POTOMAC FUNDS, 497, 2001-01-09

POTOMAC FUNDS
497, 2001-01-09

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PROSPECTUS

[LOGO]
ADVISOR CLASS
100 South Royal Street
Alexandria, Virginia 22314

1311 Mamaroneck Avenue
White Plains, New York 10605

(800) 851-0511

PLUS FUNDS
The Potomac OTC Plus Fund
The Potomac Dow 30-SM- Plus Fund
The Potomac Small Cap Plus Fund
The Potomac Internet Plus Fund
The Potomac U.S. Plus Fund

MONEY MARKET FUND
The Potomac U.S. Government
Money Market Fund

LIKE SHARES OF ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
January 2, 2001

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
OVERVIEW OF THE POTOMAC FUNDS............................................. 2

THE POTOMAC FUNDS......................................................... 3
The Potomac OTC Plus Fund................................................. 3
The Potomac Dow 30-SM- Plus Fund.......................................... 3
The Potomac Small Cap Plus Fund........................................... 4
The Potomac Internet Plus Fund............................................ 5
The Potomac U.S. Plus Fund................................................ 6
Investment Techniques and Policies........................................ 6
Risk Factors.............................................................. 7
The Potomac U.S. Government Money Market Fund............................. 9
Performance of The Potomac Funds.......................................... 11
Fees and Expenses of Advisor Class Shares of The Potomac Funds............ 12

ABOUT YOUR INVESTMENT..................................................... 14
Your Account.............................................................. 14
Rule 12b-1 Fees........................................................... 14
How to Invest in Advisor Class Shares of The Potomac Funds................ 14
How to Exchange Advisor Class Shares of The Potomac Funds................. 15
How to Sell Advisor Class Shares of The Potomac Funds..................... 15
Prices of Advisor Class Shares of The Potomac Funds....................... 16
Account and Transaction Policies.......................................... 16

ADDITIONAL INFORMATION.................................................... 18
Management of The Potomac Funds........................................... 18
Distributions and Taxes................................................... 18
Master/Feeder Structure Option............................................ 19

FINANCIAL HIGHLIGHTS...................................................... 20

MORE INFORMATION ON THE POTOMAC FUNDS..................................... Back Cover
</TABLE>

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OVERVIEW OF THE POTOMAC FUNDS

This Prospectus offers the Advisor Class shares of The Potomac Plus Funds
and Money Market Fund. The Advisor Class is made available exclusively through
your investment advisor, bank, trust company or other authorized representative
(Financial Advisor).

Each Potomac "plus" fund is designed to provide a return that is greater
than the return provided by its target index when the value of the target index
rises. Unlike traditional index funds, each "plus" fund (except for The Potomac
U.S. Plus Fund) seeks to provide a return that is equal to 125% of the return of
its target index. The Potomac U.S. Plus Fund seeks to provide a return that is
equal to 150% of the return of its target index.

As an example, the Potomac OTC Plus Fund is targeted to the Nasdaq 100
Index-TM-. If, on a given day, the Nasdaq 100 Index gains 2%, the OTC Plus Fund
is designed to gain approximately 2.5% (which is equal to 125% of 2%).
Conversely, if the Nasdaq 100 Index loses 1% on a given day, the OTC Plus Fund
is designed to lose 1.25%.

To achieve these results, The Potomac Funds use aggressive investment
techniques such as engaging in futures and options transactions. As a result,
The Potomac Funds are designed principally for experienced investors who intend
to follow an asset allocation strategy. There is no assurance that The Potomac
Funds will achieve their objectives.

The Potomac Funds also offer a money market fund, which is designed to
provide stability of principal, liquidity and current income.

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THE POTOMAC FUNDS

THE POTOMAC OTC PLUS FUND

OBJECTIVE
THE POTOMAC OTC PLUS FUND seeks to provide investment returns that
correspond to 125% of the performance of the Nasdaq 100 Index-TM-. If it is
successful in meeting its objective, the net asset value of OTC Plus Fund shares
should increase approximately one and a quarter as much as the Nasdaq 100 Index
when the aggregate prices of the securities in that index rise on a given day.
Conversely, the net asset value of shares of the OTC Plus Fund should decrease
approximately one and a quarter as much when the aggregate prices of the
securities in the Nasdaq 100 Index decline on that day.

CORE INVESTMENTS
In attempting to achieve its objective, THE POTOMAC OTC PLUS FUND
primarily invests directly in the securities of the companies that comprise the
Nasdaq 100 Index. In addition, the OTC Plus Fund enters into long positions in
stock index futures contracts, options on stock index futures contracts and
options on securities and on stock indices to produce economically leveraged
investment results. On a day-to-day basis, the Fund holds U.S. Government
securities and repurchase agreements to collateralize these futures and options
contracts.

TARGET INDEX
The NASDAQ 100 INDEX-TM- is a capitalization-weighted index composed of
100 of the largest non-financial domestic companies listed on the National
Market tier of The Nasdaq Stock Market. All companies listed on the index have a
minimum market capitalization of $500 million and an average daily trading
volume of at least 100,000 shares. The Nasdaq 100 Index was created in 1985. The
Nasdaq Stock Market is not a sponsor of, or in any way affiliated with, The
Potomac Funds.

THE POTOMAC DOW 30-SM- PLUS FUND

OBJECTIVE
THE POTOMAC DOW 30-SM- PLUS FUND seeks daily investment results that
correspond to 125% of the performance of the Dow Jones Industrial Average-SM-
(Dow). If it is successful in meeting its objective, the net asset value of Dow
30 Plus Fund shares should increase approximately one and a quarter as much as
the Dow when the aggregate prices of the securities that comprise the Dow rise
on a given day. Conversely, the net asset value of shares of the Dow 30 Plus
Fund should decrease approximately one and a quarter as much when the aggregate
prices of the securities in the Dow decline on that day.
The Potomac Dow 30 Plus Fund's investment objective is not a fundamental
policy and may be changed by the Potomac Funds' Board of Trustees without
shareholder approval.

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CORE INVESTMENTS
In attempting to achieve its objective, THE POTOMAC DOW 30 -SM- PLUS FUND
primarily invests directly in the securities of the companies that comprise the
Dow. In addition, the Potomac Dow 30-SM- Plus Fund enters into long positions in
stock index futures contracts, options on stock index futures contracts and
options on securities and on stock indices to produce economically leveraged
investment results. The Fund also may invest in DIAMONDS, which are
publicly-traded index securities based on the Dow. This allows the Fund to
invest in a portfolio of securities consisting of all of the component common
stocks of the Dow. On a day-to-day basis, the Fund holds U.S. Government
securities and repurchase agreements to collateralize these futures and options
contracts.

TARGET INDEX
The DOW JONES INDUSTRIAL AVERAGE-SM- consists of 30 of the most widely
held and actively traded stocks listed on the U.S. stock markets. The stocks in
the Dow represent companies that typically are dominant firms in their
respective industries. Dow Jones, Dow Jones Industrial Average-SM-, DJIA-SM-,
and Dow 30-SM- are service marks of Dow Jones & Company, Inc. Dow Jones has no
relationship to The Potomac Funds, other than the licensing of those service
marks for use in connection with the Funds' materials. Dow Jones does not
sponsor, endorse, sell or promote any of The Potomac Funds.

THE POTOMAC SMALL CAP PLUS FUND

OBJECTIVE
THE POTOMAC SMALL CAP PLUS FUND seeks to provide investment returns that
correspond to 125% of the performance of the Russell 2000-Registered Trademark-
Index (Russell 2000 Index). If it is successful in meeting its objective, the
net asset value of Small Cap Plus Fund shares should increase approximately one
and a quarter as much as the Russell 2000 Index when the aggregate prices of the
securities in that index rise on a given day. Conversely, the net asset value of
shares of the Small Cap Plus Fund should decrease approximately one and a
quarter as much when the aggregate prices of the securities in the Russell 2000
Index decline on that day.
The Potomac Small Cap Plus Fund's investment objective is not a
fundamental policy and may be changed by the Potomac Funds' Board of Trustees
without shareholder approval.

CORE INVESTMENTS
In attempting to achieve its objective, THE POTOMAC SMALL CAP PLUS FUND
primarily invests directly in the securities of the companies that comprise the
Russell 2000 Index. In addition, the Potomac Small Cap Plus Fund enters into
long positions in stock index futures contracts, options on stock index futures
contracts and options on securities and on stock indices to produce economically
leveraged investment results. On a day-to-day basis, the Fund holds U.S.
Government securities and repurchase agreements to collateralize these futures
and options contracts.

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TARGET INDEX
The RUSSELL 2000-Registered Trademark- INDEX is comprised of the smallest
2000 companies in the Russell 3000 Index. As of May 31, 2000, the average market
capitalization of the companies included in the Russell 2000 was approximately
$580 million. That compares to an average market capitalization of $5.1 billion
for the Russell 3000. The smallest 2000 companies represent approximately 8% of
the total market capitalization of the Russell 3000. The Frank Russell Company
is not a sponsor of, or in any way affiliated with, The Potomac Funds.

THE POTOMAC INTERNET PLUS FUND

OBJECTIVE
THE POTOMAC INTERNET PLUS FUND seeks to provide investment results that
correspond to 125% of the performance of the Dow Jones Composite Internet
Index-SM- (Internet Index). If it is successful in meeting its objective, the
net asset value of Internet Plus Fund shares should increase approximately one
and a quarter as much as the Internet Index when the aggregate prices of the
securities in that index rise on a given day. Conversely, the net asset value of
shares of the Internet Plus Fund should decrease approximately one and a quarter
as much when aggregate prices of the securities in the Internet Index decline on
that day.
The Potomac Internet Plus Fund's investment objective is not a fundamental
policy and may be changed by The Potomac Funds' Board of Trustees without
shareholder approval.

CORE INVESTMENTS
In attempting to achieve its objective, THE POTOMAC INTERNET PLUS FUND
primarily invests directly in the securities of the companies that comprise the
Internet Index. In addition, the Potomac Internet Plus Fund enters into long
positions in stock index futures contracts, options on stock index futures
contracts and options on securities and on stock indices to produce economically
leveraged investment results. On a day-to-day basis, the Fund holds U.S.
Government securities and repurchase agreements to collateralize these futures
and options contracts.

TARGET INDEX
THE DOW JONES COMPOSITE INTERNET INDEX-SM- is a modified
capitalization-weighted index designed to track the performance of companies
that are involved in Internet related activities. The Internet Index tracks 40
e-commerce and Internet services companies that generate at least 50% of their
revenues from the Internet and have a three-month average market capitalization
of at least $100 million. Dow Jones and Dow Jones Composite Internet Index-SM-
are service marks of Dow Jones & Company, Inc. Dow Jones has no relationship to
The Potomac Funds, other than the licensing of the Internet Index for use in
connection with The Potomac Funds' materials. Dow Jones does not sponsor,
endorse, sell or promote any of The Potomac Funds.

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THE POTOMAC U.S. PLUS FUND

OBJECTIVE
THE POTOMAC U.S. PLUS FUND seeks to provide investment returns that
correspond to 150% of the performance of the Standard & Poor's 500 Composite
Stock Price Index-TM- (S&P 500 Index). If it is successful in meeting its
objective, the net asset value of U.S. Plus Fund shares should increase
approximately one and a half as much as the S&P 500 Index when the aggregate
prices of the securities in that index rise on a given day. Conversely, the net
asset value of shares of the U.S. Plus Fund should decrease approximately one
and a half as much when the aggregate prices of the securities in the S&P 500
Index decline on that day.

CORE INVESTMENTS
In attempting to achieve its objective, THE POTOMAC U.S. PLUS FUND may
invest directly in the securities of companies that are included in the S&P 500
Index and may invest in Standard & Poor's Depositary Receipts (SPDRs), which are
publicly-traded index securities based on the S&P 500 Index. This allows the
Fund to invest in a portfolio of securities consisting of all of the component
common stocks of the S&P 500 Index. In addition, the Potomac U.S. Plus Fund
enters into long positions in stock index futures contracts, options on stock
index futures contracts and options on securities and on stock indices to
produce economically leveraged investment results. On a day-to-day basis, the
Fund holds U.S. Government securities and repurchase agreements to collateralize
these futures and options contracts.

TARGET INDEX
The STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX-TM- is a
capitalization-weighted index composed of 500 common stocks. Standard & Poor's
selects the 500 stocks comprising the S&P 500 Index on the basis of market
values and industry diversification. Most of the stocks in the S&P 500 Index are
issued by the 500 largest companies, in terms of the aggregate market value of
their outstanding stock, and generally are listed on the New York Stock
Exchange. Standard & Poor's is not a sponsor of, or in any way affiliated with,
The Potomac Funds.

INVESTMENT TECHNIQUES AND POLICIES
Rafferty Asset Management, LLC (Rafferty), the investment advisor to each
Potomac Plus Fund, uses a number of investment techniques in an effort to
achieve the stated goal for each Fund. Rafferty attempts to magnify the returns
of each Plus Fund's target index. Rafferty generally does not use fundamental
securities analysis to accomplish such correlation. Rather, Rafferty primarily
uses statistical and quantitative analysis to determine the investments each
Fund makes and techniques it employs. As a consequence, if a Fund is performing
as designed, the return of the target index will dictate the return for that
Fund.
Each Plus Fund invests significantly in futures contracts on stock
indexes, options on futures contracts and financial instruments such as options
on securities and stock indexes options. Rafferty uses these types of
investments to produce economically "leveraged" investment results. Leveraging
allows Rafferty to generate a return that is larger than what would be generated
on the invested capital without

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leverage, thus changing small market movements into larger changes in the value
of the investments of a Plus Fund.
Each Potomac Fund is designed to provide daily investment returns that are
a multiple of the returns of its target index. While Rafferty attempts to
minimize any "tracking error" (the statistical measure of the difference between
the investment results of a Fund and the performance of its target index),
certain factors will tend to cause a Fund's investment results to vary from the
stated objective. During periods of market volatility, a Fund may have
difficulty in achieving its targeted return on a daily basis due to high
portfolio turnover, transaction costs and/or a temporary lack of liquidity in
the markets for the derivative securities held by the Fund. A Fund that meets
its daily targets over a period of time will not necessarily produce the returns
that might be expected in light of the returns of its target index for that
period. The difference results from the compounding effect of fluctuations in
the market and the use of leverage for the Plus Funds to achieve a Fund's
investment objective.
It is the policy of each Fund to pursue its investment objective
regardless of market conditions and not to take defensive positions. A Fund will
not adopt defensive positions by investing in cash or other instruments in
anticipation of an adverse climate for its target index. However, because it may
be difficult for a Fund to achieve its stated investment objective any time its
assets fall below $2 million, Rafferty may invest the assets of any such Fund in
short-term U.S. Government securities until the level of net assets is
sufficient to permit investment in the desired investments. As a result, such
Fund may not achieve its investment objective during this period. To find out if
a Fund has sufficient assets to invest to attempt to meet its objective, you may
call (888) 976-8662.

RISK FACTORS
An investment in the Funds entails risks. The Funds could lose money, or
their performance could trail that of other investment alternatives. Rafferty
cannot guarantee that any of the Funds will achieve its objective. In addition,
the Funds present some risks not traditionally associated with most mutual
funds. It is important that investors closely review and understand these risks
before making an investment in the Funds. These and other risks are described
below.

RISKS OF INVESTING IN EQUITY SECURITIES AND DERIVATIVES
The Funds may invest in publicly issued equity securities, including
common stocks, as well as instruments that attempt to track the price movement
of stock indices. Investments in common stocks and derivatives in general are
subject to market risks that may cause their prices to fluctuate over time.
Fluctuations in the value of common stocks in which the Funds invest will cause
the net asset value of the Funds to fluctuate.

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volatility of the Funds and may involve a small investment of cash relative to
the magnitude of the risk assumed. Investors should be aware that while index
futures and options contracts closely correlate with the applicable indices over
long periods, shorter-term deviations occur. As a result, a Fund's short-term
performance will reflect such deviation from its target index.

LEVERAGE RISK
Each Plus Fund employs leveraged investment techniques. Use of leverage
can magnify the effects of changes in the value of these Plus Funds and makes
them more volatile. The leveraged investment techniques that these Funds employ
should cause investors in these Funds to lose more money in adverse
environments.

RISK OF POOR TRACKING
Several factors may affect a Fund's ability to achieve its targeted return
on a daily basis. During periods of market volatility, a Fund may have
difficulty in achieving its targeted return due to high portfolio turnover,
transaction costs and/or a temporary lack of liquidity in the markets for the
derivative securities held by a Fund. A failure to achieve its targeted return
on a daily basis may cause a Fund to provide returns over a longer period that
are worse than expected.

RISK OF TRADING HALTS
In certain circumstances, an exchange may halt trading in securities held
by a Fund. If such trading halts are instituted at the close of a trading day, a
Fund will not be able to execute purchase or sales transactions in the specific
option or futures contracts affected. In such an event, a Fund also may be
unable to accurately price its outstanding contracts. If a Fund is affected by
such a halt, it may reject investors' orders for purchases, redemptions, or
exchanges received earlier during the business day.

RISK OF EARLY CLOSING
The normal close of trading of securities listed on the Nasdaq Stock
Market and the New York Stock Exchange ("NYSE") is 4:00 p.m. Eastern time.
Unanticipated early closings may result in a Fund being unable to sell or buy
securities on that day. If an exchange closes early on a day when one or more of
the Funds needs to execute a high volume of securities trades late in the
trading day a Fund might incur substantial trading losses.

HIGH PORTFOLIO TURNOVER
Rafferty expects a significant portion of The Potomac Funds' assets to
come from professional money managers and investors who use the Funds as part of
"asset allocation" and "market timing" investment strategies. These strategies
often call for frequent trading to take advantage of anticipated changes in
market conditions. Frequent trading could increase the rate of the Funds'
portfolio turnover, forcing realization of substantial capital gains and losses
and increasing transaction expenses. In addition, large movements of assets into
and out of the Funds may negatively impact their abilities to achieve their
investment objectives or their level of operating expenses.

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RISK OF NON-DIVERSIFICATION
The Funds (except the Money Market Fund) are non-diversified, which means
that they may invest a high percentage of their assets in a limited number of
securities. Since the Funds' are non-diversified, their net asset values and
total returns may fluctuate more or fall greater in times of weaker markets than
a diversified mutual fund.

RISKS OF INVESTING IN INTERNET COMPANIES
The Potomac Internet Plus Fund concentrates its investments in Internet
companies. In addition, the Potomac OTC Plus Fund may invest a substantial
portion of its assets in Internet companies listed on the Nasdaq 100 Index. The
market prices of Internet-related stocks tend to exhibit a greater degree of
market risk and sharp price fluctuations than other types of investments. These
stocks may fall in- and out-of-favor with investors rapidly, which may cause
sudden selling and dramatically lower market prices. Internet stocks also may be
affected adversely by changes in technology, consumer and business purchasing
patterns, government regulation and/or obsolete products or services. In
addition, a rising interest rate environment tends to negatively affect Internet
companies. Those Internet companies having high market valuations may appear
less attractive to investors, which may cause sharp decreases in the companies'
market prices. Further, those Internet companies seeking to finance their
expansion would have increased borrowing costs, which may negatively impact
their earnings. As a result, these factors may negatively affect the performance
of the Internet Index and the Nasdaq 100 Index.

RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES
Investing in the securities of small capitalization companies involves
greater risks and the possibility of greater price volatility than investing in
larger capitalization and more established companies. Smaller companies may have
limited operating history, product lines, and financial resources, and the
securities of these companies may lack sufficient market liquidity. Any of these
factors may negatively impact the performance of the Russell 2000 Index.

THE POTOMAC U.S. GOVERNMENT MONEY MARKET FUND

OBJECTIVE
THE POTOMAC U.S. GOVERNMENT MONEY MARKET FUND seeks to provide security of
principal, current income and liquidity.

CORE INVESTMENTS
THE POTOMAC U.S. GOVERNMENT MONEY MARKET FUND seeks to achieve these
objectives by investing in high quality, U.S. dollar-denominated short-term
obligations that have been determined by the Trustees or by Rafferty to present
minimal credit risk. The Fund invests exclusively in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements that are fully collateralized by such obligations.

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INVESTMENT TECHNIQUES AND POLICIES
In order to maintain a stable share price, the Fund maintains an average
dollar-weighted maturity of 90 days or less. Securities purchased by the Fund
generally have remaining maturities of 397 days or less, although instruments
subject to repurchase agreements may bear longer final maturities. The average
dollar-weighted maturity of the Fund will not exceed 90 days.

RISK FACTORS

- The yield paid by the Fund is subject to changes in interest rates. As a
result, there is risk that a decline in short-term interest rates would
lower its yield and the overall return on your investment.

- Although the Fund seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in the Fund.

- Your investment in the Fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government institution.

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PERFORMANCE OF THE POTOMAC FUNDS

The Advisor Class shares are a new class of shares offered by The Potomac
Funds. Accordingly, they do not have a full calendar year of performance of
their own. The annual performance illustrated in the bar chart and tables below
represents the actual historical performance for a different class of shares not
offered in this Prospectus for the U.S. Plus Fund, OTC Plus Fund and the U.S.
Government Money Market Fund. Because the other class had lower expenses, its
performance was higher than the Advisor Class of the Funds would have received
in the same time period.
The tables below provide some indication of the risks of an investment in
these Funds by comparing the performance of the other class of shares with a
broad measure of market performance and by illustrating their highest and lowest
quarterly returns. Because this information is based on past performance, it's
not a guarantee of future results.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<S> <C>
U.S. Plus Fund 1998 34.60%
U.S. Plus Fund 1999 24.45%
OTC Plus Fund 1998 104.22%
OTC Plus Fund 1999 129.22%
U.S. Government Money Market Fund 1998 4.33%
U.S. Government Money Market Fund 1999 4.03%
</TABLE>

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The total return from January 1, 2000 to September 30, 2000 for the
Investor Class of the U.S. Plus Fund, the OTC Plus Fund and the U.S.
Government Money Market Fund was -8.20%, -10.56% and 3.99%, respectively.

The highest and lowest returns of the Funds for a quarter during the two
calendar years ended December 31, 1999 were as follows:

<TABLE>
<CAPTION>
FUND HIGHEST QUARTERLY RETURN (%) LOWEST QUARTERLY RETURN (%)
-------------------------------- ---------------------------- ---------------------------
<S> <C> <C>
OTC Plus Fund 68.51 (4th quarter 1999) 0.08 (3rd quarter 1998)
U.S. Plus Fund 31.88 (4th quarter 1998) -17.38 (3rd quarter 1998)
U.S. Government Money Market
Fund 1.11 (4th quarter 1999) 0.88 (1st quarter 1999)
</TABLE>

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The table below shows what the Funds' average annual total returns would
equal if you average out actual performance over various lengths of time.

AVERAGE ANNUAL RETURNS (for the periods ended December 31, 1999):

<TABLE>
<CAPTION>
FUND ONE YEAR (%) SINCE INCEPTION (%)+
--------------------------------------------- ------------ --------------------
<S> <C> <C>
OTC Plus Fund 129.22 91.49
Nasdaq 100 Index** 101.95 74.71

U.S. Plus Fund 24.45 27.67
S&P 500 Index* 19.53 21.63

U.S. Government Money Market Fund 4.03 4.19
</TABLE>

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+ The Investor Class of each Fund commenced operations on October 20, 1997.
* The S&P 500 is an unmanaged index of 500 U.S. stocks and gives a broad look
at how 500 of the largest companies in aggregate market value have
performed.
** The Nasdaq 100 is an unmanaged index composed of 100 of the largest
non-financial domestic companies with a minimum market capitalization of
$500 million and an average daily trading volume of at least 100,000
shares.

FEES AND EXPENSES OF ADVISOR CLASS SHARES OF THE POTOMAC FUNDS

The tables below describe the fees and expenses that you may pay if you
buy and hold Advisor Class shares of the Funds. The expenses below are based on
actual expenses incurred for the fiscal year ended August 31, 2000.

SHAREHOLDER FEES (fees paid directly from your investment)

<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a % of
offering price)........................................... None
Maximum Deferred Sales Charge (as a % of original purchase
price or sales proceeds, whichever is less)............... None
Wire Redemption Fee......................................... $15.00
</TABLE>

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ANNUAL OPERATING EXPENSES (expenses that are deducted from Fund assets)

<TABLE>
<CAPTION>
MONEY MARKET
OTC PLUS DOW 30 PLUS SMALL CAP PLUS INTERNET PLUS U.S. PLUS FUND
-------- ----------- -------------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Management Fees 0.75 0.75 0.75 0.75 0.75 0.50
Distribution (12b-1) Fees 1.00+ 1.00 1.00+ 1.00 1.00 1.00
Other Expenses* 0.55 0.77 0.61 0.77 0.75 0.53
---- ---- ---- ---- ---- ----
Total Annual Operating
Expenses* 2.30+ 2.52 2.36+ 2.52 2.50 2.03
Fee Waiver and/or
Reimbursement* 0.00 0.02 0.00 0.02 0.00 0.03
---- ---- ---- ---- ---- ----
Net Expenses 2.30+ 2.50 2.36+ 2.50 2.50 2.00
==== ==== ==== ==== ==== ====
</TABLE>

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+ Rafferty Asset Management, LLC voluntarily waived Distribution (12b-1) Fees
for the OTC Plus Fund and Small Cap Plus Fund in the amount of 0.17% and
0.01%, respectively. As a result, Total Annual Operating Expenses and Net
Expenses were 2.13% and 2.35% for the OTC Plus Fund and Small Cap Plus Fund,
respectively.

* Rafferty Asset Management, LLC has contractually agreed to reimburse the
Advisor Class shares of the Funds for Other Expenses through August 31, 2003
to the extent that the Advisor Class' Total Annual Fund Operating Expenses
exceed 2.50% for the Plus Funds and 2.00% for the Money Market Fund. If
overall expenses fall below these percentage limitations, then the Funds may
reimburse Rafferty within the following three fiscal years.

EXPENSE EXAMPLE
The tables below are intended to help you compare the cost of investing in
the Advisor Class of The Potomac Funds with the cost of investing in other
mutual funds. The tables show what you would have paid if you invested $10,000
in the Advisor Class of each Fund over the periods shown and then redeemed all
your shares at the end of those periods. It also assumes that your investment
has a 5% return each year and the operating expenses remain the same through
each year. The expenses shown for the first and third years are calculated based
on the Net Expenses shown above, taking into account any fee waivers and expense
reimbursements. For the other years, the expenses are based on Total Annual
Operating Expenses. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OTC Plus Fund.............................. $233 $718 $1,230 $2,636
Dow 30 Plus Fund........................... $253 $779 $1,340 $2,856
Small Cap Plus Fund........................ $239 $736 $1,260 $2,696
Internet Plus Fund......................... $253 $779 $1,340 $2,856
U.S. Plus Fund............................. $253 $779 $1,331 $2,836
U.S. Government Money Market Fund.......... $203 $627 $1,093 $2,358
</TABLE>

--------------------------------------------------------------------------------
13
<PAGE>
--------------------------------------------------------------------------------
ABOUT YOUR INVESTMENT

YOUR ACCOUNT
You may open an account for the Advisor Class shares and conduct other
Fund transactions through your Financial Advisor. You will not pay any sales
charges but the Funds' Advisor Class shares have ongoing Rule 12b-1 fees of up
to 1.00% of their average daily net assets as discussed below. You also may be
subject to other charges assessed by your Financial Advisor.

RULE 12b-1 FEES
The Funds have adopted a distribution plan under Rule 12b-1 for the
Advisor Class shares. The plan allows the Funds to pay distribution and sales
fees for the sale of the Funds' shares and for other shareholder services.
Because these fees are paid out of the Advisor Class 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.
Under the plan, the fees may amount to up to 1.00% of the Advisor Class'
average daily net assets. The Potomac Funds' Board of Trustees has authorized
each Fund to pay Rule 12b-1 fees equal to 1.00% of the average daily net assets
of the Advisor Class. Under an agreement with the Funds, your Financial Advisor
may receive these fees from the Funds. In exchange, your Financial Advisor may
provide a number of services, such as:

- placing your orders and issuing confirmations,

- providing investment advice, research and other advisory services,

- handling correspondence for individual accounts,

- acting as the sole shareholder of record for individual shareholders,

- issuing shareholder statements and reports and

- executing daily investment "sweep" functions.

For more specific information on these and other services, you should
speak to your Financial Advisor. Your Financial Advisor may charge additional
account fees for services beyond those specified above.

HOW TO INVEST IN ADVISOR CLASS SHARES OF THE POTOMAC FUNDS
You may invest in the Advisor Class of the Funds through traditional
investment accounts, individual retirement accounts (including Roth IRAs),
self-directed or company sponsored retirement plans or other products as
available from your Financial Advisor. Applications and descriptions of any
services fees for retirement or other accounts are available from your Financial
Advisor.

---------------------------------------------------------------
14
<PAGE>
example, if you decide to invest $10,000 in three of the Funds, you may allocate
your minimum initial investment as $8,000, $1,000 and $1,000.

<TABLE>
<CAPTION>
MINIMUM INITIAL INVESTMENT SUBSEQUENT INVESTMENT
-------------------------- ---------------------
<S> <C> <C>
Regular Accounts $10,000 $1,000
Retirement Accounts $10,000 $ 0
</TABLE>

TO PURCHASE ADVISOR CLASS SHARES:

- Contact your Financial Advisor.

- Your Financial Advisor will help you complete the necessary paperwork,
mail your Account Application to The Potomac Funds and place your order to
purchase Advisor Class shares of the Funds.

- Cash, credit cards, credit card checks and third-party checks will not be
accepted by the Funds.

- All purchases must be made in U.S. dollars through a U.S. bank.

- If your check does not clear due to insufficient funds, you will be
charged a $25.00 fee.

HOW TO EXCHANGE ADVISOR CLASS SHARES OF THE POTOMAC FUNDS
You may exchange Advisor Class shares of your current Fund(s) for Advisor
Class shares of any other Fund without any charges. To make an exchange:

- Contact your Financial Advisor.

- Provide your name, account number, which Funds are involved, and the
number, percentage or dollar value of shares to be exchanged.

- The Funds can only honor exchanges between accounts registered in the same
name and having the same address and taxpayer identification number.

- You must exchange at least a $1,000 or, if your account value is less than
that, your entire account balance will be exchanged.

HOW TO SELL ADVISOR CLASS SHARES OF THE POTOMAC FUNDS
You may sell all or part of your investment in the Funds at the next
determined net asset value after the Funds have received your order from your
Financial Advisor.

TO SELL ADVISOR CLASS SHARES:

- Contact your Financial Advisor.

- He or she will place your order to sell Advisor Class shares of the Funds.

- Payment can be directed to your advisory account normally within three
days after your Financial Advisor places your order.

--------------------------------------------------------------------------------
15
<PAGE>
- For investments that have been made by check, payment on sales requests
may be delayed until The Potomac Funds' Transfer Agent is reasonably
satisfied that the purchase payment has been collected by the Fund, which
may require up to 10 business days.

- Your request will be processed the same day if you call between 9:00 AM
AND 3:40 P.M. Eastern time (or 1:00 p.m. for the Money Market Fund).

PRICES OF ADVISOR CLASS SHARES OF THE POTOMAC FUNDS
A Fund's share price is known as its net asset value (NAV). For all of the
Funds except the U.S. Government Money Market Fund, the Advisor Class share
prices are calculated fifteen minutes after the close of regular trading,
usually at 4:15 pm Eastern time, each day the New York Stock Exchange (NYSE) is
open for business. The U.S. Government Money Market Fund's Advisor Class share
price is calculated at 1:15 pm Eastern time each day the NYSE and Federal Bank
of New York are open. Share price is calculated by dividing a class' net assets
by its shares outstanding. The Funds use the following methods to price
securities held in their portfolios:

- equity securities, OTC securities, options and futures are valued at their
last sales price, or if not available, the average of the last bid and ask

- options on futures are valued at their closing price

- short-term debt securities and money market securities are valued using
the "amortized" cost method

- securities for which a price is unavailable will be valued at fair value
estimates by the investment advisor under the supervision of the Board of
Trustees

ACCOUNT AND TRANSACTION POLICIES

ORDER POLICIES
You may buy and sell Advisor Class shares of the Funds at their NAV
computed after your order has been received in good order. Purchase and sell
orders will be processed the same day at that day's NAV if received by
3:40 p.m. Eastern Time (or 1:00 p.m. for the Money Market Fund). The Funds will
not accept and process any orders for that day received after this time.
There are certain times when you may be unable to sell Advisor
Class shares of the Funds or proceeds may be delayed. This may occur during
emergencies, unusual market conditions or when the Funds cannot determine the
value of its assets or sell its holdings. The Funds reserve the right to reject
any purchase order or suspend offering of their shares.

TELEPHONE TRANSACTIONS
For your protection, the Funds may require some form of personal
identification prior to accepting your telephone request such as verification of
your social security number, account number or other information. We also may
record the conversation for accuracy. During times of unusually high market
activity or extreme market changes, you should be aware that it may be difficult
to place your request in a timely manner.

---------------------------------------------------------------
16
<PAGE>
SIGNATURE GUARANTEES
In certain instances when you sell Advisor Class shares of the Funds, we
will need your signature guaranteed. Signatures guarantees may be available at
your bank, stockbroker or a national securities exchange. Your signature must be
guaranteed under the following circumstances:

- if your account registration or address has changed in the last 30 days

- if the proceeds of your sale are mailed to an address other than the one
listed with the Funds

- if the proceeds are payable to a third party

- if the sale is greater than $100,000

- if the wire instructions on the account are being changed

- if there are other unusual situations as determined by the Funds' Transfer
Agent

LOW BALANCE ACCOUNTS
If your total account balance falls below $10,000, then we may sell your
Advisor Class shares of the Funds. We will inform you in writing 30 days prior
to selling your Advisor Class shares. If you do not bring your total account
balance up to $10,000 within 30 days, we may sell your Advisor Class shares and
send you the proceeds. We will not sell your Advisor Class shares if your
account value falls due to market fluctuations.

MONEY MARKET FUND CHECKING POLICIES
You may write checks against your Money Market Fund account if you request
and complete a signature card. With these checks, you may sell Advisor
Class shares of the Fund simply by writing a check for at least $500. You may
not write a check to close your account. If you place a stop payment order on a
check, we will charge you $25.

--------------------------------------------------------------------------------
17
<PAGE>
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION

MANAGEMENT OF THE POTOMAC FUNDS

Rafferty Asset Management, LLC (Rafferty) provides investment services to
the Funds. Rafferty attempts to manage the investment of the Funds' assets
consistent with their investment objectives, policies and limitations. Rafferty
has been managing mutual funds since June 1997. Rafferty is located at 1311
Mamaroneck Avenue, White Plains, New York 10605.
Under an investment advisory agreement between The Potomac Funds and
Rafferty, the Funds pay Rafferty the following fees at an annualized rate based
on a percentage of the Funds' daily net assets. The fees charged and the
contractual fees are the same.

<TABLE>
<CAPTION>
ADVISORY FEES CHARGED
---------------------
<S> <C>
Plus Funds 0.75
U.S. Government Money Market Fund 0.50
</TABLE>

An investment committee of Rafferty employees has the day-to-day
responsibility for managing the Potomac Funds.

DISTRIBUTIONS AND TAXES

DISTRIBUTIONS
Each Fund, except the Money Market Fund, distributes dividends from net
investment income annually. The Money Market Fund usually distributes dividends
from its net investment income monthly. Net investment income generally consists
of interest income and dividends received on investments, less expenses.
Each Fund, except the Money Market Fund, also distributes any realized net
capital gains annually. A Fund has capital gains when it sells its portfolio
assets for a profit. The tax consequences will vary depending on how long a Fund
has held the asset. Distributions of net gains on the sale of an asset held for
one year or less are taxed as ordinary income. Sales of assets held longer than
one year (long-term capital gains) are taxed at lower capital gains rates.
Dividends and net capital gains will be reinvested automatically at NAV
unless you request otherwise in writing. Normally, distributions are taxable
events for shareholders whether or not the distributions are received in cash or
reinvested. If you elect to receive distributions by check and the post office
cannot deliver such check or your check remains uncashed for six months, a Fund
reserves the right to reinvest the check in your Potomac Fund account at that
Fund's then current NAV and to reinvest all subsequent distributions in shares
of the Fund until an updated address is received.

---------------------------------------------------------------
18
<PAGE>
TAXES
The following table illustrates the potential tax liabilities for taxable
accounts:

<TABLE>
<CAPTION>
TYPE OF TRANSACTION TAX STATUS*
------------------------------------------ ------------------------------------------
<S> <C>
Dividends Ordinary income rate
Short-term capital gains Ordinary income rate
Long-term capital gains Long-term capital gains rate
Sale or exchange of Fund shares owned for Long-term capital gains or losses (capital
more than one year gains rate)
Sale or exchange of Fund shares owned for Gains are taxed at the same rate as
less than one year ordinary income; losses are subject to
special rules
</TABLE>

------------------------
* Tax consequences for tax-deferred retirement accounts or non-taxable
shareholders may be different. You should consult your tax specialist for more
information about your personal situation.

If you are a non-retirement account holder, then each year, we will send
you a Form 1099 that tells you the amount of Fund distributions you received for
the prior calendar year, the tax status of these distributions and a list of
reportable sale transactions. Normally, distributions are taxable in the year
you receive them. However, any distributions declared in the last three months
of the year and paid in January of the following year generally are taxable as
if received on December 31 of the year they are declared.
If you are a non-corporate shareholder and do not provide the Funds with
your correct taxpayer identification number (normally your social security
number), the Funds are required to withhold 31% of all dividends, other
distributions and sale proceeds payable to you. If you are otherwise subject to
backup withholding, we also are required to withhold and pay to the IRS 31% of
your distributions. Any tax withheld may be applied against your tax liability
when you file your tax return. You may be subject to a $50 fee for any penalties
imposed on the Funds by the IRS.

