PORTLAND MUTUAL FUNDS, N-1A EL, 1997-10-08

PORTLAND MUTUAL FUNDS
N-1A EL, 1997-10-08

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As filed with the Securities and Exchange Commission on October 8, 1997
Registration No. ________
Investment Company Act Registration No. ________

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

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
-----------------------

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. _____ / /
Post-Effective Amendment No. _____ / /

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. _____ / /

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

THE PORTLAND MUTUAL FUNDS
(Exact Name of Registrant as Specified in Charter)

c/o Union Bond & Trust Company
5665 SW Meadows Rd., Suite 400
Lake Oswego, Oregon 97035
(Address of Principal Executive Offices)

Registrant's Telephone Number, including Area Code:
(503) 620-7899

Joan Hall
c/o Union Bond & Trust Company
5665 SW Meadows Rd., Suite 400
Lake Oswego, Oregon 97035
(Name and Address of Agent for Service)

Copies to:
R. Toby Borst, Esq. Perry J. Shwachman, Esq.
Dunn, Carney, Allen, Higgins & Tongue Christopher S. Petito, Esq.
851 S.W. Sixth Avenue, Suite 1500 Katten Muchin & Zavis
Portland, Oregon 97204 525 West Monroe St., #1600
Chicago, Illinois 60661-3693

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: AS SOON AS PRACTICABLE AFTER THE
EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.

REGISTRANT IS REGISTERING AN INDEFINITE NUMBER OF ITS SHARES OF BENEFICIAL
INTEREST BY THIS REGISTRATION STATEMENT PURSUANT TO RULE 24f-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940.

<PAGE>

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

THE PORTLAND MUTUAL FUNDS

CONTENTS OF REGISTRATION STATEMENT

This registration statement consists of the following papers and documents:

Cover Sheet

Contents of Registration Statement

Form N-1A Cross Reference Sheet

Part A - Prospectus

Part B - Statement of Additional Information

Part C - Other Information

Signature Page

Exhibits

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THE PORTLAND MUTUAL FUNDS

PORTLAND STABLE INVESTMENT FUND

FORM N-1A CROSS REFERENCE SHEET

Part A Item No. and Caption Prospectus Caption
- - - --------------------------- ---------------------------

1. Cover Page Cover Page

2. Synopsis The Fund; Expense Information

3. Condensed Financial Information Not Applicable

4. General Description of Investments and Related Risks;
Registrant Investment Practices

5. Management of the Fund Expense Information; Additional
Information

6. Capital Stock and Other Who May Invest; Purchase and Redemption
Securities of Fund Shares;Additional Information

7. Purchase of Securities Being Purchase and Redemption of Fund Shares;
Offered Additional Information

8. Redemption or Repurchase Purchase and Redemption of Fund Shares

9. Legal Proceedings. Not Applicable

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THE PORTLAND MUTUAL FUNDS

PORTLAND STABLE INVESTMENT FUND

FORM N-1A CROSS REFERENCE SHEET

-- Continued --

Part B Item No. and Caption Statement of Additional Information
Caption
- - - --------------------------- -----------------------------------

10. Cover Page Cover Page

11. Table of Contents Table of Contents

12. General Information and History Management of the Fund

13. Investment Objectives and Investment Objectives and Policies
Policies

14. Management of the Fund Management of the Fund

15. Control Persons and Principal Management of the Fund
Holders of Securities

16. Investment Advisory and Other Investment Advisory and Other Services
Services

17. Brokerage Allocation and Other Fund Transactions and Brokerage
Practices Allocation

18. Capital Stock and Other See Prospectus: Purchase and Redemption
Securities of Fund Shares

19. Purchase, Redemption and Pricing Purchase and Redemption of Fund Shares
of Securities Being Offered

20. Tax Status Taxation

21. Underwriters Investment Advisory and Other Services;
see Prospectus: Additional Information

22. Calculation of Performance Data Performance Information

23. Financial Statements Financial Statements

iii
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Part C Item No. and Caption
- - - ---------------------------

Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this Registration Statement.

iv
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INFORMATION HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION
STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE
ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

Subject to Completion, dated [October 8], 1997

THE PORTLAND MUTUAL FUNDS

PORTLAND STABLE INVESTMENT FUND
c/o Union Bond & Trust Company
5665 SW Meadows Rd., Suite 400
Lake Oswego, Oregon 97035

PROSPECTUS

The objective of the Portland Stable Investment Fund (the "Fund") is to
provide investors with a high level of current income while preserving principal
and maintaining a stable net asset value per share. The Fund seeks to achieve
its investment objective by investing primarily in a diversified portfolio of
investment grade fixed income securities, money market instruments, options,
futures and other instruments. The Fund is not a money market fund, and there
can be no assurance that it will be able to maintain a stable net asset value
per share or otherwise achieve its objective.

The Fund is a separate series of The Portland Mutual Funds (the "Trust"),
an open-end, management investment company ("mutual fund"). Union Bond & Trust
Company ("UBT") is the investment adviser for the Fund.

This Prospectus contains important information concerning the Fund that a
prospective investor should know before investing. Please read it before
investing and retain it for future reference. To learn more about the Fund,
investors can obtain a copy of the Fund's Statement of Additional Information

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("SAI"), dated [October 8], 1997, which has been filed with the Securities and
Exchange Commission (the "SEC") and is incorporated herein by reference. For a
free copy of this document, please write to the Trust at the address given
above, or call the Trust's service agent at 1-800-548-4806.

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

Shares of the Fund are neither insured nor guaranteed by the U.S.
Government. Shares of the Fund are not deposits or obligations of, or
guaranteed or endorsed by, UBT, and the shares are not Federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board or any other
agency. An investment in the Fund is subject to risk that may cause the value
of the investment to fluctuate, and when the investment is redeemed, the value
may be higher or lower than the amount originally invested by the investor.

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<PAGE>

TABLE OF CONTENTS

Page

THE FUND.....................................................................
WHO MAY INVEST...........................................................
EXPENSE INFORMATION......................................................
INVESTMENTS AND RELATED RISKS............................................
INVESTMENT PRACTICES.....................................................

PURCHASE AND REDEMPTION OF FUND SHARES.......................................
CLASSES OF SHARES........................................................
PLAN PARTICIPANT TRANSACTIONS............................................
PURCHASE OF SHARES.......................................................
REDEMPTION OF SHARES.....................................................
NET ASSET VALUE..........................................................

ADDITIONAL INFORMATION.......................................................
CHARACTERISTICS OF FUND SHARES...........................................
BOARD OF TRUSTEES........................................................
INVESTMENT ADVISORY AND OTHER SERVICES...................................
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS.................................
TAX CONSIDERATIONS.......................................................
REPORTS..................................................................
PERFORMANCE ADVERTISING..................................................
PRIOR PERFORMANCE OF INSTITUTIONAL PRIVATE ACCOUNTS
MANAGED BY UBT AND ITS AFFILIATE.......................................

3
<PAGE>

THE FUND

The Fund's investment objectives are to preserve principal, obtain a high
level of current income and maintain a stable value per share. The Fund intends
to achieve its objectives by investing in a diversified portfolio of investment
grade fixed income securities, money market instruments, options, futures and
other instruments ("Securities") and by entering into book value benefit
responsive agreements ("Wrapper Agreements") (together "Portfolio Securities")
with large financial institutions, such as banks and insurance companies, which
at the time of agreement have a current long-term debt or claims paying ability
rating in one of the two highest rating categories by Moody's Investor Services,
Inc. ("Moody's") or Standard & Poors Corporation ("S&P"). The Wrapper
Agreements are intended to stabilize the net asset value ("NAV") per share of
the Fund ("Share"). In that regard, it is expected that under normal
circumstances, the value of the Wrapper Agreements will fluctuate in inverse
proportion to fluctuations in the value of the Securities. However, there can
be no assurance that the Fund will achieve its objectives. See "Investment
Practices and Related Risks" herein.

WHO MAY INVEST.

The Fund offers three classes of Shares. Classes A and B are offered to
employee benefit plans qualified under Section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), "government plans" as defined in
Section 414(d) of the Code, "eligible deferred compensation plans" as defined
in Section 457 of the Code, employee benefit plans qualifying under Section
403(b) of the Code (each, a "Plan" and collectively, the "Plans") and to
bank-maintained collective investment funds that hold exclusively assets of
U.S. employee benefit plans qualified under Section 401(a) and tax exempt
under Section 501(a) of the Code and other plans eligible to invest in
bank-maintained collective investment funds (each, a "Bank Collective Fund"
and collectively, the "Bank Collective Funds"). Class C Shares are offered
solely to individual retirement accounts as defined in Section 408 of the
Code ("IRAs"). A Plan or a Bank Collective Fund desiring to invest in the
Fund must restrict participants in such Plan or in employee benefit plans
investing in the Bank Collective Fund from transferring monies from the Fund
to a different fixed income investment option which has a targeted average
duration of three years or less, or seeks to maintain a stable value per unit
or share (a "Competing Fund"); provided, however, that transfers by
participants to a non-Competing Fund may, after a three-month period in such
non-Competing Fund, be transferred to a Competing Fund without restriction.
See "Expense Information" and "Purchase and Redemption of Fund Shares" herein.

The Fund is designed for investors seeking preservation and stability of
principal and a level of current income higher than money market mutual funds
over most time periods. However, upon redemption Shares may be worth more or
less than their original cost. The Fund is not in itself a balanced
investment plan. Participants of employee benefit plans (collectively "Plan
Participants") and owners of individual retirement accounts ("IRA Owners")
should consider their investment objectives and tolerance for risk when
making an investment decision. See "Additional Information" herein.

EXPENSE INFORMATION.

The Fund pays annual operating expenses out of the Fund's assets. An
investment advisory fee and an administrative services fee is paid by the Fund
to UBT. The Fund incurs additional expenses in

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connection with, among other things, maintaining shareholder records,
furnishing shareholder statements and providing semi-annual financial
reports. The following tables are intended to assist investors in
understanding the expenses associated with investing in the Fund. The
expenses shown below are estimates for the first full year of operations.
The tables provide (i) a summary of expenses related to purchases and
redemptions (sales) of Shares, (ii) the anticipated aggregate annual
operating expenses of the Fund, expressed as a percentage of average daily
net assets, and (iii) an illustration of the dollar cost of such expenses on
a $1,000 investment in the Fund.

Shareholder Transaction Expenses Class A Shares Class B Shares Class C Shares
- - - -------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases NONE NONE NONE

Maximum Deferred Sales Charge
(As a Percentage of the Original NONE NONE 3.0%
Purchase Price)

Maximum Sales Charge
on Reinvested Dividends NONE NONE NONE

Maximum Redemption Fee 2.0% 2.0% 2.0%
(As a Percentage of the Amount
Redeemed)

</TABLE>

Shareholder transaction expenses are charges paid when investors purchase,
redeem, or exchange Shares. Plan Participant directed redemptions of Class A or
B Shares for reasons of death, disability, retirement, employment termination,
loans, hardship, and other Plan permitted withdrawals and investment transfers
to non-Competing Funds (each, a "Benefit Responsive Payment Event") are not
subject to a redemption fee. Redemptions of Class A or B Shares directed by
Plans or Bank Collective Funds with 12 months' prior notice are also not subject
to a redemption fee. All other redemptions of Class A or B Shares are subject
to a redemption fee of 2% of the proceeds of the redemption.

Redemptions of Class C Shares for reasons of death or disability, as
defined in Section 72(m)(7) of the Code, (each, an "IRA Qualified Payment
Event") are not subject to a redemption fee or a deferred sales charge.
Redemptions of Class C shares unrelated to an IRA Qualified Payment Event but
made with 12 months prior notice, and redemptions of Class C Shares by an IRA
Owner after such IRA Owner attains the age of 59-1/2, are not subject to a
redemption fee, but are subject to a contingent deferred sales charge. All
other redemptions of Class C Shares are subject to a redemption fee of 2% of
the proceeds of the redemption and to payment of a contingent deferred sales
charge. Class C Shares subject to a contingent deferred sales charge pay a
3% charge if redeemed within one year of purchase, 2% if redeemed within the
following year, and 1% if redeemed during the third year after purchase.
Class C Shares held for more than three years are not subject to a contingent
deferred sales charge. The contingent deferred sales charge, if applicable,
is based on the original purchase price of the redeemed shares. Class A and
C Shares are subject to a 0.25% Rule 12b-1 fee. Class B Shares are subject
to a 0.05% Rule 12b-1 fee, which the Distributor has agreed voluntarily to
waive. As a result of the accrual of Rule 12b-1

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<PAGE>

fees on Class A and C Shares, long-term shareholders of Class A or C Shares
may pay more than the economic equivalent of the maximum initial sales
charges permitted by the National Association of Securities Dealers, Inc.
See "Purchase and Redemption of Fund Shares" herein.

Annual Operating Expenses (as a percentage of the Fund's average daily net
assets)

<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Investment advisory fee (after 0.25% 0.25% 0.25%
reimbursement or waiver)

Rule 12b-1 fee 0.25% 0.00%(1) 0.25%

Other expenses (after 0.15% 0.15% 0.50%
reimbursement or waiver)(2)

Total operating expenses (after 0.65% 0.40% 1.00%
reimbursement or waiver)

</TABLE>

(1) Class B shares are subject to a 0.05% Rule 12b-1 fee, all of which the
Fund's Distributor has voluntarily agreed to waive.

(2) "Other expenses" include certain additional services provided to the Fund by
UBT.

EXPENSE TABLE EXAMPLE:

An investor would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of each time period.
No redemption fee has been included. The Class C Shares reflect the imposition
of the contingent deferred sales charge upon redemption at the end of each
period illustrated.
ONE YEAR THREE YEARS

Class A Shares $7 $21

Class B Shares $4 $13

Class C Shares $42 $44

An investor would pay the following expenses on the same investment in
Class C shares, assuming no redemption:
ONE YEAR THREE YEARS

Class C Shares $10 $32

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The Annual Operating Expense Table and the Example above show the costs and
expenses that an investor will bear directly or indirectly as a shareholder of
the Fund. The investment advisory and 12b-1 fees are based upon the Fund's
Investment Advisory Agreement with UBT and the 12b-1 Plan adopted by the Board
of Trustees of the Trust (the "Board of Trustees"). The other expenses are
based on estimated amounts for the current fiscal year.

Under the Investment Advisory Agreement, UBT is entitled to an Advisory
Fee of 0.35% of average daily net assets. UBT has voluntarily agreed to
waive 0.10% of that fee. In addition, UBT has agreed to waive or limit its
Advisory Fees or assume Other Expenses (except for Rule 12b-1 fees) in an
amount that operates to limit annual operating expenses of the Fund
(exclusive of Rule 12b-1 fees) to no more than 0.40% for Class A, 0.40% for
Class B and 0.75% for Class C (expressed as a percentage of average daily
net assets). Each such waiver of Advisory Fees or assumptions of Other
Expenses by UBT is subject to a possible reimbursement by the Fund in future
years if such reimbursement can be achieved within the foregoing annual
expense limits. Nevertheless, it is not expected that UBT will need to waive
or limit its Advisory Fees or to assume Other Expenses for the Fund during
the current fiscal year, assuming the average assets of the Fund are at least
$100 million. UBT also has agreed voluntarily to waive 0.10% of the 0.25%
fee to which it is entitled under the Administrative Services Agreement. UBT
may terminate its waiver of Advisory and Administrative Services Fees and
assumption of Other Expenses at any time, in its sole discretion without
notice to shareholders. In the absence of such fee waivers and expense
assumptions, and with respect to the Class B Shares, in the absence of the
waiver of the Rule 12b-1 fee, it is estimated that "Total Operating Expenses"
would be .85% for Class A Shares, 0.65% for Class B Shares and 1.35% for
Class C Shares.

The Example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown. Also, the
Example assumes a 5% annual return: actual performance, however, will vary and
may result in a return of greater or less than 5%.

Subject to obtaining necessary regulatory approvals, Class A, B and C
Shares of the Fund will be sold by First Financial Company as the Trust's
distributor. For more information about the Fund's expenses, see "Additional
Information" and "Purchase and Redemption of Fund Shares" herein.

The Fund will have a fiscal year end of December 31. As this is the
Fund's first fiscal year, financial information with respect to the Fund is not
available at this time.

INVESTMENTS AND RELATED RISKS.

The Fund's investment objective is to preserve principal, obtain a high
level of current income and maintain a stable net asset value per Share. The
Fund seeks to achieve its investment objective by investing its net
investable assets in Securities and by entering into Wrapper Agreements. The
Fund's rate of return is expected to be higher than most money market mutual
funds. However, there can be no assurance that the Fund's investment
objectives will be achieved or that the Fund's rate of return will be higher
than that of most money market mutual funds.

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Generally, the value of Securities will fluctuate based upon market
conditions, interest rates, credit quality of the issuer, and economic and
political events. For instance, normally the prices of Securities will fall
when interest rates rise, and rise when interest rates fall. Similarly, a
worsening in the credit quality of an issuer of a Security will generally result
in a lower price, while an improved credit quality normally will have the
opposite effect. The Wrapper Agreements are intended to stabilize the NAV per
Share by offsetting fluctuations in the value of the Securities under certain
conditions. In most circumstances, the combination of Securities and Wrapper
Agreements held by the Fund is expected to provide Fund shareholders with a
stable NAV per Share.

The Fund will incur certain costs in connection with its investment in
Wrapper Agreements. These costs may reduce the Fund's investment return as
compared to the return on a direct investment in Securities. Further, the
Wrapper Agreements do not guarantee the Fund against loss if an issuer of
Securities defaults on payments of interest or principal or if the credit
rating of a Security is downgraded to a level that makes it ineligible for
coverage under a Wrapper Agreement. In addition, a Wrapper Agreement
provider ("Wrap Provider") could default on its obligations under the Wrapper
Agreement or the Fund might be unable to obtain Wrapper Agreements covering
all of its assets. The value of the Shares might decline in the event of
either type of default or if the Fund is unable to obtain Wrapper Agreements
covering all of its assets. In addition, the Board of Trustees may determine,
based on a lowering of the Wrap Provider's credit rating or otherwise, that a
Wrapper Agreement should be valued at a lower value than would otherwise be
sufficient to maintain the Fund's NAV per Share. See "Wrapper Agreements --
Specific Risks of Wrapper Agreements" herein.

The Fund expects to invest at least 65% of its total assets in fixed income
securities ("Fixed Income Securities"). The Fund will invest primarily in
Fixed Income Securities rated at the time of purchase in one of the top two
rating categories by Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Rating Services ("S&P"), or Duff & Phelps Credit Rating Co. ("Duff &
Phelps"), or comparably rated by another nationally recognized statistical
rating organization ("NRSRO"), or, if not rated by a NRSRO, of comparable
quality as determined by UBT in accordance with procedures adopted by the
Board of Trustees. The Fund, however, from time to time may purchase Fixed
Income Securities with a lower rating, provided that such Fixed Income
Securities will be rated at least investment grade at the time of purchase by
Moody's, S&P, or Duff & Phelps, or comparably rated by another NRSRO, or, if
not rated by a NRSRO, of comparable quality as determined by UBT in
accordance with procedures adopted by the Board of Trustees.

The Fixed Income Securities purchased by the Fund will include securities
issued or guaranteed by the U.S. Government, or any agency or instrumentality
thereof; debt of domestic or foreign entities, including corporate, sovereign
or supranational entities; asset-backed securities issued by domestic or
foreign entities; mortgage pass-through securities issued by governmental
entities such as the Government National Mortgage Association, the Federal
Home Loan Mortgage Corporation or the Federal National Mortgage Association;
mortgage pass-through securities issued by non-government entities such as
mortgage lenders, banks, or other financial institutions, including private
label mortgage pass-through securities; collateralized mortgage obligations
("CMOs") and real estate mortgage investment conduit securities ("REMICs"),
which are mortgage-backed debt instruments that make payments of principal
and interest at a variety of intervals and are collateralized by any of the
aforementioned mortgage pass-through securities; and other U.S. Government or
agency obligations, including Treasury Income Growth Receipts ("TIGRs"),
Certificates of Accrual Treasury Securities ("CATS"), Treasury Receipts
("TRs") and other zero coupon securities (securities consisting solely of the
principal or interest component of a U.S. Treasury bond).

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<PAGE>

In addition to the Fixed Income Securities, the Fund intends to invest a
certain percentage of its assets in liquid short-term investments, including
bankers' acceptances, commercial paper, time deposits, certificates of deposit,
and other instruments of foreign and domestic corporations, banks and thrift
institutions ("Cash Account Assets"). Short-term investments purchased by the
Fund will be rated, at the time of purchase, in one of the top two short-term
rating categories by an NRSRO or, if unrated, will be of comparable quality as
determined by UBT in accordance with procedures adopted by the Board of
Trustees. The Fund may invest up to 35% of its total assets in such short-term
investments for purposes of liquidity and up to 100% of its total assets in such
instruments for temporary defensive purposes. The Fund may also invest in
repurchase agreements, reverse repurchase agreements and dollar rolls, options
and futures contracts, when issued securities and delayed delivery securities
and Rule 144A securities (as defined below). See "Investment Practices" herein.

In seeking to maintain a stable NAV per share, the Fund will enter into
Wrapper Agreements with respect to its Securities. As such Securities will
fluctuate in value, under normal conditions the Wrapper Agreements are
expected to fluctuate in value in inverse proportion to fluctuations in the
value of the Securities. Therefore, as interest rates rise and the value of
Securities decrease, the value of the Wrapper Agreements increase.
Alternatively, if interest rates decrease and the value of the Securities
rise, the value of the Wrapper Agreements is expected to decrease
proportionally and may have a negative value and be a liability of the Fund.

Under normal market conditions, the average duration of the Fund will range
from 2.0 to 4.5 years. In general, duration is a measure of the expected life
of a security on a present value basis which incorporates the security's yield,
coupon interest payments, final maturity and call features into a single
measure. Changes in the Fund's duration will be accomplished primarily through
the reinvestment of cash flows and selective trading of Securities.

The Fund is not a money market fund as defined in Rule 2a-7 of the
Investment Company Act of 1940. In that regard, it is important to note the
distinction between the Fund and short-term investments such as money market
funds. The Securities held by the Fund have a longer average maturity than
those of money market funds. Because a money market fund has a shorter
average maturity, its yield will track the direction of current market rates
of return more closely than the Fund. For example, in a rising interest rate
environment, money market fund yields may rise more quickly than will the
Fund's. In a falling interest rate environment, money market fund yields may
fall more quickly than the Fund's. Over the long-term, however, intermediate
term Fixed Income Securities such as those purchased by the Fund have
historically produced higher returns than short-term investments (i.e., money
market funds). For additional information on the investment objectives of
the Fund, see "Investment Practices" in this Prospectus and the SAI for more
information.

FIXED INCOME SECURITIES. Fixed Income Securities are subject to interest
rate, credit and reinvestment risk. The value of Fixed Income Securities
usually will fluctuate with changes in interest rates. As interest rates
rise, the value will generally decrease, and when interest rates fall, the
value usually increases. Generally, the shorter the maturity of the Fixed
Income Security, the lower its yield and the less sensitive it is to interest
rate changes. In order to help maintain an average portfolio duration of 2.0
to 4.5 years, the Fund intends to invest primarily in Fixed Income Securities
with short-term to intermediate term maturities.

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<PAGE>

Fixed Income Securities are also subject to the risk that the issuer will
become impaired or default on its obligations. In that regard, the Fund is
subject to the credit risk of each issuer of a Fixed Income Security. If the
issuer of a Fixed Income Security defaults on its obligations, the Fund's
interest income may be reduced or the Fund may incur a loss of principal. The
ratings and certain other requirements which apply to the Fund's permitted
investments, as described elsewhere in this Prospectus and the SAI, are intended
to limit the amount of credit risk undertaken by the Fund. In addition, to
minimize credit risk, UBT intends to diversify the Fund's investments, and to
analyze the creditworthiness of and to monitor each such investment.

UBT, as adviser to the Fund, selects the Fixed Income Securities purchased
by the Fund. In that regard, UBT may use trading as a means of managing the
Fund in seeking to achieve its investment objectives. Purchases and sales of
Fixed Income Securities will occur when UBT believes that such transactions will
be beneficial for the Fund. Therefore, the Fund's ability to meet its
objectives will depend in part on UBT's ability to evaluate particular
securities and anticipate relevant market conditions, including interest rate
trends.

The Fund may invest in various types of Fixed Income Securities. The
following is a description of the types of Fixed Income Securities in which the
Fund intends primarily to invest, together with a description of certain risks
associated with such securities. Investment in such types of Fixed Income
Securities is not a fundamental policy of the Fund, and therefore, changes in
the types of such investments are not subject to shareholder approval.

UBT may decide not to purchase all of the following types of instruments or
use all of the investment techniques described below to the full extent
permitted, unless it believes that doing so will help the Fund achieve its goal.
Current holdings and investment strategies will be described in the financial
reports of the Fund, which will be sent to shareholders twice annually.

U.S. GOVERNMENT AND AGENCY SECURITIES. The Fund may invest in bills,
notes, bonds and other debt securities issued by the U.S. Treasury which are
direct obligations and subject to the full faith and credit of the U.S.
Government. In addition, the Fund may invest in securities which are issued or
guaranteed by U.S. Government-sponsored enterprises and federal agencies.
Securities issued by some agencies and instrumentalities are supported by the
instrumentalities' right to borrow from the U.S. Treasury under certain
circumstances. Securities issued by certain other U.S. agencies or
instrumentalities are supported only by the credit of the entity that issued
them.

FOREIGN GOVERNMENT AND AGENCY FIXED INCOME SECURITIES. Debt instruments
issued or guaranteed by foreign governments or agencies ("foreign debt
obligations"), especially foreign debt obligations of developing countries,
may involve a high degree of risk. The issuer of the obligation or the
governmental authorities that control the repayment of the debt may be unable
or unwilling to repay principal and interest when due and may require
renegotiation or rescheduling of debt payments. In addition, prospects for
repayment of principal and interest may depend on political as well as
economic factors.

MORTGAGE-BACKED SECURITIES. The Fund may purchase mortgage-backed
securities issued by the U.S. Government, its agencies or instrumentalities
and non-governmental entities such as banks, mortgage

10
<PAGE>

lenders and other financial institutions. In general, mortgage-backed
securities include mortgage-backed bonds, mortgage pass-through securities
and mortgage pay-through securities. A mortgage-backed bond is a general
obligation of the issuer, payable out of the issuer's general funds and
secured by a first lien on a pool of mortgages. A mortgage pass-through
security is a pro rata interest in a pool of mortgages where the cash flow
generated from the mortgage collateral is passed through to the investors.
Mortgage pay-through securities show characteristics of both pass-through and
mortgage-backed bonds. The mortgage pass-through securities issued by
non-governmental entities such as banks, mortgage lenders or other financial
institutions in which the Fund may invest include private label mortgage
pass-through securities. Collateralized Mortgage Obligations ("CMOs") are
mortgage pay-through securities collateralized by mortgages or
mortgage-backed securities. CMOs are generally issued in classes and series
that have different maturities and often are retired in sequence.
Mortgage-backed securities also include other debt obligations secured by
mortgages on residential or commercial real estate properties.

Mortgage-backed securities, unlike ordinary fixed income securities, which
generally pay a fixed rate of interest and return principal upon maturity, may
repay both interest income and principal as part of their periodic payments.
Mortgage-backed securities are subject to certain "pre-payment" risks since
the underlying mortgage certificates can be prepaid at any time. Prepayment
risk or call risk is the likelihood that, during periods of falling interest
rates, mortgages with higher stated interest rates will be prepaid prior to
maturity (whether through refinancings or otherwise), requiring the Fund to
invest the proceeds at generally lower interest rates.

CORPORATE DEBT SECURITIES. Corporate debt securities are long and short
term debt obligations issued by companies (such as publicly issued and privately
placed bonds, notes and commercial paper).

ASSET-BACKED SECURITIES. Asset-backed securities are securities issued by
special purpose entities whose primary assets consist of a pool of loans or
accounts receivable, such as motor vehicle installment sale contracts, other
installment sale contracts, home equity loans, leases of various types of real
and personal property and receivables from revolving credit agreements. These
securities may be in the form of a beneficial interest in a special purpose
trust, a limited partnership interest, or commercial paper or other debt
securities issued by a special purpose entity. Typically, payments or
distributions of principal and interest on asset-backed securities are
credit-enhanced or guaranteed up to certain amounts and for a certain time
period by a letter of credit or a pool insurance policy issued by a financial
institution unaffiliated with the issuer.

Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Generally, these securities do not have the
benefit of the same type of security interest in the related collateral. For
example, credit card receivables are generally unsecured, and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to avoid payment of certain
amounts owed on the credit cards, thereby reducing the balance due.
Additionally, there is the risk in connection with automobile receivables
that recoveries on repossessed collateral may not, in some cases, be
available to support payments on those securities.

ZERO COUPON SECURITIES. Zero Coupon Securities, including TIGRs, CATS and
TRs, are the separate income or principal components of a debt instrument.
Unlike most other debt securities, however,

11
<PAGE>

zero coupon debt securities do not make regular interest payments.
Therefore, zero coupon securities involve risks that are similar in most
respects to those of other debt securities, except that their market price
may be more volatile.

WRAPPER AGREEMENTS. A Wrapper Agreement is a contract between the Fund
and a bank, insurance company or other financial institution (a "Wrap
Provider"), under which the Wrap Provider agrees to make payments to the Fund
upon the occurrence of certain events. By purchasing Wrapper Agreements, the
Fund expects to be able to maintain a stable NAV per Share, because under
normal circumstances, the value of the Fund's Wrapper Agreements is expected
to vary inversely with the value of the Fund's assets covered by such Wrapper
Agreements (the "Underlying Assets"). Therefore, when the value of the
Underlying Assets is less than their "Book Value" (essentially the purchase
price of the Underlying Assets plus any accrued net income thereon), the
Wrapper Agreements will be assets of the Fund with a value equal to such
deficiency. Similarly, when the value of the Underlying Assets is more than
their Book Value, the Wrapper Agreements will be liabilities of the Fund with
a value equal to such excess. Accordingly, under normal conditions, the sum
of the total value of the Fund's Wrapper Agreements plus the total value of
all of the Fund's Underlying Assets is expected to equal the purchase price
of the Underlying Assets, plus interest on the Underlying Assets at the rate
determined in the Wrapper Agreements.

DESCRIPTION OF WRAPPER AGREEMENTS. Under a Wrapper Agreement, the Wrap
Provider agrees to make certain payments to the Fund in exchange for an annual
premium which is typically .__% to .__% per dollar of the Underlying Assets
covered by any Wrap Agreement. These payments made by the Wrap Provider are
designed to enable the Fund to make redemption payments reflecting the purchase
price of the Underlying Assets rather than the market value of the Underlying
Assets. Payments may be made under a Wrapper Agreement when Shares are
redeemed, at termination of the Wrapper Agreement, or both. The payments are
based upon the Book Value of the Wrapper Agreement. Book Value usually is equal
to the sum of (i) the purchase price of the Underlying Assets, minus (ii) the
sale price of the Underlying Assets liquidated to fund Share redemptions, minus
(iii) payments made by the Wrap Provider, plus (iv) interest accrued at the
crediting rate. The crediting rate is the yield on the Underlying Assets,
adjusted to reflect the amortization of differences between the market value of
the Underlying Assets and Book Value over the duration of such Underlying
Assets, minus Wrap Provider fees and Fund expenses. The crediting rate is reset
at least quarterly. Therefore, among other things, the crediting rate may be
affected by defaulted securities and by increases and decreases in the
Underlying Assets as a result of purchases and redemptions of Shares. In
addition, since the crediting rate reflects the amortization of unrealized and
realized gains and losses on the Underlying Assets, such rate may not reflect
the actual returns achieved by the Underlying Assets. Further, such rate may be
significantly greater or less than current market interest rates; provided, that
under each Wrapper Agreement the crediting rate will never be less than zero.

If, to effectuate a redemption payment, the Fund is required to liquidate
Underlying Assets, the Wrap Provider may be obligated to pay the Fund all or
some of the difference between the fair market and corresponding Book Value of
such Underlying Assets (if fair market value is less than Book Value). If, on
the other hand, the market value of the liquidated Underlying Assets

<PAGE>

exceeds the corresponding Book Value, the Fund may be obligated to pay all or
some of the difference to the Wrap Provider. The parties' respective
obligations under the Wrapper Agreements arising from the sale of Underlying
Assets may be paid immediately or may be netted against one another. Through
such obligations, the Wrapper Agreements should, under normal conditions,
reduce the interest rate risk associated with the Fund's investment in
Securities.

A Wrapper Agreement may allow the Fund to borrow money from the Wrap
Provider to make redemption payments. Such borrowings may enable the Fund to
avoid losses and the costs involved in liquidating Underlying Assets. Any such
borrowing will accrue interest daily at a rate agreed to by the Fund and the
Wrap Provider; which rate may be greater or less than the return the Fund may
achieve by retaining Underlying Assets. Also, if the Wrapper Agreement requires
that the proceeds of all new Share purchases be used to repay any outstanding
borrowing, the Fund may not be able to take advantage of investment
opportunities. See "Investment Practices," "Investment Practices - Repurchase
Agreements, Reverse Repurchase Agreements, Securities Lending" and "Investment
Practices -- Borrowing" herein.

Wrapper Agreements may be "participating," "non-participating," or a
hybrid combination of the two. Under a "participating" Wrapper Agreement,
the Fund will not receive any payments from the Wrap Provider until it has
liquidated all of the Underlying Assets. If at that time, there is any
remaining Book Value, the Wrap Provider will pay the Fund such remainder.
Under a "non-participating" agreement, if there is a difference between the
value of the Underlying Assets and Book Value, the Wrap Provider or the Fund
will make a payment to the other each time Underlying Assets are liquidated
to fund Share redemptions. If the value of the Underlying Assets is less
than Book Value, the Wrap Provider will make a payment to the Fund, while if
the value of the Underlying Assets is greater than Book Value, the Fund will
make a payment to the Wrap Provider. In either case, the payment will be
equal to the difference between (i) the amount necessary to fund the
redemption, and (ii) the product of the amount of the redemption multiplied
by the ratio of the value of the Underlying Assets to Book Value. Under a
"hybrid" Wrapper Agreements a certain percentage of payments are treated as
"participating," with all remaining payments being "non-participating."

Generally, payments under a Wrapper Agreement will be made within one day
after the Fund requests a payment. Unless the Share redemption is to be made
on 12 months' notice, the Wrap Providers will be obligated to make payments
within such one day period. In addition, each Wrapper Agreement will allow
the Fund, in the Fund's discretion, to assign a portion of the Wrapper
Agreement to a Class A or B shareholder as a payment in kind. See "Purchase
and Redemption of Fund Shares -Redemption of Shares" herein.

Payment requests will be allocated among Wrap Providers on a pro-rata
basis, based upon the Book Value of each Wrapper Agreement. However, if a
portion of a Wrapper Agreement is to be assigned as a payment in kind to a
shareholder, the Fund will have the discretion to choose to allocate the
payment to a single Wrapper Agreement. In that circumstance, the Fund will
address subsequent requests for such assignments to a different Wrap Provider
until each Wrap Provider has made roughly its pro rata share of such
assignments.

The terms of a Wrapper Agreement may require that the Underlying Assets
have a specified duration or maturity, consist of specified types of securities
or be of a specified credit quality. The Fund will purchase Wrapper Agreements
whose criteria in this regard are consistent with the Fund's investment

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<PAGE>

objectives and policies as set forth in this Prospectus and the SAI. The
Wrapper Agreement also may limit the Fund's ability to change the investment
objectives, policies and restrictions set forth in this Prospectus and the SAI,
absent the consent of the Wrap Provider.

