CNI CHARTER FUNDS, 485APOS, 1999-12-23

CNI CHARTER FUNDS
485APOS, 1999-12-23

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As filed with the Securities and Exchange Commission on December 23, 1999

File Nos. 333-16093
811-7923

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 12
and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 13

CNI CHARTER FUNDS
(Exact Name of Registrant as Specified in its Charter)

400 North Roxbury Drive
Beverly Hills, California 90210
(Address of Principal Executive Office)

(800) 708-8881
(Registrant's Telephone Number, Including Area Code)

WILLIAM SOUZA, ESQ.
400 North Roxbury Drive
Beverly Hills, California 90210
(Name and Address of Agent for Service)
------------------------------

It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to Rule 485(b)

_____ on ___________ pursuant to Rule 485(b)

X 60 days after filing pursuant to Rule 485(a)(1)
_____

_____ 75 days after filing pursuant to Rule 485(a)(2)
on ___________ pursuant to Rule 485(a)(1)

----------

Please Send Copy of Communications to:

MITCHELL E. NICHTER, ESQ.
KELVIN K. LEUNG, ESQ.
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, California 94104
(415) 835-1600

<PAGE>

CNI CHARTER FUNDS

CONTENTS OF THE POST-EFFECTIVE AMENDMENT

This Post-Effective Amendment to the registration statement of the Registrant
contains the following documents:

Facing Sheet

Contents of the Post-Effective Amendment

Part A - Prospectus for the Institutional Class shares of the CNI
Charter High Yield Bond Fund

Part A - Prospectus for the Class A shares of the CNI Charter High
Yield Bond Fund

Part B - Statement of Additional Information for CNI Charter High Yield
Bond Fund

Part C - Other Information

Signature Page

Exhibits

<PAGE>

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PART A

PROSPECTUS FOR
INSTITUTIONAL CLASS SHARES OF

CNI CHARTER HIGH YIELD BOND FUND
---------------------------------------------------------------------
<PAGE>

CNI CHARTER HIGH YIELD BOND FUND

SUPPLEMENT DATED DECEMBER 29, 1999 TO PROSPECTUS DATED DECEMBER 29, 1999.

The CNI Charter High Yield Bond Fund is not anticipated to commence operation
until on or around January 18, 1999. No purchase order and/or money received
prior to the commencement of operation will be accepted by the Fund but will
instead be returned to the prospective shareholder.

INVESTORS SHOULD RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE

<PAGE>
[logo]

Subject to Completion Dated December 23, 1999

CHARTER FUNDS-SM-

CNI CHARTER HIGH YIELD BOND FUND

INSTITUTIONAL CLASS

PROSPECTUS
DATED _______, ___

INVESTMENT MANAGER:
CITY NATIONAL INVESTMENTS
A DIVISION OF CITY NATIONAL BANK

The Securities and Exchange Commission has not approved or
disapproved these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the
contrary is a criminal offense.

MUTUAL FUND SHARES ARE NOT FDIC INSURED. MUTUAL FUND SHARES ARE NOT
BANK DEPOSITS, NOR ARE THEY OBLIGATIONS OF, OR GUARANTEED BY CITY
NATIONAL BANK. INVESTING IN MUTUAL FUNDS INVOLVES RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL.

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.

1
<PAGE>

TABLE OF CONTENTS
<TABLE>

<S> <C>
Overview.......................................................................3

Management of the Fund.........................................................6

Additional Investment Strategies and Related Risks.............................8

Account Policies...............................................................9

Understanding Earnings and Taxes..............................................10

How to Buy and Sell Shares....................................................11

Important Terms to Know.......................................................14

For More Information..................................................back cover
</TABLE>
More detailed information on all subjects covered in this simplified prospectus
is contained within the STATEMENT OF ADDITIONAL INFORMATION ("SAI"). Investors
seeking more in-depth explanations of the Fund should request the SAI and review
it before purchasing shares.

This Prospectus offers Institutional Class shares of the Fund. Only financial
institutions and financial intermediaries may purchase Institutional Class
shares for their own account or on behalf of their customers. The Fund offers
other classes of shares which are subject to the same management fee and
other expenses but may be subject to different distribution and/or
shareholder servicing costs.

<PAGE>

OVERVIEW

OUR GOAL

The High Yield Bond Fund seeks to maximize total return by investing
primarily in fixed income securities rated below investment grade
("junk bonds"). The goal of the Fund can only be changed with
shareholder approval.

PRINCIPAL STRATEGY

We invest in a diversified portfolio at least 65% of which consists
of fixed income securities rated below investment grade ("junk
bonds"), including corporate bonds and debentures, convertible and
preferred securities and zero coupon obligations. We may also invest
in fixed income securities rated below investment grade that are
issued by governments and agencies, both U.S. and foreign. We may
also invest in equity securities. We seek to invest in securities
that offer a high current yield as well as total return potential.
In an effort to control risks, we purchase investments diversified
across issuers, industries and sectors. The average maturity of the
Fund's investments will vary. There is no limit on the maturity or
on the credit quality of any security.

3
<PAGE>
PRINCIPAL RISKS OF INVESTING IN OUR FUND

As with any mutual fund, there are risks to investing. We cannot
guarantee that we will meet our investment goal. The Fund may expose
you to certain risks that could cause you to lose money. Here are the
principal risks to consider:

MARKET RISK - The prices of fixed income securities respond to economic
developments, particularly interest rate changes, as well as to
perceptions about the creditworthiness of individual issuers, including
governments. Generally, fixed income securities will decrease in value
if interest rates rise and vice versa, with lower rated securities
(such as those in which the Fund primarily invests) more volatile than
higher rated securities. The average maturity and duration of these
securities affects risk as well, with longer term securities generally
more volatile than shorter term securities. In addition, the Fund is
subject to the risk that its market segment, high yield fixed income
securities, may underperform other market segments or the markets as a
whole. Economic or political changes may adversely affect the ability
of issuers to repay principal and to make interest payments on
securities owned by the Fund. Changes in the financial condition of
issuers also may adversely affect the value of the Fund's securities.
The Fund is not a money market fund.

HIGH YIELD ("JUNK") BONDS - Junk bonds involve greater risks of
default or downgrade and are more volatile than investment grade
securities. Junk bonds involve a greater risk of price declines than
investment grade securities due to actual or perceived changes in an
issuer's creditworthiness. In addition, issuers of junk bonds may be
more susceptible than other issuers to economic downturns, which may
result in a weakened capacity of the issuer to make principal or
interest payments. Junk bonds are subject to the risk that the
issuer may not be able to pay interest or dividends and ultimately
to repay principal upon maturity. Discontinuation of these payments
could substantially adversely affect the market value of the
security.

FOREIGN SECURITIES - The Fund may invest in foreign securities. Foreign
investments may be subject to risks that are not typically associated
with investing in domestic governments. For example, such investment
may be adversely affected by changes in currency rates and exchange
control regulations, future political and economic developments, or the
imposition of withholding taxes on income. Foreign markets tend to be
more volatile than the U.S. market due to economic and political
instability and regulatory conditions in some countries. The Fund may
invest in foreign securities denominated in foreign currencies, whose
value may decline against the U.S. dollar.

EQUITY SECURITIES - The value of your equity investments will fluctuate
on a day-to-day and a cyclical basis with movements in the stock
market, as well as in response to the activities of individual
companies. In addition, individual companies may report poor results or
be negatively affected by industry and/or economic trends and
developments.

PAST PERFORMANCE

The Fund began operations on _________. The Fund's past performance
results have not been provided but will be reported after _________,
when the Fund will have been in operation for one complete calendar
year (I.E., January-December).

4
<PAGE>

FEES AND EXPENSES OF THE FUND

This table describes the fees and expenses you may pay if you buy and
hold shares of the Fund. You pay no sales charges or transaction fees
for buying or selling shares of the Fund.

<TABLE>
<CAPTION>
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)

<S> <C> <C>
Management Fee* 0.75%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses** 0.26%
Total Other Expenses** 0.51%
----------------------------------------------------------- ---------------- ------------------
TOTAL ANNUAL FUND OPERATING EXPENSES*** 1.26%
</TABLE>

* The "Management Fee" is an annual fee, payable monthly out of the Fund's
net assets.

** Estimated for the current fiscal year.

*** The "Total Annual Fund Operating Expenses" is an estimate and may
be higher or lower than that outlined above. The investment manager has
voluntarily agreed to limit its fees or reimburse the Fund for expenses
to the extent necessary to keep Total Annual Fund Operating Expenses at
or below 1.00%. Any fee reductions or reimbursements may be repaid to
the investment manager within 3 years after they occur if such
repayments can be achieved within the Fund's then current expense
limit, if any, for that year and if certain other conditions are
satisfied.

EXAMPLE

The Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. It assumes
that you invest $10,000 in the Fund for the time periods indicated and
then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. The Example
should not be considered a representation of past or future expenses
or performance. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:

<C> <C>
1 YEAR 3 YEARS
-------------------------

$128 $399

</TABLE>

5
<PAGE>

MANAGEMENT OF THE FUND

INVESTMENT MANAGER

City National Bank ("CNB") is the Fund's investment manager. As
investment manager, CNB provides the Fund with investment management
services. CNB has provided trust and fiduciary services to
individuals and businesses for over 30 years through its trust and
investment division, City National Investments (CNI). CNI currently
provides investment management services to individuals, pension and
profit sharing plans, endowments, and foundations. As of November
30, 1999, CNI had approximately $14.3 billion in assets under
administration and $4.2 billion in assets under management. CNI
receives for its investment management services 0.75% of average
annual net assets of the Fund.

CNB, founded in the early 1950's, is a federally chartered commercial
bank with approximately $6.7 billion in assets as of November 30,
1999. It is a wholly-owned subsidiary of City National Corporation
("CNC"), a New York Stock Exchange listed company. CNB's address is
400 North Roxbury Drive, Beverly Hills, California 90210.

Under current law, the appointment of a new sub-adviser generally
would require the approval of the Fund's shareholders. Although CNB
does not currently intend to replace the current sub-adviser, CNB is
applying for an exemptive order from the Securities and Exchange
Commission which would permit it, subject to certain conditions
required by the SEC, to replace the current sub-adviser with a new
sub-adviser with the approval of the Board of Trustees but without
obtaining shareholder approval. Shareholders, however, will be
notified of any change of the sub-adviser and be provided with
information regarding the new sub-adviser. An order from the SEC
granting this exemption benefits shareholders by enabling the Fund
to operate in a less costly and more efficient manner.

SUB-ADVISER

Credit Suisse Asset Management, LLC ("CSAM") currently serves as the
Fund's sub-adviser, providing investment advisory and portfolio
management services pursuant to a sub-advisory agreement with CNB.
CSAM is a wholly-owned subsidiary of Credit Suisse Group, one of the
largest financial services companies in the world, and comprises the
U.S. arm of Credit Suisse Group's Credit Suisse Asset Management
division. CSAM, together with its predecessor firms, has been
engaged in the investment advisory business for over 60 years. As of
September 30, 1999, Credit Suisse Asset Management had global assets
under management of approximately $243 billion, of which
approximately $62 billion was managed by CSAM. The principal
business address of CSAM is 153 East 53rd Street, New York, New York
10022.

The portfolio manager of the Fund is Richard J. Lindquist, a Managing
Director and the head of high yield at CSAM. He joined CSAM in 1995
as a result of the acquisition of CS First Boston Investment
Management, which he joined in 1989. Previously, he managed high
yield portfolios at Prudential Insurance Company of America and T.
Rowe Price Associates. Mr. Lindquist won the Lipper Analytical
Services Award for the best-performing fixed income mutual fund in
1988 and 1993. He holds a B.S. in Finance from

<PAGE>
Boston College and an M.B.A. in Finance from the University of Chicago
Graduate School of Business. Mr. Lindquist is a Chartered Financial
Analyst.

ADMINISTRATOR, FUND ACCOUNTANT AND TRANSFER AGENT

SEI Investments Mutual Funds Services (the "Administrator") serves
as administrator and fund accountant to the Fund. The Administrator
is located at One Freedom Valley Drive, Oaks, Pennsylvania 19456.
Pursuant to a separate agreement with the Administrator, CNB
performs sub-administration services on behalf of the Fund, for
which it receives a fee paid by the Administrator at the annual rate
of up to 0.075% of the average daily net assets of the Fund. SEI
Investments Fund Management serves as transfer agent for the Fund,
and is located at 530 East Swedesford Road, Wayne, Pennsylvania
19087, and can be reached at 1-888-889-0799.

DISTRIBUTOR

SEI Investments Distribution Co. (the "Distributor") serves as the
Fund's distributor pursuant to a distribution agreement with the Fund.
The Distributor is located at One Freedom Valley Drive, Oaks,
Pennsylvania, 19456 and can be reached at 1-888-889-0799.

<PAGE>
ADDITIONAL INVESTMENT STRATEGIES AND RELATED RISKS

DEFENSIVE INVESTMENTS -- At the discretion of the Fund's portfolio
manager(s), we may invest up to 100% of the Fund's assets in cash or
cash equivalents for temporary defensive purposes. The Fund is not
required or expected to take such a defensive posture. But if used,
such a stance may help the Fund minimize or avoid losses during adverse
market, economic or political conditions. During such a period, the
Fund may not achieve its investment objective. For example, should the
market for junk bonds advance during this period, the Fund may not
participate as much as it would have if it had been more fully
invested.

PORTFOLIO TURNOVER -- We will sell a security when we believe it is
appropriate to do so, regardless of how long the Fund has owned that
security. Buying and selling securities generally involves some expense
to the Fund, such as commissions paid to brokers and other transaction
costs. By selling a security, the Fund may realize taxable capital
gains that it will subsequently distribute to shareholders. Generally
speaking, the higher the Fund's annual portfolio turnover, the greater
its brokerage costs and the greater the likelihood that it will realize
taxable capital gains. Increased brokerage costs may adversely affect
the Fund's performance. Also, unless you are a tax-exempt investor or
you purchase shares through a tax-deferred account, the distribution of
capital gains may affect your after-tax return. Annual portfolio
turnover of 100% or more is considered high. We anticipate annual
portfolio turnover of less than 100% for the High Yield Bond Fund.

YEAR 2000 -- Many computer systems cannot distinguish the year 2000
from 1900. This is known as the "Year 2000" problem. A computer
system's inability to tell the difference could cause problems with the
handling of securities trades, pricing and account services. Our
software vendors and service providers have assured us, but have not
guaranteed, that their systems will be adapted in time to avoid serious
problems. We do not expect Year 2000 conversion costs to have much
impact on the Fund because those costs are borne primarily by the
vendors and service providers, and not directly by the Fund. It is also
important to keep in mind that the Year 2000 problem may negatively
impact the issuers of the securities in which the Fund invests and by
extension, the value of the securities held by the Fund. This is a
"Year 2000 Readiness Disclosure" within the meaning of the "Year 2000
Information and Readiness Disclosure Act."

<PAGE>

ACCOUNT POLICIES

HOW WE PRICE SHARES - How and when we calculate the Fund's price or net
asset value ("NAV") determines the price at which you will buy or sell
shares. We calculate the Fund's NAV by dividing the total net value of
its assets by the number of outstanding shares. We base the value of
the Fund's investments on their market value, usually the last price
reported for each security before the close of market that day. A
market price may not be available for securities that trade
infrequently. Occasionally, an event that affects a security's value
may occur after the market closes. This is more likely to happen for
foreign securities traded in foreign markets that have different time
zones from the United States. In this case, we, subject to the
supervision of the Fund's Board of Trustees, will make a good-faith
estimate of the security's "fair value," which may be higher or lower
than security's closing price in its relevant market.

WHEN SHARES ARE PRICED - We calculate the NAV of the Fund after the
close of trading on the New York Stock Exchange (the "NYSE") every
day the NYSE is open. We do not calculate NAVs on the days on which
the NYSE is closed for trading. Certain exceptions apply as
described below. The NYSE usually closes at 4:00 p.m. Eastern time
on weekdays, except for holidays. More details about how we
calculate the Fund's NAV are in the Statement of Additional
Information.

If you have any questions about the Fund, please call us at
1-888-889-0799.

<PAGE>

UNDERSTANDING EARNINGS AND TAXES

DIVIDENDS AND DISTRIBUTIONS - IRS rules require that the Fund
distribute all of its net investment income and capital gains, if any,
to shareholders. You may receive income dividends and capital-gain
distributions for which you will owe taxes even if you choose to
reinvest the dividends (unless you invest solely through a tax-
advantaged account such as an IRA or a 401(k) plan).
Income dividends and capital-gain distributions are paid to all
shareholders who maintain accounts with the Fund as of each dividend
or distribution record date.

TAX CONSIDERATIONS -Capital gains may be taxable at different rates
depending upon the length of time the Fund holds its assets. We will
inform you about the character of any dividends and capital gains upon
payment. After the close of each calendar year, we will advise you of
the tax status of distributions. The Fund's distributions, whether
received in cash or reinvested, may be taxable. Any redemption of the
Fund's shares or any exchange of the Fund's shares for another Fund
will be treated as a sale, and any gain on the transaction may be
taxable. BE SURE TO CONSULT YOUR TAX ADVISOR ABOUT THE SPECIFIC TAX
IMPLICATIONS OF YOUR INVESTMENTS. FOR ADDITIONAL INFORMATION
REGARDING TAX CONSIDERATIONS, SEE THE SAI.

DISTRIBUTION OPTIONS - We will automatically reinvest your dividends in
additional full or fractional shares, unless you instruct us in writing
prior to the date of distribution of your election to receive payment
in cash. Your election will be effective for all dividends and
distributions paid after we receive your written notice. To cancel your
election, please send us another written notice. Proceeds from
distributions will normally be wired to your broker-dealer or financial
institution on the business day after distributions are credited to
your account.

DECLARING AND PAYING DIVIDENDS - We will declare dividends each day the
NAV is calculated, pay dividends on the last business day of each
month, and pay net capital gain, if any, once a year. Following their
fiscal year end (October 31), the Fund may make additional distribution
to avoid the imposition of a tax.

WHEN DO DIVIDENDS ACCRUE? Your dividends begin to accrue on the day
after we execute your purchase order. We will not credit you with
dividends for shares on the day you sell them.

BACKUP WITHHOLDING - You must provide your broker-dealer or financial
institution with your social security or tax identification number on
your account application form and specify whether or not you are
subject to backup withholding. Otherwise, you may be subject to backup
withholding at a rate of 31%.

HOW TO AVOID "BUYING A DIVIDEND" - If you plan to purchase shares in
the Fund, check if it is planning to make a distribution in the near
future. If you do not, and you buy shares of the Fund just before a
distribution, you'll pay full price for the shares but receive a
portion of your purchase price back as a taxable distribution. This is
called "buying a dividend." Unless you hold the Fund in a tax-deferred
account, you will have to include the distribution in your gross income
for tax purposes, even though you may have not participated in the
Fund's appreciation.

10
<PAGE>

HOW TO BUY AND SELL SHARES

Here are the details you should know about buying and selling shares:

HOW TO PLACE AN ORDER

You may place an order with:

- an approved broker-dealer;

- any other approved financial institution; or

- the transfer agent as described below.

ORDERING THROUGH A BROKER-DEALER OR FINANCIAL INSTITUTION -- You may
purchase shares through accounts with brokers and other financial
institutions that are authorized to place trades in Fund shares for
their customers. If you invest through an authorized financial
institution, you will have to follow its procedures, which may be
different from the procedures for investing directly. Your financial
institution may charge a fee for its services, in addition to the fees
charged by the Fund. You will also generally have to address your
correspondence or questions regarding the Fund to your financial
institution.

