CHOICE FUNDS, 497, 1999-11-04

CHOICE FUNDS
497, 1999-11-04

Previous: EQUITY INVESTOR FUND FOCUSSER BIOTECH PORT 1999 SERIES B DAF, 497, 1999-11-04

Next: USALLIANZ FUNDS, 497, 1999-11-04

<PAGE> 1
CHOICE FUNDS

FOCUS FUND

PROSPECTUS

October 31, 1999

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

<PAGE> 2

TABLE OF CONTENTS

FUND OVERVIEW .............................................................1
FUND PERFORMANCE ..........................................................2
FUND FEES AND EXPENSES ....................................................2
INVESTMENT PRACTICES AND RISKS ............................................3
Principal Risks .........................................................3
Other Investment Practices and Risks ....................................5
MANAGEMENT ................................................................6
Investment Adviser ......................................................6
Portfolio Manager .......................................................6
BUYING, SELLING AND EXCHANGING SHARES .....................................7
Before You Invest .......................................................7
Purchasing Shares .......................................................8
Selling Shares ..........................................................10
Exchanging Shares .......................................................12
Making Changes to Your Account ..........................................13
SPECIAL FEATURES AND SERVICES .............................................13
OTHER SHAREHOLDER INFORMATION .............................................14
DIVIDENDS, DISTRIBUTIONS AND TAXES ........................................16

<PAGE> 3

FUND OVERVIEW

INVESTMENT GOAL
The Fund's investment goal is capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES
The Fund will invest primarily in the common stocks of companies that the
portfolio manager believes have superior potential for earnings growth. The
Fund's portfolio will typically consist of a core of 20-30 common stocks. As a
result, the Fund will be non-diversified. The portfolio manager may purchase
common stocks of companies of all sizes.

In selecting stocks, the portfolio manager looks for reasonably priced
securities of companies that occupy a dominant position in a market due to size,
products or services, and whose growth potential is not yet fully reflected in
the company's stock price. In addition, the portfolio manager looks for
companies with conservatively financed balance sheets, strong, capable
management teams and clearly defined growth strategies. Target companies will
have a catalyst for positive earnings developments such as evolving product
cycles, special situations or changing economic conditions. From time to time,
the Fund may take substantial positions in convertible securities, preferred
stocks, initial public offerings and securities of smaller issuers, including
issuers with limited operating histories. The Fund may invest up to 20% of its
assets in convertible securities rated below investment grade (i.e, junk bonds).

The Fund's portfolio manager will generally sell a security when it no longer
meets the manager's investment criteria or when it has met the manager's
expectations for appreciation. The portfolio manager may often sell portfolio
stocks quickly to respond to short-term market price movements, and expects to
actively trade the portfolio in pursuit of the Fund's investment goal. Due to
this and the Fund's relatively small number of holdings, the Fund's annual
portfolio turnover rate will be higher than that of many other mutual funds.

PRINCIPAL RISKS OF INVESTING
There are two basic risks for all mutual funds that invest in stocks -
management risk and market risk. Management risk means that the portfolio
manager's stock selections and other investment decisions may produce losses or
may not achieve the Fund's investment objectives. Market risk means that the
price of common stocks may move up or down in response to many factors. As a
result of these two risks, the price of the Fund's investments may go up or down
and you could lose money on your investment.

The stocks of small or unseasoned companies in which the Fund invests may be
more volatile and less liquid than the stocks of larger and well-established
companies.

Investment grade securities rated in the lowest investment grade category (i.e.,
BBB/Baa) have speculative characteristics. Investments in securities that are
below investment grade (i.e., junk bonds) carry greater risks than investments
in investment grade securities. In particular, issuers of lower rated bonds are
less financially secure, are less likely to repay such bonds and are more likely
to be hurt by interest rate movements.

1
<PAGE> 4

The Fund is a non-diversified portfolio, which means that it will invest in the
securities of fewer issuers than diversified portfolios at any one time. As
a result, the gains or losses on a single stock will have a greater impact on
the Fund's share price. In addition, the portfolio manager may often focus the
Fund's investments in a number of companies with similar characteristics. The
types of companies in which the Fund's assets may be invested may underperform
other companies with different characteristics or the market as a whole. Because
of these factors, the Fund's share price may fluctuate more than most equity
funds and the market in general.

Finally, the portfolio manager may engage in a high level of trading in seeking
to achieve the Fund's investment objective. Higher turnover rates may result in
higher brokerage costs to the Fund and in higher net taxable gains for you as an
investor.

An investment in the Fund is not a deposit of the bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any governmental
entity.

For a more detailed discussion of these principal investment risks, as well as
additional risks that apply to the Fund, please see "Investment Practices and
Risks," on page 3.

FUND PERFORMANCE

The Fund had not commenced operations as of the date of this prospectus and,
therefore, has no performance information to report. Information on the Fund's
performance will be included in future amendments to this prospectus and in
periodic reports to shareholders.

FUND FEES AND EXPENSES

Fees and expenses are one important consideration in choosing a mutual fund. As
an investor, you indirectly pay a share of a Fund's operating expenses. There
are no sales loads or exchange fees associated with an investment in the Fund.

Annual fund operating expenses are the expenses that a mutual fund pays to
conduct its business, such as investment advisory fees, transfer agent fees,
administration fees, accounting and legal fees, and other fund expenses. Annual
fund operating expenses are deducted from a Fund's assets, and therefore reduce
its total return. As a shareholder, you pay for these expenses indirectly. The
Fund's operating expenses will vary from year to year.

2
<PAGE> 5

The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.

- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (a)
(expenses deducted directly from fund assets)
- --------------------------------------------------------------------------------
Management fee 1.0%
- --------------------------------------------------------------------------------
Distribution (12b-1) fee(b) 0.25%
- --------------------------------------------------------------------------------
Other expenses 0.79%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 2.04%
- --------------------------------------------------------------------------------

(a) Because the Fund was established on July 16, 1999 and has no operating
history, the management fee is the fee to which the adviser is entitled under
its contract with the Fund, and the Distribution fee is the maximum rate that
can be charged under the Distribution Plan. "Other expenses" are estimates of
the other operating expenses (without taking into account any expense limitation
arrangement between the adviser and the Fund) based on the adviser's projections
of what those expenses will be in the Fund's first fiscal year ended October 31,
2000.
(b) The Fund has adopted a Distribution Plan under Rule 12b-1 that permits the
Fund to pay distribution fees for the sale and distribution of its shares.
Because these fees are paid out of the Fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and could cost
long-term investors in the Fund more than other types of sales charges.

