 or P-1 by S&P or Moody's, respectively, or that have an equivalent rating from a NRSRO or (except for OTC currency options) are determined to be of equivalent credit quality by the Sub- Adviser. The Global Portfolio dealings in forward currency contracts and other currency transactions such as futures, options, options on futures and swaps will be limited to hedging involving either specific transactions or portfolio positions. Transaction hedging is entering into a currency transaction with respect to specific assets or liabilities of the Global Portfolio, which will generally arise in connection with the purchase or sale of its portfolio securities or the receipt of income therefrom. Position hedging is entering into a currency transaction with respect to portfolio security positions denominated or generally quoted in that currency. The Global Portfolio will not enter into a transaction to hedge currency exposure to an extent greater, after netting all transactions intended wholly or partially to offset other transactions, than the aggregate market value (at the time of entering into the transaction) of the securities held in its portfolio that are denominated or generally quoted in or currently convertible into such currency, other than with respect to proxy hedging as described below. The Global Portfolio may also cross-hedge currencies by entering into transactions to purchase or sell one or more currencies that are expected to decline in value relative to other currencies to which the Global Portfolio has or in which a Global Portfolio expects to have portfolio exposure. To reduce the effect of currency fluctuations on the value of existing or anticipated holdings of portfolio securities, the Global Portfolio may also engage in proxy hedging. Proxy hedging is often used when the currency to which the Portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy hedging entails entering into a forward contract to sell a currency whose changes in value are generally considered to be linked to a currency or currencies in which some or all of the Global Portfolio's securities are or are expected to be denominated, and to buy U.S. dollars. The amount of the contract would not exceed the value of the Global Portfolio's securities denominated in linked currencies. For example, if the Sub-Adviser considers that the Austrian schilling is linked to the German deutschemark (the "D-mark"), the Global Portfolio holds securities denominated in schillings and the Sub-Adviser believes that the value of schillings will decline against the U.S. dollar, the Sub-Adviser may enter into a contract to sell D-marks and buy dollars. Currency hedging involves some of the same risks and considerations as other transactions with similar instruments. Currency transactions can result in losses to the Global Portfolio if the currency being hedged fluctuates in value to a degree or in a direction that is not anticipated. Further, there is the risk that the perceived linkage between various currencies may not be present or may not be present during the particular time that the Global Portfolio is engaging in proxy hedging. Except when the Global Portfolio enters into a forward contract for the purchase or sale of a security denominated in a particular currency, which requires no segregation, a currency contract which obligates the Global Portfolio to buy or sell currency will generally require the Global Portfolio to hold an amount of that currency or liquid securities denominated in that currency equal to the Global Portfolio's obligations or to segregate liquid high grade assets equal to the amount of the Global Portfolio's obligation. Risk of Currency Transactions Currency transactions are subject to risks different from those of other portfolio transactions. Because currency control is of great importance to the issuing governments and influences economic planning and policy, purchases and sales of currency and related instruments can be negatively affected by government exchange controls, blockages, and manipulations or exchange restrictions imposed by governments. These can result in losses to the Global Portfolio if it is unable to deliver or receive currency or funds in settlement of obligations and could also cause hedges it has entered into to be rendered useless, resulting in full currency exposure as well as incurring transaction costs. Buyers and sellers of currency futures are subject to the same risks that apply to the use of futures generally. Further, settlement of a currency futures contract for the purchase of most currencies must occur at a bank based in the issuing nation. Trading options on currency futures is relatively new, and the ability to establish and close out positions on such options is subject to the maintenance of a liquid market which may not always be available. Currency exchange rates may fluctuate based on factors extrinsic to that country's economy. Eurodollar Instruments The Global Portfolio may make investments in Eurodollar instruments. Eurodollar instruments are U.S. dollar-denominated futures contracts or options thereon which are linked to the London Interbank Offered Rate ("LIBOR"), although foreign currency- denominated instruments are available from time to time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for the lending of funds and sellers to obtain a fixed rate for borrowings. The Global Portfolio might use Eurodollar futures contracts and options thereon to hedge against changes in LIBOR, to which many interest rate swaps and fixed income instruments are linked. Portfolio Turnover The annual turnover rate of the Portfolios may vary from year to year, and may also be affected by cash requirements for redemptions and repurchases of Portfolio shares and by the necessity of maintaining the Portfolios as regulated investment companies under the Internal Revenue Code, as amended, in order to receive certain favorable tax treatment. The Portfolios will not attempt to set or meet a portfolio turnover rate since any turnover would be incidental to transactions undertaken in an attempt to achieve each Portfolio's investment objective. During the fiscal year ended September 30, 1993, and the period from April 29, 1992 (date of initial public investment), to September 30, 1992, the respective portfolio turnover rates for the indicated Portfolios were as follows: Growth Portfolio, 137% and 26%; Capital Growth Portfolio, 192% and 61%; Government Income Portfolio, 102% and 9%; and Municipal Income Portfolio, 88% and 0%. During the period May 24, 1993 (date of initial public investment), to September 30, 1993, the portfolio turnover rate for the Income and Growth Portfolio was 19% for the equity portion and 0% for the debt portion. The difference between the portfolio turnover rates for the fiscal year ended September 30, 1992, and September 30, 1993, for the Growth Portfolio and Capital Growth Portfolio were a result of the fact that the first fiscal year was substantially less than twelve months and that, since the period ended September 30, 1992, was the initial start-up period for the Portfolios, the portfolio turnover would be expected to be substantially less than on a fund with a longer operating history. It is anticipated that the portfolio turnover rate for the first year of the Global Portfolio's operations will not exceed %. Investment Limitations Issuing Senior Securities and Borrowing Money The Portfolios will not issue senior securities except that a Portfolio (other than the Municipal Income Portfolio) may borrow money directly or through reverse repurchase agreements in amounts up to one-third of the value of its net assets, including the amount borrowed; and except to the extent that a Portfolio may enter into futures contracts. The Municipal Income Portfolio may borrow money from banks for temporary purposes in amounts up to 5% of its total assets. The Portfolios will not borrow money or engage in reverse repurchase agreements for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the Portfolio by enabling it to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Portfolios will not purchase any securities while any borrowings in excess of 5% of its total assets are outstanding. During the period any reverse repurchase agreements are outstanding, the Government Income Portfolio will restrict the purchase of portfolio securities to money market instruments maturing on or before the expiration date of the reverse repurchase agreements, but only to the extent necessary to assure completion of the reverse repurchase agreements. Notwithstanding this restriction, the Portfolios may enter into when-issued and delayed delivery transactions. Selling Short and Buying on Margin The Portfolios will not sell any securities short or purchase any securities on margin, but may obtain such short-term credits as are necessary for clearance of purchases and sales of securities. The deposit or payment by a Portfolio of initial or variation margin in connection with futures contracts or related options transactions is not considered the purchase of a security on margin. Pledging Assets The Portfolios will not mortgage, pledge, or hypothecate any assets, except to secure permitted borrowings. In these cases the Portfolios may pledge assets having a value of 10% of assets taken at cost. For purposes of this restriction, (a) the deposit of assets in escrow in connection with the writing of covered put or call options and the purchase of securities on a when-issued basis; and (b) collateral arrangements with respect to (i) the purchase and sale of stock options (and options on stock indexes) and (ii) initial or variation margin for futures contracts, will not be deemed to be pledges of a Portfolio's assets. Margin deposits for the purchase and sale of futures contracts and related options are not deemed to be a pledge. Lending Cash or Securities The Portfolios will not lend any of their respective assets except portfolio securities up to one-third of the value of total assets. (The Municipal Income Portfolio will not lend portfolio securities.) This shall not prevent a Portfolio from purchasing or holding U.S. government obligations, money market instruments, variable amount demand master notes, bonds, debentures, notes, certificates of indebtedness, or other debt securities, entering into repurchase agreements, or engaging in other transactions where permitted by a Portfolio's investment objective, policies and limitations or Declaration of Trust. The Municipal Income Portfolio will not make loans except to the extent the obligations the Portfolio may invest in are considered to be loans. Investing in Restricted Securities The Portfolios will not invest more than 10% of the value of their net assets in restricted securities. Investing in Commodities None of the Portfolios will invest in commodities, except to the extent that the Portfolios may engage in transactions involving futures contracts or options on futures contracts, and except to the extent the securities the Municipal Income Portfolio invests in are considered interests in commodities or commodities contracts or to the extent the Portfolio exercises its rights under agreements relating to such municipal securities. Investing in Real Estate None of the Portfolios will purchase or sell real estate, including limited partnership interests, except to the extent the securities the Income and Growth Portfolio and Municipal Income Portfolio may invest in are considered to be interests in real estate or to the extent the Municipal Income Portfolio exercises its rights under agreements relating to such municipal securities (in which case the Portfolio may liquidate real estate acquired as a result of a default on a mortgage), although the Portfolios may invest in securities of issuers whose business involves the purchase or sale of real estate or in securities which are secured by real estate or interests in real estate. Diversification of Investments With respect to 75% of the value of its respective total assets, a Portfolio will not purchase securities issued by any one issuer (other than cash, cash items or securities issued or guaranteed by the government of the United States or its agencies or instrumentalities and repurchase agreements collateralized by such securities), if as a result more than 5% of the value of its total assets would be invested in the securities of that issuer. A Portfolio will not acquire more than 10% of the outstanding voting securities of any one issuer. Concentration of Investments A Portfolio will not invest 25% or more of the value of its respective total assets in any one industry (other than securities issued by the U.S. government, its agencies or instrumentalities). As described in the Prospectus, the Municipal Income Portfolio may from time to time invest more than 25% of its assets in a particular segment of the municipal bond market; however, that Portfolio will not invest more than 25% of its assets in industrial development bonds in a single industry. Underwriting A Portfolio will not underwrite any issue of securities, except as a Portfolio may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. The above limitations cannot be changed with respect to a Portfolio without approval of holders of a majority of that Portfolio's shares. The following limitations may be changed by the Board of Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. Investing in Illiquid Securities The Portfolios will not invest more than 15% of the value of their respective net assets in illiquid securities, including repurchase agreements providing for settlement more than seven days after notice; over-the-counter options; certain restricted securities not determined by the Trustees to be liquid; and non- negotiable fixed income time deposits with maturities over seven days. Investing in Securities of Other Investment Companies The Portfolios will limit their respective investments in other investment companies to no more than 3% of the total outstanding voting stock of any investment company, invest no more than 5% of total assets in any one investment company, or invest more than 10% of total assets in investment companies in general. The Portfolios will purchase securities of closed-end investment companies only in open market transactions involving only customary broker's commissions. However, these limitations are not applicable if the securities are acquired in a merger, consolidation, reorganization, or acquisition of assets. It should be noted that investment companies incur certain expenses such as management fees, and therefore any investment by a Portfolio in shares of another investment company would be subject to such customary expenses. Investing in New Issuers Except for the Municipal Income Portfolio, no Portfolio will invest more than 5% of the value of its respective total assets in securities of issuers which have records of less than three years