MASTER/FEEDER STRUCTURE OPTION
The Funds may in the future operate under a master/feeder structure. This
means that each Fund would be a "feeder" fund that attempts to meet its
objective by investing all its investable assets in a "master" fund with the
same investment objective. The "master" fund would purchase securities for
investment. It is expected that any such investment company would be managed by
Rafferty in substantially the same manner as the Funds. If permitted by law at
that time, the Board of Trustees may approve the implementation of such a
structure for the Funds without seeking shareholder approval. However, the
Trustees' decision will be made only if the investments in the master funds are
in the best interests of the Funds and their shareholders. In making that
determination, the Trustees will consider, among other things, the benefits to
shareholders and/or the opportunity to reduce costs and achieve operational
efficiencies. You also will receive 30 days notice prior to the implementation
of the master/feeder structure.

--------------------------------------------------------------------------------
19
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

The financial highlights tables are intended to help you understand the
financial performance of the Advisor Class shares of each Fund outstanding for
the periods indicated. The information in the tables has been audited by
PricewaterhouseCoopers LLP, the Funds' independent accountants. Certain
information reflects financial results for a single Advisor Class share. The
total returns in the table represent the rate that an investor would have earned
(or lost) on an investment in the Advisor Class (assuming reinvestment of all
dividends and distributions). More information about the Funds may be found in
their Annual and Semi-Annual Reports, which you may obtain upon request.

<TABLE>
<CAPTION>
For a fund share outstanding throughout the period
U.S. PLUS FUND
--------------------------------------------------------------------
ADVISOR CLASS INVESTOR CLASS
POTOMAC FUNDS ------------------ --------------------------------------------
MARCH 22, 2000(1) YEAR ENDED OCTOBER 20, 1997(1)
TO AUGUST 31, 2000 AUGUST 31, 1999 TO AUGUST 31, 1998
------------------ ------------------ --------------------
<S> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $ 16.97 $ 9.76 $ 10.00
----------- ----------- -----------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income (loss)(4).... (0.11) 0.31 0.36
Net realized and unrealized gain
(loss) on investments(6)......... 0.09 4.59 (0.58)
----------- ----------- -----------
Total from investment
operations................... (0.02) 4.90 (0.22)
----------- ----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment
income........................... -- -- (0.02)
Distributions from realized
gains............................ -- (0.10) --
----------- ----------- -----------
Total distributions............ -- (0.10) (0.02)
----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD..... $ 16.95 $ 14.56 $ 9.76
=========== =========== ===========
TOTAL RETURN....................... (0.12%)(2) 50.38% (2.23%)(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period.......... $ 70,718 $16,472,869 $ 466,997
Ratio of net expenses to average
net assets:
Before expense reimbursement..... 2.50%(3,7) 1.52% 2.52%(3)
After expense reimbursement...... 2.50%(3,7) 1.50% 1.50%(3)
Ratio of net investment income
(loss) to average net assets:
Before expense reimbursement..... (1.64%)(3,7) 2.32% 2.68%(3)
After expense reimbursement...... (1.64%)(3,7) 2.34% 3.70%(3)
Portfolio turnover rate(5)......... 2,010% 0% 0%
</TABLE>

20
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
For a fund share outstanding throughout the period
OTC PLUS FUND
-----------------------------------------------------------------------
ADVISOR CLASS INVESTOR CLASS
POTOMAC FUNDS --------------------- --------------------------------------------
FEBRUARY 24, 2000(1) YEAR ENDED OCTOBER 20, 1997(1)
TO AUGUST 31, 2000 AUGUST 31, 1999 TO AUGUST 31, 1998
--------------------- ------------------ --------------------
<S> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $ 47.64 $ 10.41 $ 10.00
----------- ----------- ----------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income (loss)(4).... (0.36) (0.23) (0.11)
Net realized and unrealized gain
(loss) on investments(6)......... (3.21) 14.48 0.52
----------- ----------- ----------
Total from investment
operations................... (3.57) 14.25 0.41
----------- ----------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment
income........................... -- -- --
Distributions from realized
gains............................ -- (0.06) --
----------- ----------- ----------
Total distributions............ -- (0.06) --
----------- ----------- ----------
NET ASSET VALUE, END OF PERIOD..... $ 44.07 $ 24.60 $ 10.41
=========== =========== ==========
TOTAL RETURN....................... (7.49%)(2) 137.18% 4.10%(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period.......... $ 1,486,399 $76,682,387 $7,680,546
Ratio of net expenses to average
net assets:
Before expense reimbursement..... 2.30%(3,7) 1.50% 3.21%(3)
After expense reimbursement...... 2.13%(3,7) 1.50% 1.50%(3)
Ratio of net investment income
(loss) to average net assets:
Before expense reimbursement..... (2.01%)(3,7) (1.16%) (2.84%)(3)
After expense reimbursement...... (1.84%)(3,7) (1.16%) (1.13%)(3)
Portfolio turnover rate(5)......... 378% 1,000% 2,325%
</TABLE>

21
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

The financial highlights tables are intended to help you understand the
financial performance of the Advisor Class share of each Fund outstanding for
the periods indicated. The information in the tables has been audited by
PricewaterhouseCoopers LLP, the Funds' independent accountants. Certain
information reflects financial results for a single Advisor Class share. The
total returns in the table represent the rate that an investor would have earned
(or lost) on an investment in the Advisor Class (assuming reinvestment of all
dividends and distributions). More information about the Funds may be found in
their Annual and Semi-Annual Reports, which you may obtain upon request.

<TABLE>
For a fund share outstanding
throughout the period
SMALL CAP PLUS FUND
----------------------------------
ADVISOR CLASS INVESTOR CLASS
-------------- --------------
FEBRUARY 9, FEBRUARY 22,
2000(1) 1999(1)
TO AUGUST 31, TO AUGUST 31,
POTOMAC FUNDS 2000 1999
-------------- --------------
<S> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $ 14.26 $ 10.00
----------- -----------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income (loss)(4).... 0.02 0.18
Net realized and unrealized gain
(loss) on investments(6)......... (1.72) 0.92
----------- -----------
Total from investment
operations.................... (1.70) 1.10
----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment
income........................... -- --
Distributions from realized
gains............................ -- --
----------- -----------
Total distributions............ -- --
----------- -----------
NET ASSET VALUE, END OF PERIOD..... $ 12.56 $ 11.10
=========== ===========
TOTAL RETURN....................... (11.92%)(2) 11.00%(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period.......... $ 2,801,317 $ 7,033,622
Ratio of net expenses to average
net assets:
Before expense reimbursement..... 2.36%(3,7) 1.50%(3)
After expense reimbursement...... 2.35%(3,7) 1.50%(3)
Ratio of net investment income
(loss) to average net assets:
Before expense reimbursement..... 0.25%(3,7) 3.03%(3)
After expense reimbursement...... 0.24%(3,7) 3.03%(3)
Portfolio turnover rate(5)......... 3,390% 0%
</TABLE>

22
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
For a fund share outstanding throughout the
period
INTERNET PLUS FUND DOW 30 PLUS FUND
--------------------- -------------------
ADVISOR CLASS ADVISOR CLASS
POTOMAC FUNDS --------------------- -------------------
FEBRUARY 24, 2000(1) JUNE 1, 2000(1)
TO AUGUST 31, 2000 TO AUGUST 31, 2000
--------------------- -------------------
<S> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $ 14.20 $ 8.72
----------- -----------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income (loss)(4).... (0.10) (0.01)
Net realized and unrealized gain
(loss) on investments(6)......... (5.65) 0.61
----------- -----------
Total from investment
operations.................... (5.75) 0.60
----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment
income........................... -- --
Distributions from realized
gains............................ -- --
----------- -----------
Total distributions............ -- --
----------- -----------
NET ASSET VALUE, END OF PERIOD..... $ 8.45 $ 9.32
=========== ===========
TOTAL RETURN....................... (40.49%)(2) 6.88%(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period.......... $ 5,310,640 $ 86,355
Ratio of net expenses to average
net assets:
Before expense reimbursement..... 2.52%(3) 2.52%(3)
After expense reimbursement...... 2.50%(3) 2.50%(3)
Ratio of net investment income
(loss) to average net assets:
Before expense reimbursement..... (2.34%)(3) (0.36%)(3)
After expense reimbursement...... (2.32%)(3) (0.34%)(3)
Portfolio turnover rate(5)......... 3,302% 1,606%
</TABLE>

23
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
For a fund share outstanding throughout the period
U.S. GOVERNMENT MONEY MARKET FUND
-------------------------------------------------------------------
ADVISOR CLASS INVESTOR CLASS
POTOMAC FUNDS -------------------- -----------------------------------------
FEBRUARY 2, 2000(1) YEAR ENDED OCTOBER 20, 1997(1)
TO AUGUST 31, 2000 AUGUST 31, 1999 TO AUGUST 31, 1998
-------------------- ---------------- -------------------
<S> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF
PERIOD........................... $ 1.00 $ 1.00 $ 1.00
----------- ----------- -----------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income (loss)(4).... 0.03 0.04 0.04
Net realized and unrealized gain
(loss) on investments............ -- -- --
----------- ----------- -----------
Total from investment
operations................... 0.03 0.04 0.04
----------- ----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment
income........................... (0.03) (0.04) (0.04)
Distributions from realized
gains............................ -- -- --
----------- ----------- -----------
Total distributions............ (0.03) (0.04) (0.04)
----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD..... $ 1.00 $ 1.00 $ 1.00
=========== =========== ===========
TOTAL RETURN....................... 2.54%(2) 3.89% 3.89%(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period.......... $ 678,918 $50,222,733 $ 9,370,384
Ratio of net expenses to average
net assets:
Before expense reimbursement..... 2.03%(3) 1.20% 3.70%(3)
After expense reimbursement...... 2.00%(3) 0.99% 1.00%(3)
Ratio of net investment income
(loss) to average net assets:
Before expense reimbursement..... 4.32%(3) 3.68% 1.66%(3)
After expense reimbursement...... 4.35%(3) 3.89% 4.36%(3)
Portfolio turnover rate(5)......... N/A N/A N/A
</TABLE>

24
<PAGE>
MORE INFORMATION ON THE POTOMAC FUNDS
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The Funds' SAI contains more information on the Funds and their investment
policies. The SAI is incorporated in this Prospectus by reference (meaning it is
legally part of this Prospectus). A current SAI is on file with the Securities
and Exchange Commission (SEC).
ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS:
The Funds' reports provide additional information on their investment
holdings, performance data and a letter discussing the market conditions and
investment strategies that significantly affected the Funds' performance during
that period.
CALL OR WRITE TO OBTAIN THE SAI OR FUND REPORTS FREE OF CHARGE:

<TABLE>
<S> <C>
Write to: The Potomac Funds
P.O. Box 1993
Milwaukee, Wisconsin 53201-1993
Call: (800) 851-0511
</TABLE>

These documents and other information about the Funds can be reviewed and copied
at the SEC Public Reference Room in Washington, D.C. Information on the
operation of the Public Reference Room may be obtained by calling the SEC at
(202) 942-8090. Reports and other information about the Funds may be viewed on
screen or downloaded from the EDGAR Database on the SEC's Internet web site at
http:\\www.sec.gov. Copies of these documents may be obtained, after paying a
duplicating fee, by electronic request at the following e-mail address:
[email protected], or by writing the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
Rafferty Capital Markets, Inc., Distributor
1311 Mamaroneck Avenue
White Plains, New York 10605

SEC File Number: 811-8243

PROSPECTUS
January 2, 2001

[LOGO]

ADVISOR CLASS

100 South Royal Street
Alexandria, Virginia 22314

1311 Mamaroneck Avenue
White Plains, New York 10605

(800) 851-0511
<PAGE>
PROSPECTUS

[LOGO]

INVESTOR CLASS
100 South Royal Street
Alexandria, Virginia 22314

1311 Mamaroneck Avenue
White Plains, New York 10605

(800) 851-0511

<TABLE>
<S> <C>
PLUS FUNDS SHORT FUNDS
Potomac OTC Plus Fund Potomac OTC/Short Fund
Potomac Dow 30-SM- Plus Fund Potomac Small Cap/Short Fund
Potomac Small Cap Plus Fund Potomac Internet/Short Fund
Potomac Internet Plus Fund Potomac U.S./Short Fund
Potomac U.S. Plus Fund
</TABLE>

MONEY MARKET FUND
Potomac U.S. Government
Money Market Fund

---------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
OVERVIEW OF THE POTOMAC FUNDS............................... 2

THE POTOMAC FUNDS........................................... 3
Potomac OTC Funds........................................... 3
Potomac Dow 30-SM- Plus Fund................................ 3
Potomac Small Cap Funds..................................... 4
Potomac Internet Funds...................................... 5
Potomac U.S. Funds.......................................... 6
Investment Techniques and Policies.......................... 7
Risk Factors................................................ 8
Potomac U.S. Government Money Market Fund................... 10
Performance of The Potomac Funds............................ 11
Fees and Expenses of Investor Class Shares of The Potomac
Funds................................................... 12

ABOUT YOUR INVESTMENT....................................... 14
Share Prices of The Potomac Funds........................... 14
Rule 12b-1 Fees............................................. 14
How to Invest in the Investor Class of The Potomac Funds.... 15
How to Exchange Investor Class Shares of The Potomac
Funds................................................... 16
How to Sell Investor Class Shares of The Potomac Funds...... 17
Account and Transaction Policies............................ 18

ADDITIONAL INFORMATION...................................... 19
Management of The Potomac Funds............................. 19
Distributions and Taxes..................................... 20
Master/Feeder Structure Option.............................. 21

FINANCIAL HIGHLIGHTS........................................ 22

MORE INFORMATION ON THE POTOMAC FUNDS....................... Back Cover
</TABLE>

The Potomac Funds consist primarily of pairs of funds. Each pair consists
of one "plus" fund and one "short" fund. Each "plus" fund is designed to provide
a return that is greater than the return provided by its target index when the
value of the target index rises. Unlike traditional index funds, each "plus"
fund (except for the Potomac U.S. Plus Fund) seeks to provide a return that is
equal to 125% of the return of its target index. The Potomac U.S. Plus Fund
seeks to provide a return that is equal to 150% of the return of its target.
Each "short" fund is designed to provide investment results that are opposite of
the return of its target index.

As an example, each of the Potomac OTC Plus Fund and the Potomac OTC/Short
Fund is targeted to the Nasdaq 100 Index-TM-. If, on a given day, the Nasdaq 100
Index gains 2%, the OTC Plus Fund is designed to gain approximately 2.5% (which
is equal to 125% of 2%), while the OTC/Short Fund is designed to lose 2%.
Conversely, if the Nasdaq 100 Index loses 1% on a given day, the OTC/Short Fund
is designed to gain 1%, while the OTC Plus Fund is to designed to lose 1.25%.

To achieve these results, the Potomac Funds use aggressive investment
techniques such as engaging in futures and options transactions. As a result,
the Potomac Funds are designed principally for experienced investors who intend
to follow an asset allocation strategy. There is no assurance that the Potomac
Funds will achieve their objectives.

The Potomac Funds also offer a money market fund, which is designed to
provide stability of principal, liquidity and current income.

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2
<PAGE>
--------------------------------------------------------------------------------
THE POTOMAC FUNDS

POTOMAC OTC FUNDS

OBJECTIVES
The POTOMAC OTC PLUS FUND seeks to provide investment returns that
correspond to 125% of the performance of the Nasdaq 100 Index-TM-. If it is
successful in meeting its objective, the net asset value of OTC Plus Fund shares
should increase approximately one and a quarter as much as the Nasdaq 100 Index
when the aggregate prices of the securities in that index rise on a given day.
Conversely, the net asset value of shares of the OTC Plus Fund should decrease
approximately one and a quarter as much when the aggregate prices of the
securities in the Nasdaq 100 Index decline on that day.
The POTOMAC OTC/SHORT FUND seeks to provide investment returns that
inversely correspond (opposite) to the performance of the Nasdaq 100 Index. If
it is successful in meeting its objective, the net asset value of OTC/Short Fund
shares should increase in direct proportion to any decrease in the level of the
Nasdaq 100 Index on a given day. Conversely, the net asset value of shares in
the OTC/Short Fund should decrease in direct proportion to any increase in the
level of the Nasdaq 100 Index on that day.

CORE INVESTMENTS
In attempting to achieve their objectives, the Potomac OTC Funds primarily
invest directly in the securities of the companies that comprise the Nasdaq 100
Index. In addition, the POTOMAC OTC PLUS FUND enters into long positions in
stock index futures contracts, options on stock index futures contracts and
options on securities and on stock indices to produce economically leveraged
investment results. The POTOMAC OTC/SHORT FUND also enters into short positions
in the securities of the companies that comprise the Nasdaq 100 Index, stock
index futures contracts, options on stock index futures contracts and options on
securities and on stock indices. On a day-to-day basis, the Funds hold U.S.
Government securities and repurchase agreements to collateralize these futures
and options contracts.

POTOMAC DOW 30-SM- PLUS FUND

OBJECTIVE
The POTOMAC DOW 30-SM- PLUS FUND seeks daily investment results that
correspond to 125% of the performance of the Dow Jones Industrial Average-SM-
(Dow). If it is successful in meeting its objective, the net asset value of Dow
30 Plus Fund shares should increase approximately one and a quarter as much as
the

--------------------------------------------------------------------------------
3
<PAGE>
Dow when the aggregate prices of the securities that comprise the Dow rise on a
given day. Conversely, the net asset value of shares of the Dow 30 Plus Fund
should decrease approximately one and a quarter as much when the aggregate
prices of the securities in the Dow decline on that day.
The Potomac Dow 30 Plus Fund's investment objective is not a fundamental
policy and may be changed by the Potomac Funds' Board of Trustees without
shareholder approval.

CORE INVESTMENTS
In attempting to achieve its objective, the Potomac Dow 30 Plus Fund
primarily invests directly in the securities of the companies that comprise the
Dow. In addition, the Potomac Dow 30-SM- Plus Fund enters into long positions in
stock index futures contracts, options on stock index futures contracts and
options on securities and on stock indices to produce economically leveraged
investment results. The Fund also may invest in DIAMONDS, which are
publicly-traded index securities based on the Dow. This allows the Fund to
invest in a portfolio of securities consisting of all of the component common
stocks of the Dow. On a day-to-day basis, the Fund holds U.S. Government
securities and repurchase agreements to collateralize these futures and options
contracts.