Example: The following example helps you compare the cost of investing in the
Fund to the cost of investing in other mutual funds. The example assumes that:

- - You invest $10,000 for the time periods indicated, and then redeem all of your
shares at the end of those periods;
- - Your investment has a 5% return each year; and
- - The Fund's operating expenses remain the same for each period.

Your actual costs may be higher or lower, so this example should be used for
comparison only. Based on these assumptions your cost at the end of each period
would be:

-----------------------------------
1 YEAR 3 YEARS
-----------------------------------
$207 $640
-----------------------------------

INVESTMENT PRACTICES AND RISKS

The principal strategies and risks of investing in the Fund are summarized
above. The following discussion provides more detail about some of those risks.
This section also describes additional investment practices that, while not
principal, the Fund may follow, and the risks associated with those particular
practices.

PRINCIPAL RISKS

COMMON STOCKS. Because the Fund invests in common stocks, it is subject to the
risks associated with common stock investing. These include the management risk
of selecting

3
<PAGE> 6

individual stocks that do not perform as the portfolio manager anticipated, the
risk that the stock markets in which the Fund invests may experience periods of
turbulence and instability, and the general risk that domestic and global
economies may go through periods of decline and cyclical change. If the stock
market declines in value, the Fund is likely to decline in value. Many factors
affect an individual company's performance, such as the strength of its
management or the demand for its products or services. Negative performance may
affect the earnings growth potential anticipated by the portfolio manager when
the individual stock was selected for the Fund's portfolio.

Because the Fund may invest without limit in stocks of small or unseasoned
companies, your investment is subject to the following additional risks:

- - Unseasoned companies. These are companies that have been in operation for less
than three years. The securities of these companies may have limited liquidity
and the prices of such securities may be volatile.
- - Small capitalization. An investment in companies with smaller capitalizations
involves greater risks than investing in larger, more established companies.
Small company stocks may be subject to more abrupt or erratic price movements,
because the stocks are traded in lower volume and their issuers are more
sensitive to changing conditions and have less certain growth prospects. Also,
there are fewer markets for these stocks and wider spreads between quoted bid
and asked prices in the over-the-counter market for these stocks. Small cap
stocks tend to be less liquid, particularly during periods of market
disruption. There is normally less publicly available information concerning
the issuers of these securities. Small companies in which the Fund invests may
have limited product lines, markets or financial resources, or may be
dependent on a small management group.

CONVERTIBLE SECURITIES. Securities rated below investment grade are particularly
subject to credit risk. These securities are considered speculative and are
commonly referred to as "junk bonds." Although the Fund will not invest in
defaulted securities, it may invest in convertible securities of all other
grades, including securities rated as low as C. To the extent the Fund purchases
or holds convertible or other securities that are below investment grade
(securities rated BB/Ba or lower), there is a greater risk that payments of
principal, interest and dividends will not be made. In addition, the value of
lower quality securities is subject to greater volatility and is generally more
dependent on the ability of the issuer to meet interest and principal payments
than is the case for higher quality securities. Issuers of non-investment grade
securities may not be as financially strong as those issuing bonds with higher
credit ratings. To the extent that the portfolio manager invests assets of the
fund in convertible securities that are not investment grade, your investment is
subject to additional risk.

PORTFOLIO TURNOVER. Portfolio securities will be sold without regard to the
length of time they have been held when the portfolio manager believes it is
appropriate to do so in light of the Fund's investment goal. In general, the
greater the volume of buying and selling by a mutual fund, the greater the
impact that brokerage commissions and other transaction costs will have on its
return. High portfolio turnover rates may also cause substantial net short-term
gains, and any distributions resulting from such gains will be ordinary income
to you for purposes of federal

4
<PAGE> 7

income tax. The portfolio manager anticipates that it will actively manage the
Fund's portfolio in pursuing the Fund's investment strategy.

NON-DIVERSIFICATION. The Fund is a non-diversified portfolio, which means that,
at any given time, it may hold fewer securities than funds that are diversified.
Compared to other mutual funds, the Fund may invest a greater percentage of its
assets in the stock of a particular issuer. This increases the risk that the
value of the Fund could go down because of the poor performance of a single
investment. Also, the volatility of the investment performance may increase and
the Fund could incur greater losses than other mutual funds that invest in a
greater number of companies.

FOCUS RISK. At any one time, the portfolio manager may focus the Fund's
investments in a number of companies with similar characteristics. If companies
with these types of characteristics underperform companies with different
characteristics or the market as a whole, the potential negative impact to the
Fund could be magnified. As the portfolio manager allocates more of the Fund's
portfolio holdings to companies with similar characteristics, the Fund's
performance will be more susceptible to any economic, business or other
developments that generally affect that those types of companies.

OTHER INVESTMENT PRACTICES AND RISKS

FOREIGN SECURITIES. The Fund may invest without limit in foreign securities in
an effort to achieve its investment objective; however, it does not intend to
allocate a significant portion of its assets to this non-principal strategy. To
the extent the Fund invests in foreign securities, your investment involves
special additional risks and considerations not typically associated with
investing in securities of U.S. companies. These include fluctuation in value of
foreign portfolio investments due to changes in currency rates and control
regulations, lack of public information about foreign issuers, lack of uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic issuers, unstable international and political and
economic conditions and greater difficulties in commencing lawsuits against
foreign issuers. Investments in emerging markets involve even greater risks such
as immature economic structures and unfamiliar legal systems.

INVESTMENT OBJECTIVES. The investment objective of the Fund is capital
appreciation. The Fund's objective may be changed by the Fund's board of
trustees without shareholder approval. You will receive advance written notice
of any material changes to the Fund's investment objective.

TEMPORARY DEFENSIVE POSITIONS. The Fund may, for temporary defensive purposes,
invest without limitation in cash or various short-term instruments, including
those of the U.S. Government and its agencies and instrumentalities. This may
occur, for example, when the portfolio manager is attempting to respond to
adverse market, economic, political or other conditions. The Fund can also hold
these types of securities pending the investment of proceeds from the sale of
Fund shares or portfolio securities or to meet anticipated redemption requests.
If these temporary strategies are used for adverse market, economic or political
conditions, it is impossible to predict when or for how long the portfolio
manager may employ these strategies

5
<PAGE> 8

for the Fund. To the extent the Fund holds cash or invests defensively in
short-term instruments, it may not achieve its investment objective.

MANAGEMENT

INVESTMENT ADVISER
The Fund has entered into an investment advisory agreement with Choice
Investment Management, LLC. The adviser was organized on August 27, 1999 as a
Colorado limited liability company to become the Fund's investment adviser.
Although the adviser, as a recently formed entity, has had no experience
advising a registered investment company, the portfolio manager, who is the
founder, president and a trustee of the adviser, has had 14 years of experience
as a portfolio manager. In addition to the Fund, the adviser will provide
investment management services to private accounts.

