BRAZOS MUTUAL FUNDS
497, 1998-01-05
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                     BRAZOS/JMIC Micro Cap Growth Portfolio
                                 1-800-426-9157

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

   
PROSPECTUS                                                     December 31, 1997
    


INVESTMENT OBJECTIVES

     Brazos  Mutual  Funds (the "Fund") is an  open-end,  management  investment
company known as a "mutual fund." The Fund consists of multiple series of shares
(known as "Portfolios")  each of which has different  investment  objectives and
investment policies. The BRAZOS/JMIC Micro Cap Growth Portfolio currently offers
only one class of shares.  The securities  offered in this Prospectus are shares
of one diversified, no-load Portfolio managed by John McStay Investment Counsel.

BRAZOS/JMIC Micro Cap Growth  Portfolio.  The objective of the BRAZOS/JMIC Micro
Cap  Growth   Portfolio  (the   "Portfolio")   is  to  provide  maximum  capital
appreciation,  consistent with reasonable risk to principal. The Portfolio seeks
to achieve its objective  principally through investment in micro capitalization
companies.

     There  can  be no  assurance  that  the  Portfolio  will  meet  its  stated
objective.

ABOUT THIS PROSPECTUS

     Keep this  Prospectus for future  reference.  It contains  information  you
should know before you invest. A "Statement of Additional  Information"  ("SAI")
containing  additional  information  about  the  Fund has  been  filed  with the
Securities  and Exchange  Commission.  Such Statement is dated December 31, 1997
and has been incorporated by reference into this Prospectus.  For a free copy of
the SAI  write to the Fund or call the  Fund's  Administrator  at the  telephone
number above.

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

<PAGE>
                                  FUND EXPENSES

     The following  table  illustrates  expenses and fees a  shareholder  of the
Portfolio  will  incur.   Additional  transaction  fees  may  be  charged  if  a
broker-dealer  or  other  financial  intermediary  deals  with  the Fund on your
behalf. Please see "Purchase of Shares" for further information.

                        Shareholder Transaction Expenses

Sales Load Imposed on Purchases............................................NONE
Sales Load Imposed on Reinvested Dividends.................................NONE
Deferred Sales Load........................................................NONE
Redemption Fees............................................................NONE
Exchange Fees..............................................................NONE


     The table below shows the expenses an investor in the Portfolio  would bear
directly or  indirectly.  The expenses and fees listed are based on estimates of
the  Portfolio's  operating costs to be incurred during the fiscal period ending
November 30, 1998.

                         Annual Fund Operating Expenses
                     (As a Percentage of Average Net Assets)

Investment Advisory Fees (After Fee Waivers)............................. 1.10%
Administrative Fees...................................................... 0.13%
12b-1 Fees...............................................................  NONE
Other Expenses........................................................... 0.37%
Total Operating Expenses (After Fee Waivers)............................. 1.60%*


     The fees set  forth  above are  estimated  amounts  for its  first  year of
operations assuming average daily net assets of $40 million.

* The Adviser has voluntarily agreed to waive a portion of its advisory fees and
to assume expenses otherwise payable by the Portfolio (if necessary) in order to
keep the expense  ratio from  exceeding  1.60% of its average  daily net assets.
Without the fee waiver,  the annual  investment  advisory  fee would be 1.20% of
average  net  assets.  Absent  the fee  waiver,  the  Portfolio's  total  annual
operating  expenses are estimated to be 1.70% of average  daily net assets.  The
Fund will not  reimburse  the Adviser for any  advisory  fees that are waived or
Portfolio expenses that the Adviser may bear on behalf of a Portfolio.

     The following  example shows the expenses that a shareholder would pay on a
$1,000  investment  over various  time periods  assuming (1) a 5% annual rate of
return and (2) redemption at the end of each time period.  The Portfolio charges
a $12.00 redemption fee for wire redemptions.


                                                       1 Year            3 Years

BRAZOS/JMIC Micro Cap Growth Portfolio..........          $16               $50


     This example  should not be considered a  representation  of past or future
expenses or  performance.  Actual  expenses  may be greater or lesser than those
shown.


                                       -2-

<PAGE>

                               PROSPECTUS SUMMARY

INVESTMENT ADVISER

     John McStay Investment  Counsel (the "Adviser"),  an investment  counseling
firm founded in 1983, is the investment  adviser to the  Portfolio.  The Adviser
currently manages  approximately $3 billion in assets for institutional  clients
and high net worth individuals. See "INVESTMENT ADVISER."

PURCHASE OF SHARES

     Shares of the Portfolio  are offered  through  Rodney Square  Distributors,
Inc. (the  "Distributor" or "RSD"). The shares are available to investors at net
asset  value  without a sales  commission.  Shares can be  purchased  by sending
investments directly to the Fund. The minimum initial investment is $10,000. The
minimum for subsequent  investments is $1,000. Certain exceptions to the initial
or minimum  investment  amounts may be made by Fund  officers.  See "PURCHASE OF
SHARES."

DIVIDENDS AND DISTRIBUTIONS

     The  Portfolio  will  distribute  substantially  all of its net  investment
income and long-term  capital gains at least  annually,  and may  distribute net
investment  income and other  capital  gains  during  interim  periods  when the
management  of the  Portfolio  determines  that  it is in the  interests  of the
Portfolio  and  the   shareholders  to  do  so.  It  is  not  anticipated   that
distributions  will be made more frequently than quarterly.  Distributions  will
automatically  be  reinvested in Portfolio  shares unless an investor  elects to
receive cash  distributions.  See "DIVIDENDS,  CAPITAL GAINS  DISTRIBUTIONS  AND
TAXES."

REDEMPTIONS AND EXCHANGES

     Shares of the  Portfolio  may be redeemed  without cost at any time, at the
net asset value of the Portfolio next determined after receipt of the redemption
request.  The redemption  price may be more or less than the purchase price. See
"REDEMPTION OF SHARES."

ADMINISTRATIVE SERVICES

   
     Rodney  Square  Management  Corporation  (the  "Administrator"  or  "Rodney
Square"),  is responsible  for performing  and overseeing  administration,  fund
accounting, dividend disbursing and transfer agent services for the Fund. Rodney
Square has entered into an agreement with PFPC Inc.  ("PFPC")  pursuant to which
PFPC will acquire the fund administration  business of Rodney Square.  Effective
January 5, 1998, the services  previously  provided to the Fund by Rodney Square
will be provided by PFPC.  Telephone,  mail and wire  instructions  contained in
this  prospectus  shall  remain as  stated  herein  until  further  notice.  See
"ADMINISTRATIVE SERVICES."
    


RISK FACTORS

     Prospective  investors  should  consider the  following:  (1) the micro cap
companies in which the  Portfolio  will invest are more  vulnerable to financial
and other risks than larger companies and the


                                       -3-
<PAGE>

securities  of such micro cap  companies may involve a higher degree of risk and
price  volatility  than  investments  in the  general  equity  markets.  (2) The
Portfolio may invest a portion of its assets in  derivatives  including  futures
contracts and options.  (See "FUTURES CONTRACTS AND OPTIONS.") (3) The Portfolio
may invest in securities of foreign issuers,  which may be subject to additional
risks.  (See  "FOREIGN  SECURITIES.")  (4) High rates of Portfolio  Turnover may
result in additional  cost and the  realization  of capital  gains, a portion of
which may be short-term or mid-term gains.  (See  "PORTFOLIO  TURNOVER") (5) The
Portfolio  may  use  various  investment   practices,   including  investing  in
repurchase  agreements,  when issued,  forward  delivery and delayed  settlement
securities. (See "OTHER INVESTMENT POLICIES.").

                              INVESTMENT OBJECTIVE

     The objective of the Portfolio is to provide maximum capital  appreciation,
consistent with reasonable risk to principal. The Portfolio seeks to achieve its
objective  by  investing  primarily  in  micro   capitalization   ("Micro  Cap")
companies.  The Portfolio  attempts to limit the risk of decline in the value of
its securities by following a stock selection process that emphasizes the use of
traditional  fundamental  security  analysis and valuation  methods as described
under "Investment Policies".

                               INVESTMENT POLICIES

     The Portfolio will invest (under normal  circumstances) at least 65% of its
total assets in equity  securities of a diverse  spectrum of companies which, at
the time of purchase,  have market  capitalizations that would place them in the
smallest 10% of market capitalizations for domestic companies as measured by the
Wilshire 5000 Index (currently approximately $600 million). The remaining 35% of
the Portfolio's  total assets may be invested in equity  securities of companies
which have market  capitalizations  at the time of purchase that are larger than
the market capitalizations of such micro cap companies. The equity securities in
which the  Portfolio  will  invest  consist  of  common  stocks  and  securities
convertible  into common  stocks,  including  convertible  preferred  stocks and
convertible bonds, and ADRs.

     The Adviser selects companies based on their potential for strong growth in
revenue, earnings and cash flow, strong management, leading products or services
and  potential for  improvement.  The list of potential  investments  is further
filtered by the use of traditional  fundamental  security analysis and valuation
methods  including,  but not limited to, analysis of relative returns on capital
and equity,  reward to risk ratios and earnings per share growth rates  relative
to price earnings ratios.  The Adviser believes that many companies with smaller
capitalizations have greater potential than their larger counterparts to deliver
above-average  revenue  and  earnings  growth  rates  that may not yet have been
recognized by investors.

     Micro  cap   companies  may  offer   greater   opportunities   for  capital
appreciation  than larger  companies,  but  investments  in such  companies  may
involve  certain  special risks.  Such companies may have limited product lines,
markets or financial  resources  and may be  dependent  on a limited  management
group. While the markets in securities of micro cap companies have grown rapidly
in recent years, such securities may trade less frequently and in smaller volume
than more widely held  securities.  The values of these securities may fluctuate
more sharply than those of other  securities,  and the Portfolio may  experience
some difficulty in establishing or closing out positions in these  securities at
prevailing market prices. There may be less publicly available information about
the issuers of these  securities or less market interest in such securities than
in the case of larger companies, and it may take a longer period of time for the
prices of such

                                       -4-
<PAGE>

securities  to reflect  the full  value of their  issuer's  underlying  earnings
potential or assets. Additionally, some securities of micro cap companies may be
thinly  traded.  Consequently,  the ability of the  Portfolio to dispose of such
securities  may be greatly  limited,  and the  Portfolio may have to continue to
hold such  securities  during periods when the Adviser would otherwise have sold
the security.

     The Adviser expects that a majority of investments in the Portfolio will be
in U.S.  based  companies,  however  shares of foreign  based  companies  may be
purchased  if they  meet  the  Portfolio's  investment  criteria.  Under  normal
circumstances, investments in foreign based companies will comprise no more than
25% of total portfolio assets.  The Portfolio may invest up to 20% of its assets
at the time of purchase in securities of companies that have (with predecessors)
a continuous  operating  history of less than 3 years.  Such  investments may be
characterized as potentially possessing higher business risks as well as greater
stock market risks and price  volatility.  Such companies may face special risks
that their products or services may not prove to be commercially successful.

     It is  anticipated  that cash  reserves will  represent a relatively  small
percentage of total portfolio  assets (less than 10% under most  circumstances).
In unusual  circumstances,  or for temporary  defensive  purposes when market or
economic  conditions  warrant,  the Portfolio may invest all or a portion of its
assets in short-term investments,  cash and cash equivalents. When the Portfolio
is in a defensive position, it may not be pursuing its investment objective.

                            OTHER INVESTMENT POLICIES

SHORT-TERM INVESTMENTS

     Occasionally,  the  Portfolio  may  invest a portion  of its  assets in the
following money market instruments,  consistent with the Portfolio's  investment
policies.

     (1)  Time deposits,  certificates of deposit (including marketable variable
          rate  certificates  of deposit) and bankers'  acceptances  issued by a
          commercial bank or savings and loan association.

     Time  deposits  are   nonnegotiable   deposits   maintained  in  a  banking
institution  for a  specified  period of time (not  longer than seven days) at a
stated  interest  rate.  Time  deposits  maturing from two business days through
seven calendar days will not exceed 10% of the total assets of a Portfolio under
most circumstances.

     Certificates  of deposit are negotiable  short-term  obligations  issued by
commercial  banks or  savings  and  loan  associations  collateralized  by funds
deposited in the issuing institution.  Variable rate certificates of deposit are
certificates  of deposit on which the  interest  rate is  periodically  adjusted
prior to their stated  maturity  based upon a specified  market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower,  usually in
connection with an international commercial transaction.

     The Portfolio will not invest in any security  issued by a commercial  bank
unless (i) the bank has total assets of at least $1 billion,  or the  equivalent
in other  currencies,  (ii) in the  case of U.S.  banks,  it is a member  of the
Federal Deposit Insurance Corporation, and (iii) in the case of foreign branches
of U.S.


                                       -5-
<PAGE>


banks, the security is, in the opinion of the Adviser,  of an investment quality
comparable to other debt securities which may be purchased by the Portfolio;

     (2)  Commercial  paper  rated A-1 or A-2 by S&P or  Prime-1  or  Prime-2 by
          Moody's  or,  if  not  rated,   issued  by  a  corporation  having  an
          outstanding  unsecured  debt issue  rated A or better by Moody's or by
          S&P;

     (3)  Short-term  corporate  obligations  rated A or better by Moody's or by
          S&P;

     (4)  U.S. Government obligations  including,  bills, notes, bonds and other
          debt  securities  issued  by  the  U.S.  Treasury.  These  are  direct
          obligations  of the U.S.  Treasury,  supported  by the full  faith and
          credit  pledge of the U.S.  Government  and differ  mainly in interest
          rates, maturities and dates of issue;

     (5)  U.S.  Government  agency  securities  issued  or  guaranteed  by  U.S.
          Government sponsored instrumentalities and Federal agencies; and

     (6)  Repurchase agreements collateralized by securities listed above.