TARGET INDEX
The DOW JONES INDUSTRIAL AVERAGE-SM- consists of 30 of the most widely
held and actively traded stocks listed on the U.S. stock markets. The stocks in
the Dow represent companies that typically are dominant firms in their
respective industries. Dow Jones, Dow Jones Industrial Average-SM-, DJIA-SM-,
and Dow 30-SM- are service marks of Dow Jones & Company, Inc. Dow Jones has no
relationship to the Potomac Funds, other than the licensing of those service
marks for use in connection with the Funds' materials. Dow Jones does not
sponsor, endorse, sell or promote any of the Potomac Funds.

POTOMAC SMALL CAP FUNDS

OBJECTIVES
The POTOMAC SMALL CAP PLUS FUND seeks to provide investment returns that
correspond to 125% of the performance of the Russell 2000-Registered Trademark-
Index (Russell 2000 Index). If it is successful in meeting its objective, the
net asset value of Small Cap Plus Fund shares should increase approximately one
and a quarter as much as the Russell 2000 Index when the aggregate prices of the
securities in that index rise on a given day. Conversely, the net asset value of
shares of the Small Cap Plus Fund should decrease approximately one and a
quarter as much when the aggregate prices of the securities in the Russell 2000
Index decline on that day.
The POTOMAC SMALL CAP/SHORT FUND seeks to provide investment returns that
inversely correspond (opposite) to the performance of the Russell 2000 Index. If
it is successful in meeting its objective, the net asset value of Small
Cap/Short Fund shares should increase in direct proportion to any decrease in
the level of the Russell 2000 Index on a given day. Conversely, the net asset
value of shares in the Small Cap/Short Fund should decrease in direct proportion
to any increase in the level of the Russell 2000 Index on that day.
The Potomac Small Cap Funds' investment objectives are not fundamental
policies and may be changed by the Potomac Funds' Board of Trustees without
shareholder approval.

---------------------------------------------------------------
4
<PAGE>
CORE INVESTMENTS
In attempting to achieve their objectives, the Potomac Small Cap Funds
primarily invest directly in the securities of the companies that comprise the
Russell 2000 Index. In addition, the POTOMAC SMALL CAP PLUS FUND enters into
long positions in stock index futures contracts, options on stock index futures
contracts and options on securities and on stock indices to produce economically
leveraged investment results. The POTOMAC SMALL CAP/SHORT FUND also enters into
short positions in securities of companies that comprise the Russell 2000 stock
index futures contracts, options on stock index futures contracts and options on
securities and on stock indices. On a day-to-day basis, the Funds hold U.S.
Government securities and repurchase agreements to collateralize these futures
and options contracts.

TARGET INDEX
The RUSSELL 2000-REGISTERED TRADEMARK- INDEX is comprised of the smallest
2000 companies in the Russell 3000 Index. As of May 31, 2000, the average market
capitalization of the companies included in the Russell 2000 was approximately
$580 million. That compares to an average market capitalization of $5.1 billion
for the Russell 3000. The smallest 2000 companies represent approximately 8% of
the total market capitalization of the Russell 3000. The Frank Russell Company
is not a sponsor of, or in any way affiliated with, the Potomac Funds.

POTOMAC INTERNET FUNDS

OBJECTIVES
The POTOMAC INTERNET PLUS FUND seeks to provide investment results that
correspond to 125% of the performance of the Dow Jones Composite Internet
Index-TM- (Internet Index). If it is successful in meeting its objective, the
net asset value of Internet Plus Fund shares should increase approximately one
and a quarter as much as the Internet Index when the aggregate prices of the
securities in that index rise on a given day. Conversely, the net asset value of
shares of the Internet Plus Fund should decrease approximately one and a quarter
as much when aggregate prices of the securities in the Internet Index decline on
that day.
The POTOMAC INTERNET/SHORT FUND seeks to provide investment returns that
inversely correspond (opposite) to the performance of the Internet Index. If it
is successful in meeting its objective, the net asset value of Internet/Short
Fund shares should increase in direct proportion to any decrease in the level of
the Internet Index on a given day. Conversely, the net asset value of shares in
the Internet/Short Fund should decrease in direct proportion to any increase in
the level of the Internet Index on that day.
The Potomac Internet Funds' investment objectives are not fundamental
policies and may be changed by the Potomac Funds' Board of Trustees without
shareholder approval.

CORE INVESTMENTS
In attempting to achieve their objectives, the Potomac Internet Funds
primarily invest directly in the securities of the companies that comprise the
Internet Index. In addition, POTOMAC INTERNET PLUS FUND enters into long
positions in stock index futures contracts, options on stock index futures
contracts and options on securities and on stock indices to produce economically
leveraged investment results. The POTOMAC INTERNET/ SHORT FUND also enters into
short positions in the securities of the companies that comprise the Internet

--------------------------------------------------------------------------------
5
<PAGE>
Index, stock index futures contracts, options on stock index futures contracts
and options on securities and on stock indices. On a day-to-day basis, the Funds
hold U.S. Government securities and repurchase agreements to collateralize these
futures and options contracts.

TARGET INDEX
The DOW JONES COMPOSITE INTERNET INDEX-SM- is a modified
capitalization-weighted index designed to track the performance of companies
that are involved in Internet related activities. The Internet Index tracks 40
e-commerce and Internet services companies that generate at least 50% of their
revenues from the Internet and have a three-month average market capitalization
of at least $100 million. Dow Jones and Dow Jones Composite Internet Index are
service marks of Dow Jones & Company, Inc. Dow Jones has no relationship to the
Potomac Funds, other than the licensing of the Internet Index for use in
connection with the Potomac Funds' materials. Dow Jones does not sponsor,
endorse, sell or promote any of the Potomac Funds.

POTOMAC U.S. FUNDS

OBJECTIVES
The POTOMAC U.S. PLUS FUND seeks to provide investment returns that
correspond to 150% of the performance of the Standard & Poor's 500 Composite
Stock Price Index-TM- (S&P 500 Index). If it is successful in meeting its
objective, the net asset value of U.S. Plus Fund shares should increase
approximately one and a half as much as the S&P 500 Index when the aggregate
prices of the securities in that index rise on a given day. Conversely, the net
asset value of shares of the U.S. Plus Fund should decrease approximately one
and a half as much when the aggregate prices of the securities in the S&P 500
Index decline on that day.
The POTOMAC U.S./SHORT FUND seeks to provide investment returns that
inversely correspond (opposite) to the performance of the S&P 500 Index. If it
is successful in meeting its objective, the net asset value of U.S./Short Fund
shares should increase in direct proportion to any decrease in the level of the
S&P 500 Index on a given day. Conversely, the net asset value of shares in the
U.S./Short Fund should decrease in direct proportion to any increase in the
level of the S&P 500 Index on that day.

CORE INVESTMENTS
In attempting to achieve their objectives, the Potomac U.S. Funds may
invest directly in the securities of companies that are included in the S&P 500
Index and may invest in Standard & Poor's Depositary Receipts (SPDRs), which are
publicly-traded index securities on the S&P 500 Index. This allows the Fund to
invest in a portfolio of securities consisting of all of the component common
stocks of the S&P 500 Index. In addition, the POTOMAC U.S. PLUS FUND enters into
long positions in stock index futures contracts, options on stock index futures
contracts and options on securities and on stock indices to produce economically
leveraged investment results. The POTOMAC U.S./SHORT FUND enters into short
positions in SPDRs, options on stock index futures contracts and options on
securities and on stock indices. On a day-to-day basis, the Funds hold U.S.
Government securities and repurchase agreements to collateralize these futures
and options contracts.

---------------------------------------------------------------
6
<PAGE>
TARGET INDEX
The STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX-TM- is a
capitalization-weighted index composed of 500 common stocks. Standard & Poor's
selects the 500 stocks comprising the S&P 500 Index on the basis of market
values and industry diversification. Most of the stocks in the S&P 500 Index are
issued by the 500 largest companies, in terms of the aggregate market value of
their outstanding stock, and generally are listed on the New York Stock
Exchange. Standard & Poor's is not a sponsor of, or in any way affiliated with,
the Potomac Funds.

INVESTMENT TECHNIQUES AND POLICIES
Rafferty Asset Management, LLC (Rafferty), the investment advisor to each
Potomac Fund, uses a number of investment techniques in an effort to achieve the
stated goal for each Potomac Fund. For the Potomac Plus Funds, Rafferty attempts
to magnify the returns of each Plus Fund's target index while the Short Funds
are managed to provide returns inverse (opposite) of each Short Fund's target
index. Rafferty generally does not use fundamental securities analysis to
accomplish such correlation. Rather, Rafferty primarily uses statistical and
quantitative analysis to determine the investments each Potomac Fund makes and
techniques it employs. As a consequence, if a Fund is performing as designed,
the return of the target index will dictate the return for that Fund.
Each Potomac Plus Fund invests significantly in futures contracts on stock
indexes, options on futures contracts and financial instruments such as options
on securities and stock indexes options. Rafferty uses these types of
investments to produce economically "leveraged" investment results. Leveraging
allows Rafferty to generate a return that is larger than what would be generated
on the invested capital without leverage, thus changing small market movements
into larger changes in the value of the investments of a Plus Fund.
Each Potomac Fund is designed to provide daily investment returns that are
a multiple of the returns of its target index. While Rafferty attempts to
minimize any "tracking error" (the statistical measure of the difference between
the investment results of the Fund and the performance of its target index),
certain factors will tend to cause a Fund's investment results to vary from the
stated objective. During periods of market volatility, a Fund may have
difficulty in achieving its targeted return on a daily basis due to high
portfolio turnover, transaction costs and/or a temporary lack of liquidity in
the markets for the derivative securities held by the Fund. A Fund that meets
its daily targets over a period of time will not necessarily produce the returns
that might be expected in light of the returns of its target index for that
period. The difference results from the compounding effect of fluctuations in
the market and the use of leverage for the Plus Funds and inverse correlation
for the Short Funds to achieve a Fund's investment objective.
It is the policy of each Potomac Fund to pursue its investment objective
regardless of market conditions and not to take defensive positions. A Fund will
not adopt defensive positions by investing in cash or other instruments in
anticipation of an adverse climate for its target index. However, because it may
be difficult for a Fund to achieve its stated investment objective anytime its
assets fall below $2 million, Rafferty may invest the assets of any such Fund in
short-term U.S. Government securities until the level of net assets is
sufficient to permit investment in the desired investments. As a result, such
Fund may not

--------------------------------------------------------------------------------
7
<PAGE>
achieve its investment objective during this period. To find out if a Fund has
sufficient assets to invest to attempt to meet its objective, you may call
(888) 976-8662.

RISKS OF AGGRESSIVE INVESTMENT TECHNIQUES
The Funds use investment techniques that may be considered aggressive.
Risks associated with the use of futures contracts, and options on securities,
securities indices, and on futures contracts include potentially dramatic price
changes (losses) in the value of the instruments and imperfect correlations
between the price of the contract and the underlying security or index. These
instruments may increase the volatility of the Funds and may involve a small
investment of cash relative to the magnitude of the risk assumed. Investors
should be aware that while index futures and options contracts closely correlate
with the applicable indices over long periods, shorter-term deviations occur. As
a result, a Fund's short-term performance will reflect such deviation from its
target index.

LEVERAGE RISK
Each Potomac Plus Fund employs leveraged investment techniques. Use of
leverage can magnify the effects of changes in the value of these Plus Funds and
makes them more volatile. The leveraged investment techniques that these Funds
employ should cause investors in these Funds to lose more money in adverse
environments.

INVERSE CORRELATION RISK
Each Potomac Short Fund is negatively correlated to its target index and
should lose money when its target index rises -- a result that is the opposite
from traditional equity mutual funds. Because each Potomac Short Fund seeks
daily returns inverse to its target index, the difference between a Potomac
Short Fund's daily return and the return of its target index may be negatively
compounded during periods in which the markets decline.

---------------------------------------------------------------
8
<PAGE>
RISK OF POOR TRACKING
Several factors may affect a Fund's ability to achieve its targeted return
on a daily basis. During periods of market volatility, a Fund may have
difficulty in achieving its targeted return due to high portfolio turnover,
transaction costs and/or a temporary lack of liquidity in the markets for the
derivative securities held by a Fund. A failure to achieve its targeted return
on a daily basis may cause a Fund to provide returns over a longer period that
are worse than expected.

RISK OF EARLY CLOSING
The normal close of trading of securities listed on the Nasdaq Stock
Market and New York Stock Exchange ("NYSE") is 4:00 p.m. Eastern time.
Unanticipated early closings may result in a Fund being unable to sell or buy
securities on that day. If an exchange closes early on a day when one or more of
the Funds needs to execute a high volume of securities trades late in the
trading day a Fund might incur substantial trading losses.

HIGH PORTFOLIO TURNOVER
Rafferty expects a significant portion of the Potomac Funds' assets to
come from professional money managers and investors who use the Funds as part of
"asset allocation" and "market timing" investment strategies. These strategies
often call for frequent trading to take advantage of anticipated changes in
market conditions. Frequent trading could increase the rate of the Funds'
portfolio turnover, forcing realization of substantial capital gains and losses
and increasing transaction expenses. In addition, large movements of assets into
and out of the Funds may negatively impact their abilities to achieve their
investment objectives or their level of operating expenses.

RISK OF NON-DIVERSIFICATION
The Funds (except the Money Market Fund) are non-diversified, which means
that they may invest a high percentage of their assets in a limited number of
securities. Since the Funds' are non-diversified, their net asset values and
total returns may fluctuate more or fall greater in times of weaker markets than
a diversified mutual fund.

RISKS OF INVESTING IN INTERNET COMPANIES
The Potomac Internet Funds concentrate their investments in Internet
companies. In addition, the OTC Funds may invest a substantial portion of their
assets in Internet companies listed on the Nasdaq 100 Index. The market prices
of Internet-related stocks tend to exhibit a greater degree of market risk and
sharp price fluctuations than other types of investments. These stocks may fall
in- and out-of-favor with investors rapidly, which may cause sudden selling and
dramatically lower market prices. Internet stocks also may be

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9
<PAGE>
affected adversely by changes in technology, consumer and business purchasing
patterns, government regulation and/or obsolete products or services. In
addition, a rising interest rate environment tends to negatively affect Internet
companies. Those Internet companies having high market valuations may appear
less attractive to investors, which may cause sharp decreases in the companies'
market prices. Further, those Internet companies seeking to finance their
expansion would have increased borrowing costs, which may negatively impact
their earnings. As a result, these factors may negatively affect the performance
of the Internet Index and the Nasdaq 100 Index.

POTOMAC U.S. GOVERNMENT MONEY MARKET FUND

OBJECTIVES
The POTOMAC U.S. GOVERNMENT MONEY MARKET FUND seeks to provide security of
principal, current income and liquidity.

CORE INVESTMENTS
The POTOMAC U.S. GOVERNMENT MONEY MARKET FUND seeks to achieve these
objectives by investing in high quality, U.S. dollar-denominated short-term
obligations that have been determined by the Board of Trustees or by Rafferty to
present minimal credit risk. The Fund invests exclusively in obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements that are fully collateralized by such obligations.

INVESTMENT TECHNIQUES AND POLICIES
In order to maintain a stable share price, the Fund maintains an average
dollar-weighted maturity of 90 days or less. Securities purchased by the Fund
generally have remaining maturities of 397 days or less, although instruments
subject to repurchase agreements may bear longer final maturities. The average
dollar-weighted maturity of the Fund will not exceed 90 days.

RISK FACTORS

- Although the Fund seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in the Fund.

- Your investment in the Fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government institution.

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10
<PAGE>
PERFORMANCE OF THE POTOMAC FUNDS

The bar chart and the tables below illustrate the annual performance for
the Investor Class shares of the U.S. Plus Fund, U.S./Short Fund, OTC Plus Fund,
OTC/Short Fund, the U.S. Government Money Market Fund and their target indices
for the periods ended December 31, 1999. The tables below provide some
indication of the risks of an investment in these Funds by comparing their
performance with a broad measure of market performance and by illustrating their
highest and lowest quarterly returns. Because this information is based on past
performance, it's not a guarantee of future results.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<S> <C>
U.S. Plus Fund 1998 34.60%
U.S. Plus Fund 1999 24.45%
U.S./Short Fund 1998 -23.13%
U.S./Short Fund 1999 -14.44%
OTC Plus Fund 1998 104.22%
OTC Plus Fund 1999 129.22%
OTC/Short Fund 1998 -52.99%
OTC/Short Fund 1999 -56.81%
U.S. Government Money Market Fund 1998 4.33%
U.S. Government Money Market Fund 1999 4.03%
</TABLE>

------------------------
The total return from January 1, 2000 to September 30, 2000 for the Investor
Class of the U.S. Plus Fund, the U.S./Short Fund, the OTC Plus Fund, the
OTC/Short Fund and the U.S. Government Money Market Fund was -8.20%, 0.59%,
-10.56%, -12.60% and 3.99%, respectively.

The highest and lowest returns of the Funds for a quarter during the two
calendar years ended December 31, 1999 were as follows:

<TABLE>
<CAPTION>
FUND HIGHEST QUARTERLY RETURN (%) LOWEST QUARTERLY RETURN (%)
-------------------------------- ---------------------------- ---------------------------
<S> <C> <C>
OTC Plus Fund 68.51 (4th quarter 1999) 0.08 (3rd quarter 1998)
OTC/Short Fund -4.51 (3rd quarter 1998) -35.73 (4th quarter 1999)
U.S. Plus Fund 31.88 (4th quarter 1998) -17.38 (3rd quarter 1998)
U.S./Short Fund 11.00 (3rd quarter 1998) -17.52 (4th quarter 1998)
U.S. Government Money Market
Fund 1.11 (4th quarter 1999) 0.88 (1st quarter 1999)
</TABLE>

AVERAGE ANNUAL RETURNS (for the periods ended December 31, 1999):

<TABLE>
<CAPTION>
FUND ONE YEAR (%) SINCE INCEPTION (%) INCEPTION DATES
----------------------------- ------------ ------------------- ----------------
<S> <C> <C> <C>
OTC Plus Fund 129.22 91.49 October 20, 1997
Nasdaq 100 Index** 101.95 74.71 October 20, 1997

OTC/Short Fund -56.81 -49.85 October 16, 1997
Nasdaq 100 Index** 101.95 73.42 October 16, 1997

U.S. Plus Fund 24.45 27.67 October 20, 1997
S&P 500 Index* 19.53 21.63 October 20, 1997

U.S./Short Fund -14.44 -19.95 November 7, 1997
S&P 500 Index* 19.53 23.95 November 7, 1997

U.S. Government Money Market
Fund 4.03 4.19 October 20, 1997
</TABLE>

------------------------
* The S&P 500 is an unmanaged index of 500 U.S. stocks and gives a
broad look at how 500 of the largest companies in aggregate market
value have performed.
** The Nasdaq 100 is an unmanaged index composed of 100 of the largest
non-financial domestic companies with a minimum market capitalization
of $500 million and an average daily trading volume of at least
100,000 shares.