ORDERING THROUGH THE TRANSFER AGENT -- Financial institutions and
intermediaries may purchase shares of the Fund by placing orders
directly with the Transfer Agent. Financial institutions and
intermediaries should call the Transfer Agent at 1-888-889-0799 for
further information and to coordinate the establishment of an account
directly with the Transfer Agent

WHEN ORDERS WILL BE COMPLETED -- You may have to transmit purchase or
exchange requests to your financial institution at an earlier time for
your transaction to become effective that day. This allows the
financial institution time to process your request and transmit it to
the Fund. For more information about how to purchase or exchange fund
shares through your financial institution, you should contact your
financial institution directly.

If we receive your purchase order through your financial institution
by close of trading on the NYSE, we will execute your purchase order
at that day's NAV. If we receive your purchase order after the close of
trading on the NYSE, we will execute your purchase order at the next
day's NAV. Your shares will be bought only after we receive a properly
completed order with full payment.

PURCHASE MINIMUMS -- You may buy shares of the Fund for:

- an initial amount of $100,000, and

- additional investments of $1,000 or more.

Exceptions may be made at our discretion.

11
<PAGE>

MINIMUM ACCOUNT BALANCES -- If your account balance in the Fund drops
below $100,000 because of redemptions, the Fund may redeem your shares.
However, we will always give you at least 30 days' written notice to
give you time to add to your account and avoid the involuntary
redemption of your shares.

PAYMENT RESTRICTIONS -- We only accept payments by wire in U.S. funds.
Cash, checks and third-party checks will not be accepted. Consult with
your financial institution about their acceptable methods of payment.

WIRING FEE -- The financial institution placing your order may charge
its own wiring fees.

BUYING SHARES

FIRST TIME AND SUBSEQUENT PURCHASES -- If you do not place your order
through the Transfer Agent as explained above, you will have to follow
your financial institution's procedures for transacting with the Fund.
Contact your financial institution for more information.

BY WIRE -- If you order through the Transfer Agent you may call the
Fund at 1-888-889-0799 to buy shares by wire. Wires must be received by
us through the Federal Reserve wire system before it closes (generally,
4:00 p.m. Eastern time) or we will not be able to process your order
that day. If you buy shares through your financial institution, your
financial institution may charge its own wiring fees.

SELLING SHARES

GENERAL INFORMATION -- If you have bought shares through the Transfer
Agent, you may sell those shares by calling the Transfer Agent at
1-888-889-0799. You may also sell your shares through your financial
institution. You will have to follow their procedures. Contact your
financial institution for more information.

GENERAL RESTRICTIONS -- We may suspend the right to sell shares or
postpone payment for a sale of shares when either the New York Stock
Exchange or the Federal Reserve's Fedline System is closed or
restricted. We reserve the right to reject any order that is not
received in proper form. For example, if we are unable to determine how
many shares you wish to sell, we may not execute your order.

OTHER REDEMPTION OPTIONS-- Under conditions where cash redemptions are
detrimental to the Fund and its shareholders, we reserve the right to
make redemptions in readily marketable securities other than cash. In
unusual circumstances, the Fund may temporarily suspend the processing
of sell requests, or postpone payments of proceeds for up to five
business days, as permitted by federal securities laws. Please see the
SAI for a more detailed discussion.

EXCHANGING SHARES

You may exchange shares of the Fund for shares of any other CNI Charter
Fund for which you are eligible to invest. You should contact the
financial institution through which you purchased your shares and
follow its instructions to place an exchange order.

<PAGE>

When you exchange shares, you are really selling your shares and buying
other shares, so your sale price and purchase price will be based on
the NAV next calculated after we receive your exchange request.

<PAGE>

IMPORTANT TERMS TO KNOW

"We", "Us" and "Our" means the CNI Charter Funds.

"You" and "Your" means the prospective investor or current shareholder.

"Quality" means the credit rating given to a security by a
nationally recognized statistical rating organization.

"Yield" means the interest rate you would receive if you kept your
investment in the Fund for a year. It is based on the current interest
rate for a trailing seven-day period.

"Effective Yield" means the interest rate, compounded weekly, you would
receive if you kept your investment in the Fund for a year.

"Duration" is the weighted average time to the return of a dollar of
price, and is calculated by dividing the sum of the present values of
each cash flow, each multiplied by the time received, by the total
price.

<PAGE>

FOR MORE INFORMATION

CNI CHARTER HIGH YIELD BOND FUND

Additional information is available free of charge in the Statement of
Additional Information ("SAI"). The SAI is incorporated by reference (legally
considered part of this document). In the Fund's Annual Report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year. Additional
information about the Fund's investments is available in the Fund's Annual and
Semi-Annual Reports to shareholders. To receive a free copy of this Prospectus,
the SAI, or the Annual or Semi-Annual Reports (when available), please contact:

SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
1-888-889-0799

INFORMATION ABOUT THE FUND MAY BE REVIEWED AND
COPIED:

-at the SEC's Public Reference Room in Washington, D.C. at 202-942-8090;

-on the EDGAR database on the SEC's Internet site at WWW.SEC.GOV; or

-by written request (including duplication fee) to the Public Reference
Section of the SEC, Washington, D.C. 20549-6009, or by electronic request
at [email protected].

If you have questions about the Fund, please call 1-888-889-0799.

The Fund's Investment Company Act file
number: 811-07923.

CNI-F-000-00

CNI -SM-
CHARTER
FUNDS

HIGH YIELD BOND FUND

INSTITUTIONAL CLASS

PROSPECTUS
DATED , 1999

<PAGE>

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

PART A

PROSPECTUS FOR
CLASS A SHARES OF

CNI CHARTER HIGH YIELD BOND FUND

---------------------------------------------------------------------
<PAGE>

CNI CHARTER HIGH YIELD BOND FUND

SUPPLEMENT DATED DECEMBER 29, 1999 TO PROSPECTUS DATED DECEMBER 29, 1999.

INVESTORS SHOULD RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE

<PAGE>

Subject to Completion Dated December 23, 1999

CHARTER FUNDS -SM-

CNI CHARTER HIGH YIELD BOND FUND

CLASS A

PROSPECTUS
DATED _______, ___

INVESTMENT MANAGER:
CITY NATIONAL INVESTMENTS
A division of City National Bank

The Securities and Exchange Commission has not approved or
disapproved these securities or passed upon the accuracy or adequacy
of this prospectus. Any representation to the contrary is a criminal
offense.

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

MUTUAL FUND SHARES ARE NOT FDIC INSURED. MUTUAL FUND SHARES ARE NOT BANK
DEPOSITS, NOR ARE THEY OBLIGATIONS OF, OR GUARANTEED BY CITY NATIONAL
BANK. INVESTING IN MUTUAL FUNDS INVOLVES RISKS, INCLUDING POSSIBLE LOSS
OF PRINCIPAL.

(1)

<PAGE>

TABLE OF CONTENTS

<TABLE>

<S> <C>
Overview.......................................................................3

Management of the Fund.........................................................6

Additional Investment Strategies and Related Risks.............................8

Account Policies...............................................................9

Understanding Earnings and Taxes..............................................10

How to Buy and Sell Shares....................................................11

Important Terms to Know.......................................................13

For More Information..................................................back cover

</TABLE>

More detailed information on all subjects covered in this simplified prospectus
is contained within the STATEMENT OF ADDITIONAL INFORMATION ("SAI"). Investors
seeking more in-depth explanations of the Fund should request the SAI and
review it before purchasing shares.

This Prospectus offers Class A shares of the Fund. Class A shares are intended
for individual investors, partnerships, corporations and other accounts that
have diversified investment needs. The Fund offers other classes of shares
which are subject to the same management fee and other expenses but may be
subject to different distribution and/or shareholder servicing costs.

(2)

<PAGE>

OVERVIEW

OUR GOAL

PRINCIPAL STRATEGY

We invest in a diversified portfolio at least 65% of which consists
of fixed income securities rated below investment grade ("junk
bonds"), including corporate bonds and debentures, convertible and
preferred securities and zero coupon obligations. We may also invest
in fixed income securities rated below investment grade that are
issued by governments and agencies, both U.S. and foreign. The Fund
may also invest in equity securities. We seek to invest in
securities that offer a high current yield as well as total return
potential. In an effort to control risks, we purchase investments
diversified across issuers, industries and sectors. The average
maturity of the Fund's investments will vary. There is no limit on
the maturity or on the credit quality of any security.

(3)

<PAGE>

PRINCIPAL RISKS OF INVESTING IN OUR FUND

MARKET RISK - The prices of fixed income securities respond to
economic developments, particularly interest rate changes, as well as
to perceptions about the creditworthiness of individual issuers,
including governments. Generally, fixed income securities will
decrease in value if interest rates rise and vice versa, with lower
rated securities (such as those in which the Fund primarily invests)
more volatile than higher rated securities. The average maturity and
duration of these securities affects risk as well, with longer term
securities generally more volatile than shorter term securities. In
addition, the Fund is subject to the risk that its market segment,
high yield fixed income securities, may underperform other market
segments or the markets as a whole. Economic or political changes may
adversely affect the ability of issuers to repay principal and to make
interest payments on securities owned by the Fund. Changes in the
financial condition of issuers also may adversely affect the value of
the Fund's securities. The Fund is not a money market fund.

FOREIGN SECURITIES - The Fund may invest in foreign securities.
Foreign investments may be subject to risks that are not typically
associated with investing in domestic governments. For example, such
investment may be adversely affected by changes in currency rates and
exchange control regulations, future political and economic
developments, or the imposition of withholding taxes on income.
Foreign markets tend to be more volatile than the U.S. market due to
economic and political instability and regulatory conditions in some
countries. The Fund may invest in foreign securities denominated in
foreign currencies, whose value may decline against the U.S. dollar.

EQUITY SECURITIES - The value of your equity investments will
fluctuate on a day-to-day and a cyclical basis with movements in the
stock market, as well as in response to the activities of individual
companies. In addition, individual companies may report poor results
or be negatively affected by industry and/or economic trends and
developments.

PAST PERFORMANCE

(4)

<PAGE>

FEES AND EXPENSES OF THE FUND

This table describes the fees and expenses you may pay if you buy and
hold shares of the Fund. You pay no sales charges or transaction fees
for buying or selling shares of the Fund.

Annual Fund Operating Expenses (expenses that are deducted from Fund
assets)

<TABLE>
<S> <C> <C>
Management Fee* 0.75%
Distribution (12b-1) Fees 0.30%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses** 0.26%
Total Other Expenses** 0.51%
----------------------------------------------------------- ---------------- ------------------
TOTAL ANNUAL FUND OPERATING EXPENSES*** 1.56%

</TABLE>

* The "Management Fee" is an annual fee, payable monthly out of the
Fund's net assets.

** Estimated for the current fiscal year.

*** The "Total Annual Fund Operating Expenses" is an estimate and may
be higher or lower than that outlined above. The investment manager has
voluntarily agreed to limit its fees or reimburse the Fund for expenses
to the extent necessary to keep Total Annual Fund Operating Expenses at
or below 1.30%. Any fee reductions or reimbursements may be repaid to
the investment manager within 3 years after they occur if such
repayments can be achieved within the Fund's then current expense
limit, if any, for that year and if certain other conditions are
satisfied.

EXAMPLE

The Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. It
assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the
same. The Example should not be considered a representation of past
or future expenses or performance. Although your actual costs may be
higher of lower, based on these assumptions your costs would be:

1 YEAR 3 YEARS
-------------------------

$158 $492

(5)

<PAGE>

MANAGEMENT OF THE FUND

INVESTMENT MANAGER

City National Bank ("CNB") is the Fund's investment manager. As
investment manager, CNB provides the Fund with investment management
services. CNB has provided trust and fiduciary services to individuals
and businesses for over 30 years through its trust and investment
division, City National Investments (CNI). CNI currently provides
investment management services to individuals, pension and profit
sharing plans, endownments, and foundations. As of November 30, 1999,
CNI had approximately $14.3 billion in assets under administration and
$4.2 billion in assets under management. CNI receives for its
investment management services 0.75% of average annual net assets of
the Fund.

Under current law, the appointment of a new sub-adviser generally
would require the approval of the Fund's shareholders. Although CNB
does not currently intend to replace the current sub-adviser, CNB is
applying for an exemptive order from the Securities and Exchange
Commission which would permit it, subject to certain conditions
required by the SEC, to replace the current sub-adviser with a new
sub-adviser with the approval of the Board of Trustees but without
obtaining shareholder approval. Shareholders, however, will be
notified of any change of the sub-adviser and be provided with
information regarding the new sub-adviser. An order from the SEC
granting this exemption benefits shareholders by enabling the Fund to
operate in a less costly and more efficient manner.

SUB-ADVISER

The portfolio manager of the Fund is Richard J. Lindquist, a Managing
Director and the head of high yield at CSAM. He joined CSAM in 1995 as
a result of the acquisition of CS First Boston Investment Management,
which he joined in 1989. Previously, he managed high yield portfolios
at Prudential Insurance Company of America and T. Rowe Price
Associates. Mr. Lindquist won the Lipper Analytical Services Award for
the best-performing fixed income mutual fund in 1988 and 1993. He
holds a B.S. in Finance from

(6)

<PAGE>

Boston College and an M.B.A. in Finance
from the University of Chicago Graduate School of Business. Mr.
Lindquist is a Chartered Financial Analyst.

ADMINISTRATOR, FUND ACCOUNTANT AND TRANSFER AGENT

DISTRIBUTOR

(7)

<PAGE>

ADDITIONAL INVESTMENT STRATEGIES AND RELATED RISKS

(8)

<PAGE>

ACCOUNT POLICIES

WHEN SHARES ARE PRICED - We calculate the NAV of the Fund after the
close of trading on the New York Stock Exchange (the "NYSE") every
day the NYSE is open. We do not calculate NAVs on the days on which
the NYSE is closed for trading. Certain exceptions apply as
described below. The NYSE usually closes at 4:00 p.m. Eastern Time
on weekdays, except for holidays. More details about how we
calculate the Fund's NAV are in the Statement of Additional
Information.

DISTRIBUTION PLAN - The Fund has adopted a plan (the "Plan") for its
Class A shares under Rule 12b-1 of the Investment Company Act. The Plan
allows the Fund to pay distribution fees of 0.30% of annual net assets
for the sale and distribution of its shares. Although the Fund does not
have a front-end load, because the distribution fees are paid out of
the Fund's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying
other types of sales charges.

If you have any questions about the Fund, please call us at
1-888-889-0799.

(9)

<PAGE>

UNDERSTANDING EARNINGS AND TAXES

DIVIDENDS AND DISTRIBUTIONS - IRS rules require that the Fund
distribute all of its net investment income and capital gains, if any,
to shareholders. You may receive income dividends and capital-gain
distributions for which you will owe taxes even if you choose to
reinvest the dividends (unless you invest solely through a tax-
advantaged account such as an IRA or a 401(k) plan). Income dividends
and capital-gain distributions are paid to all shareholders who
maintain accounts with the Fund as of each dividend or
distribution record date.

DISTRIBUTION OPTIONS - We will automatically reinvest your dividends in
additional full or fractional shares, unless you instruct us in writing
prior to the date of distribution of your election to receive payment
in cash. Your election will be effective for all dividends and
distributions paid after we receive your written notice. To cancel your
election, please send us another written notice. Proceeds from
distributions will normally be wired to your Authorized Institution on
the business day after distributions are credited to your account.

WHEN DO DIVIDENDS ACCRUE? Your dividends begin to accrue on the day
after we execute your purchase order. We will not credit you with
dividends for shares on the day you sell them.

BACKUP WITHHOLDING - You must provide your Authorized Institution with
your social security or tax identification number on your account
application form and specify whether or not you are subject to backup
withholding. Otherwise, you may be subject to backup withholding at a
rate of 31%.

(10)

<PAGE>

HOW TO BUY AND SELL SHARES

Here are the details you should know about buying and selling shares:

HOW TO PLACE AN ORDER

You may place an order with an Authorized Institution which may be:

- an approved broker-dealer; or

- any other approved financial institution.

ORDERING THROUGH AN AUTHORIZED INSTITUTION -- You may purchase shares
through accounts with Authorized Institutions that are authorized to
place trades in Fund shares for their customers. If you invest through
an Authorized Institution, you will have to follow its procedures,
which may be different from the procedures for investing directly. Your
Authorized Institution may charge a fee for its services, in addition
to the fees charged by the Fund. You will also generally have to
address your correspondence or questions regarding the Fund to your
Authorized Institution.

WHEN ORDERS WILL BE COMPLETED -- You may have to transmit purchase or
exchange requests to your Authorized Institution at an earlier time for
your transaction to become effective that day. This allows the
Authorized Institution time to process your request and transmit it to
the Fund. For more information about how to purchase or exchange fund
shares through your Authorized Institution, you should contact your
Authorized Institution directly.

If we receive your purchase order through your Authorized Institution
by close of trading on the NYSE, we will execute your purchase order at
that day's NAV. If we receive your purchase order after the close of
trading on the NYSE, we will execute your purchase order at the next
day's NAV. Your shares will be bought only after we receive a properly
completed order with full payment.

PURCHASE MINIMUMS -- You may buy shares of the Fund for:

- an initial amount of $100,000, and

- additional investments of $1,000 or more.

Exceptions may be made at our discretion.

(11)
<PAGE>

PAYMENT RESTRICTIONS -- We only accept payments by wire in U.S. funds.
Cash, checks and third-party checks will not be accepted. Consult with
your Authorized Institution about their acceptable methods of payment.

WIRING FEE -- The Authorized Institution placing your order may charge
its own wiring fees.

BUYING SHARES

FIRST TIME AND SUBSEQUENT PURCHASES -- You will have to follow your
Authorized Institution's procedures for transacting with the Fund.
Contact your Authorized Institution for more information.

SELLING SHARES

GENERAL INFORMATION -- You may sell your shares through your Authorized
Institution. You will have to follow their procedures. Contact your
Authorized Institution for more information.

EXCHANGING SHARES

You may exchange shares of any CNI Charter Fund for shares of any other
CNI Charter Fund for which you are eligible to invest. You should
contact the Authorized Institution through which you purchased your
shares and follow its instructions to place an exchange order. When you
exchange shares, you are really selling your shares and buying other
shares, so your sale price and purchase price will be based on the NAV
next calculated after we receive your exchange request.

(12)
<PAGE>

IMPORTANT TERMS TO KNOW

"We", "Us" and "Our" means the CNI Charter Funds.

"You" and "Your" means the prospective investor or current shareholder.

"Quality" means the credit rating given to a security by a nationally
recognized statistical rating organization.

"Yield" means the interest rate you would receive if you kept your
investment in the Fund for a year. It is based on the current interest
rate for a trailing seven-day period.

"Effective Yield" means the interest rate, compounded weekly, you would
receive if you kept your investment in the Fund for a year.

(13)

<PAGE>

FOR MORE INFORMATION

CNI CHARTER HIGH YIELD BOND FUND

SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
1-888-889-0799

INFORMATION ABOUT THE FUND MAY BE REVIEWED AND COPIED:

- - at the SEC's Public Reference Room in Washington, D.C. at
202-942-8090;

- - on the EDGAR database on the SEC's Internet site at WWW.SEC.GOV; or

- - by written request (including duplication fee) to the Public Reference
Section of the SEC, Washington, D.C. 20549-6009, or by electronic request
at [email protected].

If you have questions about the Fund, please call 1-888-889-0799.