REPURCHASE AGREEMENTS

     The Portfolio may invest in repurchase  agreements  collateralized  by U.S.
Government  securities.  In addition,  the  Portfolio  may invest in  repurchase
agreements  collateralized  by  certificates  of deposit,  and certain  bankers'
acceptances and other securities outlined above under "Short-Term  Investments."
In a  repurchase  agreement,  a  Portfolio  buys a security  and  simultaneously
commits to sell that  security  back at an agreed upon price plus an agreed upon
market  rate of  interest.  Under a  repurchase  agreement,  the seller  will be
required to maintain the value of the securities subject to the agreement at not
less than the repurchase price if such securities mature in one year or less, or
101% of the repurchase price if such securities mature in more than one year.

     The use of repurchase  agreements  involves certain risks. While the Fund's
management  acknowledges these risks, it is expected that they can be controlled
through stringent security selection criteria and careful monitoring procedures.

LENDING OF SECURITIES

     The Portfolio may lend its investment securities to qualified institutional
investors as a means of earning  income.  The Portfolio will not loan securities
to the extent that  greater  than  one-third  of its assets at fair market value
would be committed to loans. During the term of a loan, the Portfolio is subject
to a gain or loss  depending  on any increase or decrease in the market price of
the securities loaned.  Lending of securities is subject to review by the Fund's
Board  of  Trustees.  All  relevant  facts  and  circumstances,   including  the
creditworthiness  of the broker,  dealer or  institution,  will be considered in
making decisions about securities lending.

     An investment company may pay reasonable negotiated fees in connection with
loaned  securities so long as such fees are set forth in a written  contract and
approved by its Board of Trustees. The Portfolio


                                       -6-

<PAGE>

will continue to retain any voting rights with respect to loaned securities.  If
a material  event occurs  affecting an  investment  on a loan,  the loan must be
called and the securities voted.

WHEN-ISSUED, FORWARD DELIVERY AND DELAYED SETTLEMENT SECURITIES

     The Portfolio may purchase and sell securities on a "when-issued," "delayed
settlement" or "forward  delivery" basis.  "When-issued"  or "forward  delivery"
refers to securities  whose terms and indenture are  available,  and for which a
market exists, but which are not available for immediate  delivery.  When-issued
and  forward  delivery  transactions  may be  expected  to occur a month or more
before delivery is due. Delayed settlement is a term used to describe settlement
of a securities transaction in the secondary market which will occur sometime in
the future.  No payment or  delivery  is made by a  Portfolio  until it receives
payment or delivery from the other party to any of the above  transactions.  The
Portfolio will maintain a separate account of cash, U.S. Government  securities,
other high grade debt  obligations or other liquid  securities at least equal to
the  value of  purchase  commitments  until  payment  is made.  Such  segregated
securities  will  either  mature  or, if  necessary,  be sold on or  before  the
settlement  date.  Typically,  no income  accrues on  securities  purchased on a
delayed  delivery  basis  prior  to the time  delivery  is  made,  although  the
Portfolio  may earn  income  on  securities  it has  deposited  in a  segregated
account.

     The  Portfolio  may engage in  when-issued  transactions  to obtain what is
considered to be an advantageous price and yield at the time of the transaction.
When the Portfolio engages in when-issued or forward delivery  transactions,  it
does so to acquire  securities  consistent  with its  investment  objective  and
policies and not for the purpose of investment leverage.

PORTFOLIO TURNOVER

     It is expected  that the annual  portfolio  turnover rate for the Portfolio
will not exceed 300%. In addition to Portfolio  trading  costs,  higher rates of
portfolio  turnover may result in the realization of capital gains, a portion of
which may be  short-term  or  mid-term  gains.  See  "DIVIDENDS,  CAPITAL  GAINS
DISTRIBUTIONS AND TAXES" for information on taxation.

INVESTMENT COMPANIES

     The  Portfolio  reserves the right to invest up to 10% of its total assets,
calculated  at the  time of  investment,  in  securities  of other  open-end  or
closed-end  investment  companies.  No more than 5% of the investing Portfolio's
total assets may be invested in securities of any one investment company nor may
it acquire more than 3% of the voting securities of any investment company.  The
Portfolio will  indirectly bear its  proportionate  share of any management fees
paid by an  investment  company in which it invests in addition to the  advisory
fee paid by the Portfolio.

FOREIGN INVESTMENTS

     It is expected that  generally,  the Portfolio will invest in common stocks
of companies listed on foreign stock exchanges, but it may also invest in stocks
traded in the  over-the-counter  market.  Common  stocks for this  purpose  also
include  securities  having  common  stock  characteristics  such as rights  and
warrants to purchase  common  stocks.  The  Portfolio may also invest in foreign
equity securities in the form of American  Depositary  Receipts (ADRs) and other
similar global instruments. ADRs (sponsored or


                                       -7-

<PAGE>

unsponsored)  are  receipts  typically  issued by a U.S.  bank or trust  company
evidencing ownership of the underlying foreign securities.  Most ADRs are traded
on a U.S.  stock  exchange.  Issuers of unsponsored  ADRs are not  contractually
obligated to disclose material information in the U.S. and, therefore, there may
not be a  correlation  between  such  information  and the  market  value of the
unsponsored ADR.

     Investing  in  foreign   companies   may  involve   additional   risks  and
considerations  which  are  not  typically  associated  with  investing  in U.S.
companies. Since stocks of foreign companies are normally denominated in foreign
currencies, the Portfolio may be affected favorably or unfavorably by changes in
currency  rates and in  exchange  control  regulations,  and may incur  costs in
connection  with  conversions  between  various  currencies.  Some countries may
withhold  portions of dividends  and interest at the source.  Under the Internal
Revenue Code,  foreign exchange gains and losses are treated as ordinary gain or
loss.

     As non-U.S.  companies  are not  generally  subject to uniform  accounting,
auditing and financial  reporting  standards  and practices  comparable to those
applicable  to  U.S.  companies,  comparable  information  may  not  be  readily
available about certain foreign companies. Securities of some non-U.S. companies
may be less  liquid  and  more  volatile  than  securities  of  comparable  U.S.
companies.  In addition, in certain foreign countries,  there is the possibility
of expropriation or confiscatory taxation,  political or social instability,  or
diplomatic developments which could affect U.S. investments in those countries.

FUTURES CONTRACTS AND OPTIONS

     In order to remain fully  invested  and to reduce  transaction  costs,  the
Portfolio may invest in appropriate futures contracts and options (also known as
derivatives).  Because transaction costs associated with futures and options may
be lower  than the costs of  investing  in  stocks  and  bonds  directly,  it is
expected  that use of index  futures  and options to  facilitate  cash flows may
reduce a Portfolio's  overall  transaction  costs.  The Portfolio may enter into
futures contracts  provided that not more than 5% of the Portfolio's  assets are
required as margin deposit to secure obligations under such contracts.

     Futures and options can be volatile and involve  various  degrees and types
of risk. If the  Portfolio  judges market  conditions  incorrectly  or employs a
strategy that does not correlate well with its  investments,  use of futures and
options contracts could result in a loss. The Portfolio could also suffer losses
if it is unable to liquidate its position due to an illiquid  secondary  market.
In the opinion of the Trustees of the Fund,  the risk that the Portfolio will be
unable to close out a futures  position or options contract will be minimized by
only entering into futures contracts or options  transactions traded on national
exchanges and for which there appears to be a liquid secondary market.

SHORT SALES

     The Portfolio may engage in short sales of securities. In a short sale, the
Portfolio  sells stock which it does not own,  making  delivery with  securities
"borrowed"  from a broker.  The  Portfolio  is then  obligated  to  replace  the
security  borrowed  by  purchasing  it at  the  market  price  at  the  time  of
replacement.  This  price  may or may not be less  than the  price at which  the
security  was  sold by the  Portfolio.  Until  the  security  is  replaced,  the
Portfolio  is required  to pay to the lender any  dividends  or  interest  which
accrue  during the  period of the loan.  In order to borrow  the  security,  the
Portfolio  may also have to pay a premium  which would  increase the cost of the
security sold. The proceeds of the short sale will be retained by the broker, to
the extent  necessary to meet margin  requirements,  until the short position is
closed out.


                                       -8-
<PAGE>

     The Portfolio  also must deposit in a segregated  account an amount of cash
or liquid  assets  equal to the  difference  between (a) the market value of the
securities  short at the time  they  were  sold  short  and (b) the value of the
collateral  deposited  with the  broker in  connection  with the short sale (not
including the proceeds from the short sale).  While the short  position is open,
the Portfolio must maintain  daily the  segregated  account at such a level that
(1) the  amount  deposited  in it plus the amount  deposited  with the broker as
collateral  equals the current market value of the securities sold short and (2)
the  amount  deposited  in it plus  the  amount  deposited  with the  broker  as
collateral is not less than the market value of the  securities at the time they
were sold short.

     The Portfolio  will incur a loss as a result of the short sale if the price
of the security  increases  between the date of the short sale and date on which
the Portfolio replaces the borrowed security.  The Portfolio will realize a gain
if the security  declines in price between  those dates.  The amount of any gain
will be  decreased  and the amount of any loss will be increased by any interest
the  Portfolio  may be required to pay in  connection  with the short sale.  The
dollar amount of short sales at any one time (not including  short sales against
the box) may not exceed 25% of the net assets of the Portfolio.

     A short sale is  "against-the-box"  if at all times when the short position
is open the  Portfolio  owns an equal  amount of the  securities  or  securities
convertible into, or exchangeable without further  consideration for, securities
of the same issue as the  securities  sold short. A short sale may result in the
recognition  of gain with respect to a security for Federal  income tax purposes
under certain rules which treat certain short sales of the same or substantially
identical  positions with respect to such a security as a  constructive  sale at
the time a short  position is entered into by the  Portfolio.  See,  "DIVIDENDS,
CAPITAL GAINS DISTRIBUTIONS AND TAXES."

RESTRICTED SECURITIES

     The Portfolio may purchase  restricted  securities  that are not registered
for sale to the general  public but which are  eligible  for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933. Under the
supervision  of the  Fund's  Board  of  Trustees,  the  Adviser  determines  the
liquidity of such investments by considering all relevant factors. Provided that
a dealer or  institutional  trading  market  in such  securities  exists,  these
restricted  securities are not treated as illiquid  securities for purposes of a
Portfolio's investment limitations.  A Portfolio will invest no more than 15% of
its net assets in illiquid  securities.  The prices  realized  from the sales of
these  securities  could be less than those  originally paid by the Portfolio or
less than what would be considered the fair value of such securities.

     Except as specified above and as described under "INVESTMENT  LIMITATIONS,"
the  foregoing  investment  policies  are not  fundamental  and the Trustees may
change  such  policies  without  an  affirmative  vote  of  a  majority  of  the
outstanding voting securities of a Portfolio, as defined in the 1940 Act.


                                       -9-

<PAGE>

                             INVESTMENT LIMITATIONS

     The Portfolio will not:

     (a)  with  respect to 75% of its  assets,  invest more than 5% of its total
          assets at the time of purchase in the  securities of any single issuer
          (other than  obligations  issued or  guaranteed  as to  principal  and
          interest   by  the   government   of  the  U.S.   or  any   agency  or
          instrumentality thereof);

     (b)  with respect to 75% of its assets, purchase more than 10% of any class
          of the outstanding voting securities of any issuer;

     (c)  acquire any  securities  of  companies  within one  industry  if, as a
          result  of  such  acquisition,  more  than  25%  of the  value  of the
          Portfolio's  total assets would be invested in securities of companies
          within  such  industry;  provided,  however,  that  there  shall be no
          limitation on the purchase of obligations  issued or guaranteed by the
          U.S.  Government,  its agencies or  instrumentalities,  or instruments
          issued by U.S. banks when the Portfolio  adopts a temporary  defensive
          position;

     (d)  make  loans  except (i) by  purchasing  bonds,  debentures  or similar
          obligations  which are publicly  distributed,  and (ii) by lending its
          portfolio  securities to banks,  brokers,  dealers and other financial
          institutions so long as such loans are not inconsistent  with the 1940
          Act or  the  rules  and  regulations  or  interpretations  of the  SEC
          thereunder;

     (e)  borrow, except from banks and as a temporary measure for extraordinary
          or emergency  purposes and then,  in no event,  in excess of 331/3% of
          the  Portfolio's  gross assets  valued at the lower of market or cost,
          and  the  Portfolio  may  not  purchase  additional   securities  when
          borrowings exceed 5% of total gross assets; or

     (f)  pledge, mortgage or hypothecate any of its assets to an extent greater
          than 331/3% of its total assets at fair market value.

     The  investment  limitations  described  here and certain of the investment
limitations  described  in the SAI are  fundamental  policies and may be changed
only with the approval of the holders of a majority of the outstanding shares of
the  Portfolio  of  the  Fund.  If a  percentage  limitation  on  investment  or
utilization of assets as set forth above is adhered to at the time an investment
is made, a later  change in  percentage  resulting  from changes in the value or
total cost of the  Portfolio's  assets will not be considered a violation of the
restriction.

                               PURCHASE OF SHARES

     Shares of the Portfolio may be purchased without sales  commission,  at the
net asset value per share next determined after an order,  including  payment in
the manner  described  herein,  is  received  by the Fund.  (See  "VALUATION  OF
SHARES.") The minimum initial investment required is $10,000. Certain exceptions
may be made by the officers of the Fund.


                                      -10-

<PAGE>


INITIAL INVESTMENTS

     BY MAIL

     o    Complete  and sign an Account  Registration  Form and mail it together
          with a check,  drawn on a U.S.  bank,  made  payable to Brazos  Mutual
          Funds, to:

          Brazos Mutual Funds
          c/o Rodney Square Management Corporation
          P.O. Box 8987
          Wilmington, DE 19899

          A purchase order sent by overnight mail should be sent to:

          1105 North Market Street, 3rd Floor
          Wilmington, DE 19801

     o    Payment for the  purchase of shares  received by mail will be credited
          to your account at the net asset value per share of the Portfolio next
          determined  after receipt.  Payment does not need to be converted into
          Federal  Funds  (moneys  credited  to the Fund's  Custodian  Bank by a
          Federal  Reserve Bank) before the Fund will accept it for  investment.
          Make  certain  that you  specify  the  Portfolio  in which you wish to
          invest on the Account Registration Form.