FEES AND EXPENSES OF INVESTOR CLASS SHARES OF THE POTOMAC FUNDS

The tables below describe the fees and expenses that you may pay if you
buy and hold shares of the Funds. The expenses below are based on actual
expenses incurred for the fiscal year ended August 31, 2000.

SHAREHOLDER FEES (fees paid directly from your investment)

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12
<PAGE>
ANNUAL OPERATING EXPENSES (expenses that are deducted from Fund assets)

<TABLE>
<CAPTION>
OTC PLUS DOW 30 PLUS SMALL CAP PLUS INTERNET PLUS U.S. PLUS
-------- ----------- -------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Management Fees 0.75 0.75 0.75 0.75 0.75
Distribution (12b-1) Fees# 0.20 0.00 0.14 0.00 0.00
Other Expenses* 0.55 0.77 0.61 0.77 0.75
---- ---- ---- ---- ----
Total Annual Operating Expenses* 1.50 1.52 1.50 1.52 1.50
Fee Waiver and/or Reimbursement* 0.00 0.02 0.00 0.02 0.00
---- ---- ---- ---- ----
Net Expenses 1.50 1.50 1.50 1.50 1.50
==== ==== ==== ==== ====
</TABLE>

<TABLE>
<CAPTION>
MONEY MARKET
OTC/SHORT SMALL CAP/ SHORT INTERNET/ SHORT U.S./SHORT FUND
--------- ---------------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Management Fees 0.90 0.90 0.90 0.90 0.50
Distribution (12b-1) Fees# 0.00 0.29 0.18 0.00 None
Other Expenses* 0.81 0.46 0.57 1.38 0.53
---- ---- ---- ---- ----
Total Annual Operating Expenses* 1.71 1.65 1.65 2.28 1.03
Fee Waiver and/or Reimbursement* 0.06 0.00 0.00 0.63 0.03
---- ---- ---- ---- ----
Net Expenses 1.65 1.65 1.65 1.65 1.00
==== ==== ==== ==== ====
</TABLE>

------------------------
* Rafferty Asset Management, LLC has contractually agreed to reimburse the
Investor Class Shares of Funds for Other Expenses through August 31, 2003 to
the extent that the Investor Class' Total Annual Fund Operating Expenses
exceed 1.50% for the Plus Funds, 1.65% for the Short Funds and 1.00% for the
Money Market Fund. If overall expenses fall below these percentage
limitations, then the Funds may reimburse Rafferty within the following three
fiscal years.
# The Board of Trustees has authorized payment by each Fund (except the Money
Market Fund) of Rule 12b-1 fees in an amount equal to the difference between a
Fund's Total Annual Operating Expenses and the contractual limit on Total
Annual Operating Expenses of 1.50% for the Plus Funds and 1.65% for the Short
Funds.

EXPENSE EXAMPLE:
The table below is intended to help you compare the cost of investing in
the Investor Class of the Potomac Funds with the cost of investing in other
mutual funds. The table shows what you would have paid if you invested $10,000
in the Investor Class of each Fund over the periods shown and then redeemed all
your shares at the end of those periods. It also assumes that your investment
has a 5% return each year and the operating expenses remain the same through
each year. The expenses shown for the first and third years are calculated based
on the Net Expenses shown above, taking into account any fee waivers and expense
reimbursements. For the subsequent years, the expenses are based on Total Annual
Operating

--------------------------------------------------------------------------------
13
<PAGE>
Expenses. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OTC Plus................................... $153 $474 $ 818 $1,791
OTC/Short.................................. $168 $520 $ 928 $2,019
Dow 30 Plus................................ $153 $474 $ 829 $1,813
Small Cap Plus............................. $153 $474 $ 818 $1,791
Small Cap/Short............................ $168 $520 $ 897 $1,955
Internet Plus.............................. $153 $474 $ 829 $1,813
Internet/Short............................. $168 $520 $ 897 $1,955
U.S. Plus.................................. $153 $474 $ 818 $1,791
U.S./Short................................. $168 $520 $1,220 $2,615
U.S. Government Money Market............... $102 $318 $ 569 $1,259
</TABLE>

--------------------------------------------------------------------------------
ABOUT YOUR INVESTMENT

SHARE PRICES OF THE POTOMAC FUNDS
A Fund's share price is known as its net asset value (NAV). For all of the
Funds except the U.S. Government Money Market Fund, the Investor Class share
prices are calculated fifteen minutes after the close of regular trading,
usually as of 4:15 pm Eastern time, each day the New York Stock Exchange (NYSE)
is open for business. The U.S. Government Money Market Fund's Investor Class
share price is calculated as of 1:15 pm Eastern time each day the NYSE and
Federal Bank of New York are open. Share price is calculated by dividing a
class' net assets by its shares outstanding. The Funds use the following methods
to price securities held in their portfolios:

- equity securities, OTC securities, options and futures are valued at their
last sales price, or if not available, the average of the last bid and ask

- options on futures are valued at their closing price

- short-term debt securities and money market securities are valued using
the "amortized" cost method

- securities for which a price is unavailable will be valued at fair value
estimates by the investment advisor under the supervision of the Board of
Trustees

RULE 12b-1 FEES
The Funds have adopted a distribution plan under Rule 12b-1 for Investor
Class shares. The plan allows the Funds to pay distribution and sales fees for
the sale of the Funds' shares and for other shareholder services. Because these
fees are paid out of the Investor Class assets on an on-going basis, over

---------------------------------------------------------------
14
<PAGE>
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
Under the plan, the fees may amount to up to 1.00% of the Investor Class'
average daily net assets. However, the Board has authorized each Fund to pay
Rule 12b-1 fees of an amount equal to the difference between a Fund's Investor
Class Total Annual Operating Expenses and the contractual limit on Investor
Class Total Annual Operating Expenses of 1.50% for the Plus Funds and 1.65% for
the Short Funds.

HOW TO INVEST IN THE INVESTOR CLASS OF THE POTOMAC FUNDS
You may invest in the Investor Class of the Funds through traditional
investment accounts, individual retirement accounts (including Roth IRAs),
self-directed retirement plans or company sponsored retirement plans.
Applications and description of any services fees for retirement accounts are
available directly from the Potomac Funds. You may invest directly with the
Funds or through certain brokers or dealers. Any transaction effected through a
broker or dealer may be subject to a processing fee.

MINIMUM INVESTMENT
The minimum initial and subsequent investments set forth below may be
invested in as many of the Potomac Funds as you wish. However, you must invest
at least $1,000 in any one of the Funds. For example, if you decide to invest
$10,000 in three of the Funds, you may allocate your minimum initial investment
as $8,000, $1,000 and $1,000.

Rafferty may waive these minimum requirements at its discretion. Contact
Rafferty for further information.

PURCHASING SHARES
BY MAIL

- Complete and sign your Account Application.

- Tell us which Fund and the amount you wish to invest.

- Mail your check (payable to "Potomac Funds") along with the completed
Account Application to:

<TABLE>
<S> <C>
REGULAR MAIL EXPRESS/OVERNIGHT MAIL
Potomac Funds - Investor Class Potomac Funds - Investor Class
c/o Firstar Mutual Fund Services, LLC c/o Firstar Mutual Fund Services, LLC
P.O. Box 1993 Mutual Fund Services - 3rd Floor
Milwaukee, Wisconsin 53201-1993 615 East Michigan Street
Milwaukee, Wisconsin 53202
</TABLE>

--------------------------------------------------------------------------------
15
<PAGE>
- Cash, credit cards, credit card checks and third-party checks will not be
accepted by the Funds.

- All purchases must be made in U.S. Dollars through a U.S. bank.

- If your check does not clear due to insufficient funds, you will be
charged a $25.00 fee.

- You will receive written confirmation by mail, but we do not issue share
certificates.

BY BANK WIRE TRANSFER

- Call the Potomac Funds' Transfer Agent at (800) 851-0511 to receive your
account number.

- Wire your payment through the Federal Reserve System as follows:

Firstar Bank, N.A.
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
ABA number 0420-00013
For credit to Firstar Mutual Fund Services, LLC
Account Number 112-952-137
For further credit to the Potomac Funds
(Your name)
(Your account number)
(Name of Fund(s) to purchase) - Investor Class

- Your bank may charge a fee for such services.

- Once you have wired your investment, mail your completed and signed
Account Application to the Potomac Funds.

- Wire orders will only be accepted from 9:00 A.M. TO 3:40 P.M. Eastern
Time. The Fund will not accept and process any orders for that day
received after this time.

THROUGH BROKERS OR DEALERS

- Select brokers or dealers are authorized to offer Investor Class shares.

- These brokers or dealers can help you complete the necessary paperwork,
mail your Account Application to the Potomac Funds and place your order to
purchase Investor Class shares of the Funds.

HOW TO EXCHANGE INVESTOR CLASS SHARES OF THE POTOMAC FUNDS
You may exchange Investor Class shares of your current Fund(s) for
Investor Class shares of any other Potomac Fund without any charges. To make an
exchange:

- Write or call the Potomac Funds' Transfer Agent.

---------------------------------------------------------------
16
<PAGE>
- Provide your name, account number, which Funds are involved, and the
number, percentage or dollar value of shares to be exchanged.

- The Funds can only honor exchanges between accounts registered in the same
name and having the same address and taxpayer identification number.

- You must exchange at least a $1,000 or, if your account value is less than
that, your entire account balance will be exchanged.

- You may exchange by telephone only if you selected that option on your
Account Application.

- You may place exchange orders by telephone between 9:00 A.M. AND
3:40 P.M. Eastern time.

HOW TO SELL INVESTOR CLASS SHARES OF THE POTOMAC FUNDS
You may sell all or part of your investment in the Funds at the next
determined net asset value after we receive your order.

GENERALLY

- You normally will receive proceeds from any sales of Investor Class shares
within seven days from the time a Fund receives your request in good
order.

- For investments that have been made by check, payment on sales requests
may be delayed until the Potomac Funds' Transfer Agent is reasonably
satisfied that the purchase payment has been collected by the Fund, which
may require up to 10 business days.

- Your proceeds will be sent to the address or wired to the bank listed on
your Account Application.

- Your request will be processed the same day if you call between 9:00 AM
AND 3:40 P.M. Eastern time (or 1:00 p.m. for the Money Market Fund).

BY TELEPHONE OR BY MAIL

- Call or write the Funds (see the address and telephone number above).

- You may only sell Investor Class shares of the Funds by telephone if you
selected that option on your Account Application.

- Provide your name, account number, which Fund and the number, percentage
or dollar value of shares to sell.

BY WIRE TRANSFER

- Call the Potomac Funds.

- Provide your name, account number, which Fund and the number, percentage
or dollar value of shares to sell.

--------------------------------------------------------------------------------
17
<PAGE>
- You must wire transfer at least $5,000.

- You will be charged a wire transfer fee of $15.00 in addition to any
charges imposed by your bank.

- Your proceeds will be wired only to the bank listed on your Account
Application.

THROUGH BROKERS OR DEALERS

- Select brokers or dealers can place your order to sell Investor Class
shares of the Funds.

- Payment can be directed to your account normally within three business
days after a broker or dealer places your order.

ACCOUNT AND TRANSACTION POLICIES

ORDER POLICIES
You may buy and sell Investor Class shares of the Funds at their NAV
computed after your order has been received in good order. Purchase and sell
orders will be processed the same day at that day's NAV if received by
3:40 p.m. Eastern Time (or 1:00 p.m. for the Money Market Fund). The Fund will
not accept and process any orders for that day received after this time.
There are certain times when you may be unable to sell Investor Class
shares of the Funds or proceeds may be delayed. This may occur during
emergencies, unusual market conditions or when the Funds cannot determine the
value of its assets or sell its holdings. The Funds reserve the right to reject
any purchase order or suspend offering of their shares.

SIGNATURE GUARANTEES
In certain instances when you sell Investor Class shares of the Funds, we
will need your signature guaranteed. Signatures guarantees may be available at
your bank, stockbroker or a national securities exchange. Your signature must be
guaranteed under the following circumstances:

- if your account registration or address has changed in the last 30 days

- if the proceeds of your sale are mailed to an address other than the one
listed with the Funds

- if the proceeds are payable to a third party

- if the sale is greater than $100,000

---------------------------------------------------------------
18
<PAGE>
- if the wire instructions on the account are being changed

- if there are other unusual situations as determined by the Funds' Transfer
Agent

LOW BALANCE ACCOUNTS
If your total account balance falls below $10,000, then we may sell your
Investor Class shares of the Funds. We will inform you in writing 30 days prior
to selling Investor Class shares. If you do not bring your total account balance
up to $10,000 within 30 days, we may sell Investor Class shares and send you the
proceeds. We will not sell Investor Class shares if your account value falls due
to market fluctuations.

MONEY MARKET FUND CHECKING POLICIES
You may write checks against your Money Market Fund account if you request
and complete a signature card. With these checks, you may sell Investor Class
shares of the Fund simply by writing a check for at least $500. You may not
write a check to close your account. If you place a stop payment order on a
check, we will charge you $25.

--------------------------------------------------------------------------------
ADDITIONAL INFORMATION

MANAGEMENT OF THE POTOMAC FUNDS

Rafferty Asset Management, LLC (Rafferty) provides investment services to
the Funds. Rafferty attempts to manage the investment of the Funds' assets
consistent with their investment objectives, policies and limitations. Rafferty
has been managing mutual funds since June 1997. Rafferty is located at 1311
Mamaroneck Avenue, White Plains, New York 10605.
Under an investment advisory agreement between the Potomac Funds and
Rafferty, the Funds pay Rafferty the following fees at an annualized rate based
on a percentage of the Funds' daily net assets. The fees charged and the
contractual fees are the same.

<TABLE>
<CAPTION>
ADVISORY FEES CHARGED
---------------------
<S> <C>
Plus Funds 0.75
Short Funds 0.90
U.S. Government Money Market Fund 0.50
</TABLE>

An investment committee of Rafferty employees has the day-to-day
responsibility for managing the Potomac Funds.

--------------------------------------------------------------------------------
19
<PAGE>
DISTRIBUTIONS AND TAXES

TAXES
The following table illustrates the potential tax liabilities for taxable
accounts:

---------------------------------------------------------------
20
<PAGE>
If you are a non-corporate shareholder and do not provide the Funds with
your correct taxpayer identification number (normally your social security
number), the Funds are required to withhold 31% of all dividends, other
distributions and sale proceeds payable to you. If you are otherwise subject to
backup withholding, we also are required to withhold and pay to the IRS 31% of
your distributions. Any tax withheld may be applied against your tax liability
when you file your tax return. You may be subject to a $50 fee for any penalties
imposed on the Funds by the IRS.

--------------------------------------------------------------------------------
21
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

The financial highlights tables are intended to help you understand the
financial performance of the Investor Class shares of each Fund outstanding for
the periods indicated. The information in the tables has been audited by
PricewaterhouseCoopers LLP, the Funds' independent accountants. Certain
information reflects financial results for a single Investor Class share. The
total returns in the table represent the rate that an investor would have earned
(or lost) on an investment in the Investor Class (assuming reinvestment of all
dividends and distributions). More information about the Funds may be found in
their Annual and Semi-Annual Reports, which you may obtain upon request.

<TABLE>
<CAPTION>
For a fund share outstanding throughout the period
U.S. PLUS FUND
-------------------------------------------------------------------
INVESTOR CLASS
POTOMAC FUNDS -------------------------------------------------------------------
YEAR ENDED YEAR ENDED OCTOBER 20,1997(1)
AUGUST 31, 2000 AUGUST 31, 1999 TO AUGUST 31, 1998
------------------ ------------------ -------------------
<S> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD.................... $ 14.56 $ 9.76 $ 10.00
----------- ----------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)(4)......................... 0.01 0.31 0.36
Net realized and unrealized gain (loss) on
investments(6)........................................ 2.43 4.59 (0.58)
----------- ----------- --------
Total from investment operations.................... 2.44 4.90 (0.22)
----------- ----------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income.................... -- -- (0.02)
Distributions from realized gains....................... -- (0.10) --
----------- ----------- --------
Total distributions................................. -- (0.10) (0.02)
----------- ----------- --------
Net Asset Value, End of Period.......................... $ 17.00 $ 14.56 $ 9.76
=========== =========== ========
TOTAL RETURN............................................ 16.76% 50.38% (2.23%)(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period............................... $55,311,201 $16,472,869 $466,997
Ratio of net expenses to average net assets:
Before expense reimbursement.......................... 1.50%(7) 1.52% 2.52%(3)
After expense reimbursement........................... 1.50%(7) 1.50% 1.50%(3)
Ratio of net investment income (loss) to average net
assets:
Before expense reimbursement.......................... 0.05%(7) 2.32% 2.68%(3)
After expense reimbursement........................... 0.05%(7) 2.34% 3.70%(3)
Portfolio turnover rate(5).............................. 2,010% 0% 0%
</TABLE>

22
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

The financial highlights tables are intended to help you understand the
financial performance of the Investor Class shares of each Fund outstanding for
the periods indicated. The information in the tables has been audited by
PricewaterhouseCoopers LLP, the Funds' independent accountants. Certain
information reflects financial results for a single Investor Class share. The
total returns in the table represent the rate that an investor would have earned
(or lost) on an investment in the Fund (assuming reinvestment of all dividends
and distributions). More information about the Funds may be found in their
Annual and Semi-Annual Reports, which you may obtain upon request.

<TABLE>
<CAPTION>
For a fund share outstanding throughout the period
OTC PLUS FUND
--------------------------------------------------------------------
INVESTOR CLASS
POTOMAC FUNDS --------------------------------------------------------------------
YEAR ENDED YEAR ENDED OCTOBER 20, 1997(1)
AUGUST 31, 2000 AUGUST 31, 1999 TO AUGUST 31, 1998
------------------ ------------------ --------------------
<S> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD................... $ 24.60 $ 10.41 $ 10.00
------------ ----------- ----------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)(4)........................ (0.49) (0.23) (0.11)
Net realized and unrealized gain (loss) on
investments(6)....................................... 20.05 14.48 0.52
------------ ----------- ----------
Total from investment operations................... 19.56 14.25 0.41
------------ ----------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment income................... -- -- --
Distributions from realized gains...................... (0.03) (0.06) --
------------ ----------- ----------
Total distributions................................ (0.03) (0.06) --
------------ ----------- ----------
NET ASSET VALUE, END OF PERIOD......................... $ 44.13 $ 24.60 $ 10.41
============ =========== ==========
TOTAL RETURN........................................... 79.54% 137.18% 4.10%(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period.............................. $184,751,134 $76,682,387 $7,680,546
Ratio of net expenses to average net assets:
Before expense reimbursement......................... 1.50%(7) 1.50% 3.21%(3)
After expense reimbursement.......................... 1.50%(7) 1.50% 1.50%(3)
Ratio of net investment income (loss) to average net
assets:
Before expense reimbursement......................... (1.26%)(7) (1.16%) (2.84%)(3)
After expense reimbursement.......................... (1.26%)(7) (1.16%) (1.13%)(3)
Portfolio turnover rate(5)............................. 378% 1,000% 2,325%
</TABLE>

23
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

The financial highlights tables are intended to help you understand the
financial performance of the Investor Class shares of each Fund outstanding for
the periods indicated. The information in the tables has been audited by
PricewaterhouseCoopers LLP, the Funds' independent accountants. Certain
information reflects financial results for a single Investor Class share. The
total returns in the table represent the rate that an investor would have earned
(or lost) on an investment in the Fund (assuming reinvestment of all dividends
and distributions). More information about the Funds may be found in their
Annual and Semi-Annual Reports, which you may obtain upon request.

