CNI CHARTER FUNDS, 497, 2000-01-12

CNI CHARTER FUNDS
497, 2000-01-12

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PART A

PROSPECTUS FOR
INSTUTITIONAL CLASS SHARES OF

CNI CHARTER LARGE CAP GROWTH EQUITY FUND
CNI CHARTER LARGE CAP VALUE EQUITY FUND
CNI CHARTER FIXED INCOME FUND
CNI CHARTER GOVERNMENT FIXED INCOME FUND
CNI CHARTER CALIFORNIA TAX EXEMPT FIXED INCOME FUND

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<PAGE>

CNI
-------------------------------------------------------
CHARTER FUNDS-SM-

LARGE CAP GROWTH EQUITY FUND
LARGE CAP VALUE EQUITY FUND
CORPORATE BOND FUND
GOVERNMENT BOND FUND
CALIFORNIA TAX EXEMPT BOND FUND

INSTITUTIONAL CLASS

PROSPECTUS
DATED January 12, 2000

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.

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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.

<PAGE>

TABLE OF CONTENTS

The Funds

CNI CHARTER LARGE CAP GROWTH EQUITY FUND

(THE "LARGE CAP GROWTH FUND")......................................3

CNI CHARTER LARGE CAP VALUE EQUITY FUND

(THE "LARGE CAP VALUE FUND")........................................5

CNI CHARTER CORPORATE BOND FUND (THE "CORPORATE BOND FUND").............7

CNI CHARTER GOVERNMENT BOND FUND

(THE "GOVERNMENT BOND FUND").......................................10

CNI CHARTER CALIFORNIA TAX EXEMPT BOND FUND

(THE "CALIFORNIA TAX EXEMPT BOND FUND")............................13

Management of the Funds.......................................................18

Additional Investment Strategies and Related Risks............................19

Account Policies..............................................................21

Understanding Earnings and Taxes..............................................22

How to Buy and Sell Shares....................................................24

Important Terms to Know.......................................................27

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

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 Funds should request the SAI and
review it before purchasing shares.

This Prospectus offers Institutional Class shares of the Large Cap Growth
Fund, the Large Cap Value Fund, the Corporate Bond Fund, the Government Bond
Fund and the California Tax Exempt Bond Fund (each a "Fund" and together, the
"Funds"). Only financial institutions and financial intermediaries may
purchase Institutional Class shares for their own account or on behalf of
their customers. The Funds offer 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>

THE FUNDS

LARGE CAP GROWTH FUND

OUR GOAL

The Large Cap Growth Fund seeks to provide capital appreciation by
investing in large U.S. corporations and U.S. dollar denominated
American Depository Receipts of large foreign corporations with the
potential for growth. The goal of the Large Cap Growth Fund can only
be changed with shareholder approval.

PRINCIPAL STRATEGY

We purchase a diversified portfolio of equity securities at least
65% of which consists of large U.S. corporations and U.S. dollar
denominated American Depository Receipts of large foreign
corporations. We look for companies possessing superior management,
strong market position, consistent records of increased earnings and
dividends growth and a strong operating and financial position. The
average market capitalization of the corporations in which the Large
Cap Growth Fund invests exceeds $2 billion.

PRINCIPAL RISKS OF INVESTING IN THE LARGE CAP GROWTH FUND

As with any mutual fund, there are risks to investing. We cannot
guarantee that we will meet our investment goal. By investing in
stocks, the Large Cap Growth Fund will expose you to risks that could
cause you to lose money, particularly a sudden decline in a holding's
share price or an overall decline in the stock market. As with any
stock fund, the value of your investment 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. The Large Cap
Growth Fund is also subject to the risk that its principal market
segment, large capitalization growth stocks, may underperform other
equity market segments or the market as a whole. Foreign stocks tend
to be more volatile than U.S. stocks, and are subject to risks that
are not typically associated with domestic stocks.

PAST PERFORMANCE

The Large Cap Growth Fund has not yet begun operations. The Large Cap
Growth Fund's past performance results have not been provided but will
be reported once the Large Cap Growth Fund has been in operation for
one complete calendar year (I.E., January-December).

3
<PAGE>

FEES AND EXPENSES OF THE LARGE CAP GROWTH FUND

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

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

<TABLE>
<S> <C> <C>
Management Fee* 0.65%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses** 0.24%
Total Other Expenses** 0.49%
-----------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES*** 1.14%
</TABLE>

* The "Management Fee" is an annual fee, payable monthly out of the
Large Cap Growth 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 Large Cap Growth
Fund for expenses to the extent necessary to keep Total Annual Fund
Operating Expenses at or below 1.05%. 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 Large
Cap Growth 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 Large Cap Growth Fund with the cost of investing in other mutual
funds. It assumes that you invest $10,000 in the Large Cap Growth 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 Large Cap Growth
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:

<TABLE>
<CAPTION>
1 Year 3 Years
-------------------------
<S> <C>
$116 $362
</TABLE>

4
<PAGE>

LARGE CAP VALUE FUND

OUR GOALS

The Large Cap Value Fund seeks to provide capital appreciation and
moderate income consistent with current returns available in the
marketplace by investing in large U.S. corporations and U.S. dollar
denominated American Depository Receipts of large foreign
corporations which are undervalued. The goals of the Large Cap
Value Fund can only be changed with shareholder approval.

PRINCIPAL STRATEGY

We purchase a diversified portfolio of equity securities at least 65%
of which consists of large U.S. corporations and U.S. dollar
denominated American Depository Receipts of large foreign
corporations. We look for companies whose market valuations compare
favorably relative to similar companies. We monitor the holdings in
the Large Cap Value Fund in order to capitalize as favorably as
possible on the shifting investment environment. The average market
capitalization of the corporations in which the Large Cap Value Fund
invests exceeds $2 billion.

PRINCIPAL RISKS OF INVESTING IN THE LARGE CAP VALUE FUND

As with any mutual fund, there are risks to investing. We cannot
guarantee that we will meet our investment goals. By investing in
stocks, the Large Cap Value Fund will expose you to risks that could
cause you to lose money, particularly a sudden decline in a holding's
share price or an overall decline in the stock market. As with any
stock fund, the value of your investment 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. The Large Cap
Value Fund is also subject to the risk that its principal market
segment, large capitalization value stocks, may underperform other
equity market segments or the market as a whole. Foreign stocks tend
to be more volatile than U.S. stocks, and are subject to risks that
are not typically associated with domestic stocks.

PAST PERFORMANCE

The Large Cap Value Fund has not yet begun operations. The Large Cap
Value Fund's past performance results have not been provided but will
be reported once the Large Cap Value Fund has been in operation for
one complete calendar year (I.E., January-December).

5
<PAGE>

FEES AND EXPENSES OF THE LARGE CAP VALUE FUND

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

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

<TABLE>
<S> <C> <C>
Management Fee* 0.62%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses** 0.24%
Total Other Expenses** 0.49%
-----------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES*** 1.11%
</TABLE>

* The "Management Fee" is an annual fee, payable monthly out of the
Large Cap Value 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 Large Cap Value
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 Large
Cap Value 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 Large Cap Value Fund with the cost of investing in other mutual
funds. It assumes that you invest $10,000 in the Large Cap Value 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 Large Cap Value 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:

<TABLE>
<CAPTION>
1 Year 3 Years
-------------------------
<S> <C>
$113 $353
</TABLE>

6
<PAGE>

CORPORATE BOND FUND

OUR GOALS

The Corporate Bond Fund seeks to provide current income (as the primary
component of a total return intermediate duration strategy) by
investing in a diversified portfolio of fixed income securities. The
goals of the Corporate Bond Fund can only be changed with shareholder
approval.

PRINCIPAL STRATEGY

We purchase a diversified portfolio of fixed income securities at
least 65% of which consists of investment grade corporate notes, bonds
and debentures that are nationally traded, including U.S. government
and agency securities and corporate issues of domestic and
international companies denominated in U.S. dollars. We may also
purchase mortgage backed and asset backed instruments whose maturity
and duration are consistent with an intermediate term strategy. We
actively manage the average duration of the portfolio in accordance
with our expectations of interest rate changes as driven by economic
trends. The average duration of the portfolio will typically range
from two to six years. We will typically invest in corporate issues
with a minimum credit rating from Moody's Investors Service or
Standard & Poor's Corporation of Baa or BBB, mortgage backed and asset
backed instruments with a minimum rating of Aa or AA and corporate
commercial paper issued by issuers with a minimum credit rating of A1
or P1. We may retain a security after it has been downgraded below
the minimum credit rating if we determine it is in the best interests
of the Corporate Bond Fund. The Corporate Bond Fund may also invest
in the shares of money market mutual funds whose objectives are
consistent with those of the Corporate Bond Fund.

7
<PAGE>

PRINCIPAL RISKS OF INVESTING IN THE CORPORATE BOND FUND

As with any mutual fund, there are risks to investing. We cannot
guarantee that we will meet our investment goals. The Corporate Bond
Fund may expose you to certain risks that could cause you to lose
money. 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 more
volatile than higher rated securities. The average duration of these
securities affects risk as well, with longer term securities generally
more volatile than shorter term securities. In addition, the Corporate
Bond Fund is subject to the risk that its market segment, fixed income
securities, may underperform other fixed income 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 Corporate Bond Fund. Changes in the
financial condition of issuers also may adversely affect the value of
the Corporate Bond Fund's securities. The Corporate Bond Fund may
invest in bonds rated below investment grade, which involve greater
risks of default or downgrade and are more volatile than investment
grade securities. The Corporate Bond Fund is not a money market fund.

PAST PERFORMANCE

The Corporate Bond Fund has not yet begun operations. The Corporate
Bond Fund's past performance results have not been provided but will be
reported once the Corporate Bond Fund has been in operation for one
complete calendar year (I.E., January-December).

8
<PAGE>

FEES AND EXPENSES OF THE CORPORATE BOND FUND

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

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

<TABLE>
<S> <C> <C>
Management Fee* 0.40%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses** 0.24%
Total Other Expenses** 0.49%
-----------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES*** 0.89%
</TABLE>

* The "Management Fee" is an annual fee, payable monthly out of the
Corporate Bond 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 Corporate Bond
Fund for expenses to the extent necessary to keep Total Annual Fund
Operating Expenses at or below 0.75%. 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
Corporate Bond 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 Corporate Bond Fund with the cost of investing in other mutual
funds. It assumes that you invest $10,000 in the Corporate Bond 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 Corporate Bond 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:

<TABLE>
<CAPTION>
1 Year 3 Years
-------------------------
<S> <C>
$91 $284
</TABLE>

9
<PAGE>

GOVERNMENT BOND FUND

OUR GOALS

The Government Bond Fund seeks to provide current income (as the
primary component of a total return intermediate duration strategy) by
investing primarily in U.S. government securities. The goals of the
Government Bond Fund can only be changed with shareholder approval.

PRINCIPAL STRATEGY

We purchase a diversified portfolio at least 65% of which consists of
U.S. government securities either issued or guaranteed by the U.S.
government or its agencies or instrumentalities. We may also purchase
mortgage backed and asset backed instruments issued by the U.S.
government or a government sponsored agency whose maturity and duration
are consistent with an intermediate term strategy. We actively manage
the average duration of the portfolio in accordance with our
expectations of interest rate changes as driven by economic trends.
The average duration of the portfolio will typically range from two to
six years. The Government Bond Fund may also invest in the shares of
money market mutual funds whose objectives are consistent with those
of the Government Bond Fund.