of continuous operations, including the operation of any predecessor. The Municipal Income Portfolio will not invest more than 5% of its total assets in industrial development bonds where the payment of principal and interest is the responsibility of companies with less than three years of operating history. Investing in Issuers Whose Securities are Owned by Officers and Trustees of the Trust A Portfolio will not purchase or retain the securities of any issuer if the officers and Trustees of the Trust, the Investment Adviser, or Sub-Adviser own individually more than 1/2 of 1% of the issuer's securities or together own more than 5% of the issuer's securities. Investing in Minerals A Portfolio will not purchase interests in oil, gas, or other mineral exploration or development programs or leases, except it may purchase the securities of issuers which invest in or sponsor such programs and except pursuant to the exercise by the Municipal Income Portfolio of its rights under agreements relating to municipal securities. Arbitrage Transactions A Portfolio will not enter into transactions for the purpose of engaging in arbitrage. Purchasing Securities to Exercise Control A Portfolio will not purchase securities of a company for the purpose of exercising control or management, except to the extent that exercise by the Municipal Income Portfolio of its rights under agreements related to municipal securities would be deemed to constitute such control or management. None of the Portfolios borrowed money or loaned portfolio securities in excess of 5% of the value of its net assets during the last fiscal year, and no Portfolio has any present intent to do so in the coming fiscal year. Except with respect to the Portfolios' policy of borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such restriction. To comply with registration requirements in certain states, the Portfolios (1) will limit the aggregate value of the assets underlying covered call options or put options written by a Portfolio to not more than 25% of its net assets, (2) will limit the premiums paid for options purchased by a Portfolio to 5% of its net assets, (3) will limit the margin deposits on futures contracts entered into by a Portfolio to 5% of its net assets, and (4) will limit investment in warrants to 5% of its net assets. No more than 2% will be warrants which are not listed on the New York or American Stock Exchanges. Also to comply with certain state restrictions, the Growth Portfolio, Capital Growth Portfolio, and Income and Growth Portfolio will limit their investment in restricted securities to 5% of total assets. (If state requirements change, these restrictions may be revised without shareholder notification.) Management of the Trust Officers and Trustees Officers and Trustees are listed with their addresses, principal occupations, and present positions, including any affiliation with Cambridge Administrative Services, Cambridge Distributors, Inc., Cambridge Investment Advisors, Inc., and WFS Financial, Inc. Positions with Principal Occupations Name and Address the Trust During Past Five Years Daniel J. Ludeman* ** Chairman Chairman, Investment Management 901 E. Byrd Street and Trustee Group, Inc.; Managing Director, Richmond, Virginia 23219 WFS Financial Corp.; formerly, Managing Director, Wheat, First Securities. Peter J. Quinn, Jr.* ** President President, Cambridge Investment 901 E. Byrd Street and Trustee Advisors, Inc., Richmond, Virginia 23219 and Cambridge Distributors, Inc.; Director, Investment Management Group, Inc.; formerly, Senior Vice President/ Director of Mutual Funds, Wheat, First Securities. Paul F. Costello Senior Vice Senior Vice President, 901 E. Byrd Street President, Cambridge Investment Advisors, Richmond, Virginia 23219 Treasurer, and Inc., and Cambridge Secretary Distributors, Inc.; Director, Investment Management Group., Inc.; President, Mentor Series Trust and Cash Resource Trust; President and Chief Financial Officer, Variable Investors Series Trust; President and Treasurer, Atlantic Capital & Research, Inc.; Vice President and Treasurer, Variable Stock Fund, Inc., Monarch Investment Series Trust, and GEICO Tax Advantage Series Trust; Vice President, Monarch Life Insurance Company, GEICO Investment Services Company, Inc., Monarch Investment Services Company, Inc., and Springfield Life Insurance Company; formerly, Director, President and Chief Executive Officer, First Variable Life Insurance Company. Arnold H. Dreyfuss Trustee Formerly, Chairman and Chief 4421 Waterford Drive Executive Officer, Hamilton Glen Allen, Virginia 23060 Beach/Proctor-Silex, Inc.; Director, Mentor Growth Fund. Thomas F. Keller Trustee Dean, The Fuqua School of Duke University Business, Duke University, Durham, North Carolina Durham, NC. 27706 Louis W. Moelchert, Jr. Trustee Vice President for Business & Richmond, Virginia 23173 Finance, University of Richmond, Richmond, University of Richmond VA. Stanley F. Pauley Trustee Chairman, E. R. Carpenter P.O. Box 27205 Company, Inc. Richmond, Virginia 23261 Troy A. Peery, Jr.** Trustee President, Heilig-Meyers 2235 Staples Mill Road Company; Member, Board of Richmond, Virginia 23230 Directors, ACME Markets. * This Trustee is deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940. ** Members of the Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. Ownership of Portfolios Officers and Trustees own less than 1% of the outstanding Class A shares and Class B shares of each Portfolio. As of November 17, 1993, no shareholder of record owned 5% or more of the outstanding shares of any Portfolio. Trustee Liability The Trust's Declaration of Trust provides that the Trustees will not be liable for errors of judgment or mistakes of fact or law. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. Investment Advisory Services Investment Adviser The Trust's Investment Adviser is Cambridge Investment Advisors, Inc. It is the Investment Adviser's responsibility to select, subject to review and approval by the Trust's Board of Trustees and shareholders, the sub-advisers for the Portfolios (collectively, the "Sub-Advisers" and each individually the "Sub-Adviser") who have distinguished themselves in their respective areas of expertise in asset management and to review their continued performance. Cambridge Investment Advisors, Inc., is a wholly- owned subsidiary of Investment Management Group, Inc., which in turn is a wholly-owned subsidiary of WFS Financial, Inc. The Investment Adviser and the Sub-Advisers shall not be liable for any losses that may be sustained in the purchase, holding or sale of any security, or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. Investment Adviser Fees For performing its responsibilities, the Investment Adviser receives an annual investment advisory fee from each Portfolio as described in the Prospectus. The Investment Adviser, in turn, made payments to the Sub-Advisers for their services as stated in the section entitled "The Sub-Advisers." During the fiscal year ended September 30, 1993, and for the period from April 29, 1992 (date of initial public investment), to September 30, 1992, the Investment Adviser earned and waived advisory fees as follows: 1993 1992 Investment Investment Investment Investment Advisory Advisory Advisory Advisory Portfolio Fee Fee Waiver Fee Fee Waiver Growth Portfolio. . . . . . . . . .$ 316,743 $ 18,450 $ 62,102 $ 3,881 Capital Growth Portfolio. . . . . . 570,705 35,435 98,674 6,167 Government Income Portfolio . . . . 885,963 230,311 145,774 145,774 Municipal Income Portfolio. . . . . 378,268 374,138 64,430 64,430 Income and Growth Portfolio*. . . . 45,081 - - - * For the period May 24, 1993 (date of initial public investment), to September 30, 1993.
The Investment Adviser receives an annual investment advisory fee equal to 1.10% of the average daily net assets of the Global Portfolio up to and including $75 million and 1.00% of the average daily net assets of the Global Portfolio in excess of $75 million. State Expense Limitations The Investment Adviser has undertaken to comply with the expense limitation established by certain states for investment companies whose shares are registered for sale in those states. If a Portfolio's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2 1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 11/2% per year of the remaining average net assets, the Investment Adviser will reimburse the particular Portfolio for its expenses over the limitation. If a Portfolio's monthly projected operating expenses exceed this expense limitation, the investment advisory fee paid will be reduced by the amount of the excess, subject to an annual adjustment. If the expense limitation is exceeded, the amount to be reimbursed by the Investment Adviser will be limited, in any single fiscal year, by the amount of the investment advisory fee. This arrangement is not part of the Investment Advisory Agreement and may be amended or rescinded in the future. The Sub-Advisers Pursuant to a Sub-Advisory Agreement entered into between the Investment Adviser and each Sub-Adviser, each Portfolio is advised by a Sub-Adviser who has complete discretion to purchase and sell portfolio securities for the Portfolio to which it serves as the Sub- Adviser within the particular Portfolio's investment objective, restrictions, and policies. Kemper Financial Services, Inc. ("KFS"), serves as the Sub-Adviser to the Growth Portfolio under the terms of a Sub-Advisory Agreement between the Investment Adviser and KFS. KFS is a wholly-owned subsidiary of Kemper Financial Companies, Inc. ("KFC"). KFC is a business corporation incorporated under the laws of the State of Delaware. It was founded in 1986 and is a financial services holding company and a subsidiary of Kemper Corporation. Kemper Corporation was incorporated under the laws of the State of Delaware in 1968 and is a diversified insurance and financial services holding company. During the fiscal year ended September 30, 1993, and for the period from April 29, 1992 (date of initial public investment), to September 30, 1992, KFS earned $158,980 and $31,051, respectively, as its sub-advisory fee for services it provided on behalf of the Growth Portfolio. Phoenix Investment Counsel, Inc. ("PIC"), serves as the Sub-Adviser to the Capital Growth Portfolio under the terms of a Sub-Advisory Agreement between the Investment Adviser and PIC. PIC is a wholly-owned subsidiary of Phoenix Equity Planning Corporation, which was incorporated under the laws of the State of Connecticut in 1968, and is registered as a broker-dealer in fifty states. Phoenix Equity Planning Corporation is an indirect subsidiary of Phoenix Home Life Mutual Insurance Company. Phoenix Home Life Mutual Insurance Company has been engaged in the business of writing ordinary and group life and health insurance and annuities since 1861. During the fiscal year ended September 30, 1993, and for the period from April 29, 1992 (date of initial public investment), to September 30, 1992, PIC earned $286,476 and $49,337, respectively, as its sub- advisory fee for services it provided on behalf of the Capital Growth Portfolio. Pacific Investment Management Company ("PIMCO") serves as the interim Sub- Adviser to the Government Income Portfolio under the terms of a Sub-Advisory Agreement between the Investment Adviser and PIMCO. Federated Advisers is a wholly-owned subsidiary of Federated Investors. The terms of this agreement, including compensation, are identical to those of the previous sub-advisory agreement between Federated Advisers and the Trust, except that the agreement will terminate upon the earlier to occur of (1) 120 days from commencement of the agreement or (2) final adjournment of the meeting of the shareholders of the Government Income Portfolio held for the purpose of approving a new advisory agreement with PIMCO. It is currently anticipated that this shareholders meeting will be held during the first quarter of 1994. PIMCO, established in 1971, provides investment advisory services to investment companies, pension plans, foundations, endowments and other institutions located both in the U.S. and abroad. As of November 30, 1993, PIMCO had over $52.6 billion of assets under management, of which approximately $26.0 billion were invested in U.S. Government securities. PIMCO, a wholly owned subsidiary of Pacific Mutual Life Insurance Company, is located at 840 Newport Center Drive, Suite 360, Newport Beach, California 92660. Van Kampen Merritt Management Inc. ("VKMMI") serves as the Sub-Adviser to the Municipal Income Portfolio under the terms of a Sub-Advisory Agreement between the Investment Adviser and VKMMI. VKMMI is a wholly-owned subsidiary of The Van Kampen Merritt Companies, Inc., which, in turn, is a wholly-owned subsidiary of VKM Holding, Inc. VKM Holding, Inc., is indirectly controlled by Clayton & Dubilier Associates IV Limited Partnership, the general partners of which are Joseph L. Rice, III, B. Charles Ames, Alberto Cribiore, Donald J. Gogel, and Hubbard C. Howe, each of whom is a principal of Clayton, Dubilier & Rice, Inc., a New York-based private investment firm. During the period from February 17, 1993, to September 30, 1993, VKMMI earned $132,315 as its sub- advisory fee for services it provided on behalf of the Municipal Income Portfolio, of which $130,250 was voluntarily waived. For the period from October 1, 1992, to February 16, 1993, and from April 29, 1992 (date of initial public investment), to September 30, 1992, Van Kampen Merritt Investment Advisory Corp., the Portfolio's former sub-adviser, earned $56,819 and $32,215, respectively, as its sub-advisory fees for services it provided on behalf of the Portfolio, all of which were voluntarily waived. Wellington Management Company ("WMC") serves as the Sub-Adviser to the Income and Growth Portfolio under the terms of a Sub-Advisory Agreement between the Investment Adviser and WMC. WMC is a professional investment counseling firm which provides investment services to investment companies, employee benefit plans, endowments, foundations, and other institutions and individuals. During the period from May 24, 1993 (date of initial public investment), to September 30, 1993, WMC earned $22,521 as it sub-advisory fee for services it provided on behalf of the Income and Growth Portfolio. Scudder, Stevens & Clark, Inc. ("Scudder") serves as the Sub-Adviser to the Global e Global Portfolio under the terms of a Sub-Advisory Agreement between the Investment Adviser and Scudder. Scudder is an investment counseling firm which was established as a partnership in 1919. In 1953, Scudder introduced Scudder International Fund, the first mutual fund registered with the Commission in the U.S. investing internationally in securities of issuers in several foreign countries. The Investment Adviser pays the Sub- Adviser an annual fee expressed as a percentage of Global Portfolio assets: .55% on the first $75 million in Global Portfolio assets and .50% on assets over $75 million. Distribution of Portfolio Shares Cambridge Distributors, Inc., is the principal distributor of Portfolio shares, as explained in the prospectus. Federated Securities Corp. is the co-distributor of Portfolio shares. During the fiscal year ended September 30, 1993, the distributors, both affiliated parties of the Trust, received the following commissions and other compensation: Net Underwriting Compensation on Discounts and Redemption and Brokerage* Other Name of Principal Underwriter Commissions Repurchases Commissions Compensation Cambridge Distributors, Inc.. . . .$240,655 $ 196,488 $ - $1,823,243 Federated Securities Corp.. . . . .$ - $ - $ - $ - * "Other Compensation" represents $1,250,734 for services performed under the Trust's Distribution Plan and $572,509 for services performed under the Trust's Shareholder Servicing Plan.