     BY WIRE

     o    First, telephone Rodney Square between the hours of 9:00 a.m. and 4:00
          p.m.  Eastern  time at  1-800-426-9157  and provide the account  name,
          address,  telephone number, social security or taxpayer identification
          number,  Portfolio  selected,  amount  being wired and the name of the
          bank wiring the funds. An account number will then be provided to you.
          Next,

     o    instruct your bank to wire the specified amount to:

                      RODNEY SQUARE MANAGEMENT CORPORATION
                          C/O WILMINGTON TRUST COMPANY
                                 WILMINGTON, DE
                                ABA #0311-0009-2
                         ATTENTION: Brazos Mutual Funds
                      REF: PORTFOLIO NAME ________________
                              DDA Acct. #2731-2721
              FURTHER CREDIT [SHAREHOLDER NAME AND ACCOUNT NUMBER]

     o    Forward  a  completed  Account  Registration  Form to the  Fund at the
          address shown on the form.  Federal Funds  purchases  will be accepted
          only on a day on  which  both  the New  York  Stock  Exchange  and the
          Custodian Bank are open for business.

                                      -11-
<PAGE>


ADDITIONAL INVESTMENTS

     Additional  investments  can be made at any time.  The  minimum  additional
investment  is $1,000.  Shares can be  purchased at net asset value by mailing a
check to the Fund c/o Rodney  Square at the  address  above  (payable to "Brazos
Mutual  Funds") or by wiring money to the Fund using the  instructions  outlined
above.  When making additional  investments,  be sure that: the account name and
number is  identified  on the check or wire and the Portfolio to be purchased is
specified.

     Prior to wiring  additional  investments,  notify the Fund by  calling  the
number on the cover of this prospectus.  Mail orders should include, the "Invest
by Mail" stub which accompanies any Fund confirmation statement.

OTHER PURCHASE INFORMATION

     Investments received by 4 p.m. ET (the close of the New York Stock Exchange
("NYSE"))  will be invested at the price  calculated  after the NYSE closes that
day.  Orders  received after 4 p.m. ET will receive the price  calculated on the
next  business  day. The Fund  reserves the right,  in its sole  discretion,  to
suspend the offering of shares of the Portfolio or reject  purchase orders when,
in the  judgment of  management,  such  suspension  or  rejection is in the best
interest of the Fund.  Purchases  of shares will be made in full and  fractional
shares of the Portfolio  calculated to three decimal  places.  Certificates  for
fractional shares will not be issued.  Certificates for whole shares will not be
issued except at the written request of the shareholder.

     Shares of the Portfolio may be purchased by customers of  broker-dealers or
other financial  intermediaries  ("Service  Agents") which deal with the Fund on
behalf of their  customers.  Service  Agents may impose  additional or different
conditions  on the purchase or  redemption  of  Portfolio  shares and may charge
transaction  or other  account  fees.  Each  Service  Agent is  responsible  for
transmitting  to its  customers  a  schedule  of any such  fees and  information
regarding  any  additional  or  different  purchase and  redemption  conditions.
Shareholders  who are customers of Service  Agents should  consult their Service
Agent for  information  regarding  these fees and  conditions.  Amounts  paid to
Service Agents may include transaction fees and/or service fees paid by the Fund
from the Fund assets  attributable to the Service Agent,  and which would not be
imposed if shares of the Portfolio were purchased  directly from the Fund or the
Distributor.  The  Service  Agents may  provide  shareholder  services  to their
customers  that are not  available to a  shareholder  dealing  directly with the
Fund. A salesperson  and any other person entitled to receive  compensation  for
selling or servicing  Portfolio shares may receive  different  compensation with
respect to one particular class of shares over another in the Fund.

   
     Service Agents,  or if applicable,  their designee,  that have entered into
agreements with the Fund or its agent may enter confirmed purchase or redemption
orders on behalf of clients and customers,  with payment to follow no later than
the  Portfolio's  pricing  on the  following  business  day.  If  payment is not
received by the Fund's  Transfer  Agent by such time, the Service Agent could be
held liable for  resulting  fees or losses.  A  Portfolio  may be deemed to have
received a purchase or redemption order when a Service Agent, or, if applicable,
its  authorized  designee,  accepts  the order.  Orders  received by the fund in
proper  form will be priced at the  Portfolio's  net asset  value next  computed
after they are accepted by the Service Agent or its authorized designee. Service
Agents are responsible to their customers and the Fund
    


                                      -12-

<PAGE>


for timely transmission of all subscription and redemption requests,  investment
information, documentation and money.

IN-KIND PURCHASES

     If  accepted  by the Fund,  shares of the  Portfolio  may be  purchased  in
exchange for securities which are eligible for acquisition by the Portfolio,  as
described in this  Prospectus.  Securities to be exchanged which are accepted by
the Fund will be valued as set forth under  "VALUATION OF SHARES" at the time of
the next  determination of net asset value after such acceptance.  Shares issued
by a Portfolio  in  exchange  for  securities  will be issued at net asset value
determined as of the same time. All dividends, interest,  subscription, or other
rights  pertaining to such securities shall become the property of the Portfolio
and must be delivered to the Fund by the investor  upon receipt from the issuer.
Securities  acquired through an in-kind purchase will be acquired for investment
and not for immediate resale.

     The Fund will not accept  securities  in exchange for shares of a Portfolio
unless:

     o    at the  time of the  exchange,  such  securities  are  eligible  to be
          included in the Portfolio and current  market  quotations  are readily
          available for such securities;

     o    the investor  represents and agrees that all securities  offered to be
          exchanged are not subject to any  restrictions  upon their sale by the
          Portfolio under the Securities Act of 1933, or otherwise; and

     o    the value of any such securities (except U.S.  Government  securities)
          being  exchanged  together  with other  securities  of the same issuer
          owned by the  Portfolio  will not  exceed 5% of the net  assets of the
          Portfolio immediately after the action.

     Investors  who are subject to Federal  taxation upon exchange may realize a
gain or loss  for  Federal  income  tax  purposes  depending  upon  the  cost of
securities or local currency exchanged.  Investors  interested in such exchanges
should contact the Adviser.

                              REDEMPTION OF SHARES

     Shares of the Portfolio may be redeemed by mail or telephone,  at any time,
without  cost,  at the net asset value of the Portfolio  next  determined  after
receipt of the  redemption  request.  Shareholders  are charged a $12.00 fee for
redemptions  by  wire.  Otherwise,  there  is no  charge  for  redemptions.  Any
redemption may be more or less than the purchase price of your shares  depending
on the market value of the investment securities held by the Portfolio.

BY MAIL

     The Portfolio will redeem its shares at the net asset value next determined
on the date the  request is  received  in "good  order."  Address  requests  for
redemption to the Fund c/o Rodney Square Management Corporation,  P.O. Box 8987,
Wilmington, DE 19899. A request to redeem shares must include:

     o    share certificates, if issued;


                                      -13-

<PAGE>

     o    a letter of instruction or a stock assignment specifying the number of
          shares  or  dollar  amount to be  redeemed,  signed by all  registered
          owners of the shares in the exact names in which they are registered;

     o    any required signature guarantees (see "SIGNATURE GUARANTEES"); and

     o    any other  necessary  legal  documents,  if  required,  in the case of
          estates, trusts, guardianships,  custodianships, corporations, pension
          and profit sharing plans and other organizations.

     Shareholders  who are  uncertain  of  requirements  for  redemption  should
contact Rodney Square at 1-800-426-9157.

BY TELEPHONE

     In order to make a redemption request by telephone, you must:

     o    establish the telephone redemption privilege (and if desired, the wire
          redemption  privilege)  by  completing  appropriate  sections  of  the
          Account Registration Form; and

     o    call the Fund and instruct that the  redemption  proceeds be mailed to
          you or wired to your bank.

     The following tasks cannot be accomplished by telephone:

     o    changing the name of the commercial bank or the account  designated to
          receive  redemption  proceeds  (this  can be  accomplished  only  by a
          written  request  signed  by each  shareholder,  with  each  signature
          guaranteed);

     o    redemption of certificated shares by telephone.


     The Fund and the Fund's Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine, and they may be
liable for any losses if they fail to do so. These procedures  include requiring
the investor to provide certain personal  identification  at the time an account
is  opened,  as well  as  prior  to  effecting  each  transaction  requested  by
telephone.  In addition, all telephone transaction requests will be recorded and
investors may be required to provide additional  telecopied written instructions
of such transaction  requests.  The Fund or Transfer Agent may be liable for any
losses due to unauthorized or fraudulent  telephone  instructions if the Fund or
Transfer Agent does not employ the procedures  described above. Neither the Fund
nor the Transfer  Agent will be  responsible  for any loss,  liability,  cost or
expense for  following  instructions  received by telephone  that it  reasonably
believes to be genuine.

     Please contact Rodney Square at 1-800-426-9157 for further details.



                                      -14-
<PAGE>


SIGNATURE GUARANTEES

Signature guarantees are required for the following redemptions:

     o    redemptions  where the proceeds  are to be sent to someone  other than
          the registered shareowner(s);

     o    redemptions  where the proceeds are to be sent to someplace other than
          the registered address; or

     o    share transfer requests.

     The purpose of signature  guarantees is to verify the identity of the party
who has authorized a redemption.  Signature guarantees will be accepted from any
eligible  guarantor  institution  which  participates  in a signature  guarantee
program. Eligible guarantor institutions include banks, brokers, dealers, credit
unions,  national  securities  exchanges,  registered  securities  associations,
clearing  agencies  and  savings   associations.   Broker-dealers   guaranteeing
signatures must be a member of a clearing corporation or maintain net capital of
at  least  $100,000.  Credit  unions  must  be  authorized  to  issue  signature
guarantees.

OTHER REDEMPTION INFORMATION

     Normally,  the Fund will make payment for all shares  redeemed under proper
procedures  within one business day of and no more than seven days after receipt
of the  request.  The Fund may suspend the right of  redemption  or postpone the
date, as permitted by the SEC,  including under emergency  circumstances  and at
times when the NYSE is closed.

     If the Fund's Board of Trustees  determines that it would be detrimental to
the best interests of remaining  shareholders of the Fund to make payment wholly
or partly in cash, the Fund may pay the redemption  proceeds in whole or in part
by a distribution  in-kind of liquid  securities  held by a Portfolio in lieu of
cash in  conformity  with  applicable  rules of the  SEC.  Investors  may  incur
brokerage charges on the sale of portfolio  securities so received in payment of
redemptions.

                              SHAREHOLDER SERVICES

EXCHANGE PRIVILEGE

     Shares of the Portfolio may be exchanged for shares of any other  Portfolio
included in the Brazos Mutual Funds. Exchange requests should be made by writing
to the Fund c/o Rodney Square Management Corporation, P.O. Box 8987, Wilmington,
DE 19899 or calling  1-800-426-9157 between the hours of 9:00 a.m. and 4:00 p.m.
Eastern time.

     Any exchange will be based on the net asset values of the shares  involved.
There is no sales  commission  or  charge  of any kind for an  exchange.  Before
making an exchange into a Portfolio,  a shareholder  should read its  Prospectus
and consider the investment objectives of the Portfolio to be purchased. Contact
Rodney  Square  at  1-800-426-9157   for  a  copy  of  the  Prospectus  for  the
Portfolio(s).  Exchanges can only be made with Portfolios that are qualified for
sale in a shareholder's state of residence.


                                      -15-
<PAGE>


Exchange requests may be made either by mail or telephone.  Telephone  exchanges
will be accepted only if the  certificates  for the shares to be exchanged  have
not been issued to the shareholder  and if the  registration of the two accounts
will be identical.  Requests for exchanges with other Portfolios  received prior
to 4 p.m.  (ET) will be  processed  as of the close of business on the same day.
Requests  received  after that time will be processed on the next  business day.
The Board of Trustees may limit frequency and amount of exchanges permitted. For
additional   information  regarding   responsibility  for  the  authenticity  of
telephoned  instructions,  see  "REDEMPTION  OF SHARES BY TELEPHONE"  above.  An
exchange  into another  Portfolio of the Fund is a sale of shares and may result
in a  capital  gain or loss for  income  tax  purposes.  The Fund may  modify or
terminate the exchange privilege at any time.

TRANSFER OF REGISTRATION

     You may  transfer  the  registration  of any of your Fund shares to another
person  by  writing  to the  Fund  at the  above  address.  As in  the  case  of
redemptions,  the written  request  must be  received  in good order  before any
transfer can be made.  (See  "REDEMPTION  OF SHARES" for a  definition  of "good
order.")

                                RETIREMENT PLANS

     Shares of the Fund are  available  for use in  certain  tax-deferred  plans
(such as Individual Retirement Accounts ("IRAs"),  defined contribution,  401(k)
and 403(b)(7) plans).

Individual Retirement Accounts

     Application forms and brochures for IRAs can be obtained from Rodney Square
by calling 1-800-426-9157.

     Wilmington  Trust Company  ("WTC")  makes  available its services as an IRA
custodian for each shareholder  account that is established as an IRA. For these
services,  WTC receives an annual fee of $10.00 per  account,  which fee is paid
directly to WTC by the IRA shareholder.  If the fee is not paid by the date due,
shares of the Fund owned by the IRA will be redeemed  automatically for purposes
of making  the  payment.  In  addition,  a $10 fee is  charged  to  shareholders
transferring out of a Fund IRA.

                               VALUATION OF SHARES

     The net asset value of the  Portfolio is  determined by dividing the sum of
the total market value of the Portfolio's investments and other assets, less any
liabilities,  by the total  number of shares  outstanding.  Net asset  value per
share of the  Portfolio  is  determined  as of the close of the NYSE on each day
that the NYSE is open for business.

     The  Portfolio  uses the last quoted  trading price as the market value for
equity securities.  For listed securities, the Fund uses the price quoted by the
exchange on which the  security is primarily  traded.  Unlisted  securities  and
listed  securities which have not been traded on the valuation date or for which
market  quotations are not readily  available are valued at the average  between
the last price asked and the last price bid. For valuation purposes,  quotations
of foreign securities in a foreign currency are converted


                                      -16-
<PAGE>


to U.S.  dollar  equivalents  based upon the latest  available bid price of such
currencies against U.S. dollars quoted by any major bank or by a broker.