The Fund's Investment Company Act file number: 811-07923.

CNI-F-000-00

CNI CHARTER
FUNDS -SM-
HIGH YIELD BOND FUND

CLASS A

PROSPECTUS
DATED , 1999

(14)

<PAGE>

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

PART B

STATEMENT OF ADDITIONAL INFORMATION

CNI CHARTER HIGH YIELD BOND FUND

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

<PAGE>

Subject to Completion Dated December 23, 1999

STATEMENT OF ADDITIONAL INFORMATION

CNI CHARTER FUNDS
400 North Roxbury Drive, Beverly Hills, California 90210

CNI CHARTER HIGH YIELD BOND FUND

________________ , _____

This Statement of Additional Information ("SAI") is not a prospectus. It
should be read in conjunction with the Prospectus for the Fund dated
December 31, 1999, which may be amended from time to time, for the CNI
Charter High Yield Bond Fund (the "Fund"). The Fund is a diversified
investment portfolio of the CNI Charter Funds (the "Trust"), an open-end,
management investment company. The Trust was formerly called the Berkeley
Funds. City National Bank serves as Investment Manager to the Fund.

To obtain a free copy of the above-referenced prospectus, please contact SEI
Investments Fund Management (the "Transfer Agent") at 1-888-889-0799.

The information in this Statement of Additional Information is not complete
and may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effecitve.
This Statement of Additional Information is not an offer to sell these
securities and is not a solicitation of an offer to buy these securities in
any state where the offer or sale is not permitted.

<PAGE>

TABLE OF CONTENTS

<TABLE>

<S> <C>
Investment Techniques ........................................................1

Investment Restrictions .....................................................22

Risk Considerations .........................................................24

Management of the Trust .....................................................33

Portfolio Transactions and Turnover .........................................39

Distribution and Taxes ......................................................40

Share Price Calculation .....................................................44

Distribution Plan ...........................................................46

Shareholder Service Agreement ...............................................47

Expenses ....................................................................48

General Information .........................................................48

Performance Information .....................................................49

Purchase and Redemption of Shares ...........................................50

Other Information ...........................................................51

Principal Holders of Securities .............................................52

Financial Statements ........................................................52

Appendix- Ratings of Investment Securities .................................A-1

</TABLE>

<PAGE>

INVESTMENT TECHNIQUES

FIXED INCOME SECURITIES. The Fund will invest in fixed income securities. Fixed
income securities are debt obligations issued by corporations, municipalities
and other borrowers. The market value of the Fund's fixed income investments
will change in response to interest rate changes and other factors. During
periods of falling interest rates, the values of outstanding fixed income
securities generally rise. Conversely, during periods of rising interest rates,
the values of such securities generally decline. Changes by recognized rating
agencies in the rating of any fixed income security and in the ability of an
issuer to make payments of interest and principal also affect the value of
these investments. Changes in the value of portfolio securities will not
necessarily affect cash income derived from these securities, but will affect
the Fund's net asset value.

VARIABLE AND FLOATING RATE INSTRUMENTS. The Fund may invest in variable and
floating rate instruments. Certain of the obligations purchased by the Fund may
carry variable or floating rates of interest and may involve a conditional or
unconditional demand feature. Such obligations may include variable amount
master demand notes. Such instruments bear interest at rates which are not
fixed, but which vary with changes in specified market rates or indices. The
interest rates on these securities may be reset daily, weekly, quarterly or at
some other interval, and may have a floor or ceiling on interest rate changes.
There is a risk that the current interest rate on such obligations may not
accurately reflect existing market interest rates. A demand instrument with a
demand notice period exceeding seven days may be considered illiquid if there
is no secondary market for such security.

FOREIGN SECURITIES. The Fund may invest in foreign securities. Investments in
securities of foreign issuers or securities principally traded overseas may
involve certain special risks due to foreign economic, political, and legal
developments, including expropriation of assets or nationalization, imposition
of withholding taxes on dividend or interest payments, and possible difficulty
in obtaining and enforcing judgments against foreign entities. Furthermore,
issuers of foreign securities are subject to different, often less
comprehensive, accounting, reporting, and disclosure requirements than domestic
issuers. The securities of some foreign companies and foreign securities
markets are less liquid and at times more volatile than securities of
comparable U.S. companies and U.S. securities markets. Foreign brokerage
commissions and other fees are also generally higher than in the United States.
There are also special tax considerations which apply to securities of foreign
issuers and securities principally traded overseas.

DEPOSITARY RECEIPTS, CONVERTIBLE SECURITIES AND SECURITIES WARRANTS. The Fund
may invest in the securities of foreign issuers in the form of American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs"), and other similar global instruments available in
emerging markets, or other securities convertible into securities of eligible
issuers. These securities may not necessarily be denominated in the same
currency as the securities for which they may be exchanged. Generally, ADRs in
registered form are designed for use in U.S. securities markets, and EDRs and
other similar global instruments in bearer form are designed for use in
European securities markets. For purposes of the Fund's investment policies,
the Fund's investments in ADRs, EDRs and similar instruments will be deemed to
be investments in the equity securities representing the securities of
foreign issuers into which they may be converted. The Fund may also invest in
fixed income securities convertible into equity securities and warrants to
purchase equity securities.

1
<PAGE>

MORTGAGE RELATED SECURITIES AND DERIVATIVE SECURITIES. The Fund may invest in
mortgage-related securities. A mortgage-related security is an interest in a
pool of mortgage loans and is considered a derivative security. Most
mortgage-related securities are pass-through securities, which means that
investors receive payments consisting of a pro rata share of both principal
and interest (less servicing and other fees), as well as unscheduled
prepayments, as mortgages in the underlying mortgage pool are paid off by the
borrowers. Certain mortgage-related securities are subject to high volatility.
The Fund uses these derivative securities in an effort to enhance return and as
a means to make certain investments not otherwise available to the Fund.

AGENCY MORTGAGE-RELATED SECURITIES. Investors in the Fund should note
that the dominant issuers or guarantors of mortgage-related securities today
are GNMA, FNMA and the FHLMC. GNMA creates pass-through securities from pools
of government-guaranteed or -insured (Federal Housing Authority or Veterans
Administration) mortgages. FNMA and FHLMC issue pass-through securities from
pools of conventional and federally insured and/or guaranteed residential
mortgages. The principal and interest on GNMA pass-through securities are
guaranteed by GNMA and backed by the full faith and credit of the U.S.
government. FNMA guarantees full and timely payment of all interest and
principal, and FHLMC guarantees timely payment of interest and ultimate
collection of principal of its pass-through securities. Securities from FNMA
and FHLMC are not backed by the full faith and credit of the U.S. government
but are generally considered to offer minimal credit risks. The yields provided
by these mortgage-related securities have historically exceeded the yields on
other types of U.S. government securities with comparable "lives" largely due
to the risks associated with prepayment.

Adjustable rate mortgage securities ("ARMs") are pass-through securities
representing interests in pools of mortgage loans with adjustable interest
rates determined in accordance with a predetermined interest rate index and
which may be subject to certain limits. The adjustment feature of ARMs tends
to lessen their interest rate sensitivity.

MORTGAGE-RELATED SECURITIES - GOVERNMENT NATIONAL MORTGAGE ASSOCIATION.
GNMA is a wholly owned corporate instrumentality of the U.S. government within
the Department of Housing and Urban Development. The National Housing Act of
1934, as amended (the "Housing Act"), authorizes GNMA to guarantee the timely
payment of the principal of, and interest on, securities that are based on and
backed by a pool of specified mortgage loans. For these types of securities to
qualify for a GNMA guarantee, the underlying collateral must be mortgages
insured by the FHA under the Housing Act, or Title V of the Housing Act of
1949, as amended ("VA Loans"), or be pools of other eligible mortgage loans.
The Housing Act provides that the full faith and credit of the U.S. Government
is pledged to the payment of all amounts that may be required to be paid under
any guarantee. In order to meet its obligations under a guarantee, GNMA is
authorized to borrow from the U.S. Treasury with no limitations as to amount.

GNMA pass-through securities may represent a proportionate interest in one or
more pools of the following types of mortgage loans: (1) fixed-rate level
payment mortgage loans; (2) fixed-rate graduated payment mortgage loans; (3)
fixed-rate growing equity mortgage loans; (4) fixed-rate mortgage loans secured
by manufactured (mobile) homes; (5) mortgage loans on multifamily residential
properties under construction; (6) mortgage loans on completed multifamily
projects; (7) fixed-rate mortgage loans as to which escrowed funds are used to
reduce the borrower's monthly payments during the early years of the mortgage
loans ("buydown" mortgage loans); (8) mortgage loans that provide for
adjustments on payments based on periodic changes in interest rates or in other
payment terms of the mortgage loans; and (9) mortgage-backed serial notes.

MORTGAGE-RELATED SECURITIES - FEDERAL NATIONAL MORTGAGE ASSOCIATION.
FNMA is a federally chartered and privately owned corporation established under
the Federal National

<PAGE>
Mortgage Association Charter Act. FNMA was originally
organized in 1938 as a U.S. Government agency to add greater liquidity to the
mortgage market. FNMA was transformed into a private sector corporation by
legislation enacted in 1968. FNMA provides funds to the mortgage market
primarily by purchasing home mortgage loans from local lenders, thereby
providing them with funds for additional lending. FNMA acquires funds to
purchase loans from investors that may not ordinarily invest in mortgage loans
directly, thereby expanding the total amount of funds available for housing.

Each FNMA pass-through security represents a proportionate interest in one or
more pools of FHA Loans, VA Loans or conventional mortgage loans (that is,
mortgage loans that are not insured or guaranteed by any U.S. Government
agency). The loans contained in those pools consist of one or more of the
following: (1) fixed-rate level payment mortgage loans; (2) fixed-rate growing
equity mortgage loans; (3) fixed-rate graduated payment mortgage loans; (4)
variable-rate mortgage loans; (5) other adjustable-rate mortgage loans; and (6)
fixed-rate mortgage loans secured by multifamily projects.

MORTGAGE-RELATED SECURITIES - FEDERAL HOME LOAN MORTGAGE CORPORATION.
FHLMC is a corporate instrumentality of the United States established by the
Emergency Home Finance Act of 1970, as amended. FHLMC was organized primarily
for the purpose of increasing the availability of mortgage credit to finance
needed housing. The operations of FHLMC currently consist primarily of the
purchase of first lien, conventional, residential mortgage loans and
participation interests in mortgage loans and the resale of the mortgage loans
in the form of mortgage-backed securities.

The mortgage loans underlying FHLMC securities typically consist of fixed-rate
or adjustable-rate mortgage loans with original terms to maturity of between 10
and 30 years, substantially all of which are secured by first liens on
one-to-four-family residential properties or multifamily projects. Each
mortgage loan must include whole loans, participation interests in whole
loans and undivided interests in whole loans and participation in another
FHLMC security.

PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES. Mortgage-related
securities offered by private issuers include pass-through securities comprised
of pools of conventional residential mortgage loans; mortgage-backed bonds
which are considered to be obligations of the institution issuing the bonds
and are collateralized by mortgage loans; and bonds and CMOs collateralized by
mortgage-related securities issued by GNMA, FNMA, FHLMC or by pools of
conventional mortgages, multifamily or commercial mortgage loans.

Each class of a CMO is issued at a specific fixed or floating coupon rate and
has a stated maturity or final distribution date. Principal prepayments on the
collateral pool may cause the various classes of a CMO to be retired
substantially earlier than their stated maturities or final distribution dates.
The principal of and interest on the collateral pool may be allocated among the
several classes of a CMO in a number of different ways. Generally, the purpose
of the allocation of the cash flow of a CMO to the various classes is to obtain
a more predictable cash flow to some of the individual tranches than exists
with the underlying collateral of the CMO. As a general rule, the more
predictable the cash flow is on a CMO tranche, the lower the anticipated yield
will be on that tranche at the time of issuance relative to prevailing market
yields on mortgage-related securities. Certain classes of CMOs may have priority
over others with respect to the receipt of prepayments on the mortgages.

Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. These simultaneous payments are taken
into account in calculating the stated maturity date or final distribution
date of each class which, like the other CMO structures, must

3
<PAGE>

be retired by its stated maturity date or final distribution date, but may be
retired earlier. Amortization Class CMOs ("PAC Bonds") are parallel pay CMOs
that generally require payments of a specified amount of principal on each
payment date; the required principal payment on PAC Bonds have the highest
priority after interest has been paid to all classes.

Privately issued mortgage-related securities generally offer a higher rate of
interest (but greater credit and interest rate risk) than U.S. government and
agency mortgage-related securities because they offer no direct or indirect
governmental guarantees. Many issuers or servicers of mortgage-related
securities guarantee or provide insurance for timely payment of interest and
principal, however. Some mortgage-related securities are offered through
private placements that are restricted as to further sale. The value of these
securities may be very volatile.

ADJUSTABLE-RATE MORTGAGE-RELATED SECURITIES. Because the interest rates
on the mortgages underlying ARMs reset periodically, yields of such portfolio
securities will gradually align themselves to reflect changes in market rates.
Unlike fixed-rate mortgages, which generally decline in value during periods of
rising interest rates, ARMs allow the Fund to participate in increases in
interest rates through periodic adjustments in the coupons of the underlying
mortgages, resulting in both higher current yields and low price fluctuations.
Furthermore, if prepayments of principal are made on the underlying mortgages
during periods of rising interest rates, the Fund may be able to reinvest such
amounts in securities with a higher current rate of return. During periods of
declining interest rates, of course, the coupon rates may readjust downward,
resulting in lower yields to the Fund. Further, because of this feature, the
value of ARMs is unlikely to rise during periods of declining interest rates to
the same extent as fixed rate instruments. For further discussion of the risks
associated with mortgage-related securities generally.

OTHER MORTGAGE-RELATED SECURITIES. Other mortgage-related securities
include securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage
loans on real property, including mortgage dollar rolls, CMO residuals or
stripped mortgage-backed securities ("SMBS"). Other mortgage-related securities
may be equity or debt securities issued by agencies or instrumentalities of the
U.S. government or by private originators of, or investors in, mortgage loans,
including savings and loan associations, homebuilders, mortgage banks,
commercial banks, investment banks, partnerships, trusts and special purpose
entities of the foregoing.

CMO residuals are mortgage securities issued by agencies or instrumentalities
of the U.S. government or by private originators of, or investors in, mortgage
loans, including savings and loan associations, homebuilders, mortgage
banks, commercial banks, investment banks and special purpose entities of
the foregoing.

The cash flow generated by the mortgage assets underlying a series of CMOs is
applied first to make required payments of principal and interest on the CMOs
and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess
cash flow remaining after making the foregoing payments. Each payment of such
excess cash flow to a holder of the related CMO residual represents income
and/or a return of capital. The amount of residual cash flow resulting from a
CMO will depend on, among other things, the characteristics of the mortgage
assets, the coupon rate of each class of CMO, prevailing interest rates, the
amount of administrative expenses and the prepayment experience on the mortgage
assets. In particular, the yield to maturity on CMO residuals is extremely
sensitive to prepayments on the related underlying mortgage assets, in the same
manner as an interest-only ("IO") class of stripped mortgage-backed securities.
In addition, if a series of a CMO includes a class that bears interest at an
adjustable rate, the yield to maturity on the related CMO residual

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<PAGE>

will also be extremely sensitive to changes in the level of the index upon
which interest rate adjustments are based. As described below with respect to
stripped mortgage-backed securities, in certain circumstances the Fund may
fail to recoup fully its initial investment in a CMO residual.

CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The CMO
residual market has only very recently developed and CMO residuals currently
may not have the liquidity of other more established securities trading in
other markets. Transactions in CMO residuals are generally completed only after
careful review of the characteristics of the securities in question. In
addition, CMO residuals may, or pursuant to an exemption therefrom, may not
have been registered under the Securities Act of 1933, as amended
(the "1933 Act"). CMO residuals, whether or not registered under the 1933 Act,
may be subject to certain restrictions on transferability, and may be deemed
"illiquid" and subject to the Fund's limitations on investment in
illiquid securities.

SMBS are derivative multi-class mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. government, or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose entities
of the foregoing.

SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions on a pool of mortgage assets. A
common type of SMBS will have one class receiving some of the interest and most
of the principal from the mortgage assets, while the other class will receive
most of the interest and the remainder of the principal. In the most extreme
case, one class will receive all of the interest (the "IO" class), while the
other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an IOs, POs and other mortgage securities that
are purchased at a substantial premium or discount generally are extremely
sensitive not only to changes in prevailing interest rates but also to the rate
of principal payments (including prepayments) on the related underlying
mortgage assets, and a rapid rate of principal payments may have a material
adverse effect on such securities' yield to maturity. If the underlying
mortgage assets experience greater than anticipated prepayments of principal,
the Fund may fail to fully recoup its initial investment in these securities
even if the securities have received the highest rating by a nationally
recognized statistical rating organization.

Although SMBS are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, established trading
markets have not developed and, accordingly, these securities may be deemed
"illiquid" and subject to the Fund's limitations on investment in illiquid
securities.

The value of derivative securities known as "floaters" and "inverse floaters"
vary in response to interest rates. These securities may be illiquid and their
values may be very volatile.

FUTURES AND OPTIONS ON FUTURES. The Fund may engage in futures and options on
futures. 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 at a specified price. An option on a futures contract
gives the purchaser the right, in exchange for a premium, to assume a
position in a futures contract at a specified exercise price during the term
of the option. The Fund may use futures contracts and related options for
bona fide hedging purposes, to offset changes in the value of securities held
or expected to be acquired or be disposed of, to minimize fluctuations in
foreign currencies, or to gain exposure to a particular market or instrument.
The Fund will

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<PAGE>
minimize the risk that it will be unable to close out a futures contract by only
entering into futures contracts that are traded on national futures exchanges.

An index futures contract is a bilateral agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to a specified
dollar amount times the difference between the bond index value at the close of
trading of the contract and the price at which the futures contract is
originally struck. No physical delivery of the bonds comprising the index is
made: generally contracts are closed out prior to the expiration date of
the contract.

In order to avoid leveraging and related risks, when the Fund invests in
futures contracts, the Fund will cover positions by depositing an amount of
cash or liquid securities equal to the market value of the futures positions
held, less margin deposits, in a segregated account and that amount will be
marked-to-market on a daily basis.

The Fund may enter into futures contracts and options on futures contracts
traded on an exchange regulated by the Commodities Futures Trading Commission
("CFTC"), so long as, to the extent that such transactions are not for "bona
fide hedging purposes," the aggregate initial margin and premiums on such
positions (excluding the amount by which such options are in the money) do not
exceed 5% of the Fund's net assets.

There are risks associated with these activities, including the following: (1)
the success of a hedging strategy may depend on an ability to predict movements
in the prices of individual securities, fluctuations in markets and movements
in interest rates, (2) there may be an imperfect or no correlation between the
changes in market value of the securities held and the prices of futures and
options on futures, (3) there may not be a liquid secondary market for a
futures contract or option, (4) trading restrictions or limitations may be
imposed by an exchange and (5) government regulations may restrict trading in
futures contracts and options on futures.

The Fund may buy and sell futures contracts and related options to manage
exposure to changing interest rates and securities prices. Some strategies
reduce the Fund's exposure to price fluctuations, while others tend to increase
market exposure. Futures and options on futures can be volatile instruments and
involve certain risks that could negatively impact the Fund's return. No price
is paid upon entering into futures contracts. Instead, the Fund would be
required to deposit an amount of cash or U.S. Treasury securities known as
"initial margin." Subsequent payments, called "variation margin," to and from
the broker, would be made on a daily basis as the value of the future position
varies (a process known as "marked to market"). The margin is in the nature of
performance bond or good-faith deposit on a futures contract. Futures and
options on futures are taxable instruments.