A Wrapper Agreement may mature on a specified date, and may be terminable
upon notice by the Fund or a default by either the Fund or Wrap Provider. An
"evergreen" Wrapper Agreement contains no maturity date. Under this type of
Wrapper Agreement, either the Fund or the Wrap Provider may elect to terminate
the Wrapper Agreement through a fixed maturity conversion. This means that the
Wrapper Agreement will terminate on a future date which is generally determined
by adding the duration of the Underlying Assets to the date either party makes
such election (e.g., if the election date is 1/1/2001 and the duration of the
Underlying Assets is 3 years, the Wrapper Agreement will terminate on 1/1/2004).
In addition, during the conversion period, the Fund may be required to comply
with certain restrictions with respect to certain Underlying Assets deemed to be
covered by the terminating Wrapper Agreement. Such restrictions typically
include a requirement that the duration of such Underlying Assets approximately
equal the remaining time until the termination of the conversion period.

Generally, at termination of a Wrapper Agreement, the Wrap Provider will be
required to pay the Fund any excess in Book Value over the value of the
Underlying Assets. However, if the Wrapper Agreement terminates because of a
default by the Fund or upon written notice by the Fund (other than through fixed
maturity conversion), no such payment is made.

SPECIFIC RISKS OF WRAPPER AGREEMENTS. The Fund expects that its use of
Wrapper Agreements will allow it to maintain a stable NAV per Share and to pay
dividends to shareholders which reflect the interest income and market value
gains and losses of the Underlying Assets less the expenses incurred by the Fund
and Wrap Provider fees. However, there can be no assurance that the Fund will
maintain such a stable NAV per Share, or that any shareholder will achieve the
same investment return as would be realized by directly investing in the
Underlying Assets. As the crediting rates under the Wrapper Agreements reflect
the amortization of realized and unrealized gains and losses on the Underlying
Assets, a shareholder could realize more or less than the actual investment
returns of the Underlying Assets depending upon the timing of the shareholder's
purchases and redemptions of Shares, as well as those of other shareholders. In
addition, the following risks are inherent in Wrapper Agreements, and could
prevent the Fund from achieving its investment objectives.

FAILURE TO OBTAIN REPLACEMENT WRAPPER AGREEMENTS. If a Wrapper Agreement
matures or terminates, the Fund may be unable to obtain a replacement Wrapper
Agreement or a Wrapper Agreement with substantially the same terms as the
maturing or terminating agreement. In that event, the Fund may not be able
to maintain a stable NAV per Share. If at such time the value of the
Underlying Assets is less than Book Value, the Fund may be required to reduce
its NAV accordingly. Likewise, if at such time the value of the Underlying
Assets is greater than Book Value, the Fund's NAV may increase. In either
case, shareholders may experience unexpected fluctuations in the value of
their Shares. Further, if the new Wrapper Agreement contains unfavorable
terms, such as a higher Wrap Provider fee, the returns of the Fund may be
negatively affected.

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<PAGE>

UNWRAPPED FUND ASSETS. It is currently contemplated that all of the Fund's
Securities will be covered by Wrapper Agreements. The Fund, however, may not be
able to purchase or maintain Wrapper Agreements with respect to all Securities.
Moreover, the Fund may determine not to enter into Wrapper Agreements with
respect to certain of its Securities. Further, a large, sudden increase in the
amount of Share purchases could result in the Fund being unable to obtain
sufficient Wrapper Agreements to cover all its Underlying Assets. In that
event, the Fund may not be able to achieve its investment policy of maintaining
a stable NAV per share, because fluctuations in the market value of assets that
are not covered by Wrapper Agreements may affect the Fund's NAV per Share.

VALUATION OF WRAPPER AGREEMENTS. The value of each Wrapper Agreement
will be determined by UBT, in accordance with policies and procedures
established by the Board of Trustees on behalf of the Fund. If a Wrap
Provider defaults on its obligations under a Wrapper Agreement or any other
agreement, becomes insolvent, or enters insolvency proceedings, the value of
the Wrapper Agreement will be reduced to reflect the Wrap Provider's
inability to meet its obligations under the Wrapper Agreement. Further, if a
Wrap Provider's credit ratings are downgraded or if the Board determines that
a Wrap Provider may no longer be able to satisfy its obligations under a
Wrapper Agreement in a timely manner, the value of the Wrapper Agreement may
be reduced to reflect the uncertainty that the Wrap Provider will be able to
meet its obligations under the Wrapper Agreement. In any such case, the Fund
may not be able to maintain a stable NAV per Share and may experience a
decrease or increase in its NAV per Share.

CREDIT RISK OF UNDERLYING ASSETS. Wrapper Agreements usually do not
require the Wrap Provider to assume the credit risk associated with the issuer
of any Underlying Asset. Therefore, defaults by, and downgrades below
investment grade of, the issuer of an Underlying Asset usually will cause such
Underlying Asset to be removed from the coverage of a Wrapper Agreement. In
addition, certain other downgrades of Underlying Assets will cause such
Underlying Assets to be removed from the coverage of a Wrapper Agreement unless
and until such Assets' credit rating is upgraded to its former level. In these
situations, the termination of the coverage of such Underlying Assets in most
circumstances will cause the value of the Wrapper Agreement to decrease by an
amount essentially equal to the difference between the purchase price and the
fair market value of such assets. In any such event, the Fund may suffer a
decrease in its NAV and may not be able to maintain a stable NAV per Share.

DEPENDENCE UPON A LIMITED NUMBER OF WRAP PROVIDERS. It is currently
intended that the Fund will maintain Wrapper Agreements with one or more Wrap
Providers. If the Fund maintains more than one Wrapper Agreement, coverage of
the Underlying Assets will be allocated among such Wrapper Agreements. However,
there is no guarantee that the Fund will be able to obtain more than one Wrapper
Agreement, and therefore, it is possible that the Fund may be totally dependent
upon one Wrap Provider for coverage of all of the Underlying Assets.

LIABILITY OF WRAP PROVIDERS. A Wrap Provider's payment obligation is
limited to the Book Value of its Wrapper Agreement. If the Fund enters into
Wrapper Agreements with more than one Wrap Provider, no Wrap Provider will be
jointly liable for the payment obligations of any other Wrap Provider.
Therefore, if a Wrap Provider defaults on its obligations under a Wrapper
Agreement, the Fund will not be able to look to any other Wrap Provider for
satisfaction of such obligations. In that event, the Fund may seek to promptly
replace that Wrap Provider with a substitute Wrap Provider. However, there can

15
<PAGE>

be no guarantee that any such replacement will be feasible, or that any
substitute Wrap Provider will agree to the same terms as the original Wrap
Provider. Further, if at the time of the replacement, the value of the
Underlying Assets is less than the Book Value of the defaulted Wrapper
Agreement, it may be more difficult or impossible for the Fund to obtain a
replacement Wrapper Agreement from a qualified Wrap Provider. In addition, the
fees charged by any such substitute Wrap Provider could be significantly greater
than those previously charged and could reduce the ultimate returns provided to
shareholders.

ILLIQUID ASSET. Currently, there is no active trading market for Wrapper
Agreements and none is expected to develop. Accordingly, Wrapper Agreements may
not be able to be liquidated within seven days at fair market value. Therefore,
the Wrapper Agreements will be considered illiquid. As such, at the time of
purchase, the fair market value of the Fund's Wrapper Agreements, together with
the fair market value of all other illiquid assets, will not exceed fifteen
percent (15%) of the fair market value of the Fund's net assets. See
"Investments and Related Risks" and "Investment Practices" herein.

DERIVATIVES. The Fund may invest in various instruments, including the
Wrapper Agreements, that are commonly known as derivatives. Generally, a
derivative is a financial arrangement the value of which is based on, or
"derived" from, a traditional security, asset or market index. Some
derivatives such as mortgage-related and other asset-backed securities are in
many respects like any other investment, although they may be more volatile
or less liquid than more traditional debt securities. There are a range of
risks associated with the use of derivatives. There are a variety of
instruments that can be used for risk management. Futures contracts and
options are commonly used for traditional hedging purposes to attempt to
protect an investor from exposure to changing interest rates, securities
prices or currency exchange rates and for cash management purposes as a low
cost method of gaining exposure to a particular securities market without
investing directly in those securities. However, some derivatives are used
for leverage, which tends to magnify the effect of an instrument's price
changes as market conditions change. Leverage involves the use of a small
amount of money to control a large amount of financial assets and can, in
some circumstances, lead to significant losses. UBT uses derivatives only in
circumstances where it believes they offer the most economic means of
improving the risk/reward profile of the Fund. Derivatives will not be used
to increase portfolio risk above the level that could be achieved using only
traditional investment securities or to acquire exposure to changes in the
value of assets or indices that by themselves would not be purchased for the
Fund. The use of derivatives for non-hedging purposes may be considered
speculative. A further description of the derivatives that the Fund may use
and some of their associated risks is found in "Investment Practices
- - - --Hedging Strategies" herein.

16
<PAGE>

INVESTMENT PRACTICES.

The Fund's investment objective is to preserve principal, obtain a high
level of current income and maintain a stable net asset value per Share. This
objective is not a fundamental policy of the Fund and therefore may be changed
upon notice to, but without the approval of, the Fund's shareholders. If there
is a change in the Fund's investment objective, its shareholders should consider
whether the Fund remains an appropriate investment in light of their
then-current needs. Shareholders of the Fund will receive 30 days' prior
written notice with respect to any change in the investment objective of the
Fund.

The Fund may invest in a wide range of investments and engage in various
investment-related transactions and practices which are not fundamental policies
of the Fund. Therefore, these investment-practices may be changed by the Board
of Trustees without shareholder approval. The following are some of the more
significant practices:

ILLIQUID AND RESTRICTED SECURITIES. The Fund may invest its net assets
in restricted or illiquid securities that may not have price quotations
immediately available. Investments may be illiquid because of the absence of
an active trading market and/or sale restrictions pursuant to the Securities
Act of 1933, or otherwise, making it difficult to sell such securities
promptly at an acceptable price. The Fund will not invest more than 15% of
its net assets in illiquid securities, including Wrapper Agreements. The
Fund may purchase securities eligible for resale under Rule 144A of the
Securities Act of 1933. This rule permits otherwise restricted securities to
be sold to certain institutional buyers. Provided that such securities are
determined to be liquid by the Board of Trustees, or by UBT, pursuant to
guidelines approved by the Board of Trustees, these restricted securities are
treated as exempt from the Fund's 15% limit on illiquid securities. If
institutional trading in Rule 144A securities were to decline, the liquidity
of the Fund could be adversely affected, resulting in the possibility of
undesirable delays in selling these securities at prices representing fair
value.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may be delayed by a month or more after the date of the
purchase commitment. The value of when-issued and delayed delivery securities
is subject to market fluctuations during this period, thereby creating an
unrealized gain or loss to the Fund. Also, no income accrues to the Fund with
respect to such securities, until settlement takes place.

REPURCHASE AGREEMENTS. In a repurchase agreement, the Fund purchases a
security at one price and simultaneously agrees to sell it back to the seller at
a higher price at a stated time. In the event of a bankruptcy or default of the
other party to the repurchase agreement, the Fund could experience costs and
delays in liquidating the underlying security, which is held as collateral, and
the Fund might incur a loss if the value of the collateral held declines during
this period. Also, if the other party becomes insolvent, a bankruptcy court may
determine that the securities do not belong to the Fund and order that the
securities be sold to pay off that party's debts.

REVERSE REPURCHASE AGREEMENTS, SECURITIES LENDING AND DOLLAR ROLLS. In a
reverse repurchase agreement, the Fund sells a security for cash and
simultaneously agrees to repurchase it at an agreed upon price at a stated time.
In addition, the Fund may lend securities with a value of up to 33% of its total

17
<PAGE>

assets, to realize additional income. The use of a reverse repurchase agreement
and securities lending may involve the risk of delay in recovery of the
securities or loss of rights in the securities should the other party default or
become insolvent.

In a dollar roll, the Fund sells mortgage-backed or other securities for
delivery in the current month and simultaneously contracts to purchase
substantially similar securities on a specified future date. Reverse repurchase
agreements, securities lending and dollar rolls are considered forms of
borrowing and will be counted towards the Fund's borrowing restrictions. See
"Borrowing" below and in the Fund's SAI. If the Fund enters into transactions
of this type, the Wrapper Agreements will treat the cash proceeds of such
transactions as Underlying Assets but not the portfolio instruments transferred
to another party until possession of such instruments is returned to the Fund.

SHORT-TERM INVESTMENTS. The Fund's assets may be invested in cash or high
quality short-term investments with remaining maturities of 397 days or less.
Assets will be invested in such instruments to meet anticipated redemptions,
expenses for day-to-day operations, to allow an orderly investment program to be
carried out in accordance with the Fund's investment policies, and when, in
UBT's opinion, it is appropriate to adopt a temporary defensive position because
of unstable or adverse conditions affecting the respective markets. Generally,
short-term investments will result in lower long-term returns than investments
in other Fixed Income Securities.

BORROWING. The Fund may borrow money for any purpose in an amount equal
to no more than 1/3 of its total assets. Under the 1940 Act, the Fund is
required to maintain continuous asset coverage of 300% with respect to such
borrowings and to sell (within three days) sufficient portfolio holdings to
restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if such liquidation of the Fund's holdings
may be disadvantageous from an investment standpoint.

For purposes of these limitations, borrowings under Wrapper Agreements, as
well as reverse repurchase, securities lending and dollar roll transactions, are
considered to be borrowings by the Fund. See "Investments and Related Risks --
Wrapper Agreements" and "Investment Practices -- Reverse Repurchase Agreements,
Securities Lending and Dollar Rolls" herein.

LEVERAGING. Leveraging creates an opportunity for increased net income
but, at the same time, creates special risk considerations. For example,
leveraging may exaggerate changes in the NAV per Share and in the yield on the
Securities. Although the principal of such borrowings will be fixed, the value
of assets purchased or retained with borrowed funds may change while the
borrowing is outstanding. Leveraging will create interest expenses which can
exceed the income from the assets retained. To the extent the income derived
from securities purchased with borrowed funds exceeds the interest on the
borrowing, net income will be greater than if leveraging were not used.
Conversely, if the income from the assets retained with borrowed funds is not
sufficient to cover the cost of leveraging, net income will be less than if
leveraging were not used, and therefore the amount available for distribution to
shareholders will be reduced. UBT currently does not intend to use leverage as
a usual practice in the investment of the Fund's assets.

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<PAGE>

HEDGING STRATEGIES. The Fund may use certain hedging techniques and
strategies designed to adjust the overall risk of its investment portfolio.
These hedging strategies may involve the use of futures contracts, foreign
currencies and other similar instruments (collectively referred to as "hedging
instruments"), as more fully described in the SAI. New financial products and
risk management techniques are introduced continuously. The Fund may use such
products and techniques if they are consistent with the Fund's investment
objective and policies. Among other purposes, these hedging strategies may be
used to seek to maintain a desired portfolio duration or to protect against
market risk if the Fund changes its investments among different types of Fixed
Income Securities.

The Fund might not use any hedging strategies and there can be no assurance
that the use of hedging instruments by the Fund will assist it in achieving its
investment objective. Risks inherent in the use of these instruments include:
(a) the risks that interest rates and securities prices will not move in the
direction anticipated; (b) the imperfect correlation between the prices of
hedging instruments and the prices of securities being hedged; (c) the Fund's
potential inability to purchase or sell portfolio instruments at advantageous
times due to the need for the Fund to maintain "cover" or segregated securities;
(d) the possibility that the Fund will be unable to close or liquidate its
hedged position; and (e) the fact that skills needed to use these strategies are
different from those needed to select Securities.

ASSET COVERAGE. The Fund will comply with guidelines established by the
SEC with respect to coverage of options and futures by mutual funds. The
Fund intends to cover such transactions, as required under applicable
interpretations of the SEC, either by owning the underlying securities or by
segregating cash or liquid securities with the Fund's custodian (UBT) in an
amount at all times equal to or exceeding the Fund's commitment with respect
to these instruments or contracts. Assets that are segregated for purposes
of providing cover need not be physically segregated in a separate account
provided that the custodian notes on its books that such assets are
segregated.

PURCHASE AND REDEMPTION OF FUND SHARES

CLASSES OF SHARES.

The Fund offers three classes of Shares: Class A, Class B, and Class C
(each a "Class"). No Class is subject to an initial sales charge. Pursuant to
a Plan adopted by the Board of Trustees, Class A, B and C Shares are subject to
distribution and service fees ("Rule 12b-1 Fees") as follows: (1) Class A
Shares pay a Rule 12b-1 Fee at the annual rate of 0.25% of the average daily net
assets attributable to the Class A Shares; (2) Class B Shares are subject to a
Rule 12b-1 Fee at the annual rate of 0.05% of the average daily net assets
attributable to the Class B Shares; and (3) Class C Shares pay a Rule 12b-1 Fee
at the annual rate of 0.25% of the average daily net assets attributable to the
Class C Shares. The Distributor has agreed to waive all of its Rule 12b-1 Fee
in connection with the distribution of Class B Shares. The Distributor may
terminate such waiver at any time, in its sole discretion, with 30 days' prior
written notice to the Fund and UBT.

The services provided in exchange for the above-referenced fees may include
payments to broker-dealers in connection with the sale of Class A, B or C
Shares, establishing and maintaining shareholder accounts, processing purchase
and redemption transactions, arranging for bank wires, performing

19
<PAGE>

shareholder sub-accounting, answering client inquiries regarding the Fund,
providing periodic statements showing the client's account balance and those of
Plan Participants and IRA Owners, transmitting proxy statements, periodic
reports, updated prospectuses and other communications to shareholders and, with
respect to meetings of shareholders, collecting, tabulating and forwarding to
the Trust executed proxies and obtaining such other information and performing
such other services as may reasonably be required.

The Rule 12b-1 Fees for Class A, B and C Shares may be used by the
Distributor for the purpose of financing any activity which is primarily
intended to result in the sale of shares of the Fund. For example, such fees
may be used by the Distributor: (a) to compensate broker-dealers, including the
Distributor and its registered representatives, for their sale of the Shares,
including the implementation of various incentive programs with respect to
broker-dealers, banks, and other financial institutions; and (b) to pay other
advertising and promotional expenses in connection with the distribution of the
Shares. These advertising and promotional expenses include, by way of example
but not by way of limitation, costs of prospectuses for other than current
shareholders; preparation and distribution of sales literature; advertising of
any type; and compensation paid to and expenses incurred by officers, employees
or representatives of the Distributor or of other broker-dealers, banks, or
other financial institutions, including travel, entertainment, and telephone
expenses.

The investment advisory fee applicable to all Classes of Shares is the
same. The amount of dividends payable to Class A and C Shares will be less
than those payable to Class B Shares by the amount of the difference between
the expenses borne by the Class A and C Shares and the Class B Shares.

Class A, B, and C Shares are, under certain circumstances, subject to a
maximum redemption fee of 2% of the proceeds of the redemption. Class C Shares
are subject to a contingent deferred sales charge for three years after
purchase. See "Expense Information" and "Purchase and Redemption of Fund
Shares" herein.

PLAN PARTICIPANT TRANSACTIONS.

Plan Participant-directed purchases, exchanges and redemptions of Shares
are handled in accordance with each Plan's specific provisions, subject to the
Fund restrictions contained herein. Plans may have different provisions with
respect to the timing and method of purchases, exchanges and redemptions by Plan
Participants. Plan Participants should contact their Plan administrator for
details concerning how they may direct transactions in Shares. It is the
responsibility of the Bank Collective Fund's investment manager, Plan
administrator or other Plan service provider to forward instructions for these
transactions to the Distributor. IRA Owner purchases, exchanges and redemptions
of Shares are handled directly by the IRA Owner or through the Distributor.

Plan Participants should contact their Plan administrator or the
organization that provides recordkeeping services if they have questions
concerning their account. Plan administrators and fiduciaries should call
1-800-548-4806 for information regarding a Plan's or Bank Collective Fund's
account with the Fund.

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<PAGE>

PURCHASE OF SHARES.

Shares of the Fund are offered on each day the New York Stock Exchange (the
"Exchange") is open for trading (a "Business Day"). Purchase orders received by
the Transfer Agent on a Business Day prior to 4:00 p.m. Eastern Time, and
accompanied by payment in good funds, will be processed based on that day's
closing net asset value. Purchase orders paid for by check will be effected on
the Business Day on which funds from the check have been collected.

Purchase orders for Class A and B Shares must be placed in writing with
the Transfer Agent or through certain broker-dealers and must be accompanied by
sufficient funds. Acceptable methods of payment include checks, federal funds
and wires. Purchase orders for Class C Shares may be placed by mail, wire or
telephone directly with the Transfer Agent or through broker-dealers or other
financial institutions. In connection with the purchase of Class C Shares,
certain financial institutions may charge a fee.

Neither the Fund nor the Transfer Agent will be responsible for any loss,
liability, cost or expenses for acting upon wire instructions, or telephone
instructions that it reasonably believes to be genuine. The Fund and the
Transfer Agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine including requiring a form of
personal identification prior to acting upon instructions received by telephone
and recording telephone instructions.

Certificates for Shares will not be issued. Investor shareholdings will be
recorded on the books of the Fund and each shareholder will be regularly advised
of its holdings.

The sale of Shares will be made at NAV per share and therefore such sales
will be suspended during any period when the determination of net asset value is
suspended. The sale of shares may also be suspended by the Board of Trustees
whenever the Board of Trustees determines that it is in the Fund's best interest
to do so. The Fund may, in its complete discretion, reject any order for
purchase of its Shares. Also, Shares may only be purchased in those states
where they may be lawfully sold.

Due to the fixed expenses incurred by the Fund in maintaining individual
accounts, the Fund reserves the right to redeem accounts of Class C shareholders
that fall below the $5,000 minimum required investment due to shareholder
redemptions (but not solely to a decrease in the net asset value of the Fund.)
In order to exercise this right, the Fund will give advance written notice of at
least 30 days to each account below the minimum, during which period the account
may be increased to or above the minimum.

For further information, please refer to "Purchase and Redemption of Fund
Shares" in the SAI.

MINIMUM INVESTMENT. The minimum initial investment in the Fund in
connection with the purchase of Class A or B Shares is $1.0 million. The
minimum initial investment in the Fund for Class C Shares is $5,000 with a
minimum of $500 for subsequent investments. UBT may waive the minimum initial
investment amounts at its discretion. No minimum applies to subsequent
purchases effected by dividend reinvestment.

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<PAGE>

INITIAL PURCHASE BY MAIL. An account may be opened by mailing a check or
other negotiable bank draft payable to The Portland Mutual Funds for at least
the minimum initial amount specified above, and a completed Account Application
to The Portland Mutual Funds, c/o [THE TRANSFER AGENT], [ADDRESS]. The Fund
will not accept third-party checks, i.e., a check not payable to The Portland
Mutual Funds or the Fund for initial or subsequent investments.

INITIAL PURCHASE BY WIRE. An investor with an account with a commercial
bank that is a member of the Federal Reserve System, may purchase Shares of the
Fund by wire transfer. An Account Application must be received and an account
number assigned prior to receipt of the wire. An Account Application can be
obtained by telephoning 1-800-XXX-XXXX. The investor's account number, taxpayer
identification number or Social Security Number, and address must be specified
in the wire. All wires must be received by 4:00 p.m., Eastern time for the
purchase to be effective on that day. In addition, an original Account
Application should be promptly forwarded to: The Portland Mutual Funds, c/o
[THE TRANSFER AGENT], [ADDRESS]. All wires must be sent as follows: [WIRE
INSTRUCTIONS].

ADDITIONAL PURCHASES BY PHONE (TELEPHONE PURCHASE). Additional Class C
Shares may be purchased by a shareholder by telephoning the Transfer Agent at
1-800-XXX-XXXX. The minimum telephone purchase is $500.00. Payment for the
telephone purchase must be received by the Transfer Agent within seven days.
Telephone purchases will be made at the offering price next computed after
payment has been received in good funds by the Transfer Agent.

ADDITIONAL PURCHASES BY WIRE. Additional investments may be made at any
time through the wire procedures described above. Commercial banks generally
impose a fee for investments by wire.

REDEMPTION OF SHARES.

Redemption requests in connection with Class A or B Shares must be in
writing and sent to the Distributor or the Transfer Agent. Redemption
requests in connection with Class C Shares may be made through the Transfer
Agent or through certain broker-dealers and other financial institutions. A
fee may be charged by certain financial institutions for this service. The
Fund will redeem shares at net asset value as next computed after receipt by
the Transfer Agent of a request for redemption. The Distributor will not
transmit redemption requests to the Transfer Agent until the Distributor has
determined that the request is in good form. Except for redemptions for
which 12 months' prior notice has been given, redemptions will generally
occur within one Business Day after the redemption request is received, and
in no event will payment be made more than seven days after receipt of a
redemption request in good order. Payments in connection with a redemption
request for which 12 months' prior notice has been given will be made no
later than seven days following the end of the 12 month period. The Fund may
suspend or postpone the right of redemption when permitted by applicable law.
Redemption payments may be in the form of check or wire transfer. There is
no charge for redemption payments made by check. The Transfer Agent will
deduct a wire charge, currently $10.00, from the amount of a Federal Reserve
wire redemption payment made at the request of a shareholder. Shareholders
cannot receive proceeds from redemptions of Shares of the Fund by Federal
Reserve wire on federal holidays restricting wire transfers.

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<PAGE>

Redemption requests on Class A and B Shares for reasons other than a
Benefit Responsive Payment Event or without 12 months' notice will be subject to
a 2% redemption fee. Redemptions of Class C Shares in connection with an IRA
Qualified Payment Event are not subject to a redemption fee or a deferred sales
charge. Redemptions of Class C Shares unrelated to an IRA Qualified Payment
Event, but made with 12 months' prior notice, and redemptions of Class C Shares
to an IRA Owner after such IRA Owner has attained the age of 59-1/2 are not
subject to a redemption fee, but are subject to a contingent deferred sales
charge. All other redemptions of Class C Shares are subject to a 2% redemption
fee and the contingent deferred sales charge. The contingent deferred sales
charge, which is paid by the Fund to the Distributor, will equal 3% of the
original purchase price of the shares redeemed, if the request is received by
UBT within the first year after the shareholder's purchase of the Class C Shares
being redeemed, 2% if received in the following year, and 1% if received within
the third year following such purchase. Thereafter, a shareholder's redemption
of such Class C Shares will not be subject to any contingent deferred sales
charge.

The Fund has elected to redeem Shares solely in cash up to the lesser of
$250,000 or 1% of the NAV of the Fund during any 90 day period for any one
shareholder. The Fund reserves the right to honor any redemption request for
Class A or B Shares in excess of the foregoing amount by making payment in
whole or in part in Securities or Securities and Wrapper Agreements, selected
solely at the discretion of UBT. To the extent that any such payment in kind
includes a Wrapper Agreement, the Fund will assign a portion of one or more
Wrapper Agreements to the redeeming shareholder. The economic terms and
conditions of each assigned Wrapper Agreement will be substantially similar
to the Wrapper Agreements held by the Fund. The Fund does not anticipate
exercising its right to redeem in kind if a request for redemption is
received with respect to a Benefit Responsive Payment Event or with 12
months' notice. The Fund may require prospective Class A or B shareholders
to agree, prior to investing in the Fund, that they will accept an assignment
of a Wrapper Agreement as part of an in-kind redemption, provided that at the
time of the redemption payment such assignment would not violate applicable
law.

A Wrap Provider, prior to the assignment of a Wrapper Agreement to a
shareholder, may require the shareholder to represent and warrant that such
assignment does not violate any applicable laws. Moreover, the Wrap Provider
may require the shareholder to obtain at its own expense the services of a
qualified professional asset manager ("QPAM") acceptable to the Wrap Provider to
manage the Securities distributed in kind in conformity with the Wrapper
Agreement provisions. In the event a Wrapper Agreement cannot be assigned to
the shareholder, the Fund in its discretion may satisfy the redemption request
through (a) a cash payment, (b) a redemption in-kind consisting entirely of
Securities, (c) a combination of cash and Securities, or (d) the Fund may give
the redeeming shareholder the opportunity to choose between one of the foregoing
options or providing the Fund with 12 months notice of its request for such
redemption (which 12-month notice option would cause the redemption not to be
subject to the redemption fee).

To the extent a payment in kind is made with Securities, a shareholder
may incur transaction expenses in custodying and disposing of the Securities.
Therefore, a shareholder receiving Securities may incur costs that may exceed
such shareholder's share of the operating expenses incurred by the Fund. In
addition, Wrapper Agreements assigned to a shareholder as a payment in kind
are illiquid and will require the shareholder to pay fees directly to the
Wrap Provider rather than through the Fund. Further, the

23
<PAGE>

Wrapper Agreement may contain restrictions on the securities subject to such
agreement, including, but not limited to the types, maturities, duration and
credit quality of each security. Therefore, to obtain the benefits of a Wrapper
Agreement, the shareholder may not be able to freely trade the securities
underlying the agreement. Finally, if the shareholder obtains the services of a
qualified professional asset manager in connection with a payment in kind, the
shareholder will incur additional costs.

In the event a redemption is made in kind with a Wrapper Agreement, the
Fund will incur costs in obtaining such Wrapper Agreement. These costs are not
expected to exceed the 2% redemption fee.

NET ASSET VALUE.

The NAV per share is calculated by dividing the total value of the Fund's
assets, less any liabilities, by the total number of its Shares outstanding.
The NAV per Share is determined on each day on which the Exchange is open for
business (each such day being a "Valuation Day").

The NAV per Share is determined once on each Valuation Day as of 4:00
p.m., Eastern time (the "Valuation Time"), or if the Exchange closes early,
at the time of the early closing. The Securities and other assets are valued
primarily on the basis of market quotations. When market quotations are not
readily available, the Securities are valued at fair value as determined in
good faith by UBT in accordance with the policies and procedures established
by the Board of Trustees, subject to review of the Board of Trustees.

Pursuant to procedures adopted by the Board of Trustees, the fair value of
a Wrapper Agreement ("Wrapper Value") generally will be equal to the difference
between the Book Value and the market value of the applicable Underlying Assets.
In determining Wrapper Value, the Board of Trustees intends to consider the
credit quality and ability of a Wrap Provider to pay amounts due under the
Wrapper Agreement. If the Board of Trustees determines that a Wrap Provider is
unable to make such payments, the Board of Trustees may assign a Wrapper Value
that is less than the difference between the Book Value and the market value
(plus accrued interest) of the applicable Underlying Assets. In the event of
such an occurrence, the Fund might be unable to maintain a stable NAV.

Under procedures adopted by the Board of Trustees, an NAV per Share which
is later determined to have been inaccurate for any reason will be recalculated.
Purchases and redemptions made at an NAV per Share determined to have been
inaccurate or incorrect will be adjusted; provided, however, that no such
adjustment will be required where the difference between the original NAV per
Share and the recalculated NAV per Share divided by the latter is 0.005 (1/2 of
1%) or less, or shareholder transactions are otherwise unsubstantially affected.

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<PAGE>

ADDITIONAL INFORMATION

CHARACTERISTICS OF FUND SHARES.

The Fund is a mutual fund: an investment that pools shareholders' money and
invests it toward a specified goal. The Fund is a separate series of the Trust,
a Delaware business trust organized pursuant to a Declaration of Trust dated
September 24, 1997. The Trust reserves the right to add additional series in
the future. UBT has contributed $100,000 to the Trust, such sum representing
the initial capital of the Trust. The Board of Trustees has authority to issue
an unlimited number of shares of beneficial interest, without par value.

The Fund currently offers three Classes of Shares, Class A, Class B, and
Class C. Each Class represents an identical interest in the Fund's
investment portfolio. The Trust also reserves the right to issue additional
classes of Shares of the Fund. Under the Trust's multi-class system, shares
of each class of the Fund represent an equal pro rata interest in the Fund
and, generally, have identical voting, dividend, liquidation, and other
rights, preferences, powers, restrictions, limitations, qualifications and
terms and conditions, except that: (a) each class shall have a different
designation; (b) each class of shares shall bear its "Class Expenses;" (c)
each class shall have exclusive voting rights on any matter submitted to
shareholders that relates solely to its distribution arrangements; (d) each
class shall have separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class; (e) each class may have separate exchange privileges,
although exchange privileges are not currently contemplated; and (f) each
class may have different conversion features, although a conversion feature
is not currently contemplated. The Board of Trustees does not anticipate
that there will be any conflicts among the interests of the holders of the
different Classes and will take appropriate action if any such conflict
arises. For more information about the different Classes of Shares of the
Fund, please call 1-800-548-4806.

Each Share of each Class of the Fund shall be entitled to one vote (or
fraction thereof in respect of a fractional share) on matters that such Shares
(or Class of Shares) shall be entitled to vote. Shareholders of the Fund shall
vote together on any matter, except to the extent otherwise required by the 1940
Act, or when the Board of Trustees has determined that the matter affects only
the interest of shareholders of one or more Classes, in which case only the
shareholders of such Class or Classes shall be entitled to vote thereon. Any
matter shall be deemed to have been effectively acted upon with respect to the
Fund if acted upon, as provided in Rule 18f-2 under the 1940 Act, or any
successor rule, and in the Declaration of Trust.

The Trust is not required to hold annual shareholder meetings, but special
meetings may be called for purposes such as electing or removing Trustees,
changing fundamental policies or approving an investment management or advisory
agreement. Shareholders not attending a shareholders meeting are encouraged to
vote by proxy. The Transfer Agent will mail proxy materials in advance,
including a voting card and information about the proposals to be voted on.
When matters are submitted for shareholder vote, shareholders of the Fund will
have one vote for each full Share held and proportionate, fractional votes for
fractional Shares held. A separate vote of the Fund is required on any matter
affecting only the Fund on which shareholders are entitled to vote; shareholders
of the Fund are not entitled to vote on Trust

25
<PAGE>

matters that do not affect the Fund and do not require a separate vote of the
Fund. All series of the Trust will vote together on certain matters, such as
electing Trustees or approving independent public auditors. Under certain
circumstances, the shareholders of one series of the Trust could control the
outcome of these votes. There normally will be no meetings of shareholders for
the purpose of electing Trustees unless and until such time as less than a
majority of Trustees holding office has been elected by shareholders, at which
time the Trustees then in office will call a shareholders' meeting for the
election of Trustees. Any Trustee may be removed from office upon the vote of
shareholders holding at least two-thirds of the Trust's outstanding shares at a
meeting called for that purpose. The Trustees are required to call such a
meeting upon the written request of shareholders holding at least 10% of the
Trust's outstanding shares. The Trust will also assist shareholders in
communicating with one another as provided for in the 1940 Act.

BOARD OF TRUSTEES.

The Trust is governed by a Board of Trustees that is responsible for
protecting the interests of investors. See "Management of the Trust" in the SAI
for more information with respect to the Trustees and officers of the Trust. By
virtue of the responsibilities assumed by UBT, as administrator of the Trust,
the Trust requires no employees other than its officers. None of the Trust's
officers devotes full time to the affairs of the Trust.

INVESTMENT ADVISORY AND OTHER SERVICES.

INVESTMENT ADVISER. The Fund has retained the services of UBT as its
investment adviser pursuant to an Investment Advisory Agreement between the
Trust and UBT dated [INSERT DATE] (the "Investment Advisory Agreement"). Union
Bond & Trust Company, with principal offices at 5665 S.W. Meadows Road, Suite
400, Lake Oswego, OR 97035, is a state bank and trust company chartered in 1913
and reorganized in 1992 under the laws of the state of Oregon.

UBT provides a range of investment and fiduciary services to institutional
clients. UBT maintains and manages common and pooled trust funds invested
primarily in fixed income assets whose principal value is believed to be
relatively stable. UBT also acts as custodian with respect to similar fixed
income assets.