<TABLE>
<CAPTION>
For a fund share outstanding throughout the period
SMALL CAP PLUS FUND SMALL CAP/SHORT FUND
--------------------------------------------- ---------------------
INVESTOR CLASS INVESTOR CLASS
POTOMAC FUNDS --------------------------------------------- ---------------------
YEAR ENDED FEBRUARY 22, 1999(1) DECEMBER 21, 1999(1)
AUGUST 31, 2000 TO AUGUST 31, 1999 TO AUGUST 31, 2000
------------------ --------------------- ---------------------
<S> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD............... $ 11.10 $ 10.00 $ 50.00
----------- ---------- -------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)(4).................... 0.19 0.18 1.39
Net realized and unrealized gain (loss) on
investments(6)................................... 1.42 0.92 (8.02)
----------- ---------- -------
Total from investment operations............... 1.61 1.10 (6.63)
----------- ---------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income............... (0.13) -- --
Distributions from realized gains.................. -- -- --
----------- ---------- -------
Total distributions............................ (0.13) -- --
----------- ---------- -------
NET ASSET VALUE, END OF PERIOD..................... $ 12.58 $ 11.10 $ 43.37
=========== ========== =======
TOTAL RETURN....................................... 14.50% 11.00%(2) (13.26%)(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period.......................... $34,065,099 $7,033,622 $36,969
Ratio of net expenses to average net assets:
Before expense reimbursement..................... 1.50%(7) 1.50%(3) 1.65%(3)
After expense reimbursement...................... 1.50%(7) 1.50%(3) 1.39%(3)
Ratio of net investment income (loss) to average
net assets:
Before expense reimbursement..................... 1.55%(7) 3.03%(3) 3.50%(3)
After expense reimbursement...................... 1.55%(7) 3.03%(3) 3.76%(3)
Portfolio turnover rate(5)......................... 3,390% 0% 851%
</TABLE>

24
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

The financial highlights tables are intended to help you understand the
financial performance of the Investor Class shares of each Fund outstanding for
the periods indicated. The information in the tables has been audited by
PricewaterhouseCoopers LLP, the Funds' independent accountants. Certain
information reflects financial results for a single Investor Class share. The
total returns in the table represent the rate that an investor would have earned
(or lost) on an investment in the Fund (assuming reinvestment of all dividends
and distributions). More information about the Funds may be found in their
Annual and Semi-Annual Reports, which you may obtain upon request.

<TABLE>
<CAPTION>
For a fund share outstanding throughout the period
U.S./SHORT FUND(7)
--------------------------------------------------------------------
INVESTOR CLASS
POTOMAC FUNDS --------------------------------------------------------------------
YEAR ENDED YEAR ENDED NOVEMBER 7, 1997(1)
AUGUST 31, 2000 AUGUST 31, 1999 TO AUGUST 31, 1998
------------------ ------------------ --------------------
<S> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD................... $ 34.39 $ 47.30 $ 50.00
---------- ---------- ----------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)(4)........................ 0.70(10) 1.05 1.15
Net realized and unrealized gain (loss) on
investments(6)....................................... (5.76) (13.91) (3.85)
---------- ---------- ----------
Total from investment operations................... (5.06) (12.86) (2.70)
---------- ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment income................... -- -- --
Distributions from realized gains...................... -- (0.05) --
---------- ---------- ----------
Total distributions................................ -- (0.05) --
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD......................... $ 29.33 $ 34.39 $ 47.30
========== ========== ==========
TOTAL RETURN........................................... (14.71%) (26.77%) (5.40%)(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period.............................. $1,964,139 $4,392,851 $7,768,652
Ratio of net expenses to average net assets:
Before expense reimbursement......................... 2.28% 1.90% 5.29%(3)
After expense reimbursement.......................... 1.62%(8) 1.64% 1.57%(3)
Ratio of net investment income (loss) to average net
assets:
Before expense reimbursement......................... 1.46% 2.23% (0.46%)(3)
After expense reimbursement.......................... 2.12%(9) 2.49% 3.26%(3)
Portfolio turnover rate(5)............................. 781% 0% 0%
</TABLE>

(1)COMMENCEMENT OF OPERATIONS.
(2)NOT ANNUALIZED.
(3)ANNUALIZED.
(4)NET INVESTMENT INCOME (LOSS) PER SHARE REPRESENTS NET INVESTMENT INCOME
(LOSS) DIVIDED BY THE DAILY AVERAGE SHARES OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD.
(5)PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR. INVESTMENTS IN OPTIONS,
FUTURES CONTRACTS AND REPURCHASE AGREEMENTS ARE DEEMED SHORT-TERM SECURITIES.
(6)THE AMOUNTS SHOWN MAY NOT CORRELATE WITH AGGREGATE GAINS AND LOSSES OF
PORTFOLIO SECURITIES DUE TO THE TIMING OF SUBSCRIPTIONS AND REDEMPTIONS OF FUND
SHARES.
(7)THE PER SHARE DATA REFLECTS A 1 FOR 5 REVERSE STOCK SPLIT WHICH OCCURRED ON
JUNE 7, 1999.
(8)THE OPERATING EXPENSE RATIO EXCLUDED DIVIDENDS ON SHORT POSITIONS. THE RATIO
INCLUDING DIVIDENDS ON SHORT POSITIONS FOR THE YEAR ENDED AUGUST 31, 2000 WAS
2.05%.
(9)THE NET INVESTMENT INCOME (LOSS) RATIO INCLUDED DIVIDENDS ON SHORT POSITIONS.
THE RATIO EXCLUDING DIVIDENDS ON SHORT POSITIONS FOR THE YEAR ENDED AUGUST 31,
2000 WAS 2.55%.
(10)NET INVESTMENT INCOME BEFORE DIVIDENDS ON SHORT POSITIONS FOR THE YEAR ENDED
AUGUST 31, 2000 WAS $0.84.

25
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

The financial highlights tables are intended to help you understand the
financial performance of the Investor Class shares of each Fund outstanding for
the periods indicated. The information in the tables has been audited by
PricewaterhouseCoopers LLP, the Funds' independent accountants. Certain
information reflects financial results for a single Investor Class share. The
total returns in the table represent the rate that an investor would have earned
(or lost) on an investment in the Fund (assuming reinvestment of all dividends
and distributions). More information about the Funds may be found in their
Annual and Semi-Annual Reports, which you may obtain upon request.

<TABLE>
<CAPTION>
For a fund share outstanding throughout the period
OTC/SHORT FUND(10)
--------------------------------------------------------------------
INVESTOR CLASS
POTOMAC FUNDS --------------------------------------------------------------------
YEAR ENDED YEAR ENDED OCTOBER 16, 1997(1)
AUGUST 31, 2000 AUGUST 31, 1999 TO AUGUST 31, 1998
------------------ ------------------ --------------------
<S> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD................... $ 17.06 $ 41.90 $ 50.00
---------- ----------- -----------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)(4)........................ 0.23 0.39(9) 0.45(9)
Net realized and unrealized gain (loss) on
investments(6)....................................... (8.90) (25.22) (8.55)
---------- ----------- -----------
Total from investment operations................... (8.67) (24.83) (8.10)
---------- ----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment income................... (0.08) -- --
Distributions from realized gains...................... -- (0.01) --
---------- ----------- -----------
Total distributions................................ (0.08) (0.01) --
---------- ----------- -----------
NET ASSET VALUE, END OF PERIOD......................... $ 8.31 $ 17.06 $ 41.90
========== =========== ===========
TOTAL RETURN........................................... (50.96%) (59.25%) (16.20%)(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period.............................. $3,144,405 $10,863,451 $19,168,538
Ratio of net expenses to average net assets:
Before expense reimbursement......................... 1.71% 1.87% 3.70%(3)
After expense reimbursement.......................... 1.65% 1.65%(7) 1.64%(3,7)
Ratio of net investment income (loss) to average net
assets:
Before expense reimbursement......................... 1.98% 1.47% (0.74)%(3)
After expense reimbursement.......................... 2.04% 1.69%(8) 1.32%(3,8)
Portfolio turnover rate(5)............................. 1,225% 3,049% 3,346%
</TABLE>

(1)COMMENCEMENT OF OPERATIONS.
(2)NOT ANNUALIZED.
(3)ANNUALIZED.
(4)NET INVESTMENT INCOME (LOSS) PER SHARE REPRESENTS NET INVESTMENT INCOME
(LOSS) DIVIDED BY THE DAILY AVERAGE SHARES OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD.
(5)PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR. INVESTMENTS IN OPTIONS,
FUTURES CONTRACTS AND REPURCHASE AGREEMENTS ARE DEEMED SHORT-TERM SECURITIES.
(6)THE AMOUNTS SHOWN MAY NOT CORRELATE WITH AGGREGATE GAINS AND LOSSES OF
PORTFOLIO SECURITIES DUE TO THE TIMING OF SUBSCRIPTIONS AND REDEMPTIONS OF FUND
SHARES.
(7)THE OPERATING EXPENSE RATIO EXCLUDED DIVIDENDS ON SHORT POSITIONS. THE RATIO
INCLUDING DIVIDENDS ON SHORT POSITIONS FOR THE YEAR ENDED AUGUST 31, 1999 AND
THE PERIOD ENDED AUGUST 31, 1998 WAS 1.74% AND 1.78%, RESPECTIVELY.
(8)THE NET INVESTMENT INCOME RATIO INCLUDED DIVIDENDS ON SHORT POSITIONS. THE
RATIO EXCLUDING DIVIDENDS ON SHORT POSITIONS FOR THE YEAR ENDED AUGUST 31, 1999
AND THE PERIOD ENDED AUGUST 31, 1998 WAS 1.78% AND 1.46%, RESPECTIVELY.
(9)NET INVESTMENT INCOME BEFORE DIVIDENDS ON SHORT POSITIONS FOR THE YEAR ENDED
AUGUST 31, 1999 AND THE PERIOD ENDED AUGUST 31, 1998 WAS $0.41 AND $0.50,
RESPECTIVELY.
(10)THE PER SHARE DATA REFLECTS A 1 FOR 5 REVERSE STOCK SPLIT WHICH OCCURRED ON
JUNE 7, 1999.

26
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

The financial highlights tables are intended to help you understand the
financial performance of the Investor Class shares of each Fund outstanding for
the periods indicated. The information in the tables has been audited by
PricewaterhouseCoopers LLP, the Funds' independent accountants. Certain
information reflects financial results for a single Investor Class share. The
total returns in the table represent the rate that an investor would have earned
(or lost) on an investment in the Fund (assuming reinvestment of all dividends
and distributions). More information about the Funds may be found in their
Annual and Semi-Annual Reports, which you may obtain upon request.

<TABLE>
<CAPTION>
For a fund share outstanding throughout the period
INTERNET PLUS FUND INTERNET/SHORT FUND DOW 30 PLUS FUND
-------------------- --------------------- --------------------
INVESTOR CLASS
POTOMAC FUNDS -------------------------------------------------------------------------
DECEMBER 2, 1999(1) DECEMBER 21, 1999(1) DECEMBER 2, 1999(1)
TO AUGUST 31, 2000 TO AUGUST 31, 2000 TO AUGUST 31, 2000
-------------------- --------------------- --------------------
<S> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD.............. $ 10.00 $ 50.00 $ 10.00
---------- -------- -----------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)(4)................... (0.11) (4.45)(9) 0.01
Net realized and unrealized gain (loss) on
investments(6).................................. (1.44) (10.15) (0.69)
---------- -------- -----------
Total from investment operations.............. (1.55) (14.60) (0.68)
---------- -------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment income.............. -- -- --
Distributions from realized gains................. -- -- --
---------- -------- -----------
Total distributions........................... -- -- --
---------- -------- -----------
NET ASSET VALUE, END OF PERIOD.................... $ 8.45 $ 35.40 $ 9.32
========== ======== ===========
TOTAL RETURN...................................... (15.50%)(2) (29.20%)(2) (6.80%)(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period......................... $8,126,643 $980,534 $18,509,233
Ratio of net expenses to average net assets:
Before expense reimbursement.................... 1.52%(3) 1.65%(3) 1.52%(3)
After expense reimbursement..................... 1.50%(3) 1.36%(3,7) 1.50%(3)
Ratio of net investment income (loss) to average
net assets:
Before expense reimbursement.................... (1.37%)(3) (15.32%)(3) 0.16%(3)
After expense reimbursement..................... (1.35%)(3) (15.03%)(3,8) 0.18%(3)
Portfolio turnover rate(5)........................ 3,302% 6,371% 1,606%
</TABLE>

(1)COMMENCEMENT OF OPERATIONS.
(2)NOT ANNUALIZED.
(3)ANNUALIZED.
(4)NET INVESTMENT INCOME (LOSS) PER SHARE REPRESENTS NET INVESTMENT INCOME
(LOSS) DIVIDED BY THE DAILY AVERAGE SHARES OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD.
(5)PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR. INVESTMENTS IN OPTIONS,
FUTURES CONTRACTS AND REPURCHASE AGREEMENTS ARE DEEMED SHORT-TERM SECURITIES.
RATIO IS CALCULATED ON THE BASIS OF THE FUND AS A WHOLE WITHOUT DISTINGUISHING
BETWEEN THE CLASSES OF SHARES ISSUED.
(6)THE AMOUNTS SHOWN MAY NOT CORRELATE WITH AGGREGATE GAINS AND LOSSES OF
PORTFOLIO SECURITIES DUE TO THE TIMING OF SUBSCRIPTIONS AND REDEMPTIONS OF FUND
SHARES.
(7)THE OPERATING EXPENSE RATIO EXCLUDED DIVIDENDS ON SHORT POSITIONS. THE RATIO
INCLUDING DIVIDENDS ON SHORT POSITIONS FOR THE YEAR ENDED AUGUST 31, 2000 WAS
18.33%.
(8)THE NET INVESTMENT INCOME (LOSS) RATIO INCLUDED DIVIDENDS ON SHORT POSITIONS.
THE RATIO EXCLUDING DIVIDENDS ON SHORT POSITIONS FOR THE YEAR ENDED AUGUST 31,
2000 WAS 1.94%.
(9)NET INVESTMENT INCOME BEFORE DIVIDENDS ON SHORT POSITIONS FOR THE YEAR ENDED
AUGUST 31, 2000 WAS $0.57.

27
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

The financial highlights tables are intended to help you understand the
financial performance of the Investor Class shares of each Fund outstanding for
the periods indicated. The information in the tables has been audited by
PricewaterhouseCoopers LLP, the Funds' independent accountants. Certain
information reflects financial results for a single Investor Class share. The
total returns in the table represent the rate that an investor would have earned
(or lost) on an investment in the Fund (assuming reinvestment of all dividends
and distributions). More information about the Funds may be found in their
Annual and Semi-Annual Reports, which you may obtain upon request.

<TABLE>
<CAPTION>
For a fund share outstanding throughout the period
U.S. GOVERNMENT MONEY MARKET FUND(1)
--------------------------------------------------------------------
INVESTOR CLASS
POTOMAC FUNDS --------------------------------------------------------------------
YEAR ENDED YEAR ENDED OCTOBER 20, 1997(1)
AUGUST 31, 2000 AUGUST 31, 1999 TO AUGUST 31, 1998
------------------ ------------------ --------------------
<S> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD................... $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)(4)........................ 0.05 0.04 0.04
Net realized and unrealized gain (loss) on
investments.......................................... -- -- --
----------- ----------- ----------
Total from investment operations................... 0.05 0.04 0.04
----------- ----------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment income................... (0.05) (0.04) (0.04)
Distributions from realized gains...................... -- -- --
----------- ----------- ----------
Total distributions................................ (0.05) (0.04) (0.04)
----------- ----------- ----------
NET ASSET VALUE, END OF PERIOD......................... $ 1.00 $ 1.00 $ 1.00
=========== =========== ==========
TOTAL RETURN........................................... 5.01% 3.89% 3.89%(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period.............................. $16,402,144 $50,222,733 $9,370,384
Ratio of net expenses to average net assets:
Before expense reimbursement......................... 1.03% 1.20% 3.70%(3)
After expense reimbursement.......................... 1.00% 0.99% 1.00%(3)
Ratio of net investment income (loss) to average net
assets:
Before expense reimbursement......................... 4.93% 3.68% 1.66%(3)
After expense reimbursement.......................... 4.96% 3.89% 4.36%(3)
Portfolio turnover rate(5)............................. N/A N/A N/A
</TABLE>

28
<PAGE>
MORE INFORMATION ON THE POTOMAC FUNDS

STATEMENT OF ADDITIONAL INFORMATION (SAI):
The Funds' SAI contains more information on the Funds and their investment
policies. The SAI is incorporated in this Prospectus by reference (meaning it is
legally part of this Prospectus). A current SAI is on file with the Securities
and Exchange Commission (SEC).

ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS:
The Funds' reports provide additional information on their investment
holdings, performance data and a letter discussing the market conditions and
investment strategies that significantly affected the Funds' performance during
that period.

CALL OR WRITE TO OBTAIN THE SAI OR FUND REPORTS FREE OF CHARGE:

<TABLE>
<S> <C>
Write to: Potomac Funds
P.O. Box 1993
Milwaukee, Wisconsin 53201-1993

Call: (800) 851-0511
</TABLE>

SEC File Number: 811-8243

PROSPECTUS
January 2, 2001

[LOGO]

INVESTOR CLASS

100 South Royal Street
Alexandria, Virginia 22314

1311 Mamaroneck Avenue
White Plains, New York 10605

(800) 851-0511
<PAGE>
PROSPECTUS

[LOGO]

BROKER CLASS

100 South Royal Street
Alexandria, Virginia 22314

1311 Mamaroneck Avenue
White Plains, New York 10605

(800) 851-0511

PLUS FUNDS
The Potomac OTC Plus Fund
The Potomac Dow 30-SM- Plus Fund
The Potomac Small Cap Plus Fund
The Potomac U.S. Plus Fund

MONEY MARKET FUND
The Potomac U.S. Government
Money Market Fund

---------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
OVERVIEW OF THE POTOMAC FUNDS............................... 2

THE POTOMAC FUNDS........................................... 3
The Potomac OTC Plus Fund................................... 3
The Potomac Dow 30-SM- Plus Fund............................ 3
The Potomac Small Cap Plus Fund............................. 4
The Potomac U.S. Plus Fund.................................. 5
Investment Techniques and Policies.......................... 5
Risk Factors................................................ 6
The Potomac U.S. Government Money Market Fund............... 8
Performance of The Potomac Funds............................ 10
Fees and Expenses of Broker Class Shares of The Potomac
Funds................................................... 11

ABOUT YOUR INVESTMENT....................................... 13
Your Account................................................ 13
Rule 12b-1 Fees............................................. 14
How to Invest in Broker Class Shares of The Potomac Funds... 14
How to Exchange Broker Class Shares of The Potomac Funds.... 15
How to Sell Broker Class Shares of The Potomac Funds........ 15
Prices of Broker Class Shares of The Potomac Funds.......... 15
Account and Transaction Policies............................ 16

ADDITIONAL INFORMATION...................................... 17
Management of The Potomac Funds............................. 17
Distributions and Taxes..................................... 17
Master/Feeder Structure Option.............................. 19

FINANCIAL HIGHLIGHTS........................................ 20

MORE INFORMATION ON THE POTOMAC FUNDS....................... Back Cover
</TABLE>

This Prospectus offers the Broker Class shares of The Potomac Plus Funds
and Money Market Fund. The Broker Class is made available exclusively through a
participating broker or dealer (Broker).