Administrative Services Cambridge Administrative Services, which is a subsidiary of Federated Investors, provides administrative personnel and services to the Portfolios for the fees set forth in the Prospectus. During the fiscal year ended September 30, 1993, and for the period from April 29, 1992 (date of initial public investment), to September 30, 1992, the Portfolios incurred costs for administrative services as follows: 1993 1992 Administrative Administrative Administrative Administrative Portfolio Fee Fee Waiver Fee Fee Waiver Growth Portfolio. . . . . . $ 55,468 $ 20,121 $ 9,713 $ 5,051 Capital Growth Portfolio. . 104,427 36,269 15,410 8,013 Government Income Portfolio 184,593 41,518 30,370 30,370 Municipal Income Portfolio.. 97,110 34,261 13,423 13,423 Income and Growth Portfolio* 7,514 3,005 - - * For the period May 24, 1993 (date of initial public investment), to September 30, 1993.
Shareholder Servicing Plan The Trust has adopted a Shareholder Servicing Plan (the "Service Plan") with respect to both classes of shares of each Portfolio. Pursuant to the Service Plan, financial institutions will enter into shareholder service agreements with the Portfolios to provide administrative support services to their customers who from time to time may be owners of record or beneficial owners of shares of one or more Portfolios. In return for providing these support services, a financial institution may receive payments from one or more Portfolios at a rate not exceeding .25% of the average daily net assets of the Class A or Class B shares of the particular Portfolio or Portfolios beneficially owned by the financial institution's customers for whom it is holder of record or with whom it has a servicing relationship. The Service Plan is designed to stimulate financial institutions to render administrative support services to the Portfolios and their shareholders. These administrative support services include, but are not limited to, the following functions: providing office space, equipment, telephone facilities, and various personnel including clerical, supervisory, and computer as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries regarding the Portfolios; assisting clients in changing dividend options, account designations and addresses; and providing such other services as the Portfolios reasonably easonably request. Among the benefits the Board of Trustees expects to achieve in adopting the Service Plan are the following: (1) an efficient and effective administrative system; (2) a more efficient use of shareholder assets by having them rapidly invested in the Portfolios, through an automatic transfer of funds from a demand deposit account to an investment account, with a minimum of delay and administrative detail; and (3) an efficient and reliable shareholder records system and prompt responses to shareholder requests and inquiries concerning their accounts. In addition to receiving payments under the Service Plan, financial institutions may be compensated by the Investment Adviser, a Sub-Adviser, and/or the administrator, or affiliates thereof, for providing administrative support services to holders of Class A or Class B shares of the Portfolios. These payments will be made directly by the Investment Adviser, a Sub-Adviser, and/or the administrator and will not be made from the assets of any of the Portfolios. During the fiscal year ended September 30, 1993, and for the period from April 29, 1992 (date of initial public investment), to September 30, 1992, the Portfolios incurred shareholder service fees under the Service Plan (all of which was received by the Distributor) as follows: Portfolio 1993 1992 Growth Portfolio. . . . . . . . . . . . . . . . . $98,981 $19,407 Capital Growth Portfolio. . . . . . . . . . . . . 178,345 30,836 Government Income Portfolio . . . . . . . . . . . 369,151 60,739 Municipal Income Portfolio. . . . . . . . . . . . 157,611 26,846 Income and Growth Portfolio*. . . . . . . . . . . 15,027 - * For the period May 24, 1993 (date of initial public investment), to September 30, 1993. Brokerage Transactions When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, a Sub-Adviser looks for prompt execution of the order at the best overall terms available. In working with dealers, a Sub-Adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. A Sub-Adviser makes decisions on portfolio transactions and selects brokers and dealers subject to guidelines established by the Board of Trustees. A Sub-Adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Portfolios or to a Sub-Adviser and may include: . advice as to the advisability of investing in securities; . security analysis and reports; . economic studies; . receipt of quotations for portfolio evaluations; and . similar services. A Sub-Adviser and its affiliates exercise reasonable judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. Research services provided by brokers may be used by a Sub-Adviser in advising a Portfolio and other accounts. To the extent that receipt of these services may supplant services for which a Sub-Adviser or its affiliates might otherwise have been paid, it would tend to reduce their expenses, but it is not expected that such reduction will be material. During the fiscal year ended September 30, 1993, and for the period from April 29, 1992 (date of initial public investment), to September 30, 1992, the Portfolios paid brokerage commissions on brokerage transactions as follows: Portfolio 1993 1992 Growth Portfolio. . . . . . . . . . . . . . . . . $173,167 $ 40,337 Capital Growth Portfolio. . . . . . . . . . . . . 334,227 75,352 Government Income Portfolio . . . . . . . . . . . - - Municipal Income Portfolio. . . . . . . . . . . . - - Income and Growth Portfolio*. . . . . . . . . . . 25,668 - * For the period May 24, 1993 (date of initial public investment), to September 30, 1993. Wheat First Butcher & Singer Capital Markets ("Wheat First"), an affiliated party of the Investment Adviser, received for the fiscal year ended September 30, 1993, and for the period from April 29, 1992 (date of initial public investment), to September 30, 1992, brokerage commissions of $120,726 and $42,656, respectively, for services performed on behalf of certain of the Portfolios, as follows: 1993 1992 Growth Portfolio. . . . . . . . . . . . . . . . . $ 3,297 $ - Capital Growth Portfolio. . . . . . . . . . . . . 113,126 42,656 Income and Growth Portfolio*. . . . . . . . . . . 4,303 - * For the period May 24, 1993 (date of initial public investment), to September 30, 1993. During the fiscal year ended September 30, 1993, with respect to the Growth Portfolio, the brokerage commissions received by Wheat First represented 1.90% of the aggregate brokerage commissions paid by the Portfolio and represented 2.12% of the Portfolio's transactions effected through brokers. Also during the same period, the brokerage commissions received by Wheat First on behalf of the Capital Growth Portfolio represented 32.86% of the aggregate brokerage commissions paid by the Portfolio and represented 38.45% of the Portfolio's transactions effected through brokers. With respect to the Income and Growth Portfolio, during the period May 24, 1993 (date of initial public investment), to September 30, 1993, the brokerage commissions received by Wheat First represented 16.76% of the aggregate brokerage commissions paid by the Portfolio and represented 10.64% of the Portfolio's transactions effected through brokers. How to Buy Shares Except under certain circumstances described in the Prospectus, Class A shares of the Portfolios are sold at their net asset value plus an applicable sales charge on days the New York Stock Exchange is open for business. Class B shares of the Portfolios are sold at their net asset value with no sales charge on days the New York Stock Exchange is open for business. The procedure for purchasing Class A and Class B shares of the Portfolios is explained in the Prospectus under the section entitled "How to Buy Shares." Dealers will be compensated on purchases of Class A shares in accordance to the following schedule: Amount of Purchase Dealer Commission Less than $2 million . . 1.00% $2 million but less than $3 million .80% $3 million but less than $50 million .50% $50 million but less than $100 million .25% $100 million or more . . .15% The above commission will be paid by the Distributor and not the Trust or its shareholders. Distribution Plan (Class B Shares) With respect to the Class B shares of the Portfolios, the Trust has adopted a Plan pursuant to Rule 12b-1, which was promulgated by the SEC under the Investment Company Act of 1940 (the "Plan"). The Plan provides for payment of fees to the Distributor to finance any activity which is principally intended to result in the sale of Class B shares of the Portfolios. Such activities may include the advertising and marketing of Class B shares; preparing, printing and distributing prospectuses and sales literature to prospective shareholders, brokers or administrators; and implementing and operating the Plan. Pursuant to the Plan, the Distributor may pay fees to brokers for distribution services as to Class B shares. The Board of Trustees expects that the adoption of the Plan will result in the sale of a sufficient number of Class B shares of the Portfolios so as to allow each Portfolio to achieve economic viability. It is also anticipated that an increase in the size of each Portfolio will facilitate more efficient portfolio management and assist each Portfolio in seeking to achieve its investment objective. Pursuant to the Plan, during the fiscal year ended September 30, 1993, and for the period from April 29, 1992 (date of initial public investment), to September 30, 1992, financial institutions (such as a broker/dealer or bank) received fees for services provided on behalf of Class B shares of the Portfolios as follows, all of which was received by the Distributor: Portfolio 1993 1992 Growth Portfolio. . . . . . . . . . . . . . . . . $178,568 $28,703 Capital Growth Portfolio. . . . . . . . . . . . . 326,101 48,323 Government Income Portfolio . . . . . . . . . . . 512,241 73,217 Municipal Income Portfolio. . . . . . . . . . . . 193,150 27,412 Income and Growth Portfolio*. . . . . . . . . . . 26,967 - * For the period May 24, 1993 (date of initial public investment), to September 30, 1993. Conversion to Federal Funds The Shareholder Services Group, Inc., acts as the shareholder's agent in depositing checks and converting them to federal funds. Purchases at Net Asset Value Class A shares of the Portfolios may be purchased at net asset value, without a sales charge, by the following: advisory accounts through registered investment advisers; bank trust departments purchasing on behalf of their clients; Trustees, emeritus trustees, employees and retired employees of the Trust; or directors, emeritus directors, employees and retired employees of the Distributor, or affiliates thereof, or any financial institution who has a sales agreement with the Distributor with regard to the Trust. Spouses and children under age 21 of the foregoing persons may also buy Class A shares of the Portfolios at net asset value with no sales charge. Determining Net Asset Value Net asset value generally changes each day. The days on which net asset value is calculated by each Portfolio are described in the Prospectus. Net asset value will not be calculated on days on which the New York Stock Exchange is closed. Determining Market Value of Securities Market values of each Portfolio's portfolio securities are determined as follows: . according to the last sale price on a national securities exchange, if available; . in the absence of recorded sales for equity securities, according to the mean between the last closing bid and asked prices, and for bonds and other fixed income securities as determined by an independent pricing service; or . for short-term obligations, according to the prices as furnished by an independent pricing service or for short-term obligations with maturities of less than 60 days, at amortized cost, or at fair value as determined in good faith by the Board of Trustees. Prices provided by independent pricing services may be determined without relying exclusively on quoted prices and may consider yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. Over-the-counter put options will be valued at the mean between the bid and the asked prices. Covered call options will be valued at the last sale price on the national exchange on which such option is traded. Unlisted call options will be valued at the latest bid price as provided by brokers. Following the calculation of security values in terms of currency in which the market quotation used is expressed ("local currency"), the valuing agent shall calculate these values in terms of U.S. dollars on the basis of the conversion of the local currencies (if other than U.S.) into U.S. dollars at the rates of exchange prevailing at the value time as determined by the valuing agent. Trading in securities on European and Far Eastern securities exchanges and over- the- counter markets is normally completed well before the close of business on each business day in New York (i.e., a day on which the Exchange is open). In addition, European or Far Eastern securities trading generally or in a particular country or countries may not take place on all business days in New York. Furthermore, trading takes place in Japanese markets on certain Saturdays and in various foreign markets on days which are not business days in New York and on which the Global Portfolio's net asset value is not calculated. The Global Portfolio calculates net asset value per share, and therefore effects sales, redemptions and repurchases of its shares, as of the close of the Exchange once on each day on which the Exchange is open. Such calculation does not take place contemporaneously with the determination of the prices of the majority of the portfolio securities used in such calculation. If events materially affecting