UBT is a wholly owned subsidiary of Morley Financial Services, Inc.
("Morley Financial Services"), a holding company which also wholly owns Morley
Capital Management, Inc., and Morley & Associates, Inc. In addition, Morley
Financial Services is in the process of acquiring First Financial Company,
subject to obtaining necessary regulatory approvals.

Morley Capital Management, Inc. is a registered investment adviser which
manages money for corporate, government, Taft-Hartley, and bank intermediary
clients on a national basis. Morley & Associates, Inc. is an insurance
brokerage company which provides insurance brokerage services for clients
throughout the United States. UBT offers trust services for Morley Capital
Management, Inc. clients, as well as for other institutional corporate
accounts in the investment market. As of July 31, 1997, Morley

26
<PAGE>

Financial Services and its subsidiaries had investment management or advisory
responsibility for approximately $7.5 billion of assets.

UBT, subject to the supervision and direction of the Board of Trustees,
manages the Fund in accordance with the Fund's investment objective and stated
investment policies, makes investment decisions for the Fund, places orders to
purchase and sell securities and other financial instruments on behalf of the
Fund and employs or otherwise engages professional investment managers and
securities analysts who provide research services to the Fund. UBT places
orders for investment transactions on behalf of the Fund with broker-dealers and
other financial intermediaries that it selects. UBT may use an affiliate in
connection with a purchase or sale of an investment for the Fund if UBT believes
that the affiliate's charge for the transaction does not exceed usual and
customary levels. The Fund may invest in the obligations of correspondents and
customers of UBT.

The Investment Advisory Agreement provides for the Fund to pay UBT a fee,
accrued daily and paid monthly, equal to 0.35% per year of the average daily
net assets of the Fund. UBT has agreed voluntarily to waive 0.10% of that
fee. In addition, in the interest of limiting the expenses of the Fund, UBT
has voluntarily entered into an expense limitation agreement with the Fund
("Expense Limitation Agreement") pursuant to which UBT has agreed to waive or
limit a portion of its fee and to assume other expenses (except for Rule
12b-1 fees) in an amount necessary to limit total annual operating expenses
of the Fund (exclusive of Rule 12b-1 fees) to no more than 0.40% for Class
A, 0.40% for Class B, and 0.75% for Class C (expressed as a percentage of
average daily net assets). Reimbursement by the Fund of the advisory fees
waived or limited and other expenses paid by UBT pursuant to the Expense
Limitation Agreement may be made at a later date when the Fund has reached a
sufficient asset size to permit reimbursement to be made without causing the
total annual operating expense ratio to exceed the foregoing annual expense
limits. Consequently, no reimbursement by the Fund will be made unless: (i)
the Fund's assets exceed $100 million; (ii) the total annual operating
expenses of the Class making reimbursement is less than the relevant limit
set forth above; and (iii) the payment of such reimbursement is approved by
the Board of Trustees on a quarterly basis.

UBT has been advised by its counsel that UBT currently may perform the
services for the Trust described in this Prospectus and the SAI without
violation of the Glass-Steagall Act or other applicable banking laws or
regulations. State laws on this issue may differ from the interpretations of
relevant federal law, and banks and financial institutions may be required to
register as dealers pursuant to state securities law.

FUND MANAGEMENT. Mr. Taylor E. Drake and Mr. Hal B. Ruthizer are
responsible for the day-to-day management of the Fund.

Mr. Taylor E. Drake, Vice President of UBT, co-manages the Fund. Since
joining Morley Capital Management, Inc. in 1995, he has managed corporate
stable value portfolios and designed and implemented several new fixed income
funds. With a total of over 10 years in the financial markets, Mr. Drake's
previous experience includes working in international structured finance and
investment management for Mellon Bank in Tokyo, and as Associate Director of
Investment Banking at US Bancorp. He received his B.A. degree, cum laude, in
Economics and Japanese from Brigham Young University.

27
<PAGE>

Mr. Hal B. Ruthizer, Vice President of UBT, co-manages the Fund and has
been the portfolio manager for a large number of corporate stable value
portfolios for whom Morley Capital Management, Inc. serves as investment
manager. Mr. Ruthizer has been with Morley Capital Management, Inc. since 1992
and has a total of 13 years of experience in the financial markets and 3 years
in economic consulting. Prior to joining Morley Capital Management, Inc., Mr.
Ruthizer specialized in interest rate risk management as Vice President at
Westpac Banking Corp. and E.F. Hutton. He received his B.A. degree with Honors
in Economics from Harvard.

ADMINISTRATOR. Under an Administration and Services Agreement with the
Trust, UBT assists the Board of Trustees in all aspects of the administration
and operation of the Fund. This Administration and Services Agreement provides
for the Trust to pay UBT a fee, accrued daily and paid monthly, of 0.25% per
year of the average daily net assets of the Fund. UBT has agreed voluntarily to
waive 0.10% of this Fee. Under this Administration and Services Agreement, UBT
is responsible for selecting and monitoring the performance of various third
parties providing services to the Fund.

DISTRIBUTOR. First Financial Company is a broker-dealer authorized to
sell shares of registered companies on a subscription basis. First Financial
Company is seeking NASD approval to enable it to serve as Distributor and
principal underwriter for the Fund. The Fund is not aware of any reason why
such request would not be approved. If such request is not approved, the
Fund will find an alternative Distributor before the effective date of the
Fund's Registration Statement and before commencing the public offering of
the Fund's Shares. As noted above, Morley Financial Services is in the
process of acquiring First Financial Company, subject to obtaining necessary
regulatory approvals. Mr. Hal B. Ruthizer and Mr. Taylor E. Drake,
portfolio managers of the Fund, will become officers and directors of First
Financial Company before the effective date of the Fund's Registration
Statement.

CUSTODIAN. UBT acts as custodian for the assets of the Fund under the
Custodian Agreement with the Trust. It is not separately compensated for these
services and may, at its own expense, delegate certain services to other service
providers.

TRANSFER AGENT. [TO BE COMPLETED BY AMENDMENT].

DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS.

The Fund intends to distribute all of its net investment income and net
capital gains, if any, to its shareholders on an annual basis. The Fund
currently declares dividends from net investment income daily and pays dividends
monthly. Distributions of net realized capital gains are made annually. An
additional annual distribution ("Additional Distribution") may be paid to
satisfy the tax requirements (outlined below) that the Fund distribute each year
substantially all of its investment company taxable income (see "Tax
Considerations").

Dividends and other distributions paid on each Class of Shares will be
calculated in the same manner, at the same time, on the same day, and will be in
the same amount, except that the per Share dividends on Class A and C Shares
will be lower than those of Class B Shares (which have a lower total

28
<PAGE>

expense ratio). Dividends paid on the three Classes also might be affected
differently by the allocation of other Class-specific expenses. Dividends
and other distributions are automatically reinvested in additional Shares of
the distributing Class, unless the shareholder sends a written request to the
Fund directing otherwise.

The Fund may declare and pay dividends in amounts which are not equal to
the amount of the net investment income it actually earns. In the event
distributions exceed the income earned, the excess may be considered a return of
capital. In the event the income earned exceeds the amount of the dividends
distributed, the Fund may make an Additional Distribution of such excess amount.
The Board of Trustees, in an effort to maintain a stable NAV per Share in the
event of an Additional Distribution, may declare, effective on the
ex-distribution date of an Additional Distribution, a reverse split of the
Shares in an amount that will cause the total number of Shares held by each
shareholder, including Shares acquired on reinvestment of that distribution, to
remain the same as before that distribution was paid.

For example, if the Fund declares an Additional Distribution of ten cents
per Share when the NAV per Share is $10.00, a shareholder holding one Share
would receive 0.01 additional Shares on reinvestment of that distribution.
If no reverse split were declared, the NAV per Share would be approximately
$9.90 and the total value of the 1.01 shares held by the shareholder would be
$10.00. If a 1.01 to 1 reverse split were declared, however, the
shareholder's 1.01 shares would be combined into one share having a NAV of
$10.00. Thus, a reverse share split would not affect the total value of the
shareholder's Shares.

TAX CONSIDERATIONS.

The Fund intends to qualify each year as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended. By so qualifying, the Fund
will not be subject to federal income taxes to the extent that it distributes
substantially all of its net investment income and any net realized capital
gains. The Fund intends to distribute to its shareholders all of its investment
company taxable income and net capital gain at least annually, if necessary
through Additional Distributions, and therefore does not anticipate incurring
any federal income tax liability.

For Plan Participants utilizing the Fund as an investment option under
their Plan and for IRA Owners, dividend and capital gain distributions from the
Fund generally will not be subject to current taxation, but will accumulate on a
tax-deferred basis. In general, Bank Collective Funds, Plans and IRAs are
governed by a complex set of tax rules. Each Plan Participant should consult
with their Plan administrator, their Plan's Summary Plan Description, and/or a
professional tax adviser regarding the tax consequences of their participation
in their Plan and of any Plan contributions or withdrawals. IRA Owners should
consult with their professional tax adviser regarding the tax consequences
associated with an investment in the Fund.

REPORTS.

Twice a year, the shareholders of the Fund will receive detailed
information regarding the Fund's strategies, holdings and performance.
Mutual fund performance is commonly measured as total return and/or yield.
The Fund's performance may be used from time to time in advertisements,
shareholder

29
<PAGE>

reports or other communications to shareholders or prospective shareholders.
The Fund's performance is affected by its expenses.

PERFORMANCE ADVERTISING.

The Fund from time to time may advertise certain investment performance
figures. These figures are based on historical earnings but past performance
data is not necessarily indicative of future performance of the Funds. The Fund
may quote yield in conformance with current Securities and Exchange Commission
guidelines.

Yield refers to the income generated by an investment in the Fund over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all stock and bond
funds. Because this differs from other accounting methods, the quoted yield may
not equal the income actually paid to shareholders.

The Fund may advertise its total return and its holding period return for
various periods of time. Total return is calculated by determining, over a
period of time, the average annual compounded rate of return that an
investment in the Fund earned over that period, assuming reinvestment of all
distributions. Holding period return refers to the percentage change in the
value of an investment in a Fund over a period of time assuming reinvestment
of all distributions.

Total return and holding period return differ from yield in that the return
figures include capital changes in an investment while yield measures the rate
of net income generated by a Fund. Total return differs from holding period
return principally in that total return is an average annual figure while
holding period return is a cumulative figure for the entire period.

Total return and holding period return and yields are based on past results
and are not an indication of future performance. Performance information or
advertisements may include comparisons of the Fund's investment results to
various unmanaged indices or results of other mutual funds with similar
investment objectives.

PRIOR PERFORMANCE OF INSTITUTIONAL PRIVATE ACCOUNTS
MANAGED BY UBT AND ITS AFFILIATE

The following table sets forth composite performance data relating to the
historical performance of institutional private stable value portfolios
managed by UBT or Morley Capital Management, its affiliate, since the dates
indicated, that have investment objectives, and risks substantially similar
to those of the Fund. The composite data is provided to illustrate the past
performance of UBT and its affiliate in managing substantially similar
accounts as measured against a specified market index. (Morley Capital
Management is the adviser or subadviser for all of the accounts included in
the composites.) It does not represent the performance of the Fund.
Investors should not consider this performance data as an indication of
future performance of the Fund or of UBT.

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<PAGE>

All information set forth in the table below relies on data supplied by UBT
or from statistical services, reports or other sources believed by UBT to be
reliable. Except as otherwise indicated, however, such information has not been
verified and is unaudited.

Investors should be aware that stable value investments are designed to
reduce volatility, and thus by their very nature are reported on a book value
basis. This reporting treatment differs from the typical fixed income fund in
that the assets of fixed income funds are usually marked-to-market for valuation
purposes. While stable value investments are designed such that under normal
circumstances, the total of the market value of the underlying assets and the
value of the corresponding wrapper agreements will equal the book value of the
underlying assets, investors should be aware of this difference in accounting
treatment in trying to draw direct comparisons between stable value returns and
market value indices, or comparing one stable value account to another. In
addition, returns on stable value portfolios can differ depending upon
portfolio-specific factors such as (1) the amount and timing of cash flows, and
(2) the general level of interest rates when those cash flows occur.
Notwithstanding the foregoing, UBT believes that the composite performance data
presented below represents a fair assessment of the returns over time of the
stable value portfolios managed by UBT or Morley Capital Management.

All returns presented were calculated on a total return basis and include
all interest and accrued income credited to the portfolios. All are presented
net of UBT's or its affiliate's highest applicable investment advisory fee
(actual returns may be higher for individual portfolios with a lower fee
schedule), and after transaction costs such as brokerage commissions and
execution expenses associated with the purchase and/or disposition of account
assets. Custodial fees are included where such fees were required to be
incurred in order for the portfolios to invest in certain types of assets. The
composites include all actual, fee-paying, discretionary institutional private
stable value accounts managed by UBT or its affiliate that are greater than $20
million in total assets. Cash and equivalents are included in performance
returns. Quarterly returns of the composites combine the individual accounts'
returns by asset-weighting each individual account's asset value as of the
beginning of the quarter. The yearly returns are computed by geometrically
linking the returns of each quarter within the calendar year.

The institutional private accounts that are included in the composites are
not subject to the same types of expenses to which the Fund is subject nor to
the diversification requirements, specific tax restrictions and investment
limitations imposed on the Fund by the Investment Company Act or Subchapter M of
the Internal Revenue Code. Consequently, the performance results for the
composites could have been adversely affected if the institutional private
accounts included in the composites had been regulated as investment companies
under the federal securities laws.

The results presented below may not necessarily be the same as the return
experienced by any particular investor as a result of the timing of
investments and redemptions. In addition, the effect of taxes on any
investor will depend on such person's tax status, and the results have not
been reduced to reflect any income tax which may have been payable.

The investment results presented below are not intended to predict or
suggest the returns that might be experienced by the Fund or an investor
investing in the Fund. Investors should also be aware that the

31
<PAGE>

use of a methodology different from that used below to calculated performance
could result in different performance data.

- - - --------------------------------------------------------------------------------
Year Stable Value Composite(1) 90-day T-bills(2) 30-day commercial
paper(3)
- - - --------------------------------------------------------------------------------
1990
- - - --------------------------------------------------------------------------------
1991
- - - --------------------------------------------------------------------------------
1992
- - - --------------------------------------------------------------------------------
1993
- - - --------------------------------------------------------------------------------
1994
- - - --------------------------------------------------------------------------------
1995
- - - --------------------------------------------------------------------------------
1996
- - - --------------------------------------------------------------------------------
1997(4)
- - - --------------------------------------------------------------------------------
Last Year
- - - --------------------------------------------------------------------------------
Last 5 Years
- - - --------------------------------------------------------------------------------
Last 7 Years
- - - --------------------------------------------------------------------------------

- - - ---------------------------------------
(1)The Composite figures are net of the highest applicable advisory fees
charged by UBT or Morley Capital Management as applicable.
(2)[description of relevant index]
(3)[Describe relevant index.]
(4)Through [relevant quarter end]

32
<PAGE>

Investment Adviser of the Fund and Administrator

UNION BOND & TRUST COMPANY

Distributor
FIRST FINANCIAL COMPANY

Custodian
UNION BOND & TRUST COMPANY

Independent Accountants
COOPERS & LYBRAND, LLP

Counsel
DUNN, CARNEY, ALLEN, HIGGINS & TONGUE

No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the SAI or the
Fund's official sales literature in connection with the offering of the Shares
and, if given or made, such other information or representations must not be
relied on as having been authorized by the Fund. This Prospectus does not
constitute an offer in any state in which, or to any person to whom, such offer
may not lawfully be made.
[END OF PROSPECTUS]

33
<PAGE>

PART B
Subject to Completion, dated [October 8], 1997

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.

STATEMENT OF ADDITIONAL INFORMATION

The Portland Mutual Funds

Portland Stable Investment Fund

This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the Portland Stable Investment Fund (the "Fund")
Prospectus dated [October 8], 1997. The Prospectus provides the basic
information investors should know before investing and may be obtained without
charge by calling the Trust at 1-800-548-4806.

This Statement of Additional Information is not an offer by the Fund to
an investor that has not received a Prospectus. No broker/dealer, sales
representative, or other person has been authorized to give any information
or to make any representations other than those contained in the Prospectus
and this Statement of Additional Information, and, if given or made, such
information or representations must not be relied upon as having been
authorized by the Fund. This Statement of Additional Information does not
constitute an offer or solicitation by anyone in any state in which such
offer or solicitation is not authorized, or in which the person making such
offer or solicitation is not qualified to do so, or to any person to whom it
is unlawful to make such offer or solicitation. Capitalized terms not
otherwise defined in this Statement of Additional Information have the
meanings accorded to them in the Prospectus.

<PAGE>

TABLE OF CONTENTS
PAGE
----

INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . .

ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND RISK
CONSIDERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .

INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . .

PORTFOLIO TURNOVER . . . . . . . . . . . . . . . . . . . . . . . . . . .

FUND TRANSACTIONS AND BROKERAGE ALLOCATION . . . . . . . . . . . . . . .

MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . .

ORGANIZATION OF THE TRUST. . . . . . . . . . . . . . . . . . . . . . . .

TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . .

INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . . . . . .

PURCHASE AND REDEMPTION OF FUND SHARES . . . . . . . . . . . . . . . . . . .

PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . .

REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . .

TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . .

APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

The Portland Stable Investment Fund (the "Fund") is a separate series of
The Portland Mutual Funds (the "Trust"), an open end management investment
company. The investment objectives of the Fund are to preserve principal,
obtain a high level of current income and maintain a stable value per share.
The Fund seeks to achieve its investment objectives by investing its net
investable assets primarily in a diversified portfolio of investment grade
securities, money market instruments, options, futures and other instruments
("Securities") and by entering into book value benefit responsive agreements
("Wrapper Agreements") (together "Portfolio Securities") with large financial
institutions, such as banks and insurance companies. There can, of course, be
no assurance that the Fund will achieve its investment objectives.

ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND RISK CONSIDERATIONS

The following is a discussion of certain investments of, and techniques
employed by, the Fund.

FINANCIAL SERVICES INDUSTRY OBLIGATIONS. The Fund may hold short-term
investments in each of the following obligations of the financial services
industry:

(1) Certificates of Deposit. Certificates of deposit are negotiable
certificates evidencing the indebtedness of a commercial bank or a savings
and loan association to repay funds deposited with it for a definite period
of time (usually from fourteen days to one year) at a stated or variable
interest rate.

(2) Time Deposits. Time deposits are non-negotiable deposits
maintained in a banking institution or a savings and loan association for a
specified period of time at a stated interest rate.

(3) Bankers' Acceptances. Bankers' acceptances are credit
instruments evidencing the obligation of a bank to pay a draft which has
been drawn on it by a customer, which instruments reflect the obligation
both of the bank and of the drawer to pay the face amount of the instrument
upon maturity.

In addition, the Fund may hold other short-term investments, such as commercial
paper, which are short-term (maturities of 270 days or less) unsecured
promissory notes issued by corporations.

MORTGAGE-RELATED SECURITIES. Mortgage-related securities include
securities representing interests in a pool of mortgages. These securities,
which may be issued by FNMA, GNMA and the Federal Home Loan Mortgage
Corporation, provide investors with payments consisting of both interest and
principal as the mortgages in the underlying mortgage pools are repaid. The
Fund will invest in pools of mortgage loans assembled for sale to investors by
agencies or instrumentalities of the U.S. Government and by non-governmental
entities such as banks, mortgage lenders, other financial institutions and
special purpose vehicles thereof ("Non-Governmental Entities"). Unscheduled or
early payments on the underlying mortgages may shorten the securities' effective
maturities.

3
<PAGE>

Other types of securities representing interests in a pool of mortgage
loans are known as collateralized mortgage obligations ("CMOs") and real estate
mortgage investment conduits ("REMICS"). CMOs and REMICs are debt instruments
collateralized by pools of mortgage loans or other mortgage-backed securities.
Multi-class pass-through securities are equity interests in a trust composed of
mortgage loans or other mortgage-backed securities. Payments of principal and
interest on underlying collateral provides the funds to pay debt service or make
scheduled distributions on the multi-class pass-through securities. The Fund
may invest in CMOs, REMICs and multi-class pass-through securities
(collectively, "CMOs" unless the context indicates otherwise) issued by agencies
or instrumentalities of the U.S. Government (such as the Federal Home Loan
Mortgage Corporation) or by Non-Governmental Entities.

CMOs may be issued with a variety of classes or "tranches," which have
different maturities and are often retired in sequence. One or more tranches of
a CMO may have coupon rates which reset periodically at a specified increment
over an index such as the London Interbank Offered Rate. These "Floating Rate
CMOs" typically are issued with lifetime "caps" on their coupon rate, which
means that there is a ceiling beyond which the coupon rate may not be increased.
The coupon rate on some Floating Rate CMOs may change as a multiple of the
change in the relevant interest rate. As a result, any increase in the index
rate may cause a correspondingly greater increase in the coupon rate, and any
decrease in the index rate may cause a correspondingly greater decrease in the
coupon rate of such Floating Rate CMOs. Likewise, changes in the index rate
will have an increased effect on the market value of such Floating Rate CMOs,
although in the opposite direction from the change in the index rate.

REMICS, which have elected to be treated as such under the Internal Revenue
Code, are private entities formed for the purpose of holding a fixed pool of
mortgages secured by an interest in real property. REMICs are similar to CMOs
in that they issue multiple classes of securities. As with other CMOs, the
mortgages which collateralize the REMICs in which a Fund may invest include
mortgages backed by GNMA certificates or other mortgage pass-through securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
and by Non-Governmental Entities.

The average life of securities representing interests in pools of mortgage
loans is likely to be substantially less than the original maturity of the
mortgage pools as a result of prepayments or foreclosures of such mortgages.
Prepayments are passed through to the registered holder with the regular monthly
payments of principal and interest, and have the effect of reducing future
payments. To the extent the mortgages underlying a security representing an
interest in a pool of mortgages are prepaid, the Fund may experience a loss (if
the price at which the security was acquired by the Fund was at a premium over
par, which represents the price at which the security will be redeemed upon
prepayment). In addition, prepayments of such securities held by the Fund will
reduce their par value.

Furthermore, the prices of mortgage-related securities can be significantly
affected by changes in interest rates. Prepayments may occur with greater
frequency in periods of declining mortgage rates because, among other reasons,
it may be possible for mortgagors to refinance their outstanding mortgages at
lower interest rates. In such periods, it is likely that any prepayment
proceeds would be reinvested by the Fund at lower rates of return.

4
<PAGE>

However, rising mortgage rates will normally decrease the price of
mortgage-backed securities. In the case of floating rate CMO's issued with a
coupon rate cap, this decrease will usually accelerate as mortgage rates come
closer to the capped rate. Further, an increase in such rates may affect the
volatility of these securities since it is likely that the prepayment rate will
decrease. In that event, a security that was considered a short-term security
at the time of purchase could effectively be changed into a long-term security,
which generally fluctuates more widely in response to changes in interest rates
than short- or intermediate-term securities.

STRIPS. The Federal Reserve creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the coupon payments and the
principal payment from an outstanding Treasury security and selling them as
individual securities. To the extent the Fund purchases the principal portion
of the STRIPS, the Fund will not receive regular interest payments. Instead
they are sold at a deep discount from their face value. The Fund will accrue
income on such STRIPS for tax and accounting purposes, in accordance with
applicable law, which income is distributable to shareholders. Because no cash
is received at the time such income is accrued, the Fund may be required to
liquidate other Securities to satisfy its distribution obligations. Because the
principal portion of the STRIP does not pay current income, its price can be
volatile when interest rates change. In calculating its dividend, the Fund
takes into account as income a portion of the difference between the principal
portion of the STRIPS's purchase price and its face value.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase
securities on a when-issued or delayed delivery basis, with delivery and payment
for the securities normally taking place 15 to 45 days after the date of the
transaction. Such an agreement to purchase securities is termed a "forward
commitment." The payment obligation and the interest rate that will be
received on the securities are each fixed at the time the buyer enters into
the commitment.

The Fund may enter into such forward commitments if the Fund holds, and
maintains until the settlement date in a segregated account, cash or any
security that is not considered restricted or illiquid, equal to the value of
the when-issued or forward commitment securities and marked to market daily.
There is no percentage limitation on the Fund's total assets which may be
invested in forward commitments. The purchase of securities on a when-issued,
delayed delivery or forward commitment basis exposes the Fund to risk because
the securities may decrease in value prior to their delivery. Purchasing
securities on a when-issued, delayed delivery or forward commitment basis
involves the additional risk that the return available in the market when the
delivery takes place will be higher than that obtained in the transaction
itself. There is also a risk that the securities may not be delivered or that
the Fund may incur a loss or will have lost the opportunity to invest the amount
set aside for such transaction in the segregated asset account. Although the
Fund will generally enter into forward commitments with the intention of
acquiring securities, the Fund may dispose of a commitment prior to settlement
if UBT deems it appropriate to do so. The Fund may realize short-term profits
or losses upon the sale of forward commitments.

U.S. GOVERNMENT AND AGENCY OBLIGATIONS. The Fund may invest in obligations
issued or guaranteed by U.S. Government agencies or instrumentalities. U.S.
Treasury bonds, notes, and bills and some agency securities, such as those
issued by the Federal Housing Administration and the Government National
Mortgage Association (GNMA), are backed by the full faith and credit

5
<PAGE>

of the U.S. Government as to payment of principal and interest and are the
highest quality government securities. Other securities issued by U.S.
Government agencies or instrumentalities, such as securities issued by the
Federal Home Loan Banks and the Federal Home Loan Mortgage Corporation, are
supported only by the credit of the agency that issued them, and not by the
U.S. Government. Securities issued by the Federal Farm Credit System, the
Federal Land Banks, and the Federal National Mortgage Association (FNMA) are
supported by the agency's right to borrow money from the U.S. Treasury under
certain circumstances, but are not backed by the full faith and credit of the
U.S. Government.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS -- GENERAL. The
successful use of these instruments draws upon UBT's skill and experience with
respect to such instruments and usually depends on its ability to forecast
interest rate movements correctly. If interest rates move in an unexpected
manner, the Fund may not achieve the anticipated benefits of futures contracts
or options thereon or may realize losses and thus will be in a worse position
than if such strategies had not been used. In addition, the correlation between
movements in the price of futures contracts or options thereon and movements in
the price of the securities hedged or used for cover will not be perfect and
could produce unanticipated losses.

FUTURES CONTRACTS. The Fund may enter into contracts for the purchase or
sale for future delivery of Fixed-Income Securities or contracts based on
financial indices, including any index of U.S. Government securities, foreign
government securities or corporate debt securities. The Fund also may enter
into futures contracts based on debt securities that are backed by the full
faith and credit of the U.S. Government, such as long-term U.S. Treasury bonds,
U.S. Treasury notes, GNMA modified pass-through mortgage-backed securities
and three-month U.S. Treasury bills, and futures contracts that are based on
bonds issued by entities other than the U.S. Government.

A futures contract is an agreement to buy or sell a security (or deliver a
final cash settlement price in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contracts) for a set price in the future. Futures exchanges and trading in
futures is regulated by the Commodity Futures Trading Commission ("CFTC") under
the Commodity Exchange Act. Futures contracts trade on certain regulated
contracts markets.

When a futures contract is purchased or sold, the Fund must allocate cash
or securities as a deposit payment ("initial margin"). It is expected that the
initial margin will approximately equal 1% to 5% of a contract's face value.
Daily thereafter, the futures contract is valued and the Fund may have to
provide additional margin or may receive back margin based upon declines or
increases in the contract's value ("variation margin").

Positions in the futures markets usually are not held until delivery or
cash settlement is required. Instead, those positions usually are liquidated by
buying (or selling, as the case may be) an offsetting position consisting of an
identical futures contract calling for delivery in the same month. Where it
appears economically beneficial to the Fund, however, the Fund may instead take
delivery of underlying securities. A clearing organization associated with the
exchange on which futures are traded assumes responsibility for closing-out
transactions and guarantees that, as between the clearing members of an
exchange, the sale and purchase

6
<PAGE>

obligations will be performed with regard to all positions that remain open
at the termination of the contract. Since all transactions in the futures
market are made, offset or fulfilled through a clearinghouse associated with
the exchange on which the contracts are traded, the Fund will incur brokerage
fees when it purchases or sells futures contracts.

The purpose of the Fund's acquisition or sale of a futures contract is to
attempt to establish more certainty with respect to the effective rate of return
on its Securities. For example, if interest rates were expected to increase
(which would cause the prices of debt securities to decline), the Fund might
enter into futures contracts for the sale of debt securities. Such a sale would
have much the same effect as selling an equivalent value of the debt securities
owned by the Fund. If interest rates did increase, the value of the debt
securities held by the Fund would decline, but the value of the futures
contracts to the Fund would increase at approximately the same rate. Moreover,
the Fund would be able to use the increase in the value of the futures contracts
to purchase additional interest-bearing instruments, thereby to some extent
reducing any difference that might otherwise develop between the Fund's current
yield and the yield on newly-issued instruments of similar duration and credit
quality.

Similarly, when it is expected that interest rates may decline (thus
increasing the value of debt securities), the Fund may purchase futures
contracts for the acquisition of debt securities to attempt to hedge against
anticipated purchases of debt securities at higher prices. Since the
fluctuations in the value of futures contracts should be similar to those of the
underlying debt securities, the Fund could take advantage of the anticipated
rise in the value of debt securities without actually buying them until the
market had stabilized. To the extent the Fund enters into futures contracts for
this purpose, the assets in the segregated asset account maintained to cover
the Fund's obligations with respect to such futures contracts will consist of
cash, cash equivalents or high quality liquid securities from its portfolio
in an amount equal to the difference between the fluctuating market value of
such futures contracts and the aggregate value of the initial and additional
margin payments made by the Fund with respect to such futures contracts.

The Fund could accomplish similar results by selling debt securities with
long maturities and investing in bonds with short maturities when interest rates
are expected to increase, and by buying debt securities with long maturities and
selling debt securities with short maturities when interest rates are expected
to decline. However, since the futures market may be more liquid than the cash
market, the use of futures contracts as a risk management technique may enable
the Fund to accomplish the same result more effectively and perhaps at a lower
cost.

As noted above, futures contracts entail risk. Although UBT believes that
the use of such contracts will benefit the Fund, if its investment judgment
about the general direction of interest rates is incorrect, the Fund's overall
performance would be poorer than if it had not entered into any such contract.
For example, if the Fund has hedged against the possibility of an increase in
interest rates and interest rates instead decrease, the Fund will lose part or
all of the benefit of the increased value of its debt securities that it has
hedged because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Fund has insufficient cash to meet a daily
additional margin requirement, it may have to sell Securities at a time when it
would be disadvantageous to do so.

7
<PAGE>

OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write (sell)
options on futures contracts for hedging purposes. These options are traded
on exchanges that are licensed and regulated by the CFTC for the purpose of
options trading. A call option on a futures contract gives the purchaser the
right, in return for the premium payment, to purchase a futures contract at a
specified price at any time before the option expires. A put option gives
the purchaser the right, in return for the premium paid, to sell a futures
contract at a specified exercise price at any time before the option expires.

Options on futures contracts can be used by the Fund to hedge the same
risks as might be addressed by the direct purchase or sale of the underlying
futures contracts themselves. Depending on the pricing of the option, compared
to either the futures contract upon which it is based or the price of the
underlying securities themselves, it may or may not be less risky than direct
ownership of the futures contracts or the underlying securities.

In contrast to a futures transaction, in which only transaction costs are
involved, benefits received by the Fund as a purchaser in an option transaction
will be reduced by the amount of the premium paid in addition to transaction
costs. In the event of an adverse market movement, however, the Fund will not
be subject to a risk of loss on the option transaction, other than loss of the
premium paid and transaction costs. Consequently, the Fund may benefit more
from a favorable movement in the value of its Securities than it would have
benefitted if the hedge had been effected through the use of futures.

If the Fund writes call options on futures contracts, the Fund will receive
a premium but will assume a risk of adverse movement in the price of the
underlying futures contract comparable to that involved in holding a futures
position. If the option is not exercised, the Fund will realize a gain in the
amount of the premium, which may partially offset unfavorable changes in the
value of the securities held by, or to be acquired for, the Fund. If the
option is exercised, the Fund will incur a loss in the option transaction.
This loss is reduced by the amount of premium received and may be partially
offset by favorable changes in the value of its Securities.

While the purchaser or writer of an option on a futures contract may
normally terminate its position by selling or purchasing an offsetting option of
the same series, the Fund's ability to establish and close out options positions
at fairly established prices will depend on the existence of a liquid market.
The Fund will not purchase or write options on futures contracts unless, in
UBT's opinion, the market for such options has sufficient liquidity that the
risks associated with such options transactions are not at unacceptable
levels.

The Trustees have adopted a restriction that the Fund will not enter into
any futures contract or option on a futures contract if immediately thereafter
the amount of margin deposits on all the futures contracts held by the Fund and
premiums paid on outstanding options on its futures contracts (other than those
entered into for bona fide hedging purposes) would exceed 5% of market value of
the Fund's total assets.

OPTIONS ON SECURITIES. The Fund may purchase and write (sell) put and call
options. Options have various types of underlying instruments, including
specific securities, indices of securities prices, and futures contracts. By
purchasing a put option, the Fund obtains the right (but not the obligation) to
sell the option's underlying instrument at a fixed "strike" price. In

8
<PAGE>

return for this right, the Fund pays the current market price of the option
(known as the option premium). The Fund may terminate its position in a put
option it has purchased by allowing it to expire or by exercising the option.
If the option is allowed to expire, the Fund will lose the entire premium it
paid. If the Fund exercises the option, it completes the sale of the
underlying instrument at the "strike" price. The Fund also may terminate a
put option position by closing it out in the secondary market at its current
price, if a liquid secondary market exists.

The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price does
not fall enough to offset the cost of purchasing the option, a put buyer can
expect to suffer a loss (limited to the amount of the premium paid, plus related
transaction costs).

The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's "strike"
price. A call buyer typically attempts to participate in potential price
increases of the underlying instrument with risk limited to the cost of the
option if security prices fall. At the same time, the buyer can expect to
suffer a loss if the underlying prices do not rise sufficiently to offset the
cost of the option.

When the Fund writes a put option, it takes the opposite side of the
transaction from the option's purchaser. In return for receipt of the premium,
the Fund assumes the obligation to pay the "strike" price for the option's
underlying instrument if the other party to the option chooses to exercise it.
Therefore, the Fund will assume the risk of loss should the price of the
underlying instrument fall below the exercise price.

Writing a call option obligates the Fund to sell or deliver the option's
underlying instrument, in return for the "strike" price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if the underlying prices remain the same or fall. Through receipt of
the option premium, a call writer mitigates the effects of a price decline.
At the same time, because a call writer must be prepared to deliver the
underlying instrument in return for the "strike" price, even if its current
value is greater, a call writer gives up some ability to participate in the
underlying price increases.

The Fund may purchase and write options in combination with other options,
or in combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, the Fund may
purchase a put option and write a call option on the same underlying instrument,
in order to construct a combined position whose risk and return characteristics
are similar to selling a futures contract. Another possible combined position
would involve writing a call option at one "strike" price and buying a call
option at a lower price, in order to reduce the risk of the written call option
in the event of a substantial price increase. Because combined options
positions involve multiple trades, they result in higher transaction costs and
may be more difficult to open and close out.