The Potomac Funds also offer a money market fund, which is designed to
provide stability of principal, liquidity and current income.

---------------------------------------------------------------
2
<PAGE>
--------------------------------------------------------------------------------
THE POTOMAC FUNDS

THE POTOMAC OTC PLUS FUND

TARGET INDEX
The NASDAQ 100 INDEX -TM- is a capitalization-weighted index composed of
100 of the largest non-financial domestic companies listed on the National
Market tier of The Nasdaq Stock Market. All companies listed on the index have a
minimum market capitalization of $500 million and an average daily trading
volume of at least 100,000 shares. The Nasdaq 100 Index was created in 1985. The
Nasdaq Stock Market is not a sponsor of, or in any way affiliated with, The
Potomac Funds.

THE POTOMAC DOW 30 -SM- PLUS FUND

OBJECTIVE
THE POTOMAC DOW 30 -SM- PLUS FUND seeks daily investment results that
correspond to 125% of the performance of the Dow Jones Industrial Average-SM-
(Dow). If it is successful in meeting its objective, the net asset value of Dow
30 Plus Fund shares should increase approximately one and a quarter as much as
the Dow when the aggregate prices of the securities that comprise the Dow rise
on a given day. Conversely, the net asset value of shares of the Dow 30 Plus
Fund should decrease approximately one and a quarter as much when the aggregate
prices of the securities in the Dow decline on that day.
The Potomac Dow 30 Plus Fund's investment objective is not a fundamental
policy and may be changed by the Potomac Funds' Board of Trustees without
shareholder approval.

--------------------------------------------------------------------------------
3
<PAGE>
CORE INVESTMENTS
In attempting to achieve its objective, THE POTOMAC DOW 30 -SM- PLUS FUND
primarily invests directly in the securities of the companies that comprise the
Dow. In addition, the Dow 30 Plus Fund enters into long positions in stock index
futures contracts, options on stock index futures contracts and options on
securities and on stock indices to produce economically leveraged investment
results. The Fund also may invest in DIAMONDS, which are publicly-traded index
securities based on the Dow. This allows the Fund to invest in a portfolio of
securities consisting of all of the component common stocks of the Dow. On a
day-to-day basis, the Fund holds U.S. Government securities and repurchase
agreements to collateralize these futures and options contracts.

TARGET INDEX
The DOW JONES INDUSTRIAL AVERAGE -SM- consists of 30 of the most widely
held and actively traded stocks listed on the U.S. stock markets. The stocks in
the Dow represent companies that typically are dominant firms in their
respective industries. Dow Jones, Dow Jones Industrial Average-SM-, DJIA-SM-,
and Dow 30-SM- are service marks of Dow Jones & Company, Inc. Dow Jones has no
relationship to The Potomac Funds, other than the licensing of those service
marks for use in connection with the Funds' materials. Dow Jones does not
sponsor, endorse, sell or promote any of The Potomac Funds.

THE POTOMAC SMALL CAP PLUS FUND

CORE INVESTMENTS
In attempting to achieve its objective, THE POTOMAC SMALL CAP PLUS FUND
primarily invests directly in the securities of the companies that comprise the
Russell 2000 Index. In addition, the Small Cap Plus Fund enters into long
positions in stock index futures contracts, options on stock index futures
contracts and options on securities and on stock indices to produce economically
leveraged investment results. On a day-to-day basis, the Fund holds U.S.
Government securities and repurchase agreements to collateralize these futures
and options contracts.

---------------------------------------------------------------
4
<PAGE>
TARGET INDEX
THE RUSSELL 2000 -REGISTERED TRADEMARK- INDEX is comprised of the smallest
2000 companies in the Russell 3000 Index. As of May 31, 2000, the average market
capitalization of the companies included in the Russell 2000 was approximately
$580 million. That compares to an average market capitalization of $5.1 billion
for the Russell 3000. The smallest 2000 companies represent approximately 8% of
the total market capitalization of the Russell 3000. The Frank Russell Company
is not a sponsor of, or in any way affiliated with, The Potomac Funds.

THE POTOMAC U.S. PLUS FUND

TARGET INDEX
THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX -TM- is a
capitalization-weighted index composed of 500 common stocks. Standard & Poor's
selects the 500 stocks comprising the S&P 500 Index on the basis of market
values and industry diversification. Most of the stocks in the S&P 500 Index are
issued by the 500 largest companies, in terms of the aggregate market value of
their outstanding stock, and generally are listed on the New York Stock Exchange
(NYSE). Standard & Poor's is not a sponsor of, or in any way affiliated with,
The Potomac Funds.

--------------------------------------------------------------------------------
5
<PAGE>
securities analysis to accomplish such correlation. Rather, Rafferty primarily
uses statistical and quantitative analysis to determine the investments each
Fund makes and techniques it employs. As a consequence, if a Fund is performing
as designed, the return of the target index will dictate the return for that
Fund.
Each Plus Fund invests significantly in futures contracts on stock
indexes, options on futures contracts and financial instruments such as options
on securities and stock indexes options. Rafferty uses these types of
investments to produce economically "leveraged" investment results. Leveraging
allows Rafferty to generate a return that is larger than what would be generated
on the invested capital without leverage, thus changing small market movements
into larger changes in the value of the investments of a Plus Fund.
Each Potomac Fund is designed to provide daily investment returns that are
a multiple of the returns of its target index. While Rafferty attempts to
minimize any "tracking error" (the statistical measure of the difference between
the investment results of a Fund and the performance of its target index),
certain factors will tend to cause a Fund's investment results to vary from the
stated objective. During periods of market volatility, a Fund may have
difficulty in achieving its targeted return on a daily basis due to high
portfolio turnover, transaction costs and/or a temporary lack of liquidity in
the markets for the derivative securities held by the Fund. A Fund that meets
its daily targets over a period of time will not necessarily produce the returns
that might be expected in light of returns of its target index for that period.
The difference results from the compounding effect of fluctuations in the market
and the use of leverage for the Plus Funds to achieve a Fund's investment
objective.
It is the policy of each Fund to pursue its investment objective
regardless of market conditions and not to take defensive positions. A Fund will
not adopt defensive positions by investing in cash or other instruments in
anticipation of an adverse climate for its target index. However, because it may
be difficult for a Fund to achieve its stated investment objective any time its
assets fall below $2 million, Rafferty may invest the assets of any such Fund in
short-term U.S. Government securities until the level of net assets is
sufficient to permit investment in the desired investments. As a result, such
Fund may not achieve its investment objective during this period. To find out if
a Fund has sufficient assets to invest to attempt to meet its objective, you may
call (888) 976-8662.

---------------------------------------------------------------
6
<PAGE>
Fluctuations in the value of common stocks in which the Funds invest will cause
the net asset value of the Funds to fluctuate.

RISK OF POOR TRACKING
Several factors may affect a Fund's ability to achieve its targeted return
on a daily basis. During periods of market volatility, a Fund may have
difficulty in achieving its targeted return due to high portfolio turnover,
transaction costs and/or temporary lack of liquidity in the markets for the
derivative securities held by a Fund. A failure to achieve its targeted return
on a daily basis may cause a Fund to provide returns over a longer period of
time that are worse than expected.

RISK OF EARLY CLOSING
The normal close of trading of securities listed on the Nasdaq Stock
Market and NYSE is 4:00 p.m. Eastern time. Unanticipated early closings may
result in a Fund being unable to sell or buy securities on that day. If an
exchange closes early on a day when one or more of the Funds needs to execute a
high volume of securities trades late in the trading day a Fund might incur
substantial trading losses.

--------------------------------------------------------------------------------
7
<PAGE>
HIGH PORTFOLIO TURNOVER
Rafferty expects a significant portion of The Potomac Funds' assets to
come from professional money managers and investors who use the Funds as part of
"asset allocation" and "market timing" investment strategies. These strategies
often call for frequent trading to take advantage of anticipated changes in
market conditions. Frequent trading could increase the rate of the Funds'
portfolio turnover, forcing realization of substantial capital gains and losses
and increasing transaction expenses. In addition, large movements of assets into
and out of the Funds may negatively impact their abilities to achieve their
investment objectives or their level of operating expenses.

RISKS OF INVESTING IN INTERNET COMPANIES
The Potomac OTC Plus Fund may invest a substantial portion of its assets
in Internet companies listed on the Nasdaq 100 Index. The market prices of
Internet-related stocks tend to exhibit a greater degree of market risk and
sharp price fluctuations than other types of investments. These stocks may fall
in- and out-of-favor with investors rapidly, which may cause sudden selling and
dramatically lower market prices. Internet stocks also may be affected adversely
by changes in technology, consumer and business purchasing patterns, government
regulation and/or obsolete products or services. In addition, a rising interest
rate environment tends to negatively affect Internet companies. Those Internet
companies having high market valuations may appear less attractive to investors,
which may cause sharp decreases in the companies' market prices. Further, those
Internet companies seeking to finance their expansion would have increased
borrowing costs, which may negatively impact their earnings. As a result, these
factors may negatively affect the performance of the Nasdaq 100 Index.

THE POTOMAC U.S. GOVERNMENT MONEY MARKET FUND

OBJECTIVE
THE POTOMAC U.S. GOVERNMENT MONEY MARKET FUND seeks to provide security of
principal, current income and liquidity.

---------------------------------------------------------------
8
<PAGE>
CORE INVESTMENTS
THE POTOMAC U.S. GOVERNMENT MONEY MARKET FUND seeks to achieve these
objectives by investing in high quality, U.S. dollar-denominated short-term
obligations that have been determined by the Trustees or by Rafferty to present
minimal credit risk. The Fund invests exclusively in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements that are fully collateralized by such obligations.

RISK FACTORS

- Although the Fund seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in the Fund.

- Your investment in the Fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government institution.

--------------------------------------------------------------------------------
9
<PAGE>
PERFORMANCE OF THE POTOMAC FUNDS

The Broker Class shares are a new class of shares offered by The Potomac
Funds. Accordingly, they do not have a full calendar year of performance of
their own. The annual performance illustrated in the bar chart and tables below
represents the actual historical performance for the Funds' Investor Class of
shares not offered in this Prospectus for the U.S. Plus Fund, OTC Plus Fund, and
the U.S. Government Money Market Fund. Because the Investor Class had lower
expenses, its performance was higher than the Broker Class of the Funds would
have received in the same time period.
The tables below provide some indication of the risks of an investment in
these Funds by comparing the performance of the Investor Class of shares with a
broad measure of market performance and by illustrating their highest and lowest
quarterly returns. Because this information is based on past performance, it's
not a guarantee of future results.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
U.S. Plus Fund 34.60% 24.45%
OTC Plus Fund 104.22% 129.22%
U.S. Government Money Market Fund 4.33% 4.03%
</TABLE>

------------------------
The total return from January 1, 2000 to September 30, 2000 for the
Investor Class of the U.S. Plus Fund, the OTC Plus Fund and the U.S. Government
Money Market Fund was -8.20%, -10.56% and 3.99%, respectively.

The highest and lowest returns of the Funds for a quarter during the two
calendar years ended December 31, 1999 were as follows:

<TABLE>
<CAPTION>
FUND HIGHEST QUARTERLY RETURN (%) LOWEST QUARTERLY RETURN (%)
--------------------------- ---------------------------- ----------------------------
<S> <C> <C>
OTC Plus Fund 68.51 (4th quarter of 1999) 0.08 (3rd quarter of 1998)
U.S. Plus Fund 31.88 (4th quarter of 1998) -17.38 (3rd quarter of 1998)
U.S. Government Money
Market Fund 1.11 (4th quarter of 1999) 0.88 (1st quarter of 1999)
</TABLE>

---------------------------------------------------------------
10
<PAGE>
The table below shows what the Funds' average annual total returns would
equal if you average out actual performance over various lengths of time.

AVERAGE ANNUAL RETURNS (for the periods ended December 31, 1999):

<TABLE>
<CAPTION>
FUND ONE YEAR (%) SINCE INCEPTION (%)+
---------------------------------------------- ------------ --------------------
<S> <C> <C>
OTC Plus Fund 129.22 91.49
Nasdaq 100 Index* 101.95 74.71

U.S. Plus Fund 24.45 27.67
S&P 500 Index** 19.53 21.63

U.S. Government Money Market Fund 4.03 4.19
</TABLE>

------------------------
+ The Investor Class of each Fund commenced operations on October 20,
1997.
* The Nasdaq 100 is an unmanaged index composed of 100 of the largest
non-financial domestic companies with a minimum market capitalization
of $500 million and an average daily trading volume of at least
100,000 shares.
** The S&P 500 is an unmanaged index of 500 U.S. stocks and gives a
broad look at how 500 of the largest companies in aggregate market
value have performed.

FEES AND EXPENSES OF BROKER CLASS SHARES OF THE POTOMAC FUNDS

The tables below describe the fees and expenses that you may pay if you
buy and hold Broker Class shares of the Funds. The expenses below are based on
actual expenses incurred for the fiscal year ended August 31, 2000.

SHAREHOLDER FEES (fees paid directly from your investment)

<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a % of
offering price)........................................... None
Maximum Deferred Sales Charge (as a % of original purchase
price or sales proceeds, whichever is less)............... 5.00%*
Wire Redemption Fee......................................... $15.00
</TABLE>

------------------------
* Declining over a six-year period as follows: 5% during the first
year, 4% during the second year, 3% during the third and fourth
years, 2% during the fifth year, 1% during the sixth year and 0%
thereafter. Broker Class shares will convert to Investor
Class shares approximately eight years after purchase.

--------------------------------------------------------------------------------
11
<PAGE>
ANNUAL OPERATING EXPENSES (expenses that are deducted from Fund assets)

<TABLE>
<CAPTION>
MONEY MARKET
OTC PLUS DOW 30 PLUS SMALL CAP PLUS U.S. PLUS FUND
-------- ----------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C>
Management Fees 0.75 0.75 0.75 0.75 0.50
Distribution (12b-1) Fees 1.00+ 1.00 1.00+ 1.00 1.00
Other Expenses* 0.55 0.77 0.61 0.75 0.53
---- ---- ---- ---- ----
Total Annual Operating Expenses* 2.30+ 2.52 2.36+ 2.50 2.03
Fee Waiver and/or Reimbursement* 0.00 0.02 0.00 0.00 0.03
---- ---- ---- ---- ----
Net Expenses 2.30+ 2.50 2.36+ 2.50 2.00
==== ==== ==== ==== ====
</TABLE>

------------------------
+ Rafferty Asset Management, LLC voluntarily waived Distribution (12b-1) Fees
for the OTC Plus Fund and Small Cap Plus Fund in the amount of 0.30% and
0.09%, repectively. As a result, Total Annual Operating Expenses and Net
Expenses were 2.00% and 2.27% for the OTC Plus Fund and Small Cap Plus Fund,
respectively.

* Rafferty Asset Management, LLC has contractually agreed to reimburse the
Broker Class shares of the Funds for Other Expenses through August 31, 2003 to
the extent that the Broker Class' Total Annual Fund Operating Expenses exceed
2.50% for the Plus Funds and 2.00% for the Money Market Fund. If overall
expenses fall below these percentage limitations, then the Funds may reimburse
Rafferty within the following three fiscal years.

EXPENSE EXAMPLE
The tables below are intended to help you compare the cost of investing in
the Broker Class of The Potomac Funds with the cost of investing in other mutual
funds. The tables show what you would have paid if you invested $10,000 in the
Broker Class of each Fund over the periods shown and then redeemed all your
shares at the end of those periods. It also assumes that your investment has a
5% return each year and the operating expenses remain the same through each
year. The expenses shown for the first and third years are calculated based on
the Net Expenses shown above, taking into account any fee waivers and expense
reimbursements. For the other years, the expenses are based on Total Annual
Operating Expenses. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OTC Plus
Assuming redemption at end of period..... $733 $1,018 $1,430 $2,636
Assuming no redemption................... $233 $ 718 $1,230 $2,636
Dow 30 Plus
Assuming redemption at end of period..... $753 $1,079 $1,540 $2,856
Assuming no redemption................... $253 $ 779 $1,340 $2,856
Small Cap Plus
Assuming redemption at end of period..... $739 $1,036 $1,460 $2,696
Assuming no redemption................... $239 $ 736 $1,260 $2,696
U.S. Plus
Assuming redemption at end of period..... $753 $1,079 $1,531 $2,836
Assuming no redemption................... $253 $ 779 $1,331 $2,836
U.S. Government Money Market
Assuming redemption at end of period..... $703 $ 927 $1,293 $2,358
Assuming no redemption................... $203 $ 627 $1,093 $2,358
</TABLE>

---------------------------------------------------------------
12
<PAGE>
--------------------------------------------------------------------------------
ABOUT YOUR INVESTMENT

YOUR ACCOUNT
You may open an account for the Broker Class shares and conduct other Fund
transactions through a participating Broker. You will not pay any sales charges
at the time you invest but your investment is subject to a contingent deferred
sales charge (CDSC). This means that if you sell shares of a Fund within 6 years
of purchase, you may have to pay a sales charge of up to 5% on the original
purchase value of the shares to be sold. However, you will not be charged a CDSC
when you exchange Broker Class shares of one Fund for another. The Funds' Broker
Class shares also have ongoing Rule 12b-1 fees of up to 1.00% of their average
daily net assets as discussed below.
The table below lists the different CDSCs that apply if you sell Broker
Class shares within 6 years of purchase. The CDSC is calculated by multiplying
your original purchase cost by one of the percentages listed in the table. The
longer you hold your shares, the less of a CDSC you would pay. You may sell
shares after 6 years with no CDSC.