     Bonds and  other  fixed  income  securities  are  valued  according  to the
broadest  and  most   representative   market  which  will   ordinarily  be  the
over-the-counter  market.  Net asset value  includes  interest  on fixed  income
securities,  which is accrued daily. Bonds and other fixed income securities may
be valued on the basis of prices  provided by a pricing service when such prices
are  believed to reflect the fair market  value of such  securities.  Securities
purchased with  remaining  maturities of 60 days or less are valued at amortized
cost when the Board of Trustees  determines  that  amortized  cost reflects fair
value.

     The  value of other  assets  and  securities  for which no  quotations  are
readily available (including restricted  securities) is determined in good faith
at fair value using methods determined by the Trustees.

                            PERFORMANCE CALCULATIONS

     The  Portfolio  may  advertise or quote total return data.  Total return is
calculated on an average  annual total return basis,  and may also be calculated
on an aggregate total return basis,  for various  periods.  Average annual total
return reflects the average annual  percentage  change in value of an investment
in a  Portfolio  over a  period.  Aggregate  total  return  reflects  the  total
percentage  change in value over a period.  Both methods  assume  dividends  and
capital gains distributions are reinvested in Portfolio shares.

     The Portfolio's performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported in
financial  and  industry  publications,  and  various  indices,  all as  further
described in the Portfolio's SAI.

     The Portfolio will provide information about past performance together with
a  comparison  to an  appropriate  index in its Annual  Report to  Shareholders.
Following the end of the Portfolio's fiscal year, a free copy of the Portfolio's
Annual  Report to  Shareholders  will be  available  upon  request by writing or
calling the Fund at the address or phone number on the cover of this Prospectus.

                DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

     The Portfolio will distribute annually to shareholders substantially all of
its net  investment  income,  together with any net realized  long-term  capital
gains.  The Portfolio may  distribute  net  investment  income and other capital
gains during  interim  periods when the  management of the Portfolio  determines
that it is in the best interests of the Portfolio and the shareholders to do so.
It is not  anticipated  that  distributions  of net investment  income and other
capital  gains will be made more often than  quarterly.  Dividends  paid shortly
after the  purchase  of shares by an  investor,  although  in effect a return of
capital,  are taxable to  shareholders.  The  Portfolio's  dividends and capital
gains distributions will be reinvested automatically in additional shares of the
Portfolio unless the Fund is notified in writing that the shareholder  elects to
receive distributions in cash.

     If a  shareholder  has elected to receive  dividends  and/or  capital  gain
distributions  in cash and the  postal or other  delivery  service  is unable to
deliver checks to the shareholder's address of record, such


                                      -17-
<PAGE>



shareholder's  distribution option will automatically be converted to having all
dividend and other  distributions  reinvested in additional  shares. No interest
will  accrue on amounts  represented  by  uncashed  distribution  or  redemption
checks.

FEDERAL TAXES

     The  Portfolio  has  qualified,  and intends to  continue to qualify,  as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code").  As such, the Portfolio will not be subject to federal income tax,
or any excise tax, to the extent its earnings are distributed as provided by the
Code.  The  Portfolio  intends  to  distribute  substantially  all  of  its  net
investment income.

     The Portfolio may engage in certain  transactions,  such as short sales, or
invest in certain  instruments,  such as futures contracts,  which may result in
constructive sales of appreciated positions in securities for Federal income tax
purposes.  A constructive  sale generally  occurs when the Portfolio has entered
into a short sale of the same or  substantially  identical  securities  or if it
enters into a futures or forward  contract to deliver the same or  substantially
identical securities and in certain other circumstances.  If a constructive sale
occurs,  the Portfolio will  recognize  either  ordinary  income or capital gain
depending  on  the  length  of  time  which  it  held  the  security  which  was
constructively sold.

     Dividends paid by the Portfolio  from net investment  income and short-term
capital  gains,  either in cash or  reinvested  in  shares,  will be  taxable to
shareholders  as  ordinary  income.  Dividends  paid  from  the  Portfolio  will
generally  qualify  in  part  for  the  70%  dividends-received  deductions  for
corporations,  but the  portion of the  dividends  so  qualified  depends on the
aggregate  qualifying  dividend  income  received by the Portfolio from domestic
(U.S.) sources.

   
     Distributions paid by the Portfolio from long-term capital gains, either in
cash or, additional shares of the Portfolio are taxable to shareholders  subject
to income tax as long-term  capital  gains  regardless of the length of time the
shareholder  has owned shares in the  Portfolio.  Also,  for those  shareholders
subject to tax, if purchases of shares in the Portfolio are made shortly  before
the record date for a capital gains distribution or a dividend, a portion of the
investment will be returned as a taxable distribution. Shareholders are notified
annually  by the Fund as to the  Federal  Income  tax  status of  dividends  and
distributions  paid by the Portfolio.  Dividends and  distributions  may also be
subject to state and local taxes.  Dividends declared in October,  November,  or
December  to  shareholders  of record in such  month and paid in  January of the
following year will be deemed to have been paid by the Portfolio and received by
the shareholders or December 31.
    

     Redemptions  of shares in the  Portfolio  are  taxable  events for  Federal
income tax purposes.

     The  Portfolio  is required to withhold 31% of taxable  dividends,  capital
gains distributions,  and redemptions paid to shareholders who have not complied
with IRS taxpayer  identification  regulations.  You may avoid this  withholding
requirement by certifying on the account  registration form your proper Taxpayer
Identification  Number  and by  certifying  that you are not  subject  to backup
withholding.



                                      -18-
<PAGE>


STATE AND LOCAL TAXES

     Shareholders  may also be subject to state and local taxes on distributions
and redemptions.  Shareholders  should consult with their tax advisers regarding
the tax status of distributions in their state and locality.

                               INVESTMENT ADVISER

     John McStay Investment Counsel is a limited  partnership formed in 1983 and
located at 5949  Sherry  Lane,  Suite 1560,  Dallas,  Texas  75225.  The Adviser
provides  investment  management  services to institutions and individuals.  The
Adviser currently has approximately $3 billion in assets under management.  John
D.  McStay may be deemed to control the  Adviser as a result of  ownership  of a
majority  interest in John McStay & Associates  ("JMA"),  the general partner of
the Adviser. JMA owns a majority interest in the Adviser.

     An investment policy committee is responsible for the day-to-day management
of the Portfolio's investments.

     Under an Investment  Advisory Agreement with the Fund, dated as of November
14, 1997, the Adviser  manages the investment and  reinvestment of the assets of
the Portfolio.  The Adviser must adhere to the stated investment  objectives and
policies of the Portfolio,  and is subject to the control and supervision of the
Fund's Board of Trustees.

     As  compensation  for its services as an Adviser,  the  Portfolio  pays the
Adviser an annual  fee,  in monthly  installments,  of 1.20% of the  Portfolio's
average daily net assets for the month.

     The  Adviser  has  voluntarily  agreed  to  keep  operating  expenses  from
exceeding  1.60% of average  daily net assets.  The Fund will not  reimburse the
Adviser for any  advisory  fees that are waived or Portfolio  expenses  that the
Adviser may bear on behalf of a Portfolio.

     The Adviser may compensate its affiliated companies for referring investors
to the  Portfolios.  The  Adviser,  or any of its  affiliates,  may,  at its own
expense,  compensate a Service Agent or other person for marketing,  shareholder
servicing,  record-keeping  and/or other services  performed with respect to the
Fund or a Portfolio.  Payments  made for any of these  purposes may be made from
the paying entity's  revenues,  its profits or any other source available to it.
When such service  arrangements are in effect, they are made generally available
to all qualified service providers.

                             ADMINISTRATIVE SERVICES

   
     Rodney Square Management Corporation, 1100 N. Market Street, Wilmington, DE
19890-0001, serves as Administrator, Transfer Agent and Dividend Paying Agent of
the Fund and also provides  accounting  services to the Fund.  Rodney Square has
entered into an agreement  with PFPC Inc.  ("PFPC")  pursuant to which PFPC will
acquire the fund administration business of Rodney Square.  Effective January 5,
1998,  the  services  previously  provided to the Fund by Rodney  Square will be
provided  by  PFPC.  Telephone,  mail and wire  instructions  contained  in this
prospectus shall remain as stated herein until further notice.
    


                                      -19-
<PAGE>


   
     PFPC,  located at 400 Bellevue Parkway,  Wilmington,  Delaware 19809, is an
indirect  wholly-owned  subsidiary  of PNC  Bank  Corp.,  a  multi-bank  holding
company.  PFPC will provide  administrative  services  identical to the services
previously  provided by Rodney  Square,  under the same terms and conditions and
for the same fee.
    


     As Administrator, Rodney Square supplies office facilities,  non-investment
related statistical and research data, stationery and office supplies, executive
and  administrative  services,   internal  auditing  and  regulatory  compliance
services.   Rodney  Square  also  assists  in  the  preparation  of  reports  to
shareholders,  prepares proxy statements, updates prospectuses and makes filings
with the Securities and Exchange  Commission and state  securities  authorities.
Rodney Square performs certain budgeting and financial  reporting and compliance
monitoring activities. For the services provided as Administrator, Rodney Square
receives  an annual  fee from the Fund  equal to the  greater  of: (1) a minimum
annual fee of $32,500  for each of the first two  single-class  Portfolios  plus
$15,000  for any  additional  Portfolio,  or  second  or  additional  class of a
Portfolio; or (2) an asset-based fee, equal to a percentage of the average daily
net  assets  of the Fund,  on a  Fund-wide  basis,  according  to the  following
schedule:

     0.15% of the first $50 million in assets;  plus 
     0.10% of assets between $50  million and $200  million;  plus 
     0.07% of assets in excess of $200 million.

The  Administrator's  fee shall be payable monthly, as soon as practicable after
the last day of each  month,  based on the  Fund's  average  daily net assets as
determined at the close of business on each business day  throughout  the month.
Rodney  Square also serves as Transfer  Agent and  Dividend  Paying Agent of the
Fund.

     Rodney Square also serves as an Accounting Agent to the Fund. As Accounting
Agent,  Rodney  Square  determines  the  Fund's  net  asset  value per share and
provides  accounting  services to the Fund  pursuant to an  Accounting  Services
Agreement with the Fund.

                                   DISTRIBUTOR

     Rodney Square  Distributors,  Inc., 1100 N. Market Street,  Wilmington,  DE
19899, has been engaged pursuant to a distribution  agreement dated December 31,
1996,  to assist  in  securing  purchasers  for  shares  of the  Fund.  RSD also
directly,  or through its affiliates,  provides investor support  services.  RSD
will receive no compensation for distribution of shares of the Fund,  except for
reimbursement of out-of-pocket expenses.

     Banking  laws  limit  deposit-taking  institutions  and  certain  of  their
affiliates from underwriting or distributing securities.  RSD is an affiliate of
WTC, the Fund's custodian bank for its domestic assets. RSD believes that it may
perform  the  services  contemplated  by its  agreement  with the  Fund  without
violation of applicable banking laws or regulations. If RSD were prohibited from
performing  these  services,  it is expected  that the Board of  Trustees  would
consider  entering into agreements with other entities.  It is not expected that
shareholders would suffer any adverse financial consequences as a result of such
an occurrence.



                                      -20-
<PAGE>


                             PORTFOLIO TRANSACTIONS

     The  Investment  Advisory  Agreement  authorizes  the Adviser to select the
brokers or dealers  that will  execute  the  purchases  and sales of  investment
securities for the Portfolio.  The Agreement directs the Adviser to use its best
efforts to obtain the best available price and most favorable  execution for all
transactions  of the Portfolio.  The Adviser may buy and sell securities for the
account of the portfolio through the Adviser's affiliated broker-dealer. In such
instances,  the affiliated  broker-dealer will complete transactions pursuant to
procedures  designed to ensure that charges for the  transactions  do not exceed
usual and customary levels obtainable from other,  unaffiliated  broker-dealers.
Such  transactions  and the  procedures  are  supervised  by the Fund's Board of
Trustees.  It is  understood  that  the  affiliated  broker-dealer  will  not be
utilized in situations where, in the Adviser's judgment,  the brokerage services
of another  security  firm would be in the best  interest of the  Portfolio.  If
consistent  with the interests of the Portfolio,  the Adviser may select brokers
on the basis of research, statistical and pricing services these brokers provide
to the Portfolio. Information and research received from such brokers will be in
addition  to, and not in lieu of, the  services  required to be performed by the
Adviser  under the  Investment  Advisory  Agreement.  Such brokers may be paid a
higher  commission than that which another  qualified  broker would have charged
for effecting the same  transaction,  provided that such commissions are paid in
compliance  with the Securities  Exchange Act of 1934, as amended,  and that the
Adviser  determines  in good faith that the  commission  is  reasonable in terms
either of the  transaction or the overall  responsibility  of the Adviser to the
Portfolio and the Adviser's other clients.  Although not a typical practice, the
Adviser may place  portfolio  orders  with  qualified  broker-dealers  who refer
clients to the Adviser.  If a purchase or sale of securities is consistent  with
the  investment  policies of a Portfolio and one or more other clients served by
the  Adviser  is  considered  at or about the same  time,  transactions  in such
securities  will be allocated among the Portfolio and clients in a manner deemed
fair and reasonable by the Adviser.  Although there is no specified  formula for
allocating such transactions,  the allocations are subject to periodic review by
the Fund's Trustees.

                               GENERAL INFORMATION

DESCRIPTION OF SHARES AND VOTING RIGHTS

     The Fund was  organized as a Delaware  Business  Trust on October 24, 1996.
The  Trustees  have the  power to  designate  one or more  series  of  shares of
beneficial  interest and to classify or reclassify  any unissued  shares without
further action by  shareholders.  At its  discretion,  The Board of Trustees may
create additional Portfolios and classes of shares.

     The  shares of each  Portfolio  are fully paid and  nonassessable,  have no
preference as to conversion,  exchange, dividends,  retirement or other features
and have no pre-emptive  rights.  They have noncumulative  voting rights,  which
means that the holders of more than 50% of the shares voting for the election of
Trustees can elect 100% of the Trustees.  A shareholder  is entitled to one vote
for each full share held (and a fractional vote for each fractional share held),
then standing in his name on the books of the Fund.