INVESTMENT COMPANY SHARES. The Fund may invest in shares of other investment
companies, to the extent permitted by applicable law and subject to certain
restrictions set forth in this SAI. These investment companies typically incur
fees that are separate from those fees incurred directly by the Fund. The
Fund's purchase of such investment company securities results in the layering
of expenses, such that shareholders would indirectly bear a proportionate share
of the operating expenses of such investment companies, including advisory
fees, in addition to paying Fund expenses. Under applicable regulations, the
Fund is prohibited from acquiring the securities of another investment company
if, as a result of such acquisition: (1) the Fund owns more than 3% of the total
voting stock of another company; (2) securities issued by any one investment
company represent more than 5% of the Fund's total assets; or (3) securities
(other than treasury stock) issued by all investment companies represent more
than 10% of the total assets of the Fund.

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<PAGE>

FORWARD FOREIGN CURRENCY CONTRACTS - A forward contract involves an obligation
to purchase or sell a specific currency amount at a future date, agreed upon by
the parties, at a price set at the time of the contract. The Fund may enter
into a contract to sell, for a fixed amount of U.S. dollars or other
appropriate currency, the amount of foreign currency approximately the value of
some or all of the Fund's securities denominated in such foreign currency.

By entering into forward foreign currency contracts, the Fund will seek to
protect the value of its investment securities against a decline in the value
of a currency. However, these forward foreign currency contracts will not
eliminate fluctuations in the underlying prices of the securities. Rather,
they simply establish a rate of exchange which one can obtain at some future
point in time. Although such contracts tend to minimize the risk of loss due
to a decline in the value of the hedged currency, they also tend to limit
any potential gain which might result should the value of such currency
increase. At the maturity of a forward contract, the Fund may either sell a
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader,
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. The Fund may realize a gain or loss from currency
transactions. The Fund will place assets in a segregated account to assure
that its obligations under forward foreign currency contracts are covered.

ZERO COUPON BONDS. The Fund may invest in zero coupon securities, which are debt
securities issued or sold at a discount from their face value and do not entitle
the holder to any periodic payment of interest prior to maturity, a specified
redemption date or a cash payment date. The amount of the discount varies
depending on the time remaining until maturity or cash payment date, prevailing
interest rates, liquidity of the security and perceived credit quality of the
issuer. Zero coupon securities also may take the form of debt securities that
have been stripped of their unmatured interest coupons, the coupons themselves
and receipts or certificates representing interests in such stripped debt
obligations and coupons. The market prices of zero coupon securities are
generally more volatile than the market prices of interest-bearing securities
and respond more to changes in interest rates than interest-bearing securities
with similar maturities and credit qualities. The "original issue discount" on
the zero coupon bonds must be included ratably in the income of the Fund as the
income accrues even though payment has not been received. The Fund nevertheless
intends to distribute an amount of cash equal to the currently accrued original
issue discount, and this may require liquidating securities at times they might
not otherwise do so and may result in capital loss.

PAY-IN-KIND BONDS - Investments of the Fund in fixed-income securities may
include pay-in-kind bonds. These are securities which, at the issuer's option,
pay interest in either cash or additional securities for a specified period.
Pay-in-kind bonds, like zero coupon bonds, are designed to give an issuer
flexibility in managing cash flow, debt plus an amount representing accrued
interest since the last payment. Pay-in-kind bonds are usually less volatile
than zero coupon bonds, but more volatile than cash pay securities.

REITS - REITs are trusts that invest primarily in commercial real estate or
real estate-related loans. A real estate investment trust ("REIT") is not taxed
on income distributed to its shareholders or unitholders if it complies with
regulatory requirements relating to its organization, ownership, assets and
income, and with a regulatory requirement that it distribute to its
shareholders or unitholders at least 95% of its taxable income for each taxable
year. Generally, REITs can be classified as Equity REITs, Mortgage REITs and
Hybrid REITs. Equity REITs invest the majority of their assets directly in real
property and derive their income primarily from rents and capital gains from
appreciation realized through property sales.

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<PAGE>
Mortgage REITs invest the
majority of their assets in real estate mortgages and derive their income
primarily from interest payments. Hybrid REITs combine the characteristics of
both Equity and Mortgage REITs. By investing in REITs indirectly through the
Fund, shareholders will bear not only the proportionate share of the expenses
of the Fund, but also, indirectly, similar expenses of underlying REITs.

The Fund may be subject to certain risks associated with the direct investments
of the REITs. REITs may be affected by changes in their underlying properties
and by defaults by borrowers or tenants. Mortgage REITs may be affected by the
quality of the credit extended. Furthermore, REITs are dependent on specialized
management skills. Some REITs may have limited diversification and may be
subject to risks inherent in financing a limited number of properties. REITs
depend generally on their ability to generate cash flow to make distributions
to shareholders or unitholders, and may be subject to defaults by borrowers and
to self-liquidations. In addition, a REIT may be affected by its failure to
qualify for tax-free pass-through of income under the Code or its failure to
maintain exemption from registration under the 1940 Act.

PRIVATIZATIONS. The Fund may invest in privatizations. Foreign governmental
programs of selling interests in government-owned or -controlled enterprises
("privatizations") may represent opportunities for significant capital
appreciation and the Fund may invest in privatizations. The ability of U.S.
entities, such as the Fund, to participate in privatizations may be limited by
local law, or the terms for participation may be less advantageous than for
local investors. There can be no assurance that privatization programs will be
successful.

SPECIAL SITUATIONS. The Fund may invest in special situations. The Fund
believes that carefully selected investments in joint ventures, cooperatives,
partnerships, private placements, unlisted securities and similar vehicles
(collectively, "special situations") could enhance their capital appreciation
potential. The Fund also may invest in certain types of vehicles or derivative
securities that represent indirect investments in foreign markets or securities
in which it is impracticable for the Fund to invest directly. Investments in
special situations may be illiquid, as determined by the Investment Manager
based on criteria reviewed by the Board.

WHEN-ISSUED SECURITIES. The Fund may invest in when-issued securities. These
securities involve the purchase of debt obligations on a when-issued basis, in
which case delivery and payment normally take place within 45 days after the
date of commitment to purchase. These securities are subject to market
fluctuation due to changes in market interest rates, and it is possible that
the market value at the time of settlement could be higher or lower than the
purchase price if the general level of interest rates has changed. Delivery of
and payment for these securities may occur a month or more after the date of
the purchase commitment. The Fund will maintain with the custodian a separate
account with liquid securities or cash in an amount at least equal to these
commitments. The interest rate realized on these securities is fixed as of the
purchase date, and no interest accrues to the Fund before settlement. Although
the Fund generally purchases securities on a when-issued or forward commitment
basis with the intention of actually acquiring securities for their portfolios,
the Fund may dispose of a when-issued security or forward commitment prior to
settlement if the Investment Manager or Sub-Adviser deems it appropriate to
do so.

The Fund will only make commitments to purchase obligations on a when-issued
basis with the intention of actually acquiring the securities, but may sell
them before the settlement date. The when-issued securities are subject to
market fluctuation, and no interest accrues to the purchaser during this
period. The payment obligation and the interest rate that will be received on
the securities are each fixed at the time the purchaser enters into the
commitment. Purchasing obligations on a when-issued basis is a form of
leveraging and can involve a risk that the yields

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<PAGE>

available in the market when the delivery takes place may actually be higher
than those obtained in the transaction itself. In that case there could be an
unrealized loss at the time of delivery.

OPTIONS ON SECURITIES, SECURITIES INDICES AND CURRENCIES. The Fund may purchase
put and call options on securities in which it has invested, on foreign
currencies represented in its portfolio and on any securities index based in
whole or in part on securities in which the Fund may invest. The Fund also may
enter into closing sales transactions in order to realize gains or minimize
losses on options they have purchased.

The Fund normally will purchase call options in anticipation of an increase in
the market value of securities of the type in which it may invest or a positive
change in the currency in which such securities are denominated. The purchase
of a call option would entitle the Fund, in return for the premium paid, to
purchase specified securities or a specified amount of a foreign currency at a
specified price during the option period.

The Fund may purchase and sell options traded on U.S. and foreign exchanges.
Although the Fund will generally purchase only those options for which there
appears to be an active secondary market, there can be no assurance that a
liquid secondary market on an exchange will exist for any particular option or
at any particular time. For some options, no secondary market on an exchange may
exist. In such event, it might not be possible to effect closing transactions
in particular options, with the result that the Fund would have to exercise its
options in order to realize any profit and would incur transaction costs upon
the purchase or sale of the underlying securities.

Secondary markets on an exchange may not exist or may not be liquid for a
variety of reasons including: (i) insufficient trading interest in certain
options; (ii) restrictions on opening transactions or closing transactions
imposed by an exchange; (iii) trading halts, suspensions or other restrictions
may be imposed with respect to particular classes or series of options; (iv)
unusual or unforeseen circumstances which interrupt normal operations on an
exchange; (v) inadequate facilities of an exchange or the Options Clearing
Corporation to handle current trading volume at all times; or (vi)
discontinuance in the future by one or more exchanges for economic or other
reasons, of trading of options (or of a particular class or series of options),
in which event the secondary market on that exchange (or in that class or
series of options) would cease to exist, although outstanding options on that
exchange that had been issued by the Options Clearing Corporation as a result
of trades on that exchange would continue to be exercisable in accordance with
their terms.

The Fund may write (I.E., sell) covered put and call options on securities,
securities indices and currencies in which it may invest. A covered call option
involves the Fund's giving another party, in return for a premium, the right to
buy specified securities owned by the Fund at a specified future date and price
set at the time of the contract. A covered call option serves as a partial
hedge against a price decline of the underlying security. However, by writing a
covered call option, the Fund gives up the opportunity, while the option is in
effect, to realize gain from any price increase (above the option exercise
price) in the underlying security. In addition, the Fund's ability to sell the
underlying security is limited while the option is in effect unless the Fund
effects a closing purchase transaction.

Each Fund also may write covered put options that give the holder of the option
the right to sell the underlying security to the Fund at the stated exercise
price. The Fund will receive a premium for writing a put option but will be
obligated for as long as the option is outstanding to purchase the underlying
security at a price that may be higher than the market value of that security
at the time of exercise. In order to "cover" put options it has written, the
Fund will cause its custodian to

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<PAGE>

segregate cash, cash equivalents, U.S. Government securities or other liquid
equity or debt securities with at least the value of the exercise price of
the put options. The Fund will not write put options if the aggregate value
of the obligations underlying the put options exceeds 25% of the Fund's total
assets.

There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of the
Options Clearing Corporation inadequate, and result in the institution by an
exchange of special procedures that may interfere with the timely execution of
the Fund's orders.

REPURCHASE AGREEMENTS. The Fund may engage in repurchase agreements.
Repurchase agreements are agreements under which securities are acquired from
a securities dealer or bank subject to resale on an agreed upon date and at
an agreed upon price which includes principal and interest. The Fund or its
agents will have actual or constructive possession of the securities held as
collateral for the repurchase agreement. The Fund bears a risk of loss in the
event the other party defaults on its obligations and the Fund is delayed or
prevented from exercising its right to dispose of the collateral securities,
or if the Fund realizes a loss on the sale of the collateral securities. The
Investment Manager or Sub-adviser will enter into repurchase agreements on
behalf of the Fund only with financial institutions deemed to present minimal
risk of bankruptcy during the term of the agreement based on guidelines
established and periodically reviewed by the Board of Trustees. These
guidelines currently permit the Fund to enter into repurchase agreements with
any bank the Investment Manager may recommend if it determines such bank to
be creditworthy. Repurchase agreements are considered to be loans
collateralized by the underlying security. Repurchase agreements entered into
by the Fund will provide that the underlying security at all times shall have
a value at least equal to 102% of the price stated in the agreement. This
underlying security will be marked to market daily. The Investment Manager or
Sub-adviser will monitor compliance with this requirement. Under all
repurchase agreements entered into by the Fund, the Custodian or its agent
must take possession of the underlying collateral. However, if the seller
defaults, the Fund could realize a loss on the sale of the underlying
security to the extent the proceeds of the sale are less than the resale
price. In addition, even though the Bankruptcy Code provides protection for
most repurchase agreements, if the seller should be involved in bankruptcy or
insolvency proceedings, the Fund may incur delays and costs in selling the
security and may suffer a loss of principal and interest if the Fund is
treated as an unsecured creditor. Repurchase agreements, in some
circumstances, may not be tax exempt.

RESTRICTED AND RULE 144A SECURITIES. Restricted securities are securities that
may not be sold freely to the public absent registration under the Securities
Act of 1933, as amended (the "1933 Act"), or an exemption from registration.
Section 4(2) commercial paper is issued in reliance on an exemption from
registration under Section 4(2) of the 1933 Act, and is generally sold to
institutional investors who purchase for investment. Any resale of such
commercial paper must be in an exempt transaction, usually to an institutional
investor through the issuer or investment dealers who make a market on such
commercial paper.

Rule 144A under the 1933 Act establishes a safe harbor from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers. Institutional markets for restricted securities sold
pursuant to Rule 144A in many cases provide both readily ascertainable values
for restricted securities and the ability to liquidate an investment to
satisfy share redemption orders. Such markets might include automated systems
for the trading, clearance and settlement of unregistered securities of
domestic and foreign issuers, such as the

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<PAGE>

PORTAL System sponsored by the National Association of Securities Dealers,
Inc. An insufficient number of qualified buyers interested in purchasing Rule
144A eligible restricted securities, however, could adversely affect the
marketability of such portfolio securities and result in the Fund's inability
to dispose of such securities promptly or at favorable prices.

The Board has delegated the function of making day-to-day determination of
liquidity to the Fund's Investment Manager or Sub-adviser pursuant to
guidelines approved by the Board. The Investment Manager or Sub-adviser will
take into account a number of factors in reaching liquidity decisions,
including, but not limited to: (1) the frequency of trades for the security,
(2) the number of dealers willing and ready to purchase and sell the
security, (3) whether any dealers that have agreed to make a market in the
security, (4) the number of other potential purchasers for the security, and
(5) the nature of the securities and the nature of the marketplace trades. To
the extent the Investment Manager or Sub-adviser, according to the guidelines
approved by the Board, determines a Rule 144A eligible security to be liquid,
such a security would not be subject to the Fund's percentage limit on
illiquid securities investment.

LENDING OF PORTFOLIO SECURITIES. Although the Fund currently does not intend
to do so, the Fund may lend its portfolio securities in order to generate
additional income. Such loans may be made to broker-dealers or other
financial institutions whose creditworthiness is acceptable to the Investment
Manager. These loans would be required to be secured continuously by
collateral, including cash, cash equivalents, irrevocable letters of credit,
U.S. Government securities, or other high-grade liquid debt securities,
maintained on a current basis (I.E., marked to market daily) at an amount at
least equal to 100% of the market value of the securities loaned plus accrued
interest. The Fund may pay reasonable administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the income earned
on the cash to the borrower or placing broker. Loans are subject to
termination at the option of the Fund or the borrower at any time. Upon such
termination, the Fund is entitled to obtain the return of the securities
loaned within five business days.

For the duration of the loan, the Fund will continue to receive the
equivalent of the interest or dividends paid by the issuer on the securities
loaned, will receive proceeds from the investment of the collateral and will
continue to retain any voting rights with respect to those securities. As
with other extensions of credit, there are risks of delay in recovery or even
losses of rights in the securities loaned should the borrower of the
securities fail financially. However, the loans will be made only to
borrowers deemed by the Investment Manager to be creditworthy, and when, in
the judgment of the Investment Manager, the income which can be earned
currently from such loans justifies the attendant risk.

HIGHLY LIQUID INVESTMENTS. The Fund may invest in bank notes, which are
unsecured promissory notes representing debt obligations that are issued by
banks in large denominations. The Fund may invest in Bankers' acceptances.
Bankers' acceptances are bills of exchange or time drafts drawn on and
accepted by a commercial bank. Bankers' acceptances are issued by
corporations to finance the shipment and storage of goods. Maturities are
generally six months or less. The Fund may invest in certificates of deposit.
Certificates of deposit is an interest-bearing instrument with a specific
maturity. They are issued by banks and savings and loan institutions in
exchange for the deposit of funds and normally can be traded in the secondary
market prior to maturity. Certificates of deposit with penalties for early
withdrawal will be considered illiquid.

ASSET-BACKED SECURITIES. The Fund may invest in asset-backed securities.
These types of securities represent a direct or indirect participation in, or
are secured by and payable from, pools of assets, such as

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<PAGE>

motor vehicle installment sales contracts, installment loan contracts,
leases of various types of real and personal property, and receivables from
revolving credit (e.g., credit card) agreements. Payments or distributions of
principal and interest on asset-backed securities may be supported by credit
enhancements, such as various forms of cash collateral accounts or letters of
credit. These securities are subject to the risk of prepayment. Prepayments
of principal of asset-backed securities affect the average life of the
asset-backed securities in the Fund's portfolio. Prepayments are affected by
the level of interest rates and other factors, including general economic
conditions. In periods of rising interest rates, the prepayment rate tends to
decrease, lengthening the average life of a pool of asset-backed securities.
In periods of falling interest rates, the prepayment rate tends to increase,
shortening the average life of a pool. Reinvestment of prepayments may occur
at higher or lower interest rates than the original investment, affecting the
Fund's yield. Thus, asset-backed securities may have less potential for
capital appreciation in periods of falling interest rates than other
fixed-income securities of comparable duration, although they may have a
comparable risk of decline in market value in periods of rising interest
rates. Payment of principal and interest may be largely dependent upon the
cash flows generated by the assets backing the securities.

MUNICIPAL SECURITIES. The Fund may invest in municipal securities. Municipal
securities consist of (1) debt obligations issued by or on behalf of public
authorities to obtain funds to be used for various public facilities, for
refunding outstanding obligations, for general operating expenses and for
lending such funds to other public institutions and facilities, and (2)
certain private activity and industrial development bonds issued by or on
behalf of public authorities to obtain funds to provide for the construction,
equipment, repair or improvement of privately operated facilities.

General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenue of a project or
facility, tolls from a toll bridge, for example. Certificates of
participation represent an interest in an underlying obligation or commitment
such as an obligation issued in connection with a leasing arrangement. The
payment of principal and interest on private activity and industrial
development bonds generally is dependent solely on the ability of the
facility's user to meet its financial obligations and the pledge, if any, of
real and personal property so financed as security for such payment.

Municipal notes include general obligation notes, tax anticipation notes,
revenue anticipation notes, bond anticipation notes, certificates of
indebtedness, demand notes and construction loan notes and participation
interests in municipal notes. Municipal bonds include general obligation
bonds, revenue or special obligation bonds, private activity and industrial
development bonds and participation interests in municipal bonds.

MUNICIPAL LEASES. The Fund may invest in municipal leases. The Fund
may invest in instruments, or participations in instruments, issued in
connection with lease obligations or installment purchase contract
obligations of municipalities ("municipal lease obligations"). Although
municipal lease obligations do not constitute general obligations of the
issuing municipality, a lease obligation is ordinarily backed by the
municipality's covenant to budget for, appropriate funds for, and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses, which provide that the municipality has
no obligation to make lease or installment purchase payments in future years
unless money is appropriated for such purpose in the relevant years.
Municipal lease obligations are a relatively new form of financing, and the
market for such obligations is still developing. Municipal leases will be
treated as liquid only if they satisfy criteria set forth in guidelines
established by the Board, and there can be no assurance that a market will
exist or continue to exist for any municipal lease obligation.