the value of such securities occur between the time when their price is determined and the time when the Global Portfolio's net asset value is calculated, such securities will be valued at fair value as determined in good faith by the Board of Trustees. Exchange Privilege The SEC has issued an order exempting the Trust from certain provisions of the Investment Company Act of 1940. As a result, shareholders of the Portfolios are allowed to exchange all or some of their Class A or Class B shares with no sales charge or contingent deferred sales charge ("CDSC"), as described in the Prospectus. For a complete description of the exchange privilege, see the section in the Prospectus entitled "Exchange Privilege." Redeeming Shares The Portfolios redeem shares at the next computed net asset value, less the applicable CDSC, after the particular Portfolio receives the redemption request. Redemption procedures are explained in the Prospectus under the section entitled "Redeeming Shares." Although The Shareholder Services Group, Inc., does not charge for telephone redemptions, it reserves the right to charge a fee for the cost of wire-transferred redemptions. Contingent Deferred Sales Charge During certain periods, Class A shares of the Portfolios were eligible to be purchased at net asset value (without a sales charge) with the proceeds from the redemption, sale, or maturity of other investments and may, therefore, be subject to a CDSC as explained in the prospectus. The eligible period for the Income and Growth Portfolio was prior to July 31, 1993. For the Growth Portfolio, Capital Growth Portfolio, Government Income Portfolio, and Municipal Income Portfolio, these eligible periods were (1) prior to June 30, 1992, and (2) from December 1, 1992, through and including January 31, 1993. Redemptions in Kind Although the Trust intends to redeem Class A and Class B shares in cash, it reserves the right under certain circumstances to pay the redemption price in whole or in part by a distribution of securities from the respective Portfolio's investment portfolio. To the extent available, such securities will be readily marketable. Redemption in kind will be made in conformity with applicable SEC rules, taking such securities at the same value employed in determining net asset value and selecting the securities in a manner that the Trustees determine to be fair and equitable. The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act of 1940, under which, with respect to each Portfolio, the Trust is obligated to redeem Class A or Class B shares for any one shareholder in cash only up to the lesser of $250,000 or 1% of the respective class's net asset value during any 90-day period. Tax Status The Portfolios' Tax Status The Portfolios expect to pay no federal income tax because they expect to meet the requirements of Subchapter M of the Internal Revenue Code, as amended, applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. To qualify for this treatment, each Portfolio must, among other requirements: . derive at least 90% of its gross income from dividends, interest and gains from the sale of securities; . derive less than 30% of its gross income from the sale of securities held less than three months; . invest in securities within certain statutory limits; and . distribute to its shareholders at least 90% of its net income earned during the year. Each Portfolio will be treated as a single, separate entity for federal income tax purposes so that income and losses (including capital gains and losses) realized by a Portfolio will not be combined for tax purposes with income and losses realized by any of the other Portfolios. The Global Portfolio intends to qualify for and may make the election permitted under Section 853 of the Internal Revenue Code so that shareholders may (subject to limitations) be able to claim a credit or deduction on their federal income tax returns for, and may be required to treat as part of the amounts distributed to them, their pro rata portion of qualified taxes paid by the Portfolio to foreign countries (which taxes relate primarily to investment income). The Global Portfolio may make an election under Section 853 of the Internal Revenue Code, provided that more than 50% of the value of the total assets of the Global Portfolio at the close of the taxable year consists of securities in foreign corporations. The foreign tax credit available to shareholders is subject to certain limitations imposed by the Internal Revenue Code. If the Global Portfolio invests in stock of certain foreign investment companies, the Global Portfolio may be subject to U.S. federal income taxation on a portion of any "excess distribution" with respect to, or gain from the disposition of, such stock. The tax would be determined by allocating such distribution or gain ratably to each day of the Global Portfolio's holding period for the stock. The distribution or gain so allocated to any taxable year of the Global Portfolio, other than the taxable year of the excess distribution or disposition, would be taxed to the Global Portfolio at the highest ordinary income rate in effect for such year, and the tax would be further increased by an interest charge to reflect the value of the tax deferral deemed to have resulted from the ownership of the foreign company's stock. Any amount of distribution or gain allocated to the taxable year of the distribution or disposition would be included in the Global Portfolio's investment company taxable income and, accordingly, would not be taxable to the Global Portfolio to the extent distributed by the Global Portfolio as a dividend to its shareholders. Proposed regulations have been issued which may allow the Global Portfolio to make an election to mark to market its shares of these foreign investment companies in lieu of being subject to U.S. federal income taxation. At the end of each taxable year to which the election applies, the Global Portfolio would report as ordinary income the amount by which the fair market value of the foreign company's stock exceed the Global Portfolio's adjusted basis in these shares. No mark to market losses would be recognized. The effect of the election would be to treat excess distributions and gain on dispositions as ordinary income which is not subject to a fund level tax when distributed to shareholders as a dividend. Alternatively, the Global Portfolio may elect to include as income and gain their share of the ordinary earnings and net capital gain of certain foreign investment companies in lieu of being taxed in the manner described above. Many futures contracts (including foreign currency futures contracts) entered into by the Global Portfolio, certain forward foreign currency contracts, and all listed nonequity options written or purchased by the Global Portfolio (including options on debt securities, options on futures contracts, options on securities indices and options on broad-based stock indices) will be governed by Section 1256 of the Internal Revenue Code. Absent a tax election to the contrary, gain or loss attributable to the lapse, exercise or closing out of any such position generally will be treated as 60% long-term and 40% short- term capital gain or loss, and on the last trading day of the Global Portfolio's fiscal year, all outstanding Section 1256 positions will be marked to market (i.e., treated as if such positions were closed out at their closing price on such day), with any resulting gain or loss recognized. Under certain circumstances, entry into a futures contract to sell a security may constitute a short sale for federal income tax purposes, causing an adjustment in the holding period of the underlying security or a substantially identical security in the Global Portfolio. Under Section 988 of the Internal Revenue Code, discussed below, foreign currency gains or loss from foreign currency related forward contracts, certain futures and similar financial instruments entered into or acquired by a Global Portfolio will be treated as ordinary income or loss. Under the Internal Revenue Code, gains or losses attributable to fluctuations in exchange rates which occur between the time the Global Portfolio accrues receivables or liabilities denominated in a foreign currency and the time the Global Portfolio actually collects such receivables, or pays such liabilities, generally are treated as ordinary income or ordinary loss. Similarly, on disposition of debt securities denominated in a foreign currency and on disposition of certain futures and forward contracts, gains or losses attributable to fluctuations in the value of foreign currency between the date of acquisition of the security or contract and the date of disposition are also treated as ordinary gain or loss. These gains or losses, referred to under the Internal Revenue Code as "Section 988" gains or losses, may increase or decrease the amount of the Global Portfolio's investment company taxable income to be distributed to its shareholders as ordinary income. A portion of the difference between the issue price of zero coupon securities and their face value ("original issue discount") is considered to be income to a Portfolio each year, even though the Portfolio will not receive cash interest payments from these securities. This original issue discount imputed income will comprise a part of the investment company taxable income of the Portfolios which must be distributed to shareholders in order to maintain the qualification of the Portfolios as regulated investment companies and to avoid federal income tax at the level of the Portfolios. Shareholders' Tax Status Except as described below for the Municipal Income Portfolio, unless otherwise exempt, shareholders are subject to federal income tax on dividends and capital gains received as cash or additional shares. With respect to the Government Income and Municipal Income Portfolios, no portion of any income dividend paid by a Portfolio is expected to be eligible for the dividends received deduction available to corporations. With respect to the Growth, Capital Growth, Income and Growth and Global Portfolios, the dividends received deduction for corporations will apply to ordinary income distributions to the extent the distribution represents amounts that would qualify for the dividends received deduction to a particular Portfolio if that Portfolio were a regular corporation and to the extent designated by a Portfolio as so qualifying. These dividends and any short-term capital gains are taxable as ordinary income. Capital Gains Shareholders will pay federal tax on long-term capital gains distributed to them regardless of how long they have held the shares of the particular Portfolio. Shareholders of the Municipal Income Portfolio are not required to pay the federal regular income tax on any dividends received from the Portfolio that represent net interest on tax-exempt municipal bonds. However, under the Tax Reform Act of 1986, dividends representing net interest earned on some municipal bonds may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. For a more complete discussion of shareholders' tax status, including a discussion of the individual alternative minimum tax and the corporate alternative minimum tax, see the section of the prospectus entitled "Tax Information." Total Return The average annual total return for both classes of shares of the following Portfolios for the fiscal year ended September 30, 1993, were as follows: Since Inception* Portfolio Class A Class B Class A Class B Growth Portfolio. . . . . . 11.75% 16.34% 7.90% 11.71% Capital Growth Portfolio. . 2.24% 6.54% 2.13% 5.71% Government Income Portfolio 0.38% 3.81% 2.68% 5.76% Municipal Income Portfolio. 10.52% 14.19% 11.33% 14.64% * For the period from April 29, 1992 (date of initial public investment), to September 30, 1993. The average annual total return for a Portfolio is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the maximum offering price per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, less any applicable sales load, adjusted over the period by any additional shares, assuming the monthly, quarterly, or semi-annual (as applicable) reinvestment of all dividends and distributions. Any applicable CDSC is deducted from the ending value of the investment based on the lesser of the original purchase price or the net asset value of shares redeemed. The cumulative total return for Class A and Class B shares of the Income and Growth Portfolio for the period from May 24, 1993 (date of initial public investment), to September 30, 1993, were -0.33% and 4.55%, respectively. Cumulative total return reflects a Portfolio's total performance over a specific period of time. This total return assumes and is reduced by the payment of the maximum sales load and CDSC. The Portfolio's total return is representative of only four months of activity since the Portfolio's effective date. Yield The thirty-day yield for both classes of shares of the Portfolios for the period ending September 30, 1993, were as follows: Portfolio Class A Class B Growth Portfolio . . . . . . .-0.69% -1.48% Capital Growth Portfolio . . . 0.42% -0.30% Government Income Portfolio. . 2.66% 2.29% Municipal Income Portfolio . . 5.14% 4.90% Income and Growth Portfolio* . 1.66% 1.00% * For the period May 24, 1993 (date of initial public investment), to September 30, 1993. The yield for both classes of each Portfolio is determined by dividing the net investment income per share (as defined by the SEC) earned by the particular Portfolio over a thirty- day period by the maximum offering price per share of the particular Portfolio on the last day of the period. This value is then annualized using semi-annual compounding. This means that the amount of income generated during the thirty-day period is assumed to be generated each month over a twelve-month period and is reinvested every six months. The yield does not necessarily reflect income actually earned by the particular Portfolio because of certain adjustments required by the SEC and, therefore, may not correlate to the dividends or other distributions paid to shareholders. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in a Portfolio, the performance will be reduced for those shareholders paying those fees. Tax-Equivalent Yield (Municipal Income Portfolio) The tax-equivalent yield for Class A shares of the Municipal Income Portfolio for the thirty-day period ended September 30, 1993, was 8.51%. The tax-equivalent yield for the Class B shares was 8.11% for the same period. The tax-equivalent yield for both classes of the Municipal Income Portfolio is calculated similarly to the yield, but is adjusted to reflect the taxable yield that the Portfolio would have had to earn to equal its actual yield, assuming a 39.6% tax rate (the maximum effective federal rate for individuals) and assuming that income is 100% tax- exempt. Tax-Equivalency Table The Portfolio may also use a tax-equivalency table in advertising and sales literature. The interest earned by the municipal bonds in the Portfolio's investment portfolio generally remains free from federal regular income tax* but may be subject to state and local taxes. Capital gains, if any, are subject to federal, state and local tax. As the table below indicates, a "tax-fee" investment is an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. Taxable Yield Equivalent for 1993 Federal Income Tax Bracket: 15.00% 28.00% 31.00% 36.00% 39.60% Joint Return: $1-36,900 $36,901-89,150 $89,151-140,000 $140,001-250,000 Over $250,000 Single Return: $1-22,100 $22,101-53,500 $53,501-115,000 $115,001-250,000 Over $250,000