     Annual  meetings  will not be held  except as  required by the 1940 Act and
other  applicable  laws. The Fund has  undertaken  that its Trustees will call a
meeting of shareholders if such a meeting is requested


                                      -21-
<PAGE>



in writing by the holders of not less than 10% of the outstanding  shares of the
Fund. The Fund will assist shareholder communications in such matters.

CUSTODIAN

     Wilmington  Trust Company,  Rodney Square North,  1100 North Market Street,
Wilmington, DE 19890-0001, serves as Custodian of the Fund's assets.

INDEPENDENT ACCOUNTANTS

     Coopers & Lybrand L.L.P., 2400 Eleven Penn Center, Philadelphia,  PA 19103,
is the independent accountants for the Fund.

REPORTS

     Shareholders receive unaudited  semi-annual financial statements and annual
financial statements audited by Coopers & Lybrand L.L.P.

SHAREHOLDER INQUIRIES

     Shareholder  inquiries may be made by contacting the Fund c/o Rodney Square
Management Corporation,  P.O. Box 8987, Wilmington,  DE 19899, or by calling the
telephone number listed on the cover of this Prospectus.


                                      -22-

<PAGE>



   
                                   PROSPECTUS
                             Dated December 31, 1997
    

                               Investment Adviser
                         JOHN MCSTAY INVESTMENT COUNSEL
                                5949 Sherry Lane
                                   Suite 1560
                                Dallas, TX 75225



                        RODNEY SQUARE DISTRIBUTORS, INC.


                                TABLE OF CONTENTS

Fund Expenses...................................................................
Prospectus Summary..............................................................
Risk Factors....................................................................
Investment Objective............................................................
Investment Policies.............................................................
Other Investment Policies.......................................................
Investment Limitations..........................................................
Purchase of Shares..............................................................
Redemption of Shares............................................................
Shareholder Services............................................................
Valuation of Shares.............................................................
Performance Calculations........................................................
Dividends, Capital Gains Distribution and Taxes.................................
Investment Adviser..............................................................
Administrative Services.........................................................
Distributor.....................................................................
Portfolio Transactions..........................................................
General Information.............................................................

     No  person  has  been  authorized  to give any  information  or to make any
representations not contained in this Prospectus,  or in the Fund's Statement of
Additional Information,  in connection with the offering made by this Prospectus
and,  if given or made,  such  information  or its  representations  must not be
relied upon as having been  authorized  by the Fund.  This  Prospectus  does not
constitute  an offering by the Fund in any  jurisdiction  in which such offering
may not lawfully be made.



                                      -23-

<PAGE>

                                     PART B


                     BRAZOS/JMIC MICRO CAP GROWTH PORTFOLIO



                       STATEMENT OF ADDITIONAL INFORMATION

   
                                December 31, 1997
    




This Statement is not a Prospectus  but should be read in  conjunction  with the
Prospectus of the Brazos Mutual Funds (the "Fund") for the BRAZOS/JMIC Micro Cap
Growth  Portfolio  Shares dated  December 31,  1997.  To obtain the  Prospectus,
please call Rodney Square Management Corporation at 1-800-426- 9157.




                                Table of Contents

                                                                            Page

   
Investment Objective and Policies........................................... 2
Purchase of Shares.......................................................... 7
Redemption of Shares........................................................ 7
Shareholder Services........................................................ 8
Investment Limitations...................................................... 9
Management of the Fund......................................................10
Investment Adviser..........................................................12
Portfolio Transactions......................................................12
Performance Calculations....................................................13
General Information.........................................................17
Financial Statements........................................................19
    




                                       -1-

<PAGE>

                        INVESTMENT OBJECTIVE AND POLICIES

     The following policies supplement the investment  objective and policies of
the  BRAZOS/JMIC  Micro Cap Growth  Portfolio as set forth in the Prospectus for
the Portfolio:

SECURITIES LENDING
     The Portfolio may lend its investment securities to qualified institutional
investors  who  need  to  borrow   securities  in  order  to  complete   certain
transactions,  such as  covering  short  sales,  avoiding  failures  to  deliver
securities  or  completing  arbitrage  operations.  By  lending  its  investment
securities, the Portfolio attempts to increase its income through the receipt of
interest  on the loan.  Any gain or loss in the market  price of the  securities
loaned that might occur  during the term of the loan would be for the account of
the  Portfolio.  The Portfolio may lend its  investment  securities to qualified
brokers, dealers, domestic and foreign banks or other financial institutions, so
long as the terms,  the structure and the aggregate amount of such loans are not
inconsistent  with the  Investment  Company Act of 1940, as amended,  (the "1940
Act") or the Rules and  Regulations  or  interpretations  of the  Securities and
Exchange Commission (the "Commission") thereunder,  which currently require that
(a) the borrower pledge and maintain with the Portfolio collateral consisting of
cash,  an  irrevocable  letter  of  credit  issued by a  domestic  U.S.  bank or
securities  issued or guaranteed by the United States  Government having a value
at all times not less than 100% of the value of the securities  loaned,  (b) the
borrower  add to such  collateral  whenever the price of the  securities  loaned
rises (i.e., the borrower "marks to the market" on a daily basis),  (c) the loan
be made  subject  to  termination  by the  Portfolio  at any  time,  and (d) the
Portfolio  receives  reasonable  interest  on the loan  (which may  include  the
Portfolio   investing  any  cash  collateral  in  interest  bearing   short-term
investments).   All   relevant   facts   and   circumstances,    including   the
creditworthiness  of the broker,  dealer or  institution,  will be considered in
making decisions with respect to the lending of securities, subject to review by
the Board of Trustees.

     At the  present  time,  the Staff of the  Commission  does not object if an
investment  company pays  reasonable  negotiated  fees in connection with loaned
securities so long as such fees are set forth in a written contract and approved
by the investment  company's  Board of Trustees.  The Portfolio will continue to
retain any voting  rights with respect to the loaned  securities.  If a material
event occurs  affecting an investment on a loan, the loan must be called and the
securities voted.

HEDGING STRATEGIES
     The Portfolio may engage in various  portfolio  strategies to hedge against
adverse  movements in the equity markets.  The Portfolio may write (i.e.,  sell)
covered call options on its portfolio securities,  purchase put and call options
on securities and engage in transactions in related options on futures.  Each of
these portfolio strategies is described below.

FUTURES CONTRACTS
     The Portfolio may enter into futures  contracts.  Futures contracts provide
for the future sale by one party and  purchase  by another  party of a specified
amount of a specific  security  at a  specified  future  time and at a specified
price.  Futures  contracts  which  are  standardized  as to  maturity  date  and
underlying  financial  instrument  are  traded on  national  futures  exchanges.
Futures exchanges and trading are regulated under the Commodity  Exchange Act by
the Commodity Futures Trading Commission ("CFTC"), a U.S. Government agency.


                                       -2-
<PAGE>


     Although  futures  contracts  by their  terms call for actual  delivery  or
acceptance of the underlying securities,  in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by trading an opposite position ("buying" a
contract  which has  previously  been "sold" or "selling" a contract  previously
"purchased")  in an identical  contract to  terminate  the  position.  Brokerage
commissions are incurred when a futures contract is bought or sold.

     Futures traders are required to make a good faith margin deposit in cash or
acceptable  securities  with a broker or custodian to initiate and maintain open
positions  in  futures  contracts.  A  margin  deposit  is  intended  to  assure
completion of the contract  (delivery or acceptance of the underlying  security)
if it is not terminated  prior to the specified  delivery date.  Minimal initial
margin  requirements are established by the futures exchange and may be changed.
Brokers may establish  deposit  requirements  which are higher than the exchange
minimums.  Futures  contracts are customarily  purchased and sold on margin that
may range  upward from less than 5% of the value of the contract  being  traded.
After a futures contract position is opened, the value of the contract is marked
to market daily.  If the futures  contract  price changes to the extent that the
margin on deposit does not satisfy  margin  requirements,  payment of additional
"variation"  margin will be required.  Conversely,  change in the contract value
may reduce the required margin, resulting in a repayment of excess margin to the
contract  holder.  Variation  margin  payments  are made to and from the futures
broker for as long as the contract  remains open. The Portfolio  expects to earn
interest income on its margin deposits.

     Traders in futures contracts may be broadly  classified as either "hedgers"
or   "speculators".   Hedgers  use  the  futures  markets  primarily  to  offset
unfavorable  changes in the value of securities  otherwise  held for  investment
purposes or expected to be acquired by them.  Speculators  are less  inclined to
own the  securities  underlying the futures  contracts  which they trade and use
futures  contracts with the expectation of realizing  profits from a fluctuation
in interest rates.

     Regulations  of the CFTC  applicable  to the Fund  require  that all of its
futures transactions constitute bona fide straddles positions or that the Fund's
commodity futures and option positions be for other purposes, to the extent that
the  aggregate  initial  margins and premiums  required to  establish  such non-
hedging  positions  do not exceed five percent of the  liquidation  value of the
Portfolio.  The Portfolio will only sell futures contracts to protect securities
it owns  against  price  declines or purchase  contracts  to protect  against an
increase in the price of securities it intends to purchase.  As evidence of this
hedging interest,  the Portfolio  expects that  approximately 75% of its futures
contracts purchases will be "completed",  that is, equivalent amounts of related
securities will have been purchased or will be purchased by the Portfolio on the
settlement date of the futures contracts.

     Although  techniques other than the sale and purchase of futures  contracts
could be used to control the Portfolios exposure to market fluctuations, the use
of futures  contracts may be a more  effective  means of hedging this  exposure.
While the Portfolio will incur  commission  expenses in both opening and closing
out futures positions,  these costs are lower than transaction costs incurred in
the purchase and sale of the underlying securities.

                                       -3-
<PAGE>

RESTRICTIONS ON THE USE OF FUTURES CONTRACTS
     The  Portfolio  will not enter into futures  contract  transactions  to the
extent that, immediately  thereafter,  the sum of its initial margin deposits on
open contracts  exceeds 5% of the market value of its total assets. In addition,
the  Portfolio  will not enter into  futures  contracts  to the extent  that its
outstanding  obligations  to purchase  securities  under these  contracts  would
exceed 20% of its total assets.

RISK FACTORS IN FUTURES TRANSACTIONS
     The Portfolio  will minimize the risk that it will be unable to close out a
futures  position by only  entering  into  futures  which are traded on national
futures  exchanges and for which there appears to be a liquid secondary  market.
However, there can be no assurance that a liquid secondary market will exist for
a particular futures contract at any given time. Thus, it may not be possible to
close a futures position. In the event of adverse price movements, the Portfolio
would  continue  to be required  to make daily cash  payments  to  maintain  its
required margin. In such situations,  if the Portfolio has insufficient cash, it
may have to sell securities to meet daily margin  requirements at a time when it
may be disadvantageous  to do so. In addition,  the Portfolio may be required to
make delivery of the  instruments  underlying  futures  contracts it holds.  The
inability to close futures  positions  also could have an adverse  impact on the
Portfolio's ability to effectively hedge.

     The risk of loss in trading  futures  contracts in some  strategies  can be
substantial due both to the low margin deposits  required and the extremely high
degree of leverage involved in futures pricing.  As a result, a relatively small
price  movement in a futures  contract may result in immediate  and  substantial
loss (as well as gain) to the investor. For example, if at the time of purchase,
10% of the value of the futures  contract is deposited  as margin,  a subsequent
10% decrease in the value of the futures  contract  would result in a total loss
of the margin deposit,  before any deduction for the  transaction  costs, if the
account  were then closed out. A 15%  decrease  would  result in a loss equal to
150% of the original  margin  deposit if the contract  were closed out.  Thus, a
purchase  or sale of a futures  contract  may  result  in  excess of the  amount
invested  in the  contract.  However,  because  the  futures  strategies  of the
Portfolio are engaged in only for hedging purposes, the Adviser does not believe
that the Portfolio is subject to the risks of loss  frequently  associated  with
futures  transactions.  The Portfolio would presumably have sustained comparable
losses if,  instead of the futures  contract,  it had invested in the underlying
financial instrument and sold it after the decline.

     Utilization of futures  transactions by the Portfolio does involve the risk
of imperfect  or no  correlation  where the  securities  underlying  the futures
contracts have different  maturities than the portfolio securities being hedged.
It is also possible that the Portfolio could lose money on futures contracts and
also  experience a decline in value of portfolio  securities.  There is also the
risk of loss by the Portfolio of margin deposits in the event of bankruptcy of a
broker with whom the  Portfolio  has an open  position in a futures  contract or
related option.

     Most futures exchanges limit the amount of fluctuation permitted in futures
contract  prices during a single  trading day. The daily limit  establishes  the
maximum  amount that the price of a futures  contract may vary either up or down
from the previous day's settlement  price at the end of a trading session.  Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit.  The daily limit  governs only
price movement during a particular  trading day and,  therefore,  does not limit
potential  losses  because the limit may prevent the  liquidation of unfavorable
positions.  Futures contract prices have  occasionally  moved to the daily limit
for several consecutive trading

                                       -4-
<PAGE>

days with little or no trading thereby  preventing prompt liquidation of futures
positions and subjecting some futures traders to substantial losses.

     Futures contracts may be traded on foreign exchanges. Such transactions are
subject to the risks of governmental  actions affecting trading in or the prices
of the securities.  The value of such positions also could be adversely affected
by (i) other  complex  foreign  political  and  economic  factors,  (ii)  lesser
availability  than  in the  United  States  of  data on  which  to make  trading
decisions,  (iii) delays in the Portfolio's  ability to act upon economic events
occurring in foreign  markets  during  non-business  hours in the United States,
(iv) the imposition of different  exercise and  settlement  terms and procedures
and margin  requirements  than in the  United  States,  and (v)  lesser  trading
volume.

     The investment by the Portfolio in futures contracts and options on futures
contracts is subject to many complex and special tax rules. The treatment by the
Portfolio of certain  futures and forward  contracts  is  generally  governed by
Section 1256 of the  Internal  Revenue  Code of 1986,  as amended (the  "Code").
These  "Section  1256"  positions  generally  include  listed options on futures
contracts,  regulated futures  contracts and certain foreign currency  contracts
and options thereon.