Under the investment advisory agreement, the adviser manages the Fund's
investments and business affairs, subject to the supervision of the Fund's board
of trustees. The Fund has agreed to pay the adviser an annual management fee of
1.0% of the Fund's average daily net assets. The advisory fee accrues daily and
is paid monthly. Pursuant to an expense limitation agreement between the adviser
and the Fund, the adviser has agreed to limit the total operating expenses of
the Fund to an annual rate of 2.25% of the Fund's average net assets until
October 31, 2000. Although the Fund's expenses are estimated to be lower than
2.25% of the Fund's average net assets, the expense limitation would apply in
the event the Fund's expenses exceed 2.25% for any reason. After October 31,
2000, the expense limitation may be terminated at any time.

PORTFOLIO MANAGER
Patrick S. Adams is the portfolio manager for the Fund. As portfolio manager, he
is responsible for the day to day management of the Fund and the selection of
the Fund's investments. Prior to organizing the adviser and managing the Fund,
Mr. Adams served as Senior Vice President to Berger Associates, Executive Vice
President and portfolio manager of the Berger 100 Fund, President and portfolio
manager of the Berger IPT-100 Fund, President and co-portfolio manager of the
Berger IPT-Growth and Income Fund and Executive Vice President and co-portfolio
manager of the Berger Growth and Income Fund since February 1997. Mr. Adams also
served as the President and co-portfolio manager of the Berger Balanced Fund
since its inception in August 1997, and as President and portfolio manager of
the Berger Select Fund from its inception on December 31, 1997 until April 1999.

Prior to his affiliation with the Berger Funds, Mr. Adams acted as Senior Vice
President from June 1996 to January 1997 with Zurich Kemper Investments;
portfolio manager from March 1993 to May 1996 with Founders Asset Management,
Inc.; research analyst and portfolio manager from January 1990 to January 1992
and senior portfolio manager/senior analyst from January 1992 to February 1993
with First of America Investment Corp.; and portfolio manager from August 1985
to December 1989 with Capital Management Group - Star Bank.

6
<PAGE> 9
BUYING, SELLING AND EXCHANGING SHARES

BEFORE YOU INVEST

PROSPECTUS. This prospectus contains important information about the Fund.
Please read it carefully before you decide to invest.

ACCOUNT REGISTRATION. Once you have decided to invest in the Fund, you need to
select the appropriate form of account registration. There are many different
types of mutual fund ownership. How you register your account with the Fund can
affect your legal interests, as well as the rights and interests of your family
and beneficiaries. You should always consult with your legal and/or tax adviser
to determine what form of
account registration best meets your needs.

Available forms of registration include:

- - Individual ownership. If you have reached the legal age of majority in your
state of residence, you may open an individual account.
- - Joint ownership. Two or more individuals may open an account together as joint
tenants with right of survivorship, tenants in common or as community
property.
- - Custodial account. You may open an account for a minor under the Uniform Gift
to Minors Act/Uniform Transfers to Minors Act for your state of residence
- - Business/trust ownership. Corporations, trusts, charitable organizations and
other businesses may open accounts.
- - IRAs and other tax-deferred accounts. The Fund offers a variety of retirement
accounts for individuals and institutions. Please refer to "Retirement Account
Options," below, for more information about these types of accounts.

ACCOUNT MINIMUMS. You also need to decide how much money to invest. The
following chart shows you the minimum amounts that you will need to open or add
to certain types of accounts. The Fund may waive the minimum investment amounts
at any time.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
TYPE OF ACCOUNT INITIAL MINIMUM ADDITIONAL MINIMUM
PURCHASE PURCHASE
- -------------------------------------------------------------------------------
<S> <C> <C>
Regular (Individual, joint,
business or trust) $2,500 $100
- -------------------------------------------------------------------------------
IRA (including spousal,
Roth and SEP) $2,500 $100
- -------------------------------------------------------------------------------
Gifts to Minors
(UTMA, UGMA) $1000 $100
- -------------------------------------------------------------------------------
Automatic Investment Plan $2,500 $100
- -------------------------------------------------------------------------------
</TABLE>

7
<PAGE> 10
and Good Friday). The price of the shares you purchase or redeem will be the
next NAV calculated after your order is received and accepted by the Fund's
transfer agent, or other financial intermediary with the authority to accept
orders on the Fund's behalf.

The value of the Fund's assets is based on the current market value of its
investments. For securities with readily available market quotations, the Fund
uses those quotations to price a security. If a security does not have a readily
available market quotation, the Fund values the security based on fair value, as
determined in good faith in accordance with the guidelines established by the
Fund's board of trustees. The Fund may use pricing services to assist in the
determination of market value.

Foreign securities may trade during hours and on days that the Exchange is
closed and the Fund's NAV is not calculated. Although the Fund's NAV may be
affected, you will not be able to purchase or redeem shares on these days.

PURCHASING SHARES

You can buy shares directly from the Fund or through a broker-dealer or other
institution that the Fund has authorized to sell shares. To open an account or
buy additional shares from the Fund, just follow these steps:

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
TO OPEN AN ACCOUNT TO ADD TO AN EXISTING ACCOUNT
- ---------------------------------------------------------------------------------------------------
BY MAIL: BY MAIL:
<S> <C>
- - Complete and sign the account application - Complete the investment slip that is
or an IRA application. If you don't included in your account statement, and
complete the application properly, your write your account number on your check.
purchase may be delayed or rejected. - If you no longer have your investment slip,
- - Make your check payable to "The Choice please reference your name, account
Funds." The Fund does not accept cash, number and address on your check.
third party checks, travelers checks or - Make your check payable to "The Choice
checks drawn on banks outside the U.S. Funds."
- - For IRA accounts, please specify the year
for which the contributions is made.
- ---------------------------------------------------------------------------------------------------
MAIL YOUR APPLICATION AND CHECK TO: MAIL THE SLIP AND THE CHECK TO:
Choice Funds Choice Funds
P.O. BOX 759 P.O. BOX 759
Milwaukee, WI 53201-0759 Milwaukee, WI 53201-0759
- ---------------------------------------------------------------------------------------------------
BY OVERNIGHT COURIER, SEND TO:
Choice Funds
207 E. Buffalo Street
Suite 315
Milwaukee, WI 53202
- ---------------------------------------------------------------------------------------------------
</TABLE>

8
<PAGE> 11

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
BY TELEPHONE: BY TELEPHONE:
<S> <C>
- You automatically have the privilege to
You may not make your initial purchase by purchase additional shares by telephone
telephone. unless you have declined this service on
your account application. You may call
1-800-392-7107 to purchase shares for an
existing account.
- Investments made by
electronic funds
transfer must be in
amounts of at least
$100 and not greater
than $50,000.