Tax-Exempt Yield Taxable Yield Equivalent 2.50% 2.94% 3.47% 3.62% 3.91% 4.14% 3.00 3.53 4.17 4.35 4.69 4.97 3.50 4.12 4.86 5.07 5.47 5.79 4.00 4.71 5.56 5.80 6.25 6.62 4.50 5.29 6.25 6.52 7.03 7.45 5.00 5.88 6.94 7.25 7.81 8.28 5.50 6.47 7.64 7.97 8.59 9.11 6.00 7.06 8.33 8.70 9.38 9.93 6.50 7.65 9.03 9.42 10.16 10.76 7.00 8.24 9.72 10.14 10.94 11.59 7.50 8.82 10.42 10.87 11.72 12.42 8.00 9.41 11.11 11.59 12.50 13.25 8.50 10.00 11.81 12.32 13.28 14.07 Note: The maximum marginal tax rate for each bracket was used in calculating the taxable yield equivalent. The table above is for illustrative purposes only. It is not an indicator of past or future performance of the Portfolio. * Some portion of the Portfolio's income maybe subject to the federal alternative minimum tax and state and local taxes. Performance Comparisons The performance of Class A and Class B shares of each Portfolio depends upon such variables as: . portfolio quality; . average portfolio maturity; . type of instruments in which the particular Portfolio is invested; . changes in the expenses of the Trust or Class A or Class B shares of a particular Portfolio; and . various other factors. The performance of each Portfolio's Class A and Class B shares fluctuates on a daily basis largely because net earnings and net asset value per share fluctuate daily. Both net earnings and net asset value per share are factors in the computation of yield and total return for each class of the Portfolios. From time to time each Portfolio may advertise its performance of both classes of shares of the Portfolios compared to similar funds or portfolios using certain indices, reporting services, and financial publications. These may include the following: . Lipper Analytical Services, Inc., ranks funds in various fund categories by making comparative calculations using total return. Total return assumes the reinvestment of all capital gains distributions and income dividends and takes into account any change in net asset value over a specified period of time. From time to time, a Portfolio will quote its Lipper ranking in advertising and sales literature. . Dow Jones Industrial Average ("DJIA") is an unmanaged index representing share prices of major industrial corporations, public utilities, and transportation companies. Produced by the Dow Jones & Company, it is cited as a principal indicator of market conditions. . Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a composite index of common stocks in industry, transportation, and financial and public utility companies, can be used to compare to the total returns of funds whose portfolios are invested primarily in common stocks. In addition, the Standard & Poor's index assumes reinvestments of all dividends paid by stocks listed on its index. Taxes due on any of these distributions are not included, nor are brokerage or other fees calculated, in the Standard & Poor's figures. . Consumer Price Index is generally considered to be a measure of inflation. . CDA Mutual Fund Growth Index is a weighted performance average of other mutual funds with growth of capital objectives. . Lipper Growth Fund Index is an average of the net asset-valuated total returns for the top 30 growth funds tracked by Lipper Analytical Services, Inc., an independent mutual fund rating service. . Shearson Lehman Government/Corporate (Total) Index is comprised of approximately 5,000 issues, which include non-convertible bonds publicly issued by the U.S. government or its agencies; corporate bonds guaranteed by the U.S. government and quasi- federal corporations; and publicly issued, fixed-rate, non-convertible domestic bonds of companies in industry, public utilities and finance. The average maturity of these bonds approximates nine years. Tracked by Shearson Lehman Brothers Inc., the index calculates total returns for one month, three month, twelve month and ten year periods and year-to-date. . Shearson Lehman Government Index is an unmanaged index comprised of all publicly issued, non-convertible domestic debt of the U.S. government, or any agency thereof, or any quasi-federal corporation and of corporate debt guaranteed by the U.S. government. Only notes and bonds with a minimum outstanding principal of $1 million and a minimum maturity of one year are included. . Morningstar, Inc., an independent rating service, is the publisher of the bi- weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000 NASDAQ-listed mutual funds of all types, according to their risk-adjusted returns. The maximum rating is five stars, and ratings are effective for two weeks. . Russell Growth 1000 (Russell 1000 Index) is a broadly diversified index consisting of approximately 1,000 common stocks of companies with market values between $20 million and $300 million that can be used to compare the total returns of funds whose portfolios are invested primarily in growth common stocks. . Shearson Lehman Aggregate Bond Index is a total return index measuring both the capital price changes and income provided by the underlying universe of securities, weighted by market value outstanding. The Aggregate Bond Index is comprised of the Shearson Lehman Government Bond Index, Corporate Bond Index, Mortgage-Backed Securities Index, and Yankee Bond Index. These indices include: U.S. Treasury obligations, including bonds and notes; U.S. agency obligations, including those of the Federal Farm Credit Bank, Federal Land Bank, and the Bank for Cooperatives; foreign obligations; and U.S. investment-grade corporate debt and mortgage-backed obligations. All corporate debt included in the Aggregate Bond Index has a minimum S&P rating of BBB, a minimum Moody's rating of Baa, or a minimum Fitch rating of BBB. . Salomon Brothers Mortgage-Backed Securities Index-15 Years includes the average of all 15-year mortgage securities, which include Federal Home Loan Mortgage Corporation (Freddie Mac), Federal National Mortgage Association (Fannie Mae), and Government National Mortgage Association (Ginnie Mae). . Shearson Lehman Municipal Bond Index is a total return performance benchmark for the long-term, investment-grade tax-exempt bond market. Returns and attributes for the Index are calculated semi-monthly using approximately 21,000 municipal bonds, which are priced by Muller Data Corporation. From time to time, the Global Portfolio may advertise its performance of both classes of shares of the Portfolio compared to similar funds or portfolios using certain indices, reporting services, and financial publications. These may include the following: Morgan Stanley Capital International World Index, The Morgan Stanley Capital International EAFE (Europe, Australia, Far East) index, J. P. Morgan Global Traded Bond Index, Salomon Brothers World Government Bond Index, and the Standard & Poor's 500 Composite Stock Price Index (S&P 500). The Global Portfolio also may compare its performance to the performance of unmanaged stock and bond indices, including the total returns of foreign government bond markets in various countries. All index returns are translated into U.S. dollars. The total return calculation for these unmanaged indices may assume the reinvestment of dividends and any distributions, if applicable, may include withholding taxes, and generally do not reflect deductions for administrative and management costs. Investors may use such indices or reporting services in addition to the Trust's Prospectus to obtain a more complete view of a particular Portfolio's performance before investing. Of course, when comparing a Portfolio's performance to any index, conditions such as composition of the index and prevailing market conditions should be considered in assessing the significance of such comparisons. When comparing funds using reporting services, or total return and yield, investors should take into consideration any relevant differences in funds, such as permitted portfolio compositions and methods used to value portfolio securities and compute net asset value. Advertisements and other sales literature for the Trust may quote total returns which are calculated on non-standardized base periods. These total returns also represent the historic change in the value of an investment in the Trust based on monthly reinvestment of dividends over a specified period of time. From time to time the Portfolios may advertise their performance, using charts, graphs, and descriptions, compared to federally insured bank products, including certificates of deposit and time deposits, and to money market funds using the Lipper Analytical Service money market instruments average. Advertisements may quote performance information which does not reflect the effect of the sales load. Financial Statements The financial statements for the fiscal year ended September 30, 1993, are incorporated herein by reference to the combined Annual Report of the Trust dated September 30, 1993 (File Nos. 33-45315 and 811-6550). You may request a copy of the combined Annual Report free of charge by writing the Trust or by calling 1-800-382-0016. Appendix Moody's Investors Service, Inc., Long-Term Municipal Debt Ratings Aaa-bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa-Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group, they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A-Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa-Bonds which are rated Baa are considered as medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba-Bonds which are Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B-Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes possess the strongest investment attributes are designated by the symbols Aa1, A1, Baa1, Ba1 and B1. Standard and Poor's Corporation Long-Term Municipal Debt Ratings AAA-Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA-Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree. A-Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB-Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB, B, CCC, CC-Debt rated BB, B, CCC and CC is regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and CC the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties of major risk exposure to adverse conditions. Plus (+) or Minus (-): The ratings from "A" to "B" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Moody's Investors Service, Inc., Short-Term Loan Ratings MIG1/VMIG1-This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broadbased access to the market for refinancing. MIG2/VMIG2-This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. Standard and Poor's Corporation Municipal Note Ratings SP-1-Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus (+) designation. SP-2-Satisfactory capacity to pay principal and interest. Fitch Investors Service, Inc., Short-Term Debt Ratings F-1+-Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment. F-1-Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated F-1+. F-2-Good Credit Quality. Issues carrying this rating have a satisfactory degree of assurance for timely payment. Moody's Investors Service, Inc., Commercial Paper Ratings P-1-Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. PRIME-1 repayment capacity will normally be evidenced by the following characteristics: conservative capitalization structures with moderate reliance on debt and ample asset protection; broad margins in earning coverage of fixed financial charges and high internal cash generation; and well- established access to a range of financial markets and assured sources of alternate liquidity. P-2-Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Standard and Poor's Corporation Commercial Paper Ratings A-1-This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) sign designation. A-2-Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as high as for issues designated A-1. PART C. OTHER INFORMATION. Item 24. Financial Statements and Exhibits: (a) Financial Statements (Incorporated into the Statement of Additional Information by reference to Registrant's Annual Report dated September 30, 1993). (b) Exhibits: (1)Conformed copy of Declaration of Trust of the Registrant, with Amendment Nos. 1 and 2 (4.); (2)Copy of By-Laws of the Registrant (2.); (3)Not applicable; (4)(i) Copy of Specimen Certificates for both Class A and Class B Shares of Beneficial Interest of the Cambridge Growth Portfolio, Cambridge Capital Growth Portfolio, Cambridge Government Income Portfolio and Cambridge Municipal Income Portfolio (2.); (ii) Copy of Specimen Certificates for both Class A and Class B Shares of Beneficial Interest of the Cambridge Income and Growth Portfolio (4.); (iii) Copy of Specimen Certificates for both Class A and Class B Shares of Beneficial Interest of the Cambridge Global Portfolio;++ (5)(i) Conformed copy of Management Agreement of the Registrant with Cambridge Investment Advisors, Inc. (4.); (a) Conformed copy of new Exhibit A to Management Agreement to include Cambridge Global Portfolio;++ (ii) Conformed copy of Investment Advisory Agreement for the Cambridge Growth Portfolio (4.); (iii) Conformed copy of Investment Advisory Agreement for the Cambridge Capital Growth Portfolio (4.); (iv) Conformed copy of Investment Advisory Agreement for the Cambridge Government Income Portfolio;++ (v) Conformed copy of Investment Advisory Agreement for the Cambridge Municipal Income Portfolio (4.); (vi) Conformed copy of Investment Advisory Agreement for the Cambridge Income and Growth Portfolio (5.); (vii) Conformed copy of Investment Advisory Agreement for the Cambridge Global Portfolio;++ (6)(i) Conformed copy of Distributor's Contract of the Registrant with Cambridge Distributors, Inc., through and including Exhibit F (5.); (ii) Conformed copy of Distributor's Contract of the Registrant with Federated Securities Corp., through and including Exhibit F (5.); (7)Not applicable; (8)(i) Conformed copy of Custodian Contract of the Registrant (4.); (ii) Conformed copy of Administrative Services Agreement of the Registrant (4.); (9)(i) Conformed copy of Transfer Agency and Registrar Agreement of the Registrant (4.); (ii) Conformed copy of Shareholder Services Plan of the Registrant, through and including Exhibit B (5.); (iii) Copy of Shareholder Services Agreement of the Registrant (2.); (10) Not applicable; (11) (i) Conformed copy of Independent Auditors Consent;++ (ii) Conformed copy of Arthur Anderson & Co. opinion on Methodology and Procedures for Accounting for Multiple Classes of Shares (4.); (12) Not applicable; (13) Conformed copy of Initial Capital Understanding (2.); (14) Not applicable; (15) (i) Conformed copy of Distribution Plan, through and including Exhibit B (5.); (ii) Copy of 12b-1 Agreement (Sales Agreement) with Cambridge Distributors, Inc. (5.); (iii) Copy of 12b-1 Agreement (Sales Agreement) with Federated Securities Corp. (5.); (16) (i) Copy of Schedules for Computation of Fund Performance Data for Class A and Class B Shares of Cambridge Growth Portfolio, Cambridge Capital Growth Portfolio, Cambridge Government Income Portfolio, and Cambridge Municipal Income Portfolio (5.); (ii) Copy of Schedule for Computation of Fund Performance Data for Class A and Class B Shares of Cambridge Income and Growth Portfolio (5.); (17) Conformed copy of Power of Attorney (4.); (18) Not applicable. ++ To be filed by amendment. 