MUNICIPAL NOTES. Municipal notes consist of general obligation
notes, tax anticipation notes (notes sold to finance working capital needs of
the issuer in anticipation of receiving taxes

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<PAGE>

on a future date), revenue anticipation notes (notes sold to provide needed
cash prior receipt of expected non-tax revenues from a specific source), bond
anticipation notes, tax and revenue anticipation notes, certificates of
indebtedness, demand notes, and construction loan notes. The maturities of
the instruments at the time of issue will generally range from three months
to one year.

MUNICIPAL BONDS. Municipal bonds are debt obligations issued to
obtain funds for various public purposes. The Fund may purchase private
activity or industrial development bonds if the interest paid is exempt from
federal income tax. These bonds are issued by or on behalf of public
authorities to raise money to finance various privately-owned or -operated
facilities for business and manufacturing, housing, sports, and pollution
control. These bonds are also used to finance public facilities such as
airports, mass transit systems, ports, parking or sewage or solid waste
disposal facilities, as well as certain other categories. The payment of the
principal and interest on such bonds is dependent solely on the ability of
the facility's user to meet its financial obligations and the pledge, if any,
of real and personal property so financed as security for such payment.

COMMERCIAL PAPER. The Fund may invest in commercial paper and other
securities that are issued in reliance on the so-called "private placement"
exemption from registration afforded by Section 4(2) of the Securities Act of
1933, as amended (the "1933 Act")("Section 4(2) paper"). Federal securities
laws restrict the disposition of Section 4(2) paper. Section 4(2) paper
generally is sold to institutional investors who agree that they are
purchasing the paper for investment and not for public distribution. Any
resale of Section 4(2) paper by the purchaser must be in an exempt
transaction and may be accomplished in accordance with Rule 144A under the
1933 Act. Section 4(2) paper normally may be resold to other institutional
investors through or with the assistance of the issuer or investment dealers
who make a market in the Section 4(2) paper, thus providing liquidity.
Because it is not possible to predict with assurance exactly how this market
for Section 4(2) paper sold and offered under Rule 144A will continue to
develop, the Investment Manager, or Sub-advisers, pursuant to guidelines
approved by the Board will monitor the Fund's investments in these
securities, focusing on such important factors as, among others, valuation,
liquidity, and availability of information.

TIME DEPOSITS. The Fund may invest in time deposits. Time deposits are
non-negotiable receipts issued by a bank in exchange for the deposit of
funds. Like a certificate of deposit, a time deposit earns a specified rate
of interest over a definite period of time; however, it cannot be traded in
the secondary market. Time deposits with a withdrawal penalty are considered
to be illiquid securities.

U.S. GOVERNMENT AGENCY OBLIGATIONS. The Fund may invest in U.S. agency
obligations. Various agencies of the U.S. Government issue obligations,
including, the Export/Import Bank of the United States, Farmers Home
Administration, Federal Farm Credit Bank, Federal Housing Administration,
GNMA, Maritime Administration, Small Business Administration, and the
Tennessee Valley Authority. The Fund may purchase securities guaranteed by
GNMA which represent participation in Veterans Administration and Federal
Housing Administration backed mortgage pools. Obligations of
instrumentalities of the U.S. Government include securities issued by, among
others, Federal Home Loan Banks, HLMC, Federal Intermediate Credit Banks,
Federal Land Banks, Fannie Mae and the U.S. Postal Service. Some of these
securities are supported by the full faith and credit of the U.S. Treasury
(I.E., GNMA), others are supported by the right of the issuer to borrow from
the Treasury. Guarantees of principal by agencies or instrumentalities of the
U.S. Government may be a guarantee of payment at the maturity of the

<PAGE>

obligation so that in the event of a default prior to maturity there might
not be a market and thus no means of realizing the value of the obligation
prior to maturity.

BORROWING POLICY. The Fund may not borrow money except as a temporary measure
for extraordinary or emergency purposes, and then only in an amount up to
one-third of the value of the Fund's total assets in order to meet redemption
requests without immediately selling any portfolio securities. The Fund will
not borrow for leverage purposes or purchase securities or make investments
while borrowings are outstanding. If for any reason the current value of the
total assets of the Fund falls below an amount equal to three times the
amount of indebtedness for money borrowed, the Fund will, within three days,
(not including Sundays and holidays), reduce its indebtedness to the extent
necessary to meet that limitation. Any borrowings under this provision will
not be collateralized.

EQUITY SECURITIES - The Fund may purchase equity securities. Equity
securities include common stock, preferred stock, warrants or rights to
subscribe to common stock and, in general, any security that is convertible
into or exchangeable for common stock.

Equity securities represent ownership interests in a company or corporation,
and include common stock, preferred stock, and warrants and other rights to
acquire such instruments. Investments in equity securities in general are
subject to market risks that may cause their prices to fluctuate over time.
The value of convertible equity securities is also affected by prevailing
interest rates, the credit quality of the issuer and any call provisions.
Fluctuations in the value of equity securities in which the Fund invests will
cause the net asset value of the fund to fluctuate.

Investments in small or middle capitalization companies involve greater risk
than is customarily associated with larger, more established companies due to
the greater business risks of small size, limited markets and financial
resources, narrow product lines and the frequent lack of depth of management.
The securities of small or medium-sized companies are often traded
over-the-counter, and may not be traded in volumes typical of securities
traded on a national securities exchange. Consequently, the securities of
smaller companies may have limited market stability and may be subject to
more abrupt or erratic market movements than securities of larger, more
established companies or the market averages in general.

INVESTMENT RESTRICTIONS

FUNDAMENTAL POLICIES

The Fund may not:

1. With respect to 75% of its assets, (i) purchase the securities of any
issuer (except securities issued or guaranteed by the United States
Government, its agencies or instrumentalities) if, as a result, more than 5%
of its total assets would be invested in the securities of such issuer; or
(ii) acquire more than 10% of the outstanding voting securities of any one
issuer.

2. Purchase any securities which would cause 25% or more of the total
assets of the Fund to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that this limitation does not apply to investments in obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities.

<PAGE>

3. Borrow money in an amount exceeding 33 1/3% of the value of its total
assets, provided that, for purposes of this limitation, investment strategies
which either obligate a Fund to purchase securities or require a Fund to
segregate assets are not considered to be borrowings. To the extent that its
borrowings exceed 5% of its assets, (i) all borrowings will be repaid before
making additional investments and any interest paid on such borrowing will
reduce income; and (ii) asset coverage of at least 300% is required.

4. Make loans if, as a result, more than 33 1/3% of its total assets would be
loaned to other parties, except that each Fund may (i) purchase or hold debt
instruments in accordance with its investment objective and policies; (ii) enter
into repurchase agreements; and (iii) lend its securities.

5. Purchase or sell real estate, physical commodities, or commodities
contracts, except that each Fund may purchase (i) marketable securities
issued by companies which own or invest in real estate (including real estate
investment trusts), commodities, or commodities contracts; and (ii)
commodities contracts relating to financial instruments, such as financial
futures contracts and options on such contracts.

6. Issue senior securities (as defined in the 1940 Act) except as permitted
by rule, regulation or order of the Securities and Exchange Commission (the
"SEC").

7. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.

8. Invest in interests in oil, gas, or other mineral exploration or
development programs and oil, gas or mineral leases.

The foregoing percentages will apply at the time of the purchase of a
security and shall not be considered violated unless an excess or deficiency
occurs immediately after or as a result of a purchase of such security. These
investment limitations and the investment limitations in each prospectus are
fundamental policies of the Trust and may not be changed without shareholder
approval.

NON-FUNDAMENTAL POLICIES

The Fund may not:

1. Pledge, mortgage or hypothecate assets except to secure borrowings
permitted by the Fund's fundamental limitation on borrowing.

2. Invest in companies for the purpose of exercising control.

3. Purchase securities on margin or effect short sales, except that each Fund
may (i) obtain short-term credits as necessary for the clearance of security
transactions; (ii) provide initial and variation margin payments in
connection with transactions involving futures contracts and options on such
contracts; and (iii) make short sales "against the box" or in compliance with
the SEC's position regarding the asset segregation requirements imposed by
Section 18 of the 1940 Act.

4. Invest its assets in securities of any investment company, except as
permitted by the 1940 Act or an order of exemption therefrom.

<PAGE>

5. Purchase or hold securities that are illiquid, or are otherwise not
readily marketable, i.e., securities that cannot be disposed of for their
approximate carrying value in seven days or less (which term includes
repurchase agreements and time deposits maturing in more than seven days) if,
in the aggregate, more than 15% of its net assets would be invested in
illiquid securities.

Each of the foregoing percentage limitations (except with respect to the
limitation on investing in illiquid securities) apply at the time of
purchase. If, subsequent to the Funds purchase of an illiquid security, more
than 15% of the Fund's net assets are invested in illiquid securities because
of changes in valuations, the Fund will, within a reasonable time, dispose a
portion of such holding so that the above set-forth limit will not be
exceeded. These limitations are non-fundamental and may be changed by the
Board without a vote of shareholders.

RISK CONSIDERATIONS

DEBT

The market value of debt securities that are interest rate sensitive is
inversely related to changes in interest rates. That is, an interest rate
decline produces an increase in a security's market value and an interest
rate increase produces a decrease in value. The longer the remaining maturity
of a security, the greater the effect of interest rate changes. Changes in
the ability of an issuer to make payments of interest and principal and in
the market's perception of its creditworthiness also affect the market value
of that issuer's debt securities. Investors also should recognize that, in
periods of declining interest rates, the Fund's returns will tend to be
somewhat higher than prevailing market rates, and in periods of rising
interest rates, the Fund's returns will tend to be somewhat lower. Also, when
interest rates are falling, the inflow of net new money to the Fund from the
continuous sale of its shares will likely be invested in portfolio
instruments producing lower yields than the balance of the portfolios,
thereby reducing the Fund's current returns. In periods of rising interest
rates, the opposite can be expected to occur.

The value of commercial paper and other securities in the Fund's portfolios
may be adversely affected by the inability of the issuers (or related
supporting institutions) to make principal or interest payments on the
obligations in a timely manner.

The Fund's performance also may be affected by changes in market or economic
conditions and other circumstances affecting the financial services industry.
Government regulation of banks, savings and loan associations, and finance
companies may limit both the amounts and types of loans and other financial
commitments these entities can make and the interest rates and fees they can
charge. The profitability of the financial services industry, which is
largely dependent on the availability and, cost of capital funds, has
fluctuated in response to volatility in interest rate levels. In addition,
the financial services industry is subject to risks resulting from general
economic conditions and the potential exposure to credit losses.

LOW GRADE, HIGH YIELD DEBT

Lower rated securities are defined as securities below the fourth highest
rating category by a nationally recognized statistical rating organization
("NRSRO"), as discussed in the appendix attached hereto. Such obligations are
speculative and may be in default. There is no bottom limit on the ratings of
high-yield securities that may be purchased or held by the Fund. In addition,
the Fund may invest in unrated securities. Fixed income securities are
subject to the risk of an issuer's ability to meet principal and interest
payments on the obligation (credit risk), and may also be subject to price
volatility due to such factors as interest rate sensitivity, market
perception

<PAGE>
of the creditworthiness of the issuer and general market liquidity
(market risk). Lower rated or unrated (i.e., high yield) securities are more
likely to react to developments affecting market and credit risk than are
more highly rated securities, which primarily react to movements in the
general level of interest rates. The market values of fixed-income securities
tend to vary inversely with the level of interest rates. Yields and market
values of high yield securities will fluctuate over time, reflecting not only
changing highest rates but the market's perception of credit quality and the
outlook for economic growth. When economic conditions appear to be
deteriorating, medium to lower rated securities may decline in value due to
heightened concern over credit quality, regardless of prevailing interest
rates. Investors should carefully consider the relative risks of investing in
high yield securities and understand that such securities are not generally
meant for short-term investing.

The high yield market is relatively new and its growth has paralleled a long
period of economic expansion and an increase in merger, acquisitions and
leveraged buyout activity. Adverse economic developments can disrupt the
market for high yield securities, and severely affect the ability of issuers,
especially highly leveraged issuers, to service their debt obligations or to
repay their obligations upon maturity which may lead to a higher incidence of
default on such securities. In addition, the secondary market for high yield
securities, which is concentrated in relatively few market makers, may not be
as liquid as the secondary market for more highly rated securities. As a
result, the Fund's advisers could find it more difficult to sell these
securities or may be able to sell the securities only at prices lower than if
such securities were widely traded. Furthermore, the Trust may experience
difficulty in valuing certain securities at certain times. Prices realized
upon the sale of such lower rated or unrated securities, under these
circumstances, may be less than the prices used in calculating the Fund's net
asset value.

Prices for high yield securities may be affected by legislative and
regulatory developments. These laws could adversely affect the Fund's net
asset value and investment practices, the secondary market value for high
yield securities, the financial condition of issuers of these securities and
the value of outstanding high yield securities.

Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligations for redemption, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Fund experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting
in a decline in the overall credit quality of the Fund's investment portfolio
and increasing the exposure of the fund to the risks of high yield securities.

FOREIGN SECURITIES

The Fund may purchase securities issued by governments of foreign countries.
Accordingly, shareholders should consider carefully the substantial
additional risks involved in investing in these securities. Foreign
investments involve the possibility of taxation of income earned in foreign
nations (including, for example, withholding taxes on interest and dividends)
or other taxes imposed with respect to investments in foreign nations;
foreign exchange controls (which may include suspension of the ability to
transfer currency from a given country and repatriation of investments);
default in foreign government securities, and political or social instability
or diplomatic developments that could adversely affect investments. In
addition, there is often less publicly available information about foreign
issuers than those in the United States. Further, the Fund may encounter
difficulties in pursuing legal remedies or in obtaining judgments in foreign
courts.

<PAGE>

Brokerage commissions, fees for custodial services and other costs relating
to investments by the Fund in other countries are generally greater than in
the United States. Foreign markets have different clearance and settlement
procedures from those in the United States, and certain markets have
experienced times when settlements did not keep pace with the volume of
securities transactions, which resulted in settlement difficulty. The
inability of the Fund to make intended security purchases due to settlement
difficulties could cause it to miss attractive investment opportunities. Any
delay in selling a portfolio security due to settlement problems could result
in loss to the Fund if the value of the portfolio security declined, or
result in claims against the Fund if it had entered into a contract to sell
the security. The securities markets of many of the countries in which the
Fund may invest may also be smaller, less liquid and subject to greater price
volatility than those in the United States.

Because certain securities may be denominated in foreign currencies, the
value of which will be affected by changes in currency exchange rates and
exchange control regulations, and costs will be incurred in connection with
conversions between currencies. A change in the value of a foreign currency
against the U.S. dollar will result in a corresponding change in the U.S.
dollar value of the Fund's securities denominated in the currency. Such
changes also affect the Fund's income and distributions to shareholders. The
Fund may be affected either favorably or unfavorably by changes in the
relative rates of exchange among the currencies of different nations, and the
Fund may therefore engage in foreign currency hedging strategies. Such
strategies, however, involve certain transaction costs and investment risks,
including dependence upon the Investment Manager's ability to predict
movements in exchange rates.

Some countries in which the Fund may invest may also have fixed or managed
currencies that are not freely convertible at market rates into the U.S.
dollar. Certain currencies may not be internationally traded. A number of
these currencies have experienced steady devaluation relative to the U.S.
dollar, and such devaluations in the currencies may have a detrimental impact
on the Fund. Many countries in which the Fund may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuation in inflation rates may have negative
effects on certain economies and securities markets. Moreover, the economies
of some countries may differ favorably or unfavorably from the U.S. economy
in such respects as the rate of growth of gross domestic product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments. Certain countries also limit the amount of foreign capital that can
be invested in their markets and local companies, creating a "foreign
premium" on capital investments available to foreign investors such as the
Fund. The Fund may pay a "foreign premium" to establish an investment
position which it cannot later recoup because of changes in that country's
foreign investment laws.

EMERGING MARKETS

Many of the risks are more pronounced for investments in developing or
emerging market countries, such as many of the countries of Asia, Latin
America, Eastern Europe, Russia, Africa, and the Middle East. Although there
is no universally accepted definition, a developing country is generally
considered to be a country which is in the initial stages of its
industrialization cycle with a per capita gross national product of less than
$8,000.

The economies of many of these countries are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and economic conditions of their trading partners. The enactment by these
trading partners of protectionist trade legislation could have a significant
adverse effect upon the securities markets of such countries. Many of these
countries may also have government exchange controls, currencies with no
recognizable market value

<PAGE>

relative to the established currencies of western market economies, little or
no experience in trading in securities, no financial reporting standards, a
lack of a banking and securities infrastructure to handle such trading, and a
legal tradition which does not recognize rights in private property.

In certain of these countries, severe and persistent levels of inflation,
including, in some cases, hyperinflation, has, in turn, led to high interest
rates, extreme measures by governments to keep inflation in check, and a
generally debilitating effect on economic growth. Although inflation in many
countries has lessened, there is no guarantee it will remain at lower levels.
The political history of certain of these countries has also been
characterized by political uncertainty, intervention by the military in
civilian and economic spheres, and political corruption. Such developments,
if they were to reoccur, could reverse favorable trends toward market and
economic reform, privatization, and removal of trade barriers, and result in
significant disruption in securities markets. A number of these countries are
highly dependent on foreign loans for their operation. There have been
moratoria on, and reschedulings of, repayment with respect to many countries'
debts. Such events can restrict the flexibility of these debtor nations in
the international markets and result in the imposition of onerous conditions
on their economies.

EXCHANGE RATES AND POLICIES

The Fund may endeavor to buy and sell foreign currencies on favorable terms.
Some price spreads on currency exchange (to cover service charges) may be
incurred, particularly when the Fund changes investments from one country to
another or when proceeds from the sale of shares in U.S. dollars are used for
the purchase of securities in foreign countries. Also, some countries may
adopt policies which would prevent the Fund from repatriating invested
capital and dividends, withhold portions of interest and dividends at the
source, or impose other taxes, with respect to the Fund's investments in
securities of issuers of that country. There also is the possibility of
expropriation, nationalization, confiscatory or other taxation, foreign
exchange controls (which may include suspension of the ability to transfer
currency from a given country), default in foreign government securities,
political or social instability, or diplomatic developments that could
adversely affect investments in securities of issuers in those nations.

The Fund may be affected either favorably or unfavorably by fluctuations in
the relative rates of exchange between the currencies of different nations,
exchange control regulations and indigenous economic and political
developments.

The Investment Manager considers at least annually the likelihood of the
imposition by any foreign government of exchange control restrictions that
would affect the liquidity of the Fund's assets maintained with custodians in
foreign countries, as well as the degree of risk from political acts of
foreign governments to which such assets may be exposed. The Investment
Manager also considers the degree of risk attendant to holding portfolio
securities in domestic and foreign securities depositories.