     Absent a tax election to the contrary, each such Section 1256 position held
by the Portfolio will be marked-to-market  (i.e., treated as if it were sold for
fair market value) on the last business day of the Portfolio's  fiscal year, and
all gain or loss associated with fiscal year  transactions and  marked-to-market
positions at fiscal year end (except  certain  currency  gain or loss covered by
Section 988 of the Code) will generally be treated as 60% long-term capital gain
or loss and 40%  short-term  capital  gain or loss.  The effect of Section  1256
mark-to-market  rules may be to accelerate  income or to convert what  otherwise
would  have been  long-term  capital  gains  into  short-term  capital  gains or
short-term  capital losses into  long-term  capital losses within the Portfolio.
The  acceleration  of income on Section 1256 positions may require the Portfolio
to accrue taxable income without the corresponding  receipt of cash. In order to
generate  cash  to  satisfy  the  distribution  requirements  of the  Code,  the
Portfolio may be required to dispose of portfolio  securities  that it otherwise
would have continued to hold or to use cash flows from other sources such as the
sale of the  Portfolio's  shares.  In these ways,  any or all of these rules may
affect  both  the  amount,   character  and  timing  of  income  distributed  to
shareholders by the Portfolio.

OPTIONS
     The Portfolio may purchase and sell put and call options on securities  and
futures contracts for hedging  purposes.  Investments in options involve some of
the same  considerations  that are involved in connection  with  investments  in
futures  contracts  (e.g.,  the  existence  of a liquid  secondary  market).  In
addition,  the  purchase of an option also  entails the risk that changes in the
value of the underlying  security or contract will not be fully reflected in the
value of the option  purchased.  Depending on the pricing of the option compared
to  either  the  futures  contract  on which  it is  based  or the  price of the
securities  being hedged,  an option may or may not be less risky than ownership
of the futures  contract or such  securities.  In general,  the market prices of
options  can be  expected  to be more  volatile  than the  market  prices on the
underlying futures contract or securities.

WRITING COVERED CALL OPTIONS
     The  principal  reason for writing  call  options is to attempt to realize,
through  the  receipt of  premiums,  a greater  return than would be realized on
securities  alone. By writing  covered call options,  the Portfolio gives up the
opportunity, while the option is in effect, to profit from any price increase in
the


                                       -5-
<PAGE>


underlying   security  above  the  option  exercise  price.  In  addition,   the
Portfolio's  ability to sell the  underlying  security will be limited while the
option is in effect unless the Portfolio effects a closing purchase transaction.
A closing  purchase  transaction  cancels  out the  Portfolio's  position as the
writer of an option by means of an  offsetting  purchase of an identical  option
prior to the expiration of the option it has written. Covered call options serve
as a partial hedge against the price of the underlying security  declining.  The
Portfolio writes only covered options, which means that so long as the Portfolio
is obligated as the writer of the option it will,  in a segregated  account with
its  custodian,  maintain cash,  U.S.  government  securities,  other high grade
liquid debt securities or other liquid  securities  denominated in U.S.  dollars
with a value  equal to or  greater  than the  exercise  price of the  underlying
securities.

PURCHASING OPTIONS
     The  amount of any  appreciation  in the value of the  underlying  security
subject to a put will be partially  offset by the amount of the premium paid for
the put option and any related transaction costs. Prior to its expiration, a put
option may be sold in a closing sale  transaction and profit or loss from a sale
will depend on whether the amount received is more or less than the premium paid
for  the  put  option  plus  the  related  transaction  costs.  A  closing  sale
transaction  cancels out the  Portfolio's  position as purchaser of an option by
means of an offsetting  sale of an identical  option prior to the  expiration of
the  option it has  purchased.  In  certain  circumstances,  the  Portfolio  may
purchase call options on securities held in its investment portfolio on which it
has written call options or on securities which it intends to purchase.

SHORT SALES
     The Portfolio may seek to hedge  investments  or realize  additional  gains
through short sales. The Portfolio may make short sales,  which are transactions
in which the Portfolio  sells a security it does not own, in  anticipation  of a
decline in the market value of the security. To complete such a transaction, the
Portfolio must borrow the security to make delivery to the buyer.  The Portfolio
then is  obligated  to replace the  security  borrowed by  purchasing  it at the
market price at or prior to the time of replacement.  The price at such time may
be more or less than the price at which the security was sold by the  Portfolio.
Until the  security is replaced,  the  Portfolio is required to repay the lender
any  dividends or interest  that accrue during the period of the loan. To borrow
the security,  the Portfolio also may be required to pay a premium,  which would
increase the cost of the security  sold. The net proceeds of the short sale will
be retained by the broker, to the extent necessary to meet margin  requirements,
until  the  short  position  is  closed  out.  The  Portfolio  also  will  incur
transaction costs in effecting short sales.

     The Portfolio  will incur a loss as a result of the short sale if the price
of the  security  increases  between  the date of the short sale and the date on
which the Portfolio replaces the borrowed security. The Portfolio will realize a
gain if the security  declines in price between  those dates.  The amount of any
gain will be  decreased,  and the amount of any loss  increased by the amount of
the premium,  dividends,  interest, or expenses the Portfolio may be required to
pay in connection with a short sale.

     No  securities  will be sold  short if,  after  effect is given to any such
short sale, the total market value of all securities sold short would exceed 25%
of the value of the Portfolio's net equity.  The Portfolio  similarly will limit
its short sales of the  securities  of any single  issuer if the market value of
the securities  that have been sold short by the Portfolio  would exceed the two
percent (2%) of the value of the  Portfolio's  net equity or if such  securities
would  constitute  more  than two  percent  (2%) of any  class  of the  issuer's
securities.

                                       -6-
<PAGE>

     Whenever the Portfolio engages in short sales, its custodian  segregates an
amount of cash or U.S.  Government  securities or other  high-grade  liquid debt
securities  equal  to  the  difference  between  (a)  the  market  value  of the
securities  sold short at the time they were sold short and (b) any cash or U.S.
Government  securities  required to be deposited  with the broker in  connection
with the short  sale (not  including  the  proceeds  from the short  sale).  The
segregated assets are marked to market daily,  provided that at no time will the
amount  deposited in it plus the amount  deposited  with the broker be less than
the market value of the securities at the time they were sold short.

     In addition,  the  Portfolio  may make short sales  "against the box," i.e.
when a security  identical  to one owned by the  Portfolio  is borrowed and sold
short. If the Portfolio enters into a short sale against the box, it is required
to segregate  securities  equivalent in kind and amount to the  securities  sold
short (or securities  convertible or exchangeable  into such  securities) and is
required  to hold  such  securities  while the short  sale is  outstanding.  The
Portfolio will incur transaction costs, in connection with opening, maintaining,
and  closing  short  sales  against  the box.  A short  sale may  result  in the
recognition  of gain with respect to a security for Federal  income tax purposes
under certain rules which treat certain short sales of the same or substantially
identical  positions with respect to such a security as a  constructive  sale at
the time a short  position is entered into by the  Portfolio.  See,  "DIVIDENDS,
CAPITAL GAINS DISTRIBUTIONS AND TAXES."

                               PURCHASE OF SHARES

     Shares of the  Portfolio may be purchased  without sales  commission at the
net asset value per share next  determined  after an order is received in proper
form by the Fund. The minimum initial  investment  required for the Portfolio is
$10,000 with certain  exceptions as may be  determined  from time to time by the
officers  of the Fund.  An order  received in proper form prior to the 4:00 p.m.
close of the New York Stock  Exchange (the "NYSE") will be executed at the price
computed on the date of  receipt;  and an order  received  not in proper form or
after the 4:00 p.m.  close of the NYSE will be executed at the price computed on
the next day the NYSE is open after proper  receipt.  The NYSE will be closed on
the  following  days:  New Year's  Day;  Martin  Luther  King,  Jr.'s  Birthday;
Presidents'  Day;  Good  Friday;  Memorial  Day;  Independence  Day;  Labor Day;
Thanksgiving Day and Christmas Day.

     The Portfolio  reserves the right in its sole discretion (1) to suspend the
offering of its shares,  (2) to reject  purchase  orders when in the judgment of
management  such  rejection  is in the best  interests  of the Fund,  and (3) to
reduce or waive the minimum for initial and  subsequent  investment  for certain
fiduciary accounts such as employee benefit plans or under  circumstances  where
certain economies can be achieved in sales of the Portfolio's shares.

                              REDEMPTION OF SHARES

     The  Portfolio  may suspend  redemption  privileges or postpone the date of
payment  (1)  during any period  that the  Exchange  is closed or trading on the
Exchange is restricted as  determined by the  Commission,  (2) during any period
when an emergency  exists as defined by the rules of the  Commission as a result
of which it is not  reasonably  practicable  for the  Portfolio  to  dispose  of
securities owned by it or to fairly  determine the value of its assets,  and (3)
for such  other  periods  as the  Commission  may  permit.  The Fund has made an
election  with the  Commission to pay in cash all  redemptions  requested by any
shareholder  of record  limited in amount during any 90-day period to the lesser
of $250,000 or 1% of the


                                       -7-
<PAGE>

net assets of the Fund at the  beginning  of such  period.  Such  commitment  is
irrevocable without the prior approval of the Commission.  Redemptions in excess
of the above limits may be paid, in whole or in part,  in investment  securities
or in cash as the Board of Trustees may deem advisable; however, payment will be
made wholly in cash unless the Board of Trustees believe that economic or market
conditions  exist  which  would  make such a  practice  detrimental  to the best
interests of the Fund. If redemptions  are paid in investment  securities,  such
securities will be valued as set forth in the Prospectus under "How Share Prices
are  Determined,"  and a redeeming  shareholder  would normally incur  brokerage
expenses if those securities were converted to cash.

     No charge is made by the Portfolio for  redemptions.  Any redemption may be
more or less than the  shareholder's  initial cost depending on the market value
of the securities held by the Portfolio.

SIGNATURE GUARANTEES
     To protect your account, the Fund and Rodney Square Management  Corporation
(the "Administrator") from fraud,  signature guarantees are required for certain
redemptions.  Signature  guarantees are required for (1)  redemptions  where the
proceeds are to be sent to someone other than the  registered  shareowner(s)  or
the registered address or (2) share transfer requests.  The purpose of signature
guarantees  is to  verify  the  identity  of the  party  who  has  authorized  a
redemption.

     Signatures  must be guaranteed by an "eligible  guarantor  institution"  as
defined in Rule 17Ad-15  under the  Securities  Exchange  Act of 1934.  Eligible
guarantor institutions include banks, brokers,  dealers, credit unions, national
securities exchanges, registered securities associations,  clearing agencies and
savings associations. A complete definition of eligible guarantor institution is
available from the Administrator. Broker-dealers guaranteeing signatures must be
a member of a clearing corporation or maintain net capital of at least $100,000.
Credit  unions  must be  authorized  to issue  signature  guarantees.  Signature
guarantees  will be  accepted  from any  eligible  guarantor  institution  which
participates in a signature guarantee program.

     The signature  guarantee must appear either: (1) on the written request for
redemption;  (2) on a separate  instrument for assignment  ("stock power") which
should  specify the total number of shares to be  redeemed;  or (3) on all stock
certificates  tendered for  redemption  and, if shares held by the Fund are also
being redeemed, on the letter or stock power.

                              SHAREHOLDER SERVICES

     The following supplements the shareholder services information set forth in
the BRAZOS/JMIC Micro Cap Growth Portfolio's Prospectus:

EXCHANGE PRIVILEGE
     Shares of the BRAZOS/JMIC  Micro Cap Growth  Portfolio may be exchanged for
shares of any  Portfolio  included  within the  Brazos  Mutual  Funds.  Exchange
requests  should be made by  calling  1-800-  426-9157  or by  writing to Brazos
Mutual  Funds,  c/o Rodney  Square  Management  Corporation,  1100 North  Market
Street,  Wilmington,  DE 19890.  The exchange  privilege is only  available with
respect to Portfolios that are registered for sale in the shareholder's state of
residence.

     Any such exchange will be based on the  respective  net asset values of the
shares  involved.  There is no sales  commission  or charge of any kind.  Before
making an exchange into a Portfolio, a shareholder

                                       -8-
<PAGE>


should  read its  Prospectus  and  consider  the  investment  objectives  of the
Portfolio to be purchased.  You may obtain a Prospectus for the Portfolio(s) you
are interested in by calling the Administrator at 1-800-426- 9157.

     Exchange  requests  may be made  either  by mail  or  telephone.  Telephone
exchanges  will be  accepted  only if the  certificates  for  the  shares  to be
exchanged  are held by the  Fund  for the  account  of the  shareholder  and the
registration  of the two accounts  will be  identical.  Requests  for  exchanges
received prior to 4:00 p.m.  (Eastern Time) will be processed as of the close of
business on the same day. Requests received after 4:00 p.m. will be processed on
the  next  business  day.  Neither  the  Fund  nor  the  Administrator  will  be
responsible  for the  authenticity  of the  exchange  instructions  received  by
telephone.  Exchanges  may also be  subject  to  limitations  as to  amounts  or
frequency,  and to other  restrictions  established  by the Board of Trustees to
assure that such exchanges do not disadvantage the Fund and its shareholders.

     For Federal income tax purposes an exchange between Portfolios is a taxable
event, and,  accordingly,  a capital gain or loss may be realized.  In a revenue
ruling  relating to  circumstances  similar to the Fund's,  an exchange  between
series of a Fund was also deemed to be a taxable event. It is likely, therefore,
that a capital gain or loss would be realized on an exchange between Portfolios;
you may want to consult your tax adviser for further information in this regard.
The exchange privilege may be modified or terminated at any time.

TRANSFER OF SHARES
     Shareholders  may transfer  shares of the  Portfolio  to another  person by
making a written  request to the Fund. The request  should clearly  identify the
account and number of shares to be transferred, and include the signature of all
registered owners and all stock  certificates,  if any, which are subject to the
transfer.  The signature on the letter of request,  the stock certificate or any
stock power must be guaranteed in the same manner as described under "Redemption
of Shares." As in the case of redemptions,  the written request must be received
in good order before any transfer can be made.