10
<PAGE>

PRINCIPAL RISKS OF INVESTING IN THE GOVERNMENT BOND FUND

As with any mutual fund, there are risks to investing. We cannot
guarantee that we will meet our investment goals. The Government Bond
Fund may expose you to certain risks that could cause you to lose
money. 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 more
volatile than higher rated securities. The average duration of these
securities affects risk as well, with longer term securities generally
more volatile than shorter term securities. In addition, the
Government Bond Fund is subject to the risk that its market segment,
government fixed income securities, may underperform other fixed
income 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
Government Bond Fund. Changes in the financial condition of issuers
also may adversely affect the value of the Fund's securities. The
Government Bond Fund may invest in bonds rated below investment
grade, which involve greater risks of default or downgrade and are
more volatile than investment grade securities. The Government Bond
Fund is not a money market fund.

PAST PERFORMANCE

The Government Bond Fund has not yet begun operations. The Government
Bond Fund's past performance results have not been provided but will
be reported once the Government Bond Fund has been in operation for
one complete calendar year (I.E., January-December).

11
<PAGE>

FEES AND EXPENSES OF THE GOVERNMENT BOND FUND

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

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

<TABLE>
<S> <C> <C>
Management Fee* 0.43%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses** 0.24%
Total Other Expenses** 0.49%
-----------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES*** 0.92%
</TABLE>

* The "Management Fee" is an annual fee, payable monthly out of the
Government Bond 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 Government Bond
Fund for expenses to the extent necessary to keep Total Annual Fund
Operating Expenses at or below 0.50%. 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
Government Bond 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 Government Bond Fund with the cost of investing in other mutual
funds. It assumes that you invest $10,000 in the Government Bond 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 Government Bond 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:

<TABLE>
<CAPTION>
1 Year 3 Years
-------------------------
<S> <C>
$94 $293
</TABLE>

12
<PAGE>

CALIFORNIA TAX EXEMPT BOND FUND

OUR GOALS

The California Tax Exempt Bond Fund seeks to provide current income
exempt from Federal and California state income tax (as the primary
component of a total return strategy) by investing primarily in
California municipal bonds. The goal of the California Tax Exempt Bond
Fund can only be changed with shareholder approval.

PRINCIPAL STRATEGY

We purchase a portfolio at least 65% of which consists of
intermediate term municipal bond obligations, including general
obligation bonds, revenue bonds, notes and obligations from various
other sectors in the municipal bond market. The California Tax
Exempt Bond Fund may also invest in short term tax exempt commercial
paper, floating rate notes or the shares of money market mutual
funds whose objectives are consistent with those of the
California Tax Exempt Bond Fund. We actively manage the average
duration of the portfolio in accordance with our expectations of
interest rate changes as driven by economic trends. The average
duration of the portfolio will typically range from three to eight
years. We will typically invest in issues with a minimum credit
rating from Moody's Investors Service or Standard & Poor's
Corporation of Baa or BBB, issues carrying credit enhancements such
as insurance by the major bond insurance companies with an
underlying minimum credit rating of Baa or BBB and short term notes
with a rating from Moody's of MIG1 or VMIG1 or from Standard &
Poor's of SP1 or A1. We may retain a security after it has been
downgraded below the minimum credit rating if we determine it is
in the best interests of the California Tax Exempt Bond Fund.

13
<PAGE>

PRINCIPAL RISKS OF INVESTING IN THE CALIFORNIA TAX EXEMPT BOND FUND

As with any mutual fund, there are risks to investing. We cannot
guarantee that we will meet our investment goals. The California Tax
Exempt Bond 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 more
volatile than higher rated securities. The average duration of these
securities affects risk as well, with longer term securities generally
more volatile than shorter term securities. In addition, the California
Tax Exempt Bond Fund is subject to the risk that its market segment,
municipal debt securities, may underperform other market segments or
the markets as a whole. The California Tax Exempt Bond Fund invests at
least 80% of its net assets in intermediate-term, high-quality
municipal bonds and notes, and at least 65% of its total assets in debt
securities, the interest from which is expected to be exempt from
California personal income taxes. Economic or political changes may
adversely affect the ability of issuers to repay principal and to make
interest payments on securities owned by the California Tax Exempt
Bond Fund. Changes in the financial condition of issuers also may
adversely affect the value of the California Tax Exempt Bond Fund's
securities. The California Tax Exempt Bond Fund may invest in bonds
rated below investment grade, which involve greater risks of default
or downgrade and are more volatile than investment grade securities.
The California Tax Exempt Bond Fund is not a money market fund.

GOVERNMENT RISK - State and local governments rely on taxes and, to
some extent, revenues from private projects financed by municipal
securities to pay interest and principal on municipal debt. Poor
statewide or local economic results or changing political sentiments
may reduce tax revenues and increase the expenses of California
municipal issuers, making it more difficult for them to meet their
obligations. Actual or perceived erosion of the creditworthiness of
California municipal issuers may also reduce the value of the
California Tax Exempt Bond Fund's holdings.

NON-DIVERSIFICATION - The California Tax Exempt Bond Fund is
non-diversified, which means that it may invest in the securities of
relatively few issuers. As a result, the California Tax Exempt Bond
Fund may be more susceptible to a single adverse economic or regulatory
occurrence affecting one or more of these issuers, and may experience
increased volatility due to its investments in those securities. In
addition, the California Tax Exempt Bond Fund will be more susceptible
to factors which adversely affect issuers of California obligations
than a mutual fund which does not have as great a concentration in
California municipal obligations.

PAST PERFORMANCE

The California Tax Exempt Bond Fund has not yet begun operations. The
California Tax Exempt Bond Fund's past performance results have not

14
<PAGE>

been provided but will be reported once the California Tax Exempt Bond
Fund has been in operation for one complete calendar year (I.E.,
January-December).

15
<PAGE>

FEES AND EXPENSES OF THE CALIFORNIA TAX EXEMPT BOND FUND

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

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

<TABLE>
<S> <C> <C>
Management Fee* 0.27%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses** 0.24%
Total Other Expenses** 0.49%
-----------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES*** 0.76%
</TABLE>

* The "Management Fee" is an annual fee, payable monthly out of the
California Tax Exempt Bond 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 California Tax
Exempt Bond Fund for expenses to the extent necessary to keep Total
Annual Fund Operating Expenses at or below 0.50%. 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
California Tax Exempt Bond Fund's then current expense limit, if any,
for that year and if certain other conditions are satisfied.

16
<PAGE>

EXAMPLE

The Example is intended to help you compare the cost of investing in
the California Tax Exempt Bond Fund with the cost of investing in other
mutual funds. It assumes that you invest $10,000 in the California Tax
Exempt Bond 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 California Tax
Exempt Bond 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:

<TABLE>
<CAPTION>
1 Year 3 Years
-------------------------
<S> <C>
$78 $243
</TABLE>

17
<PAGE>

MANAGEMENT OF THE FUNDS

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.

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,
a New York Stock Exchange listed company. CNB's address is 400 North
Roxbury Drive, Beverly Hills, California 90210.

CNI receives for its investment management services a fee at the
annual rate of 0.65% of average daily net assets of the Large Cap
Growth Fund, 0.62% of average daily net assets of the Large Cap Value
Fund, 0.40% of average daily net assets of the Corporate Bond Fund,
0.43% of average daily net assets of the Government Bond Fund and 0.27%
of average daily net assets of the California Tax Exempt Bond Fund.

PORTFOLIO MANAGEMENT

All investment decisions for each of the Funds are made by a team of
investment professionals, all of whom take an active part in the
decision-making process. The Large Cap Growth Fund and the Large Cap
Value Fund are each managed by CNI's Equity Team. The Corporate Bond
Fund, the Government Bond Fund and the California Tax Exempt Bond Fund
are each managed by CNI's Fixed Income Team.

ADMINISTRATOR, FUND ACCOUNTANT AND TRANSFER AGENT

SEI Investments Mutual Funds Services (the "Administrator") serves as
administrator and fund accountant to the Funds. 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 each 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 each Fund. SEI Investments
Fund Management serves as transfer agent for the Funds, 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
Funds' distributor pursuant to a distribution agreement with the Funds.
The Distributor is located at One Freedom Valley Drive, Oaks,
Pennsylvania, 19456 and can be reached at 1-888-889-0799.

18
<PAGE>

ADDITIONAL INVESTMENT STRATEGIES AND RELATED RISKS

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

DEFENSIVE INVESTMENTS - The strategies described in this Prospectus are
those the Funds use under normal conditions. At the discretion of each
Fund's portfolio managers, we may invest up to 100% of the Fund's
assets in cash or cash equivalents for temporary defensive purposes. No
Fund is required or expected to take such a defensive posture. But if
used, such a stance may help a Fund minimize or avoid losses during
adverse market, economic or political conditions. During such a period,
a Fund may not achieve its investment objective. For example, should
the market advance during this period, a 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 a Fund has owned that
security. Buying and selling securities generally involves some expense
to a Fund, such as commissions paid to brokers and other transaction
costs. By selling a security, a Fund may realize taxable capital gains
that it will subsequently distribute to shareholders. Generally
speaking, the higher a 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 a
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. Generally, annual
portfolio turnover should not exceed 100% for the Large Cap Growth Fund
and the Large Cap Value Fund, and 30% for the Corporate Bond Fund,
Government Bond Fund and California Tax Exempt Bond Fund.

19
<PAGE>

Year 2000 conversion costs to have much impact on the Funds because
those costs are borne primarily by the vendors and service providers,
and not directly by the Funds. It is also important to keep in mind
that the Year 2000 problem may negatively impact the issuers of the
securities in which the Funds invest and by extension, the value of
the securities held by the Funds. Year 2000 problems may manifest
themselves after January 1, 2000. This is a "Year 2000 Readiness
Disclosure" within the meaning of the "Year 2000 Information and
Readiness Disclosure Act."

20
<PAGE>

ACCOUNT POLICIES

HOW WE PRICE SHARES - How and when we calculate each Fund's price or
net asset value ("NAV") determines the price at which you will buy or
sell shares. We calculate each Fund's NAV by dividing the total net
value of its assets by the number of outstanding shares. We base the
value of a 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 Funds' Board of Trustees, will make a good-faith
estimate of the security's "fair value," which may be higher or lower
than the security's closing price in its relevant market.

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

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

21
<PAGE>

UNDERSTANDING EARNINGS AND TAXES

DIVIDENDS AND DISTRIBUTIONS - IRS rules require that each 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 each 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 a 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. Each Fund's distributions, whether
received in cash or reinvested, may be taxable. Any redemption of a
Fund's shares or any exchange of a 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 - For the Fixed Income Funds, 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. For the Large Cap Growth Fund and the Large Cap Value Fund, we
will declare and pay dividends in the last quarter of each calendar
year, and pay net capital gain, if any, in the last quarter of each
calendar year. Following their fiscal year end (October 31), the Funds
may make additional distributions to avoid the imposition of a tax.

WHEN DO DIVIDENDS ACCRUE? For the Fixed Income Funds, 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

22
<PAGE>

backup withholding at a rate of 31%.

CALIFORNIA TAX EXEMPT BOND FUND - The California Tax Exempt Bond Fund
intends to continue paying what the IRS calls "exempt-interest
dividends" to shareholders by maintaining, as of the close of each
quarter of its taxable year, at least 50% of the value of its assets in
municipal bonds. If the Fund satisfies this requirement, any
distributions paid to shareholders from its net investment income will
be exempt from federal income tax, to the extent that it derives its
net investment income from interest on municipal bonds. Any
distributions paid from other sources of net investment income, such
as market discounts on certain municipal bonds, will be treated as
ordinary income by the IRS.

HOW TO AVOID "BUYING A DIVIDEND" - If you plan to purchase shares in a
Fund, check if it is planning to make a distribution in the near
future. If you do not, and you buy shares of a 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.

23
<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 (each 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 Funds. You will also generally have to address your
correspondence or questions regarding the Funds to your Authorized
Institution.