- ---------------------------------------------------------------------------------------------------
BY WIRE: BY WIRE:
- - To purchase shares by wire, the transfer Send your Investment to UMB Bank, n.a. by
agent must have received a completed following the instructions listed in the column
application and issued an account number to the left.
to you. Call 1-800-392-7107 for
instructions prior to wiring the funds.
- - Send your investment to UMB Bank, n.a.
with these instructions:
UMB Bank, n.a.
ABA #101000695
For Credit to the Choice Funds
A/C #9870983788
For further credit to: investor account
number; name(s) of investor(s); SSN or
TIN, name of Fund.
- ---------------------------------------------------------------------------------------------------
</TABLE>

If your purchase request is received by the Fund's transfer agent, broker-dealer
or other authorized agent before close of trading on the New York Stock Exchange
(typically 4:00 p.m. Eastern time) on a business day, your request will be
executed at that day's NAV, provided that your application is in good order.
"Good Order" means that we have received your completed, signed application,
your payment, and your tax identification number information. If your request is
received after close of trading, it will be priced at the next business day's
NAV. Shares purchased by wire will receive the NAV next determined after the
transfer agent receives your completed application, the wired funds and all
required information is provided in the wire instructions.

ADDITIONAL PURCHASE INFORMATION.

- - The Fund does not issue certificates for shares.
- - If your check does not clear, your purchase will be cancelled. You will be
responsible for any resulting losses or expenses (including a $20 fee)
incurred by the Fund or the transfer agent. The Fund may redeem shares you own
in this or another identically registered Choice Funds account as
reimbursement for any such losses.
- - You must provide the Fund with a Social Security Number or Taxpayer
Identification Number before your account can be established. If you do not
certify the accuracy of your Social Security or Taxpayer Identification Number
on your account application, the Fund will be required to withhold Federal
income tax at a rate of 3 1 % from all of your dividends, capital gain
distributions and redemptions.

<PAGE> 12

- - The Fund is only offered and sold to residents of the United States. Your
application will be accepted only if it contains a U.S. address. This
prospectus should not be considered a solicitation to buy or an offer to sell
shares of the Fund in any jurisdiction where it would be unlawful to do so
under the securities laws of that jurisdiction.
- - The Fund will not accept your application if you are investing for another
person as attorney-in-fact. The Fund will not accept applications that list
"Power of Attorney" or "POA" in the registration section.
- - Once you place your order, you may not cancel or revoke it. The Fund may
reject a purchase order for any reason.

TRANSACTIONS THROUGH FINANCIAL SERVICES AGENTS. In addition to purchasing shares
from the Fund, you may invest through a financial services agent. Financial
advisers, broker-dealers and other financial service agents may charge
transaction and other fees and may set different minimum investments or
limitations on buying and selling shares, than those described in the
prospectus. In addition, these intermediaries may place limits on your ability
to use services the Fund offers.

SELLING SHARES

You may sell your shares on any day the Fund is open for business by following
the instructions below. You may elect to have redemption proceeds sent to you by
check, wire or electronic funds transfer. The Fund normally pays redemption
proceeds within two business days, but may take up to seven days. You can redeem
shares purchased by check at any time. However, while the Fund will process your
redemption on the day it receives your request, it will not pay your redemption
proceeds until your check has cleared, which may take up to 15 days from the
date of purchase. You can avoid this delay by purchasing shares by a federal
funds wire. Please note that this provision is intended to protect the Fund and
its shareholders from loss.

BY MAIL

- - Send a letter of instruction that includes your account number, the Fund name,
the dollar value or number of shares you want to sell, and how and where to
send the proceeds.
- - Sign the request exactly as the shares are registered. All registered owners
must sign.
- - Include a signature guarantee, if necessary (see "Signature Guarantees",
below).
- - Mail your request to:

REGULAR MAIL OVERNIGHT COURIER
Choice Funds Choice Funds
P.O. Box 759 207 East Buffalo Street, Suite 315
Milwaukee, WI 53201-0759 Milwaukee, WI 53202

BY TELEPHONE

- - You automatically have the privilege to redeem shares by telephone unless you
have declined this. option on your account application.
- - Call 1-800-392-7107, between 8:00 a.m. and 8:00 p.m- Eastern time. You may
redeem as little as $1000 and as much as $50,000 by telephone.

<PAGE> 13

Redemption requests received in good order before close of trading on the New
York Stock Exchange (typically, 4:00 p.m. Eastern time) will be processed at
that day's NAV. "Good order" means that the request includes the Fund's name and
your account number, the amount of the transaction (in dollars or shares), the
signatures of all owners exactly as registered on the account, and any required
signature guarantees. Redemption requests sent by facsimile will not be honored.

Please note that the Fund may require additional documents for redemptions by
corporations, executors, administrators, trustees and guardians. If you have any
questions about how to redeem shares, or to determine if a signature guarantee
or other documentation is required please call 1 800-392-7107.

ADDITIONAL REDEMPTION PROVISIONS

- - Once we receive your order to sell shares, you may not revoke or cancel it. We
cannot accept an order to sell that specifies a particular date, price or any
other special conditions.
- - If you are redeeming from an IRA, please tell us the proper tax withholding on
your redemption request. If you did not make a tax election on your IRA
application, we will automatically withhold 10% of your redemption proceeds.
- - If your redemption request exceeds the amount that you currently have in your
account, your entire account will be redeemed. Any automatic purchase or
systematic withdrawal plan that you have initiated for the account will be
cancelled.
- - The Fund reserves the right to suspend the redemption of Fund shares when the
securities markets are closed, trading is restricted for any reason, an
emergency exists and disposal of securities owned by the Fund is not
reasonably practicable, the Fund cannot fairly determine the value of its net
assets or the Securities and Exchange Commission permits the suspension of the
right of redemption or postpones the date of payment of a redemption.
- - If the amount you redeem is large enough to affect the Fund's operations, the
Fund may pay your redemption "in kind." This means that the Fund may pay you
in portfolio securities rather than cash. If this occurs, you may incur
transaction costs when you sell the securities you receive.

REDEEMING SHARES THROUGH THIRD PARTIES. A broker-dealer, financial institution
or other service provider may charge a fee to redeem your Fund shares, If the
service provider is the shareholder of record, the Fund may accept redemption
requests only from that provider.