The Fund may write (sell) covered call and put options on its Securities
("covered options") to a limited extent in an attempt to increase income.
However, the Fund may forgo the benefits of appreciation on securities sold or
may pay more than the market price on securities

9
<PAGE>

acquired pursuant to call and put options it writes. A call option written
by a Fund is "covered" if the Fund owns the underlying security covered by
the call or has an absolute and immediate right to acquire that security
without additional cash consideration (or for additional cash consideration
held in a segregated account by its custodian) upon conversion or exchange of
other securities held in its portfolio. A call option is also covered, if
the Fund holds a call option on the same security and in the same principal
amount as the written call option where the exercise price of the call option
so held (a) is equal to or less than the exercise price of the written call
option or (b) is greater than the exercise price of the written call option
if the difference is maintained by the Fund in cash, U.S. Government
securities and other high quality liquid securities in a segregated account
with its custodian.

If a covered call option expires unexercised, the Fund will realize income
in an amount equal to the premium received for writing the option. If the
option is exercised, a decision over which the Fund has no control, the Fund
must sell the underlying security to the option holder at the exercise price.
By writing a covered call option, the Fund forgoes, in exchange for the net
premium, the opportunity to profit during the option period from an increase in
the market value of the underlying security above the exercise price.

If a put option expires unexercised, the Fund will realize income in the
amount of the net premium received for writing the option. If the put option is
exercised, a decision over which the Fund has no control, the Fund must purchase
the underlying security from the option holder at the exercise price. By
writing a put option, the Fund, in exchange for the net premium, accepts the
risk of a decline in the market value of the underlying security below the
exercise price. The Fund will only write put options involving securities for
which a determination is made at the time the option is written that the Fund
wishes to acquire securities at the exercise price.

The writing of covered call options may be deemed to involve the pledge of
the securities against which the option is being written. Securities against
which call options are written will be segregated on the books of the custodian
for the Fund.

The Fund may purchase call and put options on any securities in which it
may invest. The Fund would normally purchase a call option in anticipation of
an increase in the market value of such securities. The Fund would normally
purchase put options in anticipation of a decline in the market value of
securities in its portfolio ("protective puts") or securities of the type in
which it is permitted to invest. The purchase of protective puts is designed
merely to offset or hedge against a decline in the market value of the Fund's
holdings.

Put options also may be purchased by the Fund to seek to benefit from a
decline in the price of securities that the Fund does not own. The Fund would
ordinarily recognize a gain if the value of the securities decreased below the
exercise price sufficiently to cover the premium and would recognize a loss if
the value of the securities remained at or above the exercise price. Gains and
losses on the purchase of protective put options would tend to be offset by
countervailing changes in the value of underlying Securities.

The Fund has adopted certain non-fundamental policies concerning option
transactions that are discussed below. The Fund's activities in options may also
be restricted by the requirements

10
<PAGE>

of the Internal Revenue Code of 1986, as amended (the "Code"), for
qualification as a regulated investment company.

The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. If the option markets close
before the markets for the underlying securities, significant price and rate
movements can take place in the underlying securities markets that will not be
reflected in the option markets. It is impossible to predict the volume of
trading that may exist in such options, and there can be no assurance that
viable exchange markets will develop or continue.

The Fund may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately ten
broker-dealers, including several of the largest primary dealers in U.S.
Government securities, make these markets. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions, because the predominant market is the issuing broker rather
than an exchange and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. To reduce this risk, the
Fund will purchase such options only from broker-dealers who are primary U.S.
Government securities dealers recognized by the Federal Reserve Bank of New York
and who agree to (and are expected to be capable of) entering into closing
transactions, although there can be no guarantee that any such option will be
liquidated at a favorable price prior to expiration. UBT will monitor the
creditworthiness of dealers with whom the Fund enters into such options
transactions under the general supervision of the Trustees.

CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match a Fund's current or anticipated
investments exactly. The Fund may invest in options and futures contracts
based on securities with different issuers, maturities, or other
characteristics from the securities in which it typically invests.

Options and futures prices also can diverge from the prices of their
underlying instruments even if the underlying instruments match the Fund's
investment well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect the security prices the same way. Imperfect correlation
also may result from: differing levels of demand in the options and futures
markets and the securities markets, structural differences in how options and
futures and securities are traded, or imposition of daily price fluctuation
limits or trading halts. The Fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to hedge
or intends to purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this may not be
successful in all cases. If price changes in the Fund's options or futures
positions are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not offset by
gains in other investments.

LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract at
any particular time. Options may have relatively low trading volume, thereby
impacting their liquidity. Additionally, options

11
<PAGE>

and futures contracts are subject to price fluctuation limits. On volatile
trading days when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible for the Fund to enter into new positions or
close out existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could prevent
prompt liquidation of unfavorable positions, and potentially could require
the Fund to continue to hold a position until delivery or expiration
regardless of changes in its value. As a result, the Fund's access to other
assets held to cover its options or futures positions also could be impaired.

OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward currency exchange contracts, except that they
are traded on exchanges (and have margin requirements) and are standardized as
to contract size and delivery date. Most currency futures contracts call for
payment or delivery in U.S. dollars. The underlying instrument of a currency
option may be a foreign currency, which generally is purchased or delivered in
exchange for U.S. dollars, or may be a futures contract. The purchaser of a
currency call obtains the right to purchase the underlying currency, and the
purchaser of a currency put obtains the right to sell the underlying currency.

The uses and risks of currency options and futures are similar to
options and futures relating to securities or indices, as discussed above.
The Fund may purchase and sell currency futures and may purchase and write
currency options to increase or decrease its exposure to different foreign
currencies. The Fund also may purchase and write currency options in
conjunction with each other or with currency futures or forward contracts.
Currency futures and options values can be expected to correlate with
exchange rates, but may not reflect other factors that affect the value of
the Fund's investments. A currency hedge, for example, should protect a
Yen-denominated security from a decline in the Yen, but will not protect the
Fund against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of the Fund's foreign-denominated
investments change in response to many factors other than exchange rates, it
may not be possible to match the amount of currency options and futures to
the value of the Fund's investments exactly over time.

SWAPS. A swap is an agreement to exchange the return generated by one
instrument for the return generated by another instrument. The payment streams
are calculated by reference to a specified index and agreed upon single or
periodic fixed amounts. Swaps may be based on currency indices, fixed interest
rates, price indices, total return on interest rate indices, fixed income
indices, stock indices and commodity indices (as well as amounts derived from
arithmetic operations on these indices). The currency swaps in which the Fund
may enter will generally involve an agreement to pay interest streams in one
currency based on a specified index in exchange for receiving interest streams
denominated in another currency. Such swaps may involve initial and final
exchanges that correspond to the agreed upon notional amount.

The Fund may engage in swaps under which one party pays a single or
periodic fixed amount or an amount based upon a specified index, and the other
party pays a periodic amount based on the movement of another specified
index. Swaps do not involve the delivery of securities, other underlying
assets, or principal. Accordingly, the risk of loss under a swap is limited
to the net amount of payments that the Fund is contractually obligated to
make. If the other party to a swap defaults, the Fund's risk of loss
consists of the net amount of payments that the Fund contractually is
entitled to receive. Currency swaps usually involve the delivery of the
entire principal value of one designated currency in

12
<PAGE>

exchange for the other designated currency. Therefore, the entire principal
value of a currency swap is subject to the risk that the swap counterparty
will default on its contractual delivery obligations. If a swap counterparty
defaults, the Fund may have contractual remedies pursuant to the agreements
related to the transaction.

The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become more liquid. Certain swap transactions involve more recent innovations
for which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than traditional swap transactions.

The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. The Fund's obligations under a
swap agreement (offset against any amounts owing to the Fund) will be accrued
daily.

Swaps are subject to the risk that the swap counterparty may not fulfill
its obligations under the swap agreement. Accordingly, the Board of Trustees
have established credit guidelines for the Fund governing the selection of swap
counterparties. These guidelines establish a minimum credit rating for each
swap counterparty and provide for certain credit enhancement techniques (for
example, collateralization of amounts due from swap counterparties) to limit
exposure to counterparties that have a S&P rating below A.

The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary securities
transactions. If UBT is incorrect in its forecasts of market values, interest
rates, and currency exchange rates, the investment performance of the Fund would
be less favorable than it would have been if this investment technique were not
used.

ASSET COVERAGE FOR SWAPS, FUTURES, AND OPTIONS POSITIONS. The Fund will
comply with guidelines established by the Securities and Exchange Commission
with respect to coverage of options and futures by mutual funds, and if the
guidelines so require will segregate cash or U.S. Government securities or other
high-grade liquid debt securities in the amount prescribed. To the extent that
any accrued but unpaid net amounts are owed to a swap counterparty, the Fund may
also segregate assets as described above to cover such amounts and thereby avoid
potential leveraging of the Fund. To the extent that the Fund enters into swaps
for hedging purposes, the Fund believes that such obligations do not constitute
"senior securities" under the 1940 Act and, accordingly, will not treat them as
being subject to the Fund's borrowing restrictions. In the event a large
percent of the Fund's assets are segregated for coverage of futures and options
positions, the Fund's ability to meet redemption requests or other current
obligations could be adversely affected.

FOREIGN SECURITIES. The Fund may invest in foreign fixed income
securities. Foreign fixed income securities include corporate debt obligations
issued by foreign companies and debt obligations of foreign governments or
international organizations. This category may include floating rate
obligations, variable rate obligations, Yankee dollar obligations (U.S. dollar

13
<PAGE>

denominated obligations issued by foreign companies and traded on U.S. markets)
and Eurodollar obligations (U.S. dollar denominated obligations issued by
foreign companies and traded on foreign markets).

Foreign government obligations generally consist of debt securities
supported by national, state or provincial governments or similar political
units or governmental agencies. Such obligations may or may not be backed by
the national government's full faith and credit and general taxing powers.
Investments in foreign fixed income securities also include obligations
issued by international organizations. International organizations include
entities designated or supported by governmental entities to promote economic
reconstruction or development as well as international banking institutions
and related government agencies. Examples are the International Bank for
Reconstruction and Development (the World Bank), the European Coal and Steel
Community, the Asian Development Bank and the InterAmerican Development Bank.
In addition, investments in foreign fixed income securities may include debt
securities denominated in multinational currency units of an issuer
(including international issuers). An example of a multinational currency
unit is the European Currency Unit. A European Currency Unit represents
specified amounts of the currencies of certain member states of the European
Economic Community, more commonly known as the Common Market.

Purchases of foreign fixed income securities are usually made in foreign
currencies and, as a result, the Fund may incur currency conversion costs and
may be affected favorably or unfavorably by changes in the value of foreign
currencies against the U.S. dollar. In addition, there may be less information
publicly available about a foreign company than about a U.S. company, and
foreign companies are not generally subject to accounting, auditing and
financial reporting standards and practices comparable to those in the U.S.
Other risks associated with investments in foreign fixed income securities
include changes in restrictions on foreign currency transactions and rates of
exchanges, changes in the administrations or economic and monetary policies of
foreign governments, the imposition of exchange control regulations, the
possibility of expropriation decrees and other adverse foreign governmental
action, the imposition of foreign taxes, less liquid markets, less government
supervision of exchanges, brokers and issuers, difficulty in enforcing
contractual obligations, delays in settlement of securities transactions and
greater price volatility. In addition, investing in foreign fixed income
securities will generally result in higher commissions than investing in similar
domestic securities.

INVESTMENT RESTRICTIONS

The following investment restrictions are deemed "fundamental policies."
They may be changed only by the vote of a "majority of the outstanding voting
securities" of the Fund. "Majority of the outstanding voting securities" under
the 1940 Act, and as used in this Statement of Additional Information means,
with respect to the Fund, the lesser of: (i) 67% or more of the outstanding
voting securities of the Fund present at a shareholders' meeting, if more than
50% of the outstanding voting securities of the Fund are represented at the
meeting in person or by proxy or (ii) more than 50% of the outstanding voting
securities of the Fund. Other investment practices which may be changed by the
Board of Trustees without the approval of shareholders to the extent permitted
by applicable law, regulation or regulatory policy are deemed "non-fundamental
policies."

14
<PAGE>

FUNDAMENTAL.

(1) BORROWING MONEY. The Fund will not borrow money in an amount
exceeding 33-1/3% of the total assets of the Fund. This limitation does
not preclude the Fund from entering into securities lending and reverse
repurchase transactions, provided that the Fund has an asset coverage of
300% for all borrowings.

(2) SENIOR SECURITIES. The Fund will not issue senior securities.
This limitation is not applicable to activities that may be deemed to
involve the issuance or sale of a senior security by the Fund, provided
that the Fund's engagement in such activities is consistent with or
permitted by the Investment Company Act of 1940, as amended, the rules and
regulations promulgated thereunder or interpretations of the Securities and
Exchange Commission or its staff.

(3) UNDERWRITING. The Fund will not act as underwriter of securities
issued by other persons. This limitation is not applicable to the extent
that, in connection with the disposition of Securities (including
restricted securities), the Fund may be deemed an underwriter under certain
securities laws.

(4) REAL ESTATE. The Fund will not purchase or sell real estate.
This limitation is not applicable to investments in securities secured by
real estate or interests therein.

(5) COMMODITIES. The Fund will not purchase or sell physical
commodities unless acquired as a result of ownership of securities or other
investments. This limitation does not preclude the Fund from purchasing or
selling options or futures contracts.

(6) LOANS. The Fund will not make loans to other persons, except,
(a) by loaning Securities, (b) by engaging in repurchase agreements, or
(c) by purchasing nonpublicly offered debt securities. For purposes of
this limitation, the term "Loans" shall not include the purchase of a
portion of an issue of publicly distributed bonds, debentures or other
securities.

(7) CONCENTRATION. The Fund will not concentrate its investments in
any particular industry, but if it is deemed appropriate for the Fund's
investment objective, up to 25% of its total assets may be invested in any
one industry. In addition, with respect to 75% of the Fund's total assets,
the Fund (a) will not purchase securities of any issuer if such purchase at
the time thereof would cause the Fund to hold more than 10% of any class of
securities of such issuer (for which purpose all indebtedness of an issuer
shall be deemed a single class), except that options and futures contracts
shall not be subject to this restriction; and (b) will not invest more than
5% of its assets in the securities of any one issuer. These limitations
are not applicable to investments in obligations issued or guaranteed by
the U.S. Government, its agencies and instrumentalities or repurchase
agreements with respect thereto.

With respect to the percentages adopted by the Trust as maximum limitations
on its investment policies and limitations, an excess above the fixed percentage
will not be a violation of the policy or limitation unless the excess results
immediately and directly from the acquisition

15
<PAGE>

of any security or the action taken. This paragraph does not apply to the
borrowing policy set forth in paragraph (1) above.

Notwithstanding any of the foregoing limitations, any investment
company, whether organized as a trust, association or corporation, or a
personal holding company, may be merged or consolidated with or acquired by
the Trust, provided that if such merger, consolidation or acquisition results
in an investment in the securities of any issuer prohibited by said
paragraphs, the Trust shall, within ninety days after the consummation of
such merger, consolidation or acquisition, dispose of all of the securities
of such issuer so acquired or such portion thereof as shall bring the total
investment therein within the limitations imposed by said paragraphs above as
of the date of consummation.

NON-FUNDAMENTAL. The following limitations have been adopted by the Trust
with respect to the Fund and are Non-Fundamental (these restrictions may be
changed by a vote of the Trustees of the Trust as applicable without shareholder
approval):

(i) PLEDGING. The Fund will not mortgage, pledge, hypothecate
or in any manner transfer, as security for indebtedness, any assets of
the Fund except as may be necessary in connection with borrowings
described in limitation (1) above. Margin deposits, security
interests, liens and collateral arrangements with respect to
transactions involving options, futures contracts, short sales,
securities lending, repurchase agreements and other permitted
investments and techniques are not deemed to be a mortgage, pledge or
hypothecation of assets for purposes of this limitation.

(ii) MARGIN PURCHASES. The Fund will not purchase securities or
evidences of interest thereon on "margin." This limitation is not
applicable to short term credit obtained by the Fund for the clearance
of purchases and sales or redemption of securities, or to arrangements
with respect to transactions involving options, futures contracts,
short sales and other permitted investments and techniques.

(iii) SHORT SALES. The Fund will not effect short sales of
securities unless it owns or has the right to obtain securities
equivalent in kind and amount to the securities sold short.

(iv) INVESTMENT COMPANY PURCHASES. The Fund will not purchase
securities issued by any investment company except to the extent
permitted by the 1940 Act, except that this limitation does not apply
to securities received or acquired as dividends, through offers of
exchange, or as a result of reorganization, consolidation or merger.

(v) ILLIQUID INVESTMENTS. The Fund will not invest more than
15% of its net assets in securities that are illiquid or not readily
marketable (excluding Rule 144A securities deemed by the Board of
Trustees to be liquid).

16
<PAGE>

An investment restriction will not be considered violated if that
restriction is complied with at the time the relevant action is taken,
notwithstanding a later change in the market value of an investment,
in net or total assets or in a change in the credit rating of the
investment or any other later change.

PORTFOLIO TURNOVER

Fund transactions will be undertaken principally to accomplish the Fund's
objectives. Securities may be sold in anticipation of a market decline (a rise
in interest rates) or purchased in anticipation of a market rise (a decline in
interest rates) and later sold. In addition, a Security may be sold and another
purchased at approximately the same time to take advantage of what UBT believes
to be a temporary disparity in the normal yield relationship between the two
securities. Yield disparities may occur for reasons not directly related to the
investment quality of particular issues or the general movement of interest
rates, due to such factors as changes in the overall demand for or supply of
various types of securities or changes in the investment objectives of
investors.

The Fund will not seek to realize profits by anticipating short-term market
movements and intends to purchase Securities (other than Cash Account Assets)
for long-term investment. Under ordinary circumstances, Securities will be held
for more than one year. While the rate of portfolio turnover will not be a
limiting factor when UBT deems changes appropriate, it is anticipated that given
the Fund's investment objective its annual portfolio turnover rate should not
generally exceed 50%.

FUND TRANSACTIONS AND BROKERAGE ALLOCATION

Subject to policies established by the Board of Trustees, UBT is
responsible for decisions to buy and sell securities, futures contracts and
options thereon for the Fund, the selection of brokers, dealers and futures
commission merchants to effect transactions and the negotiation of brokerage
commissions, if any. Broker-dealers and futures commission merchants may
receive brokerage commissions on portfolio transactions, including options,
futures contracts and options on futures transactions and the purchase and
sale of underlying securities upon the exercise of options. Orders may be
directed to any broker-dealer or futures commission merchant. Purchases and
sales of certain Securities on behalf of the Fund may be placed by UBT with
the issuer or a primary or secondary market-maker for these securities on a
net basis, without any brokerage commission being paid by the Fund. Trading
does, however, involve transaction costs. Transactions with dealers serving
as market-makers reflect the spread between the bid and asked prices.
Transaction costs may also include fees paid to third parties for information
as to potential purchasers or sellers of securities. Purchases of
underwritten issues may be made that will include an underwriting fee paid to
the underwriter.

UBT seeks to evaluate the overall reasonableness of the brokerage
commissions paid (to the extent applicable) in placing orders for the
purchase and sale of securities for the Fund taking into account such factors
as price, commission (negotiable in the case of national securities exchange
transactions), if any, size of order, difficulty of execution and skill
required of the executing broker-dealer through its familiarity with
commissions charged on comparable transactions, as well as by comparing
commissions paid by the Fund to reported commissions paid by others.

17
<PAGE>

UBT reviews on a routine basis commission rates, execution and settlement
services performed, and makes internal and external comparisons.

UBT is authorized, consistent with Section 28(e) of the Securities
Exchange Act of 1934, as amended, when placing portfolio transactions for the
Fund with a broker or dealer to pay a commission (to the extent applicable)
in excess of that which another broker or dealer might have charged for
effecting the same transaction, in recognition of the receipt of brokerage or
research services from such broker or dealer. The term "brokerage and
research services" means (a) advice, either directly or through publications
or writings, as to (i) the value of securities, (ii) the advisability of
investing in, purchasing or selling securities, and (iii) the availability of
securities or purchasers or sellers of securities; (b) furnishing analyses
and reports concerning issuers, industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts; or (c) effecting
securities transactions and performing functions incidental thereto (such as
clearance, settlement and custody) or required in connection therewith by
applicable SEC or SRO rule. Higher commissions may be paid to firms that
provide brokerage and research services to the extent permitted by law. UBT
may use this research information in managing the Fund's assets, as well as
the assets of other clients.

Consistent with the policy stated above, the Conduct Rules of the National
Association of Securities Dealers, Inc. and such other policies as the Board of
Trustees may determine, UBT may consider sales of shares of the Fund and of
other investment company clients of UBT as a factor in the selection of
broker-dealers to execute portfolio transactions. UBT will make such
allocations if commissions are comparable to those charged by nonaffiliated,
qualified broker-dealers for similar services.

Except for implementing the policies stated above, there is no intention to
place portfolio transactions with particular brokers or dealers or groups
thereof. In effecting transactions in over-the-counter securities, orders are
placed with the principal market-makers for the security being traded unless,
after exercising care, it appears that more favorable results are available
otherwise.

Although certain services obtained from brokers and dealers can be useful
to the Fund and to UBT, it is the opinion of the Fund's management that such
information is only supplementary to UBT's own research effort, since the
information must still be analyzed, weighed and reviewed by UBT's staff. Such
information may be useful to UBT in providing services to clients other than the
Fund, and not all such information is used by UBT in connection with the Fund.
Conversely, such information provided to UBT by brokers and dealers through whom
other clients of UBT effect securities transactions may be useful to UBT in
providing services to the Fund.

In certain instances there may be securities that are suitable for the
Fund, as well as for one or more of UBT's other clients. Investment decisions
for the Fund and for UBT's other clients are made with a view to achieving their
respective investment objectives. It may develop that a particular security is
bought or sold for only one client even though it might be held by, or bought or
sold for, other clients. Likewise, a particular security may be bought for one
or more clients when one or more clients are selling that same security. Some
simultaneous transactions are inevitable when several clients receive investment
advice from the same investment adviser, particularly when the same security is
suitable for the investment objectives

18
<PAGE>

of more than one client. When two or more clients are simultaneously engaged
in the purchase or sale of the same security, the securities are allocated
between (among) clients in a manner believed to be equitable to each. It is
recognized that in some cases this system could have a detrimental effect on
the price or volume of the security as far as the Fund is concerned.
However, it is believed that the ability of the Fund to participate in volume
transactions will produce better executions for the Fund.

MANAGEMENT OF THE FUND

ORGANIZATION OF THE TRUST

The Fund was organized as a separate series of the Trust. The Trust is an
open-end investment company established under the laws of Delaware by an
Agreement and Declaration of Trust dated September 24, 1997 (the "Declaration of
Trust"). The Declaration of Trust permits the Trustees to issue an unlimited
number of shares of beneficial interest of separate series without par value.

Shares of the Trust do not have cumulative voting rights or any preemptive
or conversion rights, and the Trustees have the authority from time to time to
divide or combine the shares of any series into a greater or lesser number of
shares of that series so long as the proportionate beneficial interest in the
assets belonging to that series and the rights of shares of any other series are
in no way affected. In case of any liquidation of a series, the holders of
shares of the series being liquidated will be entitled to receive as a class a
distribution out of the assets, net of the liabilities, belonging to that
series. Expenses attributable to any series are borne by that series.

Any general expenses of the Trust not readily identifiable as belonging to
a particular series are allocated by or under the direction of the Trustees in
such manner as the Trustees determine to be fair and equitable. No shareholder
is liable to further calls or assessment by the Trust without his, her or its
express consent.

TRUSTEES AND OFFICERS

The names, addresses, principal occupations and other affiliations of the
Trustees and executive officers of the Trust, during the past five years are set
forth below. Each Trustee who is an "interested person" of the Trust, as
defined in the Investment Company Act of 1940, is indicated by an asterisk.

19
<PAGE>

POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS AGE THE FUND DURING PAST 5 YEARS
- - - ---------------- --- ------------- --------------------

Harold H. Morley* 54 President and President and Chief
5665 S.W. Meadows Rd. Trustee Executive Officer of
Suite 400 Morley Financial
Lake Oswego, OR 97035 Services, Inc.;
President and Chief
Executive Officer of
Morley Capital
Management, Inc.;
President and Chief
Executive Officer of
Union Bond & Trust
Company

Joan K. Hall 43 Secretary Senior Vice President
5665 S.W. Meadows Rd. and Corporate Secretary
Suite 400 of Morley Financial
Lake Oswego, OR 97035 Services, Inc.; Senior
Vice President,
Financial Officer and
Corporate Secretary of
Morley Capital
Management, Inc.; Senior
Vice President,
Financial Officer and
Corporate Secretary of
Union Bond & Trust
Company

Frederick F. Fletcher 46 Treasurer Controller of Morley
5665 S.W. Meadows Rd. Financial Services,
Suite 400 Inc.; Corporate
Lake Oswego, OR 97035 Controller of Morley
Capital Management,
Inc.; Corporate
Controller of Union Bond
& Trust Company
Self-employed accountant
from 1994-1997; Director
of Sales for Evergreen
International from
1986-1994.

Donald W. Magnusen 55 Prospective Trustee Senior Partner, Veber &
4380 S.W. Macadam Ave. Partners; President of
Portland, OR 97219 Breezley Investment Co.
from 1994 to 1996;
Executive Vice President
of U.S. Bancorp from
1960 to 1994

Jan W. Jansen 51 Prospective Trustee President of Strand,
720 S.W. Washington St. Atkinson, Williams &
Suite 610 York; Vice President
Portland, OR 97205 and Manager of U.S.
Bancorp from 1988 to
1994

The estimated compensation to be paid to the Trustees of the Trust for the
fiscal year ending December 31, 1998, is set forth in the following table.

20
<PAGE>

ESTIMATED ANNUAL
COMPENSATION
NAME FROM THE FUND
---- ----------------
Harold H. Morley $0.00
Jan W. Jansen $10,000.00
Donald W. Magnusen $10,000.00

The Trust does not have any pension or retirement plans. As of
___________________, 1997, the Trustees and officers of the Trust and the Fund
owned in the aggregate less than 1% of the shares of the Fund. As of the
Effective Date of the Fund's Registration Statement, UBT owns 100% of the Fund's
Shares by virtue of its purchase of $100,000 of Fund Shares in connection with
the establishment of the Fund. UBT may, from time to time, purchase Fund Shares
for certain of its collective trust funds. UBT will be deemed to having voting
control of the Fund until purchases of Fund Shares by unaffiliated persons
results in their ownership of more than 75% of the Fund's Shares.

INVESTMENT ADVISORY AND OTHER SERVICES

GENERAL. Under the terms of the Trust's investment advisory agreement with
UBT dated _________________, 1997 (the "Advisory Agreement"), UBT manages the
Fund subject to the supervision and direction of the Board of Trustees. UBT
will: (i) act in strict conformity with the Declaration of Trust, the 1940
Act and the Investment Advisers Act of 1940, as the same may from time to
time be amended; (ii) manage the Fund in accordance with the Fund's
investment objectives, restrictions and policies; (iii) make investment
decisions for the Fund; and (iv) place purchase and sale orders for
securities and other financial instruments on behalf of the Fund.

UBT bears all expenses in connection with the performance of services under
the Advisory Agreement. Subject to the Expense Limitation Agreement, the Trust
and the Fund bear certain other expenses and costs incurred in its operation,
including: taxes, interest, brokerage fees and commissions, if any; fees of
Trustees of the Trust who are not officers, directors or employees of UBT, First
Financial Company or any of their affiliates; SEC fees and state Blue Sky
qualification fees; charges of custodians and transfer and dividend disbursing
agents; certain insurance premiums; outside auditing and legal expenses; costs
of maintenance of corporate existence; costs attributable to investor services,
including, without limitation, telephone and personnel expenses; costs of
preparing and printing prospectuses and statements of additional

21
<PAGE>

information for regulatory purposes and for distribution to existing
shareholders; costs of shareholders' reports and meetings of shareholders,
officers and Trustees of the Trust, and any extraordinary expenses.

As of ________________________, 1997, the Fund had not commenced investment
operations and had not incurred investment advisory fees.

UBT has informed the Fund that, in making its investment decisions, it
does not obtain or use material inside information in its possession or in
the possession of any of its affiliates. In making investment
recommendations for the Fund, UBT will not inquire or take into consideration
whether an issuer of securities proposed for purchase or sale by the Fund is
a customer of UBT, its parent or its affiliates and, in dealing with its
customers, UBT, its parent and affiliates will not inquire or take into
consideration whether securities of such customers are held by any fund
managed by UBT or any such affiliate.

CONTROL AND MANAGEMENT OF INVESTMENT ADVISER. Morley Financial Services,
Inc. ("MFS") owns 100% of the issued and outstanding voting securities of UBT.
MFS is a corporation organized under the laws of the State of Oregon. MFS is a
holding company which also owns 100% of the issued and outstanding voting
securities of Morley Capital Management, Inc. ("Morley Capital"). Morley
Capital is a corporation organized under the laws of the State of Oregon.
Morley Capital is a registered investment adviser which manages money for
corporate, government, Taft Hartley, and bank intermediary clients on a national
basis. Morley Capital currently has approximately $6.5 billion under
management.

As of September 15, 1997, virtually all of MFS' issued and outstanding
voting securities were owned by Harold H. Morley (who is President and Chief
Executive Officer of MFS, Morley Capital, and UBT), the MFS Employee
Stock Ownership Plan ("ESOP"), and Pacific Life Insurance Company ("Pacific
Life"). Pursuant to the terms of a Voting Agreement, Mr. Morley has the
ability to vote the shares held by Pacific Life. As a result of his
ownership of shares in MFS and the Voting Agreement, Mr. Morley has the power
to vote the majority of MFS' voting securities. Mr. Morley may be deemed to
be a controlling person of UBT due to his ownership of shares in MFS, his
power to vote Pacific Life's shares in MFS, and his positions of President
and Chief Executive Officer of UBT. Pacific Life and the ESOP may also be
deemed to be controlling persons by virtue of their ownership of shares in
MFS.

Pacific Life, a California stock life insurance company founded in 1868,
offers a complete portfolio of life, health, and retirement plans for
individuals and businesses. Pacific Life is duly licensed to conduct insurance
operations in the District of Columbia and every state except New York.

Pacific Life has been a provider of stable value insurance and investment
products since 1941. Pacific Life has a claims paying ability rating of Aa3
from Moody's and AA+ from S&P. As of December 31, 1996, Pacific Life and its
affiliates had approximately $135 billion in total assets and funds under
management.

UBT is the investment adviser to the Fund. UBT is a state bank and trust
company chartered in 1913 and reorganized under the laws of the state of Oregon
in 1992.

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<PAGE>

UBT provides a range of investment and fiduciary services to institutional
clients. UBT maintains and manages common and pooled trust funds invested
primarily in fixed income assets whose principal value is relatively stable.
UBT currently has approximately $1.0 billion under management. UBT also acts
as custodian with respect to similar fixed income assets.

Notwithstanding Pacific Life's ownership interest in MFS, MFS and its
subsidiaries are operated completely independently of Pacific Life. While
Pacific Life has two representatives on MFS' Board of Directors (out of nine
directors), Pacific Life and MFS otherwise have their own directors, officers,
and employees, each is separately capitalized, and each maintains its own
separate books and records and operates as an independent profit center.

INVESTMENT ADVISORY AGREEMENT. UBT acts as investment adviser to the Fund
pursuant to the terms of the Advisory Agreement. The Advisory Agreement
provides certain limitations on UBT's liability, but also provides that UBT
shall not be protected against any liability to the Fund or its shareholders by
reason of wilful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard of its duties or
obligations thereunder.

As compensation for its services, the Fund is obligated to pay UBT a fee
computed and accrued daily and paid monthly at an annual rate of 0.35% of the
average daily net assets of the Fund. UBT has agreed voluntarily to waive 0.10%
of that fee. In addition, in the interest of limiting the expenses of the Fund,
UBT has entered into an expense limitation agreement with the Fund ("Expense
Limitation Agreement"). Pursuant to the Expense Limitation Agreement, UBT has
agreed to waive or limit its fees and to assume other expenses (except for Rule
12b-1 Fees) to the extent necessary to limit the total annual operating expenses
of each Class of the Fund (expressed as a percentage of average daily net assets
and excluding Rule 12b-1 Fees) to no more than 0.40% for Class A, 0.40% for
Class B and 0.75% for Class C of the Fund. Reimbursement by the Fund of the
advisory fees waived or limited and other expenses reimbursed by UBT pursuant to
the Expense Limitation Agreement may be made at a later date when the Fund has
reached a sufficient asset size to permit reimbursement to be made without
causing the total annual operating expense ratio of the Fund to exceed the
limits set forth above. No reimbursement will be made unless: (i) the Fund's
assets exceed $100 million; (ii) the total annual expense ratio of the Class
making such reimbursement is less than the limit set forth above; and (iii) the
payment of such reimbursement is approved by the Board of Trustees on a
quarterly basis. Except as provided for in the Expense Limitation Agreement,
reimbursement of amounts previously waived or assumed by UBT is not permitted.

The continuance of the Advisory Agreement after the first two years must be
specifically approved at least annually (i) by the Board of Trustees or by vote
of a majority of the Fund's outstanding voting securities and (ii) by the
affirmative vote of a majority of the Trustees who are not parties to the
agreement or interested persons of any such party by votes cast in person at a
meeting called for such purpose. The Advisory Agreement may be terminated (i)
at any time without penalty by the Fund upon the vote of a majority of the
Trustees or by vote of the majority of the Fund's outstanding voting securities
upon 60 days' written notice to UBT or (ii) by UBT at any time without penalty
upon 60 days' written notice to the Fund. The Advisory Agreement will also
terminate automatically in the event of its assignment (as defined in the 1940
Act).

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<PAGE>

ADMINISTRATOR. Under the Administration and Services Agreement, UBT is
obligated to oversee the administration of the Fund's business and affairs
and provide certain services required for effective administration of the
Fund. UBT will supply and maintain office facilities (which may be in UBT's
own offices); assist the Fund in selecting, coordinating the activities of,
supervising and acting as liaison with any other person or agent engaged by
the Fund, including the Fund's depository agent or sub-custodian, consultants,
transfer agent, sub-transfer agents, intermediaries with respect to mutual
fund alliance programs, dividend disbursing agent, sub-administrator,
independent accountants, and independent legal counsel; maintain customary
books and records on behalf of the Fund with respect to its own activities,
and monitor and oversee the performance of any agents providing service to
the Fund to ensure that all financial, accounting, corporate, and other
records required to be maintained and preserved by the Fund or on its behalf
will be maintained in accordance with applicable laws and regulations;
monitor and review activities and procedures of the Fund and its agents in
order to identify and seek to obtain possible service improvements and cost
reductions; assist in developing, reviewing, maintaining, and monitoring the
effectiveness of Fund accounting and compliance policies and procedures,
including portfolio valuation procedures, expense allocation procedures,
personal trading procedures, and the Fund's Code of Ethics; assist in
developing, implementing, and monitoring the Fund's use of automated systems
for the purchase, sale, redemption and transfer of Fund Shares and the
payment of Rule 12b-1 fees to broker-dealers and others that provide personal
services, distribution support services, and/or account maintenance services
to shareholders, and for recording and tracking such transactions and/or
payments; furnish to or place at the disposal of the Fund such information,
reports, evaluations, analyses, and opinions relating to its administrative
functions and the administrative functions performed by the
Sub-Administrator, as the Fund may, at any time or from time to time,
reasonably request or as UBT may deem helpful to the Fund; provide
appropriate assistance in the development and/or preparation of all reports
and communications by the Fund to Fund shareholders and all reports and
filings necessary to maintain the registrations and qualifications of the
Fund's Shares under federal securities law; and respond to all inquiries from
Fund shareholders or otherwise answer communications from Fund shareholders
if such inquiries or communications are directed to UBT.

Under the Administrative Services Agreement, UBT is entitled to an annual
fee of 0.25% of average daily net assets, of which it has agreed to waive 0.10%.
As of __________________, 1997, the Fund had not commenced investment operations
and had not incurred administrative services fees.