ORDERING THROUGH THE TRANSFER AGENT -- Financial institutions and
intermediaries may purchase shares of the Funds 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 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 Funds. 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 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 a Fund for an initial
amount of $100,000. This is the required minimum account balance. You
may buy additional shares for $1,000 or more.

24
<PAGE>

MINIMUM ACCOUNT BALANCES -- If your account balance in a Fund drops
below $100,000 because of redemptions, that 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.

In order to reach or maintain these purchase and account minimums,
your Authorized Institution may aggregate your purchase with the
purchases of its other clients. Further exceptions to the purchase
and account minimums may be made at our discretion.

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.

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 Authorized Institution's procedures for transacting with the
Funds. Contact your Authorized Institution for more information.

BY WIRE -- If you order through the Transfer Agent, you may call the
Funds 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 Authorized
Institution, your wire may have to be received at an earlier time to
process your order that day and your Authorized 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 Authorized
Institution. You will have to follow their procedures. Contact your
Authorized 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. We will
provide you or your Authorized Institution with notice of any
deficiency in your sell request so that you may correct the deficiency.
You will receive the next calculated NAV after your sell request is
corrected.

25
<PAGE>

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.

CONFIRMING AUTHENTICITY -- We will make every effort to verify that a
telephone order is authentic. To do so, we may:

- ask for a form of personal identification or written
confirmation of instructions; and

- tape record your telephone instructions.

We reserve the right to refuse a telephone order if we cannot
reasonably confirm the authenticity of the instructions. You may,
however, redeem your shares by writing to the Funds or by following
your Authorized Institution's procedure. Contact your Authorized
Institution or the Funds at 1-888-889-0799 for further instructions.

LIABILITY -- We may be liable for losses from unauthorized or
fraudulent orders only if reasonable steps are not taken to verify an
order's authenticity.

EXCHANGING SHARES

You may exchange shares of a Fund for shares of any other CNI
Charter Fund in 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.

26
<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 a 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 a Fund for a year.

"Duration" measures the sensitivity of a debt security to changes in
interest rates. It takes into account both interest payments and
payment at maturity.

27
<PAGE>

FOR MORE INFORMATION

CNI CHARTER FUNDS

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 Funds' Annual Report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Funds' performance during its last fiscal year. Additional
information about the Funds' investments is available in the Funds' 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 FUNDS 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 Funds, please call 1-888-889-0799.

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

------------------------------
CNI -SM-
CHARTER
FUNDS

LARGE CAP GROWTH EQUITY
FUND
LARGE CAP VALUE EQUITY FUND
CORPORATE BOND FUND
GOVERNMENT BOND FUND
CALIFORNIA TAX EXEMPT BOND
FUND

INSTITUTIONAL CLASS

PROSPECTUS
DATED JANUARY 12, 2000

CNI-F-013-01

<PAGE>

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

PART A

PROSPECTUS FOR
CLASS A SHARES OF

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

<PAGE>

CNI
-------------------------------------------------------
CHARTER FUNDS-SM-

LARGE CAP GROWTH EQUITY FUND
LARGE CAP VALUE EQUITY FUND
CORPORATE BOND FUND
GOVERNMENT BOND FUND
CALIFORNIA TAX EXEMPT BOND FUND

CLASS A

PROSPECTUS
DATED JANUARY 12, 2000

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

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

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

The Funds

CNI CHARTER LARGE CAP GROWTH EQUITY FUND

(THE "LARGE CAP GROWTH FUND")......................................3

CNI CHARTER LARGE CAP VALUE EQUITY FUND

(THE "LARGE CAP VALUE FUND")........................................5

CNI CHARTER CORPORATE BOND FUND (THE "CORPORATE BOND FUND").............7

CNI CHARTER GOVERNMENT BOND FUND

(THE "GOVERNMENT BOND FUND").......................................10

CNI CHARTER CALIFORNIA TAX EXEMPT BOND FUND

(THE "CALIFORNIA TAX EXEMPT BOND FUND")............................13

Management of the Funds.......................................................16

Additional Investment Strategies and Related Risks............................17

Account Policies..............................................................18

Understanding Earnings and Taxes..............................................19

How to Buy and Sell Shares....................................................21

Important Terms to Know.......................................................23

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

This Prospectus offers Class A shares of the Large Cap Growth Fund, the Large
Cap Value Fund, the Corporate Bond Fund, the Government Bond Fund and the
California Tax Exempt Bond Fund (each a "Fund" and together, the "Funds").
Class A shares are intended for individual investors, partnerships,
corporations and other accounts that have diversified investment needs. The
Funds offer 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>

THE FUNDS

LARGE CAP GROWTH FUND

OUR GOAL

PRINCIPAL STRATEGY

PRINCIPAL RISKS OF INVESTING IN THE LARGE CAP GROWTH FUND

PAST PERFORMANCE

The Large Cap Growth Fund has not yet begun operations. The Large
Cap Growth Fund's past performance results have not been provided
but will be reported once the Large Cap Growth Fund has been in
operation for one complete calendar year (I.E., January-December).

3
<PAGE>

FEES AND EXPENSES OF THE LARGE CAP GROWTH FUND

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

<TABLE>
<S> <C> <C>
Management Fee* 0.65%
Distribution (12b-1) Fees 0.25%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses** 0.24%
Total Other Expenses** 0.49%
-----------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES*** 1.39%
</TABLE>

* The "Management Fee" is an annual fee, payable monthly out of the
Large Cap Growth 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 Large Cap Growth
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 Large
Cap Growth 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 Large Cap Growth Fund with the cost of investing in other mutual
funds. It assumes that you invest $10,000 in the Large Cap Growth 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 Large Cap Growth 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:

<TABLE>
<CAPTION>
1 Year 3 Years
-------------------------
<S> <C>
$142 $440
</TABLE>

4
<PAGE>
LARGE CAP VALUE FUND

OUR GOALS

PRINCIPAL STRATEGY

We purchase a diversified portfolio of equity securities at least
65% of which consists of large U.S. corporations and U.S. dollar
denominated American Depository Receipts of large foreign
corporations. We look for companies whose market valuations compare
favorably relative to similar companies. We monitor the holdings in
the Large Cap Value Fund in order to capitalize as favorably as
possible on the shifting investment environment. The average market
capitalization of the corporations in which the Large Cap Value Fund
invests exceeds $2 billion.

PRINCIPAL RISKS OF INVESTING IN THE LARGE CAP VALUE FUND

PAST PERFORMANCE

5
<PAGE>

FEES AND EXPENSES OF THE LARGE CAP VALUE FUND

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

<TABLE>
<S> <C> <C>
Management Fee* 0.62%
Distribution (12b-1) Fees 0.25%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses** 0.24%
Total Other Expenses** 0.49%
-----------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES*** 1.36%
</TABLE>

* The "Management Fee" is an annual fee, payable monthly out of the
Large Cap Value 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 Large Cap Value
Fund for expenses to the extent necessary to keep Total Annual Fund
Operating Expenses at or below 1.25%. 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 Large
Cap Value 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 Large Cap Value Fund with the cost of investing in other mutual
funds. It assumes that you invest $10,000 in the Large Cap Value
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 Large Cap
Value 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:

<TABLE>
<CAPTION>
1 Year 3 Years
-------------------------
<S> <C>
$138 $431
</TABLE>

6
<PAGE>

CORPORATE BOND FUND

OUR GOALS

PRINCIPAL STRATEGY

We purchase a diversified portfolio of fixed income securities at
least 65% of which consists of investment grade corporate notes,
bonds and debentures that are nationally traded, including U.S.
government and agency securities and corporate issues of domestic
and international companies denominated in U.S. dollars. We may also
purchase mortgage backed and asset backed instruments whose maturity
and duration are consistent with an intermediate term strategy. We
actively manage the average duration of the portfolio in accordance
with our expectations of interest rate changes as driven by economic
trends. The average duration of the portfolio will typically range
from two to six years. We will typically invest in corporate issues
with a minimum credit rating from Moody's Investors Service or
Standard & Poor's Corporation of Baa or BBB, mortgage backed and
asset backed instruments with a minimum rating of Aa or AA and
corporate commercial paper issued by issuers with a minimum credit
rating of A1 or P1. We may retain a security after it has been
downgraded below the minimum credit rating if we determine it is in
the best interests of the Corporate Bond Fund. The Corporate Bond
Fund may also invest in the shares of money market mutual funds
whose objectives are consistent with those of the Corporate Bond
Fund.

7
<PAGE>

PRINCIPAL RISKS OF INVESTING IN THE CORPORATE BOND FUND

As with any mutual fund, there are risks to investing. We cannot
guarantee that we will meet our investment goals. The Corporate Bond
Fund may expose you to certain risks that could cause you to lose
money. 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 more volatile than higher rated securities. The
average duration of these securities affects risk as well, with
longer term securities generally more volatile than shorter term
securities. In addition, the Corporate Bond Fund is subject to the
risk that its market segment, fixed income securities, may
underperform other fixed income 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 Corporate Bond Fund. Changes in the
financial condition of issuers also may adversely affect the value
of the Corporate Bond Fund's securities. The Corporate Bond Fund may
invest in bonds rated below investment grade, which involve greater
risks of default or downgrade and are more volatile than investment
grade securities. The Corporate Bond Fund is not a money market fund.

PAST PERFORMANCE

The Corporate Bond Fund has not yet begun operations. The Corporate
Bond Fund's past performance results have not been provided but will
be reported once the Corporate Bond Fund has been in operation for
one complete calendar year (I.E., January-December).

8
<PAGE>

FEES AND EXPENSES OF THE CORPORATE BOND FUND

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

<TABLE>
<S> <C> <C>
Management Fee* 0.40%
Distribution (12b-1) Fees 0.25%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses** 0.24%
Total Other Expenses** 0.49%
-----------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES*** 1.14%
</TABLE>

* The "Management Fee" is an annual fee, payable monthly out of the
Corporate Bond 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
Corporate Bond 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 Corporate Bond 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 Corporate Bond Fund with the cost of investing in other mutual
funds. It assumes that you invest $10,000 in the Corporate Bond 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 Corporate Bond 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:

<TABLE>
<CAPTION>
1 Year 3 Years
-------------------------
<S> <C>
$116 $362
</TABLE>

9
<PAGE>

GOVERNMENT BOND FUND

OUR GOALS

PRINCIPAL STRATEGY

We purchase a diversified portfolio at least 65% of which consists
of U.S. government securities either issued or guaranteed by the
U.S. government or its agencies or instrumentalities. We may also
purchase mortgage backed and asset backed instruments issued by the
U.S. government or a government sponsored agency whose maturity and
duration are consistent with an intermediate term strategy. We
actively manage the average duration of the portfolio in accordance
with our expectations of interest rate changes as driven by economic
trends. The average duration of the portfolio will typically range
from two to six years. The Government Bond Fund may also invest in
the shares of money market mutual funds whose objectives are
consistent with those of the Government Bond Fund.

10
<PAGE>

PRINCIPAL RISKS OF INVESTING IN THE GOVERNMENT BOND FUND

As with any mutual fund, there are risks to investing. We cannot
guarantee that we will meet our investment goals. The Government
Bond Fund may expose you to certain risks that could cause you to
lose money. 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 more volatile than higher rated securities. The
average duration of these securities affects risk as well, with
longer term securities generally more volatile than shorter term
securities. In addition, the Government Bond Fund is subject to the
risk that its market segment, government fixed income securities,
may underperform other fixed income 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 Government Bond Fund. Changes in the
financial condition of issuers also may adversely affect the value
of the Fund's securities. The Government Bond Fund may invest in
bonds rated below investment grade, which involve greater risks of
default or downgrade and are more volatile than investment grade
securities. The Government Bond Fund is not a money market fund.