Telephone Transactions

- - In times of drastic economic or market conditions, you may have difficulty
selling shares by telephone. The Fund reserves the right to temporarily
discontinue or limit the telephone purchase, redemption or exchange privileges
at any time during such periods. If you are unable to reach the Fund by
telephone, please send your redemption request via overnight courier.
- - The Fund reserves the right to refuse a telephone redemption request if it
believes it is advisable to do so. The Fund uses procedures reasonably
designed to confirm that telephone redemption instructions are genuine. These
may include recording telephone transactions, testing the identity of the
caller by asking for account information and sending prompt

11
<PAGE> 14

written confirmations. The Fund may implement other procedures from time to
time. If these procedures are followed, the Fund and its service providers
will not be liable for any losses due to unauthorized or fraudulent
instructions.

SIGNATURE GUARANTEES. The Fund will require the signature guarantee of each
account owner to redeem shares in the following situations:

- - to change ownership on your account;
- - to send redemption proceeds to a different address than is currently on the
account;
- - to have the proceeds paid to someone other than the account's owner;
- - to transmit redemption proceeds by federal wire transfer or ACH to a bank
other than your bank of record;
- - if a change of address request has been received by the transfer agent within
the last 30 days; or
- - if your redemption is for $50,000 or more.

The Fund requires signature guarantees to protect both you and the Fund from
possible fraudulent requests to redeem shares. You can obtain a signature
guarantee from most broker-dealers, national or state banks, credit unions,
federal savings and loan associations or other eligible institutions. A notary
public is not an acceptable signature guarantor.

SMALL ACCOUNTS. All Choice Fund account owners share the high cost of
maintaining accounts with low balances. To reduce this cost, the Fund reserves
the right to close an account when a redemption or exchange leaves your account
balance below $1,000, or you discontinue the automatic investment plan before
you reach the minimum. We will notify you in writing before we close your
account, and you will have 60 days to add additional money to bring the balance
up to $1,000 or to renew your automatic investment plan. This provision does not
apply to retirement plan accounts, automatic investment plans or UGMA/UTMA
accounts.

EXCHANGING SHARES

You may exchange all or a portion of your shares in the Fund for shares of the
Northern Money Market Fund (the "Money Market Fund") at their relative net asset
values and may also exchange back into the Fund without incurring any charges or
fees. Exchanges into the Money Market Fund are subject to the minimum purchase
and redemption amounts set forth in the prospectus for the Money Market Fund.
Before exchanging into the Money Market Fund, please read the Money Market Fund
prospectus carefully, which may be obtained by calling 1-800-392-7107. The Money
Market Fund is not affiliated with the adviser or the Fund.

When you exchange from the Fund into the Money Market Fund or make an initial
purchase, dividends begin to accrue the day after the exchange or purchase. When
you exchange a partial balance out of the Money Market Fund, your proceeds will
exclude accrued and unpaid income from the Money Market Fund through the date of
exchange. When exchanging your entire balance from the Money Market Fund,
accrued income will automatically be exchanged into the Fund you exchanged into
when the income is collected and paid from the Money Market Fund, at the end of
the month.

12
<PAGE> 15

LIMITATIONS ON EXCHANGES. The Fund believes that use of the exchange privilege
by investors utilizing market-timing strategies adversely affects the Fund and
its shareholders. Therefore, the Fund generally will not honor requests for
exchanges by shareholders who identify themselves or are identified as "market
timers." Market timers are investors who repeatedly make exchanges within a
short period of time. The Fund reserves the right to suspend, limit or terminate
the exchange privilege of any investor who uses the exchange privilege more than
six times during any twelve month period, or, in the Fund's opinion, engages in
excessive trading that would be disadvantageous to the Fund or its shareholders.
The Fund may change or temporarily suspend the exchange privilege during unusual
market conditions.

MAKING CHANGES TO YOUR ACCOUNT

You may call or write us to make changes to your account. Common changes
include:

Name changes. If your name has changed due to marriage or divorce, send us a
letter of instruction signed with both your old and new names. Include a
certified copy of your marriage certificate or have your signatures guaranteed.

Address changes. The easiest way to notify us is to return the stub from a
recent confirmation or statement. You can also call the transfer agent with any
changes at 1-800-392-7107.

Transfer of account ownership. Send us a letter including your account number,
the share class, number of shares or dollar amount that are being transferred
along with the name, address and Taxpayer Identification Number of the person to
whom the shares are being transferred. All living registered owners must sign
the letter. You will also need to include a signature guarantee. Corporations,
businesses and trusts may have to provide additional documents. In order to
avoid delays in processing account transfers, please call the transfer agent at
1-800-392-7107 to determine what additional documents are required.

SPECIAL FEATURES AND SERVICES

RETIREMENT ACCOUNT OPTIONS
The Fund offers a variety of retirement accounts for individuals and
organizations. These accounts may offer you tax advantages. For information on
establishing retirement accounts, please call 1-800-392-7107. You should consult
with your legal and/or tax adviser before you establish a retirement account.

The Fund currently accepts investments into the following kinds of retirement
accounts:
- - Traditional IRA (including spousal IRA)
- - "Rollover" IRA
- - Roth IRA
- - SEP-IRA

<PAGE> 16

ACH TRANSACTIONS
If you would like to purchase shares electronically or have redemption proceeds
sent directly to your bank account, you must first have certain bank account
information on file with us so that funds can be transferred electronically
between your mutual fund and bank accounts. There is no charge to you for this
procedure. You can establish this privilege by filling out the appropriate
section of your account application. If you did not select the electronic
purchase or redemption options on your original application, call us at
1-800-392-7107.

AUTOMATED TELEPHONE SERVICE
The Fund offers 24-hour, seven day a week access to Fund and account information
via a toll-free line. The system provides total returns, share prices and price
changes for the Fund and gives you account balances and history (e.g., last
transaction, latest dividend distribution). To access the automated system,
please call 1-800-392-7107.

AUTOMATIC INVESTMENT PLAN
To make regular investing more convenient, you can open an automatic investment
plan with an initial investment of $2,500 and a minimum investment of $100 per
month after you start your plan. We will automatically transfer from your
checking or savings account the amount you want to invest on the 5th, 10th,
15th, 20th, 25th or last day of each month. There is no charge for this service,
but if there is not enough money in your bank account to cover the withdrawal
you will be charged $20, your purchase will be cancelled and you will be
responsible for any resulting losses to the Fund. You can terminate your
automatic investment plan at any time by calling the Fund at least 10 days
before your next scheduled withdrawal date. To implement this plan, please fill
out the appropriate area of your application, or call 1-800-392-7107 for
assistance.