SUB-ADMINISTRATOR. Prior to the effective date of the registration
statement, UBT shall appoint a Sub-Administrator to assist UBT in connection
with UBT's duties and responsibilities to the Fund under the Administration and
Services Agreement. Generally, the Sub-Administrator shall perform or supervise
the performance by others of all administrative services in connection with the
operation of the Fund, other than those administrative services to be performed
by UBT. The services to be provided by the Sub-Administrator shall include
general administrative services, regulatory reporting services and fund
accounting services.

CUSTODIAN. UBT, whose address is 5665 SW Meadows Rd., Suite 400, Lake
Oswego, Oregon 97305, serves as Custodian for the Trust pursuant to the
Custodian Agreement. As

24
<PAGE>

Custodian, it holds the Fund's assets, collects all income and other payments
with respect thereto, disburses funds at the Fund's request and maintains
records in connection with its duties. UBT will comply with the
self-custodian provisions of Rule 17f-2 under the 1940 Act.

SUB-CUSTODIAN. To Be Filed By Amendment.

TRANSFER AGENT. [INSERT NAME] acts as the Fund's transfer agent and, in
such capacity, maintains the records of each shareholder's account, answers
shareholders' inquiries concerning their accounts, processes purchases and
redemptions of the Fund's Shares, acts as dividend and distribution disbursing
agent and performs other accounting and shareholder service functions. In
addition, [INSERT NAME] provides the Fund with certain monthly reports,
record-keeping and other management-related services.

COUNSEL AND INDEPENDENT ACCOUNTANTS. Dunn, Carney, Allen, Higgins &
Tongue, 851 S.W. Sixth Avenue, Suite 1500, Portland, Oregon 97204, serves as
counsel to the Trust. Coopers & Lybrand, 1300 S.W. Fifth Avenue, Suite 2700,
Portland, OR 97201 acts as independent public accountants of the Trust.

DISTRIBUTOR. Subject to receipt of necessary regulatory approvals, First
Financial Company (the "Distributor") shall serve as the exclusive agent for
distribution of shares of the Fund. Pursuant to a distribution agreement (the
"Distribution Agreement"), the Distributor will be obligated to sell the shares
of the Fund on a best efforts basis only against purchase orders for the shares.
Shares of the Fund are offered to the public on a continuous basis.

The Distribution Agreement is renewable annually. The Distribution
Agreement may be terminated by the Distributor, by a majority vote of the
Trustees who are not interested persons and have no financial interest in the
Distribution Agreement or by a majority vote of the outstanding securities of
the Fund upon not more than 60 days' written notice by either party or upon
assignment by the Distributor.

The Trust has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act to enable the Fund to directly and indirectly bear certain expenses
relating to the distribution of each Class of the Fund's Shares and/or the
ongoing servicing or maintenance of existing shareholder accounts. Pursuant to
the Distribution Plan, the Fund will pay the Distributor a fee at the aggregate
annual rate of up to .25% of the Fund's average daily net assets attributable to
its Class A and C Shares and .05% of the Fund's average daily net assets
attributable to its Class B Shares. Among other things, the Distributor may use
these fees to pay financial intermediaries, plan fiduciaries, and investment
professionals ("Service Providers") to compensate them for providing to
shareholders or the underlying beneficial owners of Shares: (i) personal
support services; (ii) distribution assistance and distribution support
services; and (iii) account maintenance services. The Distributor has
voluntarily agreed to waive its fee with respect to the Class B Shares. The
Distributor may terminate this waiver prospectively at any time. In addition,
the Distributor and UBT, out of their own assets, may pay for certain
expenses incurred in connection with the distribution of the Shares of the
Fund or the servicing and maintenance of existing shareholder accounts.

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<PAGE>

The Distributor shall prepare and deliver written reports to the Trust's
Board of Trustees on a regular basis (at least quarterly) setting forth the
payments made to the Distributor and Service Providers pursuant to the
Distribution Plan, and the purposes for which such expenditures were made, as
well as any supplemental reports as the Board of Trustees may from time to
time reasonably request.

Except to the extent that the Administrator or UBT may benefit through
increased fees from an increase in the net assets of the Fund which may have
resulted in part from the expenditures, no interested person of the Fund nor any
Trustee of the Trust who is not an interested person in the Fund had a direct or
indirect financial interest in the operation of the Plan or any related
agreement.

As of [DATE], 1997, the Fund had not commenced investment operations and
had not incurred any obligation to pay the Distributor for distribution
services.

BANKING REGULATORY MATTERS. UBT has been advised by its counsel that UBT
may perform the services for the Fund contemplated by the Advisory Agreement and
other activities for the Fund described in the Prospectus and this Statement of
Additional Information without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. However, counsel has pointed out that
future changes in either Federal or state statutes and regulations concerning
the permissible activities of banks or trust companies, as well as future
judicial or administrative decisions or interpretations of present and future
statutes and regulations, might prevent UBT from continuing to perform those
services for the Trust. State laws on this issue may differ from the
interpretations of relevant Federal law and banks and financial institutions may
be required to register as dealers pursuant to state securities law. If the
circumstances described above should change, the Board of Trustees would review
the relationship with UBT and consider taking all actions necessary under the
circumstances.

PURCHASE AND REDEMPTION OF FUND SHARES

PURCHASE OF SHARES

Purchases and redemptions may be made on any day on which the New York
Stock Exchange is open for business. Currently, the following holidays are
observed by the Fund: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Shares of
the Fund are offered on a continuous basis.

The Fund will offer and sell its shares at its net asset value per share,
which will be determined in the manner set forth below.

The net asset value of the Shares of each Class of the Fund will be
determined once daily, immediately after the declaration of dividends, if any,
at 4:00 p.m. Eastern time or, if the New York Stock Exchange closes early, at
the time of such early closing. The net asset value per share of each Class of
the Fund will be computed by dividing the investments represented by that Class,
plus any cash or other assets, minus all liabilities, by the total number of
outstanding shares of that Class of the Fund at such time. All expenses borne
by the Fund and each of its Classes will be accrued daily.

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<PAGE>

Debt securities (other than short-term debt obligations maturing in 60 days
or less), including listed securities and securities for which price quotations
are available, will normally be valued on the basis of market valuations
furnished by a pricing service. Such market valuations may represent the last
quoted price on the securities' major trading exchange or quotes received from
dealers or market makers in the relevant securities or may be determined through
the use of matrix pricing. In matrix pricing, pricing services may use various
pricing models, involving comparable securities, historic relative price
movements, economic factors and dealer quotations. Over-the-counter securities
will normally be valued at the bid price. Short-term debtor obligations and
money market securities maturing in 60 days or less are valued at amortized
cost.

Securities for which market quotations are not readily available are valued
by UBT pursuant to procedures adopted by the Board of Trustees.

The value of the Fund's Wrapper Agreements will be determined as
described in the Prospectus, in accordance with procedures adopted by the
Board of Trustees. Each quarter UBT will report to the Board of Trustees
with respect to compliance with those procedures and the value of the Fund's
Wrapper Agreements.

The Fund's other assets are valued primarily on the basis of market
quotations or, if quotations are not readily available, by a method that the
Board of Trustees believes accurately reflects fair value.

REDEMPTION OF SHARES

The Fund reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of the Fund's Securities is not reasonably practicable, or
for such other periods as the SEC may permit. The Fund also reserves the right
to suspend sales of its shares for any period during which the New York Stock
Exchange, UBT, the Administrator, Transfer Agent and/or the Custodian are not
open for business.

The Fund intends that it usually will redeem its Shares for cash. The Fund
is required to redeem shares with respect to any one shareholder during any
90-day period solely in cash up to the lesser of $250,000 or 1% of the NAV of
the Fund at the beginning of the period.

As described in the Prospectus, however, the Fund reserves the right, in
circumstances where in its sole discretion it determines that cash redemption
payments would be undesirable, to honor any request for redemption of Class A or
B Shares by making payment wholly or partly in Securities and in Wrapper
Agreements, as the same may be chosen by UBT in its sole discretion (an "in
kind redemption"). The Trust, on behalf of the Fund, is seeking an exemptive
order from the SEC with respect to redemptions in kind made to 5% or greater
shareholders of the Fund. Until such time as appropriate regulatory
authorization is obtained, the Fund will not make redemptions in kind to 5%
or greater shareholders of the Fund.

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<PAGE>

Although the Fund will seek to maintain a stable net asset value per Share,
the value of the Shares on redemption may be more or less than the shareholder's
cost, depending upon the market value of the Fund's assets (including the
Wrapper Agreements) at the time of redemption.

TAXATION

The following is only a summary of certain income tax considerations
generally affecting the Fund and its shareholders, and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their
tax advisers with specific reference to their own tax situations, including
their state and local income tax liabilities.

FEDERAL INCOME TAX. The following discussion of federal income tax
consequences is based on the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations issued thereunder as in effect on the date of this
Statement of Additional Information. New legislation, as well as administrative
changes or court decisions, may significantly change the conclusions expressed
herein, and may have a retroactive effect with respect to the transactions
contemplated herein.

The Fund intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By maintaining its qualifications as a
RIC, the Fund intends to eliminate or reduce a nominal amount the federal taxes
to which it may be subject.

In order to qualify for that treatment, the Fund must distribute annually
to its shareholders at least 90% of its investment company taxable income
(generally, interest, dividends, and the excess of short-term capital gain over
net long-term capital loss) ("Distribution Requirement") and also must meet
several additional requirements. Among these requirements are the following:
(i) at least 90% of the Fund's gross income each taxable year must be derived
from dividends, interest, payments with respect to securities loans and gains
from the sale or other disposition of stock or securities, or certain other
income, including gains from the options or future contracts (the "Income
Requirement"); and (ii) the Fund's assets must be diversified, such that (a) at
least 50% of the value of its total assets consist of cash and cash items, U.S.
Government securities, securities of other RICs and other securities, with such
other securities limited, in respect to any one issuer, to an amount that does
not exceed 5% of the value of the Fund's assets or 10% of the issuer's
outstanding voting securities, and (b) not more than 25% of the value of the
Fund's assets may be invested in securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer or of two or more
issuers which are engaged in the same, similar or related trades or businesses
if the Fund owns at least 20% of the voting power of such issuers.

Even if the Fund meets the Distribution Requirement described above, the
Fund will be subject to a nondeductible 4% federal excise tax to the extent it
fails to distribute by the end of any calendar year 98% of its ordinary income
for that year and 98% of its capital net income (the excess of short- and
long-term capital gains over short- and long-term capital losses) for the
one-year period ending on October 31 of that calendar year, plus certain
other amounts.

The Fund's use of hedging strategies, such as writing (selling) and
purchasing options and futures contracts, involves complex rules that will
determine for income tax purposes the character

28
<PAGE>

and timing of recognition of the gains and losses it realizes in connection
therewith. Gains from options and futures contracts derived by the Fund with
respect to its business of investing in securities will qualify as
permissible income for the Fund under the Income Requirement.

If a Fund fails to qualify as a RIC for any taxable year, it will be
taxable at regular corporate rates on its net investment income and net capital
gain without any deductions for amounts distributed to shareholders. In such an
event, all distributions (including capital gains distributions) will be taxable
as ordinary dividends to the extent of that Fund's current and accumulated
earnings and profits and such distributions will generally be eligible for the
corporate dividends-received deduction.

In certain cases, the Fund will be required to withhold, and remit to the
U.S. Treasury, 31% of any distributions paid to a shareholder who (i) has failed
to provide a correct taxpayer identification number, (ii) is subject to backup
withholding by the Internal Revenue Service, or (iii) has not certified to the
Fund that such shareholder is not subject to backup withholding.

FOREIGN WITHHOLDING TAXES. Income received by the Fund from sources
within foreign countries may be subject to withholding and other taxes
imposed by those countries that would reduce the yield on its securities.
Tax conventions between certain countries and the United States may reduce or
eliminate these foreign taxes, however, and many foreign countries do not
impose taxes on capital gains in respect of investments by foreign investors.

STATE TAXES. The Trust is organized as a Delaware business trust, and
neither the Trust nor the Fund is liable for any income or franchise tax in the
State of Delaware, provided that the Fund continues to qualify as a RIC.

Distributions by the Fund to shareholders and the ownership of Shares may
be subject to state and local taxes.

FINANCIAL STATEMENTS

To Be Filed By Amendment.

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<PAGE>

PERFORMANCE INFORMATION

STANDARD PERFORMANCE INFORMATION. From time to time, quotations of the
Share's performance may be included in advertisements, sales literature or
shareholder reports. These performance figures are calculated in the following
manner:

YIELD: Yield refers to the income generated by an investment over a given
period of time, expressed as an annual percentage rate. Yields are calculated
according to a standard that is required for all stock and bond mutual funds.
Because this differs from other accounting methods, the quoted yield may not
equal the income actually paid to shareholders.

Performance information or advertisements may include comparisons of the
Shares' investment results to various unmanaged indices or results of other
mutual funds or investment or savings vehicles. From time to time, the Shares'
ranking may be quoted from various sources, such as Lipper Analytical Services,
Inc., Value Line, Inc. and Morningstar, Inc.

Unlike some bank deposits or other investments that pay a fixed yield for a
stated period of time, the total return of the Shares will vary depending upon
interest rates, the current market value of the securities held by the Fund and
the Wrapper Agreements and changes in the expenses of the Shares and the Fund.
In addition, during certain periods for which total return may be provided, UBT
may have voluntarily agreed to waive portions of its fees, or to reimburse
certain operating expenses of the Fund on a month-to-month basis. Such waivers
will have the effect of increasing the Shares' net income (and therefore its
yield and total return) during the period such waivers are in effect.

TOTAL RETURN: The Shares' average annual total return is calculated for
certain periods by determining the average annual compounded rates of return
over those periods that would cause an investment of $1,000 (made at the maximum
public offering price with all distributions reinvested) to reach the value of
that investment at the end of the periods. The Shares may also calculate total
return figures that represent aggregate performance over a period or
year-by-year performance.

PERFORMANCE RESULTS: Any performance information provided for the Shares
should not be considered as representative of its performance in the future,
because the NAV and public offering price of Shares will vary based not only on
the type, quality and maturities of the securities held by the Fund but also on
changes in the current value of such securities and on changes in the expenses
of the Fund. Total return reflects the performance of both principal and
income.

COMPARISONS OF FUND PERFORMANCE. Comparison of the quoted nonstandardized
performance of various investments is valid only if performance is calculated in
the same manner. Since there are different methods of calculating performance,
investors should consider the effect of the methods used to calculate
performance when comparing performance of the Fund with performance quoted with
respect to other investment companies or types of investment.

In connection with communicating its performance to current or prospective
shareholders, the Fund also may compare these figures to the performance of
other mutual funds tracked by

30
<PAGE>

mutual fund rating services or to unmanaged
indices that may assume reinvestment of dividends but generally do not
reflect deductions for administrative and management costs. Evaluations of
the Fund's performance made by independent sources may also be used in
advertisements concerning the Fund. Sources for the Fund's performance
information could include the following: ASIAN WALL STREET JOURNAL,
BARRON'S, BUSINESS WEEK, CHANGING TIMES, THE KIPLINGER MAGAZINE, CONSUMER
DIGEST, FINANCIAL TIMES, FINANCIAL WORLD, FORBES, GLOBAL INVESTOR, INVESTOR'S
DAILY, LIPPER ANALYTICAL SERVICES, INC.'S MUTUAL FUND PERFORMANCE ANALYSIS,
MONEY, MORNINGSTAR, INC., NEW YORK TIMES, PERSONAL INVESTING NEWS, PERSONAL
INVESTOR, SUCCESS, U.S. NEWS AND WORLD REPORT, VALUELINE, WALL STREET
JOURNAL, WEISENBERGER INVESTMENT COMPANIES SERVICES, WORKING WOMEN and WORTH.

31
<PAGE>

APPENDIX

DESCRIPTION OF RATING SERVICES

The ratings of rating services represent their opinions as to the quality of
securities that they undertake to rate. It should be emphasized, however, that
ratings are relative and subjective and are not absolute standards of quality.
Although these ratings are an initial criterion for selection of portfolio
investments, UBT also makes its own evaluation of these securities, subject to
review by the Board of Trustees. After purchase by the Fund, an obligation may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Fund. Neither event would require the Fund to eliminate the
obligation from its portfolio, but UBT will consider such an event in its
determination of whether the Fund should continue to hold the obligation. The
minimum rating required for an obligation to be purchased by the Fund is
"investment grade" which means a rating of Baa or better by Moody's, BBB or
better by S&P and BBB or better by Duff & Phelps. A description of the ratings
referred to herein and in the Prospectus is set forth below.

DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:

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

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

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

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

Ba Bonds rated Ba are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of
interest and principal payments

32
<PAGE>

may be very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

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

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

Ca Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked
short-comings.

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

Moody's applies numerical modifiers, 1, 2, and 3, in each generic
rating classification from Aa through B in its corporate bond
system. The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.

DESCRIPTION OF S&P'S CORPORATE BOND RATINGS:

AAA Debt rated AAA has the highest rating assigned by Standard & Poor's to
a debt obligation. Capacity to pay interest and repay principal is
extremely strong.

AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small
degree.

A Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.

BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Although it usually exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to weakened capacity to pay
interest and repay principal for debt in this category than in
higher-rated categories.

BB Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and
principal payments.

B Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments.
Adverse business, financial,

33
<PAGE>

or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied BB- rating.

CCC Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal.

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

C The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating
may be used to cover a situation where a bankruptcy petition has been
filed but debt service payments are continued.

CI The rating CI is reserved for income bonds on which no interest is
being paid.

D Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period.
The D rating will also be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.

Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

DUFF & PHELPS' LONG-TERM DEBT RATINGS:

AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.

AA High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic
conditions.

A Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.

BBB Below-average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic
cycles.

BB Below investment grade but deemed likely to meet obligation when due.
Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality
may move up or down frequently within this category.

34
<PAGE>

B Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.

CCC Well below investment-grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with unfavorable
company developments.

DD Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.

DP Preferred stock with dividend arrearages.

DESCRIPTION OF MOODY'S SHORT-TERM DEBT RATINGS:

Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.

Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

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

DESCRIPTION OF S&P SHORT-TERM ISSUER CREDIT RATINGS:

A-1 Strong capacity to meet financial commitments. Within this category,
certain obligors are designated with a plus sign (+). This indicates
that the obligor's capacity to meet its financial commitments is
extremely strong.

35
<PAGE>

A-2 Satisfactory capacity to meet financial commitments. However, the
obligor is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligors in the highest
rating category.

A-3 Adequate capacity to meet financial obligations. However, adverse
economic conditions or changing circumstances are more likely to lead
to a weakened capacity of the obligor to meet its financial
commitments.

DESCRIPTION OF DUFF & PHELPS' COMMERCIAL PAPER RATINGS:

D-1+ Highest certainty of timely payment. Short term liquidity, including
internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk free U.S.
Treasury short term obligations.

D-1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk
factors are minor.

D-1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are
very small.

D-2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk
factors are small.

D-3 Satisfactory liquidity and other protection factors qualify issues as
to investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.

DESCRIPTION OF MOODY'S INSURANCE FINANCIAL STRENGTH RATINGS:

Aaa Exceptional financial security. While the financial strength of these
companies is likely to change, such changes as can be visualized are
most unlikely to impair their fundamentally strong position.

Aa Excellent financial security. Together with the Aaa group they
constitute what are generally known as high grade companies. They are
rated lower than Aaa companies because long-term risks appear somewhat
larger.

A Good financial security. However, elements may be present which
suggest a susceptibility to impairment sometime in the future.

36
<PAGE>

Baa Adequate financial security. However, certain protective elements may
be lacking or may be characteristically unreliable over any great
length of time.

Ba Questionable financial security. Often the ability of these
companies to meet policyholder obligations maybe very moderate and
thereby not well safeguarded in the future.

B Poor financial security. Assurance of punctual payment of
policyholder obligations over any long period of time is small.

Caa Very poor financial security. They may be in default on their
policyholder obligations or there may be present elements of danger
with respect to punctual payment of policyholder obligations and
claims.

Ca Extremely poor financial security. Such companies are often in
default on their policyholder obligations or have other marked
shortcomings.

C Lowest rated class of insurance company. Such companies can be
regarded as having extremely poor prospects of ever offering
financial security.

Numeric modifiers: Numeric modifiers are used to refer to the ranking within the
group -- one being the highest and three being the lowest. However, the
financial strength of companies within a generic rating symbol (Aa, for example)
is broadly the same.

DESCRIPTION OF S&P CLAIMS PAYING ABILITY RATING DEFINITIONS:

SECURE RANGE: AAA TO BBB

AAA Superior financial security on an absolute and relative basis.
Capacity to meet policyholder obligations is overwhelming under a
variety of economic and underwriting conditions.

AA Excellent financial security. Capacity to meet policyholder
obligations is strong under a variety of economic and underwriting
conditions.

A Good financial security, but capacity to meet policyholder obligations
is somewhat susceptible to adverse economic and underwriting
conditions.

BBB Adequate financial security, but capacity to meet policyholder
obligations is susceptible to adverse economic and underwriting
conditions.

37
<PAGE>

VULNERABLE RANGE: BB TO CCC

BB Financial security may be adequate, but capacity to meet policyholder
obligations, particularly with respect to long-term or "long-tail"
policies, is vulnerable to adverse economic and underwriting
conditions.

B Vulnerable financial security. Currently able to meet policyholder
obligations, but capacity to meet policyholder obligations is
particularly vulnerable to adverse economic and underwriting
conditions.

CCC Extremely vulnerable financial security. Continued capacity to meet
policyholder obligations is highly questionable unless favorable
economic and underwriting conditions prevail.

R Regulatory action. As of the date indicated, the insurer is under
supervision of insurance regulators following rehabilitation,
receivership, liquidation, or any other action that reflects
regulatory concern about the insurer's financial condition.
Information on this status is provided by the National Association of
Insurance Commissioners and other regulatory bodies. Although believed
to be accurate, this information is not guaranteed. The "R" rating
does not apply to insurers subject only to nonfinancial actions such
as market conduct violations.

Plus (+) or minus (-) Ratings from "AA" to "B" may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.

DUFF & PHELPS' CLAIMS PAYING ABILITY RATINGS:

AAA Highest claims paying ability. Risk factors are negligible.

AA Very high claims paying ability. Protection Factors are strong. Risk
is modest, but may vary slightly over time due to economic and/or
underwriting conditions.

A High claims paying ability. Protection factors are average and there
is an expectation of variability in risk over time due to economic
and/or underwriting conditions.

BBB Adequate claims paying ability. Protection factors are adequate.
There is considerable variability in risk over time due to economic
and/or underwriting conditions.

BB Uncertain claims paying ability and less than investment grade
quality. However, the company is deemed likely to meet these
obligations when due. Protection factors will vary widely with
changes in economic and/or underwriting conditions.

B Possessing risk that policyholder and contractholder obligations will
not be paid when due. Protection factors will vary widely with
changes in economic and underwriting conditions or company fortunes.

38
<PAGE>

CCC There is substantial risk that policyholder and contractholder
obligations will not be paid when due. Company has been or is likely
to be placed under state insurance department supervision.

DD Company is under an order of liquidation.

[END OF STATEMENT OF ADDITIONAL INFORMATION]

39
<PAGE>

PART C

OTHER INFORMATION

Item 24. Financial Statements and Exhibits.

(a) FINANCIAL STATEMENTS:

Financial Statements included in Part A:

None

Financial Statements included in Part B:

(i) Report of Independent Certified Public Accountants

(ii) Statement of Assets and Liabilities as of _________,
1997.

(b) EXHIBITS:

(1) Declaration of Trust

(2) By-Laws of the Trust

(3) Voting Trust Agreement - Not Applicable

(4) Instruments Defining the Rights of Holders of the Registrant's
Shares of Beneficial Interest - See Item 24(b)(1)

(5) Form of Investment Advisory Agreement

(6) (a) Form of Distribution Agreement (to be filed by
amendment)

(6) (b) Form of Selected Dealer Agreement (to be filed by
amendment)

(7) Bonus, Profit Sharing or Pension Plans - Not Applicable

(8) Form of Custodian Agreement (to be filed by amendment)

(9) Form of Administration and Services Agreement (to be filed by
amendment)

(10) Opinion and Consent of Dunn, Carney, Allen, Higgins & Tongue
(to be filed by amendment)

C-1
<PAGE>

(11) Consent of Independent Certified Public Accountants (to be
filed by amendment)

(12) Financial Statements Omitted from Item 23 - Not Applicable

(13) Form of Purchase Agreement (attached)

(14) Retirement Plan - Not Applicable

(15) Plan of Distribution pursuant to Rule 12b-1 (to be filed by
amendment)

(16) Schedule for Computation of Performance Quotations - Not
Applicable

(17) Financial Data Schedule (to be filed by amendment)

(18) Plan Pursuant to Rule 18f-3 (to be filed by amendment)

Item 25. Persons Controlled By or Under Common Control With The Trust.

Upon commencement of the Trust's operations, UBT will be the sole
initial shareholder of the Trust and will control the Trust by virtue
of its ownership of 100% of the Trust's Shares. UBT may, from time to
time, purchase Fund Shares for certain of its collective trust funds.
By virtue of its ownership of Fund Shares and its ability to vote
Shares held by its collective trust funds, UBT may be deemed to be a
controlling person of the Trust until more than 75% of the Fund's
Shares are owned by unaffiliated persons.

UBT is a wholly-owned subsidiary of Morley Financial Services, Inc.
("MFS"), an Oregon corporation. MFS is a holding company, which also
wholly-owns Morley Capital Management Inc. ("Morley Capital"), an
Oregon corporation, which is a registered investment adviser.

As described in the Statement of Additional Information, as of
September 15, 1997, virtually all of MFS' issued and outstanding
voting securities were owned by Harold H. Morley (who is President
and Chief Executive Officer of MFS, Morley Capital, and UBT),
the MFS Employee Stock Ownership Plan (the "ESOP"), and Pacific Life
Insurance Company ("Pacific Life"), a California stock life insurance
company. Through its ownership of MFS shares, Pacific Life may be
deemed to be a controlling person of MFS and, indirectly, of UBT.
Pursuant to the terms of a Voting Agreement, the power to vote the MFS
shares owned by Pacific Life is held by Mr. Morley. Pacific Life,
directly and through its subsidiaries, engages in the insurance and
other financial services businesses,

C-2
<PAGE>

including institutional and mutual fund asset management, financial
planning, reinsurance, and junior capital investment.

As a result of his ownership of shares in MFS and the Voting
Agreement, Mr. Morley has the power to vote the majority of MFS'
voting securities. Mr. Morley may be deemed to be a controlling
person of UBT due to his ownership of shares in MFS, his power to vote
Pacific Life's shares in MFS, and his positions of President and Chief
Executive Officer of UBT. The ESOP may also be deemed to be a
controlling person of UBT by virtue of its ownership of MFS shares.

Item 26. Number of Holders of Securities.

Title of Class Number of Record Holders
-------------- ------------------------

Portland Stable Investment Fund Class A: 0
Class B: 1
Class C: 0

Item 27. Indemnification.

Under Section 2 Article VII of Registrant's Agreement and Declaration
of Trust, any past or present Trustee or officer of Registrant
(including persons who serve at Registrant's request as directors,
officers or trustees of another organization in which Registrant has
any interest as a shareholder, creditor or otherwise [hereinafter
referred to as a "Covered Person"]) is indemnified to the fullest
extent permitted by law against liability and all expenses reasonably
incurred by him in connection with any action, suit or proceeding to
which he may be a party or otherwise involved by reason of his being
or having been a Covered Person. This provision does not authorize
indemnification when it is determined, in the manner specified in the
Agreement and Declaration of Trust, that such Covered Person would
otherwise be liable to Registrant or its shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard
of his duties.

Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to
Trustees, officers and controlling persons of Registrant pursuant to
the foregoing provisions, or otherwise, Registrant has been advised
that in the opinion of the Securities and Exchange Commission (the
"SEC") such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment
by Registrant

C-3
<PAGE>

of expenses incurred or paid by a Trustee, officer or controlling
person of Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person
in connection with the securities being registered, Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.

Item 28. Business and Other Connections of Investment Adviser.

UBT serves as investment adviser to the Trust. UBT, a trust company
organized under the laws of the State of Oregon, is a wholly owned
subsidiary of Morley Financial Services, Inc., an Oregon corporation.
UBT conducts a variety of trust activities.

To the knowledge of the Trust, none of the directors or officers of
UBT, except those set forth below, is or has been at any time during
the past two fiscal years engaged in any other business, profession,
vocation or employment of a substantial nature, except that certain
directors and officers also hold various positions with and engage in
business for Morley Financial Services, Inc. Set forth below are the
names and principal businesses of the directors and officers of UBT
who are, or during the past two fiscal years have been, engaged in any
other business, profession, vocation or employment of a substantial
nature. These persons may be contacted c/o UBT, 5665 SW Meadows Rd.,
Suite 400, Lake Oswego, Oregon 97035.

Name and Principal Business Address, Principal Occupation and Other
Information.

Donald C. Burdick, 434 Ridgeway Road, Lake Oswego, OR 97034
Independent Consultant and Investor-Director, Morley Financial
Services, Inc.

Item 29. Principal Underwriters.

(a) First Financial Company is the Distributor for shares of the
Registrant. First Financial Company does not act as principal
underwriter for any other investment company.

(b) Set forth below are the names, principal business addresses and
positions of each officer of the Distributor.

C-4
<PAGE>

NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
------------------ --------------------- ---------------------

Richard T. Borst President, Secretary None
2155 Bridle Way and Director
West Linn, OR 97065

Item 30. Location of Accounts and Records.

All accounts and records of Registrant are maintained by Union Bond &
Trust Company, 5665 S.W. Meadows Rd., Suite 400, Lake Oswego, OR
97035.

Item 31. Management Services.

Not Applicable.

Item 32. Undertakings.

(a) Inapplicable.

(b) The Registrant hereby undertakes to file a post-effective
amendment, using financial statements which need not be
certified, within four to six months from the effective date
of Registrant's 1933 Act Registration Statement.

C-5
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in this City of Portland and State of Oregon, on this 8th day
of October, 1997.

THE PORTLAND MUTUAL FUNDS

By: /s/ Joan K. Hall
------------------------------
Joan K. Hall
Secretary

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

Signature Title Date
--------- ----- ----

/s/ Harold H. Morley President and Trustee October 8, 1997
- - - --------------------------- ---------------
Harold H. Morley

/s/ Frederick F. Fletcher Treasurer October 8, 1997
- - - --------------------------- (Principal Financial ---------------
Frederick F. Fletcher and Accounting Officer)

C-6
<PAGE>

POWER OF ATTORNEY

The undersigned Trustee and officers, as indicated respectively below, of
The Portland Mutual Funds (the "Trust") each hereby constitutes and appoints the
President, Secretary and each Assistant Secretary of the Trust, each of them
with full powers of substitution, as his true and lawful attorney-in-fact and
agent to execute in his name and on his behalf in any and all capacities the
Registration Statements on Form N-1A, and any and all amendments thereto, and
all other documents, filed by the Trust with the Securities and Exchange
Commission (the "SEC") under the Investment Company Act of 1940, as amended, and
(as applicable) the Securities Act of 1933, as amended, and any and all
instruments which such attorneys and agents, or any of them, deem necessary or
advisable to enable the Trust to comply with such Acts, the rules, regulations
and requirements of the SEC, and the securities or Blue Sky laws of any state or
other jurisdiction, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the SEC and such other jurisdictions,
and the undersigned each hereby ratifies and confirms as his own act and deed
any and all acts that such attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof. Any one of such attorneys and agents has,
and may exercise, all of the powers hereby conferred. The undersigned each
hereby revokes any Powers of Attorney previously granted with respect to any
Trust concerning the filings and actions described herein.

IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand as of
the 8th day of October, 1997.

Signatures Title
---------- -----

/s/ Harold H. Morley
- - - ------------------------------------ President and Trustee of The Trust
Harold H. Morley

/s/ Joan K. Hall
- - - ------------------------------------ Secretary of the Trust
Joan K. Hall

/s/ Frederick F. Fletcher
- - - ------------------------------------ Treasurer of the Trust
Frederick F. Fletcher

C-7
<PAGE>

CONSENT

Pursuant to the requirements of Rule 438 under the Securities Act of 1933,
as amended, the undersigned prospective Trustees of The Portland Mutual Funds
(the "Trust") each hereby consents to the filing of this Registration Statement
on Form N-1A, and any and all amendments thereto, in which the undersigned are
named as prospective Trustees of the Trust.

Signatures Date
---------- ----

/s/ Donald W. Magnusen October 8, 1997
- - - --------------------------------------- ---------------
Donald W. Magnusen
Prospective Trustee

/s/ Jan W. Jansen October 8, 1997
- - - --------------------------------------- ---------------
Jan W. Jansen
Prospective Trustee

C-8
<PAGE>

THE PORTLAND MUTUAL FUNDS

EXHIBIT INDEX

EXHIBIT NUMBER:

(1) Declaration of Trust

(2) By-Laws of the Trust

(5) Form of Investment Advisory Agreement

(13) Form of Purchase Agreement

C-9

<PAGE>

EXHIBIT 1
<PAGE>

AGREEMENT AND DECLARATION OF TRUST

THE PORTLAND MUTUAL FUNDS

a Delaware Business Trust

Principal Place of Business:

5665 S.W. Meadows Road, Suite 400
Lake Oswego, OR 97035
<PAGE>

TABLE OF CONTENTS

AGREEMENT AND DECLARATION OF TRUST

Page

ARTICLE I Name and Definitions. . . . . . . . . . . . . . . . . . . . . . 1

1. Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(b) Certificate of Trust. . . . . . . . . . . . . . . . . . . . . . 1
(c) Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(d) Commission . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(e) Declaration of Trust. . . . . . . . . . . . . . . . . . . . . . 2
(f) Delaware Act. . . . . . . . . . . . . . . . . . . . . . . . . . 2
(g) Interested Person . . . . . . . . . . . . . . . . . . . . . . . 2
(h) Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(i) 1940 Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(j) Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(k) Principal Underwriter . . . . . . . . . . . . . . . . . . . . . 2
(l) Series. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(m) Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(n) Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(o) Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(p) Trust Property. . . . . . . . . . . . . . . . . . . . . . . . . 2
(q) Trustees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

ARTICLE II Purpose of Trust . . . . . . . . . . . . . . . . . . . . . 3

ARTICLE III Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 3

1. Division of Beneficial Interest. . . . . . . . . . . . . . . . . . . 3
2. Ownership of Shares. . . . . . . . . . . . . . . . . . . . . . . . . 4
3. Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . 4
4. Investments in the Trust . . . . . . . . . . . . . . . . . . . . . . 5
5. Status of Shares and Limitation of
Personal Liability . . . . . . . . . . . . . . . . . . . . . . 5
6. Establishment and Designation of Series or Class . . . . . . . . . . 5
<PAGE>

(a) Assets Held with Respect to a
Particular Series . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Liabilities Held with Respect to a
Particular Series . . . . . . . . . . . . . . . . . . . . . . . 6
(c) Dividends, Distributions, Redemptions,
and Repurchases . . . . . . . . . . . . . . . . . . . . . . . . 6
(d) Equality . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(e) Fractions . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(f) Exchange Privilege. . . . . . . . . . . . . . . . . . . . . . . 7
(g) Combination of Series . . . . . . . . . . . . . . . . . . . . . 7
(h) Elimination of Series . . . . . . . . . . . . . . . . . . . . . 7
7. Indemnification of Shareholders. . . . . . . . . . . . . . . . . . . 7

ARTICLE IV Trustees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

1. Number, Election, and Tenure . . . . . . . . . . . . . . . . . . . . 8
2. Effect of Death, Resignation, etc.
of a Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4. Payment of Expenses by the Trust . . . . . . . . . . . . . . . . . .12
5. Payment of Expenses by Shareholders. . . . . . . . . . . . . . . . .12
6. Ownership of Assets of the Trust . . . . . . . . . . . . . . . . . .12
7. Service Contracts. . . . . . . . . . . . . . . . . . . . . . . . . .13
8. Trustees and Officers as Shareholders. . . . . . . . . . . . . . . .14

ARTICLE V Shareholders' Voting Powers and Meetings. . . . . . . . . . . .15

1. Voting Powers, Meetings, Notice and Record Dates . . . . . . . . . .15
2. Quorum and Required Vote . . . . . . . . . . . . . . . . . . . . . .15
3. Record Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
4. Additional Provisions. . . . . . . . . . . . . . . . . . . . . . . .15

ARTICLE VI Net Asset Value, Distributions and
Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . .16

1. Determination of Net Asset Value,
Net Income and Distributions. . . . . . . . . . . . . . . . . .16
2. Redemptions and Repurchases. . . . . . . . . . . . . . . . . . . . .16

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ARTICLE VII Compensation and Limitation of
Liability of Trustees . . . . . . . . . . . . . . . . . . . . .18

1. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
2. Indemnification and Limitation of Liability . . . . . . . . . . . .18
3. Trustee's Good Faith Act, Expert Advice,
No Bond or Surety . . . . . . . . . . . . . . . . . . . . . . .19
4. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

ARTICLE VIII Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . .19

1. Liability of Third Persons Dealing with Trustees . . . . . . . . . .19
2. Termination of the Trust or Any Series or Class. . . . . . . . . . .19
3. Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . .20
4. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
5. Filing of Copies, References, Headings . . . . . . . . . . . . . . .21
6. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . .21
7. Provisions in Conflict with Law or Regulations . . . . . . . . . . .22
8. Business Trust Only . . . . . . . . . . . . . . . . . . . . . . . .22

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AGREEMENT AND DECLARATION OF TRUST

THE PORTLAND MUTUAL FUNDS

THIS AGREEMENT AND DECLARATION OF TRUST is made and entered into as of the
date set forth below by the Trustees named hereunder for the purpose of forming
a Delaware business trust in accordance with the provisions hereinafter set
forth.