1. Response is incorporated by reference to Registrant's Initial Registration on Form N-1A filed January 31, 1992 (File Nos. 33-45315 and 811-6550). 2. Response is incorporated by reference to Registrant's Pre-Effective Amendment No. 1 on Form N-1A filed April 14, 1992 (File Nos. 33-45315 and 811-6550). 3. Response is incorporated by reference to Registrant's Post-Effective Amendment No. 1 on Form N-1A filed August 28, 1992 (File Nos. 33-45315 and 811-6550). 4. Response is incorporated by reference to Registrant's Post-Effective Amendment No. 3 on Form N-1A filed May 14, 1993 (File Nos. 33-45315 and 811-6550). 5. Response is incorporated by reference to Registrant's Post-Effective Amendment No. 5 on Form N-1A filed November 26, 1993 (File Nos. 33-45315 and 811-6550). Item 25. Persons Controlled by or Under Common Control with Registrant: None Item 26. Number of Holders of Securities: Number of Record Holders Title of Class as of December 31, 1993 Shares of beneficial interest no par value Cambridge Growth Portfolio: Class A Shares 1,666 Class B Shares 3,850 Cambridge Capital Growth Portfolio: Class A Shares 2,188 Class B Shares 5,166 Cambridge Government Income Portfolio: Class A Shares 1,631 Class B Shares 5,415 Cambridge Municipal Income Portfolio: Class A Shares 712 Class B Shares 1,741 Cambridge Income and Growth Portfolio: Class A Shares 735 Class B Shares 2,081 Cambridge Global Portfolio: Class A Shares -- Class B Shares -- Item 27. Indemnification: (1.) 1. Response is incorporated by reference to Registrant's Initial Registration on Form N-1A filed January 31, 1992 (File Nos. 33-45315 and 811-6550). Item 28. Business and Other Connections of Investment Adviser: (a) Cambridge Investment Advisors, Inc., located at 901 East Byrd Street, Richmond, Virginia 23219, serves as the Company's Investment Adviser. It is a wholly-owned subsidiary of Investment Management Group, Inc., which in turn is a wholly- owned subsidiary of WFS Financial Corporation, Inc., a diversified financial services holding company. The Investment Adviser was incorporated under the laws of Virginia in 1991. Kemper Financial Services, Inc. ("KFS"), located at 120 South LaSalle Street, Chicago, Illinois 60603, serves as the Sub- Adviser to the Cambridge Growth Portfolio, KFS is a wholly- owned subsidiary of Kemper Financial Companies, Inc., which provides investment advice and manages investment portfolios for the Kemper Insurance Companies and other corporate, pension, profit-sharing and individual accounts. Phoenix Investment Counsel, Inc. ("PIC"), located at One American Row, Hartford, Connecticut 06115-2520, serves as the Sub-Adviser to the Cambridge Capital Growth Portfolio. All of the outstanding stock of PIC is owned by Phoenix Equity Planning Corporation, an indirect subsidiary of Phoenix Home Life Mutual Insurance Company of Hartford, Connecticut. Pacific Investment Management Company ("PIMCO"), located at 840 Newport Center Drive, Newport Beach, California 92660, serves as the interim Sub-Adviser to the Cambridge Government Income Portfolio. PIMCO is a subsidiary of Pacific Mutual Life Insurance Company and serves as investment adviser to a number of investment companies and private accounts. Van Kampen Merritt Management Inc. ("VKMMI"), located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181, serves as the Sub-Adviser to the Cambridge Municipal Income Portfolio. VKMMI is a wholly-owned subsidiary of The Van Kampen Merritt Companies, Inc., which, in turn, is a wholly-owned subsidiary of VKM Holding, Inc. VKM Holding, Inc., is indirectly controlled by Clayton & Dubilier Associates IV Limited Partnership, the general partners of which are Joseph L. Rice, III, B. Charles Ames, Alberto Cribiore, Donald J. Gogel, and Hubbard C. Howe, each of whom is a principal of Clayton, Dubilier & Rice, Inc., a New York-based private investment firm. VKMMI is an investment adviser registered under the Investment Advisers Act of 1940 and provides investment advice to a wide variety of individual, institutional, and investment company clients. Wellington Management Company ("WMC"), located at 75 State Street, Boston, Massachusetts 02109, serves as the Sub-Adviser to the Cambridge Income and Growth Portfolio. Scudder, Stevens & Clark, Inc. ("Scudder"), located at 345 Park Avenue, New York, New York, serves as the Sub-Adviser to the Cambridge Global Portfolio. The principal executive officers of the Trust's Investment Adviser and the Portfolios' Sub-Advisers, and the Directors of each, are set forth in the following tables. (b) (1) (2) (3) Other Substantial Position with Business, Profession, Name the Investment Adviser Vocation or Employment Peter J. Quinn, Jr. President and Director Senior Vice President, Wheat, First Securities, Inc.; Director, Investment Management Group, Inc. Paul F. Costello Senior Vice President Senior Vice President, Cambridge Distributors, Inc.; President and Chief Financial Officer, Variable Investors Series Trust; Director, Investment Management Group, Inc.; President, Mentor Series Trust and Cash Resource Trust; President and Treasurer, Atlantic Capital & Research, Inc.; Vice President and Treasurer, Variable Stock Fund, Inc., Monarch Investment Series Trust, and GEICO Tax Advantage Series Trust; Vice President, Monarch Life Insurance Company, GEICO Investment Services Company, Inc., Monarch Investment Services Company, Inc., and Springfield Life Insurance Company; formerly, Director, President, and Chief Executive Officer, First Variable Life Insurance Company. John Michael Ivan Secretary Managing Director, Senior Vice President, and President General Council, Wheat, First Securities, Inc.; Secretary, Mentor Series Trust and Cash Resource Trust. Thomas Lee Souders Treasurer Manager of Internal Audit, Heilig-Myers; Manager, Peat Marwick & Mitchell & Company. (1) (2) (3) Other Substantial Position with Kemper Business, Profession, Name Financial Services, Inc. Vocation or Employment James R. Boris Director Director and Executive Vice President, Kemper Financial Companies, Inc.; and Chairman, CEO and Director, Kemper Securities, Inc. Seamon A. Lincoln Director and Chief Director and Chairman, Kemper Asset Investment Officer Management Company; Director and President, Kemper International Management, Inc.; Director, Kemper Investment Management Company Limited; Trustee, Kemper Financial Services, Inc. Profit Sharing Plan; Senior Vice President, Kemper Corporation and Kemper Financial Companies, Inc.; Vice President, Kemper Closed-End Funds, Kemper Investors Fund, and Kemper Mutual Funds. David B. Mathis Director President, Chief Executive Officer and Chairman of the Board, Kemper Corporation; Chairman of the Board, Centre Reinsurance Holdings Limited; Chairman and Director, Kemper Reinsurance London Limited; Director, Kemper International Insurance Company (PTE.) Limited, Kemper Investors Life Insurance Company, Kemper Reinsurance (Bermuda) Limited, Kemper Reinsurance Company, Kemper Securities Group Holdings, Inc., Kemper Securities, Inc., Mound Agency of West Virginia, Inc., Mound Agency, Inc., Seven Continents Insurance Company, LTD., Centre Reinsurance (Bermuda) Limited, Centre Reinsurance Company Limited, Federal Kemper Insurance Company, Federal Kemper Life Assurance Company, Kemper Europe Reassurances, S.A. (KERSA), Kemper Financial Companies, Inc., and KERSA Holding Company Luxembourg; Member of Finance Committee, Fidelity Life Association. Charles M. Kierscht Chairman, Chairman of the Board President, Chief and Director, Kemper Executive Officer Asset Management Company; and Director Director, Chairman of the Board, President & CEO, Kemper Financial Companies, Inc.; Director, Executive Committee, ICI Mutual Insurance Company; Director and Executive Vice President, Kemper Corporation; Member of Board of Governors and Executive Committee, Investment Company Institute; Trustee and President, Kemper Closed-End Funds, Kemper Investors Fund, and Kemper Mutual Funds; Trustee, Kemper Financial Services, Inc. Profit Sharing Plan; Director, Federal Kemper Life Assurance Company, Financial Services Council, Institute for Illinois, Investors Fiduciary Trust Company, Kemper Investors Life Insurance Company, Kemper International Management, Inc., Kemper Investment Management Company Limited, Kemper Sales Company, Kemper Securities Holdings, Inc., Kemper Securities, Inc., Kemper Service Company, Selected Financial Services, Inc., Supervised Service Company, Inc., University of Iowa Foundation, and University of Iowa Law School Foundation. Robert T. Jackson Senior Executive Treasurer, Chief Financial Vice President, Officer and Director, Chief Financial Kemper Sales Company, Officer and Kemper Service Director Company, and Supervised Service Company, Inc.; Vice President and Director, Kemper Securities Group Holdings, Inc., Kemper Capital Markets, Inc., FKLA Realty Corporation, FLA Realty Corporation, Kemper Portfolio Corp., KFC Portfolio Corp., and KILICO Realty Corporation; Senior Vice President, Kemper Corporation, Kemper Real Estate Management Company, and Kemper Residential Management Company; Senior Vice President, Treasurer (Chief Financial Officer), and Director, Kemper Financial Companies, Inc.; Treasurer and Director, Kemper International Management, Inc., and Kemper Investment Management Company Limited; Vice President, Treasurer and Director, Kemper Real Estate, Inc.; Director, Bilboa International Fund, Boettcher Investment Corp., Galaxy Offshore, Inc., Kemper Investors Life Insurance Company, Kemper/Cymrot Management, Inc., Kemper/Cymrot, Inc., Kemper Clearing Corp., Kemper Asset Management Company, Kemper Securities, Inc., and Selected Financial Services, Inc.; Trustee, Kemper Financial Services, Inc. Profit Sharing Plan; Vice President, KR 77 Fitness Center, Inc., KR Avondale Redmond, Inc., KR Black Mountain, Inc., KR Brannan Resources, Inc., KR Clay Capital, Inc., KR Cranbury, Inc., KR Delta Wetlands, Inc., KR Gainesville, Inc., KR Gulf Coast Factory Shops, Inc., KR Halawa Associates, Inc., KR Lafayette Apartments, Inc., KR Palm Plaza, Inc., KR Peppertree, Inc., KR Red Hill Associates, Inc., KR Seagate/Gateway North, Inc., KR Venture Way, Inc., KRKC, Inc., and KRKFC, Inc. Stephen B. Timbers Senior Executive President and Director, Vice President and Galaxy Offshore, Inc., Director Kemper Real Estate, Inc., Kemper/Cymrot Management, Inc., and Kemper/Cymrot, Inc.; Director and Vice President, Kemper Portfolio Corp., KFC Portfolio Corp., KILICO Realty Corporation; Director and Finance Committee Member, Federal Kemper Life Assurance Company; Director, President, and Chief Operating Officer, Kemper Corporation; Trustee and Vice President, Kemper Mutual Funds and Kemper Closed-End Funds; Director and Senior Vice President, Kemper Real Estate Management Company and Kemper Residential Management Company; Director and Vice President, KR 77 Fitness Center, Inc., KR Avondale Redmond, Inc., KR Black Mountain, Inc., KR Brannan Resources, Inc., KR Clay Capital, Inc., KR Cranbury, Inc., KR Delta Wetlands, Inc., KR Gainesville, Inc., KR Gulf Coast Factory Shops, Inc., KR Halawa Associates, Inc., KR Lafayette Apartments, Inc., KR Palm Plaza, Inc., KR Peppertree, Inc., KR Red Hill Associates, Inc., KR Seagate/Gateway North, Inc., KR Venture Way, Inc., KRKC, Inc., and KRKFC, Inc.; Director, Bilboa International Fund, Federal Kemper Insurance Company, Kemper Europe Reassurances, S.A., Kemper Asset Management Company, FKLA Realty Corporation, FLA Realty Corp., Kemper Financial Companies, Inc., Kemper Investors Life Insurance Company, Kemper Reinsurance (Bermuda) Limited, Kemper Reinsurance Company and Kemper Reinsurance London Limited; Vice President, Kemper Closed- End Funds. John E. Peters Senior Executive Director, Kemper Service Company; Vice Vice President President, Kemper Adjustable and Director Rate U.S. Government Fund, Kemper Asset Management Company, Kemper Blue Chip Fund, Kemper Closed-End Funds, Kemper Diversified Income Fund, Kemper Environmental Services Company, Kemper Global Income Fund, Kemper Growth Fund, Kemper High Yield Fund, Kemper Income and Capital Preservation Fund, Kemper International Fund, Kemper Investment Portfolios, Kemper Investors Fund, Kemper Municipal Bond Fund, Kemper Short-Term Global Income Fund, Kemper Small Capitalization Equity Fund, Kemper State Tax- Free Income Series, Kemper Technology Fund, Kemper Total Return Fund, Kemper U.S. Government Securities Fund, and Selected Financial Services, Inc. Frank E. Diaz Senior Executive Chairman and Vice President Director, Supervised Service Company, Inc.; Director and President, Kemper Service Company; Director, Kemper Clearing Corp. and Kemper Financial Companies, Inc. Robert J. Engling Executive Vice Vice President, General President, Counsel and Secretary, Secretary & General Supervised Service Company, Counsel Inc.; General Counsel and Secretary, Kemper Service Company; General Counsel and Assistant Secretary, Kemper Financial Companies, Inc.; Vice President and Secretary, Kemper Asset Management Company, Kemper Closed-End Funds, Kemper International Management, Inc., Kemper Investors Fund, Kemper Mutual Funds, Kemper Real Estate, Inc., and Kemper Sales Company; Secretary, Galaxy Offshore, Inc., Investors Brokerage Services Insurance Agency, Inc., Investors Brokerage Services, Inc., and Selected Financial Services, Inc.; Assistant Secretary, AMICO Realty Corporation, BBC Associates, FKLA Realty Corporation, FLA Realty Corporation, KAAL PGA Sales, Inc., Kemper Investment Management Company Limited, Kemper Real Estate Management Company, Kemper Realty Corporation, Kemper Residential Management Company; KR 77 Fitness Center, Inc., KR Avondale Redmond, Inc., KR Black Mountain, Inc., KR Brannan Resources, Inc., KR Clay Capital, Inc., KR Cranbury, Inc., KR Delta Wetlands, Inc., KR Gainesville, Inc., KR Gulf Coast Factory Shops, Inc., KR Halawa Associates, Inc., KR Lafayette