PAST PERFORMANCE

The Government Bond Fund has not yet begun operations. The
Government Bond Fund's past performance results have not been
provided but will be reported once the Government Bond Fund
has been in operation for one complete calendar year (I.E.,
January-December).

11
<PAGE>

FEES AND EXPENSES OF THE GOVERNMENT BOND FUND

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

<TABLE>
<S> <C> <C>
Management Fee* 0.43%
Distribution (12b-1) Fees 0.25%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses** 0.24%
Total Other Expenses** 0.49%
-----------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES*** 1.17%
</TABLE>

* The "Management Fee" is an annual fee, payable monthly out of the
Government Bond 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 Government Bond
Fund for expenses to the extent necessary to keep Total Annual Fund
Operating Expenses at or below 0.95%. 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
Government Bond 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 Government Bond Fund with the cost of investing in other mutual
funds. It assumes that you invest $10,000 in the Government Bond 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 Government Bond 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:

<TABLE>
<CAPTION>
1 Year 3 Years
-------------------------
<S> <C>
$119 $372
</TABLE>

12
<PAGE>

CALIFORNIA TAX EXEMPT BOND FUND

OUR GOALS

The California Tax Exempt Bond Fund seeks to provide current income
exempt from Federal and California state income tax (as the primary
component of a total return strategy) by investing primarily in
California municipal bonds. The goal of the California Tax Exempt
Bond Fund can only be changed with shareholder approval.

PRINCIPAL STRATEGY

We purchase a portfolio at least 65% of which consists of intermediate
term municipal bond obligations, including general obligation bonds,
revenue bonds, notes and obligations from various other sectors in
the municipal bond market. The California Tax Exempt Bond Fund may
also invest in short term tax exempt commercial paper, floating rate
notes or the shares of money market mutual funds whose objectives
are consistent with those of the California Tax Exempt Bond
Fund. We actively manage the average duration of the portfolio
in accordance with our expectations of interest rate changes as
driven by economic trends. The average duration of the portfolio
will typically range from three to eight years. We will typically
invest in issues with a minimum credit rating from Moody's Investors
Service or Standard & Poor's Corporation of Baa or BBB, issues
carrying credit enhancements such as insurance by the major bond
insurance companies with an underlying minimum credit rating of Baa
or BBB, and short term notes with a rating from Moody's of MIG1 or
VMIG1 or from Standard & Poor's of SP1 or A1. We may retain a security
after it has been downgraded below the minimum credit rating if we
determine it is in the best interests of the California Tax Exempt
Bond Fund.

13
<PAGE>

PRINCIPAL RISKS OF INVESTING IN THE CALIFORNIA TAX EXEMPT BOND 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
more volatile than higher rated securities. The average duration
of these securities affects risk as well, with longer term
securities generally more volatile than shorter term securities.
In addition, the California Tax Exempt Bond Fund is subject to
the risk that its market segment, municipal debt securities, may
under perform other market segments or the markets as a whole.
The California Tax Exempt Bond Fund invests at least 80% of its
net assets in intermediate-term, high-quality municipal bonds and
notes, and at least 65% of its total assets in debt securities, the
interest from which is expected to be exempt from California personal
income taxes. Economic or political changes may adversely affect the
ability of issuers to repay principal and to make interest payments
on securities owned by the California Tax Exempt Bond Fund.
Changes in the financial condition of issuers also may adversely
affect the value of the California Tax Exempt Bond Fund's securities.
The California Tax Exempt Bond Fund may invest in bonds rated below
investment grade, which involve greater risks of default or
downgrade and are more volatile than investment grade securities.
The California Tax Exempt Bond Fund is not a money market fund.

PAST PERFORMANCE

The California Tax Exempt Bond Fund has not yet begun operations.
The California Tax Exempt Bond Fund's past performance results have
not been provided but will be reported once the California Tax
Exempt Bond Fund has been in operation for one complete calendar
year (I.E., January-December).

14
<PAGE>

FEES AND EXPENSES OF THE CALIFORNIA TAX EXEMPT BOND FUND

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

<TABLE>
<S> <C> <C>
Management Fee* 0.27%
Distribution (12b-1) Fees 0.25%
Other Expenses
Shareholder Servicing Fee 0.25%
Other Fund Expenses** 0.24%
Total Other Expenses** 0.49%
-----------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES*** 1.01%
</TABLE>

* The "Management Fee" is an annual fee, payable monthly out of the
California Tax Exempt Bond 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 California Tax
Exempt Bond Fund for expenses to the extent necessary to keep Total
Annual Fund Operating Expenses at or below 0.75%. 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
California Tax Exempt Bond Fund's then current expense limit, if any,
for that year and if certain other conditions are satisfied.

EXAMPLE

<TABLE>
<CAPTION>
1 Year 3 Years
-------------------------
<S> <C>
$103 $322
</TABLE>

15
<PAGE>

MANAGEMENT OF THE FUNDS

INVESTMENT MANAGER

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,
a New York Stock Exchange listed company. CNB's address is 400
North Roxbury Drive, Beverly Hills, California 90210.

PORTFOLIO MANAGEMENT

ADMINISTRATOR, FUND ACCOUNTANT AND TRANSFER AGENT

SEI Investment Mutual Funds Services (the "Administrator") serves as
administrator and fund accountant to the Funds. 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 each 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 each Fund. SEI
Investments Fund Management serves as transfer agent for the Funds
and is located at 530 East Swedesford Road, Wayne, Pennsylvania
19087 and can be reached at 1-888-889-0799.

DISTRIBUTOR

16
<PAGE>

ADDITIONAL INVESTMENT STRATEGIES AND RELATED RISKS

DEFENSIVE INVESTMENTS - The strategies described in this Prospectus
are those the Funds use under normal conditions. At the discretion of
each Fund's portfolio managers, we may invest up to 100% of the
Fund's assets in cash or cash equivalents for temporary defensive
purposes. No Fund is required or expected to take such a defensive
posture. But if used, such a stance may help a Fund minimize or avoid
losses during adverse market, economic or political conditions. During
such a period, a Fund may not achieve its investment objective. For
example, should the market advance during this period, a 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 a Fund has owned that
security. Buying and selling securities generally involves some
expense to a Fund, such as commissions paid to brokers and other
transaction costs. By selling a security, a Fund may realize taxable
capital gains that it will subsequently distribute to shareholders.
Generally speaking, the higher a 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 a 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. Generally, annual portfolio turnover should not exceed 100% for
the Large Cap Growth Fund and the Large Cap Value Fund, and 30% for
the Corporate Bond Fund, Government Bond Fund and California Tax
Exempt 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 Funds because those costs are borne primarily by the
vendors and service providers, and not directly by the Funds. It is
also important to keep in mind that the Year 2000 problem may
negatively impact the issuers of the securities in which the Funds
invest and by extension, the value of the securities held by the Funds.
Year 2000 problems may manifest themselves after January 1, 2000.
This is a "Year 2000 Readiness Disclosure" within the meaning of the
"Year 2000 Information and Readiness Disclosure Act."

17
<PAGE>

ACCOUNT POLICIES

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

DISTRIBUTION PLAN - The Funds have adopted a plan (the "Plan") for
their Class A shares under Rule 12b-1 of the Investment Company Act.
The Plan allows the Funds to pay distribution fees of 0.25% of annual
net assets for the sale and distribution of its shares. Although the
Funds do not have a front-end load, because the distribution fees are
paid out of the Funds' 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 any Fund, please call us at
1-888-889-0799.

18
<PAGE>

UNDERSTANDING EARNINGS AND TAXES

DIVIDENDS AND DISTRIBUTIONS - IRS rules require that each 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 each 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 a 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. Each Fund's distributions, whether
received in cash or reinvested, may be taxable. Any redemption of a
Fund's shares or any exchange of a 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.

19
<PAGE>

of its assets in municipal bonds. If the Fund satisfies this
requirement, any distributions paid to shareholders from its net
investment income will be exempt from federal income tax, to the extent
that it derives its net investment income from interest on municipal
bonds. Any distributions paid from other sources of net investment
income, such as market discounts on certain municipal bonds, will be
treated as ordinary income by the IRS.

20
<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; or

- any other approved financial institution.

ORDERING THROUGH A BROKER-DEALER OR FINANCIAL INSTITUTION (EACH 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 Funds. You will also generally have to address your
correspondence or questions regarding the Funds to your Authorized
Institution.

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 a Fund for an initial
amount of $100,000. This is the required minimum account balance.
You may buy additional shares for $1,000 or more.

21
<PAGE>

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 Funds.
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.

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. We will
provide you or your Authorized Institution with notice of any
deficiency in your sell request so that you may correct the
deficiency. You will receive the next calculated NAV after your sell
request is corrected.

OTHER REDEMPTION OPTIONS-- Under conditions where cash redemptions are
detrimental to a Fund and its shareholders, we reserve the right to
make redemptions in readily marketable securities other than cash. In
unusual circumstances, a 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

22
<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 a 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 a Fund for a year.

"Duration" measures the sensitivity of a debt security to changes in
interest rates. It takes into account both interest payments and
payment at maturity.

23
<PAGE>

FOR MORE INFORMATION

CNI CHARTER FUNDS

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

INFORMATION ABOUT THE FUNDS 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 Funds, please call 1-888-889-0799.

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

------------------------------
CNI -SM-
CHARTER
FUNDS

LARGE CAP GROWTH EQUITY FUND
LARGE CAP VALUE EQUITY FUND
CORPORATE BOND FUND
GOVERNMENT BOND FUND
CALIFORNIA TAX EXEMPT BOND
FUND

CLASS A

PROSPECTUS

DATED January 12, 2000

CNI-F-014-01

24
<PAGE>

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

PART B

COMBINED STATEMENT OF ADDITIONAL INFORMATION

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

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

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

LARGE CAP GROWTH EQUITY FUND
LARGE CAP VALUE EQUITY FUND
CORPORATE BOND FUND
GOVERNMENT BOND FUND
CALIFORNIA TAX EXEMPT BOND FUND

January 12, 2000

This Statement of Additional Information ("SAI") is not a prospectus. It
should be read in conjunction with the Prospectus dated December 31, 1999,
which may be amended from time to time, for the CNI Charter Large Cap Growth
Equity Fund (the "Large Cap Growth Fund"), the CNI Charter Large Cap Value
Equity Fund (the "Large Cap Value Fund"), the CNI Charter Corporate Bond Fund
(the "Corporate Bond Fund"), the CNI Charter Government Bond Fund (the
"Government Fund"), and the CNI Charter California Tax Exempt Bond Fund (the
"Tax Exempt Fund"). The Growth Fund and the Value Fund are referred to herein
as the "Equity Funds." The Corporate Bond Fund, Government Fund, and Tax
Exempt Fund are referred to herein as the "Fixed Income Funds." The Equity
Funds and the Fixed Income Funds are referred to herein as the Funds." The
Funds are investment portfolios of the CNI Charter Funds (the "Trust"), an
open-end, management investment company. Each Fund other than the Tax Exempt
Fund is a diversified portfolio. The Tax Exempt Fund is non-diversified. The
Trust was formerly called the Berkeley Funds. City National Bank serves as
Investment Manager to each of the Funds.