                             INVESTMENT LIMITATIONS

     The following  limitations  supplement  those set forth in the  Prospectus.
Whenever  an  investment  limitation  sets  forth  a  percentage  limitation  on
investment  or  utilization  of  assets,  such  limitation  shall be  determined
immediately  after  and as a  result  of the  Portfolio's  acquisition  of  such
security or other asset.  Accordingly,  any later increase or decrease resulting
from a  change  in  values,  net  assets  or  other  circumstances  will  not be
considered when determining whether the investment complies with the Portfolio's
investment  limitations.  Investment  limitations  (1),  (2),  (3)  and  (4) are
classified as fundamental.  The Portfolio's  fundamental  investment limitations
cannot be changed without approval by a "majority of the outstanding shares" (as
defined in the 1940 Act) of the Portfolio. The Portfolio will not:

     (1)  invest in physical commodities or contracts on physical commodities;

     (2)  purchase  or sell real  estate or real  estate  limited  partnerships,
          although it may purchase and sell  securities of companies  which deal
          in real estate and may purchase and sell securities  which are secured
          by interests in real estate;


                                       -9-
<PAGE>

     (3)  make loans except (i) by purchasing debt securities in accordance with
          its investment objectives and (ii) by lending its portfolio securities
          to banks, brokers, dealers and other financial institutions so long as
          such  loans  are not  inconsistent  with the 1940 Act or the rules and
          regulations or interpretations of the Commission thereunder;

     (4)  underwrite the securities of other issuers;

     (5)  invest in futures  and/or  options on futures unless (i) not more than
          5% of the  Portfolio's  assets  are  required  as  deposit  to  secure
          obligations  under such futures and/or  options on futures  contracts,
          provided,  however, that in the case of an option that is in-the-money
          at the time of purchase,  the  in-the-money  amount may be excluded in
          computing  such 5%;  and (ii)  not  more  than 20% of the  Portfolio's
          assets are invested in futures and options;

     (6)  purchase on margin except as specified in (5) above;

     (7)  invest  more  than  an  aggregate  of  15% of the  net  assets  of the
          Portfolio, determined at the time of investment, in securities subject
          to legal or contractual restrictions on resale or securities for which
          there are no readily available markets;

     (8)  issue senior securities,  as defined in the 1940 Act, except that this
          restriction  shall not be deemed to prohibit  the  Portfolio  from (i)
          making  any  permitted  borrowings,  mortgages  or  pledges,  or  (ii)
          entering into options, futures or repurchase transactions.


                             MANAGEMENT OF THE FUND

TRUSTEES AND OFFICERS
     The  Officers  of  the  Fund  manage  its  day-to-day  operations  and  are
responsible to the Fund's Board of Trustees. The Trustees set broad policies for
the Fund and elect its  Officers.  The  following  is a list of the Trustees and
Officers  of the  Fund and a brief  statement  of their  present  positions  and
principal occupations during the past five years:


*Dan L. Hockenbrough                    Trustee, President and Chief Financial 
5949 Sherry Lane, Suite 1560            Officer of the Fund; Since August 1996, 
Dallas, Texas  75225                    Business Manager of John McStay 
Age 37                                  Investment Counsel. Formerly, Chief
                                        Financial Officer of Waugh Enterprises,
                                        Inc. from November 1995 until August
                                        1996; Assistant Controller of Hicks,
                                        Muse, Tate & Furst Incorporated from
                                        December 1992 to November 1995; and
                                        Senior Associate at Coopers & Lybrand
                                        prior to December 1992.


                                      -10-

<PAGE>

John H. Massey                          Trustee of the Fund; Private Investor 
4004 Windsor Avenue                     and a Director of The Paragon Group, 
Dallas, Texas  75205                    Inc., Chancellor Broadcasting, Inc., 
Age 57                                  Bank of the Southwest, Columbine JDS
                                        Systems, Inc. and FSW Holdings, Inc.
                                        Until 1996, Chairman of the Board and
                                        Chief Executive Officer of Life Partners
                                        Group, Inc.

David M. Reichert                       Trustee of the Fund; Private Investor; 
7415 Stonecrest Drive                   formerly Senior Vice President of Moffet
Dallas, Texas  75240                    Capital Management, an investment 
Age 57                                  counseling firm, from January 1995 until
                                        June 1996 and Senior Vice President and
                                        Portfolio Manager of American Capital
                                        Asset Management, a mutual fund
                                        management company, from April 1989 to
                                        July 1994.

*Tricia A. Hundley                      Vice President, Secretary and Compliance
5949 Sherry Lane, Suite 1560            Officer of the Fund; Partner of John 
Dallas, Texas  75225                    McStay Investment Counsel since 1987.
Age 46

*Loren J. Soetenga                      Vice President and Treasurer of the 
5949 Sherry Lane, Suite 1560            Fund; Principal of John McStay 
Dallas, Texas  75225                    Investment Counsel. Formerly, Partner of
Age 29                                  Chronos Management, Inc. until 1996.


*This person is deemed to be an "interested  person" of the Fund as that term is
defined in the 1940 Act.

REMUNERATION OF TRUSTEES AND OFFICERS

     The Fund  pays  each  Trustee,  who is not also an  officer  or  affiliated
person,  a $500  quarterly  retainer fee per active  Portfolio  which  currently
amounts to $1,500 per quarter. In addition, each unaffiliated Trustee receives a
$500  meeting  fee  which  is  aggregated  for all the  Trustees  and  allocated
proportionately  among the Portfolios of the Fund, and  reimbursement for travel
and other expenses  incurred while attending  Board  meetings.  Trustees who are
also officers or affiliated persons receive no remuneration for their service as
Trustees.  The Fund's  officers and  employees are paid by either the Adviser or
the Administrator and receive no compensation from the Fund. The following table
shows aggregate  compensation paid to each of the Fund's Trustees for the fiscal
year ended November 30, 1997.



COMPENSATION TABLE
<TABLE>
<CAPTION>
         (1)                      (2)                    (3)                    (4)                    (5)
   Name of Person              Aggregate             Pension or          Estimated Annual      Total Compensation
      Position               Compensation        Retirement Benefits       Benefits Upon       from Registrant and
                            From Registrant      Accrued as Part of         Retirement          Fund Complex Paid
                                                    Fund Expenses                                  to Trustees



                                      -11-

<PAGE>

======================================================================================================================
<S>                          <C>                    <C>                    <C>                    <C>
Dan L. Hockenbrough               -0-                    -0-                    -0-                    -0-
Director

John H. Massey                 $6,000                    -0-                    -0-                 $6,000
Director

David M. Reichert              $6,000                    -0-                    -0-                 $6,000
Director
</TABLE>



PRINCIPAL HOLDERS OF SECURITIES

     As of December 31, 1997,  the following  persons or  organizations  held of
record  5% or  more of the  shares  of the  Portfolio:  John  McStay  Investment
Counsel.  The  Adviser,  as the initial  investor in the Fund,  owns 100% of the
shares issued by the Portfolio.




                               INVESTMENT ADVISER

ADVISORY FEES
     As compensation  for services  rendered by John McStay  Investment  Counsel
(the "Adviser") under the Investment Advisory Agreement,  the Portfolio pays the
Adviser  an annual fee in  monthly  installments,  calculated  by  applying  the
following annual  percentage  rates to the Portfolio's  average daily net assets
for the month:


BRAZOS/JMIC Micro Cap Growth Portfolio...................                 1.20%


   
ADMINISTRATION FEES
     In addition to the fees received for its services as  Administrator  to the
Fund, as set forth in the Prospectus  under  "ADMINISTRATIVE  SERVICES,"  Rodney
Square receives fees from the Fund for providing transfer agency, accounting and
dividend  disbursing  services.  Such fees are  included in the  calculation  of
"Other  Expenses" which appears under the caption heading "FUND EXPENSES" in the
Prospectus.  Rodney Square has entered into an agreement with PFPC Inc. pursuant
to which PFPC will  acquire  the mutual fund  administration  business of Rodney
Square.  Effective January 5, 1998, the services previously provided to the Fund
by Rodney  Square will be provided by PFPC under the same terms and for the same
fee.
    


                             PORTFOLIO TRANSACTIONS

     The  Investment  Advisory  Agreement  authorizes  the Adviser to select the
brokers or dealers  that will  execute  the  purchases  and sales of  investment
securities  for the Portfolio and directs the Adviser to use its best efforts to
obtain the best  execution with respect to all  transactions  for the Portfolio.
The Adviser may, however, consistent with the interests of the Portfolio, select
brokers on the basis of the  research,  statistical  and pricing  services  they
provide to the Portfolio. Information and research received from such brokers


                                      -12-

<PAGE>

will be in  addition  to,  and not in  lieu  of,  the  services  required  to be
performed by the Adviser under the Investment Advisory  Agreement.  A commission
paid to such  brokers may be higher  than that which  another  qualified  broker
would have  charged  for  effecting  the same  transaction,  provided  that such
commissions are paid in compliance with the Securities  Exchange Act of 1934, as
amended,  and that the Adviser  determines in good faith that such commission is
reasonable in terms either of the transaction or the overall  responsibility  of
the Adviser to the Portfolio and the Adviser's other clients.

     It is not the Fund's practice to allocate  brokerage or principal  business
on the basis of sales of shares which may be made through  broker-dealer  firms.
However,  the Adviser may place portfolio  orders with qualified  broker-dealers
who  recommend  the  Portfolio or who act as agents in the purchase of shares of
the Portfolio for their clients.

     Some  securities  considered  for  investment  by the Portfolio may also be
appropriate  for other clients  served by the Adviser.  If purchases or sales of
securities  consistent with the investment  policies of the Portfolio and one or
more of these other clients  served by the Adviser is considered at or about the
same time, transactions in such securities will be allocated among the Portfolio
and clients in a manner  deemed fair and  reasonable  by the  Adviser.  Although
there is no specified  formula for  allocating  such  transactions,  the various
allocation methods used by the Adviser, and the results of such allocations, are
subject to periodic review by the Fund's Board of Trustees.

                            PERFORMANCE CALCULATIONS

PERFORMANCE
     The Portfolio may from time to time quote  various  performance  figures to
illustrate past performance.  Performance quotations by investment companies are
subject  to  rules  adopted  by  the  Commission,   which  require  the  use  of
standardized    performance    quotations   or,   alternatively,    that   every
non-standardized  performance  quotation furnished by the Fund be accompanied by
certain  standardized  performance  information  computed  as  required  by  the
Commission.  Current yield and average annual compounded total return quotations
used by the Fund are based on the standardized methods of computing  performance
mandated by the  Commission.  An  explanation of those and other methods used to
compute or express performance follows.

YIELD
     Current  yield  reflects  the  income per share  earned by the  Portfolio's
investment. The current yield of the Portfolio is determined by dividing the net
investment  income per share  earned  during a 30-day base period by the maximum
offering  price  per share on the last day of the  period  and  annualizing  the
result.  Expenses  accrued  for the  period  include  any  fees  charged  to all
shareholders during the base period.

     This figure is obtained using the following formula:

                                             6
                              Yield=2[(a-b+1)  - 1]
                                       cd

where:
     a = dividends and interest earned during the period
     b = expenses accrued for the period (net of reimbursements)


                                      -13-

<PAGE>

     c =  the average daily number of shares  outstanding during the period that
          were entitled to receive income distributions

     d =  the maximum offering price per share on the last day of the period.

TOTAL RETURN
     The average  annual total return of the  Portfolio is determined by finding
the average annual compounded rates of return over 1, 5 and 10 year periods that
would equate an initial  hypothetical $1,000 investment to its ending redeemable
value.  The  calculation  assumes  that  all  dividends  and  distributions  are
reinvested when paid. The quotation  assumes the amount was completely  redeemed
at the end of each 1, 5 and 10 year period and the  deduction of all  applicable
Fund expenses on an annual basis.

     These figures will be calculated according to the following formula:

                                 n
                           P(1+T) =ERV

where:
         P=       a hypothetical initial payment of $ 1,000
         T=       average annual total return
         n=       number of years
        ERV=      ending redeemable value of a hypothetical  $1,000 payment made
                  at the  beginning of the 1, 5 or 10 year periods at the end of
                  the 1, 5 or 10 year periods (or fractional portion thereof).

COMPARISONS
     To help investors  better evaluate how an investment in the Portfolio might
satisfy  their  investment  objective,  advertisements  regarding  the  Fund may
discuss various  measures of Fund  performance as reported by various  financial
publications.  Advertisements may also compare performance (as calculated above)
to  performance  as reported by other  investments,  indices and  averages.  The
following publications, indices and averages may be used:

     (1)  Dow Jones Composite  Average or its component  averages - an unmanaged
          index  composed of 30  blue-chip  industrial  corporation  stocks (Dow
          Jones  Industrial  Average),   15  utilities  company  stocks  and  20
          transportation stocks.  Comparisons of performance assume reinvestment
          of dividends.

     (2)  Standard  & Poor's  500  Stock  Index or its  component  indices  - an
          unmanaged  index  composed  of 400  industrial  stocks,  40  financial
          stocks, 40 utilities stocks and 20 transportation stocks.  Comparisons
          of performance assume reinvestment of dividend.

     (3)  Standard & Poor's MidCap 400 Index - an unmanaged  index measuring the
          performance of non-S&P 500 stocks in the mid-range  sector of the U.S.
          stock market.

     (4)  The New York Stock Exchange composite or component indices - unmanaged
          indices  of all  industrial,  utilities,  transportation  and  finance
          stocks listed on the New York Stock Exchange.


                                      -14-

<PAGE>

     (5)  Wilshire 5000 Equity Index or its component  indices - represents  the
          return on the market value of all common equity  securities  for which
          daily  pricing  is  available.   Comparisons  of  performance   assume
          reinvestment of dividends.

     (6)  Lipper - Mutual Fund  Performance  Analysis  and Lipper - Fixed Income
          Fund  Performance  Analysis - measure total return and average current
          yield for the  mutual  fund  industry.  Rank  individual  mutual  fund
          performance over specified time periods,  assuming reinvestment of all
          distributions, exclusive of any applicable sales charges.