SYSTEMATIC WITHDRAWAL PLAN (SWP)
You can have shares automatically redeemed from your account on a regular basis
by using our systematic withdrawal plan. If your account balance is $10,000 or
more, you may take systematic withdrawals of $500 or more on a monthly or
quarterly basis. The proceeds of a withdrawal can be sent to your address of
record or sent by electronic transfer to your bank. This plan may be a useful
way to deal with mandatory withdrawals from an IRA. If you want to implement
this plan, please fill out the appropriate section of the purchase application
or call 1-800-392-7107 for assistance.

OTHER SHAREHOLDER INFORMATION

SHAREHOLDER COMMUNICATIONS
Confirmations. You will receive a confirmation each time you buy, sell or
exchange Fund shares. Automatic investment plan participants receive quarterly
confirmations of all automatic transactions. Please review your confirmation and
notify us immediately if there are any discrepancies in the information.

14
<PAGE> 17
Quarterly and annual statements. You will receive a quarterly statement listing
all distributions, purchases and redemptions of Fund shares for the preceding
calendar quarter. Your December statement will include a listing of all
transactions for the entire year.

Semi-annual and annual reports. The Fund sends semi-annual and annual reports to
its shareholders. These reports provide financial information on your
investments and give you a "snapshot" of the Fund's portfolio holdings at the
end of its semi-annual and fiscal year periods. Additionally, the annual report
discusses the factors that materially affected the Fund's performance for its
most recently completed year, including relevant market conditions and the
investment strategies and techniques that were used.

Prospectus. Each year, the Fund sends all shareholders a new prospectus. Please
read the prospectus and keep it for future reference.

Form 1099. Each year you will receive a Form 1099-DIV, showing the source of
distributions for the preceding year and a Form 1099-B showing shares you sold
during the year.

Form 5498. If you contributed to an IRA during the year, you will receive a Form
5498 verifying your contribution.

DISTRIBUTION PLAN
The Fund has adopted a plan under Rule 12b-1 that allows the Fund to pay
distribution fees for activities generally intended to result in the sale of its
shares. These activities include advertising, compensation to the distributor
and others for sales and marketing activities and materials, and shareholder
account servicing. Under the plan, the Fund may pay a fee of up to 0.25% of its
average daily net assets (computed on an annual basis). To the extent these fees
are paid by the Fund, its expenses will increase. Because 12b-1 fees are paid
out of the Fund's net assets on an ongoing basis, over time these fees will
increase the cost of your investment and could cost long-term investors more
than paying other types of sales charges.

TRANSACTIONS THROUGH FINANCIAL SERVICES AGENTS AND SUB-AGENTS
The Fund may authorize one or more broker-dealers or other financial services
agents or sub-agents to accept purchase, redemption and exchange orders on the
Fund's behalf. In these cases, the Fund will be deemed to have received an order
when an authorized financial services agent or sub-agent accepts the order, and
your order will be priced at the Fund's NAV next computed after it is received
in good order by the financial services agent or sub-agent. Designated financial
services agents and sub-agents are responsible for transmitting accepted orders
and payment for the purchase of shares to the transfer agent within the time
period agreed upon by them. If payment is not received within the time
specified, your transaction may be cancelled, and the financial services agent
will be held responsible for any resulting fees or losses.

15
<PAGE> 18
Problem arises because most computer systems were designed only to recognize a
two-digit year, not a four-digit year. As a result, computers may interpret "00"
as the year 1900 and either stop processing date-related computations or process
them incorrectly. These failures could have a negative impact on the Fund's
securities trades, pricing and accounting services. The Fund's investment
adviser and each of its service providers are taking steps to address the Year
2000 Problem with respect to the computer systems they use. There can be no
assurance that the steps taken by these service providers will be successful, or
that interaction with other non-complying computer systems will not adversely
impact the Fund. Also, companies in which the Fund invests could be adversely
affected by the Year 2000 Problem. It is also possible that the normal operation
of the Fund and its service providers will be interrupted in any event by the
failure of communications and public utility companies, governmental entities,
financial processors or others to perform their services as a result of the Year
2000 Problem.

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute virtually all of its net investment income and
net realized capital gains at least once a year. The Fund will automatically
reinvest your dividends and capital gain distributions in additional Fund shares
unless you elect to have them paid to you in cash. If you elect to have your
distributions paid in cash, the Fund will send a check to your address of
record.

A dividend from net investment income represents the income the Fund earns from
dividends and interest paid on its investments, after payment of the Fund's
expenses. A capital gain is the increase in the value of a security that the
Fund holds. The Fund's gain is "unrealized" until it sells a portfolio security.
Each realized capital gain is either short-term or long-term, depending on
whether the Fund held the security for one year or less or more than one year.

The Fund will distribute any net realized capital gains and dividends annually,
normally in December. If the Fund is not able to correctly estimate capital
gains it will make an additional capital gains distribution in the first quarter
of the next calendar year.

Buying a dividend. Unless you invest in a tax-deferred retirement account (such
as an IRA), it is not to your advantage to buy shares of the Fund shortly before
it makes a distribution. This is known as "buying a dividend." Buying a dividend
can cost you money in taxes because you will receive, in the form of a taxable
distribution, a portion of the money you just invested (even if you elected to
have it reinvested in additional Fund shares). To avoid "buying a dividend,"
check the Fund's distribution schedule before you invest by calling
1-800-392-7107.

TAXES
You will be subject to income tax on all Fund distributions regardless of
whether you receive them in cash or elect to have them reinvested in Fund
shares. Dividend distributions and distributions of the Fund's net short-term
capital gains are taxable to you as ordinary income. Distributions of the Fund's
net long-term capital gains are taxable to you as long-term capital gains. This
is true regardless of how long you have held your Fund shares.

16
<PAGE> 19

If you sell or exchange your shares, any gain or loss is a taxable event. You
may also be subject to state and local income taxes on dividends or capital
gains from the sale or exchange of Fund shares.

This tax information provides only a general overview. It does not apply if you
invest in a tax-deferred retirement account such as an IRA. Please consult your
own tax adviser about the tax consequences of an investment in the Fund.

17
<PAGE> 20

FOR MORE INFORMATION

For more information about the Choice Funds, ask for a free copy of the
following:

STATEMENT OF ADDITIONAL INFORMATION

The Statement of Additional Information (SAI) contains more detailed information
about the Fund. It is incorporated by reference into this prospectus, which
means that it is legally part of this prospectus.