NOW, THEREFORE, the Trustees hereby direct that the Certificate of Trust be
filed with the Office of the Secretary of State of the State of Delaware and do
hereby declare that the Trustees will hold IN TRUST all cash, securities, and
other assets which the Trust now possesses or may hereafter acquire from time to
time in any manner and manage and dispose of the same upon the following terms
and conditions for the benefit of the holders of Shares of this Trust.

ARTICLE I

Name and Definitions

SECTION 1. NAME. This Trust shall be known as the The Portland Mutual
Funds and the Trustees shall conduct the business of the Trust under that name
or any other name as they may from time to time determine.

SECTION 2. DEFINITIONS. Whenever used herein, unless otherwise required
by the context or specifically provided:

(a) "By-Laws" shall mean the By-Laws of the Trust as amended from time to
time, which By-Laws are expressly herein incorporated by reference as part of
the "governing instrument" within the meaning of the Delaware Act;

(b) "Certificate of Trust" means the certificate of trust, as amended or
restated from time to time, filed by the Trustees in the Office of the Secretary
of State of the State of Delaware in accordance with the Delaware Act;

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(c) "Class" means a class of Shares of a Series of the Trust established
in accordance with the provisions of Article III hereof;

(d) "Commission" shall have the meaning given such term in the 1940 Act;

(e) "Declaration of Trust" means this Agreement and Declaration of Trust,
as amended or restated from time to time;

(f) "Delaware Act" means the Delaware Business Trust Act 12 DEL. C.
Sections 3801 ET SEQ., as amended from time to time;

(g) "Interested Person" shall have the meaning given it in Section
2(a)(19) of the 1940 Act;

(h) "Manager" means a party furnishing services to the Trust pursuant to
any contract described in Article IV, Section 7(a) hereof;

(i) "1940 Act" means the Investment Company Act of 1940 and the rules and
regulations thereunder, all as amended from time to time;

(j) "Person" means and includes individuals, corporations, partnerships,
trusts, associations, joint ventures, estates, and other entities, whether or
not legal entities, and governments and agencies and political subdivisions
thereof, whether domestic or foreign;

(k) "Principal Underwriter" shall have the meaning given such term in the
1940 Act;

(l) "Series" means each Series of Shares established and designated under
or in accordance with the provisions of Article III hereof;

(m) "Shareholder" means a record owner of outstanding Shares;

(n) "Shares" means the shares of beneficial interest into which the
beneficial interest in the Trust shall be divided from time to time and includes
fractions of Shares as well as whole Shares;

(o) "Trust" means the Delaware Business Trust established under the
Delaware Act by this Declaration of Trust and the filing of the Certificate of
Trust in the Office of the Secretary of State of the State of Delaware;

(p) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is from time to time owned or held by or for the
account of the Trust; and

(q) "Trustees" means the "Person" or "Persons" who have signed this
Declaration of

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<PAGE>

Trust and all other Persons who may from time to time be duly elected or
appointed to serve as Trustees in accordance with the provisions hereof, in each
case so long as such Person shall continue in office in accordance with the
terms of this Declaration of Trust, and reference herein to a Trustee or the
Trustees shall refer to such Person or Persons in his or her or their capacity
as Trustees hereunder.

ARTICLE II

Purpose of Trust

The purpose of the Trust is to conduct, operate and carry on the business
of a management investment company registered under the 1940 Act through one or
more Series investing primarily in securities, and to carry on such other
business as the Trustees may from time to time determine pursuant to their
authority under this Declaration of Trust.

ARTICLE III

SECTION 1. DIVISION OF BENEFICIAL INTEREST. The beneficial interest in
the Trust shall be divided into one or more Series. The Trustees may divide
each Series into two or more Classes. Subject to the further provisions of this
Article III and any applicable requirements of the 1940 Act, the Trustees shall
have full power and authority, in their sole discretion, and without obtaining
any authorization or vote of the Shareholders of any Series or Class thereof,
(i) to divide the beneficial interest in each Series or Class thereof into
Shares, with or without par value as the Trustees shall determine, (ii) to issue
Shares without limitation as to number (including fractional Shares) to such
Persons and for such amount and type of consideration, subject to any
restriction set forth in the By-Laws, including cash or securities, at such time
or times and on such terms as the Trustees may deem appropriate, (iii) to
establish and designate and to change in any manner any Series or Class thereof
and to fix such preferences, voting powers, rights, duties and privileges and
business purpose of each Series or Class thereof as the Trustees may from time
to time determine, which preferences, voting powers, rights, duties and
privileges may be senior or subordinate to (or in the case of business purpose,
different from) any existing Series or Class thereof and may be limited to
specified property or obligations of the Trust or profits and losses associated
with specified property or obligations of the Trust, (iv) to divide or combine
the Shares of any Series or Class thereof into a greater or lesser number
without thereby materially changing the proportionate beneficial interest of the
Shares of such Series or Class thereof in the assets held with respect to that
Series, (v) to classify or reclassify any issued Shares of any Series or Class
thereof into shares of one or more Series or Classes thereof; (vi) to change the
name of any Series or Class thereof; (vii) to abolish any one or more Series or
Classes thereof; and (viii) to take such other action with respect to the Shares
as the

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<PAGE>

Trustees may deem desirable.

Subject to the distinctions permitted among Classes of the same Series as
established by the Trustees, consistent with the requirements of the 1940 Act,
each Share of a Series of the Trust shall represent an equal beneficial interest
in the net assets of such Series, and each holder of Shares of a Series shall be
entitled to receive such holder's pro rata share of distributions of income and
capital gains, if any, made with respect to such Series. Upon redemption of the
Shares of any Series, the applicable Shareholder shall be paid solely out of the
funds and property of such Series of the Trust.

All references to Shares in this Declaration of Trust shall be deemed to be
Shares of any or all Series or Classes thereof, as the context may require. All
provisions herein relating to the Trust shall apply equally to each Series of
the Trust and each Class thereof, except as the context otherwise requires.

All Shares issued hereunder, including, without limitation, Shares issued
in connection with a dividend in Shares or a split or reverse split of Shares,
shall be fully paid and non-assessable. Except as otherwise provided by the
Trustees, Shareholders shall have no preemptive or other right to subscribe to
any additional Shares or other securities issued by the Trust.

SECTION 2. OWNERSHIP OF SHARES. The Ownership of Shares shall be recorded
on the books of the Trust or those of a transfer or similar agent for the Trust,
which books shall be maintained separately for the Shares of each Series or
Class of the Trust. No certificates certifying the ownership of Shares shall be
issued except as the Trustees may otherwise determine from time to time. The
Trustees may make such rules as they consider appropriate for the issuance of
Share certificates, the transfer of Shares of each Series or Class of the Trust
and similar matters. The record books of the Trust as kept by the Trust or any
transfer or similar agent, as the case may be, shall be conclusive as to the
identity of the Shareholders of each Series or Class of the Trust and as to the
number of Shares of each Series or Class of the Trust held from time to time by
each Shareholder.

SECTION 3. TRANSFER OF SHARES. Except as otherwise provided by the
Trustees, Shares shall be transferable on the books of the Trust only by the
record holder thereof or by his or her duly authorized agent upon delivery to
the Trustees or the Trust's transfer agent of a duly executed instrument of
transfer, together with a Share certificate if one is outstanding, and such
evidence of the genuineness of each such execution and authorization and of such
other matters as may be required by the Trustees. Upon such delivery, and
subject to any further requirements specified by the Trustees or contained in
the By-Laws, the transfer shall be recorded on the books of the Trust. Until a
transfer is so recorded, the Shareholder of record of Shares shall be deemed to
be the holder of such Shares for all purposes hereunder and neither the Trustees
nor the Trust, nor any transfer agent or registrar or any officer, employee, or
agent of the Trust, shall be affected by any notice of a proposed transfer.

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<PAGE>

SECTION 4. INVESTMENTS IN THE TRUST. Investments may be accepted by the
Trust from Persons, at such times, on such terms, and for such consideration as
the Trustees from time to time may authorize.

SECTION 5. STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY. Shares
shall be deemed to be personal property giving only the rights provided in this
instrument. Every Shareholder by virtue of having become a Shareholder shall be
held to have expressly assented and agreed to the terms hereof. The death,
incapacity, dissolution, termination, or bankruptcy of a Shareholder during the
existence of the Trust shall not operate to terminate the Trust, nor entitle the
representative of any such Shareholder to an accounting or to take any action in
court or elsewhere against the Trust or the Trustees, but entitles such
representative only to the rights of such Shareholder under this Trust.
Ownership of Shares shall not entitle the Shareholder to any title in or to the
whole or any part of the Trust Property or right to call for a participation or
division of the same or for an accounting, nor shall the ownership of Shares
constitute the Shareholders as partners. No Shareholder shall be personally
liable for the debts, liabilities, obligations and expenses incurred by,
contracted for, or otherwise existing with respect to, the Trust or any Series.
Neither the Trust nor the Trustees, nor any officer, employee, or agent of the
Trust shall have any power to bind personally any Shareholders, nor, except as
specifically provided herein, to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the Shareholder may
at any time personally agree to pay.

SECTION 6. ESTABLISHMENT AND DESIGNATION OF SERIES OR CLASS. The
establishment and designation of any Series or Class of Shares of the Trust
shall be effective upon the adoption by a majority of the then Trustees of a
resolution that sets forth such establishment and designation and the relative
rights and preferences of such Series or Class of the Trust, whether directly in
such resolution or by reference to another document including, without
limitation, any registration statement of Trust, or as otherwise provided in
such resolution.

Shares of each Series or Class of the Trust established pursuant to this
Article III, unless otherwise provided in the resolution establishing such
Series or Class, shall have the following relative rights and preferences:

(a) ASSETS HELD WITH RESPECT TO A PARTICULAR SERIES. All consideration
received by the Trust for the issue or sale of Shares of a particular Series,
together with all assets in which such consideration is invested or
reinvested, all income, earnings, profits, and proceeds thereof from whatever
source derived (including, without limitation, any proceeds derived from the
sale, exchange or liquidation of such assets and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same may
be) shall irrevocably be held separately with respect to that Series for all
purposes, subject only to the rights of creditors of such Series from the
assets of the Trust and every other Series, and shall be so recorded upon the
books of account of the Trust. Such consideration, assets, income, earnings,
profits and proceeds thereof, from whatever source derived, (including,
without limitation, any proceeds derived from the

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<PAGE>

sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds), in whatever form the same
may be, are herein referred to as "assets held with respect to" that Series.
In the event that there are any assets, income, earnings, profits and
proceeds thereof, funds or payments which are not readily identifiable as
assets held with respect to any particular Series (collectively "General
Assets"), the Trustees shall allocate such General Assets to, between or
among any one or more of the Series in such manner and on such basis as the
Trustees, in their sole discretion, deem fair and equitable, and any General
Assets so allocated to a particular Series shall be held with respect to that
Series. Each such allocation by the Trustees shall be conclusive and binding
upon the Shareholders of all Series for all purposes. Separate and distinct
records shall be maintained for each Series and the assets held with respect
to each Series shall be held and accounted for separately from the assets
held with respect to all other Series and the General Assets of the Trust not
allocated to such Series.

(b) LIABILITIES HELD WITH RESPECT TO A PARTICULAR SERIES. The assets of
the Trust held with respect to each particular Series shall be charged against
the liabilities of the Trust held with respect to that Series and all expenses,
costs, charges, and reserves attributable to that Series, except that
liabilities and expenses allocated solely to a particular Class shall be borne
by that Class. Any general liabilities of the Trust which are not readily
identifiable as being held with respect to any particular Series or Class shall
be allocated and charged by the Trustees to and among any one or more of the
Series or Classes in such manner and on such basis as the Trustees in their sole
discretion deem fair and equitable. All liabilities, expenses, costs, charges,
and reserves so charged to a Series or Class are herein referred to as
"liabilities held with respect to" that Series or Class. Each allocation of
liabilities, expenses, costs, charges, and reserves by the Trustees shall be
conclusive and binding upon the shareholders of all Series or Classes for all
purposes. Without limiting the foregoing, but subject to the right of the
Trustees to allocate general liabilities, expenses, costs, charges or reserves
as herein provided, the debts, liabilities, obligations and expenses incurred,
contracted for or otherwise existing with respect to a particular Series shall
be enforceable against the assets held with respect to such Series only and not
against the assets of the Trust generally or against the assets held with
respect to any other Series. Notice of this contractual limitation on
liabilities among Series may, in the Trustees' discretion, be set forth in the
Certificate of Trust of the Trust (whether originally or by amendment) as filed
or to be filed in the Office of the Secretary of State of the State of Delaware
pursuant to the Delaware Act, and upon the giving of such notice in the
Certificate of Trust, the statutory provisions of Section 3804 of the Delaware
Act relating to limitations on liabilities among Series (and the statutory
effect under Section 3804 of setting forth such notice in the certificate of
trust) shall become applicable to the Trust and each Series. Any person
extending credit to, contracting with or having any claim against any Series may
look only to the assets of that Series to satisfy or enforce any debt, with
respect to that Series. No Shareholder or former Shareholder of any Series
shall have a claim on or any right to any assets allocated or belonging to any
other Series.

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<PAGE>

other provisions of this Declaration of Trust, including, without limitation,
Article VI, no dividend or distribution, including, without limitation, any
distribution paid upon termination of the Trust or of any Series or Class with
respect to, nor any redemption or repurchase of, the Shares of any Series or
Class, shall be effected by the Trust other than from the assets held with
respect to such Series, nor shall any Shareholder or any particular Series or
Class otherwise have any right or claim against the assets held with respect to
any other Series except to the extent that such Shareholder has such a right or
claim hereunder as a Shareholder of such other Series. The Trustees shall have
full discretion, to the extent not inconsistent with the 1940 Act, to determine
which items shall be treated as income and which items as capital, and each such
determination and allocation shall be conclusive and binding upon the
Shareholders.

(d) EQUALITY. All the Shares of each particular Series shall represent an
equal proportionate interest in the assets held with respect to that Series
(subject to the liabilities held with respect to that Series or Class thereof
and such rights and preferences as may have been established and designated with
respect to any Class within such Series), and each Share of any particular
Series shall be equal to each other Share of that Series. With respect to any
Class of a Series, each such Class shall represent interests in the assets of
that Series and have identical voting, dividend, liquidation and other rights
and the same terms and conditions, except that expenses allocated to a Class may
be borne solely by such Class as determined by the Trustees and a Class may have
exclusive voting rights with respect to matters affecting only that Class.

(e) FRACTIONS. Any fractional Share of a Series or Class thereof, shall
carry proportionately all the rights and obligations of a whole Share of that
Series or Class, including rights with respect to voting, receipt of dividends
and distributions, redemption of Shares and termination of the Trust.

(f) EXCHANGE PRIVILEGE. The Trustees shall have the authority to provide
that the holders of Shares of any Series or Class shall have the right to
exchange said Shares for Shares of one or more other Series of Shares or Class
of Shares of the Trust or of other investment companies registered under the
1940 Act in accordance with such requirements and procedures as may be
established by the Trustees.

(g) COMBINATION OF SERIES. The Trustees shall have the authority, without
the approval of the Shareholders of any Series or Class unless otherwise
required by applicable law, to combine the assets and liabilities held with
respect to any two or more Series or Classes into assets and liabilities held
with respect to a single Series or Class.

SECTION 7. INDEMNIFICATION OF SHAREHOLDERS. If any Shareholder or former
Shareholder shall be exposed to liability by reason of a claim or demand
relating to such Person being or having been a Shareholder, and not because of
such Person's acts or omissions, the Shareholder or former Shareholder (or such
Person's heirs, executors, administrators, or other legal representatives or in
the case of a corporation or other entity, its corporate or other general
successor) shall be entitled to be held harmless from and indemnified out of the
assets of the

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<PAGE>

Trust against all loss and expense arising from such claim or demand, but only
out of the assets held with respect to the particular Series of Shares of which
such Person is or was a Shareholder and from or in relation to which such
liability arose.

ARTICLE IV

Trustees

SECTION 1. NUMBER, ELECTION AND TENURE. The number of Trustees shall
initially be one, who shall be Harold H. Morley. Hereafter, the number of
Trustees shall at all times be at least one and no more than ten as determined,
from time to time, by the Trustees pursuant to Section 3 of this Article IV.
Each Trustee shall serve during the lifetime of the Trust until he or she dies,
resigns, has reached the mandatory retirement age as set by the Trustees, is
declared bankrupt or incompetent by a court of appropriate jurisdiction, or is
removed, or, if sooner, until the next meeting of Shareholders called for the
purpose of electing Trustees and until the election and qualification of his or
her successor. In the event that less than the majority of the Trustees holding
office have been elected by the Shareholders, the Trustees then in office shall
call a Shareholders' meeting for the election of Trustees. Any Trustee may
resign at any time by written instrument signed by him or her and delivered to
any officer of the Trust or to a meeting of the Trustees. Such resignation shall
be effective upon receipt unless specified to be effective at some other time.
Except to the extent expressly provided in a written agreement with the Trust,
no Trustee resigning and no Trustee removed shall have any right to any
compensation for any period following his or her resignation or removal, or any
right to damages on account of such removal. The Shareholders may elect
Trustees at any meeting of Shareholders called by the Trustees for that purpose.
Any Trustee may be removed at any meeting of Shareholders by a vote of two-
thirds of the outstanding Shares of the Trust.

SECTION 2. EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE. The death,
declination to serve, resignation, retirement, removal or incapacity of one or
more Trustees, or all of them, shall not operate to annul the Trust or to revoke
any existing agency created pursuant to the terms of this Declaration of Trust.
Whenever there shall be fewer than the designated number of Trustees, until
additional Trustees are elected or appointed as provided herein to bring the
total number of Trustees equal to the designated number, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by this Declaration
of Trust. As conclusive evidence of such vacancy, a written instrument
certifying the existence of such vacancy may be executed by an officer of the
Trust or by a majority of the Trustees. In the event of the death, declination,
resignation, retirement, removal, or incapacity of all the then Trustees within
a short period of time and without the opportunity for at least one Trustee
being able to appoint additional Trustees to replace those no longer serving,
the Trust's Manager(s) are empowered to appoint new Trustees subject to the
provisions of Section 16(a) of the 1940 Act.

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<PAGE>

SECTION 3. POWERS. Subject to the provisions of this Declaration of
Trust, the business of the Trust shall be managed by the Trustees, and the
Trustees shall have all powers necessary or convenient to carry out that
responsibility including the power to engage in securities transactions of all
kinds on behalf of the Trust. Without limiting the foregoing, the Trustees may:
adopt By-Laws not inconsistent with this Declaration of Trust providing for the
management of the affairs of the Trust and may amend and repeal such By-Laws to
the extent that such By-laws do not reserve that right to the Shareholders;
enlarge or reduce the number of Trustees; remove any Trustee with or without
cause at any time by written instrument signed by a least two-thirds of the
number of Trustees prior to such removal, specifying the date when such removal
shall become effective, and fill vacancies caused by enlargement of their number
or by the death, resignation, retirement or removal of a Trustee; elect and
remove, with or without cause, such officers and appoint and terminate such
agents as they consider appropriate; appoint from their own number and establish
and terminate one or more committees, consisting of two or more Trustees, that
may exercise the powers and authority of the Board of Trustees to the extent
that the Trustees so determine; employ one or more custodians of the assets of
the Trust and may authorize such custodians to employ subcustodians and to
deposit all or any part of such assets in a system or systems for the central
handling of securities or with a Federal Reserve Bank; employ an administrator
for the Trust and may authorize such administrator to employ subadministrators;
employ a Manager to the Trust and may authorize such Manager to employ
subadvisers; retain a transfer agent or a shareholder servicing agent, or both;
provide for the issuance and distribution of Shares by the Trust directly or
through one or more Principal Underwriters or otherwise; redeem, repurchase and
transfer Shares pursuant to applicable law; set record dates for the
determination of Shareholders with respect to various matters; declare and pay
dividends and distributions to Shareholders of each Series from the assets of
such Series; and in general delegate such authority as they consider desirable
to any officer of the Trust, to any committee of the Trustees and to any agent
or employee of the Trust or to any such custodian, transfer or shareholder
servicing agent, or Principal Underwriter. Any determination as to what is in
the interests of the Trust made by the Trustees in good faith shall be
conclusive. In construing the provisions of this Declaration of Trust, the
presumption shall be in favor of a grant of power to the Trustees. Unless
otherwise specified herein or in the By-Laws or required by law, any action by
the Trustees shall be deemed effective if approved or taken by a majority of the
Trustees present at a meeting of Trustees at which a quorum of Trustees is
present, within or outside the State of Delaware.

Without limiting the foregoing, the Trustees shall have the power and
authority to cause the Trust (or to act on behalf of the Trust):

(a) To invest and reinvest cash, to hold cash uninvested, and to subscribe
for, invest in, reinvest in, purchase or otherwise acquire, own, hold, pledge,
sell, assign, transfer, exchange, distribute, write options on, lend or
otherwise deal in or dispose of contracts for the future acquisition or delivery
of fixed income or other securities, and securities of every nature and kind,
including, without limitation, all types of bonds, debentures, stocks,
negotiable or non-negotiable instruments, obligations, evidences of
indebtedness, certificates of deposit or

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indebtedness, commercial papers, repurchase agreements, bankers' acceptances,
and other securities of any kind, issued, created, guaranteed, or sponsored by
any and all Persons, including without limitation, states, territories, and
possessions of the United States and the District of Columbia and any political
subdivision, agency, or instrumentality thereof, and foreign government or any
political subdivision of the United States Government or any foreign government,
or any international instrumentality, or by any bank or savings institution, or
by any corporation or organization organized under the laws of the United States
or of any state, territory, or possession thereof, or by any corporation or
organization organized under any foreign law, or in "when issued" contracts for
any such securities, to change the investments of the assets of the Trust; and
to exercise any and all rights, powers, and privileges of ownership or interest
in respect of any and all such investments of every kind and description,
including, without limitation, the right to consent and otherwise act with
respect thereto, with power to designate one or more Persons, to exercise any of
said rights, powers, and privileges in respect of any of said instruments;

(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or
write options (including, options on futures contracts) with respect to or
otherwise deal in any property rights relating to any or all of the assets of
the Trust or any Series;

(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such Person or Persons as the Trustees shall
deem proper, granting to such Person or Persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;

(d) To exercise powers and right of subscription or otherwise which in any
manner arise out of ownership or securities;

(e) To hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form, or in its own name or
in the name of a custodian or subcustodian or a nominee or nominees or
otherwise;

(f) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which is
held in the Trust; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;

(g) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees shall deem
proper;

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(h) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including, but not limited to,
claims for taxes;

(i) To enter into joint ventures, general or limited partnerships and any
other combinations or associations;

(j) To borrow funds or other property in the name of the Trust exclusively
for Trust purposes and in connection therewith issue notes or other evidence of
indebtedness; and to mortgage and pledge the Trust Property or any part thereof
to secure any or all of such indebtedness;

(k) To endorse or guarantee the payment of any notes or other obligations
of any Person; to make contracts of guaranty or suretyship, or otherwise assume
liability for payment thereof; and to mortgage and pledge the Trust Property or
any part thereof to secure any of or all of such obligations;

(l) To purchase and pay for entirely out of Trust Property such insurance
as the Trustees may deem necessary or appropriate for the conduct of the
business, including, without limitation, insurance policies insuring the assets
of the Trust or payment of distributions and principal on its portfolio
investments, and insurance polices insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers, principal underwriters, or
independent contractors of the Trust, individually against all claims and
liabilities of every nature arising by reason of holding, being or having held
any such office or position, or by reason of any action alleged to have been
taken or omitted by any such Person as Trustee, officer, employee, agent,
investment adviser, principal underwriter, or independent contractor, including
any action taken or independent contractor, including any action taken or
omitted that may be determined to constitute negligence, whether or not the
Trust would have the power to indemnify such Person against liability;

(m) To adopt, establish and carry out pension, profit-sharing, share
bonus, share purchase, savings, thrift and other retirement, incentive and
benefit plans and trusts, including the purchasing of life insurance and annuity
contracts as a means of providing such retirement and other benefits, for any or
all of the Trustees, officers, employees and agents of the Trust;

(n) To operate as and carry out the business of an investment company, and
exercise all the powers necessary or appropriate to the conduct of such
operations;

(o) To enter into contracts of any kind and description;

(p) To employ as custodian of any assets of the Trust one or more banks,
trust companies or companies that are members of a national securities exchange
or such other entities as the Commission may permit as custodians of the Trust,
subject to any conditions set forth in this Declaration of Trust or in the By-
Laws;

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(q) To employ auditors, counsel or other agents of the Trust, subject to
any conditions set forth in this Declaration of Trust or in the By-Laws;

(r) To interpret the investment policies, practices, or limitations of any
Series or Class; and

(s) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes, and with
separate Shares representing beneficial interests in such Series, and to
establish separate Classes, all in accordance with the provisions of Article
III;

(t) To the full extent permitted by Section 3804 of the Delaware Act, to
allocate assets, liabilities and expenses of the Trust to a particular Series
and liabilities and expenses to a particular Class or to apportion the same
between or among two or more Series or Classes, provided that any liabilities or
expenses incurred by a particular Series or Class shall be payable solely out of
the assets belonging to that Series or Class as provided for in Article III;

(u) Subject to the 1940 Act, to engage in any other lawful act or activity
in which a business trust organized under the Delaware Act may engage.

The Trust shall not be limited to investing in obligations maturing before
the possible termination of the Trust or one or more of its Series. The Trust
shall not in any way be bound or limited by any present or future law or custom
in regard to investment by fiduciaries. The Trust shall not be required to
obtain any court order to deal with any assets of the Trust or take any other
action hereunder.

SECTION 4. PAYMENT OF EXPENSES BY THE TRUST. The Trustees are authorized
to pay or cause to be paid out of the principal or income of the Trust, or
partly out of the principal and partly out of income, as they deem fair, all
expenses, fees, charges, taxes and liabilities incurred or arising in connection
with the Trust, or in connection with the management thereof, including, but not
limited to, the Trustees' compensation and such expenses and charges for the
services of the Trust's officers, employees, investment adviser or Manager,
Principal Underwriter, auditors, counsel, custodian, transfer agent, shareholder
servicing agent, and such other agents or independent contractors and such other
expenses and charges as the Trustees may deem necessary or proper to incur,
which expenses, fees, charges, taxes and liabilities shall be allocated in
accordance with Article III, Section 6 hereof.

SECTION 5. PAYMENT OF EXPENSES BY SHAREHOLDERS. The Trustees shall have
the power, as frequently as they may determine, to cause each Shareholder, or
each Shareholder of any particular Series, to pay directly, in advance or
arrears, expenses of the Trust as described in Section 4 of this Article IV
("Expenses"), in an amount fixed from time to time by the Trustees, by setting
off such Expenses due from such Shareholder from declared but unpaid dividends
owed such Shareholder and/or by reducing the number of Shares in the account of
such

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Shareholder by that number of full and/or fractional Shares which represents the
outstanding amount of such Expenses due from such Shareholder, provided that the
direct payment of such Expenses by Shareholders is permitted under applicable
law.

SECTION 6. OWNERSHIP OF ASSETS OF THE TRUST. Title to all of the assets
of the Trust shall at all times be considered as vested in the Trust, except
that the Trustees shall have power to cause legal title to any Trust Property to
be held by or in the name of one or more of the Trustees, or in the name of the
Trust, or in the name of any other Person as nominee, on such terms as the
Trustees may determine. The right, title and interest of the Trustees in the
Trust Property shall vest automatically in each Person who may hereafter become
a Trustee. Upon the resignation, removal or death of a Trustee, he or she shall
automatically cease to have any right, title or interest in any of the Trust
Property, and the right, title and interest of such Trustee in the Trust
Property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered.

SECTION 7. SERVICE CONTRACTS.

(a) Subject to such requirements and restrictions as may be set forth
under federal and/or state law and in the By-Laws, including, without
limitation, the requirements of Section 15 of the 1940 Act, the Trustees may, at
any time and from time to time, contract for exclusive or nonexclusive advisory,
management and/or administrative services for the Trust or for any Series (or
Class thereof) with any corporation, trust, association, or other organization;
and any such contract may contain such other terms as the Trustees may
determine, including, without limitation, authority for the Manager(s) or
administrator to delegate certain or all of its duties under such contracts to
qualified investment advisers and administrators and to determine from time to
time without prior consultation with the Trustees what investments shall be
purchased, held sold or exchanged and what portion, if any, of the assets of the
Trust shall be held uninvested and to make changes in the Trust's investments,
or such other activities as may specifically be delegated to such party.

(b) The Trustees may also, at any time and from time to time, contract
with any corporation, trust, association, or other organization, appointing it
exclusive or nonexclusive distributor or Principal Underwriter for the Shares of
one or more of the Series (or Classes) or other securities to be issued by the
Trust. Every such contract shall comply with such requirements and restrictions
as may be set forth under federal and/or state law and in the By-Laws,
including, without limitation, the requirements of Section 15 of the 1940 Act;
and any such contract may contain such other terms as the Trustees may
determine.

(c) The Trustees are also empowered, at any time and from time to time, to
contract with any corporations, trusts, associations or other organizations,
appointing it or them the custodian, transfer agent and/or shareholder servicing
agent for the Trust or one or more of its Series. Every such contract shall
comply with such requirements and restrictions as may be set

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forth under federal and/or state law and in the By-Laws or stipulated by
resolution of the Trustees.

(d) Subject to applicable law, the Trustees are further empowered, at any
time and from time to time, to contract with any entity to provide such other
services to the Trust or one or more of the Series, as the Trustees determine to
be in the best interests of the Trust and the applicable Series.

(e) The fact that:

(i) any of the Shareholders, Trustees, or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee,
Manager, adviser, Principal Underwriter, distributor, or
affiliate or agent of or for any corporation, trust, association,
or other organization, or for any parent or affiliate of any
organization with which an advisory, management, or
administration contract, or Principal Underwriter's or
distributor's contract, or transfer agent, shareholder servicing
agent or other type of service contract may have been or may
hereafter be made, or that any such organization, or any parent
or affiliate thereof, is a Shareholder or has an interest in the
Trust; or that

(ii) any corporation, trust, association or other organization with
which an advisory, management, or administration contract or
Principal Underwriter's or distributor's contract, or transfer
agent or shareholder servicing agent contract may have been or
may hereafter be made also has an advisory, management, or
administration contract, or Principal Underwriter's or
distributor's or other service contract with one or more other
corporations, trusts, associations, or other organizations, or
has other business or interests,

shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same, or create any liability or accountability to the Trust or its
Shareholders, provided approval of each such contract is made pursuant to the
requirements of the 1940 Act.

SECTION 8. TRUSTEES AND OFFICERS AS SHAREHOLDERS. Any Trustee, officer or
agent of the Trust may acquire, own and dispose of Shares to the same extent as
if he were not a Trustee, officer or agent; and the Trustees may issue and sell
and cause to be issued and sold Shares to, and redeem such Shares from, any such
Person or any firm or company in which such Person is interested, subject only
to the general limitations contained herein or in the By-Laws relating to the
sale and redemption of such Shares.

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ARTICLE V

Shareholders' Voting Powers and Meetings

SECTION 1. VOTING POWERS, MEETINGS, NOTICE, AND RECORD DATES. The
Shareholders shall have power to vote only: (i) for the election or removal of
Trustees as provided in Article IV, Section 1 hereof, and (ii) with respect to
such additional matters relating to the Trust as may be required by applicable
law, this Declaration of Trust, the By-Laws or any registration of the Trust
with the Commission (or any successor agency), or as the Trustees may consider
necessary or desirable. Each whole Share shall be entitled to one vote as to
any matter on which it is entitled to vote and each fractional Share shall be
entitled to a proportionate fractional vote. Notwithstanding any other
provision of this Declaration of Trust, on any matters submitted to a vote of
the Shareholders, all Shares of the Trust then entitled to vote shall be voted
in aggregate, except: (i) when required by the 1940 Act, Shares shall be voted
by individual Series; (ii) when the matter involves the termination of a Series
or any other action that the Trustees have determined will affect only the
interests of one or more Series, then only Shareholders of such Series shall be
entitled to vote thereon; and (iii) when the matter involves any action that the
Trustees have determined will affect only the interests of one or more Classes,
then only the Shareholders of such Class or Classes shall be entitled to vote
thereon. There shall be no cumulative voting in the election of Trustees.
Shares may be voted in person or by proxy. A proxy may be given in writing.
The By-Laws may provide that proxies may also, or may instead, be given by an
electronic or telecommunications device or in any other manner. Notwithstanding
anything else contained herein or in the By-Laws, in the event a proposal by
anyone other than the officers or Trustees of the Trust is submitted to a vote
of the Shareholders of one or more Series or Classes thereof or of the Trust, or
in the event of any proxy contest or proxy solicitation or proposal in
opposition to any proposal by the officers or Trustees of the Trust, Shares may
be voted only by written proxy or in person at a meeting. Until Shares are
issued, the Trustees may exercise all rights of Shareholders and may take any
action required by law, this Declaration of Trust or the By-Laws to be taken by
the Shareholders. Meetings of the Shareholders shall be called and notice
thereof and record dates therefor shall be given and set as provided in the By-
Laws.