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

<PAGE>

TABLE OF CONTENTS

Page
----

INVESTMENT TECHNIQUES.......................................................1

INVESTMENT RESTRICTIONS....................................................16

RISK CONSIDERATIONS........................................................17

MANAGEMENT OF THE TRUST....................................................25

PORTFOLIO TRANSACTIONS AND TURNOVER........................................30

DISTRIBUTIONS AND TAXES....................................................31

SHARE PRICE CALCULATION....................................................35

DISTRIBUTION PLAN..........................................................37

SHAREHOLDER SERVICE AGREEMENT..............................................37

EXPENSES...................................................................38

GENERAL INFORMATION........................................................38

PERFORMANCE INFORMATION....................................................39

PURCHASE AND REDEMPTION OF SHARES..........................................41

OTHER INFORMATION..........................................................42

FINANCIAL STATEMENTS.......................................................42

APPENDIX--RATINGS OF INVESTMENT SECURITIES................................A-1

<PAGE>

INVESTMENT TECHNIQUES

The prospectuses of the Funds shows the principal strategies and risks of
investing in each Fund. This Statement of Additional Information shows
additional strategies and risks of the Funds that an investor should consider.

EQUITY FUNDS

The Equity Funds will 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

<PAGE>

credit quality of the issuer and any call provisions. Fluctuations in the value
of equity securities in which a Fund invests will cause the net asset value of
the fund to fluctuate.

TAX EXEMPT FUND

The Tax Exempt Fund invests in obligations either issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies, authorities and
instrumentalities, including industrial development bonds, as well as
obligations of certain agencies and instrumentalities of the U.S. government.
The interest from these investments is, in the opinion of bond counsel to the
issuer, exempt from federal income tax ("Municipal Securities"), or exempt from
federal and California personal income tax ("California Municipal Securities").
Thus, this Fund generally will have a lower return than if it primarily
purchases higher yielding taxable securities. Generally, the value of the
Municipal Securities and California Municipal Securities held by this Fund will
fluctuate inversely with interest rates.

PERMITTED INVESTMENTS

FIXED INCOME SECURITIES. The Fixed Income Funds will, and the Equity Funds may,
invest in fixed income securities. Fixed income securities are debt obligations
issued by corporations, municipalities and other borrowers. The market value of
the Funds' 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 Funds' net asset value. See the attached
appendix for a discussion of fixed income ratings.

VARIABLE AND FLOATING RATE INSTRUMENTS. The Corporate Bond Fund may invest in
variable and floating rate instruments. Certain of the obligations purchased
by these Funds 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.

DEPOSITARY RECEIPTS, CONVERTIBLE SECURITIES AND SECURITIES WARRANTS. The Equity
Funds 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 a Fund's investment policies, a 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.

2
<PAGE>

MORTGAGE-RELATED SECURITIES AND DERIVATIVE SECURITIES. The Government Bond 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. These Funds use
these derivative securities in an effort to enhance return and as a means to
make certain investments not otherwise available to these Funds.

AGENCY MORTGAGE-RELATED SECURITIES. 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.

3
<PAGE>

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

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<PAGE>

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 be retired by its stated
maturity date or final distribution date, but may be retired earlier. Planned
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 a 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, a 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 a 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

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<PAGE>

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 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 a 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 a 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, a 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 a 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.

ASSET-BACKED SECURITIES. The Corporate Bond 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
motor vehicle installment sales contracts, installment loan contracts, leases of
various types of real and personal property, and receivables from revolving

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<PAGE>

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 Corporate Bond 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 Corporate Bond 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.

VARIABLE RATE DEMAND NOTES. The Fixed Income Funds may invest in variable rate
demand notes ("VRDNs"). VRDNs are tax-exempt obligations that contain a floating
or variable interest rate adjustment formula and an unconditional right of
demand to receive payment of the unpaid principal balance plus accrued interest
upon a short notice period prior to specified dates, generally at 30-, 60-, 90-,
180-, or 365-day intervals. The interest rates are adjustable at intervals
ranging from daily to six months. Adjustment formulas are designed to maintain
the market value of the VRDN at approximately the par value of the VRDN upon the
adjustment date. The adjustments typically are based upon the prime rate of a
bank or some other appropriate interest rate adjustment index.

The Fixed Income Funds also may invest in VRDNs in the form of participation
interests ("Participating VRDNs") in variable rate tax-exempt obligations held
by a financial institution, typically a commercial bank ("institution").
Participating VRDNs provide a Fund with a specified undivided interest (up to
100%) of the underlying obligation and the right to demand payment of the unpaid
principal balance plus accrued interest on the Participating VRDNs from the
institution upon a specified number of days' notice, not to exceed seven. In
addition, the Participating VRDN is backed by an irrevocable letter of credit or
guaranty of the institution. A Fund has an undivided interest in the underlying
obligation and thus participates on the same basis as the institution in such
obligation except that the institution typically retains fees out of the
interest paid on the obligation for servicing the obligation, providing the
letter of credit and issuing the repurchase commitment.

Participating VRDNs may be unrated or rated, and their creditworthiness may be a
function of the creditworthiness of the issuer, the institution furnishing the
irrevocable letter of credit, or both. Accordingly, these Funds may invest in
such VRDNs, the issuers or underlying institutions of which the Investment
Manager believes are creditworthy and satisfy the quality requirements of these
Funds. The Investment Manager periodically monitors the creditworthiness of the
issuer of such securities and the underlying institution.

During periods of high inflation and periods of economic slowdown, together with
the fiscal measures adopted by governmental authorities to attempt to deal with
them, interest rates have varied widely. While the value of the underlying VRDN
may change with changes in interest rates generally, the variable rate nature of
the underlying VRDN should minimize changes in the value of the instruments.
Accordingly, as interest rates decrease or increase, the potential for capital
appreciation and the risk of potential capital depreciation is less than would
be the case

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<PAGE>

with a portfolio of fixed-income securities. Some VRDNs have minimum or maximum
rates, or maximum rates set by state law, which limit the degree to which
interest on such VRDNs may fluctuate; to the extent they do increases or
decreases in value may be somewhat greater than would be the case without such
limits. Because the adjustment of interest rates on the VRDNs is made in
relation to movements of various interest rate adjustment indices, the VRDNs are
not comparable to long-term fixed-rate securities. Accordingly, interest rates
on the VRDNs may be higher or lower than current market rates for fixed-rate
obligations of comparable quality with similar maturities.

FOREIGN SECURITIES. The Funds 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.

FUTURES AND OPTIONS ON FUTURES. The Large Cap Growth Fund and Large Cap Value
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. These Funds 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. These Funds will minimize the
risk that they 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 one of these Funds
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.

These Funds 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 relevant 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 lack of
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.

These Funds may buy and sell futures contracts and related options to manage
exposure to changing interest rates and securities prices. Some strategies
reduce a 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 a Fund's return. No price
is paid upon entering into futures contracts. Instead, a 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.

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<PAGE>

INVESTMENT COMPANY SHARES. The Funds 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 Funds. The
Funds' 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, each 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.

MUNICIPAL SECURITIES. The Tax Exempt 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.

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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 Tax Exempt Fund may invest in municipal leases.
The Tax Exempt 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 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 Tax Exempt 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.

OPTIONS ON SECURITIES, SECURITIES INDICES AND CURRENCIES. Each Equity 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 that Fund may invest. The
Equity Funds also may enter into closing sales transactions in order to
realize gains or minimize losses on options they have purchased.

An Equity 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 an Equity 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.

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<PAGE>

A Fund may purchase and sell options traded on U.S. and foreign exchanges.
Although a 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 a 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.

Although these Funds do not currently intend to do so, they may, in the
future, write (I.E., sell) covered put and call options on securities,
securities indices and currencies in which they may invest. A covered call
option involves a Fund's giving another party, in return for a premium, the
right to buy specified securities owned by that 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, a 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, a Fund's
ability to sell the underlying security is limited while the option is in
effect unless that Fund effects a closing purchase transaction.

Each Equity 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. An Equity 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, a Fund will cause its custodian to 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. A Fund will not write put options if the aggregate value of the
obligations underlying the put options exceeds 25% of that 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 Funds' orders.

REPURCHASE AGREEMENTS. The Funds 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 Funds or
their agents will have actual or constructive possession of the

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securities held as collateral for the repurchase agreement. The Funds bear a
risk of loss in the event the other party defaults on its obligations and the
Funds are delayed or prevented from exercising their right to dispose of the
collateral securities, or if the Funds realize a loss on the sale of the
collateral securities. The Investment Manager will enter into repurchase
agreements on behalf of a 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. These
guidelines currently permit the Funds 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 Funds 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 will monitor compliance with this requirement. Under all repurchase
agreements entered into by the Funds, the Custodian or its agent must take
possession of the underlying collateral. However, if the seller defaults, the
Funds 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, these Funds may incur delays and costs in selling the security
and may suffer a loss of principal and interest if these Funds are treated as
unsecured creditors. Repurchase agreements, in some circumstances, may not be
tax exempt.

RULE 144A SECURITIES. 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 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 a 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 a Fund's Investment Manager pursuant to guidelines approved by
the Board. The Investment Manager 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) whether any dealers have agreed to
make a market in the security, (3) the number of dealers willing and ready to
purchase and sell 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, 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 a Fund's percentage limit
on illiquid securities investment.

LENDING OF PORTFOLIO SECURITIES. The Funds may lend their 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

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<PAGE>

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. A 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 a Fund or the
borrower at any time. Upon such termination, that Fund is entitled to obtain the
return of the securities loaned within five business days.

For the duration of the loan, a 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.

STANDBY COMMITMENTS AND PUT TRANSACTIONS. The Fixed Income Funds reserve the
right to engage in standby commitments and put transactions. The Investment
Manager has the authority to purchase securities at a price which would
result in a yield to maturity lower than that generally offered by the seller
at the time of purchase when these Funds can simultaneously acquire the right
to sell the securities back to the seller, the issuer, or a third party (the
"writer") at an agreed-upon price at any time during a stated period or on a
certain date. Such a right is generally denoted as a "standby commitment" or
a "put." The purpose of engaging in transactions involving puts is to
maintain flexibility and liquidity to permit these Funds to meet redemptions
and remain as fully invested as possible in municipal securities. The right
to put the securities depends on the writer's ability to pay for the
securities at the time the put is exercised. These Funds would limit their
put transactions to institutions which the Investment Manager believes
present minimum credit risks, and the Investment Manager would use its best
efforts to initially determine and continue to monitor the financial strength
of the sellers of the options by evaluating their financial statements and
such other information as is available in the marketplace. It may, however,
be difficult to monitor the financial strength of the writers because
adequate current financial information may not be available. In the event
that any writer is unable to honor a put for financial reasons, these Funds
would be a general creditor (I.E., on a parity with all other unsecured
creditors) of the writer. Furthermore, particular provisions of the contract
between one of these Funds and the writer may excuse the writer from
repurchasing the securities; for example, a change in the published rating of
the underlying securities or any similar event that has an adverse effect on
the issuer's credit or a provision in the contract that the put will not be
exercised except in certain special cases, for example, to maintain portfolio
liquidity. These Funds could, however, at any time sell the underlying
portfolio security in the open market or wait until the portfolio security
matures, at which time it should realize the full par value of the security.

The securities purchased subject to a put may be sold to third persons at any
time, even though the put is outstanding, but the put itself, unless it is an
integral part of the security as originally issued, may not be marketable or
otherwise assignable. Therefore, the put would have value only to these Funds.
Sale of the securities to third parties or lapse of time with the put
unexercised may terminate the right to put the securities. Prior to the
expiration of any put option, these Funds could seek to negotiate terms for the
extension of such an option. If such a renewal cannot be negotiated on terms
satisfactory to these Funds, these Funds could, of course, sell the security.
The maturity of the underlying security will generally be different from that of
the put.

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HIGHLY LIQUID INVESTMENTS. The Funds may invest in bank notes, which are
unsecured promissory notes representing debt obligations that are issued by
banks in large denominations. The Funds 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 Funds may invest in certificates of deposit. A certificate 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.

COMMERCIAL PAPER. The Funds 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 pursuant to guidelines approved
by the Board will monitor these Funds' investments in these securities, focusing
on such important factors as, among others, valuation, liquidity, and
availability of information.