PREPAYMENTS

Prepayments of principal of mortgage-related securities by mortgagors or
mortgage foreclosures affect the average life of the mortgage-related
securities in the Fund's portfolio. Mortgage prepayments are affected by the
level of interest rates and other factors, including general economic
conditions and the underlying location and age of the mortgage. In periods of
rising interest rates, the prepayment rate tends to decrease, lengthening the
average life of a pool of mortgage-related securities. In periods of falling
interest rates, the prepayment rate tends to

<PAGE>

increase, shortening the average life of a pool. Because prepayments of
principal generally occur when interest rates are declining, it is likely
that the Fund, to the extent that it retains the same percentage of debt
securities, may have to reinvest the proceeds of prepayments at lower
interest rates than those of its previous investments. If this occurs, the
Fund's yield will correspondingly decline. Thus, mortgage-related securities
may have less potential for capital appreciation in periods of falling
interest rates than other fixed-income securities of comparable duration,
although they may have a comparable risk of decline in market value in
periods of rising interest rates. To the extent that the Fund purchases
mortgage-related securities at a premium, unscheduled prepayments, which are
made at par, result in a loss equal to any unamortized premium. Duration is
one of the fundamental tools used by the Investment Manager in managing
interest rate risks including prepayment risks. Traditionally, a debt
security's "term to maturity" characterizes a security's sensitivity to
changes in interest rates "Term to maturity," however, measures only the time
until a debt security provides its final payment, taking no account of
prematurity payments. Most debt securities provide interest ("coupon")
payments in addition to a final ("par") payment at maturity, and some
securities have call provisions allowing the issuer to repay the instrument
in full before maturity date, each of which affect the security's response to
interest rate changes. "Duration" is considered a more precise measure of
interest rate risk than "term to maturity." Determining duration may involve
the Investment Manager's estimates of future economic parameters, which may
vary from actual future values. Fixed-income securities with effective
durations of three years are more responsive to interest rate fluctuations
than those with effective durations of one year. For example, if interest
rates rise by 1%, the value of securities having an effective duration of
three years will generally decrease by approximately 3%.

MANAGEMENT OF THE TRUST

OFFICERS AND TRUSTEES

The officers and trustees of the Trust, their principal occupations during
the past five years, and their affiliations, if any, with the Investment
Manager are as follows:

NAME AGE POSITION
WITH THE PRINCIPAL OCCUPATION FOR THE
TRUST PAST FIVE YEARS
- ------------------------------------------- ------- ----------------- ---------------------------------------
<S> <C> <C> <C>

Irwin G. Barnet, Esq. 61 Trustee An attorney and a principal of
Sanders, Barnet, Goldman, Simons Sanders, Barnet, Goldman, Simons &
& Mosk Mosk, a law firm.
1901 Avenue of the Stars, Suite 850
Los Angeles, California 90067

Maria D. Hummer, Esq.* 54 Trustee An attorney with Manatt, Phelps &
Manatt, Phelps & Phillips, LLP Phillips and Chair of the Land Use
11355 West Olympic Boulevard Section of that law firm.
Los Angeles, California 90064

<PAGE>

Victor Meschures, CPA 61 Trustee A Certified Public Accountant with
Meschures, Campeas, Thompson & Meschures, Campeas, Thompson &
Snyder, LLP Snyder, LLP, an accounting firm
760 North La Cienega Boulevard
Los Angeles, California 90069

William R. Sweet 61 Trustee Retired; formerly, Executive Vice
81 Tiburon Road President, The Bank of California
Tiburon, California 94920 (1985-1996)

James R. Wolford 45 Trustee Senior Vice President and Chief
Bixby Ranch Company Financial Officer, Bixby Ranch
3010 Old Ranch Parkway, Suite 100 Company, an owner, operator and
Seal Beach, California 90740 developer of real estate.

Mark Nagle* 39 President and President, Vice President and
400 North Roxbury Drive Chief Controller, Funds Accounting; Vice
Beverly Hills, California 90210 Executive President of the Administrator and
Officer
Distributor
(1996 -
Present);
BiSYS Fund
Services,
Vice
President
of Fund
Accounting
(1995-1996);
Fidelity
Investments,
Senior
Vice
President
(1981-1995).

Christopher Salfi* 35 Controller and Accounting Director of SEI
400 North Roxbury Drive Chief Investments Mutual Fund Services,
Beverly Hills, California 90210 Operating Fund Accounting Director, Fund
Officer Accounting Manager (1994-Present);
Investment Accounting Manager
(1993-1994).

Lydia A. Gavalis, Esq.* 34 Vice President Vice President and Assistant
400 North Roxbury Drive and Assistant Secretary of the Administrator and
Beverly Hills, California 90210 Secretary the Distributor (1998-Present);
Assistant General Counsel and
Director of Arbitration, Philadelphia
Stock Exchange (1989-1998)

<PAGE>

Lynda J. Striegel, Esq.* 50 Vice President Vice President and Assistant
400 North Roxbury Drive and Assistant Secretary of the Administrator and
Beverly Hills, California 90210 Secretary Distributor (1998-Present); Senior
Asset Management Counsel, Barnett
Banks, Inc. (1997-1998); Partner,
Groom and Nordberg, Chartered
(1996-1997); Associate General
Counsel, Riggs Bank, N.A. (1991-1995).

James R. Foggo, Esq.* 35 Vice President Vice President and Assistant
400 North Roxbury Drive and Assistant Secretary of the Administrator and
Beverly Hills, California 90210 Secretary Distributor (1998-Present);
Associate,
Paul
Weiss,
Rifkind,
Wharton &
Garrison
(1998);
Associate,
Baker &
McKenzie
(1995-1998);
Associate,
Battle
Fowler LLP
(1993-1995).

Kevin P. Robins* 38 Vice President Senior Vice President and General
400 North Roxbury Drive and Assistant Counsel of the Administrator and
Beverly Hills, California 90210 Secretary Distributor (1994-Present).

Edward T. Searle, Esq.* 45 Vice President Vice President and Assistant
400 North Roxbury Drive and Assistant Secretary of the Administrator and
Beverly Hills, California 90210 Secretary Distributor (1999-Present);
Associate,
Drinker,
Biddle &
Reath LLP
(1998-1999);
Associate,
Ballard,
Spahr,
Andrews &
Ingersoll,
LLP
(1995-1998).
</TABLE>

*This individual is considered an interested person of the Trust as defined in
Section 2(a)(19) of the 1940 Act.

COMPENSATION TABLE(1)

TOTAL COMPENSATION FROM
AGGREGATE COMPENSATION FROM REGISTRANT AND FUND COMPLEX PAID
NAME, POSITION REGISTRANT TO DIRECTORS

<S> <C> <C>
- ------------------------------------- ----------------------------------- -----------------------------------
Irwin G. Barnet $4,000 $4,000
Trustee

Maria D. Hummer $4,000 $4,000
Trustee

<PAGE>

Victor Meschures $4,000 $4,000
Trustee

William R. Sweet $4,000 $4,000
Trustee

James R. Wolford $4,000 $4,000
Trustee

</TABLE>
---------------------
(1) Estimated for current fiscal year.

INVESTMENT MANAGER

The Trust and City National Bank (The "Manager" or "Investment Manager") have
entered into an Investment Management Agreement (the "Management Agreement")
as of __________, 1999. The Investment Manager provides a continuous
investment program of general investment and economic advice regarding the
Fund's investment strategies, manages the Fund's investment portfolio and
provides other services necessary to the operation of the Fund and the Trust.
The Investment Manager is exempt from registering as an investment adviser
under the Investment Advisers Act of 1940, because of its status as a bank.
City National Bank, founded in the early 1950's, is a federally chartered
commercial bank with approximately $6.7 billion in assets as of November 30,
1999. It is a wholly-owned subsidiary of City National Corporation ("CNC"), a
New York Stock Exchange listed company.

The Management Agreement provides that the Investment Manager shall not be
liable for any error of judgement or mistake of law or for any loss suffered by
the Trust in connection with the matters to which the Management Agreement
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Manager in the performance of its
duties or from reckless disregard of its duties and obligations thereunder.

The continuance of the Management Agreement with respect to the Fund must be
specifically approved at least annually (1) by the vote of a majority of the
Trustees or by the vote of a majority of the outstanding voting securities of
the Fund, and (2) by the vote of a majority of the Trustees who are not parties
to the Management Agreement or an "interested person" (as that term is defined
in the 1940 Act) of any party thereto, cast in person at a meeting called for
the purpose of voting on such approval. The Management Agreement is terminable,
without penalty, at any time as to the Fund by the Trustees, by a vote of a
majority of the outstanding shares of the Fund or by the Investment Manager on
not less than 30 days' nor more than 60 days' written notice. This Management
Agreement shall not be assignable by either party without the written consent of
the other party.

The Investment Manager provides the Fund with investment management services,
including the selection, appointment, and supervision of the Sub-adviser to the
Fund. The Investment Manager may, in the future, and after having secured the
necessary SEC approval, change the Sub-adviser to the Fund according to certain
procedures without soliciting shareholders' approval.

The Investment Manager is obligated under the Management Agreement to pay the
excess of the Fund's operating expenses as disclosed in the applicable
Prospectus. If operating expenses of any

<PAGE>

Fund exceed limitations established by certain states, the Investment Manager
will pay such excess. The Investment Manager will not be required to bear
expenses of any Fund to an extent which would result in the Fund's inability
to qualify as a regulated investment company under provisions of the Internal
Revenue Code. The term "expenses" is defined in such laws or regulations, and
generally excludes brokerage commissions, distribution expenses, taxes,
interest and extraordinary expenses.

Any reductions made by the Investment Manager in its fees are subject to
reimbursement by the Fund within the following three years provided the Fund
is able to effect such reimbursement and remain in compliance with the
foregoing expense limitations. The Investment Manager generally seeks
reimbursement for the oldest reductions and waivers before payment by the
Fund for fees and expenses for the current year.

The Management Agreement was approved with respect to the Fund by the Board
at a duly called meeting. In considering the Agreements, the Trustees
specifically considered and approved the provision that permits the
Investment Manager to seek reimbursement of any reduction made to its
management fee within the three-year period. The Investment Manager's ability
to request reimbursement is subject to various conditions. First, any
reimbursement is subject to the Fund's ability to effect such reimbursement
and remain in compliance with applicable expense limitations in place at that
time. Second, the Investment Manager must specifically request the
reimbursement from the Board. Third, the Board must approve such
reimbursement as appropriate and not inconsistent with the best interests of
the Fund and the shareholders at the time such reimbursement is requested.
Because of these substantial contingencies, the potential reimbursements will
be accounted for as contingent liabilities that are not recordable on the
balance sheet of the Fund until collection is probable; but the full amount
of the potential liability will appear in a footnote to each Fund's financial
statements. At such time as it appears probable that the Fund is able to
effect such reimbursement, that the Investment Manager intends to seek such
reimbursement and that the Board of Trustees has or is likely to approve the
payment of such reimbursement, the amount of the reimbursement will be
accrued as an expense of the Fund for that current period.

The Investment Manager also may act as an investment adviser or administrator
to other persons, entities, and corporations, including other investment
companies. Please refer to the table above, which indicates officers and
trustees who are affiliated persons of the Trusts and who are also affiliated
persons of the Investment Manager.

The use of the name "CNI Charter" by the Trust and by the Fund is pursuant to
the consent of the Investment Manager, which may be withdrawn if the
Investment Manager ceases to be the Investment Manager of the Fund.

SUB-ADVISER

Credit Suisse Asset Management, LLC (the "Sub-adviser" or "CSAM") has entered
into a sub-advisory agreement (the "Sub-advisory Agreement") with the
Investment Manager. Pursuant to this Sub-advisory Agreement, CSAM serves as
discretionary investment adviser to the Fund. The Sub-advisory Agreement
provides that the Sub-adviser shall not be protected against any liability to
the Trust or its shareholders by reason of willful misfeasance, bad faith or
gross negligence on its part in the performance of its duties or from the
reckless disregard of its obligations or duties thereunder.

<PAGE>

The continuance of the Sub-advisory Agreement with respect to the Fund after the
first two (2) years of the Sub-advisory Agreement must be specifically approved
at least annually (1) by the vote of a majority of the outstanding shares of the
Fund or by the Trustees, and (2) by the vote of a majority of the Trustees who
are not parties to the Sub-advisory Agreement or "interested persons" of any
party thereto, cast in person at a meeting called for the purpose of voting on
such approval. The Sub-advisory Agreement will terminate automatically in the
event of its assignment, and is terminable at any time without penalty by the
Trustees of the Trust or, with respect to the Fund, by a majority of the
outstanding shares of the Fund, or in the event the Trust terminates, on not
less than 60 days' written notice to the Sub-adviser, or by the Sub-adviser on
not less than 60 days' written notice to the Trust.

The Sub-adviser is entitled to a fee for its investment advisory services to be
paid by CNI, which is accrued daily and paid monthly at the following annual
rates: 0.55% of the combined daily net assets of the Fund up to $25 million and
0.050% of such net assets up to $50 million, and 0.40% of such net assets over
$50 million.

CSAM is a wholly-owned subsidiary of Credit Suisse Group, one of the largest
financial services companies in the world, and comprises the U.S. arm of
Credit Suisse Group's Credit Suisse Asset Management division. CSAM, together
with its predecessor firms, has been engaged in the investment advisory
business for over 60 years. As of September 30, 1999, Credit Suisse Asset
Management had global assets under management of approximately $243 billion,
of which approximately $62 billion was managed by CSAM. The principal
business address of CSAM is 153 East 53rd Street, New York, New York 10022.

PRINCIPAL UNDERWRITER

SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI Investments, and the Trust are parties to a distribution agreement (the
"Distribution Agreement") with respect to shares of the Fund. The Distributor
receives no compensation for distribution of shares of the Fund. The
Distribution Agreement shall remain in effect for a period of two years after
the effective date of the Distribution Agreement and is renewable annually. The
Distribution Agreement may be terminated by the Distributor, by a majority vote
of the Trustees who are not interested persons and have no financial interest in
the Distribution Agreement or by a majority vote of the outstanding securities
of the Trust upon not more than 60 days' written notice by either party or upon
assignment by the Distributor.

TRANSFER AGENT

Pursuant to a Transfer Agency Agreement, SEI Investments Fund Management,
located at 530 East Swedesford Road, Wayne, Pennsylvania 19087 (the "Transfer
Agent"), serves as transfer agent for the Fund. The Transfer Agent provides
information and services to the Fund's shareholders which include reporting
share ownership, sales and dividend activity (and associated tax consequences),
responding to daily inquiries, and effecting the transfer of the Fund's shares.
It furnishes such office space and equipment, telephone facilities, personnel,
and informational literature distribution as is necessary or appropriate in
providing transfer agency information and services.

CUSTODIAN

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Pursuant to a Custodian Agreement, First Union National Bank serves as the
Custodian (the "Custodian") of the Fund's assets. Under the terms of the
Custodian Agreement, the Custodian holds and administers the securities and cash
in the Fund's portfolios.

INDEPENDENT ACCOUNTANTS AND REPORTS TO SHAREHOLDERS

The Trust's independent accountants, KPMG LLP, audit and report on the annual
financial statements of the Fund and review the Fund's federal income tax
returns. KPMG LLP may also perform other professional accounting, auditing, tax,
and advisory services when engaged to do so by the Trust. Shareholders will be
sent audited annual and unaudited semi-annual financial statements. The address
of KPMG LLP is 725 South Figueroa Street, Los Angeles, California 90017.

LEGAL COUNSEL

The validity of the shares of beneficial interest offered hereby will be passed
upon by Paul, Hastings, Janofsy & Walker LLP, 345 California Street, Suite 2900,
San Francisco, California 94104.

<PAGE>

PORTFOLIO TRANSACTIONS AND TURNOVER

PORTFOLIO TRANSACTIONS

Portfolio transactions are undertaken principally to: pursue the objective of
the Fund; invest money obtained from the sale of the Fund's shares; reinvest
proceeds from maturing, or the sale of portfolio securities; and meet
redemptions of the Fund's shares. Portfolio transactions may increase or
decrease the return of the Fund depending upon management's ability correctly
to time and execute them.

The Investment Manager or Sub-adviser, in effecting purchases and sales of
portfolio securities for the account of the Fund, seeks to obtain best price
and execution. Subject to the supervision of the Board, the Investment
Manager or Sub-adviser generally selects broker-dealers for the Fund
primarily on the basis of the quality and reliability of services provided,
including execution capability and financial responsibility.

When the execution and price offered by two or more broker-dealers are
comparable, the Investment Manager or Sub-adviser may, in its discretion,
utilize the services of broker-dealers that provide it with investment
information and other research resources. Such resources may also be used by
the Investment Manager or Sub-adviser when providing advisory services to
other investment advisory clients, including other mutual funds.

The Trust expects that purchases and sales of portfolio securities will
usually be principal transactions. Securities will normally be purchased
directly from the issuer or from an underwriter or market maker for the
securities.

Purchases from underwriters will include a commission or concession paid by
the issuer to the underwriter, and purchases from dealers serving as market
makers will include the spread between the bid and asked prices.

Investment decisions for the Fund is reached independently from those for
other accounts managed by the Investment Manager or Sub-adviser. Such other
accounts may also make investments in instruments or securities at the same
time as the Fund. On occasions when the Investment Manager or Sub-adviser
determines the purchase or sale of a security to be in the best interest of
the Fund as well as of other clients, the Investment Manager or Sub-adviser,
to the extent permitted by applicable laws and regulations, may aggregate the
securities to be so purchased or sold in an attempt to obtain the most
favorable price or lower brokerage commissions and the most efficient
execution. In such event, allocation of the securities so purchased or sold,
as well as the expenses incurred in the transaction, will be made by the
Investment Manager or Sub-adviser in the manner it considers to be the most
equitable under the circumstances and consistent with its fiduciary
obligations to the Fund and to its other participating clients. In some cases
this procedure may affect the size or price of the position obtainable for
the Fund.

PORTFOLIO TURNOVER

We anticipate annual portfolio turnover of less than 100% for the High Yield
Bond Fund.

<PAGE>
DISTRIBUTION AND TAXES

DISTRIBUTIONS

The Fund receives income in the form of dividends and interest earned on its
investments in securities. This income, less the expenses incurred in their
operations, is the Fund's net investment income, substantially all of which will
be declared as dividends to the Fund's shareholders.

The amount of ordinary income dividend payments by the Fund is dependent upon
the amount of net investment income received by the Fund from its portfolio
holdings, is not guaranteed and is subject to the discretion of the Board. The
Fund does not pay "interest" or guarantee any fixed or minimum rate of return on
an investment in its shares.

The Fund also may derive capital gains or losses in connection with sales or
other dispositions of its portfolio securities. Any net gain the Fund may
realize from transactions involving investments held less than the period
required for long-term capital gain or loss recognition or otherwise producing
short-term capital gains and losses (taking into account any carryover of
capital losses from the eight previous taxable years), although a distribution
from capital gains, will be distributed to shareholders with and as a part of
dividends giving rise to ordinary income. If during any year the Fund realizes a
net gain on transactions involving investments held for the period required for
long-term capital gain or loss recognition or otherwise producing long-term
capital gains and losses, the Fund will have a net long-term capital gain. After
deduction of the amount of any net short-term capital loss, the balance (to the
extent not offset by any capital losses carried over from the eight previous
taxable years) will be distributed and treated as long-term capital gains in the
hands of the shareholders regardless of the length of time the Fund's shares may
have been held by the shareholders.

The maximum long-term federal capital gains rate for individuals is 20% with
respect to capital assets held for more than 12 months. The maximum capital
gains rate for corporate shareholders is the same as the maximum tax rate for
ordinary income.

Any dividend or distribution per share paid by the Fund reduces the Fund's net
asset value per share on the date paid by the amount of the dividend or
distribution per share. Accordingly, a dividend or distribution paid shortly
after a purchase of shares by a shareholder would represent, in substance, a
partial return of capital (to the extent it is paid on the shares so purchased),
even though it would be subject to income taxes (except for distributions from
the Tax Exempt Fund to the extent they are not subject to income taxes).