SECTION 2. QUORUM AND REQUIRED VOTE. Except when a larger quorum is
required by applicable law, by the By-Laws or by this Declaration of Trust,
thirty-three and one-third percent (33-1/3%) of the Shares entitled to vote
shall constitute a quorum at a Shareholders' meeting. When any one or more
Series (or Classes) is to vote as a single Class separate from any other Shares,
thirty-three and one-third percent (33-1/3%) of the Shares of each such Series
(or Class) entitled to vote shall constitute a quorum at a Shareholders' meting
of that Series (or Class). Except when a larger vote is required by any
provision of this Declaration of Trust or the By-Laws or by applicable law, when
a quorum is present at any meeting, a majority of the Shares voted shall decide
any questions and a plurality of the Shares voted shall elect a Trustee,
provided that where any provision of law or of this Declaration of Trust
requires that the holders of any Series shall vote as a Series (or that holders
of a Class shall vote as a Class), then a

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majority of the Shares of that Series (or Class) voted on the matter (or a
plurality with respect to the election of a Trustee) shall decide that matter
insofar as that Series (or Class) is concerned.

SECTION 3. RECORD DATES. For the purpose of determining the Shareholders
of any Series (or Class) who are entitled to receive payment of any dividend or
of any other distribution, the Trustees may from time to time fix a date, which
shall be before the date for the payment of such dividend or such other payment,
as the record date for determining the Shareholders of such Series (or Class)
having the right to receive such dividend or distribution. Without fixing a
record date, the Trustees may for distribution purposes close the register or
transfer books for one or more Series (or Classes) at any time prior to the
payment of a distribution. Nothing in this Section shall be construed as
precluding the Trustees from setting different record dates for different Series
(or Classes).

SECTION 4. ADDITIONAL PROVISIONS. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.

ARTICLE VI

Net Asset Value, Distributions and Redemptions

SECTION 1. DETERMINATION OF NET ASSET VALUE, NET INCOME, AND
DISTRIBUTIONS. Subject to applicable law and Article III, Section 6 hereof, the
Trustees, in their absolute discretion, may prescribe and shall set forth in the
By-Laws or in a duly adopted vote of the Trustees such bases and time for
determining the per Share or net asset value of the Shares of any Series or
Class or net income attributable to the Shares of any Series or Class, or the
declaration and payment of dividends and distributions on the Shares of any
Series or Class, as they may deem necessary or desirable.

SECTION 2. REDEMPTIONS AND REPURCHASES.

(a) The Trust shall purchase such Shares as are offered by any Shareholder
for redemption, upon the presentation of a proper instrument of transfer
together with a request directed to the Trust, or a Person designated by the
Trust, that the Trust purchase such Shares or in accordance with such other
procedures for redemption as the Trustees may from time to time authorize; and
the Trust will pay therefor the net asset value thereof as determined by the
Trustees (or on their behalf), in accordance with any applicable provisions of
the By-Laws and applicable law. Unless extraordinary circumstances exist,
payment for said Shares shall be made by the Trust to the Shareholder in
accordance with the 1940 Act and any rules and regulations thereunder or as
otherwise required by the Commission. The obligation set forth in this
Section 2 is subject to the provision that, in the event that any time the New
York Stock Exchange (the "Exchange") is closed for other than weekends or
holidays, or if permitted by the

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<PAGE>

rules and regulations or an order of the Commission during periods when trading
on the Exchange is restricted or during any emergency which makes it
impracticable for the Trust to dispose of the investments of the applicable
Series or to determine fairly the value of the net assets held with respect to
such Series or during any other period permitted by order of the Commission for
the protection of investors, such obligation may be suspended or postponed by
the Trustees. In the case of a suspension of the right of redemption as
provided herein, a Shareholder may either withdraw the request for redemption or
receive payment based on the net asset value per share next determined after the
termination of such suspension.

(b) The redemption price may in any case or cases be paid wholly or partly
in kind if the Trustees determine that such payment is advisable in the interest
of the remaining Shareholders of the Series or Class thereof for which the
Shares are being redeemed. Subject to the foregoing, the fair value, selection
and quantity of securities or other property so paid or delivered as all or part
of the redemption price may be determined by or under authority of the Trustees.
In no case shall the Trust be liable for any delay of any Manager or other
Person in transferring securities selected for delivery as all or part of any
payment-in-kind.

(c) If the Trustees shall, at any time and in good faith, determine that
direct or indirect ownership of Shares of any Series or Class thereof has or may
become concentrated in any Person to an extent that would disqualify any Series
as a regulated investment company under the Internal Revenue Code of 1986, as
amended (or any successor statute thereto), then the Trustees shall have the
power (but not the obligation) by such means as they deem equitable (i) to call
for the redemption by any such Person of a number, or principal amount, of
Shares sufficient to maintain or bring the direct or indirect ownership of
Shares into conformity with the requirements for such qualification, (ii) to
refuse to transfer or issue Shares of any Series or Class thereof to such Person
whose acquisition of the Shares in question would result in such
disqualification, or (iii) to take such other actions as they deem necessary and
appropriate to avoid such disqualification. Any such redemption shall be
effected at the redemption price and in the manner provided in this Article VI.

(d) The holders of Shares shall upon demand disclose to the Trustees in
writing such information with respect to direct and indirect ownership of Shares
as the Trustees deem necessary to comply with the provisions of the Internal
Revenue Code of 1986, as amended (or any successor statute thereto), or to
comply with the requirements of any other taxing authority.

ARTICLE VII

Compensation and Limitation of Liability of Trustees

SECTION 1. COMPENSATION. The Trustees in such capacity shall be entitled
to reasonable compensation from the Trust and they may fix the amount of such
compensation. However, the Trust will not compensate those Trustees who are
Interested Persons of the Trust, its Manager,

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<PAGE>

subadvisers, distributor or Principal Underwriter. Nothing herein shall in any
way prevent the employment of any Trustee for advisory, management, legal,
accounting, investment banking or other services and payment for such services
by the Trust.

SECTION 2. INDEMNIFICATION AND LIMITATION OF LIABILITY. A Trustee, when
acting in such capacity, shall not be personally liable to any Person, other
than the Trust or a Shareholder to the extent provided in this Article VII, for
any act, omission or obligation of the Trust, of such Trustee or of any other
Trustee. The Trustees shall not be responsible or liable in any event for any
neglect or wrongdoing of any officer, agent, employee, Manager, or Principal
Underwriter of the Trust. The Trust shall indemnify each Person who is serving
or has served at the Trust's request as a director, officer, trustee, employee,
or agent of another organization in which the Trust has any interest as a
shareholder, creditor, or otherwise to the extent and in the manner provided in
the By-Laws.

All persons extending credit to, contracting with or having any claim
against the Trust of the Trustees shall look only to the assets of the
appropriate Series of the Trust for payment under such credit, contract, or
claim; and neither the Trustees nor the Shareholders, nor any of the Trust's
officers, employees, or agents, whether past, present, or future, shall be
personally liable therefor.

Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees by any of them in connection with the Trust shall
conclusively be deemed to have been executed or done only in or with respect to
his or their capacity as Trustee or Trustees, and such Trustee or Trustees shall
not be personally liable thereon. At the Trustees' discretion, any note, bond,
contract, instrument, certificate or undertaking made or issued by the Trustees
or by any officer or officers may give notice that the Certificate of Trust is
on file in the Office of the Secretary of State of the State of Delaware and
that a limitation on liability of Series exists and such note, bond, contract,
instrument, certificate or undertaking may, if the Trustees so determine, recite
that the same was executed or made on behalf of the Trust by a Trustee or
Trustees in such capacity and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually but
are binding only on the assets and property of the Trust or a Series thereof,
and may contain such further recital as such Person or Persons may deem
appropriate. The omission of any such notice or recital shall in no way operate
to bind any Trustees, officer, or Shareholders individually.

SECTION 3. TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR SURETY.
The exercise by the Trustees of their powers and discretions hereunder shall be
binding upon everyone interested. A Trustee shall be liable to the Trust and to
any Shareholder solely for his or her own willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee, and shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and shall be
under no liability

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<PAGE>

for any act or omission in accordance with such advice nor for failing to follow
such advice. The Trustees shall not be required to give any bond as such, nor
any surety if a bond is required.

SECTION 4. INSURANCE. The Trustees shall be entitled and empowered to the
fullest extent permitted by law to purchase with Trust assets insurance for
liability and for all expenses reasonably incurred or paid or expected to be
paid by a Trustee, officer, employee, or agent of the Trust in connection with
any claim, action, suit, or proceeding in which he or she may become involved by
virtue of his or her capacity or former capacity as a Trustee of the Trust.

ARTICLE VIII

Miscellaneous

SECTION 1. LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES. No Person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.

SECTION 2. TERMINATION OF THE TRUST OR ANY SERIES OR CLASS.

(a) Unless terminated as provided herein, the Trust shall continue without
limitation of time. The Trust may be terminated at any time by vote of a
majority of the Shares of each Series entitled to vote, voting separately by
Series, or by the Trustees by written notice to the Shareholders. Any Series of
Shares or Class thereof may be terminated at any time by vote of a majority of
the Shares of such Series or Class entitled to vote or by the Trustees by
written notice to the Shareholders of such Series or Class.

(b) Upon the requisite Shareholder vote or action by the Trustees to
terminate the Trust or any one or more Series of Shares or any Class thereof,
after paying or otherwise providing for all charges, taxes, expenses, and
liabilities, whether due or accrued or anticipated, of the Trust or of the
particular Series or any Class thereof as may be determined by the Trustees, the
Trust shall in accordance with such procedures as the Trustees may consider
appropriate reduce the remaining assets of the Trust or of the affected Series
or Class to distributable form in cash or Shares (if any Series remain) or other
securities, or any combination thereof, and distribute the proceeds to the
Shareholders of the Series or Classes involved, ratably according to the number
of Shares of such Series or Class held by the Shareholders of such Series or
Class on the date of distribution. Thereupon, the Trust or any affected Series
or Class shall terminate and the Trustees and the Trust shall be discharged of
any and all further liabilities and duties relating thereto or arising
therefrom, and the right, title, and interest of all parties with respect to the
Trust or such Series or Class shall be canceled and discharged.

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<PAGE>

(c) Upon termination of the Trust, following completion of winding up of
its business, the Trustees shall cause a certificate of cancellation of the
Trust's Certificate of Trust to be filed in accordance with the Delaware Act,
which Certificate of Cancellation may be signed by any one Trustee.

SECTION 3. REORGANIZATION.

(a) Notwithstanding anything else herein, the Trustees may, without
Shareholder approval unless such approval is required by applicable law, (i)
cause the Trust to merge or consolidate with or into one or more trusts (or
series thereof to the extent permitted by law), partnerships, associations,
corporations or other business entities (including trusts, partnerships,
associations, corporations or other business entities created by the Trustees to
accomplish such merger or consolidation) so long as the surviving or resulting
entity is an investment company as defined in the 1940 Act, or is a series
thereof, that will succeed to or assume the Trust's registration under the 1940
Act and that is formed, organized, or existing under the laws of the United
States or of a state, commonwealth, possession or colony of the United States,
unless otherwise permitted under the 1940 Act, (ii) cause any one or more Series
(or Classes) of the Trust to merge or consolidate with or into any one or more
other Series (or Classes) of the Trust, one or more trusts (or series or classes
thereof to the extent permitted by law), partnerships, associations,
corporations, (iii) cause the Shares to be exchanged under or pursuant to any
state or federal statute to the extent permitted by law or (iv) cause the Trust
to reorganize as a corporation, limited liability company or limited liability
partnership under the laws of Delaware or any other state or jurisdiction. Any
agreement of merger or consolidation or exchange or certificate or merger may be
signed by a majority of the Trustees and facsimile signatures conveyed by
electronic or telecommunication means shall be valid.

(b) Pursuant to and in accordance with the provisions of Section 3815(f)
of the Delaware Act, and notwithstanding anything to the contrary contained in
this Declaration of Trust, an agreement of merger or consolidation approved by
the Trustees in accordance with this Section 3 may (i) effect any amendment to
the governing instrument of the Trust or (ii) effect the adoption of a new
governing instrument of the Trust if the Trust is the surviving or resulting
trust in the merger or consolidation.

(c) The Trustees may create one or more business trusts to which all or
any part of the assets, liabilities, profits, or losses of the Trust or any
Series or Class thereof may be transferred and may provide for the conversion of
Shares in the Trust or any Series or Class thereof into beneficial interests in
any such newly created trust or trusts or any series of classes thereof.

SECTION 4. AMENDMENTS. Except as specifically provided in this Section 4,
the Trustees may, without Shareholder vote, restate, amend, or otherwise
supplement this Declaration of Trust. Shareholders shall have the right to vote
on (i) any amendment that would affect their right to vote granted in Article V,
Section 1 hereof, (ii) any amendment to this Section 4 of

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<PAGE>

Article VIII; (iii) any amendment that may require their vote under applicable
law or by the Trust's registration statement, as filed with the Commission, and
(iv) any amendment submitted to them for their vote by the Trustees. Any
amendment required or permitted to be submitted to the Shareholders that, as the
Trustees determine, shall affect the Shareholders of one or more Series shall be
authorized by a vote of the Shareholders of each Series affected and no vote of
Shareholders of a Series not affected shall be required. Notwithstanding
anything else herein, no amendment hereof shall limit the rights to insurance
provided by Article VII, Section 4 hereof with respect to any acts or omissions
of Persons covered thereby prior to such amendment nor shall any such amendment
limit the rights to indemnification referenced in Article VII, Section 2 hereof
as provided in the By-Laws with respect to any actions or omissions of Persons
covered thereby prior to such amendment. The Trustees may, without Shareholder
vote, restate, amend, or otherwise supplement the Certificate of Trust as they
deem necessary or desirable.

SECTION 5. FILING OF COPIES, REFERENCES, HEADINGS. The original or a copy
of this instrument and of each restatement and/or amendment hereto shall be kept
at the office of the Trust where it may be inspected by any Shareholder. Anyone
dealing with the Trust may rely on a certificate by an officer of the Trust as
to whether or not any such restatements and/or amendments have been made and as
to any matters in connection with the Trust hereunder; and, with the same effect
as if it were the original, may rely on a copy certified by an officer of the
Trust to be a copy of this instrument or of any such restatements and/or
amendments. In this instrument and in any such restatements and/or amendments,
references to this instrument, and all expressions such as "herein," "hereof,"
and "hereunder," shall be deemed to refer to this instrument as amended or
affected by any such restatements and/or amendments. Headings are placed herein
for convenience of reference only and shall not be taken as a part hereof or
control or affect the meaning, construction or effect of this instrument.
Whenever the singular number is used herein, the same shall include the plural;
and the neuter, masculine and feminine genders shall include each other, as
applicable. This instrument may be executed in any number of counterparts each
of which shall be deemed an original.

SECTION 6. APPLICABLE LAW.

(a) The Trust is created under, and this Declaration of Trust is to be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware. The Trust shall be of the type commonly called a business
trust, and without limiting the provisions hereof, the Trust specifically
reserves the right to exercise any of the powers or privileges afforded to
business trusts or actions that may be engaged in by business trusts under the
Delaware Act, and the absence of a specific reference herein to any such power,
privilege, or action shall not imply that the Trust may not exercise such power
or privilege or take such actions.

(b) Notwithstanding the first sentence of Section 6(a) of this Article
VIII, there shall not be applicable to the Trust, the Trustees, or this
Declaration of Trust either the provisions of Section 3540 of Title 12 of the
Delaware Code or any provisions of the laws (statutory or common) of the State
of Delaware (other than the Delaware Act) pertaining to trusts that relate

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to or regulate: (i) the filing with any court or governmental body or agency of
trustee accounts or schedules of trustee fees and charges; (ii) affirmative
requirements to post bonds for trustees, officers, agents, or employees of a
trust; (iii) the necessity for obtaining a court or other governmental approval
concerning the acquisition, holding, or disposition of real or personal
property; (iv) fees or other sums applicable to trustees, officers, agents or
employees of a trust; (v) the allocation of receipts and expenditures to income
or principal; (vi) restrictions or limitations on the permissible nature,
amount, or concentration of trust investments or requirements relating to the
titling, storage, or other manner of holding of trust assets; or (vii) the
establishment of fiduciary or other standards or responsibilities or limitations
on the acts or powers or liabilities or authorities and powers of trustees that
are inconsistent with the limitations or liabilities or authorities and powers
of the Trustees set forth or referenced in this Declaration of Trust.

SECTION 7. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS.

(a) The provisions of this Declaration of Trust are severable, and if the
Trustees shall determine, with the advice of counsel, that any such provision is
in conflict with the 1940 Act, the regulated investment company provisions of
the Internal Revenue Code of 1986, as amended (or any successor statute
thereto), and the regulations thereunder, the Delaware Act or with other
applicable laws and regulations, the conflicting provision shall be deemed never
to have constituted a part of this Declaration of Trust; provided, however, that
such determination shall not affect any of the remaining provisions of this
Declaration of Trust or render invalid or improper any action taken or omitted
prior to such determination.

(b) If any provision of this Declaration of Trust shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration of Trust in any jurisdiction.

SECTION 8. BUSINESS TRUST ONLY. It is the intention of the Trustees to
create a business trust pursuant to the Delaware Act. It is not the intention
of the Trustees to create a general partnership, limited partnership, joint
stock association, corporation, bailment, or any form of legal relationship
other than a business trust pursuant to the Delaware Act. Nothing in this
Declaration of Trust shall be construed to make the Shareholders, either by
themselves or with the Trustees, partners, or members of a joint stock
association.

IN WITNESS WHEREOF, the Trustee named below does hereby make and enter into
this Agreement and Declaration of Trust as of the 23rd day of September, 1997.

/s/ Harold H. Morley
----------------------------------------
Harold H. Morley, Trustee

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BY-LAWS

THE PORTLAND MUTUAL FUNDS

a Delaware Business Trust

<PAGE>

TABLE OF CONTENTS

BY-LAWS

Page

Article I Offices................................................... 1

1. Principal Office...........................................1
2. Delaware Office............................................1
3. Other Offices..............................................1

Article II Meetings of Shareholders...................................2

1. Place of Meetings..........................................2
2. Call of Meetings...........................................2
3. Notice of Meetings ........................................2
4. Manner of Giving Notice; Affidavit of Notice...............2
5. Adjourned Meetings; Notice.................................3
6. Voting.....................................................3
7. Waiver of Notice by Consent of
Absent Shareholders......................................3
8. Shareholder Action by Written
Consent Without a Meeting................................4
9. Record Date for Shareholder Notice,
Voting and Giving Consents...............................4
10. Proxies....................................................5
11. Inspectors of Election.....................................6

Article III Trustees...................................................7

1. Powers.....................................................7
2. Number of Trustees.........................................7
3. Vacancies..................................................7
4. Place of Meetings and Meetings by
Telephone................................................7
5. Regular Meetings...........................................7
6. Special Meetings...........................................7
7. Quorum.....................................................8
8. Waiver of Notice...........................................8
9. Adjournment................................................8

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Page

10. Notice of Adjournment......................................8
11. Action Without a Meeting...................................8
12. Fees and Compensation of Trustees..........................9
13. Delegation of Power to Other Trustees......................9

Article IV Committees.................................................9

1. Committees of Trustees.....................................9
2. Meetings and Action of Committees.........................10

Article V Officers..................................................10

1. Officers..................................................10
2. Election of Officers......................................10
3. Subordinate Officers......................................10
4. Removal and Resignation of
Officers................................................10
5. Vacancies in Offices......................................11
6. Chairman..................................................11
7. President.................................................11
8. Vice Presidents...........................................11
9. Secretary.................................................11
10. Treasurer.................................................12

Article VI Indemnification of Trustees, Officers
Employees and Other Agents..............................12

1. Agents, Proceedings, and Expenses.........................12
2. Indemnification...........................................13
3. Limitations and Settlements...............................13
4. Insurance; Rights Not Exclusive...........................13
5. Advance of Expenses.......................................13
6. Fiduciaries of Employee Benefit Plan......................14

Article VII Inspection of Records and Reports.........................14

1. Inspection by Shareholders................................14
2. Inspection by Trustees....................................14
3. Financial Statements......................................14

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Page

Article VIII General Matters...........................................15

1. Checks, Drafts, Evidence of
Indebtedness............................................15
2. Contracts and Instruments; How
Executed................................................15
3. Fiscal Year...............................................15
4. Seal......................................................15

Article IX Amendments................................................15

1. Amendment.................................................15

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BY-LAWS

THE PORTLAND MUTUAL FUNDS
A Delaware Business Trust

INTRODUCTION

A. AGREEMENT AND DECLARATION OF TRUST. These By-Laws shall be subject to
the Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of the The Portland Mutual Funds, a Delaware business
trust (the "Trust"). In the event of any inconsistency between the terms hereof
and the terms of the Declaration of Trust, the terms of the Declaration of Trust
shall control.

B. DEFINITIONS. Capitalized terms used herein and not herein defined are
used as defined in the Declaration of Trust.

Article I

OFFICES

Section 1. PRINCIPAL OFFICE. The Trustees shall fix and, from time to
time, may change the location of the principal executive office of the Trust at
any place within or outside the State of Delaware.

Section 2. DELAWARE OFFICE. The Trustees shall establish a registered
office in the State of Delaware and shall appoint as the Trust's registered
agent for service of process in the State of Delaware an individual who is a
resident of the State of Delaware or a Delaware corporation or a corporation
authorized to transact business in the State of Delaware; in each case the
business office of such registered agent for service of process shall be
identical with the registered Delaware office of the Trust.

Section 3. OTHER OFFICES. The Trustees may at any time establish branch
or subordinate offices at any place or places within or outside the State of
Delaware where the Trust intends to do business.

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Article II

MEETINGS OF SHAREHOLDERS

Section 1. PLACE OF MEETINGS. Meetings of Shareholders shall be held at
any place designated by the Trustees. In the absence of any such designation,
Shareholders' meetings shall be held at the principal executive office of the
Trust.

Section 2. CALL OF MEETINGS. There shall be no annual Shareholders'
meetings. Special meetings of the Shareholders may be called at any time by the
Trustees or by the President for the purpose of taking action upon any matter
requiring the vote or authority of the Shareholders as herein provided or
provided in the Declaration of Trust or upon any other matter as to which such
vote or authority is deemed by the Trustees or the President to be necessary or
desirable. Meetings of the Shareholders may be called for any purpose deemed
necessary or desirable upon the written request of the Shareholders holding at
least ten percent (10%) of the outstanding Shares of the Trust entitled to vote.
To the extent required by the Investment Company Act of 1940, as amended ("1940
Act"), meetings of the Shareholders for the purpose of voting on the removal of
any Trustee shall be called promptly by the Trustees upon the written request of
Shareholders holding at least ten percent (10%) of the outstanding Shares of the
Trust entitled to vote.

Section 3. NOTICE OF MEETINGS OF SHAREHOLDERS. All notices of meetings of
Shareholders shall be sent or otherwise given to Shareholders in accordance with
Section 4 of this Article II not less than ten (10) nor more than ninety (90)
days before the date of the meeting. The notice shall specify (i) the place,
date and hour of the meeting, and (ii) the general nature of the business to be
transacted. The notice of any meeting at which Trustees are to be elected also
shall include the name of any nominee or nominees whom at the time of the notice
are intended to be presented for election.

If any action is proposed to be taken at any meeting of Shareholders for
approval of (i) a contract or transaction in which a Trustee has a direct or
indirect financial interest, (ii) an amendment of the Agreement and Declaration
of Trust of the Trust, (iii) a reorganization of the Trust, or (iv) a voluntary
dissolution of the Trust, the notice shall also state the general nature of that
proposed action.

Section 4. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any
meeting of Shareholders shall be (i) given either by hand delivery, first-class
mail, telegraphic or other written communication, charges prepaid, and (ii)
addressed to the Shareholder at the address of that Shareholder appearing on the
books of the Trust or its transfer agent or given by the Shareholder to the
Trust for the purpose of notice. If no such address appears on the Trust's
books or is not given to the Trust, notice shall be deemed to have been given if
sent to that Shareholder by first-class mail or telegraphic or other written
communication to the Trust's principal executive office, or if published at
least once in a newspaper of general circulation in

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the county where that office is located. Notice shall be deemed to have been
given at the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication or, where notice is given by
publication, on the date of publication.

If any notice addressed to a Shareholder at the address of that Shareholder
appearing on the books of the Trust is returned to the Trust by the United
States Postal Service marked to indicate that the Postal Service is unable to
deliver the notice to the Shareholder at that address, all future notices or
reports shall be deemed to have been duly given without further mailing if
such future notices or reports shall be kept available to the Shareholder, upon
written demand of the Shareholder, at the principal executive office of the
Trust for a period of one year from the date of the giving of the notice.

An affidavit of the mailing or other means of giving any notice of any
meeting of Shareholders shall be filed and maintained in the minute book of the
Trust.

Section 5. ADJOURNED MEETING; NOTICE. Any meeting of Shareholders,
whether or not a quorum is present, may be adjourned from time to time by the
vote of the majority of the Shares represented at that meeting, either in person
or by proxy.

When any meeting of Shareholders is adjourned to another time or place,
notice need not be given of the adjourned meeting at which the adjournment is
taken, unless a new record date of the adjourned meeting is fixed or unless the
adjournment is for more than sixty (60) days from the date set for the original
meeting, in which case the Trustees shall set a new record date. Notice of any
such adjourned meeting shall be given to each Shareholder of record entitled to
vote at the adjourned meeting in accordance with the provisions of Sections 3
and 4 of this Article II. At any adjourned meeting, the Trust may transact any
business which might have been transacted at the original meeting.

Section 6. VOTING. The Shareholders entitled to vote at any meeting of
Shareholders shall be determined in accordance with the provisions of the
Declaration of Trust of the Trust, as in effect at such time. The Shareholders'
vote may be by voice vote or by ballot, provided, however, that any election for
Trustees must be by ballot if demanded by any Shareholder before the voting has
begun. On any matter other than election of Trustees, any Shareholder may vote
part of the Shares in favor of the proposal and refrain from voting the
remaining Shares or vote them against the proposal, but if the Shareholder fails
to specify the number of Shares which the Shareholder is voting affirmatively,
it will be conclusively presumed that the Shareholder's approving vote is with
respect to the total Shares that such Shareholder is entitled to vote on such
proposal.

Section 7. WAIVER OF NOTICE; CONSENT OF ABSENT SHAREHOLDERS. The
transaction of business and any actions taken at a meeting of Shareholders,
however called and noticed and wherever held, shall be as valid as though taken
at a meeting duly held after regular call and notice provided a quorum is
present either in person or by proxy at the meeting of Shareholders

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and if either before or after the meeting, each Shareholder entitled to vote who
was not present in person or by proxy at the meeting of the Shareholders signs a
written waiver of notice or a consent to a holding of the meeting or an approval
of the minutes. The waiver of notice or consent need not specify either the
business to be transacted or the purpose of any meeting of Shareholders.

Attendance by a Shareholder at a meeting of Shareholders shall also
constitute a waiver of notice of that meeting, except if the Shareholder objects
at the beginning of the meeting to the transaction of any business because the
meeting is not lawfully called or convened and except that attendance at a
meeting of Shareholders is not a waiver of any right to object to the
consideration of matters not included in the notice of the meeting of
Shareholders if that objection is expressly made at the beginning of the
meeting.

Section 8. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Except as provided in the Declaration of Trust, any action that may be taken at
any meeting of Shareholders may be taken without a meeting and without prior
notice if a consent in writing setting forth the action to be taken is signed by
the holders of outstanding Shares having not less than the minimum number of
votes that would be necessary to authorize or take that action at a meeting at
which all Shares entitled to vote on that action were present and voted
provided, however, that the Shareholders receive any necessary Information
Statement or other necessary documentation in conformity with the requirements
of the Securities Exchange Act of 1934 or the rules or regulations thereunder.
All such consents shall be filed with the Secretary of the Trust and shall be
maintained in the Trust's records. Any Shareholder giving a written consent or
the Shareholder's proxy holders or a transferee of the Shares or a personal
representative of the Shareholder or their respective proxy holders may revoke
the Shareholder's written consent by a writing received by the Secretary of the
Trust before written consents of the number of Shares required to authorize the
proposed action have been filed with the Secretary.

If the consents of all Shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
Shareholders shall not have been received, the Secretary shall give prompt
notice of the action approved by the Shareholders without a meeting. This
notice shall be given in the manner specified in Section 4 of this Article II.

Section 9. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND GIVING CONSENTS.

(a) For purposes of determining the Shareholders entitled to vote or act
at any meeting or adjournment thereof, the Trustees may fix in advance a record
date which shall not be more than ninety (90) days nor less than ten (10) days
before the date of any such meeting. Without fixing a record date for a
meeting, the Trustees may for voting and notice purposes close the register or
transfer books for one or more Series (or Classes) for all or any part of the
period between the earliest date on which a record date for such meeting could
be set in accordance herewith and the date of such meeting.

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If the Trustees do not so fix a record date or close the register or
transfer books of the affected Series or Classes, the record date for
determining Shareholders entitled to notice of or to vote at a meeting of
Shareholders shall be the close of business on the business day next preceding
the day on which notice is given or if notice is waived, at the close of
business on the business day next preceding the day on which the meeting is
held.

(b) The record date for determining Shareholders entitled to give consent
to action in writing without a meeting, (a) when no prior action of the Trustees
has been taken, shall be the day on which the first written consent is given, or
(b) when prior action of the Trustees has been taken, shall be (i) such date as
determined for that purpose by the Trustees, which record date shall not precede
the date upon which the resolution fixing it is adopted by the Trustees and
shall not be more than twenty (20) days after the date of such resolution, or
(ii) if no record date is fixed by the Trustees, the record date shall be the
close of business on the day on which the Trustees adopt the resolution relating
to that action. Nothing in this Section shall be construed as precluding the
Trustees from setting different record dates for different Series or Classes.
Only Shareholders of record on the record date as herein determined shall have
any right to vote or to act at any meeting or give consent to any action
relating to such record date, notwithstanding any transfer of Shares on the
books of the Trust after such record date.

Section 10. PROXIES. Subject to the provisions of the Declaration of
Trust, every Person entitled to vote for Trustees or on any other matter shall
have the right to do so either in person or by proxy, provided that either (i)
an instrument authorizing such a proxy to act is executed by the Shareholder in
writing and dated not more than eleven (11) months before the meeting, unless
the instrument specifically provides for a longer period or (ii) the Trustees
adopt an electronic, telephonic, computerized or other alternative to the
execution of a written instrument authorizing the proxy to act, and such
authorization is received not more than eleven (11) months before the meeting.
A proxy shall be deemed executed by a Shareholder if the Shareholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by the Shareholder or the Shareholder's
attorney-in-fact. A valid proxy which does not state that it is irrevocable
shall continue in full force and effect unless (i) revoked by the Person
executing it before the vote pursuant to that proxy is taken, (a) by a writing
delivered to the Trust stating that the proxy is revoked, or (b) by a subsequent
proxy executed by such Person, or (c) attendance at the meeting and voting in
person by the Person executing that proxy, or (d) revocation by such Person
using any electronic, telephonic, computerized or other alternative means
authorized by the Trustees for authorizing the proxy to act; or (ii) written
notice of the death or incapacity of the maker of that proxy is received by the
Trust before the vote pursuant to that proxy is counted. A proxy with respect
to Shares held in the name of two or more Persons shall be valid if executed by
any one of them unless at or prior to exercise of the proxy the Trust receives a
specific written notice to the contrary from any one of the two or more Persons.
A proxy purporting to be executed by or on behalf of a Shareholder shall be
deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger.

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Section 11. INSPECTORS OF ELECTION. Before any meeting of Shareholders,
the Trustees may appoint any persons other than nominees for office to act as
inspectors of election at the meeting or its adjournment. If no inspectors of
election are so appointed, the Chairman of the meeting may appoint inspectors of
election at the meeting. The number of inspectors shall be two (2). If any
person appointed as inspector fails to appear or fails or refuses to act, the
Chairman of the meeting may appoint a person to fill the vacancy.

These inspectors shall:

(a) Determine the number of Shares outstanding and the voting power of
each, the Shares represented at the meeting, the existence of a quorum
and the authenticity, validity and effect of proxies;

(b) Receive votes, ballots or consents;

(d) Count and tabulate all votes or consents;

(e) Determine when the polls shall close;

(f) Determine the result; and

(g) Do any other acts that may be proper to conduct the election or vote
with fairness to all Shareholders.

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ARTICLE III

TRUSTEES

Section 1. POWERS. Subject to the applicable provisions of the 1940 Act,
the Declaration of Trust and these By-Laws relating to action required to be
approved by the Shareholders, the business and affairs of the Trust shall be
managed and all powers shall be exercised by or under the direction of the
Trustees.

Section 2. NUMBER OF TRUSTEES. The exact number of Trustees within the
limits specified in the Declaration of Trust shall be fixed from time to time by
a resolution of the Trustees.

Section 3. VACANCIES. Vacancies in the authorized number of Trustees may
be filled as provided in the Declaration of Trust.

Section 4. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. All meetings of
the Trustees may be held at any place that has been selected from time to time
by the Trustees. In the absence of such a selection, regular meetings shall be
held at the principal executive office of the Trust. Subject to any applicable
requirements of the 1940 Act, any meeting, regular or special, may be held by
conference telephone or similar communication equipment, so long as all Trustees
participating in the meeting can hear one another and all such Trustees shall be
deemed to be present in person at the meeting.

Section 5. REGULAR MEETINGS. Regular meetings of the Trustees shall be
held without call at such time as shall from time to time be fixed by the
Trustees. Such regular meetings may be held without notice.

Section 6. SPECIAL MEETINGS. Special meetings of the Trustees for any
purpose or purposes may be called at any time by the President or any Vice
President or the Secretary or any two (2) Trustees.

Notice of the time and place of special meetings shall be delivered
personally or by telephone to each Trustee or sent by first-class mail, by
telegram or telecopy (or similar electronic means) or by nationally recognized
overnight courier, charges prepaid, addressed to each Trustee at that Trustee's
address as it is shown on the records of the Trust. If the notice is mailed, it
shall be deposited in the United States mail at least seven (7) calendar days
before the time of the holding of the meeting. If the notice is delivered
personally or by telephone or by telegram, telecopy (or similar electronic
means), or overnight courier, it shall be given at least forty-eight (48) hours
before the time of the holding of the meeting. Any oral notice given personally
or by telephone must be communicated only to the Trustee. The notice need not
specify the purpose of the meeting or the place of the meeting, if the meeting
is to be held at the principal executive office of the Trust. Notice of a
meeting need not be given to any Trustee if a written waiver of notice, executed
by such Trustee before or after the meeting, is filed with the records of the

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meeting, or to any Trustee who attends the meeting without protesting, prior
thereto or at its commencement, the lack of notice to such Trustee.

Section 7. QUORUM. One third (1/3) of the authorized number of Trustees
shall constitute a quorum for the transaction of business, except to adjourn as
provided in Section 9 of this Article III. Every act or decision done or made
by a majority of the Trustees present at a meeting duly held at which a quorum
is present shall be regarded as the act of the Trustees, subject to the
provisions of the Declaration of Trust. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of Trustees if any action taken is approved by at least a majority of
the required quorum for that meeting.

Section 8. WAIVER OF NOTICE. Notice of any meeting need not be given to
any Trustee who either before or after the meeting signs a written waiver of
notice, a consent to holding the meeting, or an approval of the minutes. The
waiver of notice or consent need not specify the purpose of the meeting. All
such waivers, consents, and approvals shall be filed with the records of the
Trust or made a part of the minutes of the meeting. Notice of a meeting shall
also be deemed given to any Trustee who attends the meeting without protesting,
prior to or at its commencement, the lack of notice to that Trustee.

Section 9. ADJOURNMENT. A majority of the Trustees present, whether or
not constituting a quorum, may adjourn any meeting to another time and place.

Section 10. NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given unless the meeting is adjourned
for more than forty-eight (48) hours, in which case notice of the time and place
shall be given before the time of the adjourned meeting in the manner specified
in Section 6 of this Article III to the Trustees who were present at the time of
the adjournment.