ANNUAL AND SEMI-ANNUAL REPORTS

The annual and semi-annual reports discuss the Fund's holdings. The annual
report describes the market conditions, economic trends and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

To obtain copies of the SAI, annual or semi-annual reports, or to get other
information about the Fund, please write or call us at:

Choice Funds
P.O. Box 759
207 E. Buffalo Street, Suite 315 (for overnight deliveries)
Milwaukee, WI 53202

1-800-392-7107

You can also review and copy the SAI and other information about the Fund at the
SEC Public Reference Room in Washington, D.C., or download a free text-only
version on the SEC's website at www.sec.gov. Call 1-800-SEC-0330 for information
on the operation of the Public Reference Room. For a fee, the SEC will mail you
a copy of the SAI. Send your request to: SEC Public Reference Room, Washington,
D.C. 20549-6009.

Investment Company Act No. 811-09485
<PAGE> 21

CHOICE FUNDS

BALANCED FUND

PROSPECTUS

October 31, 1999

<PAGE> 22
TABLE OF CONTENTS

FUND OVERVIEW..........................................................1

FUND PERFORMANCE.......................................................2

FUND FEES AND EXPENSES.................................................2

INVESTMENT PRACTICES AND RISKS.........................................3

PRINCIPAL RISKS...................................................4

OTHER INVESTMENT PRACTICES AND RISKS..............................6

MANAGEMENT.............................................................6

INVESTMENT ADVISER................................................6

PORTFOLIO MANAGER.................................................7

BUYING, SELLING AND EXCHANGING SHARES..................................7

BEFORE YOU INVEST.................................................7

PURCHASING SHARES.................................................8

SELLING SHARES....................................................10

EXCHANGING SHARES.................................................13

MAKING CHANGES TO YOUR ACCOUNT....................................13

SPECIAL FEATURES AND SERVICES..........................................14

OTHER SHAREHOLDER INFORMATION..........................................15

DIVIDENDS, DISTRIBUTIONS AND TAXES.....................................16

<PAGE> 23

FUND OVERVIEW

INVESTMENT GOALS
The Fund's investment goals are capital appreciation and current income.

PRINCIPAL INVESTMENT STRATEGIES
The Fund will invest primarily in a diverse group of domestic equity and fixed
income securities. The portfolio manager allocates the Fund's assets between
equity and fixed-income securities based upon its assessment of available
investment opportunities and relevant market, economic and financial factors.

Normally, the portfolio manager's selection will emphasize equity securities
over fixed income securities. The portfolio manager expects that the Fund's
position in equity securities will range from 45% to 65% of the Fund's total
assets. However, it is the Fund's policy to invest at least 25% of its total
assets in fixed-income securities and at least 25% in equity securities.

Equity securities: In selecting individual equity securities, the portfolio
manager looks for common stock of domestic companies that it considers to be
reasonably priced, with strong, consistent and predictable earnings growth
rates, strong management, conservatively financed balance sheets and competitive
products or services. Typically, the companies in which the Fund invests have
mid-sized to large market capitalizations. From time to time, the Fund may take
substantial positions in initial public offerings and securities of smaller
issuers, including issuers with limited operating histories.

Fixed Income Securities: The Fund may invest in a variety of income-producing
securities, such as short- to long-term corporate and government debt
securities, convertible securities, preferred stocks and mortgage- and
asset-backed securities. Except for convertible securities, the Fund will only
purchase fixed income securities that are investment grade. A fixed-income
security is considered investment grade if it has been rated in the top four
categories by at least one rating agency or, if unrated, is deemed by the
portfolio manager to be of comparable quality. The Fund may invest up to 20% of
its assets in convertible securities rated below investment grade (i.e., junk
bonds).

The Fund's portfolio manager will generally sell a security when it no longer
meets the manager's investment criteria or when it has met the manager's
expectations for appreciation. The Fund's portfolio manager may actively trade
the equity portion of the portfolio in pursuit of the Fund's investment goal.
When this occurs, the annual portfolio turnover rate may be higher than that of
other comparable funds.

PRINCIPAL RISKS OF INVESTING
There are two basic risks for all mutual funds that invest in stocks -
management risk and market risk. Management risk means that the portfolio
manager's stock selections and other investment decisions may produce losses or
may not achieve the Fund's investment objectives. Market risk means that the
price of common stocks may move up or down in response to many factors.
Fixed-income securities in which the Fund invests are also subject to credit
risk and interest rate

1
<PAGE> 24

risk. Credit risk means that the issuer of a security may default or be unable
to pay its obligations when due. Interest rate risk is the risk that changes in
interest rates will adversely affect the value of the portfolio's securities. As
a result of these risks, the price of the Fund's investments may go down and you
could lose money on your investment. In addition, the stocks of small or
unseasoned companies in which the Fund invests may be more volatile and less
liquid than the stocks of larger and well-established companies. The Fund may be
riskier than other balanced funds that invest more heavily in fixed-income
securities.

In addition, the Fund may invest in certain securities with unique risks, such
as mortgage- and asset-backed securities. These types of securities are subject
to the additional risk that the underlying assets (loans) may be prepaid at any
time. Investment grade securities rated in the lowest investment grade category
(i.e., BBB/Baa) have speculative characteristics. The Fund may invest up to 20%
of its assets in convertible securities rated below investment grade.
Investments in securities that are below investment grade (i.e., junk bonds)
carry greater risks than investments in investment grade securities. In
particular, issuers of lower rated bonds are less financially secure, are less
likely to repay such bonds and are more likely to be hurt by interest rate
movements. When interest rates are low, the Fund's income distributions to you
may be reduced or eliminated.

An investment in the Fund is not a deposit of the bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any governmental
entity.

For a more detailed discussion of these principal investment risks, as well as
additional risks that apply to the Fund, please see "Investment Practices and
Risks," on page 3.

FUND PERFORMANCE

FUND FEES AND EXPENSES

2
<PAGE> 25

The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.

------------------------------------------------------------- ----------------------
ANNUAL FUND OPERATING EXPENSES (a)
(expenses deducted directly from fund assets)
------------------------------------------------------------- ----------------------
<S> <C>
Management fee 0.75%
------------------------------------------------------------- ----------------------
Distribution (12b-1) fee (b) 0.25%
------------------------------------------------------------- ----------------------
Other expenses 1.05%
------------------------------------------------------------- ----------------------
Total Annual Fund Operating Expenses 2.05%
------------------------------------------------------------- ----------------------
Expense Reimbursement (c) (0.05%)
------------------------------------------------------------- ----------------------
Net Expenses 2.00%
------------------------------------------------------------- ----------------------
</TABLE>

(b) The Fund has adopted a Distribution Plan under Rule 12b-1 that permits
the Fund to pay distribution fees for the sale and distribution of its shares.
Because these fees are paid out of the Fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and could cost
long-term investors in the Fund more than other types of sales charge.

(c) Pursuant to an expense limitation agreement between the adviser and the
Fund, the adviser has agreed to limit the total operating expenses of the Fund
to an annual rate of 2.00% of the Fund's average net assets until October 31,
2000. After such date, the expense limitation may be terminated at any time.