Dividends and other distributions will be reinvested in additional shares of the
applicable Fund unless the shareholder has otherwise indicated. Investors have
the right to change their elections with respect to the reinvestment of
dividends and distributions by notifying the Transfer Agent in writing, but any
such change will be effective only as to dividends and other distributions for
which the record date is seven or more business days after the Transfer Agent
has received the written request.

FEDERAL INCOME TAXES

It is the policy of the Fund to qualify for taxation, and to elect to be taxed,
as "regulated investment companies" by meeting the requirements of Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"). In order to so
qualify, the Fund will distribute each year substantially all of its investment
company taxable income (if any), its net exempt-interest income

<PAGE>

(if any), and its net capital gains (if any), and will seek to meet certain
other requirements. Such qualification relieves the Fund of liability for
federal income taxes to the extent the Fund's earnings are distributed. By
following this policy, the Fund expects to eliminate or reduce to a nominal
amount the federal income tax to which they are subject.

In order to qualify as regulated investment companies, the Fund must, among
other things, annually (1) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stocks, securities, foreign currencies or
other income (including gains from options, futures or forward contracts)
derived with respect to its business of investing in stocks, securities or
currencies, and (2) diversify holdings so that at the end of each quarter of
its taxable years (i) at least 50% of the market value of the Fund's total
assets is represented by cash or cash items, U.S. Government securities,
securities of other regulated investment companies and other securities
limited, in respect of any one issuer, to a value not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities
of such issuer, and (ii) not more than 25% of the value of its assets is
invested in the securities of any one issuer (other than U.S. Government
securities or securities of other regulated investment companies) or of two
or more issuers that the Fund controls, within the meaning of the Code, and
that are engaged in the same, similar or related trades or businesses. If the
Fund qualifies as a regulated investment company, it will not be subject to
federal income tax on the part of its net investment income and net realized
capital gains, if any, which they distribute to shareholders, provided that
the Fund meets certain minimum distribution requirements. To comply with
these requirements, the Fund must distribute annually at least (1) 90% of
"investment company taxable income" (as that term is defined in the Code),
and (2) 90% of the excess of (i) tax exempt interest income over (ii) certain
deductions attributable to that income (with certain exceptions), for its
taxable years. The Fund intends to make sufficient distributions to
shareholders to meet these requirements.

If either Fund fails to distribute in a calendar year (regardless of whether it
has a non-calendar taxable year) at least 98 percent of its (1) ordinary income
for such year; and (2) capital gain net income for the one-year period ending on
October 31 of that calendar year (or later if the Fund is permitted so to elect
and so elects), plus any undistributed ordinary income or capital gain from the
prior year, the Fund will be subject to a nondeductible 4% excise tax on the
undistributed amounts. The Fund intends generally to make distributions
sufficient to avoid imposition of this excise tax.

Any distributions declared by the Fund in October, November, or December to
shareholders of record during those months and paid during the following January
are treated, for tax purposes, as if they were received by each shareholder on
December 31 of the year declared. The Fund may adjust its schedule for the
reinvestment of distributions for the month of December to assist in complying
with the reporting and minimum distribution requirements of the Code.

However, any distributions by the Fund of long-term capital gain will be taxable
to the shareholders as long-term capital gain, regardless of how long a
shareholder has held Fund shares.

The Fund may engage in investment techniques that may alter the timing and
character of the Fund's incomes. The Fund may be restricted in its use of these
techniques by rules relating to qualifying as a regulated investment company.

The Fund may invest in some Variable Rate Demand Securities which have a feature
entitling the purchaser to resell the securities at a specified amount (a "put
option"). In 1982, the Internal

<PAGE>

Revenue Service (the "IRS") issued a revenue ruling to the effect that,
under specified circumstances, a regulated investment company would be the
owner of tax-exempt municipal obligations acquired with a put option. The IRS
also has issued private letter rulings to certain taxpayers (which do not
serve as precedent for other taxpayers) to the effect that tax-exempt
interest received by a regulated investment company with respect to such
obligations will be tax-exempt in the hands of the company and may be
distributed to its shareholders as exempt-interest dividends. The last such
ruling was issued in 1983. The IRS subsequently announced that it would not
ordinarily issue advance ruling letters as to the identity of the true owner
of property in cases involving the sale of securities or participation
interests therein if the purchaser has the right to cause the securities, or
the participation interest therein, to be purchased by either the seller or a
third party. The Fund intends to take the position that it is the owner of
any municipal obligations acquired subject to a stand-by commitment or a
similar put right and that tax-exempt interest earned with respect to such
municipal obligations will be tax exempt in its hands.

The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends paid to any shareholder (1) who fails to
provide a correct taxpayer identification number certified under penalty of
perjury; (2) who provides an incorrect taxpayer identification number; (3) who
is subject to withholding for failure to properly report to the IRS all payments
of interest or dividends; or (4) who fails to provide a certified statement that
he or she is not subject to "backup withholding." This "backup withholding" is
not an additional tax and any amounts withheld may be credited against the
shareholder's ultimate U.S. tax liability.

Distributions of net investment income and net realized capital gains by the
Fund will be taxable to shareholders whether made in cash or reinvested in
shares. In determining amounts of net realized capital gains to be distributed,
any capital loss carryovers from the eight prior taxable years will be applied
against capital gains. Shareholders receiving distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share of the Fund on the
reinvestment date. Fund distributions also will be included in individual and
corporate shareholders' income on which the alternative minimum tax may be
imposed.

The Fund may receive dividend distributions from U.S. corporations. To the
extent that the Fund receives such dividends and distributes them to its
shareholders, and meets certain other requirements of the Code, corporate
shareholders of the Fund may be entitled to the "dividends received" deduction.
Availability of the deduction is subject to certain holding period and
debt-financing limitations.

If more than 50% in value of the total assets of the Fund at the end of its
fiscal year is invested in stock or other securities of foreign corporations,
the Fund may elect to pass through to its shareholders the pro rata share of all
foreign income taxes paid by the Fund. If this election is made, shareholders
will be (i) required to include in their gross income their pro rata share of
any foreign income taxes paid by the Fund, and (ii) entitled either to deduct
their share of such foreign taxes in computing their taxable income or to claim
a credit for such taxes against their U.S. income tax, subject to certain
limitations under the Code, including certain holding period requirements. In
this case, shareholders will be informed in writing by the Fund at the end of
each calendar year regarding the availability of any credits on and the amount
of foreign source income (including or excluding foreign income taxes paid by
the Fund) to be included in their income tax returns. If 50% or less in value of
the Fund's total assets at the end of its fiscal year are invested in stock or
other securities of foreign corporations, the Fund will not be entitled under
the Code to pass through to its shareholders their pro rata share of the foreign
income taxes paid by the Fund. In this case, these taxes will be taken as a
deduction by that Fund.

<PAGE>

The Fund may be subject to foreign withholding taxes on dividends and interest
earned with respect to securities of foreign corporations. The Fund may invest
up to 10% of its total assets in the stock of foreign investment companies. Such
companies are likely to be treated as "passive foreign investment companies"
("PFICs") under the Code. Certain other foreign corporations, not operated as
investment companies, may nevertheless satisfy the PFIC definition. A portion of
the income and gains that the Fund derives from PFIC stock may be subject to a
non-deductible federal income tax at the Fund level. In some cases, the Fund may
be able to avoid this tax by electing to be taxed currently on its share of the
PFIC's income, whether or not such income is actually distributed by the PFIC.
The Fund will endeavor to limit its exposure to the PFIC tax by investing in
PFICs only where the election to be taxed currently will be made. Because it is
not always possible to identify a foreign issuer as a PFIC in advance of making
the investment, the Fund may incur the PFIC tax in some instances.

The foregoing discussion relates only to federal income tax law as applicable to
U.S. citizens or residents. Foreign shareholders (i.e., nonresident alien
individuals and foreign corporations, partnerships, trusts and estates)
generally are subject to U.S. withholding tax at the rate of 30% (or a lower tax
treaty rate) on distributions derived from net investment income and short-term
capital gains. Distributions to foreign shareholders of long-term capital gains
and any gains from the sale or disposition of shares of the Fund generally are
not subject to U.S. taxation, unless the recipient is an individual who meets
the Code's definition of "resident alien." Different tax consequences may result
if the foreign shareholder is engaged in a trade or business within the U.S. In
addition, the tax consequences to a foreign shareholder entitled to claim the
benefits of a tax treaty may be different than those described above.
Distributions by the Fund may also be subject to state, local and foreign taxes,
and their treatment under applicable tax laws may differ from the U.S.
federal income tax treatment.

SHARE PRICE CALCULATION

The net asset value per share of the Fund is calculated as follows: all
liabilities incurred or accrued are deducted from the valuation of total assets,
which includes accrued but undistributed income; the resulting net assets are
divided by the number of shares of the Fund outstanding at the time of the
valuation and the result (adjusted to the nearest cent) is the net asset value
per share.

Generally, the Fund's investments are valued at market value or, in the absence
of a market value, at fair value as determined in good faith by the Investment
Manager pursuant to procedures approved by or under the direction of the Board.

Short-term debt obligations with remaining maturities in excess of 60 days are
valued at current market prices, as discussed above. Short-term securities with
60 days or less remaining to maturity are, unless conditions indicate otherwise,
amortized to maturity based on their cost to the Fund if acquired within 60 days
of maturity or, if already held by the Fund on the 60th day, based on the value
determined on the 61st day.

Corporate debt securities, U.S. government securities, mortgage-related
securities and asset-backed fixed-income securities held by the Fund are valued
on the basis of valuations provided by dealers in those instruments, by an
independent pricing service, or at fair value as determined in good faith by
procedures approved by the Board. Any such pricing service, in determining
value, will use information with respect to transactions in the securities being
valued, quotations from dealers, market transactions in comparable securities,
analyses and evaluations of various relationships between securities and
yield-to-maturity information.

31
<PAGE>

An option that is written by the Fund is generally valued at the last sale price
or, in the absence of the last sale price, the last offer price. An option that
is purchased by the Fund is generally valued at the last sale price or, in the
absence of the last sale price, the last bid price. The value of a futures
contract equals the unrealized gain or loss on the contract that is determined
by marking the contract to the current settlement price for a like contract on
the valuation date of the futures contract if the securities underlying the
futures contract experience significant price fluctuations after the
determination of the settlement price. When a settlement price cannot be used,
futures contracts will be valued at their fair market value as determined by or
under the direction of the Board.

If any securities held by the Fund are restricted as to resale or do not have
readily available market quotations, the Investment Manager determine their fair
value, following procedures approved by the Board. The Trustees periodically
review such valuations and valuation procedures. The fair value of such
securities is generally determined as the amount which the Fund could reasonably
expect to realize from an orderly disposition of such securities over a
reasonable period of time. The valuation procedures applied in any specific
instance are likely to vary from case to case. However, consideration is
generally given to the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of the restrictions
on disposition of the securities (including any registration expenses that might
be borne by the Fund in connection with such disposition). In addition, specific
factors are also generally considered, such as the cost of the investment, the
market value of any unrestricted securities of the same class (both at the time
of purchase and at the time of valuation), the size of the holding, the prices
of any recent transactions or offers with respect to such securities and any
available analysts' reports regarding the issuer.

Generally, trading in and valuation of foreign securities is substantially
completed each day at various times prior to the close of the NYSE. In addition,
trading in and valuation of foreign securities may not take place on every day
in which the NYSE is open for trading. Furthermore, trading takes place in
various foreign markets on days in which the NYSE is not open for trading and on
which the Fund's net asset value is not calculated. Occasionally, events
affecting the values of such securities in U.S. dollars on a day on which the
Fund calculates its net asset value may occur between the times when such
securities are valued and the close of the NYSE that will not be reflected in
the computation of the Fund's net asset value unless the Board or its delegates
deem that such events would materially affect the net asset value, in which case
an adjustment would be made.

Any assets or liabilities initially expressed in terms of foreign currencies are
translated into U.S. dollars at the official exchange rate or, alternatively, at
the mean of the current bid and asked prices of such currencies against the U.S.
dollar last quoted by a major bank that is a regular participant in the foreign
exchange market or on the basis of a pricing service that takes into account the
quotes provided by a number of such major banks. If neither of these
alternatives is available or both are deemed not to provide a suitable
methodology for converting a foreign currency into U.S. dollars, the Board in
good faith will establish a conversion rate for such currency.

All other assets of the Fund are valued in such manner as the Board in good
faith deem appropriate to reflect their fair value.

<PAGE>

DISTRIBUTION PLAN

The Trust has adopted a Distribution Plan (the "Plan") for the Class A shares
of the Fund in accordance with Rule 12b-1 under the 1940 Act, which regulates
circumstances under which an investment company may directly or indirectly
bear expenses relating to the distribution of its shares. In this regard, the
Board has determined that the Plan is in the best interests of the
shareholders. Continuance of the Plan must be approved annually by a majority
of the Trustees and by a majority of the Trustees who are not "interested
persons" of the Trust as that term is defined in the 1940 Act, and who have
no direct or indirect financial interest in the operation of the Plan or in
any agreements related thereto ("Qualified Trustees"). The Plan may not be
amended to increase materially the amount that may be spent thereunder
without approval by a majority of the outstanding shares of the Fund or class
affected. All material amendments to the Plan will require approval by a
majority of the Trustees and of the Qualified Trustees.

The Plan adopted for the Class A shares provides that the Trust will pay the
Distributor a fee of up to .30% of the average daily net assets of the Fund's
Class A shares, respectively, that the Distributor can use to compensate
broker-dealers and service providers, including affiliates of the Distributor,
that provide distribution-related services to the Institutional Class and Class
A shareholders or to their customers who beneficially own the Institutional
Class or Class A shares.

Payments may be made under the Plan for distribution services, including
reviewing of purchase and redemption orders, assisting in processing purchase,
exchange and redemption requests from customers, providing certain shareholder
communications requested by the Distributor, forwarding sales literature and
advertisements provided by the Distributor, and arranging for bank wires.

Except to the extent that the Investment Manager and/or Sub-adviser benefits
through increased fees from an increase in the net assets of the Trust which may
have resulted in part from the expenditures, no interested person of the Trust
nor any Trustee who is not an interested person of the Trust has or had a direct
or indirect financial interest in the operation of any of the distribution plans
or related agreements.

Although banking laws and regulations prohibit banks from distributing shares of
open-end investment companies such as the Trust, according to an opinion issued
to the staff of the SEC by the Office of the Comptroller of the Currency,
financial institutions are not prohibited from acting in other capacities for
investment companies, such as providing shareholder services. Should future
legislative, judicial or administrative action prohibit or restrict the
activities of financial institutions in connection with providing shareholder
services, the Trust may be required to alter materially or discontinue its
arrangements with such financial institutions.

SHAREHOLDER SERVICE AGREEMENTS

The Investment Manager has entered into a Shareholder Services Agreement with
the Trust. Pursuant to the Shareholder Services Agreement, the Investment
Manager will provide, or will arrange for others to provide, certain specified
shareholder services to shareholders of the Fund. As compensation for the
provision of such services, the Fund will pay the Investment Manager a fee of
0.30% of the Fund's average daily net assets on an annual basis, payable
monthly. The Investment Manager will pay certain banks, trust companies,
broker-dealers, and other

33
<PAGE>

institutions (each a "Participating Organization") out
of the fees the Investment Manager receives from the Fund under the Shareholder
Services Agreement to the extent that the Participating Organization performs
shareholder servicing functions for the Fund with respect to shares of the Fund
owned from time to time by customers of the Participating Organization. In
certain cases, the Investment Manager may also pay a fee, out of its own
resources and not out of the service fee payable under the Shareholder Services
Agreement, to a Participating Organization for providing other administrative
services to its customers who invest in the Fund.

Pursuant to the Shareholder Services Agreement, the Investment Manager will
provide or arrange with a Participating Organization for the provision of the
following shareholder services: responding to shareholder inquiries; processing
purchases and redemptions of the Fund's shares, including reinvestment of
dividends; assisting shareholders in changing dividend options, account
designations, and addresses; transmitting proxy statements, annual reports,
prospectuses, and other correspondence from the Fund to shareholders (including,
upon request, copies, but not originals, of regular correspondence,
confirmations, or regular statements of account) where such shareholders hold
shares of the Fund registered in the name of the Investment Manager, a
Participating Organization, or their nominees; and providing such other
information and assistance to shareholders as may be reasonably requested by
such shareholders.

The Investment Manager may also enter into agreements with Participating
Organizations that process substantial volumes of purchases and redemptions of
shares of the Fund for its customers. Under these arrangements, the Transfer
Agent will ordinarily maintain an omnibus account for a Participating
Organization and the Participating Organization will maintain sub-accounts for
its customers for whom it processes purchases and redemptions of shares. A
Participating Organization may charge its customers a fee, as agreed upon by the
Participating Organization and the customer, for the services it provides.
Customers of participating Organizations should read the Fund's Prospectus in
conjunction with the service agreement and other literature describing the
services and related fees provided by the Participating Organization to its
customers prior to any purchase of shares.

EXPENSES

The Trust pays the expenses of its operations, including: the fees and expenses
of independent accountants, counsel and the custodian; the cost of reports and
notices to shareholders; the cost of calculating net asset value; registration
fees; the fees and expenses of qualifying the Trust and its shares for
distribution under federal and state securities laws; and membership dues in the
Investment Company Institute and, or other industry association membership dues.

GENERAL INFORMATION

The Trust was organized as a business trust under the laws of Delaware on
October 28, 1996 and may issue an unlimited number of shares of beneficial
interest or classes of shares in one or more separate series. The Trust is an
open-end management investment company registered under the 1940 Act. The Trust
currently offers shares of beneficial interest, $0.01 par value per share, in
various series. Each series offers two classes of shares (Class A and
Institutional Class), other than the CNI Charter Money Market Fund, which offers
three classes of shares. Currently, the Trust offers shares of nine series - the
Fund and the CNI Charter Large Cap Growth Fund, CNI Charter Large Cap Value
Fund, CNI Charter Fixed Income Fund, CNI Charter Government Fixed Income Fund,
CNI Charter California Tax Exempt Fixed Income Fund, CNI Charter Money

34
<PAGE>

Market Fund, CNI Charter Government Fund and CNI Charter California Tax
Exempt Fund, which have their own Prospectuses and Statements of Additional
Information. The Board may authorize the issuance of shares of additional
series or classes of shares of beneficial interest if it deems it desirable.

The Trust is generally not required to hold shareholder meetings. However, as
provided in its Agreement and Declaration of Trust of the Trust (the
"Declaration") and the Bylaws of the Trust (the "Bylaws"), shareholder
meetings may be called by the Trustees for the purpose as may be prescribed
by law, the Declaration or the Bylaws, or for the purpose of taking action
upon any other matter deemed by the Trustees to be necessary or desirable
including changing fundamental policies, electing or removing Trustees, or
approving or amending an investment advisory agreement. In addition, a
Trustee may be removed by shareholders at a special meeting called upon
written request of shareholders owning in the aggregate at least 10% of the
outstanding shares of the Trust.

Each Trustee serves until the next meeting of shareholders, if any, called
for the purpose of electing trustees and until the election and qualification
of his or her successor or until death, resignation, declaration of
bankruptcy or incompetence by a court of competent jurisdiction, or removal
by a majority vote of the shares entitled to vote (as described below) or of
a majority of the Trustees. In accordance with the 1940 Act (1) the Trust
will hold a shareholder meeting for the election of trustees when less than a
majority of the trustees have been elected by shareholders, and (2) if, as a
result of a vacancy in the Board, less than two-thirds of the trustees have
been elected by the shareholders, that vacancy will be filled by a vote of
the shareholders.