TAX EXEMPT COMMERCIAL PAPER. The Tax Exempt Fund may invest in tax exempt
commercial paper. Tax exempt commercial paper is unsecured short-term
obligations issued by a government or political sub-division. It is not
currently expected that the Tax Exempt Fund will invest in tax exempt commercial
paper.

TIME DEPOSITS. The Funds 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. Each 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 Funds 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 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.

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WHEN-ISSUED SECURITIES. The Funds 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. Each 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 these Funds before settlement.
Although the Funds generally purchase securities on a when-issued or forward
commitment basis with the intention of actually acquiring securities for their
portfolios, the Funds may dispose of a when-issued security or forward
commitment prior to settlement if the Investment Manager deems it appropriate to
do so.

The Funds 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 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.

INDEX-BASED INVESTMENTS. The Large Cap Growth Fund may invest in index-based
investments. Index-Based Investments, such as Standard & Poor's Depository
Receipts ("SPDRs"), NASDAQ-100 Index Tracking Stock ("NASDAQ 100s") and Dow
Jones DIAMONDS ("Diamonds"), are interests in a unit investment trust
("UIT") that may be obtained from the UIT or purchased in the secondary
market. SPDRs, NASDAQ 100s and DIAMONDS are listed on the American Stock
Exchange.

A UIT will generally issue Index-Based Investments in aggregations of 50,000
known as "Creation Units" in exchange for a "Portfolio Deposit" consisting of
(a) a portfolio of securities substantially similar to the component
securities ("Index Securities") of the applicable index (the "Index"), (b) a
cash payment equal to a pro rata portion of the dividends accrued on the
UIT's portfolio securities since the last dividend payment by the UIT, net of
expenses and liabilities, and (c) a cash payment or credit ("Balancing
Amount") designed to equalize the net asset value of the Index and the net
asset value of a Portfolio Deposit.

Index-Based Investments are not individually redeemable, except upon
termination of the UIT. To redeem, the portfolio must accumulate enough
Index-Based Investments to reconstitute a Creation Unit (large aggregations
of a particular Index-Based Investment). The liquidity of small holdings of
Index-Based Investments, therefore, will depend upon the existence of a
secondary market. Upon redemption of a Creation Unit, the portfolio will
receive Index Securities and cash identical to the Portfolio Deposit required
of an investor wishing to purchase a Creation Unit that day.

The price of Index-Based Investments is derived and based upon the securities
held by the UIT. Accordingly, the level of risk involved in the purchase or
sale of Index-Based Investments is similar to the risk involved in the
purchase or sale of traditional common stock, with the exception that the
pricing mechanism for Index-Based Investments is based on a basket of stocks.
Disruptions in the markets for the securities underlying Index-Based
Investments purchased or sold by the Portfolio could result in losses on
Index-Based Investments. Trading in Index-Based Investments involves risks
similar to those risks described above under "Options and Futures on Options"
involved in the writing of options on securities.

BORROWING POLICY. The Funds 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 each Fund's total assets in order to meet
redemption requests without immediately selling any portfolio securities. The
Funds 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 a 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.

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INVESTMENT RESTRICTIONS

FUNDAMENTAL POLICIES

No Fund may:

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. Other than the California Tax Exempt Fund, 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.

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 (other than the limitation on borrowing) 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.

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NON-FUNDAMENTAL POLICIES

No Fund may:

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.

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 and not readily marketable securities)
apply at the time of purchase. If, subsequent to a Fund's 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 returns of the Funds who invest in debt securities
will tend to be somewhat higher than prevailing market rates, and in periods of
rising interest rates, the returns of the Funds who invest in debt securities
will tend to be somewhat lower. Also, when interest rates are falling, the
inflow of net new money to these Funds from the continuous sale of their shares
will likely be invested in portfolio instruments producing lower yields than the
balance of the portfolios, thereby reducing these Funds' current returns. In
periods of rising interest rates, the opposite can be expected to occur.

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<PAGE>

The value of commercial paper and other securities in these Funds' 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.

These Funds' 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.

TAX EXEMPT FUND - SPECIFIC RISKS

The Tax Exempt Fund is a "non-diversified" investment company under the
Investment Company Act. This means that, with respect to 50% of its total
assets, it may not invest more than 5% of its total assets in the securities of
any one issuer (other than the U.S. government). The balance of its assets may
be invested in as few as two issuers. Thus, up to 25% of the Fund's total assets
may be invested in the securities of any one issuer. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) the assets and revenues of which back the security, or, with respect
to an industrial development bond, that is backed only by the assets and
revenues of a non-governmental user, by such non-governmental user. In certain
circumstances, the guarantor of a guaranteed security also may be considered to
be an issuer in connection with such guarantee. By investing in a portfolio of
municipal securities, a shareholder in the Tax Exempt Fund enjoys greater
diversification than an investor holding a single municipal security. The
investment return on a non-diversified portfolio, however, typically is
dependent upon the performance of a smaller number of issuers relative to the
number of issuers held in a diversified portfolio. If the financial condition or
market assessment of certain issuers changes, this Fund's policy of acquiring
large positions in the obligations of a relatively small number of issuers may
affect the value of its portfolio to a greater extent than if its portfolio were
fully diversified.

The ability of issuers to pay interest on, and repay principal of, California
municipal securities ("California Municipal Securities") may be affected by (1)
amendments to the California Constitution and related statutes that limit the
taxing and spending authority of California government entities, and related
civil actions, (2) a wide variety of California laws and regulations, and (3)
the general financial condition of the State of California.

There could be economic, business or political developments which might affect
all Municipal Securities of a similar type. To the extent that a significant
portion of the Fund's assets are invested in Municipal Securities payable from
revenues on similar projects, the Fund will be subject to the risks presented by
such projects to a greater extent than it would be if the Fund's assets were not
so invested. Moreover, in seeking to attain its investment objective the Fund
may invest all or any part of its assets in Municipal Securities that are
industrial development bonds.

Under normal conditions, the Tax Exempt Fund will be fully invested in
obligations which produce income exempt from federal income tax and California
state personal income tax. Accordingly, the Tax Exempt Fund will have
considerable investments in California Municipal Securities. As a result, the
Tax Exempt Fund will be more susceptible to factors which adversely

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<PAGE>

affect issuers of California obligations than a mutual fund which does not have
as great a concentration in California municipal obligations.

An investment in the Tax Exempt Fund will be affected by the many factors that
affect the financial condition of the State of California. For example,
financial difficulties of the State of California, its counties, municipalities
and school districts that hinder efforts to borrow and credit ratings are
factors which may significantly and adversely affect the Tax Exempt Fund.

The Tax Exempt Fund's concentration in California municipal bonds may expose
shareholders to additional risks. In particular, the Tax Exempt Fund will be
vulnerable to any development in California's economy that may weaken or
jeopardize the ability of California municipal-bond issuers to pay interest and
principal on their bonds. Although the Tax Exempt Fund's objective is to provide
income exempt from federal and California State personal income taxes, some of
its income may be subject to the alternative minimum tax.

HISTORICAL PERSPECTIVE. The information set forth below is a general summary
intended to give a recent historical description. It is not a discussion of any
specific factors that may affect any particular issuer of California Municipal
Securities. The information is not intended to indicate continuing or future
trends in the condition, financial or otherwise, of the State of California.
Such information is derived from official statements utilized in connection with
securities offerings of the State of California that have come to the attention
of the Trust and were available prior to the date of this SAI. Such information
has not been independently verified by the Tax Exempt Fund.

Because the Tax Exempt Fund expects to invest substantially all of its assets in
California Municipal Securities, it will be susceptible to a number of complex
factors affecting the issuers of California Municipal Securities, including
national and local political, economic, social, environmental and regulatory
policies and conditions. The Tax Exempt Fund cannot predict whether or to what
extent such factors or other factors may affect the issuers of California
Municipal Securities, the market value or marketability of such securities or
the ability of the respective issuers of such securities acquired by the Tax
Exempt Fund to pay interest on, or principal of, such securities. The
creditworthiness of obligations issued by local California issuers may be
unrelated to the creditworthiness of obligations issued by the State of
California, and there is no responsibility on the part of the State of
California to make payments on such local obligations. There may be specific
factors that are applicable in connection with investment in the obligations of
particular issuers located within California, and it is possible the Tax Exempt
Fund will invest in obligations of particular issuers as to which such specific
factors are applicable.

From mid-1990 to late 1993, California suffered the most severe recession in the
State since the 1930s. Construction, manufacturing (especially aerospace),
exports and financial services, among other industries, have been severely
affected. Since the start of 1994, however, California's economy has been on a
steady recovery. The unemployment rate, while still higher than the national
average, fell to an average of 5.9% during 1998, compared to over 10 percent
during the recession. Many of the new jobs were created in such industries as
computer services, software design, motion pictures and high technology
manufacturing. Business services, export trade and other manufacturing also
experienced growth. The unsettled financial situation occurring in certain Asian
economies may adversely affect the State's export-related industries and,
therefore, the State's rate of economic growth.

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<PAGE>

The recession severely affected State revenues while the State's health and
welfare costs were increasing. Consequently, the State had a lengthy period of
budget imbalance; the State's accumulated budget deficit approached $2.8 billion
at its peak at June 30, 1993. A consequence of the large budget deficits has
been that the State depleted its available cash resources and had to use a
series of external borrowings to meet its cash needs. With the end of the
recession, the State's financial condition has improved in the fiscal years
beginning 1995-96, with a combination of better than expected revenues, slowdown
in growth of social welfare programs, and continued spending restraint. No
deficit borrowing has occurred at the end of the last four fiscal years and the
State's cash flow borrowing was limited to $1.7 billion in 1998-99.

The Governor's proposed budget for fiscal year 1999-2000 submitted in January
1999, originally proposed total State spending of $76.2 billion (excluding the
expenditure of federal funds and selected bond funds), up 4.1% from the
1998-1999 budget. This total included $60.5 billion in General Fund spending (a
3.8% increase) and $15.7 billion in special funds spending, and anticipated a
$415 million reserve by the close of the fiscal year. The May 1999 Revision
projected over $4.3 billion of additional revenue for 1998-99 and 1999-00 fiscal
years. The Governor's updated spending plan called for General Fund expenditures
of $63.2 billion in 1999-00 with an anticipated fiscal year end reserve of $985
million.

The Governor signed the 1999-00 Budget Act on June 29, 1999. The 1999-00 Budget
Act is based on projected General Fund revenues and transfers of $62.9 billion.
The Budget Act provides authority for expenditures of $63.7 billion from the
General Fund, $16.0 billion from Special Funds, and $1.5 billion from bond
funds. The Budget Act projects a reserve balance at June 30, 2000 of $881
million.

The foregoing discussion of the 1999-00 fiscal year budget and the proposed
1999-00 fiscal year budget is based in large part on statements made in a recent
"preliminary official statement" distributed by the State of California. In that
document, the State indicated that its discussion of the fiscal year budget is
based on estimates and projections of revenues and expenditures for the current
fiscal year and must not be construed as statements of fact. The State noted
further that the estimates and projections are based upon various assumptions
which may be affected by numerous factors, including future economic conditions
in the state and the nation, and that there can be no assurance that the
estimates will be achieved.

YEAR 2000. In October 1997 the Governor issued an executive order stating that
Year 2000 solutions would be a State government priority. The State reports
that, although substantial progress has been made toward the goal of Y2K
compliance, the task is still very large and will likely encounter unexpected
difficulties. The State has not predicted whether all mission critical systems
will be ready and tested by late 1999 or what impact the failure of any
particular information technology systems or of outside interfaces with
technology information systems might have. The State has indicated that all
mission critical systems will have a contingency business plan in place to
mitigate potential system failures. The State Treasurer's Office reports that as
of December 31, 1998, its systems for bond payments were fully Y2K compliant.
There can be no assurance that steps being taken by state or local government
agencies with respect to the Year 2000 problem will be sufficient to avoid any
adverse impact upon the budgets or operations of those agencies or upon the Tax
Exempt Fund.