     (7)  Morgan  Stanley  Capital  International  EAFE Index and World  Index -
          respectively,   arithmetic,  market  value-weighted  averages  of  the
          performance  of over 900 securities  listed on the stock  exchanges of
          countries  in  Europe,  Australia  and the Far  East,  and over  1,400
          securities   listed  on  the  stock  exchanges  of  these  continents,
          including North America.

     (8)  Goldman Sachs 100 Convertible Bond Index - currently includes 67 bonds
          and 33  preferred.  The  original  list  of  names  was  generated  by
          screening for  convertible  issues of 100 million or greater in market
          capitalization. The index is priced monthly.

     (9)  Salomon  Brothers GNMA Index - includes pools of mortgages  originated
          by  private  lenders  and  guaranteed  by the  mortgage  pools  of the
          Government National Mortgage Association.

     (10) Salomon  Brothers  High  Grade  Corporate  Bond  Index -  consists  of
          publicly issued,  non-convertible  corporate bonds rated AA or AAA. It
          is a value-weighted,  total return index, including  approximately 800
          issues with maturities of 12 years or greater.

     (11) Salomon Brothers Broad  Investment  Grade Bond - is a  market-weighted
          index that contains approximately 4,700 individually priced investment
          grade corporate bonds rated BBB or better, U.S. Treasury/agency issues
          and mortgage pass through securities.

     (12) Lehman  Brothers  Long-Term  Treasury  Bond - is composed of all bonds
          covered by the Lehman Brothers  Treasury Bond Index with maturities of
          10 years or greater.

     (13) NASDAQ  Industrial  Index - is composed of more than 3,000  industrial
          issues.  It is a value- weighted index calculated on price change only
          and does not include income.

     (14) Value  Line  -  composed  of  over  1,600  stocks  in the  Value  Line
          Investment Survey.

     (15) Russell  2000 - composed of the 2,000  smallest  stocks in the Russell
          3000,  a market  value-  weighted  index  of the  3,000  largest  U.S.
          publicly-traded companies.

     (16) Russell 2000 Growth - measures the  performance  of those Russell 2000
          companies  with  higher  price-to-book  ratios and  higher  forecasted
          growth values.

     (17) Russell 2000 Value - measures the  performance  of those  Russell 2000
          companies with lower price-to-book  ratios and lower forecasted growth
          values.

                                      -15-

<PAGE>

     (18) Russell  2500 - composed of the 2,500  smallest  stocks in the Russell
          3000,  a market  value-  weighted  index  of the  3,000  largest  U.S.
          publicly-traded companies.

     (19) Composite  Indices - 60% Standard & Poor's 500 Stock Index, 30% Lehman
          Brothers  Long- Term Treasury Bond and 10% U.S.  Treasury  Bills;  70%
          Standard & Poor's 500 Stock Index and 30% NASDAQ Industrial Index; 35%
          Standard & Poor's 500 Stock Index and 65% Salomon  Brothers High Grade
          Bond Index;  all stocks on the NASDAQ system exclusive of those traded
          on an  exchange,  and 65%  Standard & Poor's  500 Stock  Index and 35%
          Salomon Brothers High Grade Bond Index.

     (20) CDA Mutual Fund Report published by CDA Investment Technologies,  Inc.
          - analyzes price,  current yield,  risk, total return and average rate
          of return (average compounded growth rate) over specified time periods
          for the mutual fund industry.

     (21) Mutual Fund  Source Book  published  by  Morningstar,  Inc. - analyzes
          price, yield, risk and total return for equity funds.

     (22) Financial  publications:  Business  Week,  Changing  Times,  Financial
          World, Forbes, Fortune, Money, Barron's,  Consumer's Digest, Financial
          Times,   Global   Investor,   Wall  Street  Journal  and  Weisenberger
          Investment Companies Service - publications that rate fund performance
          over specified time periods.

     (23) Consumer Price Index (or Cost of Living Index),  published by the U.S.
          Bureau of Labor Statistics - a statistical measure of change over time
          in the price of goods and services in major expenditure groups.

     (24) Stocks, Bonds, Bills and Inflation, published by Ibbotson Associates -
          historical  measure  of yield,  price and total  return for common and
          small company stock,  long-term  government bonds, U.S. Treasury bills
          and inflation.

     (25) Savings and Loan Historical  Interest Rates - as published by the U.S.
          Savings & Loan League Fact Book.

     (26) Lehman Brothers  Government/Corporate  Index - is a combination of the
          Government and Corporate Bond Indices.  The Government  Index includes
          public  obligations  of  the  U.S.  Treasury,   issues  of  Government
          agencies,  and  corporate  debt  backed  by the U.S.  Government.  The
          Corporate  Bond Index  includes  fixed-rate  nonconvertible  corporate
          debt. Also included are Yankee Bonds and nonconvertible debt issued by
          or guaranteed by foreign or  international  governments  and agencies.
          All issues are investment grade (BBB) or higher, with maturities of at
          least one year and an  outstanding  par value of at least $100 million
          for U.S.  Government  issues and $25 million for others.  Any security
          downgraded  during the month is held in the index until  month-end and
          then  removed.  All returns are market  value  weighted  inclusive  of
          accrued income.

     (27) Lehman  Brothers   Intermediate   Government/Corporate   Index  is  an
          unmanaged  index  composed  of a  combination  of the  Government  and
          Corporate Bond Indices. All issues are


                                      -16-

<PAGE>

          investment grade (BBB) or higher,  with maturities of one to ten years
          and an  outstanding  par  value  of at  least  $100  million  for U.S.
          Government  issues and $25 million for others.  The  Government  Index
          includes public obligations of the U.S. Treasury, issues of Government
          agencies,  and  corporate  debt  backed  by the U.S.  Government.  The
          Corporate  Bond Index  includes  fixed-rate  nonconvertible  corporate
          debt. Also included are Yankee Bonds and nonconvertible debt issued by
          or guaranteed by foreign or  international  governments  and agencies.
          Any  security  downgraded  during the month is held in the index until
          month-end  and then  removed.  All returns are market  value  weighted
          inclusive of accrued income.

     (28) Historical  data supplied by the research  departments of First Boston
          Corporation;  the J.P. Morgan  companies;  Salomon  Brothers;  Merrill
          Lynch,  Pierce,  Fenner & Smith; Lehman Brothers,  Inc.; and Bloomberg
          L.P.

     In assessing such  comparisons of  performance,  an investor should keep in
mind  that the  composition  of the  investments  in the  reported  indices  and
averages is not identical to the  composition  of  investments in the Portfolio,
that the averages are generally  unmanaged,  and that the items  included in the
calculations  of such  averages  may not be identical to the formula used by the
Portfolio to calculate its performance.  In addition,  there can be no assurance
that the  Portfolio  will continue  this  performance  as compared to such other
averages.

                               GENERAL INFORMATION

DESCRIPTION OF SHARES AND VOTING RIGHTS
     The Fund was  organized as a Delaware  business  trust on October 24, 1996.
The Fund's principal office is located at 5949 Sherry Lane, Dallas, Texas 75225;
however, all investor  correspondence  should be directed to the Fund c/o Rodney
Square Management Corporation,  P.O. Box 8987, Wilmington,  DE 19899. The Fund's
Agreement and Declaration of Trust permits the Fund to issue an unlimited number
of shares of beneficial interest, without par value. The Trustees have the power
to  designate  one or  more  series  ("Portfolios")  or  classes  of  shares  of
beneficial interest without further action by shareholders.

     On each matter  submitted to a vote of the  shareholders,  each holder of a
share shall be entitled to one vote for each whole share and a  fractional  vote
for each fractional share standing in his or her name on the books of the Fund.

     In the event of  liquidation of the Fund, the holders of the shares of each
Portfolio or any class thereof that has been established and designated shall be
entitled to receive,  when and as  declared by the  Trustees,  the excess of the
assets belonging to that Portfolio, or in the case of a class, belonging to that
Portfolio and allocable to that class,  over the  liabilities  belonging to that
Portfolio or class.  The assets so distributable to the holders of shares of any
particular  Portfolio or class  thereof shall be  distributed  to the holders in
proportion  to the number of shares of that  Portfolio or class  thereof held by
them and recorded on the books of the Fund. The  liquidation of any Portfolio or
class  thereof  may be  authorized  at any  time by vote  of a  majority  of the
Trustees then in office.

     Shareholders  have no  pre-emptive  or other  rights  to  subscribe  to any
additional  shares  or other  securities  issued  by the Fund or any  Portfolio,
except as the  Trustees  in their  sole  discretion  shall  have  determined  by
resolution.


                                      -17-
<PAGE>


DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
     The Fund's policy is to distribute at least annually,  substantially all of
the Portfolio's net investment  income,  if any,  together with any net realized
capital  gains in the  amount  and at the times  that  will  avoid  both  income
(including  capital  gains)  taxes  incurred and the  imposition  of the Federal
excise tax on  undistributed  income and capital gains.  The Fund may distribute
the Portfolio's  net investment  income at interim  periods.  The amounts of any
income  dividends  or  capital  gains  distributions  cannot be  predicted.  See
discussion  under  "Dividends,  Capital  Gains  Distributions  and Taxes" in the
Prospectus.

     Any dividend or  distribution  paid shortly after the purchase of shares of
the  Portfolio  by an investor may have the effect of reducing the per share net
asset  value  of the  Portfolio  by the per  share  amount  of the  dividend  or
distribution. Furthermore, such dividends or distributions, although in effect a
return of capital, are subject to income taxes as set forth in the Prospectus.

     As set forth in the Prospectus,  unless the shareholder elects otherwise in
writing, all dividend and capital gains distributions are automatically received
in additional shares of the respective  Portfolio of the Fund at net asset value
(as of the business day following  the record date).  This will remain in effect
until the Fund is  notified  by the  shareholder  in writing at least three days
prior to the record date that either the Income Option (income dividends in cash
and capital gains  distributions in additional shares at net asset value) or the
Cash Option (both income dividends and capital gains  distributions in cash) has
been elected.  An account  statement is sent to shareholders  whenever an income
dividend or capital gains distribution is paid.

     If a  shareholder  has elected to receive  dividends  and/or  capital  gain
distributions  in cash and the  postal or other  delivery  service  is unable to
deliver  checks to the  shareholder's  address  of  record,  such  shareholder's
distribution  option will  automatically be converted to having all dividend and
other distributions  reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.

     Each Portfolio of the Fund will be treated as a separate  entity (and hence
as a separate "regulated investment company") for Federal tax purposes.  Any net
capital gains  recognized by the Portfolio  will be distributed to its investors
without need to offset (for Federal  income tax purposes) such gains against any
net capital losses of another Portfolio.

     In order for the  Portfolio  to continue to qualify for Federal  income tax
treatment as a regulated  investment  company under the Internal Revenue Code of
1986, as amended (the "Code"),  at least 90% of the Portfolio's gross income for
a taxable year must be derived from certain qualifying income, i.e.,  dividends,
interest,  income  derived from loans of  securities  and gains from the sale or
other disposition of stock,  securities or foreign currencies,  or other related
income,  including gains from options,  futures and forward  contracts,  derived
with respect to its business investing in stock,  securities or currencies.  Any
net gain realized  from the closing out of futures  contracts  will,  therefore,
generally be qualifying income for purposes of the 90% requirement.

     Except  for   transactions   the  Portfolio   has   identified  as  hedging
transactions,  the  Portfolio  is required  for Federal  income tax  purposes to
recognize as income for the taxable year its net unrealized  gains and losses on
forward currency and futures contracts as of the end of the taxable year as well
as those actually realized during the year. In most cases, any such gain or loss
recognized with respect to a regulated


                                      -18-
<PAGE>


futures contract is considered to be 60% long-term  capital gain or loss and 40%
short-term  capital  gain or loss  without  regard to the holding  period of the
contract.  Recognized gain or loss  attributable to a foreign  currency  forward
contract  is treated as 100%  ordinary  income.  Furthermore,  foreign  currency
futures  contracts  which are intended to hedge against a change in the value of
securities  held  by the  Portfolio  may  affect  the  holding  period  of  such
securities and, consequently,  the nature of the gain or loss on such securities
upon disposition.

     The  Portfolio  may be subject to  foreign  withholding  taxes on income or
gains  recognized with respect to its investment in certain foreign  securities.
If the Portfolio purchases shares in certain foreign investment entities, called
"passive foreign investment companies" ("PFIC"), the Portfolio may be subject to
U.S.  Federal  income  tax and a related  interest  charge  on a portion  of any
"excess  distribution" or gain from the disposition of such shares, even if such
income  is  distributed   as  a  taxable   dividend  by  the  Portfolio  to  its
shareholders. If more than 50% of the total assets of the Portfolio are invested
in securities of foreign  corporations,  the Portfolio may elect to pass-through
to its  shareholders  their pro rata share of foreign  income  taxes paid by the
Portfolio. If this election is made, shareholders will be required to include in
their  gross  income  their  pro rata  share of the  foreign  taxes  paid by the
Portfolio.  However,  shareholders  will be  entitled  to deduct (as an itemized
deduction  in the case of  individuals)  their  share of such  foreign  taxes in
computing their taxable income or to claim a credit for such taxes against their
U.S. Federal income tax, subject to certain limitation under the Code.  Finally,
the Portfolio may recognize gain or loss on transactions  in foreign  currencies
as a by-product of its investment in foreign securities.

     The  Portfolio  will  distribute to  shareholders  annually any net capital
gains which have been  recognized  for Federal  income tax  purposes  (including
unrealized  gains  at the  end of  the  Portfolio's  taxable  year)  on  futures
transactions.  Such distribution will be combined with  distributions of capital
gains realized on the Portfolio's  other  investments,  and shareholders will be
advised on the nature of the payment.

CODE OF ETHICS

     The Fund has adopted a Code of Ethics which restricts, to a certain extent,
personal  transactions  by  access  persons  of the  Fund  and  imposes  certain
disclosure and reporting obligations.

                              FINANCIAL STATEMENTS

     The Financial  Statements for the Portfolio and selected per share data and
ratios and notes to the Financial  Statements relating to corresponding  periods
will be contained in this Statement of Additional Information.


                                      -19-


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