Apartments, Inc., KR Palm Plaza, Inc., KR Peppertree, Inc., KR Red Hill Associates, Inc., KR Seagate/Gateway North, Inc., KR Venture Way, Inc., KRKC, Inc., and KRKFC, Inc. William E. Chapman Executive Vice President Senior Vice President, Kemper Sales Company. James H. Coxon Executive Vice President Director and Vice President, Galaxy Offshore, Inc., Kemper Real Estate, Inc., Kemper/Cymrot Management, Inc., and Kemper/Cymrot, Inc.; Vice President, Kemper Retirement Fund and Kemper Investors Fund. Stephen G. McConahey Executive Vice Senior Vice President President and Director, Kemper Financial Companies, Inc.; Senior Vice President, Kemper Corporation; Director, Supervised Service Company, Inc. John E. Neal Executive Vice President Director and Senior Vice President, Kemper Real Estate Management Company and Kemper Residential Management Company; Director and President, FKLA Realty Corporation, FLA Realty Corporation, KFC Portfolio Corp., KILICO Realty Corporation, KR 77 Fitness Center, Inc., KR Avondale Redmond, Inc., KR Black Mountain, Inc., KR Brannan Resources, Inc., KR Clay Capital, Inc., KR Cranbury, Inc., KR Delta Wetlands, Inc., KR Gainesville, Inc., KR Gulf Coast Factory Shops, Inc., KR Halawa Associates, Inc., KR Lafayette Apartments, Inc., KR Palm Plaza, Inc., KR Peppertree, Inc., KR Red Hill Associates, Inc., KR Seagate/Gateway North, Inc., KR Venture Way, Inc., KRKC, Inc., and KRKFC, Inc.; Director and Vice President, Kemper Real Estate, Inc., Kemper/Cymrot Management, Inc., and Kemper/Cymrot, Inc.; Director, Community Investment Corporation and Continental Community Development Corporation. Gordon P. Wilson Executive Vice President Director, Kemper Investment Management Company Limited; Vice President and Director, AMICO Realty Corporation, BBC Associates, FKLA Realty Corporation, FLA Realty Corporation, KAAL PGA Sales, Inc., Kemper International Management, Inc., and Kemper Realty Corporation; Vice President, Kemper Global Income Fund, Kemper International Fund, Kemper Investors Fund, Kemper Investors Portfolios, Kemper Short-Term Global Income Fund, Kemper Total Return Fund, and The Growth Fund of Spain, Inc. Joseph P. Beimford Senior Vice President Vice President, Galaxy Offshore, Inc., Kemper High Income Trust, Kemper Intermediate Government Trust, Kemper Investors Fund, Kemper Multi-Market Income Trust, Kemper Municipal Bond Fund, Kemper Municipal Income Trust, Kemper State Tax-Free Income Series, Kemper Strategic Municipal Income Trust, and Kemper U.S. Government Securities Fund. Robert J. Butler Senior Vice President Senior Vice President, Kemper Service Company and Supervised Service Company, Inc.; Vice President, BBC Associates and Kemper Realty Corporation. Frank E. Collecchia Senior Vice President Senior Investment Officer, Federal Kemper Insurance Company, Federal Kemper Life Assurance Company, Fidelity Life Association, Kemper Investors Life Insurance Company, and Kemper Reinsurance Company; Vice President, Galaxy Offshore, Inc., Kemper Adjustable Rate U.S. Government Fund, Kemper Intermediate Government Trust, Kemper Investment Portfolios, Kemper Investors Fund, Kemper Multi-Market Income Trust, Kemper Real Estate, Inc., KR 77 Fitness Center, Inc., KR Avondale Redmond, Inc., KR Black Mountain, Inc., KR Brannan Resources, Inc., KR Clay Capital, Inc., KR Cranbury, Inc., KR Delta Wetlands, Inc., KR Gainesville, Inc., KR Gulf Coast Factory Shops, Inc., KR Halawa Associates, Inc., KR Lafayette Apartments, Inc., KR Palm Plaza, Inc., KR Peppertree, Inc., KR Red Hill Associates, Inc., KR Seagate/Gateway North, Inc., KR Venture Way, Inc., KRKC, Inc., and KRKFC, Inc. Beth C. Cotner Senior Vice President Trustee, Kemper Financial Services, Inc. Profit Sharing Plan; Vice President, Kemper Investment Portfolios, Kemper Investors Fund, and Kemper Small Capitalization Equity Fund. Richard S. Curto Senior Vice President General Partner, B R Management Associates; Vice President, AMICO Realty Corporation, BBC Associates, FKLA Realty Corporation, FLA Realty Corporation, Investors Brokerage Services, Inc., KAAL PGA Sales, Inc., Kemper Real Estate, Inc., Kemper Realty Corporation, KILICO Realty Corporation, and KR 77 Fitness Center, Inc., KR Avondale Redmond, Inc., KR Black Mountain, Inc., KR Brannan Resources, Inc., KR Clay Capital, Inc., KR Cranbury, Inc., KR Delta Wetlands, Inc., KR Gainesville, Inc., KR Gulf Coast Factory Shops, Inc., KR Halawa Associates, Inc., KR Lafayette Apartments, Inc., KR Palm Plaza, Inc., KR Peppertree, Inc., KR Red Hill Associates, Inc., KR Seagate/Gateway North, Inc., KR Venture Way, Inc., KRKC, Inc., and KRKFC, Inc.; Vice President and Assistant Secretary, Kemper/Cymrot Management, Inc., and Kemper/Cymrot, Inc. Jerome L. Duffy Senior Vice President Treasurer, Kemper Closed- End Funds, Kemper Investors Fund, and Kemper Mutual Funds. Harvey Glassman Senior Vice President Senior Vice President, Kemper Sales Company. Richard A. Goers Senior Vice President Harold E. Guenther Senior Vice President Vice President, Galaxy Offshore, Inc. George Klein Senior Vice President Senior Vice President, Kemper Asset Management Company. Frank D. Korth Senior Vice President Vice President, Kemper Environmental Services Fund and Kemper Retirement Fund. Gary A. Langbaum Senior Vice President Stephen E. Lewis Senior Vice President Vice President, Kemper Investment Portfolios and Kemper Investors Fund. Michael A. McNamara Senior Vice Vice President, Kemper President Diversified Income Fund, Kemper High Income Trust, Kemper High Yield Fund, Kemper Investment Portfolios, and Kemper Investors Fund. Ira Nathanson Senior Vice President Vice President, Kemper Corporation; Senior Vice President, Kemper Sales Company. James R. Neel Senior Vice President Vice President, Kemper Blue Chip Fund. Frank J. Rachwalski, Senior Vice President Vice President, Cash Jr. Account Trust, Cash Equivalent Fund, Investors Cash Trust, Kemper Investment Portfolios, Kemper Investors Fund, Kemper Money Market Fund, Tax-Exempt California Money Market Fund, and Tax- Exempt New York Money Market Fund. Afzal (Tony) Raza Senior Vice President Vice President, Kemper International Management, Inc. Robert H. Schumacher Senior Vice Vice President, Kemper President Adjustable Rate U.S. Government Fund, Kemper Intermediate Government Trust, Kemper Investment Portfolios, Kemper Investors Fund, and Kemper U.S. Government Securities Fund. John S. Serpe Senior Vice President Robert S. Takazawa Senior Vice President Senior Vice President and Director, Kemper Asset Management Company. Kenneth T. Urbaszewski Senior Vice Vice President, Kemper High President Yield Fund, Kemper Intermediate Government Trust, Kemper Investment Portfolios, and Kemper Multi-Market Income Trust. Bruce A. Ebel Senior Vice President Senior Vice President, Kemper Asset Management Company. Dale S. Siligmueller Senior Vice Vice President and President Chief Accounting Officer, & Chief Kemper Financial Companies, Accounting Inc., Kemper Real Estate, Officer Inc., Kemper Sales Company, Kemper Service Company, and Supervised Service Company, Inc.; Director, Vice President and Treasurer, Selected Financial Services, Inc.; Vice President and Treasurer, Investors Brokerage Services, Inc., Kemper Asset Management Company, Kemper Real Estate Management Company, Kemper Residential Management Company, KILICO Realty Corporation, KR 77 Fitness Center, Inc., KR Avondale Redmond, Inc., KR Black Mountain, Inc., KR Brannan Resources, Inc., KR Clay Capital, Inc., KR Cranbury, Inc., KR Delta Wetlands, Inc., KR Gainesville, Inc., KR Gulf Coast Factory Shops, Inc., KR Halawa Associates, Inc., KR Lafayette Apartments, Inc., KR Palm Plaza, Inc., KR Peppertree, Inc., KR Red Hill Associates, Inc., KR Seagate/Gateway North, Inc., KR Venture Way, Inc., KRKC, Inc., and KRKFC, Inc.; Treasurer, Galaxy Offshore, Inc., Kemper/Cymrot Management, Inc., and Kemper/Cymrot, Inc. Robert J. Williams Senior Vice President David F. Dierenfeldt First Vice President, Associate General Counsel & Assistant Secretary Vice President and Assistant Secretary, Kemper Investors Fund; Secretary, Kemper/Cymrot Management, Inc., and Kemper/Cymrot, Inc.; Assistant Secretary, Galaxy Offshore, Inc., Investors Brokerage Services Insurance Agency, Inc., Investors Brokerage Services, Inc., Kemper Asset Management Company, Kemper International Management, Inc., Kemper Investment Management Company Limited, Kemper Real Estate Management Company, Kemper Real Estate, Inc., Kemper Residential Management Company, Kemper Sales Company, Kemper Service Company, KR 77 Fitness Center, Inc., KR Avondale Redmond, Inc., KR Black Mountain, Inc., KR Brannan Resources, Inc., KR Clay Capital, Inc., KR Cranbury, Inc., KR Delta Wetlands, Inc., KR Gainesville, Inc., KR Gulf Coast Factory Shops, Inc., KR Halawa Associates, Inc., KR Lafayette Apartments, Inc., KR Palm Plaza, Inc., KR Peppertree, Inc., KR Red Hill Associates, Inc., KR Seagate/Gateway North, Inc., KR Venture Way, Inc., KRKC, Inc., KRKFC, Inc., Selected Financial Services, Inc., and Supervised Service Company, Inc. Philip J. Collora First Vice President Vice President and & Assistant Secretary Assistant Secretary, Kemper Closed-End Funds, Kemper Investors Fund, and Kemper Mutual Funds; Assistant Secretary, Kemper International Management, Inc. Michael K. Arends First Vice President Director, Donald L. Arends, Inc.; Vice President, Kemper Investment Portfolios, Kemper Investors Fund, and Kemper Retirement Fund. Michael A. Barrett First Vice President Daniel J. Bukowski First Vice President Robert S. Cassino First Vice President Christine Chien First Vice President Patrick H. Dudasik First Vice President Remy M. Fisher First Vice President Marshall L. Greenwald First Vice President Michael E. Harrington First Vice President Peter M. Jacobs First Vice President Bruce H. Lauer First Vice President Nancy A. Link First Vice President First Vice President, Kemper Sales Company. Susan McCrindle First Vice President Vice President, Kemper Sales Company. Christopher J. Mier First Vice President Vice President, Kemper Municipal Bond Fund, Kemper Municipal Income Trust, Kemper State Tax-Free Income Series, and Kemper Strategic Municipal Income Trust. Roberta L. Panozzo First Vice President Harry E. Rasis First Vice President Vice President, Kemper High Income Trust, Kemper Income and Capital Preservation Fund, and Kemper Investors Fund. Terry Schreiner First Vice President John E. Silvia First Vice President Kai R. Sotorp First Vice President David M. Swanson First Vice President Vice President, Kemper Sales Company. Christopher T. Vincent First Vice President Kenneth M. Bazan Vice President Foye P. Black Vice President Director, BBE Sound, Inc., Media Security, Inc., and Sysgen, Inc. Robert J. Boldt Vice President Dale R. Burrow Vice President Vice President, Kemper Strategic Municipal Income Trust. David H. Butler Vice President Jerri I. Cohen Vice President Catherine Cooper Vice President Chris C. DeMaio Vice President Vice President, Kemper Service Company and Supervised Service Company, Inc. Stephen P. Dexter Vice President Daniel J. Doyle Vice President James Fenger Vice President August L. Geraci Vice President Judith C. Goodwin Vice President Robert C. Hogle Vice President Steven A. Hoostal Vice President Robert J. Horton Vice President Bruce D. Innes Vice President Co-President, International Association of Corporate and Professional Recruiters. William M. Keating Vice President Carol L. Kiel Vice President Deborah L. Koch Vice President Robert J. Korslin Vice President Senior Vice President, Kemper Real Estate Management Company and Kemper Residential Management Company. Kathy J. Kranz Vice President Pamela D. Krueger Vice President Thomas J. Lefebvre Vice President Ann T. Linehan Vice President David J. Linehan Vice President James C. Manthey Vice President Karen B. McGovern Vice President Gary L. Miller Vice President Gene J. Miller Vice President Edward Miner Vice President Katherine H. Mitchell Vice President Robert J. Moreland Vice President G. Michael Oberst Vice President Robert D. Payne Vice President David A. Phillis Vice President Susan E. Pontecore Vice President Vice President, Kemper Money Market Fund and Tax- Exempt California Money Market Fund. Steve A. Radis Vice President Vice President, Kemper Sales Company. William M. Reckmeyer Vice President Carolyn D. Schloss Vice President Robert Schramm Vice President Vice President, Kemper Service Company. Kathleen A. Spiller Vice President Richard B. Stern Vice President John W. Stuebe Vice President Vice President, Cash Account Trust and Cash Equivalent Fund. Edith A. Thouin-Leerkamp Vice President Jonathan W. Trutter Vice President Michael L. Weisel Vice President Elizabeth C. Werth Vice President Assistant Secretary, Kemper Mutual Funds and Kemper Retirement Fund. Stephen R. Willson Vice President Vice President, Kemper Strategic Municipal Income Trust. Mark E. Wittnebel Vice President Larry R. Wonnacott Vice President Director, Interlinq Software Corp. William P. Kovacs Vice President and Assistant Secretary Paul M. Murphy Vice President and Assistant Secretary Diane E. Ratekin Assistant General Counsel & Assistant Secretary (1) (2) (3) Other Substantial Position with Phoenix Business, Profession, Name Investment Counsel, Inc. Vocation or Employment Patricia A. Bannan Director and Vice President, Common President Stock, Phoenix Home Life Mutual Insurance Company; Vice President, Phoenix Series Fund and The Phoenix Edge Series Fund; Executive Vice President, National Securities & Research Corporation; formerly, Portfolio Manager, Phoenix Home Life Mutual Insurance Company. Robert Chesek Director and Chairman Vice President, Phoenix Home Life Mutual Insurance Company; Trustee and Chairman, Phoenix Multi- Portfolio Fund, The Phoenix Edge Series Fund, and Phoenix Series Fund; Director and Chairman, Phoenix Total Return Fund, Inc.; Director/Trustee, the National Affiliated Investment Companies. Robert W. Fiondella Director President and Principal Operating Officer, Phoenix Home Life Mutual Insurance Company; Director, Phoenix Equity Planning Corporation, PHL Mutual Funds Holdings, AH Overseas Investments, Inc., National Securities & Research Corporation, NSR Asset Management Corp., and NSR Distributors, Inc. John Gummere Director Director, Chairman of the Board and Chief Executive Officer, Phoenix Home Life Mutual Insurance Co.; Director, Phoenix Equity Planning Corp., PHL Mutual Funds Holdings, AH Overseas Investments, Inc., National Securities & Research Corporation, NSR Asset Management Corp., and NSR Distributors, Inc. Philip R. McLoughlin Director Executive Vice President, Investments, Phoenix Home Life Mutual Insurance Co.; Trustee and President, Phoenix Multi- Portfolio Fund, The Phoenix Edge Series Fund, and Phoenix Series Fund; Director and President, Phoenix Total Return Fund, Inc.; Director and President, Phoenix Equity Planning Corporation, PHL Mutual Funds