BROKER CLASS DEFERRED SALES CHARGES

<TABLE>
<CAPTION>
SALES DURING: CDSC ON SHARES BEING SOLD:
------------- --------------------------
<S> <C>
1st year............... 5%
2nd year............... 4%
3rd year............... 3%
4th year............... 3%
5th year............... 2%
6th year............... 1%
After 6 years.......... None
</TABLE>

If you buy Broker Class shares through certain designated Brokers with
proceeds from the redemption of another mutual fund for which you paid a CDSC
(other than a Potomac mutual fund), those Brokers will reimburse to you all or a
designated portion of the CDSC. Please contact the Funds' distributor, Rafferty
Capital Markets, LLC, to obtain a list of those designated Brokers.

WAIVER OF CDSC:
The CDSC for Broker Class shares currently is waived if the shares are
sold:

- to make certain distributions from retirement plans,

- due to shareholder death or disability (including shareholders who own
shares in joint tenancy with a spouse), or

- to close shareholder accounts that do not comply with the low balance
account requirements.

--------------------------------------------------------------------------------
13
<PAGE>
CONVERSION OF BROKER CLASS SHARES:
If you hold your Broker Class shares for 8 years, we automatically will
convert them to Investor Class shares at no cost. In addition, we will convert
any Broker Class shares purchased with reinvested dividends or distributions.

At the time of the conversion, you will receive Investor Class shares in
an amount equal to the value of your Broker Class shares. Because both classes
have different prices, you may receive more or less Investor Class shares after
the conversion. However, the dollar amount converted will not change so that you
have not lost any money due to the conversion.

RULE 12b-1 FEES
The Funds have adopted a distribution plan under Rule 12b-1 for the Broker
Class shares. The plan allows the Funds to pay distribution and sales fees for
the sale of the Funds' shares and for other shareholder services. Because these
fees are paid out of the Broker Class 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.

Under the plan, the annual fees may amount to up to 1.00% of the Broker
Class' average daily net assets. The Potomac Funds' Board of Trustees has
authorized each Fund to pay Rule 12b-1 fees equal to 1.00% of the average daily
net assets of the Broker Class.

HOW TO INVEST IN BROKER CLASS SHARES OF THE POTOMAC FUNDS
You may invest in the Broker Class of the Funds through traditional
investment accounts, individual retirement accounts (including Roth IRAs),
self-directed or company sponsored retirement plans or other products as
available from your Broker. Applications and descriptions of any services fees
for retirement or other accounts are available from your Broker.

MINIMUM INVESTMENT:
The minimum initial and subsequent investments set forth below may be
invested in as many of The Potomac Funds as you wish. However, you must invest
at least $1,000 in any one of the Funds. For example, if you decide to invest
$10,000 in three of the Funds, you may allocate your minimum initial investment
as $8,000, $1,000 and $1,000.

TO PURCHASE BROKER CLASS SHARES:

- Contact your Broker.

- Your Broker will help you complete the necessary paperwork, mail your
Account Application to The Potomac Funds and place your order to purchase
Broker Class shares of the Funds.

---------------------------------------------------------------
14
<PAGE>
- Cash, credit cards, credit card checks and third-party checks will not be
accepted by the Funds.

- All purchases must be made in U.S. dollars through a U.S. bank.

- If your check does not clear due to insufficient funds, you will be
charged a $25.00 fee.

HOW TO EXCHANGE BROKER CLASS SHARES OF THE POTOMAC FUNDS
You may exchange Broker Class shares of your current Fund(s) for Broker
Class shares of any other Fund without any charges. To make an exchange:

- Contact your Broker.

- Provide your name, account number, which Funds are involved, and the
number, percentage or dollar value of shares to be exchanged.

- The Funds can only honor exchanges between accounts registered in the same
name and having the same address and taxpayer identification number.

- You must exchange at least a $1,000 or, if your account value is less than
that, your entire account balance will be exchanged.

HOW TO SELL BROKER CLASS SHARES OF THE POTOMAC FUNDS
You may sell all or part of your investment in the Funds at the next
determined net asset value after the Funds have received your order from your
Broker.

TO SELL BROKER CLASS SHARES:

- Contact your Broker.

- He or she will place your order to sell Broker Class shares of the Funds.

- Payment can be directed to your advisory account normally within three
days after your Broker places your order.

- For investments that have been made by check, payment on sales requests
may be delayed until The Potomac Funds' Transfer Agent is reasonably
satisfied that the purchase payment has been collected by the Fund, which
may require up to 10 business days.

- Your request will be processed the same day if you call between 9:00 A.M.
AND 3:40 P.M. Eastern time (or 1:00 p.m. for the Money Market Fund).

PRICES OF BROKER CLASS SHARES OF THE POTOMAC FUNDS
A Fund's share price is known as its net asset value (NAV). For all of the
Funds except the U.S. Government Money Market Fund, the Advisor Class share
prices are calculated as of fifteen minutes after the close of regular trading,
usually at 4:15 p.m. Eastern time, each day the New York Stock Exchange (NYSE)
is open for business. The U.S. Government Money Market Fund's Advisor
Class share price is calculated as of 1:15 p.m. Eastern time each day the NYSE
and Federal Bank of New York are open. Share price is calculated

--------------------------------------------------------------------------------
15
<PAGE>
by dividing the Broker Class' net assets by its shares outstanding. The Funds
use the following methods to price securities held in their portfolios:

- equity securities, OTC securities, options and futures are valued at their
last sales price, or if not available, the average of the last bid and ask
prices

- options on futures are valued at their closing price

- short-term debt securities and money market securities are valued using
the "amortized" cost method

- securities for which a price is unavailable will be valued at fair value
estimates by the investment advisor under the supervision of the Board of
Trustees

ACCOUNT AND TRANSACTION POLICIES

ORDER POLICIES
You may buy and sell Broker Class shares of the Funds at their NAV
computed after your order has been received in good order. Purchase and sell
orders will be processed the same day at that day's NAV if received by
3:40 P.M. Eastern time (or 1:00 p.m. for the Money Market Fund). The Funds will
not accept and process any orders for that day received after this time.

There are certain times when you may be unable to sell Broker
Class shares of the Funds or proceeds may be delayed. This may occur during
emergencies, unusual market conditions or when the Funds cannot determine the
value of its assets or sell its holdings. The Funds reserve the right to reject
any purchase order or suspend offering of their shares.

SIGNATURE GUARANTEES
In certain instances when you sell Broker Class shares of the Funds, we
will need your signature guaranteed. Signatures guarantees may be available at
your bank, stockbroker or a national securities exchange. Your signature must be
guaranteed under the following circumstances:

- if your account registration or address has changed in the last 30 days

- if the proceeds of your sale are mailed to an address other than the one
listed with the Funds

- if the proceeds are payable to a third party

- if the sale is greater than $100,000

- if the wire instructions on the account are being changed

---------------------------------------------------------------
16
<PAGE>
- if there are other unusual situations as determined by the Funds' Transfer
Agent

LOW BALANCE ACCOUNTS
If your total account balance falls below $10,000, then we may sell your
Broker Class shares of the Funds. We will inform you in writing 30 days prior to
selling your Broker Class shares. If you do not bring your total account balance
up to $10,000 within 30 days, we may sell your Broker Class shares and send you
the proceeds. We will not sell your Broker Class shares if your account value
falls due to market fluctuations.

MONEY MARKET FUND CHECKING POLICIES
You may write checks against your Money Market Fund account if you request
and complete a signature card. With these checks, you may sell Broker
Class shares of the Fund simply by writing a check for at least $500. You may
not write a check to close your account. If you place a stop payment order on a
check, we will charge you $25.

--------------------------------------------------------------------------------
ADDITIONAL INFORMATION

MANAGEMENT OF THE POTOMAC FUNDS
Rafferty Asset Management, LLC (Rafferty) provides investment services to
the Funds. Rafferty attempts to manage the investment of the Funds' assets
consistent with their investment objectives, policies and limitations. Rafferty
has been managing mutual funds since June 1997. Rafferty is located at 1311
Mamaroneck Avenue, White Plains, New York 10605.

Under an investment advisory agreement between The Potomac Funds and
Rafferty, the Funds pay Rafferty the following fees at an annualized rate based
on a percentage of the Funds' daily net assets. The fees charged and the
contractual fees are the same.

<TABLE>
<CAPTION>
ADVISORY FEES CHARGED
---------------------
<S> <C>
Plus Funds 0.75
U.S. Government Money Market Fund 0.50
</TABLE>

An investment committee of Rafferty employees has the day-to-day
responsibility for managing the Potomac Funds.

DISTRIBUTIONS AND TAXES

--------------------------------------------------------------------------------
17
<PAGE>
investment income generally consists of interest income and dividends received
on investments, less expenses.

Each Fund, except the Money Market Fund, also distributes any realized net
capital gains annually. A Fund has capital gains when it sells its portfolio
assets for a profit. The tax consequences will vary depending on how long a Fund
has held the asset. Distributions of net gains on the sale of an asset held for
one year or less are taxed as ordinary income. Sales of assets held longer than
one year (long-term capital gains) are taxed at lower capital gains rates.

Dividends and net capital gains will be reinvested automatically at NAV
unless you request otherwise in writing. Normally, distributions are taxable
events for shareholders whether or not the distributions are received in cash or
reinvested. If you elect to receive distributions by check and the post office
cannot deliver such check or your check remains uncashed for six months, a Fund
reserves the right to reinvest the check in your Potomac Fund account at the
Fund's then current NAV and to reinvest all subsequent distributions in shares
of the Fund until an updated address is received.

TAXES
The following table illustrates the potential tax liabilities for taxable
accounts:

If you are a non-corporate shareholder and do not provide the Funds with
your correct taxpayer identification number (normally your social security
number), the Funds are required to withhold 31% of all dividends, other
distributions and sale proceeds payable to you. If you are otherwise subject to
backup withholding, we also are required to withhold and pay to the IRS 31% of
your distributions. Any tax withheld may be applied against your tax liability
when you file your tax return. You may be subject to a $50 fee for any penalties
imposed on the Funds by the IRS.

---------------------------------------------------------------
18
<PAGE>
MASTER/FEEDER STRUCTURE OPTION
The Funds may in the future operate under a master/feeder structure. This
means that each Fund would be a "feeder" fund that attempts to meet its
objective by investing all its investable assets in a "master" fund with the
same investment objective. The "master" fund would purchase securities for
investment. It is expected that any such investment company would be managed by
Rafferty in substantially the same manner as the Funds. If permitted by law at
that time, the Board of Trustees may approve the implementation of such a
structure for the Funds without seeking shareholder approval. However, the
Trustees' decision will be made only if the investments in the master funds are
in the best interests of the Funds and their shareholders. In making that
determination, the Trustees will consider, among other things, the benefits to
shareholders and/or the opportunity to reduce costs and achieve operational
efficiencies. You also will receive 30 days notice prior to the implementation
of the master/feeder structure.

--------------------------------------------------------------------------------
19
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

The financial highlights tables are intended to help you understand the
financial performance of the Broker Class shares of each Fund outstanding for
the periods indicated. The information in the tables has been audited by
PricewaterhouseCoopers LLP, the Funds' independent accountants. Certain
information reflects financial results for a single Broker Class share. The
total returns in the table represent the rate that an investor would have earned
(or lost) on an investment in the Broker Class (assuming reinvestment of all
dividends and distributions). More information about the Funds may be found in
their Annual and Semi-Annual Reports, which you may obtain upon request.

<TABLE>
<CAPTION>
For a fund share outstanding throughout the period
U.S. PLUS FUND
POTOMAC FUNDS ---------------------------------------------------------------------
INVESTOR CLASS
BROKER CLASS --------------------------------------------
AUGUST 22, 2000(1) YEAR ENDED OCTOBER 20, 1997(1)
TO AUGUST 31, 2000 AUGUST 31, 1999 TO AUGUST 31, 1998
------------------- ------------------ --------------------
<S> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD................................. $ 16.69 $ 9.76 $ 10.00
------- ----------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)(4)....................... (0.01) 0.31 0.36
Net realized and unrealized gain (loss) on
investments(6)...................................... 0.27 4.59 (0.58)
------- ----------- --------
Total from investment operations.................. 0.26 4.90 (0.22)
------- ----------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income.................. -- -- (0.02)
Distributions from realized gains -- (0.10) --
------- ----------- --------
Total distributions -- (0.10) (0.02)
------- ----------- --------
Net Asset Value, End of Period........................ $ 16.95 $ 14.56 $ 9.76
======= =========== ========
TOTAL RETURN.......................................... 1.56%(2) 50.38% (2.23)%(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period............................. $83,749 $16,472,869 $466,997
Ratio of net expenses to average net assets:
Before expense reimbursement........................ 2.50%(3,7) 1.52% 2.52%(3)
After expense reimbursement......................... 2.50%(3,7) 1.50% 1.50%(3)
Ratio of net investment income (loss) to average net
assets:
Before expense reimbursement........................ (2.47)%(3,7) 2.32% 2.68%(3)
After expense reimbursement......................... (2.47)%(3,7) 2.34% 3.70%(3)
Portfolio turnover rate(5)............................ 2,010% 0% 0%
</TABLE>

20
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
For a fund share outstanding throughout the period
OTC PLUS FUND
POTOMAC FUNDS ---------------------------------------------------------------------
INVESTOR CLASS
BROKER CLASS --------------------------------------------
AUGUST 22, 2000(1) YEAR ENDED OCTOBER 20, 1997(1)
TO AUGUST 31, 2000 AUGUST 31, 1999 TO AUGUST 31, 1998
------------------- ------------------ --------------------
<S> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD................................. $ 40.81 $ 10.41 $ 10.00
------- ----------- ----------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)(4)....................... (0.02) (0.23) (0.11)
Net realized and unrealized gain (loss) on
investments(6)...................................... 3.28 14.48 0.52
------- ----------- ----------
Total from investment operations.................. 3.26 14.25 0.41
------- ----------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment income.................. -- -- --
Distributions from realized gains -- (0.06) --
------- ----------- ----------
Total distributions -- (0.06) --
------- ----------- ----------
Net Asset Value, End of Period........................ $ 44.07 $ 24.60 $ 10.41
======= =========== ==========
TOTAL RETURN.......................................... 7.99%(2) 137.18% 4.10%(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period............................. $11,554 $76,682,387 $7,680,546
Ratio of net expenses to average net assets:
Before expense reimbursement........................ 2.30%(3,7) 1.50% 3.21%(3)
After expense reimbursement......................... 2.00%(3,7) 1.50% 1.50%(3)
Ratio of net investment income (loss) to average net
assets:
Before expense reimbursement........................ (2.05)%(3,7) (1.16)% (2.84)%(3)
After expense reimbursement......................... (1.75)%(3,7) (1.16)% (1.13)%(3)
Portfolio turnover rate(5)............................ 378% 1,000% 2,325%
</TABLE>

21
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
For a fund share outstanding throughout the period
SMALL CAP PLUS FUND DOW 30 PLUS FUND
POTOMAC FUNDS ---------------------------------------------- -------------------
BROKER CLASS INVESTOR CLASS BROKER CLASS
MARCH 28, 2000(1) FEBRUARY 22, 1999(1) AUGUST 17, 2000(1)
TO AUGUST 31, 2000 TO AUGUST 31, 1999 TO AUGUST 31, 2000
------------------- --------------------- -------------------
<S> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD............................... $ 15.06 $ 10.00 $ 9.12
----------- ----------- ------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)(4)..................... 0.04 0.18 --
Net realized and unrealized gain (loss) on
investments(6).................................... (2.53) 0.92 0.20
----------- ----------- ------
Total from investment operations................ (2.49) 1.10 0.20
----------- ----------- ------
LESS DISTRIBUTIONS:
Dividends from net investment income................ -- -- --
Distributions from realized gains -- -- --
----------- ----------- ------
Total distributions -- -- --
----------- ----------- ------
Net Asset Value, End of Period...................... $ 12.57 $ 11.10 $ 9.32
=========== =========== ======
TOTAL RETURN........................................ (16.53)%(2) 11.00%(2) 2.19%(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period........................... $12,034,922 $ 7,033,622 $5,108
Ratio of net expenses to average net assets:
Before expense reimbursement...................... 2.36%(3,7) 1.50%(3) 2.52%(3)
After expense reimbursement....................... 2.27%(3,7) 1.50%(3) 2.50%(3)
Ratio of net investment income (loss) to average net
assets:
Before expense reimbursement...................... 0.77%(3,7) 3.03%(3) 0.39%(3)
After expense reimbursement....................... 0.86%(3,7) 3.03%(3) 0.41%(3)
Portfolio turnover rate(5).......................... 3,390% 0% 1,606%
</TABLE>

22
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
For a fund share outstanding throughout the period
U.S. GOVERNMENT MONEY MARKET FUND
POTOMAC FUNDS ---------------------------------------------------------------------
INVESTOR CLASS
BROKER CLASS --------------------------------------------
MARCH 22, 2000(1) YEAR ENDED OCTOBER 20, 1997(1)
TO AUGUST 31, 2000 AUGUST 31, 1999 TO AUGUST 31, 1998
------------------- ------------------ --------------------
<S> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD................................. $ 1.00 $ 1.00 $ 1.00
-------- ----------- ----------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss)(4)....................... 0.01 0.04 0.04
Net realized and unrealized gain (loss) on
investments......................................... -- -- --
-------- ----------- ----------
Total from investment operations.................. 0.01 0.04 0.04
-------- ----------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment income.................. (0.01) (0.04) (0.04)
Distributions from realized gains -- -- --
-------- ----------- ----------
Total distributions (0.01) (0.04) (0.04)
-------- ----------- ----------
Net asset value, end of period........................ $ 1.00 $ 1.00 $ 1.00
======== =========== ==========
TOTAL RETURN.......................................... 0.61%(2) 3.89% 3.89%(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period............................. $710,457 $50,222,733 $9,370,384
Ratio of net expenses to average net assets:
Before expense reimbursement........................ 2.03%(3) 1.20% 3.70%(3)
After expense reimbursement......................... 2.00%(3) 0.99% 1.00%(3)
Ratio of net investment income (loss) to average net
assets:
Before expense reimbursement........................ 4.37%(3) 3.68% 1.66%(3)
After expense reimbursement......................... 4.40%(3) 3.89% 4.36%(3)
Portfolio turnover rate(5)............................ N/A N/A N/A
</TABLE>

23
<PAGE>
MORE INFORMATION ON THE POTOMAC FUNDS

CALL OR WRITE TO OBTAIN THE SAI OR FUND REPORTS FREE OF CHARGE:

<TABLE>
<S> <C>
Write to: The Potomac Funds
P.O. Box 1993
Milwaukee, Wisconsin 53201-1993
Call: (800) 851-0511
</TABLE>

Rafferty Capital Markets, Inc., Distributor
1311 Mamaroneck Avenue
White Plains, New York 10605

SEC File Number: 811-8243

PROSPECTUS
January 2, 2001

[LOGO]

BROKER CLASS

100 South Royal Street
Alexandria, Virginia 22314

1311 Mamaroneck Avenue
White Plains, New York 10605

(800) 851-0511