Section 11. ACTION WITHOUT A MEETING. Unless the 1940 Act requires that a
particular action be taken only at a meeting at which the Trustees are present
in person, any action to be taken by the Trustees at a meeting may be taken
without such meeting by the written consent of a majority of the Trustees then
in office. Any such written consent may be executed and given by telecopy or
similar electronic means. Such written consents shall be filed with the minutes
of the proceedings of the Trustees. If any action is so taken by the Trustees
by the written consent of less than all of the Trustees, prompt notice of the
taking of such action shall be furnished to each Trustee who did not execute
such written consent, provided that the effectiveness of such action shall not
be impaired by any delay or failure to furnish such notice.

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Section 12. FEES AND COMPENSATION OF TRUSTEES. Trustees and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
Trustees. This Section 12 of Article III shall not be construed to preclude any
Trustee from serving the Trust in any other capacity as an officer, agent,
employee, or otherwise and receiving compensation for those services.

Section 13. DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may, by
power of attorney, delegate his or her power for a period not exceeding one (1)
month at any one time to any other Trustee. Except where applicable law may
require a Trustee to be present in person, a Trustee represented by another
Trustee, pursuant to such power of attorney, shall be deemed to be present for
purpose of establishing a quorum and satisfying the required majority vote.

ARTICLE IV

COMMITTEES

Section 1. COMMITTEES OF TRUSTEES. The Trustees may by resolution
designate one or more committees, each consisting of two (2) or more Trustees,
to serve at the pleasure of the Trustees. The Trustees may designate one or
more Trustees as alternate members of any committee who may replace any absent
member at any meeting of the committee. Any committee to the extent provided
for by resolution of the Trustees, shall have the authority of the Trustees,
except with respect to:

(a) the approval of any action which under applicable law requires
approval by a majority of the entire authorized number of Trustees or
certain Trustees;

(b) the filling of vacancies of Trustees;

(d) the amendment or termination of the Declaration of Trust or any Series
or Class or the amendment of the By-Laws or the adoption of new
By-Laws;

(e) the amendment or repeal of any resolution of the Trustees which by its
express terms is not so amendable or repealable;

(f) a distribution to the Shareholders of the Trust, except at a rate or
in a periodic amount or within a designated range determined by the
Trustees; or

(g) the appointment of any other committees of the Trustees or the members
of such new committees.

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Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
committees shall be governed by, held and taken in accordance with the
provisions of Article III of these By-Laws, with such changes in the context
thereof as are necessary to substitute the committee and its members for the
Trustees generally, except that the time of regular meetings of committees may
be determined either by resolution of the Trustees or by resolution of the
committee. Special meetings of committees may also be called by resolution of
the Trustees. Alternate members shall be given notice of meetings of committees
and shall have the right to attend all meetings of committees. The Trustees may
adopt rules for the governance of any committee not inconsistent with the
provisions of these By-Laws.

ARTICLE V

OFFICERS

Section 1. OFFICERS. The officers of the Trust shall be a President, a
Secretary, and a Treasurer. The Trust may also have, at the discretion of the
Trustees, a Chairman of the Board (Chairman), one or more Vice Presidents, one
or more Assistant Secretaries, one or more Assistant Treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 3 of
this Article V. Any number of offices may be held by the same person. The
Chairman, if there be one, shall be a Trustee and may be, but need not be, a
Shareholder; and any other officer may be, but need not be, a Trustee or
Shareholder.

Section 2. ELECTION OF OFFICERS. The officers of the Trust, except such
officers as may be appointed in accordance with the provisions of Section 3 or
Section 5 of this Article V, shall be chosen by the Trustees, and each shall
serve at the pleasure of the Trustees, subject to the rights, if any, of an
officer under any contract of employment.

Section 3. SUBORDINATE OFFICERS. The Trustees may appoint and may empower
the President to appoint such other officers as the business of the Trust may
require, each of whom shall hold office for such period, have such authority and
perform such duties as are provided in these By-Laws or as the Trustees may from
time to time determine.

Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if
any, of an officer under any contract of employment, any officer may be removed,
either with or without cause, by the Trustees at any regular or special meeting
of the Trustees or by the principal executive officer or by such other officer
upon whom such power of removal may be conferred by the Trustees.

Any officer may resign at any time by giving written notice to the Trust.
Any resignation shall take effect at the date of the receipt of that notice or
at any later time specified in that notice; and unless otherwise specified in
that notice, the acceptance of the resignation shall not

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be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Trust under any contract to which the officer is a party.

Section 5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or other cause shall be filled in
the manner prescribed in these By-Laws for regular appointment to that office.
The President may make temporary appointments to a vacant office pending action
by the Trustees.

Section 6. CHAIRMAN. The Chairman, if such an officer is elected, shall
if present, preside at meetings of the Trustees, shall be the chief executive
officer of the Trust and shall, subject to the control of the Trustees, have
general supervision, direction and control of the business and the officers of
the Trust and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Trustees or prescribed by the Declaration of
Trust or these By-Laws.

Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may
be given by the Trustees to the Chairman, if there be such an officer, the
President shall be the chief operating officer of the Trust and shall, subject
to the control of the Trustees and the Chairman, have general supervision,
direction and control of the business and the officers of the Trust. He or she
shall preside at all meetings of the Shareholders and, in the absence of the
Chairman or if there be none, at all meetings of the Trustees. He or she shall
have the general powers and duties of a president of a corporation and shall
have such other powers and duties as may be prescribed by the Trustees, the
Declaration of Trust or these By-Laws.

Section 8. VICE PRESIDENTS. In the absence or disability of the
President, any Vice President, unless there is an Executive Vice President,
shall perform all the duties of the President and when so acting shall have all
powers of and be subject to all the restrictions upon the President. The
Executive Vice President or Vice Presidents, whichever the case may be, shall
have such other powers and shall perform such other duties as from time to time
may be prescribed for them respectively by the Trustees or the President or the
Chairman or by these By-Laws.

Section 9. SECRETARY. The Secretary shall keep or cause to be kept at the
principal executive office of the Trust, or such other place as the Trustees may
direct, a book of minutes of all meetings and actions of Trustees, committees of
Trustees and Shareholders with the time and place of holding, whether regular or
special, and if special, how authorized, the notice given, the names of those
present at Trustees' meetings or committee meetings, the number of Shares
present or represented at meetings of Shareholders and the proceedings of the
meetings.

The Secretary shall keep or cause to be kept at the principal executive
office of the Trust or at the office of the Trust's transfer agent or registrar,
a share register or a duplicate share register showing the names of all
Shareholders and their addresses, the number and classes of

11
<PAGE>

Shares held by each, the number and date of certificates issued for the same and
the number and date of cancellation of every certificate surrendered for
cancellation.

The Secretary shall give or cause to be given notice of all meetings of the
Shareholders and of the Trustees (or committees thereof) required to be given by
these By-Laws or by applicable law and shall have such other powers and perform
such other duties as may be prescribed by the Trustees or by these By-Laws.

Section 10. TREASURER. The Treasurer shall be the chief financial officer
and chief accounting officer of the Trust and shall keep and maintain or cause
to be kept and maintained adequate and correct books and records of accounts of
the properties and business transactions of the Trust and each Series or Class
thereof, including accounts of the assets, liabilities, receipts, disbursements,
gains, losses, capital and retained earnings of all Series or Classes thereof.
The books of account shall at all reasonable times be open to inspection by any
Trustee.

The Treasurer shall deposit all monies and other valuables in the name and
to the credit of the Trust with such depositaries as may be designated by the
Board of Trustees. He or she shall disburse the funds of the Trust as may be
ordered by the Trustees, shall render to the President and Trustees, whenever
they request it, an account of all of his or her transactions as chief financial
officer and of the financial condition of the Trust and shall have other powers
and perform such other duties as may be prescribed by the Trustees or these
By-Laws.

ARTICLE VI

INDEMNIFICATION OF TRUSTEES, OFFICERS,
EMPLOYEES AND OTHER AGENTS

Section 1. AGENTS, PROCEEDINGS, EXPENSES. For the purpose of this
Article, "agent" means any Person who is or was a Trustee, officer, employee or
other agent of the Trust or is or was serving at the request of the Trust as a
trustee, director, officer, employee or agent of another organization in which
the Trust has any interest as a shareholder, creditor or otherwise;
"proceeding" means any threatened, pending or completed claim, action, suit or
proceeding, whether civil, criminal, administrative or investigative (including
appeals); and "expenses" includes, without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement, fines, penalties and all other
liabilities whatsoever.

12
<PAGE>

Section 2. INDEMNIFICATION. Subject to the exceptions and limitations
contained in Section 3 of this Article VI, every agent shall be indemnified by
the Trust to the fullest extent permitted by law against all liabilities and
against all expenses reasonably incurred or paid by him or her in connection
with any proceeding in which he or she becomes involved as a party or otherwise
by virtue of his or her being or having been an agent.

Section 3. LIMITATIONS, SETTLEMENTS. No indemnification shall be provided
hereunder to an agent:

(a) who shall have been adjudicated, by the court or other body before
which the proceeding was brought, to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his or her office (collectively, "disabling conduct"); or

(b) with respect to any proceeding disposed of (whether by settlement,
pursuant to a consent decree or otherwise) without an adjudication by
the court or other body before which the proceeding was brought that
such agent was liable to the Trust or its Shareholders by reason of
disabling conduct, unless there has been a determination that such
agent did not engage in disabling conduct:

(i) by the court or other body before which the proceeding was
brought;

(ii) by at least a majority of those Trustees who are neither
Interested Persons of the Trust nor are parties to the
proceeding based upon a review of readily available facts
(as opposed to a full trial-type inquiry); or

(iii) by written opinion of independent legal counsel based upon a
review of readily available facts (as opposed to a full
trial-type inquiry);

PROVIDED, HOWEVER, that indemnification shall be provided hereunder to an agent
with respect to any proceeding in the event of (1) a final decision on the
merits by the court or other body before which the proceeding was brought that
the agent was not liable by reason of disabling conduct, or (2) the dismissal of
the proceeding by the court or other body before which it was brought for
insufficiency of evidence of any disabling conduct with which such agent has
been charged.

Section 4. INSURANCE, RIGHTS NOT EXCLUSIVE. The rights of indemnification
herein provided (i) may be insured against by policies maintained by the Trust
on behalf of any agent, (ii) shall be severable, (iii) shall not be exclusive of
or affect any other rights to which any agent may now or hereafter be entitled
and (iv) shall inure to the benefit of the agent's heirs, executors and
administrators.

Section 5. ADVANCE OF EXPENSES. Expenses incurred by an agent in
connection with the preparation and presentation of a defense to any proceeding
may be paid by the Trust from time

13
<PAGE>

to time prior to final disposition thereof upon receipt of an undertaking by, or
on behalf of, such agent that such amount will be paid over by him or her to the
Trust if it is ultimately determined that he or she is not entitled to
indemnification under this Article VI; provided, however, that (a) such agent
shall have provided appropriate security for such undertaking, (b) the Trust is
insured against losses arising out of any such advance payments, or (c) either a
majority of the Trustees who are neither Interested Persons of the Trust nor
parties to the proceeding, or independent legal counsel in a written opinion,
shall have determined, based upon a review of the readily available facts (as
opposed to a trial-type inquiry or full investigation), that there is reason to
believe that such agent will be found entitled to indemnification under this
Article VI.

Section 6. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article does not
apply to any proceeding against any trustee, investment manager or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of this Trust as defined in Section 1 of
this Article. Nothing contained in this Article shall limit any right to
indemnification to which such a trustee, investment manager, or other fiduciary
may be entitled by contract or otherwise, which shall be enforceable to the
extent permitted by applicable law other than this Article VI.

ARTICLE VII

INSPECTION OF RECORDS AND REPORTS

Section 1. INSPECTION BY SHAREHOLDERS. The Trustees shall from time to
time determine whether and to what extent, and at what times and places, and
under what conditions and regulations the accounts and books of the Trust or any
of them shall be open to the inspection of the Shareholders; and no Shareholder
shall have any right to inspect any account or book or document of the Trust
except as conferred by law or otherwise by the Trustees or by resolution of the
Shareholders.

Section 2. INSPECTION BY TRUSTEES. Every Trustee shall have the absolute
right at any reasonable time to inspect all books, records, and documents of
every kind and the physical properties of the Trust. This inspection by a
Trustee may be made in person or by an agent or attorney and the right of
inspection includes the right to copy and make extracts of documents.

Section 3. FINANCIAL STATEMENTS. A copy of any financial statements and
any income statement of the Trust for each semi-annual period of each fiscal
year and accompanying balance sheet of the Trust as of the end of each such
period that has been prepared by the Trust shall be kept on file in the
principal executive office of the Trust for at least twelve (12) months and each
such statement shall be exhibited at all reasonable times to any Shareholder
demanding an examination of any such statement or a copy shall be mailed to any
such Shareholder.

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<PAGE>

The semi-annual income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the Trust or the certificate of an authorized officer of
the Trust that the financial statements were prepared without audit from the
books and records of the Trust.

ARTICLE VIII

GENERAL MATTERS

Section 1. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS. All checks, drafts,
or other orders for payment of money, notes or other evidences of indebtedness
issued in the name of or payable to the Trust shall be signed or endorsed in
such manner and by such person or persons as shall be designated from time to
time in accordance with the resolution of the Board of Trustees.

Section 2. CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Trustees, except
as otherwise provided in these By-Laws, may authorize any officer or officers,
agent or agents, to enter into any contract or execute any instrument in the
name of and on behalf of the Trust and this authority may be general or confined
to specific instances; and unless so authorized or ratified by the Trustees or
within the agency power of an officer, no officer, agent, or employee shall have
any power or authority to bind the Trust by any contract or engagement or to
pledge its credit or to render it liable for any purpose or for any amount.

Section 3. FISCAL YEAR. The fiscal year of the Trust shall be fixed and
refixed or changed from time to time by the Trustees. The fiscal year of the
Trust shall be the taxable year of each Series of the Trust.

Section 4. SEAL. The seal of the Trust shall consist of a flat-faced dye
with the name of the Trust cut or engraved thereon. However, unless otherwise
required by the Trustees, the seal shall not be necessary to be placed on, and
its absence shall not impair the validity of, any document, instrument or other
paper executed and delivered by or on behalf of the Trust.

ARTICLE IX

AMENDMENTS

Section 1. AMENDMENT. Except as otherwise provided by applicable law or
by the Declaration of Trust, these By-Laws may be restated, amended,
supplemented or repealed by a majority vote of the Trustees, provided that no
restatement, amendment, supplement or repeal hereof shall limit the rights to
indemnification or insurance provided in Article VI hereof with respect to any
acts or omissions of agents (as defined in Article VI) of the Trust prior to
such amendment.

<PAGE>

EXHIBIT 5
<PAGE>

FORM OF INVESTMENT ADVISORY AGREEMENT

THIS INVESTMENT ADVISORY AGREEMENT ("Agreement") made as of
, 1997 by and between THE PORTLAND MUTUAL FUNDS, a Delaware
business trust (the "Trust) and UNION BOND & TRUST COMPANY (the "Investment
Adviser").

RECITALS

WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940 (the "1940 Act");

WHEREAS, the Trust desires to retain the Investment Adviser to render
investment advisory and other services to the Trust with respect to certain of
its series of shares of beneficial interests as may currently exist or be
created in the future as listed on Exhibit A hereto (each, a "Fund" and
collectively, the "Funds"), and the Investment Adviser is willing to so render
such services on the terms hereinafter set forth;

NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties agree as follows:

AGREEMENT

1. APPOINTMENT.

The Trust hereby appoints the Investment Adviser to act as investment
adviser to each Fund for the period and on the terms set forth in this
Agreement. The Investment Adviser accepts such appointment and agrees to render
the services herein for the compensation set forth below.

2. SERVICES AS INVESTMENT ADVISER.

Subject to the supervision and direction of the Board of Trustees of the
Trust, the Investment Adviser will (a) manage each Fund in accordance with the
Fund's investment objectives, policies, and limitations as stated in the Fund's
Prospectus and Statement of Additional Information as from time to time in
effect; (b) make investment decisions for each Fund concerning (i) specific
types of securities to be held by the Fund and the proportion of the Fund's
assets that should be allocated to such investments or held uninvested during
particular market cycles, and (ii) the specific issuers whose securities will be
purchased or sold by the Fund; and (c) place orders to purchase and sell
securities.

In performing its investment management services to the Funds hereunder,
the Investment Adviser will provide the Funds with ongoing investment guidance
and policy direction, including oral and written research, analysis, advice,
statistical and economic data and judgments regarding individual investments,
general economic conditions and trends and long-range investment policy.

1-INVESTMENT ADVISORY AGREEMENT
<PAGE>

The Investment Adviser will supply adequate (i) office space (which may be
in the Investment Adviser's own offices) and (ii) office furnishings,
facilities, and equipment as may be reasonably required for managing the
corporate affairs and conducting the business of the Trust, including complying
with the corporate reporting requirements of the various states in which the
Trust does business, and conducting correspondence and other communications with
the shareholders of the Trust. In providing those services, the Investment
Adviser will supervise each Fund's investments generally and conduct a continual
program of evaluation of the Fund's assets.

In connection with the performance of its duties under this Agreement, the
Investment Adviser shall employ or provide and compensate the executive,
secretarial and clerical personnel necessary to provide such services. In
addition, it is understood that the Investment Adviser may employ or associate
with itself such additional person or persons as the Investment Adviser may
believe to be necessary and fitted to assist it in the performance of this
Agreement. The compensation of such person or persons shall be paid by the
Investment Adviser and no obligation may be incurred on the Trust's behalf in
any such respect.

The Investment Adviser further agrees that, in performing its duties
hereunder, it will:

(a) comply with the 1940 Act and all rules and regulations
thereunder, the Investment Advisers Act of 1940 (the "Advisers Act"), the
Internal Revenue Code of 1986, as amended (the "Code"), and all other
applicable federal and state laws and regulations, and with any applicable
procedures adopted by the Trustees;

(b) use reasonable efforts to manage each Fund so that it will
qualify, and continue to qualify, as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder;

(c) place orders pursuant to its investment determinations for each
Fund directly with the issuer, or with any broker or dealer, in accordance
with applicable policies expressed in each Fund's prospectus and/or
Statement of Additional Information and in accordance with applicable legal
requirements;

(d) make available to the Trust, promptly upon its request, such
copies of the Investment Adviser's investment records and ledgers with
respect to the Funds as may be required to assist the Trust in its
compliance with applicable laws and regulations. The Investment Adviser
will furnish the Trustees with such periodic and special reports regarding
each Fund as they may reasonably request; and

(e) immediately notify the Trust in the event that the Investment
Adviser or any of its affiliates: (1) becomes aware that it is subject to a
statutory disqualification that prevents the Investment Adviser from
serving as investment adviser pursuant to this Agreement; or (2) becomes
aware that it is the subject of an administrative proceeding or enforcement
action by the SEC or other regulatory authority. The Investment Adviser

2-INVESTMENT ADVISORY AGREEMENT
<PAGE>

further agrees to notify the Trust immediately of any material fact known
to the Investment Adviser respecting or relating to the Investment Adviser
that is not contained in the Trust's Registration Statement, or any
amendment or supplement thereto, but that is required to be disclosed
therein, and of any statement contained therein that becomes untrue in any
material respect.

3. BROKERAGE.

The Investment Adviser will select brokers and dealers to effect all
portfolio transactions subject to the conditions set forth herein. The
Investment Adviser will place all necessary orders with brokers, dealers, or
issuers, and will negotiate brokerage commissions if applicable. The Investment
Adviser is directed at all times to seek to execute brokerage transactions for
the Funds in accordance with such policies or practices as may be established by
the Board of Trustees and described in the Funds' currently effective
Prospectuses and SAIs, as amended from time to time. In placing orders for the
purchase or sale of investments for the Funds, in the name of the Funds or
their nominees, the Investment Adviser shall use its best efforts to obtain for
the Funds the most favorable price and best execution available, considering all
of the circumstances, and shall maintain records adequate to demonstrate
compliance with this requirement.

Subject to the appropriate policies and procedures approved by the Board of
Trustees, the Investment Adviser may, to the extent authorized by Section 28(e)
of the Securities and Exchange Act of 1934, as amended, cause a Fund to pay a
broker or dealer that provides brokerage or research services to the Investment
Adviser or the Fund an amount of commissions for effecting a portfolio
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction if the Investment Adviser
determines, in good faith, that such amount of commission is reasonable in
relationship to the value of such brokerage or research services provided
viewed in terms of that particular transaction or the Investment Adviser's
overall responsibilities to the Fund or its other advisory clients. To the
extent authorized by said Section 28(e) and the Trust's Board of Trustees, the
Investment Adviser shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason of
such action. In addition, subject to seeking the most favorable price and best
execution available, the Investment Adviser may also consider sales of shares of
the Trust as a factor in the selection of brokers and dealers.

4. INFORMATION PROVIDED TO THE TRUST.

The Investment Adviser will furnish to the Trust whatever statistical
information the Trust may reasonably request with respect to each Fund's assets
or contemplated investments. The Investment Adviser will keep the Trust
informed of developments materially affecting the Fund, and will, on its own
initiative, furnish the Trust from time to time with whatever information the
Investment Adviser believes is appropriate for this purpose.

3-INVESTMENT ADVISORY AGREEMENT
<PAGE>

5. BOOKS AND RECORDS.

The Investment Adviser agrees to maintain such books and records with
respect to its services to the Trust as are required by Section 31 under the
1940 Act, and rules adopted thereunder, and by other applicable legal
provisions, and to preserve such records for the periods and in the manner
required by that Section, and those rules and legal provisions. In compliance
with the requirements of Rule 31a-3 under the 1940 Act, the Investment Adviser
hereby agrees that all records that it maintains for the Trust in respect of the
Fund are the property of the Trust and further agrees to surrender promptly to
the Trust any of such records upon the Trust's request. The Investment Adviser
further agrees that it will furnish to regulatory authorities having the
requisite authority any information or reports in connection with its services
hereunder which may be required in order to determine whether the operations of
the Trust are being conducted in accordance with applicable law and regulations.

6. STANDARD OF CARE.

The Investment Adviser shall exercise its best judgment in rendering the
services provided by it under this Agreement. The Investment Adviser shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by the Fund (including without limitation any legal fees, costs and expenses) in
connection with the matters to which this Agreement relates, provided that
nothing herein shall be deemed to protect or purport to protect the Investment
Adviser against any liability to the Fund or to its shareholders to which the
Investment Adviser would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or by
reason of the Investment Adviser's reckless disregard of its obligations and
duties under this Agreement. As used in this Section 6, the term "Investment
Adviser" shall include any officers, directors, employees or other affiliates of
the Investment Adviser performing services with respect to the Trust or any
Fund.

7. COMPENSATION.

For the services provided and the expenses assumed pursuant to this
Agreement, the Trust will pay the Investment Adviser and the Investment Adviser
will accept as full compensation therefor fees, computed daily and payable at
the end of each calendar month, on an annual basis equal to the percentages of
the Funds' respective average daily net assets as listed on Exhibit A hereto.

The "average daily net assets" of a Fund shall mean the average of the
values placed on the Fund's net assets as of 4:00 p.m. (Eastern time) on each
day on which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act, or if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such other time. The value of net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Trust's Agreement and Declaration
of Trust and the Registration Statement. If, pursuant to such provisions, the
determination of net asset value is suspended for any particular business day,
then for the purposes of this Section 7, the value of

4-INVESTMENT ADVISORY AGREEMENT
<PAGE>

the net assets of the Fund as last determined shall be deemed to be the value of
its net assets as of the close of regular trading on the New York Stock
Exchange, or as of such other time as the value of the net assets of the Fund's
securities may lawfully be determined, on that day. If the determination of the
net asset value of the shares of a Fund has been so suspended for a period
including any month and when the Investment Adviser's compensation is payable at
the end of such month, then such value shall be computed on the basis of the
value of the net assets of the Fund as last determined (whether during or prior
to such month). If the Fund determines the value of the net assets more than
once on any day, then the last such determination thereof on that day shall be
deemed to be the sole determination thereof on that day for the purposes of this
Section 7.

In the event that the Investment Adviser's gross compensation hereunder
shall, when added to the other expenses of a Fund, cause the aggregate expenses
of the Fund to exceed the maximum expenses permitted under the lowest applicable
expense limitation established pursuant to the statutes or regulations of any
jurisdiction in which the shares of the Fund may be qualified for offer and
sale, the total compensation paid or payable to the Investment Adviser shall be
reduced (but not below zero), to the extent necessary to cause the Fund not to
exceed such expense limitation. Except to the extent that such reduction has
been reflected in lowered monthly payments to the Investment Adviser, the
Investment Adviser shall refund to the Fund the amount by which the total of
payments received by the Investment Adviser are in excess of such expense
limitation as promptly as practicable after the end of such fiscal year,
provided that the Investment Adviser shall not be required to pay the Fund an
amount greater than the fee otherwise payable to the Investment Adviser in
respect of such year. As used in this Section 7, "expenses" shall mean those
expenses included in the applicable expense limitation having the broadest
specifications thereof, and "expense limitation" mean a limitation on the
maximum annual expenses which may be incurred by an investment company as
determined by applicable law. The words "lowest applicable expense limitation"
shall be deemed to be that which results in the largest reduction of the
Investment Adviser's compensation for any fiscal year of a Fund; provided,
however, that nothing in this Agreement shall limit the Investment Adviser's
fees if not required by an applicable statute or regulation referred to above in
this Section 7.

8. EXPENSES.

During the term of this Agreement, the Investment Adviser will bear all
expenses in connection with the performance of its services under this
Agreement. Except as otherwise specifically provided in this Section 8, the
Investment Adviser shall pay the compensation and expenses of all its directors,
officers and employees who serve as officers and executive employees of the
Trust (including the Trust's share of payroll taxes for such persons), and the
Investment Adviser shall make available, without expense to the Trust, the
service of its directors, officers and employees who may be duly-elected
officers of the Trust, subject to their individual consent to serve and to any
limitations imposed by law.

The Investment Adviser shall not be required to pay any expenses of the
Trust other than those specifically allocated to the Investment Adviser in this
Section 8 or as may otherwise be

5-INVESTMENT ADVISORY AGREEMENT
<PAGE>

agreed in a separate agreement between the parties. In particular, but without
limiting the generality of the foregoing, each Fund will bear other expenses to
be incurred in its operation, including: fees payable to the Investment Adviser
and to any other Fund advisers or consultants; taxes, interest, brokerage fees
and commissions, if any; fees of Trustees of the Trust who are not officers,
directors or employees of the Investment Adviser or any of its affiliates; SEC
fees and state Blue Sky fees; charges of custodians and transfer and dividend
disbursing agents; charges of any independent pricing service retained to assist
in valuing the assets of the Fund; other expenses in connection with the
issuance, offering, distribution, sale or redemption of securities issued by the
Fund; expenses relating to investor and public relations; expenses of
registering and qualifying shares of the Fund for sale; freight, insurance and
other charges in connection with the shipment of the Fund's portfolio
securities; the Trust's proportionate share of insurance premiums; outside
auditing and legal expenses; costs of maintenance of the Trust's existence;
costs attributable to shareholder services, including, without limitation,
telephone and personnel expenses; costs of preparing and printing prospectuses,
statements of additional information, reports, notices and dividends for
regulatory purposes and for distribution to existing shareholders of the Trust
and to the officers or Board of Trustees of the Trust; costs of stationery; any
litigation expenses; costs of stockholders' meetings; the compensation and all
expenses (specifically including travel expenses relating to the Trust's
business) of officers, Trustees and employees of the Trust who are not
interested persons of the Investment Adviser; travel expenses (or an appropriate
portion thereof) of officers or Trustees of the Trust who are officers,
directors or employees of the Investment Adviser, to the extent that such
expenses relate to attendance at meetings of the Board of Trustees of the Trust
with respect to matters concerning the Trust or any committees thereof or
advisers thereto; fees, dues and expenses incurred by or with respect to the
Trust in connection with membership in investment company trade organizations;
and any extraordinary expenses. Trust-wide expenses not identifiable to a
specific Fund will be allocated to all Funds pro rata on the basis of their
relative net assets.

9. SERVICES TO OTHER COMPANIES OR ACCOUNTS.

The Trust understands that the Investment Adviser now acts, will continue
to act and may act in the future as investment adviser to fiduciary and other
managed accounts and as investment adviser to one or more other investment
companies or series of investment companies, and the Trust has no objection to
the Investment Adviser so acting, provided that such other services do not
interfere in a material manner with the Investment Adviser's ability to meet its
obligations hereunder. Whenever a Fund and one or more other accounts or
investment companies advised by the Investment Adviser having similar investment
objectives and policies have available funds for investment, investments
suitable and appropriate for each will be allocated in accordance with
procedures believed to be fair and equitable to each entity. The Trust
recognizes that in some cases this procedure may adversely affect the size of
the position obtainable for the Fund. In addition, the Trust understands that
the persons employed by the Investment Adviser to assist in the performance of
the Investment Adviser's duties under this Agreement will not devote their full
time to such service and nothing contained herein shall be deemed to limit or
restrict the right of the Investment Adviser or any affiliate of the Investment
Adviser to engage in and devote time and attention to other businesses or to
render services of whatever kind or nature. If the

6-INVESTMENT ADVISORY AGREEMENT
<PAGE>

Investment Adviser provides any advice to its clients concerning the
shares of the Fund, the Investment Adviser shall act solely as investment
counsel for such clients and not in any way on behalf of the Fund.

10. DURATION AND TERMINATION.

This Agreement shall be effective as to a Fund as of the date the Fund
commences investment operations after this Agreement shall have been approved by
the Board of Trustees of the Trust with respect to that Fund and the
shareholders of the Fund in the manner contemplated by Section 15 of the 1940
Act and, unless sooner terminated as provided herein, shall continue until the
second anniversary of such date. Thereafter, if not terminated, this Agreement
shall continue in effect as to such Fund for successive periods of 12 months
each, provided such continuance is specifically approved at least annually by
(a) the vote of a majority of the Trustees or (b) the Vote of a Majority of each
Fund's Outstanding Voting Securities, provided that in either event the
continuance is also approved by a majority of the Trustees who are not
"interested persons" of any party to this Agreement, by vote cast in person at a
meeting called for the purpose of voting on such approval. Notwithstanding the
foregoing, this Agreement may be terminated with respect to a Fund (a) by the
Trust at any time, without the payment of any penalty, by action of the Board
of Trustees of the Trust or by a Vote of a Majority of the Outstanding Voting
Securities of the relevant Fund, on 60 days' written notice to the Investment
Adviser, or (b) by the Investment Adviser at any time, without payment of any
penalty, on 90 days' written notice to the Trust. This Agreement will
immediately terminate in the event of its assignment. (As used in this
Agreement, the terms "Vote of a Majority of the Outstanding Voting
Securities," "Interested Person" and "Assignment" shall have the same
meanings as such terms have in the 1940 Act and the rules and regulatory
constructions thereunder.

11. REPRESENTATIONS AND WARRANTIES.

The Investment Adviser hereby represents and warrants as follows: (i) the
Investment Adviser is exempt from registration under the Advisers Act; (ii) the
Investment Adviser has all requisite authority to enter into, execute, deliver
and perform its obligations under, this Agreement; (iii) this Agreement is
legal, valid and binding, and enforceable in accordance with its terms; and (iv)
the performance by the Investment Adviser of its obligations under this
Agreement does not conflict with any law to which it is subject.

12. LIMITATION OF LIABILITY.

This Agreement has been executed on behalf of the Trust in respect of the
Funds by the undersigned officer of the Trust in his capacity as an officer of
the Trust. The obligations of this Agreement shall be binding on the assets and
property of the Funds only and shall not be binding on any other series of the
Trust or any Trustee, officer or shareholder of the Trust individually.

7-INVESTMENT ADVISORY AGREEMENT
<PAGE>

13. NOTICES.

Any notice required to be given pursuant to this Agreement shall be deemed
duly given if delivered or mailed by registered mail, postage prepaid, (a) to
the Investment Adviser, 5665 SW Meadows Road, Suite 400 Lake Oswego, Oregon
97035 or (b) to the Trust, 5665 SW Meadows Road, Suite 400, Lake Oswego, Oregon
97035.

14. AMENDMENTS.

No provision of this Agreement may be changed, waived, discharged, or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, and no amendment of this Agreement shall be effective until approved by
an affirmative vote of: (i) a majority of the outstanding voting securities of
the relevant Fund, and (ii) a majority of the Trustees including a majority of
Trustees who are not Interested Persons of any party to this Agreement, cast in
person at a meeting called for the purpose of voting on such approval, if such
approval is required by applicable law.

15. MISCELLANEOUS.

(a) This Agreement shall be governed by the laws of the State of
Delaware, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act, or rules or orders of the
SEC thereunder.

(b) The captions of this Agreement are included for convenience only
and in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect.

(c) If any provision of this Agreement shall be held or made invalid
by a court decision statute, rule or otherwise, the remainder of this
Agreement shall not be affected hereby and, to this extent, the provisions
of this Agreement shall be deemed to be severable.

(d) Nothing herein shall be construed as constituting the Investment
Adviser as an agent of the Trust.

8-INVESTMENT ADVISORY AGREEMENT
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.

THE PORTLAND MUTUAL FUNDS

By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------

UNION BOND & TRUST COMPANY

By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------

9-INVESTMENT ADVISORY AGREEMENT
<PAGE>

EXHIBIT A

INVESTMENT ADVISORY AGREEMENT BETWEEN
THE PORTLAND MUTUAL FUNDS AND UNION BOND & TRUST COMPANY

Investment
Fund Advisory Fee
- - - ---- ------------
Portland Stable Investment Fund 0.35%

10-INVESTMENT ADVISORY AGREEMENT

<PAGE>

EXHIBIT 13

<PAGE>

FORM OF PURCHASE AGREEMENT

The Portland Mutual Funds (the "Trust"), an unincorporated business trust
organized under the laws of the State of Delaware and Union Bond & Trust Company
("UBT"), hereby agree as follows:

1. The Trust hereby offers UBT and UBT hereby purchases _______ shares of
beneficial interest of the Trust, no par value (the "Shares"), consisting of
________ Class B Shares in the Portland Stable Investment Fund (the "Fund"), a
series of the Trust, at a price of $1.00 per Share. UBT hereby acknowledges
receipt of the Shares acquired in the Fund and the Trust hereby acknowledges
receipt from UBT of $100,000 in full payment for the Shares.

2. UBT represents and warrants to the Trust that the Shares are being
acquired for investment purposes and not for the purpose of distribution.

3. UBT agrees that if it redeems the Shares in the Fund before five years
after the date of this Agreement, it will pay to the Trust an amount that is
equal to the number resulting from multiplying the Trust's total unamortized
organizational expenses allocable to the Fund involved by a fraction, the
numerator of which is equal to the number of Shares of the Fund redeemed and the
denominator of which is equal to the aggregate number of Shares of the Fund
outstanding at the time of such redemption.

4. The Trust represents that a copy of its Certificate of Trust, dated
September 24, 1997, together with all amendments thereto, is on file in the
office of the Secretary of the State of Delaware.

5. This Agreement has been executed on behalf of the Trust by the
undersigned officer of the Trust in his capacity as an officer of the Trust.
The obligations of this Agreement shall be binding upon the assets and property
of the Trust only and shall not be binding upon any Trustee, officer or
shareholder of the Trust individually.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the ________ , 1997.

THE PORTLAND MUTUAL FUNDS

By:
--------------------------------
ATTEST: Title:
------------------------ -----------------------------

UNION BOND & TRUST COMPANY

By:
--------------------------------
ATTEST: Title:
------------------------ -----------------------------