Because of the State's continuing budget problems, the State's General
Obligation bonds were downgraded in July 1994 to A1 from Aa by Moody's, to A
from A+ by Standard & Poor's, and to A from AA by Fitch. All three rating
agencies expressed uncertainty in the State's ability to balance the budget by
1996. However, in 1996, citing California's improving economy and

20
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budget situation, both Fitch and Standard & Poor's raised their ratings from A
to A+. In October 1997, Fitch raised its rating from A+ to AA- referring to
California's fundamental strengths, the extent of economic recovery and the
return of financial stability. In October 1998, Moody's raised its rating from
A1 to Aa3 citing the State's continuing economic recovery and a number of
actions taken to improve the State's credit condition, including the rebuilding
of cash and budget reserves. In August 1999, Standard & Poor's raised its rating
from A+ to AA- citing the State's strong economic performance and its return to
structural fiscal balance. This is a "Year 2000 Readiness Disclosure" within the
meaning of the "Year 2000 Information and Readiness Disclosure Act."

CONSTITUTIONAL AND STATUTORY LIMITATIONS. Article XIII A of the California
Constitution (which resulted from the voter approved Proposition 13 in 1978)
limits the taxing powers of California public agencies. With certain exceptions,
the maximum ad valorem tax on real property cannot exceed one percent of the
"full cash value" of the property; Article XIII A also effectively prohibits the
levying of any other ad valorem property tax for general purposes. One exception
to Article XIII A permits an increase in ad valorem taxes on real property in
excess of one percent for certain bonded indebtedness approved by two-thirds of
the voters voting on the proposed indebtedness. The "full cash value" of
property may be adjusted annually to reflect increases (not to exceed two
percent) or decreases, in the consumer price index or comparable local data, or
to reflect reductions in property value caused by substantial damage,
destruction or other factors, or when there is a "change in ownership" or "new
construction".

Constitutional challenges to Article XIII A to date have been unsuccessful. In
1992, the United States Supreme Court ruled that notwithstanding the disparate
property tax burdens that Proposition 13 might place on otherwise comparable
properties, those provisions of Proposition 13 do not violate the Equal
Protection Clause of the United States Constitution. In response to the
significant reduction in local property tax revenue caused by the passage of
Proposition 13, the State enacted legislation to provide local governments with
increased expenditures from the General Fund.

During the severe recession California experienced from 1991 to 1993, the State
legislature eliminated significant components of its aid to local governments.
The State has since increased aid to local governments and reduced certain
mandates for local services. Whether legislation will be enacted in the future
to either increase or reduce the redistribution of State revenues to local
governments, or to make them less dependent on State budget decisions, cannot be
predicted.

Article XIII B of the California Constitution generally limits the amount of
appropriations of the State and of local governments to the amount of
appropriations of the entity for such prior year, adjusted for changes in the
cost of living, population and the services that the government entity has
financial responsibility for providing. To the extent the "proceeds of taxes" of
the State and/or local government exceed its appropriations limit, the excess
revenues must be rebated. Certain expenditures, including debt service on
certain bonds and appropriations for qualified capital outlay projects, are not
included in the appropriations limit.

In 1986, California voters approved an initiative statute known as Proposition
62. This initiative further restricts the ability of local governments to raise
taxes and allocate approved tax receipts. While some decisions of the California
Courts of Appeal have held that portions of Proposition 62 are unconstitutional,
the California Supreme Court has upheld the Proposition 62 requirement that
special taxes be approved by a two-thirds vote of the voters voting in an
election on the issue. This decision may invalidate other taxes that have been
imposed by local governments in

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<PAGE>

California and make it more difficult for local governments to raise taxes. In
1988 and 1990, California voters approved initiatives known as Proposition 98
and Proposition 111, respectively. These initiatives changed the State's
appropriations limit under Article XIII B to (1) require that the State set
aside a prudent reserve fund for public education, and (2) guarantee a minimum
level of State funding for public elementary and secondary schools and community
colleges.

In November 1996, California voters approved Proposition 218. The initiative
applied the provisions of Proposition 62 to all entities, including charter
cities. It requires that all taxes for general purposes obtain a simple majority
popular vote and that taxes for special purposes obtain a two-thirds majority
vote. Prior to the effectiveness of Proposition 218, charter cities could levy
certain taxes such as transient occupancy taxes and utility user's taxes without
a popular vote. Proposition 218 will also limit the authority of local
governments to impose property-related assessments, fees and charges, requiring
that such assessments be limited to the special benefit conferred and
prohibiting their use for general governmental services. Proposition 218 also
allows voters to use their initiative power to reduce or repeal previously
authorized taxes, assessments, fees and charges.

The effect of constitutional and statutory changes and of budget developments on
the ability of California issuers to pay interest and principal on their
obligations remains unclear, and may depend on whether a particular bond is a
general obligation or limited obligation bond (limited obligation bonds being
generally less affected). There is no assurance that any California issuer will
make full or timely payments of principal or interest or remain solvent. For
example, in December 1994, Orange County filed for bankruptcy.

Certain tax-exempt securities in which the Tax Exempt Fund may invest may be
obligations payable solely from the revenues of specific institutions, or may be
secured by specific properties, which are subject to provisions of California
law that could adversely affect the holders of such obligations. For example,
the revenues of California health care institutions may be adversely affected by
state laws, and California law limits the remedies of a creditor secured by a
mortgage or deed of trust on real property.

In addition, it is impossible to predict the time, magnitude, or location of a
major earthquake or its effect on the California economy. In January 1994, a
major earthquake struck the Los Angeles area, causing significant damage in a
four-county area. The possibility exists that another such earthquake could
create a major dislocation of the California economy.

The Tax Exempt Fund's concentration in California Municipal Securities provides
a greater level of risk than a fund that is diversified across numerous states
and municipal entities.

FOREIGN SECURITIES

The Funds may purchase securities issued by companies and 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 expropriation, nationalization
or confiscatory taxation; 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. Foreign

22
<PAGE>

companies are often not subject to uniform accounting, auditing and financial
reporting standards. Further, the Funds may encounter difficulties in
pursuing legal remedies or in obtaining judgments in foreign courts.

Brokerage commissions, fees for custodial services and other costs relating
to investments by the Funds 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 a 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 a Fund if the value of the portfolio security declined, or result
in claims against a Fund if it had entered into a contract to sell the
security. In certain countries there is less government supervision and
regulation of business and industry practices, stock exchanges, brokers and
listed companies than in the United States. The securities markets of many of
the countries in which these Funds 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 a
Fund's securities denominated in the currency. Such changes also affect a Fund's
income and distributions to shareholders. A Fund may be affected either
favorably or unfavorably by changes in the relative rates of exchange among the
currencies of different nations, and a 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 Funds 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 a Fund. Many countries in which a 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
Funds. The Funds 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.

EXCHANGE RATES AND POLICIES

The Equity Funds 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 these Funds change 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 these Funds from
repatriating invested capital and

23
<PAGE>

dividends, withhold portions of interest and dividends at the source, or impose
other taxes, with respect to these Funds' 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.

These Funds 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 these Funds' 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.

PREPAYMENT

Prepayments of principal of mortgage-related securities by mortgagors or
mortgage foreclosures affect the average life of the mortgage-related securities
in a 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 increase, shortening the average life of a pool.
Because prepayments of principal generally occur when interest rates are
declining, it is likely that a 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,
that 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 a 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%.

24
<PAGE>

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:

<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION FOR THE
NAME AGE 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

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
SEI Investments Chief Controller, Funds Accounting; Vice
One Freedom Valley Drive Executive President of the Administrator and
Oaks, Pennsylvania 19456 Officer Distributor (1996 - Present); BiSYS
Fund Services, Vice President of Fund
Accounting (1995-1996); Fidelity
Investments, Senior Vice President
(1981-1995).
25
<PAGE>

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

Christopher Salfi* 35 Controller and Accounting Director of SEI
SEI Investments Chief Investments Mutual Fund Services,
One Freedom Valley Drive Operating Fund Accounting Director, Fund
Oaks, Pennsylvania 19456 Officer Accounting Manager (1994-Present);
Investment Accounting Manager
(1993-1994).

Lydia A. Gavalis, Esq.* 34 Vice President Vice President and Assistant
SEI Investments and Assistant Secretary of the Administrator and
One Freedom Valley Drive Secretary the Distributor (1998-Present);
Oaks, Pennsylvania 19456 Assistant General Counsel and
Director of Arbitration, Philadelphia
Stock Exchange (1989-1998)

Lynda J. Striegel, Esq.* 50 Vice President Vice President and Assistant
SEI Investments and Assistant Secretary of the Administrator and
One Freedom Valley Drive Secretary Distributor (1998-Present); Senior
Oaks, Pennsylvania 19456 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
SEI Investments and Assistant Secretary of the Administrator and
One Freedom Valley Drive Secretary Distributor (1998-Present); Associate,
Oaks, Pennsylvania 19456 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
SEI Investments and Assistant Counsel of the Administrator and
One Freedom Valley Drive Secretary Distributor (1994-Present).
Oaks, Pennsylvania 19456

26
<PAGE>

Edward T. Searle, Esq.* 45 Vice President Vice President and Assistant
SEI Investments and Assistant Secretary of the Administrator and
One Freedom Valley Drive Secretary Distributor (1999-Present); Associate,
Oaks, Pennsylvania 19456 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)
<TABLE>
<CAPTION>
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

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 have entered into an Investment Management
Agreement (the "Management Agreement") as of April 1, 1999 regarding the
three existing series of the Trust at that time. As of the date of this SAI,
the Board had approved the amendment of the Management Agreement to include
the Funds, and the Board expects that the Trust and the Manager will enter
into such an amendment previous to the Fund's beginning operations. 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 Funds 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

27
<PAGE>

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 a 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 any Fund by the Trustees, by a vote of a
majority of the outstanding shares of that 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 Funds with investment management
services. The Investment Manager is obligated under the Management Agreement
to pay the excess of the Funds' operating expenses as disclosed in the
applicable Prospectus. The Investment Manager will not be required to bear
expenses of any Fund to an extent which would result in the Funds' 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 that 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 Funds for fees and
expenses for the current year.

The Management Agreement was approved with respect to each 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 a 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 a 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 a Fund is able to
effect such reimbursement, that the Investment Manager intends to seek

28
<PAGE>

such reimbursement and that the Board has or is likely to approve the payment of
such reimbursement, the amount of the reimbursement will be accrued as an
expense of that 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 Funds 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 Funds.

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 Funds. The Distributor
receives no compensation for distribution of shares of the Funds. 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 Funds. The Transfer Agent provides
information and services to the Funds' shareholders which include reporting
share ownership, sales and dividend activity (and associated tax
consequences), responding to daily inquiries, and effecting the transfer of
the Funds' 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

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

INDEPENDENT ACCOUNTANTS AND REPORTS TO SHAREHOLDERS

The Trust's independent accountants, KPMG LLP, audit and report on the annual
financial statements of the Funds and review the Funds' 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.

29
<PAGE>

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.

PORTFOLIO TRANSACTIONS AND TURNOVER

PORTFOLIO TRANSACTIONS

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

The Investment Manager, in effecting purchases and sales of portfolio securities
for the account of the Funds, seeks to obtain best price and execution. Subject
to the supervision of the Board, the Investment Manager generally selects
broker-dealers for the Funds 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 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 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 marketmaker 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 marketmakers
will include the spread between the bid and asked prices.