Holdings, Inc., AH Overseas Investments, Inc., NSR Asset Management Corp., and NSR Distributors, Inc.; Director, Chairman, and Chief Executive Officer, National Securities & Research Corporation. Richard C. Shaw Director and Senior Senior Vice President, Vice President Phoenix Home Life Mutual Insurance Company; Chairman, American Phoenix Corporation; President, Worldwide Phoenix; Director, American Phoenix Investment Portfolios. William B. Wallace Director Vice Chairman and Chief Operating Officer, Phoenix Home Life Mutual Insurance Company; Director, Phoenix Equity Planning Corporation, PHL Mutual Funds Holdings, Inc., AH Overseas Investments Inc., National Securities & Research Corporation, NSR Asset Management Corporation, and National Securities & Research Corporation; formerly, Director, Chairman and Chief Executive Officer, Home Life Insurance Company. Martin J. Gavin Executive Vice President Senior Vice President, Investment Products, Phoenix Home Life Mutual Insurance Company; Director and Executive Vice President, Phoenix Equity Planning Corporation, PHL Mutual Funds Holdings, Inc., AH Overseas Investments, Inc., National Securities and Research Corporation, NSR Asset Management Corp., and NSR Distributors, Inc.; Executive Vice President, the National Affiliated Investment Companies. Thomas S. Melvin, Jr. Executive Vice Portfolio Manager, President Common Stock, Phoenix Home Life Mutual Insurance Co.; Vice President, Phoenix Multi-Portfolio Fund; Executive Vice President, National Securities & Research Corporation; formerly, Portfolio Manager, Constitution Capital Management. Paul A. Atkins Senior Vice President Vice President, Institutional Investment Sales, Phoenix Home Life Mutual Insurance Co. William R. Moyer Senior Vice Vice President, Investment President, Products Finance, Finance Phoenix Home Life Mutual Insurance Co.; Senior Vice President, Finance, Phoenix Equity Planning Corporation, PHL Mutual Funds Holdings, Inc., AH Overseas Securities & Research Corporation, NSR Asset Management Corporation and NSR Distributors, Inc.; Vice President, The Phoenix Edge Series Fund, Phoenix Multi-Portfolio Fund, Phoenix Series Fund and Phoenix Total Return Fund, Inc. Curtiss O. Barrows Vice President Portfolio Manager, Public Fixed Income, Phoenix Home Life Mutual Insurance Company; Vice President, Phoenix Series Fund and The Phoenix Edge Series Fund, National Bond Fund and National Securities & Research Corporation. Kathleen A. Bloomquist Vice President Second Vice President, Institutional Investments, Phoenix Home Life Mutual Insurance Co. James C. Bly Vice President Regional Group Pension Manager, Phoenix Home Life Mutual Insurance Co. Mary E. Canning Vice President Associate Portfolio Manager, Common Stock, Phoenix Home Life Mutual Insurance Co.; Vice President, Phoenix Series Fund and The Phoenix Edge Series Fund. James M. Dolan Vice President, Assistant Vice President Assistant Clerk and Compliance and Assistant Officer, Phoenix Equity Secretary Planning Corporation; Vice President, Phoenix Multi- Portfolio Fund, Phoenix Series Fund, Phoenix Total Return Fund, Inc., the National Affiliated Investment Companies and National Securities & Research Corporation. Catherine Dudley Vice President Portfolio Manager, Phoenix Home Life Mutual Insurance Co.; Vice President, Phoenix Series Fund, Phoenix Multi-Portfolio Fund, and National Securities & Research Corporation. Jeanne T. Hanley Vice President Managing Director, Research, Common Stock, Phoenix Home Life Mutual Insurance Company; Vice President, The Phoenix Edge Series Fund, Phoenix Series Fund, and National Securities & Research Corporation. Michael E. Haylon Vice President Senior Vice President, Public Bonds, Phoenix Home Life Mutual Insurance Company; Vice President, Phoenix Series Fund, The Phoenix Edge Series Fund, National Securities & Research Corporation and National Multi-Sector Fixed Income Fund. Bryan D. Holstrom Vice President Regional Group Pension Manager, Phoenix Home Life Mutual Insurance Co. Christopher J. Kellcher Vice President Portfolio Manager, Public Fixed Income, Phoenix Home Life Mutual Insurance Company; Vice President, Phoenix Series Fund, The Phoenix Edge Series Fund, National Securities & Research Corporation and National Federal Securities Trust. Michael R. Matty Vice President Portfolio Manager, Common Stock, Phoenix Home Life Mutual Insurance Company; Vice President, Phoenix Series Fund and National Securities & Research Corporation. Robert J. Milnamow Vice President Portfolio Manager, Common Stock, Phoenix Home Life Mutual Insurance Company; Vice President, Phoenix Total Return Fund, Inc., The Phoenix Edge Series Fund, National Securities & Research Corporation, National Stock Fund and National Total Return Fund. Charles L. Olson Vice President Regional Marketing Manager, Phoenix Home Life Mutual Insurance Company. Amy L. Robinson Vice President Managing Director, Trading, Common Stock, Phoenix Home Life Mutual Insurance Company; Vice President, The Phoenix Edge Series Fund, Phoenix Series Fund, and National Securities & Research Corporation. David M. Schans, C.L.U. Vice President Regional Group Pension Manager, Phoenix Home Life Mutual Insurance Company. Dorothy J. Skaret Vice President Director, Public Fixed Income, Phoenix Home Life Mutual Insurance Company; Vice President, Phoenix Series Fund, The Phoenix Edge Series Fund, and National Securities & Research Corporation. Diane C. Smola Vice President Assistant Vice President, Institutional Client Service, Phoenix Home Life Mutual Insurance Company. Scott A. Southworth Vice President Regional Group Pension Manager, Phoenix Mutual Life Insurance Company. Frank L. Stanley Vice President Portfolio Manager, Common Stock, Phoenix Home Life Mutual Insurance Company; Vice President, Phoenix Series Fund, The Phoenix Edge Series Fund, and National Securities & Research Corporation. George L. Tillinghast, III Vice President Second Vice President, Institutional Investment Marketing, Phoenix Home Life Mutual Insurance Company. James D. Wehr Vice President Managing Director, Public Fixed Income, Phoenix Home Life Mutual Insurance Company; Vice President, Phoenix Multi- Portfolio Fund, Phoenix Series Fund, The Phoenix Edge Series Fund, National Securities Tax- Exempt Bond Fund, National's California Tax-Exempt Bond Fund, and National Securities & Research Corporation. James K. Salonia Assistant Vice President Director, Institutional Client Service, Phoenix Home Life Mutual Insurance Company. John R. Elder Treasurer Treasurer, Phoenix Equity Planning Corporation; Treasurer, Phoenix Multi- Portfolio Fund, The Phoenix Edge Series Fund, Phoenix Series Fund, Phoenix Total Return Fund, Inc., PHL Mutual Funds Holdings, Inc., AH Overseas Investments, Inc., National Securities & Research Corporation, NSR Asset Management Corp. and NSR Distributors, Inc. Eugene A. Charon Controller Controller, Phoenix Equity Planning Corporation. Virginia Spencer Clerk Legal Assistant, Sullivan & Worcester; Clerk, Phoenix Total Return Fund, Inc. Patricia D. McLaughlin Secretary and Counsel, Phoenix Home Assistant Life Mutual Insurance Clerk Company. (1) (2) (3) Other Substantial Business, Profession, Name Position with PIMCO Vocation or Employment The information required by this Item 28 with respect to PIMCO is set forth in the Form ADV, as amended, of PIMCO (File No. 801-7260), which is incorporated herein by reference. (1) (2) (3) Position with Other Substantial Van Kampen Merritt Business, Profession, Name Management Inc. Vocation or Employment The information required by this Item 28 with respect to Van Kampen Merritt Management Inc. is set forth in the Form ADV, as amended, of Van Kampen Merritt Management Inc. (File No. 801-40808), which is incorporated herein by reference. (1) (2) (3) Other Substantial Position with Wellington Business, Profession, Name Management Company Vocation or Employment The information required by this Item 28 with respect to Wellington Management Company is set forth in the Form ADV, as amended, of Wellington Management Company (File No. 801-15908), which is incorporated herein by reference. (1) (2) (3) Other Substantial Position with Scudder, Business, Profession, Name Stevens & Clark, Inc. Vocation or Employment The information required by this Item 28 with respect to Scudder is set forth in the Form ADV, as amended, of Scudder (File No. 801-252), which is incorporated herein by reference. Item 29. Principal Underwriters: (a) Cambridge Distributors, Inc., is the principal distributor for Class A and Class B shares of the Registrant and acts as the principal underwriter for the Registrant. Cambridge Distributors, Inc., is a Virginia corporation and is an affiliate of Cambridge Investment Advisors, Inc. Federated Securities Corp. acts as a co-distributor for Class A and Class B shares of the Registrant. Federated Securities Corp. is an affiliate of Federated Advisers and of Cambridge Administrative Services, both subsidiaries of Federated Investors. (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address With Underwriters With Registrant Peter J. Quinn, Jr. President and Director, President and Trustee 901 East Byrd Street Cambridge Distributors, Richmond, VA 23219 Inc. Paul F. Costello Senior Vice President, Senior Vice President, 901 East Byrd Street Cambridge Distributors, Treasurer & Secretary Richmond, VA 23219 Inc. Thomas Lee Souders Treasurer, Cambridge -- 901 East Byrd Street Distributors, Inc. Richmond, VA 23219 John Mark Harris Secretary, Cambridge -- 901 East Byrd Street Distributors, Inc. Richmond, VA 23219 John Michael Ivan Assistant Secretary, -- 901 East Byrd Street Cambridge Distributors, Richmond, VA 23219 Inc. Richard B. Fisher Director, Chairman, -- Federated Investors Chief Executive Officer, Tower Chief Operating Officer, Pittsburgh, PA 15222 and Assistant Treasurer, Federated Securities Corp. Edward C. Gonzales Director, Executive Vice -- Federated Investors President, and Tower Treasurer, Federated Pittsburgh, PA 15222 Securities Corp. John W. McGonigle Director, Executive Vice -- Federated Investors President, and Assistant Tower Secretary, Federated Pittsburgh, PA 15222 Securities Corp. John A. Staley, IV Executive Vice President -- Federated Investors and Assistant Secretary, Tower Federated Securities Pittsburgh, PA 15222 Corp. John B. Fisher President-Broker/Dealer, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 James F. Getz President-Institutional -- Federated Investors Sales, Federated Tower Securities Corp. Pittsburgh, PA 15222- 3779 Mark R. Gensheimer Executive Vice President -- Federated Investors of Bank/ Trust, Tower Federated Securities Pittsburgh, PA 15222- Corp. 3779 James S. Hamilton Senior Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 James R. Ball Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 Mark W. Bloss Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 Richard W. Boyd Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 Mary J. Combs Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 Laura M. Deger Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 Jill Ehrenfeld Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 Theodore Fadool, Jr. Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 Bryant R. Fisher Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 Mark D. Fisher Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 Christopher T. Fives Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 Joseph D. Gibbons Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 James M. Heaton Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 William E. Kugler Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 Dennis M. Laffey Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 J. Michael Miller Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 R. Jeffery Niss Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 Keith Nixon Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 Michael P. O'Brien Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 Solon A. Person, IV Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 Robert F. Phillips Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 Timothy C. Pillion Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 Eugene B. Reed Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 Paul V. Riordan Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 Charles A. Robison Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 David W. Spears Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 Thomas E. Territ Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 Richard B. Watts Vice President, -- Federated Investors Federated Securities Tower Corp. Pittsburgh, PA 15222- 3779 R. Edmond Connell, Jr. Assistant Vice -- Federated Investors President, Federated Tower Securities Corp. Pittsburgh, PA 15222- 3779 Philip C. Hetzel Assistant Vice -- Federated Investors President, Federated Tower Securities Corp. Pittsburgh, PA 15222- 3779 H. Joseph Kennedy Assistant Vice -- Federated Investors President, Federated Tower Securities Corp. Pittsburgh, PA 15222- 3779 S. Elliott Cohan Secretary, Federated -- Federated Investors Securities Corp. Tower Pittsburgh, PA 15222- 3779 (c) Not applicable. Item 30. Location of Accounts and Records: (1.) 1.Response is incorporated by reference to Registrant's Initial Registration on Form N-1A filed January 31, 1992 (File Nos. 33-45315 and 811-6550). Item 31. Management Services: Not applicable. Item 32. Undertakings: Registrant hereby undertakes to comply with the provisions of Section 16(c) of the 1940 Act with respect to the removal of Trustees and the calling of special shareholder meetings by shareholders. Registrant hereby undertakes to furnish each person to whom a prospectus is delivered with a copy of the Registrant's latest annual report to shareholders, upon request and without charge. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, CAMBRIDGE SERIES TRUST, certifies that it meets all of the requirements for effectiveness of this Amendment to its Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Pittsburgh and Commonwealth of Pennsylvania, on the 28th day of January, 1994. CAMBRIDGE SERIES TRUST By: /s/ Peter J. Quinn, Jr. Peter J. Quinn, Jr. Pursuant to the requirements of the Securities Act of 1933, this Amendment to its Registration Statement has been signed below by the following person in the capacity and on the date indicated: Name Title Date By: /s/ Peter J. Quinn, Jr. Attorney-in-Fact for January 28, 1994 Peter J. Quinn, Jr. the Persons Listed Below Name Title Date Daniel J. Ludeman* Chairman and Trustee (Chief Executive Officer) Peter J. Quinn, Jr.* President and Trustee Paul F. Costello* Senior Vice President, Treasurer, and Secretary (Principal Financial and Accounting Officer) Arnold H. Dreyfuss* Trustee Thomas F. Keller* Trustee Louis W. Moelchert, Jr.* Trustee Troy A. Peery, Jr.* Trustee *By Power of Attorney -----END PRIVACY-ENHANCED MESSAGE-----