The Declaration provides that one-third of the shares entitled to vote shall
be a quorum for the transaction of business at a shareholders' meeting,
except when a larger quorum is required by applicable law, by the Bylaws or
by the Declaration, and except that where any provision of law, of the
Declaration, or of the Bylaws permits or requires that (1) holders of any
series shall vote as a series, then a majority of the aggregate number of
shares of that series entitled to vote shall be necessary to constitute a
quorum for the transaction of business by that series; or (2) holders of any
class shall vote as a class, then a majority of the aggregate number of
shares of that class entitled to vote shall be necessary to constitute a
quorum for the transaction of business by that class. Any lesser number shall
be sufficient for adjournments. Any adjourned session or sessions may be
held, within a reasonable time after the date set for the original meeting,
without the necessity of further notice. The Agreement and Declaration of
Trust specifically authorizes the Board of Trustees to terminate the Trust
(or any of its investment portfolios) by notice to the shareholders without
shareholder approval.

For further information, please refer to the registration statement and
exhibits for the Trust on file with the SEC in Washington, D.C. and available
upon payment of a copying fee. The statements in the Prospectuses and this
Statement of Additional Information concerning the contents of contracts or
other documents, copies of which are filed as exhibits to the registration
statement, are qualified by reference to such contracts or documents.

PERFORMANCE INFORMATION

As noted in the Prospectus, the Fund may, from time to time, quote various
performance figures in advertisements and other communications to illustrate its
past performance. Performance figures will be calculated separately for
different classes of shares.

35
<PAGE>

YIELD QUOTATION. The Fund's 30-day yield figure described in the Prospectus
is calculated according to a formula prescribed by the SEC, expressed as
follows:

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

Where: a = dividends and interest earned during the period.

b = expenses accrued for the period
(net of reimbursement).

c = the average daily number of shares
outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share
on the last day of the period.

For the purpose of determining the interest earned (variable "a" in the formula)
on debt obligations that were purchased by the Fund at a discount or premium,
the formula generally calls for amortization of the discount or premium; the
amortization schedule will be adjusted monthly to reflect changes in the market
values of the debt obligations.

Investors should recognize that, in periods of declining interest rates, the
Fund's yields will tend to be somewhat higher than prevailing market rates and,
in periods of rising interest rates, will tend to be somewhat lower. In
addition, when interest rates are falling, monies received by the Fund from the
continuous sale of its shares will likely be invested in instruments producing
lower yields than the balance of its portfolio of securities, thereby reducing
the current yield of the Fund. In periods of rising interest rates, the opposite
result can be expected to occur.

AVERAGE ANNUAL TOTAL RETURN. Total return may be stated for any relevant period
as specified in the advertisement or communication. Any statements of total
return for the Fund will be accompanied by information on the Fund's average
annual compounded rate of return over the most recent four calendar quarters and
the period from the Fund's inception of operations. The Fund may also advertise
aggregate and average total return information over different periods of time.
The Fund's "average annual total return" figures are computed according to a
formula prescribed by the SEC expressed as follows:

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 investment made
at the beginning of a 1-, 5- or
10-year period at the end of each
respective period (or fractional
portion thereof), assuming
reinvestment of all dividends and
distributions and complete
redemption of the hypothetical
investment at the end of the
measuring period.

36
<PAGE>

AGGREGATE TOTAL RETURN. The Fund's "aggregate total return" figures represent
the cumulative change in the value of an investment in the Fund for the
specified period and are computed by the following formula:

ERV - P

Where: P = a hypothetical initial payment of $1,000.

ERV = Ending Redeemable Value of a
hypothetical $1,000 investment made
at the beginning of a l-, 5- or
10-year period at the end of a l-,
5- or 10-year period (or fractional
portion thereof), assuming
reinvestment of all dividends and
distributions and complete
redemption of the hypothetical
investment at the end of the
measuring period.

Each Fund's performance will vary from time to time depending upon market
conditions, the composition of its portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of the Fund's performance for any specified period in the future.
In addition, because performance will fluctuate, it may not provide a basis for
comparing an investment in the Fund with certain bank deposits or other
investments that pay a fixed yield for a stated period of time. Investors
comparing the Fund's performance with that of other investment companies should
give consideration to the quality and maturity of the respective investment
companies' portfolio securities.

Investors should note that the investment results of the Fund will fluctuate
over time, and any presentation of the Fund's total return for any period should
not be considered as a representation of what an investment may earn or what an
investor's total return may be in any future period.

PURCHASE AND REDEMPTION OF SHARES

The Fund's minimum initial investment is $100,000. Subsequent investments of
$1,000 or more may be made. These minimum requirements may be changed at any
time and are not applicable to certain types of investors. Exceptions to the
minimum investment requirements may be made at the discretion of the Investment
Manager including, without limitation, for employees or affiliates of the
Investment Manager or investors who are, or are related to or affiliated with,
clients of the Investment Manager. The Fund will accept investments in cash only
in U.S.
dollars.

The Trust reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase order in-kind by
making payment in readily marketable securities chosen by the Fund and valued as
they are for purposes of computing the Fund's net asset values. However, the
Trust has elected to commit itself to pay in cash all requests for redemption by
any Shareholder of record, limited in amount with respect to each Shareholder
during any 90-day period to the lesser of: (1) $250,000, or (2) one percent of
the net asset value of the Fund at the beginning of such period. If payment is
made in securities, a shareholder may incur transaction expenses in converting
these securities into cash.

To minimize administrative costs, share certificates will not be issued. Records
of share ownership are maintained by the Transfer Agent.

37
<PAGE>

Investors should remember that it may be difficult to complete transactions by
telephone during periods of drastic economic or market changes, when phone lines
may become busy with calls from other investors. If you want to buy or sell
shares but have trouble reaching the Fund by telephone, you may want to use
another method for completing a transaction, even though an alternative
procedure may mean that completing your transaction may take a longer period of
time.

The Fund may be required to withhold federal income tax at a rate of 31% (backup
withholding) from dividend payments, distributions, and redemption proceeds if a
shareholder fails to furnish the Fund with his/her certified social security or
tax identification number. The shareholder also must certify that the number is
correct and that he/she is not subject to backup withholding. The certification
is included as part of the share purchase application form. If the shareholder
does not have a social security number, he/she should indicate on the purchase
form that an application to obtain the number is pending. The Fund is required
to withhold taxes if a number is not delivered within seven days.

The Trust reserves the right in its sole discretion to (i) suspend the continued
offering of the Fund's shares, and (ii) reject purchase orders in whole or in
part when in the judgment of the Investment Manager or the Distributor such
suspension or rejection is in the best interest of the Fund.

Payments to shareholders for shares of the Fund redeemed directly from the Fund
will be made as promptly as possible but no later than three days after receipt
by the Transfer Agent of the written request in proper form, with the
appropriate documentation as stated in the Prospectus, except that the Fund may
suspend the right of redemption or postpone the date of payment during any
period when (i) trading on the New York Stock Exchange ("NYSE") is restricted as
determined by the SEC or the NYSE is closed for other than weekends and
holidays; (ii) an emergency exists as determined by the SEC (upon application by
the Fund pursuant to Section 22(e) of the Investment Company Act) making
disposal of portfolio securities or valuation of net assets of the Fund not
reasonably practicable; or (iii) for such other period as the SEC may permit for
the protection of the Fund's shareholders.

OTHER INFORMATION

The Prospectus of the Fund and this SAI do not contain all the information
included in the Registration Statement filed with the SEC under the Securities
Act of 1933, as amended, with respect to the securities offered by the
Prospectuses. Certain portions of the Registration Statement have been omitted
from the Prospectus and this SAI pursuant to the rules and regulations of the
SEC. The Registration Statement including the exhibits filed therewith may be
examined at the office of the SEC in Washington, D.C. Copies of the Registration
Statements may be obtained from the SEC upon payment of the prescribed fee.

Statements contained in the Prospectus or in this SAI as to the contents of any
contract or other document referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement of which the Prospectus and
this SAI form a part, each such statement being qualified in all respects by
such reference.

38
PRINCIPAL HOLDERS OF SECURITIES
<PAGE>

As of December 31, 1999, City National Bank, P.O. Box 60520, Los Angeles,
90060-0520, as fiduciary for its various clients, was holder of 99% of the
outstanding shares of the Fund.

FINANCIAL STATEMENTS

There are no audited financial statements for the Fund because the Fund has been
in operation for less than one year.

39
<PAGE>

APPENDIX - RATINGS OF INVESTMENT SECURITIES

Description ratings for Standard & Poor's Ratings Group ("S&P");
Moody's Investors Service, Inc., ("MOODY's") and Fitch Investors Service,
L.P. ("Fitch").

STANDARD & POOR'S RATING GROUP
- --------------------------------

BOND RATINGS

AAA Bonds rated AAA have the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.

AA Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only
in small degree.

A Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than obligations in higher-rated categories.

BBB Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally
exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated
categories.

BB Bonds rated BB have less near-term vulnerability to default
than other speculative grade debt. However, they face major
ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal
payments.

B Bonds rated B have a greater vulnerability to default but
presently have the capacity to meet interest payments and
principal repayments. Adverse business, financial or economic
conditions would likely impair capacity or willingness to pay
interest and repay principal.

CCC Bonds rated CCC have a current identifiable vulnerability to
default and are dependent upon favorable business, financial
and economic conditions to meet timely payments of interest
and repayment of principal. In the event of adverse business,
financial or economic conditions, they are not likely to have
the capacity to pay interest and repay principal.

CC The rating CC is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC rating.

C The rating C is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC- debt
rating.

D Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.

A-1
<PAGE>

S&P's letter ratings may be modified by the addition of a plus
(+) or a minus (-) sign designation, which is used to show relative
standing within the major rating categories, except in the AAA (Prime
Grade) category.

COMMERCIAL PAPER RATINGS

An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no
more than 365 days. Issues assigned an A rating are regarded as having
the greatest capacity for timely payment. Issues in this category are
delineated with the numbers 1, 2 and 3 to indicate the relative degree
of safety.

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

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

A-3 Issues carrying this designation have a satisfactory capacity
for timely payment. They are, however, somewhat more
vulnerable to the adverse effects of changes in circumstances
than obligations carrying the higher designations.

B Issues carrying this designation are regarded as having only
speculative capacity for timely payment.

C This designation is assigned to short-term obligations with
doubtful capacity for payment.

D Issues carrying this designation are in default, and payment
of interest and/or repayment of principal is in arrears.

MOODY'S INVESTORS SERVICE, INC.
- -------------------------------

BOND RATINGS

Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
generally are referred to as "gilt edge." Interest payments
are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of
such issues.

Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
generally are known as high-grade bonds. They are rated lower
than the best bonds because margins of protection may not be
as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear
somewhat larger than in Aaa securities.

A-2
<PAGE>

A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.

Baa Bonds which are rated Baa are considered as medium-grade
obligations, I.E., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and, in fact, have
speculative characteristics as well.

Ba Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and, therefore, not well safeguarded during both
good and bad times in the future.
Uncertainty of position characterizes bonds in this class.

B Bonds which are rated B generally lack the characteristics of
a desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.

Caa Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger
with respect to principal or interest.

Ca Bonds which are rated Ca present obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.

C Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.

Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category
and in the categories below B. The modifier 1 indicates a ranking for
the security in the higher end of a rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of a rating category.

COMMERCIAL PAPER RATINGS

The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity
for repayment of short-term promissory obligations, and ordinarily will
be evidenced by leading market positions in well established
industries, high rates of return on funds employed, conservative
capitalization structures with moderate reliance on debt and ample
asset protection, broad margins in earnings coverage of fixed financial
charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate
liquidity.

Issuers (or related supporting institutions) rated Prime-2 (P-2) have a
strong capacity for repayment of short-term promissory obligations.
This ordinarily will be evidenced by

A-3

<PAGE>

many of the characteristics cited
above but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.

Issuers (or related supporting institutions) rated Prime-3 (P-3) have
an acceptable capacity for repayment of short-term promissory
obligations. The effect of industry characteristics and market
composition may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt protection
measurements and the requirements for relatively high financial
leverage. Adequate alternate liquidity is maintained.

Issuers (or related supporting institutions) rated Not Prime do not
fall within any of the Prime rating categories.

FITCH INVESTORS SERVICE, L.P.
- ------------------------------

BOND RATINGS

The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The
ratings take into consideration special features of the issue, its
relationship to other obligations of the issuer, the current financial
condition and operative performance of the issuer and of any guarantor,
as well as the political and economic environment that might affect the
issuer's future financial strength and credit quality.

AAA Bonds rated AAA are considered to be investment grade and of
the highest credit quality. The obligor has an exceptionally
strong ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events.

AA Bonds rated AA are considered to be investment grade and of
very high credit quality. The obligor's ability to pay
interest and repay principal is very strong, although not
quite as strong as bonds rated AAA. Because bonds rated in the
AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these
issuers is generally rated F-1+.

A Bonds rated A are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to have an adverse impact on these
bonds and, therefore, impair timely payment. The likelihood
that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.

BB Bonds rated BB are considered speculative. The obligor's
ability to pay interest and repay principal may be affected
over time by adverse economic changes.

A-4
<PAGE>

However, business and financial alternatives can be
identified which could assist the obligor in satisfying its
debt service requirements.

B Bonds rated B are considered highly speculative. While bonds
in this class are currently meeting debt service requirements,
the probability of continued timely payment of principal and
interest reflects the obligor's limited margin of safety and
the need for reasonable business and economic activity
throughout the life of the issue.

CCC Bonds rated CCC have certain identifiable characteristics,
which, if not remedied, may lead to default. The ability to
meet obligations requires an advantageous business and
economic environment.

CC Bonds rated CC are minimally protected. Default in payment of
interest and/or principal seems probable over time.

C Bonds rated C are in imminent default in payment of interest
or principal.

DDD,DD AND D Bonds rated DDD, DD and D are in actual default of
interest and/or principal payments. Such bonds are extremely
speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of
the obligor. DDD represents the highest potential for recovery
on these bonds and D represents the lowest potential for
recovery.

Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA category covering 12-36
months.

SHORT-TERM RATINGS

Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including
commercial paper, certificates of deposit, medium-term notes, and
municipal and investment notes.

Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond
ratings on the existence of liquidity necessary to meet the issuer's
obligations in a timely manner.

F-1+ Exceptionally strong credit quality. Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.

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

F-2 Good credit quality. Issues carrying this rating have a
satisfactory degree of assurance for timely payments, but the
margin of safety is not as great as the F-l+ and F-1
categories.

F-3 Fair credit quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment
grade.
A-5
<PAGE>

F-S Weak credit quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes
in financial and economic conditions.

D Default. Issues assigned this rating are in actual or imminent
payment default.

A-6

<PAGE>

CNI CHARTER FUNDS

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

FORM N-1A

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

PART C

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

Item 23. Exhibits

(a) Agreement and Declaration of Trust.

(1) Form of Agreement and Declaration of Trust.(A)

(2) Form of Amendment to the Agreement and Declaration of
Trust.(B)

(3) Certificate of Amendment to the Certificate of Trust.(B)

(b) By-Laws:

(1) By-Laws dated October 25, 1996.(A)

(2) Amendment to the By-Laws of the Trust.(B)

(d) Form of Investment Management Agreement.(B)

(e) Form of Distribution Agreement.(B)

(f) Bonus or Profit Sharing Contracts - not applicable.

(g) Form of Custody Agreement.(B)

(h) Other Material Contracts:

(1) Form of Administrative Services Agreement.(B)

(2) Form of Transfer Agent Agreement.(B)

(i) Opinion of Counsel as to legality of shares - not applicable

(j) Other Opinions - Independent Auditors' Consent - not applicable.

(k) Omitted Financial Statements - not applicable.

(l) Initial Capital Agreement.(A)

(m) Distribution Plans.

(1) Form of Rule 12b-1 Plan.(B)

(2) Form of Share Marketing Agreement.(B)

(n) Financial Data Schedule - not applicable.

(o) Rule 18f-3 Plan.(B)

Item 24. Persons Controlled by or Under Common Control with the Fund

<PAGE>

Item 25. Indemnification

Please see Article VI of the Registrant's By-Laws, previously filed as an
Exhibit. Pursuant to Rule 484 under the Securities Act of 1933, as amended, the
Registrant furnishes the following undertaking:

"Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue."

Notwithstanding the provisions contained in the Registrant's By-Laws, in
the absence of authorization by the appropriate court on the merits pursuant to
Sections 4 and 5 of Article VI of said By-Laws, any indemnification under said
Article shall be made by Registrant only if authorized in the manner provided in
either subsection (a) or (b) of Section 6 of said Article VI.

Item 26. Business and Other Connections of the Investment Adviser

Please see Parts A and B of this Registration Statement for discussion of
the Investment Adviser.

Item 27. Principal Underwriter

(a) Not Applicable.

(b) Not Applicable.

Item 28. Location of Accounts and Records.

The accounts, books, or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended (the "Investment
Company Act") will be kept by the Registrant's Transfer Agent, SEI Investments
Fund Management, 1 Freedom Valley Drive, Oaks, Pennsylvania 19456, except those
records relating to portfolio transactions and the basic organizational and
Trust documents of the Registrant (see Subsections (2)(iii), (4), (5), (6), (7),
(9), (10) and (11) of Rule 31a-1(b)), which will be kept by the Registrant at
400 North Roxbury Drive, Beverly Hills, California 90210.

Item 29. Management Services.

There are no management-related service contracts not discussed in
Parts A and B.

Item 30. Undertakings.

(a) Not applicable.

(b) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's last
annual report to Shareholders, upon request and without charge.

C-2
<PAGE>

(c) Registrant has undertaken to comply with Section 16(a) of the
Investment Company Act which requires the prompt convening of a
meeting of shareholders to elect trustees to fill existing
vacancies in the Registrant's Board of Trustees in the event that
less than a majority of the trustees have been elected to such
position by shareholders. Registrant has also undertaken promptly
to call a meeting of shareholders for the purpose of voting upon
the question of removal of any Trustee or Trustees when requested
in writing to do so by the record holders of not less than 10
percent of the Registrant's outstanding shares and to assist its
shareholders in communicating with other shareholders in
accordance with the requirements of Section 16(c) of the
Investment Company Act.

C-3
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Beverly Hills, the State of California, on this 21st day of December, 1999.

THE CNI CHARTER FUNDS

By: /s/ Mark Nagle*
Mark Nagle
President, Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
Amendment to Registrant's Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.

/s/ Mark Nagle* President & December 21, 1999
- --------------- Chief Executive Officer
Mark Nagle

/s/ Christopher Salfi* Controller & December 21, 1999
- ---------------------- Chief Operating Officer
Christopher Salfi

/s/ Irwin G. Barnet* Trustee December 21, 1999
- --------------------
Irwin G. Barnet

/s/ Maria D. Hummer* Trustee December 21, 1999
- --------------------
Maria D. Hummer

/s/ James R. Wolford* Trustee December 21, 1999
- ---------------------
James R. Wolford

/s/ William R. Sweet* Trustee December 21, 1999
- ---------------------
William R. Sweet

/s/ Victor Meschures* Trustee December 21, 1999
- ---------------------
Victor Meschures

* By: /s/ Mitchell E. Nichter
-----------------------
Mitchell E. Nichter, Attorney-in-Fact
pursuant to Powers of Attorney

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