Investment decisions for the Funds are reached independently from those for
other accounts managed by the Investment Manager. Such other accounts may also
make investments in instruments or securities at the same time as the Funds. On
occasions when the Investment Manager determines the purchase or sale of a
security to be in the best interest of the Funds as well as of other clients,
the Investment Manager, 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 in the manner it considers to be the most
equitable under the circumstances and consistent with its fiduciary obligations
to the Funds and to its other participating clients. In some cases this
procedure may affect the size or price of the position obtainable for the Funds.

30
<PAGE>

PORTFOLIO TURNOVER

We anticipate annual portfolio turnover will not exceed 100% for the Large
Cap Growth Fund and the Large Cap Value Fund, and 30% for the Corporate Bond
Fund, Government Bond Fund and California Tax Exempt Bond Fund.

DISTRIBUTIONS AND TAXES

DISTRIBUTIONS

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

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

The Funds also may derive capital gains or losses in connection with sales or
other dispositions of their portfolio securities. Any net gain a 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 a 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 that 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 a Fund reduces that 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.

31
<PAGE>

FEDERAL INCOME TAXES

It is the policy of the Funds 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 Funds will distribute each year substantially all of their
investment company taxable income (if any), their net exempt-interest income (if
any), and their net capital gains (if any), and will seek to meet certain other
requirements. Such qualification relieves the Funds of liability for federal
income taxes to the extent the Funds' earnings are distributed. By following
this policy, the Funds expect 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, each 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 their business of investing in stocks, securities or currencies, and
(2) diversify holdings so that at the end of each quarter of their taxable years
(i) at least 50% of the market value of that 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 that 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 that Fund controls, within
the meaning of the Code, and that are engaged in the same, similar or related
trades or businesses. If the Funds qualify as regulated investment companies,
they will not be subject to federal income tax on the part of their net
investment income and net realized capital gains, if any, which they distribute
to shareholders, provided that the Funds meet certain minimum distribution
requirements. To comply with these requirements, the Funds 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 their taxable years. The Funds intend to make sufficient
distributions to shareholders to meet these requirements.

If a 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 Funds intend generally to make distributions
sufficient to avoid imposition of this excise tax.

Any distributions declared by the Funds 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 Funds may adjust their schedules for the
reinvestment of distributions for the month of December to assist in complying
with the reporting and minimum distribution requirements of the Code.

Any distributions by the Funds 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.

32
<PAGE>

The Funds may engage in investment techniques that may alter the timing and
character of the Funds' incomes. The Funds may be restricted in their use of
these techniques by rules relating to qualifying as regulated investment
companies.

The Funds 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 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 California Tax Exempt 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 Funds 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 a 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 a 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.

A Fund may receive dividend distributions from U.S. corporations. To the extent
that a 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 a Fund at the end of its fiscal
year is invested in stock or other securities of foreign corporations, that Fund
may elect to pass through to its shareholders the pro rata share of all foreign
income taxes paid by that 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 that 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

33
<PAGE>

requirements. In this case, shareholders will be informed in writing by that
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 that Fund) to be included in their income tax returns. If
50% or less in value of that Fund's total assets at the end of its fiscal year
are invested in stock or other securities of foreign corporations, that 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 that Fund. In this case,
these taxes will be taken as a deduction by that Fund.

A Fund may be subject to foreign withholding taxes on dividends and interest
earned with respect to securities of foreign corporations. A 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 these Funds derive from PFIC stock may be subject to a
non-deductible federal income tax at the Fund level. In some cases, a 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. A
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, a 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 a 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 a 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.

CALIFORNIA INCOME TAX

The Tax Exempt Fund intends to qualify to pay dividends to shareholders that are
exempt from California personal income tax ("California exempt-interest
dividends"). The Tax Exempt Fund will qualify to pay California exempt-interest
dividends if (1) at the close of each quarter of the Tax Exempt Fund's taxable
year, at least 50 percent of the value of the Tax Exempt Fund's total assets
consists of obligations the interest on which would be exempt from California
personal income tax if the obligations were held by an individual ("California
Tax Exempt Obligations"), and (2) the Tax Exempt Fund continues to qualify as a
regulated investment company.

If the Tax Exempt Fund qualifies to pay California exempt-interest dividends,
dividends distributed to shareholders will be considered California
exempt-interest dividends if they meet certain requirements. The Tax Exempt Fund
will notify its shareholders of the amount of exempt-interest dividends each
year.

Corporations subject to California franchise tax that invest in the Tax Exempt
Fund may not be entitled to exclude California exempt-interest dividends from
income.

34
<PAGE>

Dividend distributions that do not qualify for treatment as California
exempt-interest dividends (including those dividend distributions to
shareholders taxable as long-term capital gains for federal income tax purposes)
will be taxable to shareholders at ordinary income tax rates for California
personal income tax purposes to the extent of the Tax Exempt Fund's earnings and
profits.

Interest on indebtedness incurred or continued by a shareholder in connection
with the purchase of shares of the Tax Exempt Fund will not be deductible for
California personal income tax purposes if the Tax Exempt Fund distributes
California exempt-interest dividends.

The foregoing is a general, abbreviated summary of certain of the provisions of
the California Revenue and Taxation Code presently in effect as they directly
govern the taxation of Shareholders subject to California personal income tax.
These provisions are subject to change by legislative or administrative action,
and any such change may be retroactive with respect to Fund transactions.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning California tax matters. Paul, Hastings, Janofsky
& Walker LLP has expressed no opinion in respect thereof.

SHARE PRICE CALCULATION

The net asset value per share of a 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 that Fund outstanding at the time of the
valuation and the result (adjusted to the nearest cent) is the net asset value
per share.

In general, securities for which market quotations are readily available are
valued at current market value, and all other securities are valued at fair
value as determined in good faith by the Board of Trustees. Money market
funds within the Trust are valued at amortized cost using procedures reviewed
and approved by the Board of Trustees.

Securities listed on a securities exchange or an automated quotation system
for which quotations are readily available, including securities traded over
the counter, are valued at the last quoted sale price on the principal
exchange on which they are traded on the valuation date. If there is no such
reported sale on the valuation date, securities are valued at the most recent
quoted bid price.

Prices for securities traded on a securities exchange are provided daily by
recognized independent pricing agents. The reliability of the valuations
provided by the independent, third-party pricing agents are reviewed daily by
the Administrator.

These third-party pricing agents may employ methodologies, primarily
regarding debt securities, that utilize actual market transactions,
broker-dealer supplied valuations or other electronic data processing
techniques. These techniques generally consider such factors as security
prices, yields, maturities, call features, ratings and developments relating
to specific securities in arriving at valuations. Debt obligations with
remaining maturities of sixty days or less may be valued at their amortized
cost that approximates fair market value.

35
<PAGE>

If a security price cannot be obtained from an independent, third-party
pricing agent, the Administrator obtains a bid price from an independent
broker who makes a market in the security. The Investment Manager supplies
the Administrator with the appropriate broker contact, and, to ensure
independence the Administrator obtains the quote directly from the broker
each day.

Foreign securities owned in the Trust are valued at the closing prices (as
determined prior to the Funds' determination of NAV) on the principal
exchange on which they trade. The prices for foreign securities are reported
in local currency and converted to U.S. dollars using currency exchange
rates. Exchange rates are provided daily by recognized independent pricing
agents.

Financial futures are valued at the settlement price established each day by
the board of exchange on which they are traded. Foreign currency forward
contracts are valued at the current day's interpolated foreign exchange rate,
as calculated using the current day's exchange rate, and the thirty, sixty,
ninety and one-hundred eighty day forward rates.

Valuation corrections are required where variations in NAV are the result of
mathematical mistakes, the misapplication of accounting principles,
misjudgments in the use of fact, and failure to reflect market information
that was known or should have been known. Valuation corrections require
prospective actions, and may require retroactive actions if the NAV variation
is material. Valuation corrections that require retroactive action will be
reported to the Board of Trustees.

In its role as the Administrator, SEI Investments Mutual Fund Services has
primary operational responsibility for the operation of the valuation
process. The Administrator uses several systems to monitor the pricing data
supplied by various sources. These reports are reviewed daily. Any identified
discrepancies are researched and resolved in accordance with these
procedures. All discrepancies identified by the price flagging systems, and
the resolution and verification steps taken by the Administrator, are
documented and retained as part of the Trust's daily records.

To ensure that the independent broker continues to supply a reliable
valuation, at least once per week the Administrator provides the broker
supplied value to the Investment Manager for review and approval. In
addition, the Investment Manager will consult with the Administrator in the
event of a pricing problem, participate on the Fair Value Committee, and
shall notify the Administrator in the event it discovers a pricing
discrepancy. Under no circumstances may the Investment Manager determine the
value of a portfolio security outside of the established pricing framework.

If the value for a security cannot be determined pursuant to these
procedures, the Trust's Fair Value Committee will determine the security's
value using Fair Value Procedures established by the Board of Trustees.

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<PAGE>

DISTRIBUTION PLAN

The Trust has adopted a Distribution Plan (the "Plan") for the Class A shares
of the Funds 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 a 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 .25% of the average daily net assets of each Fund's
Class A shares, that the Distributor can use to compensate broker-dealers and
service providers, including affiliates of the Distributor, that provide
distribution-related services to the Class A shareholders or to their
customers who beneficially own the 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 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 AGREEMENT

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 Funds. As compensation for the
provision of such services, the Fund will pay the Investment Manager a fee of up
to 0.25% of the Funds' average daily net assets on an annual basis, payable
monthly. The Investment Manager will pay certain banks, trust companies,
broker-dealers, and other institutions (each a "Participating Organization") out
of the fees the Investment Manager receives from the Funds under the Shareholder
Services Agreement to the extent that the Participating Organization performs
shareholder servicing functions for the Funds with respect to shares of the
Funds owned from time to time by customers of the Participating Organization. In
certain cases,

37
<PAGE>

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 Funds.

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 Funds' 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 Funds 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 Funds 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 Funds for their 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 Funds' 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, CNI
Charter Government Fund, and CNI Charter California Tax-Exempt Fund, which
also offer Class S shares. Currently, the Trust offers shares of nine series
- - the Funds described in this SAI and the CNI Charter Money Market Fund, CNI
Charter High Yield Bond Fund, CNI Charter Government Fund and CNI Charter
California Tax Exempt Fund, which have their own prospectus 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

38
<PAGE>

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

YIELD QUOTATION. The Funds' 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.

39
<PAGE>

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 these Funds 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, these
Funds' 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 these Funds from
the continuous sale of their shares will likely be invested in instruments
producing lower yields than the balance of their portfolio of securities,
thereby reducing the current yield of these Funds. 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 a Fund will be accompanied by information on that Fund's average
annual compounded rate of return over the most recent four calendar quarters and
the period from that Fund's inception of operations. The Funds may also
advertise aggregate and average total return information over different periods
of time. A 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 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.

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

ERV - P

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

40
<PAGE>

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 that 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 that Fund with certain bank deposits or
other investments that pay a fixed yield for a stated period of time. Investors
comparing that 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 Funds will fluctuate
over time, and any presentation of a 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

Each 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 Funds 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 Funds and valued
as they are for purposes of computing the Funds' 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 Funds 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.

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 Funds 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.

41
<PAGE>

The Funds 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 Funds 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
Funds are 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 Funds' 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 a Fund.

Payments to shareholders for shares of a Fund redeemed directly from that 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 a 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
a Fund pursuant to Section 22(e) of the Investment Company Act) making disposal
of portfolio securities or valuation of net assets of a 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 Funds 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
Prospectus. 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.

FINANCIAL STATEMENTS

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

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<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.

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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

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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.

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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.

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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.

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