Example: The following example helps you compare the cost of investing in the
Fund to the cost of investing in other mutual funds. The example assumes that:

Your actual costs may be higher or lower, so this example should be used for
comparison only. Based on these assumptions your cost at the end of each period
would be:

<TABLE>
<CAPTION>
-------------------------------- -----------------------------------
1 YEAR 3 YEARS
-------------------------------- -----------------------------------
<S> <C>
$208 $643
-------------------------------- -----------------------------------
</TABLE>

INVESTMENT PRACTICES AND RISKS

The principal strategies and risks of investing in the Fund are summarized
above. The following discussion provides more detail about some of those risks.
This section also describes additional investment practices that, while not
principal, the Fund may follow and the risks associated with those particular
practices.

3
<PAGE> 26

PRINCIPAL RISKS

COMMON STOCKS. To the extent the Fund invests in common stocks, it is subject to
certain risks associated with common stock investing. These include the
management risk of selecting individual stocks that do not perform as the
portfolio manager anticipated, the risk that the stock markets in which the Fund
invests may experience periods of turbulence and instability, and the general
risk that domestic and global economies may go through periods of decline and
cyclical change. If the stock market declines in value, the Fund is likely to
decline in value. Many factors affect an individual company's performance, such
as the strength of its management or the demand for its products or services.
Negative performance may affect the earnings growth potential anticipated by the
portfolio manager when the individual stock was selected for the Fund's
portfolio.

To the extent the Fund invests in stocks of small or unseasoned companies, your
investment is subject to the following additional risks:

- - Small capitalization. An investment in companies with smaller
capitalizations involves greater risks than investing in larger, more
established companies. Small company stocks may be subject to more abrupt or
erratic price movements, because the stocks are traded in lower volume and
their issuers are more sensitive to changing conditions and have less
certain growth prospects. Also, there are fewer markets for these stocks and
wider spreads between quoted bid and asked prices in the over-the-counter
market for these stocks. Small cap stocks tend to be less liquid,
particularly during periods of market disruption. There is normally less
publicly available information concerning the issuers of these securities.
Small companies in which the Fund invests may have limited product lines,
markets or financial resources, or may be dependent on a small management
group.

FIXED-INCOME SECURITIES. To the extent that the portfolio manager invests assets
of the Fund in fixed-income securities, your investment is subject to the
following risks:

- - Credit Risk. An issuer of fixed-income securities may default on its
obligation to pay interest and repay principal. Also, changes in the
financial strength of an issuer or changes in the credit rating of a
security may affect its value.

- - Interest Rate Risk. When interest rates increase, fixed-income securities
tend to decline in value and when interest rates decrease, fixed-income
securities tend to increase in value. A change in interest rates could
cause the value of your investment to change. Fixed-income securities with
longer maturities are more susceptible to interest rate fluctuations than
those with shorter maturities. Changes in interest rates may also extend or
shorten the duration of certain types of instruments, such as asset-backed
securities, thereby affecting their value and the return on your
investment. "Duration" measures how a change in interest rates could affect
a bond's price by considering its yield, scheduled interest payments and
years to

4
<PAGE> 27

maturity. Generally, the longer a bond's duration, the greater the exposure
to interest rate risk.

- - Prepayment Risk. Prepayment risk is the risk that, as interest rates fall,
borrowers are more likely to refinance their mortgages or other debts. As a
result, the principal on mortgage-backed, asset-backed or certain other
fixed income securities may be paid earlier than expected. If portfolio
securities are prepaid, the portfolio manager may have to reinvest prepaid
amounts at a relatively lower interest rate, which could affect the return
on your investment.

- - Non-investment Grade Securities. Securities rated below investment grade
are particularly subject to credit risk. These securities are considered
speculative and are commonly referred to as "junk bonds." Although the Fund
will not invest in defaulted securities, it may invest in convertible
securities of all other grades, including securities rated as low as C. To
the extent the Fund purchases or holds convertible or other securities that
are below investment grade (securities rated BB/Ba or lower), there is a
greater risk that payments of principal, interest and dividends will not be
made. In addition, the value of lower quality securities is subject to
greater volatility and is generally more dependent on the ability of the
issuer to meet interest and principal payments than is the case for higher
quality securities. Issuers of non-investment grade securities may not be
as financially strong as those issuing bonds with higher credit ratings.

MORTGAGE- AND ASSET-BACKED SECURITIES. The Fund may purchase residential and
commercial mortgage-backed as well as other asset-backed securities. The Fund
will only invest in mortgage-backed securities that are issued or guaranteed by
the U.S. Government or its agencies or instrumentalities, or in privately issued
mortgage-backed or asset-backed securities that are rated in the top two
categories (i.e., AAA/AA) by a nationally recognized rating agency. In addition
to credit and market risk, mortgage- and asset-backed securities involve
prepayment risk because the underlying assets (loans) may be prepaid at any
time. The value of these securities may also be changed because of actual or
perceived changes in the creditworthiness of the originator, the servicing
agent, the financial institution providing the credit support, or the
counterparty. Like other fixed-income securities, when interest rates rise, the
value of an asset-backed security will generally decline. However, when interest
rates decline, the value of a mortgage-backed security with prepayment features
may not increase as much as that of other fixed-income securities. These
securities are also subject to the risk that, as interest rates rise, borrowers
are less likely to refinance their mortgages and other debts. As a result, the
principal on mortgage- or asset-backed securities may be paid later than
expected, which could cause the value of the securities to go down. In times of
financial stress, the secondary market for asset-backed securities may not be as
liquid as the market for other types of securities.

5
<PAGE> 28

OTHER INVESTMENT PRACTICES AND RISKS

INVESTMENT OBJECTIVES. The investment objectives of the Fund are capital
appreciation and current income. The Fund's objectives may be changed by the
Fund's board of trustees without shareholder approval. You will receive advance
written notice of any material changes to the Fund's investment objectives.

MANAGEMENT

6
<PAGE> 29

BUYING, SELLING AND EXCHANGING SHARES

BEFORE YOU INVEST

PROSPECTUS. This prospectus contains important information about the Fund.
Please read it carefully before you decide to invest.

Available forms of registration include:
- - Individual ownership. If you have reached the legal age of majority in your
state of residence, you may open an individual account.
- - Joint ownership. Two or more individuals may open an account together as joint
tenants with right of survivorship, tenants in common or as community
property.
- - Custodial account. You may open an account for a minor under the
Uniform Gift to Minors Act/Uniform Transfers to Minors Act for your state of
residence
- - Business/trust ownership. Corporations, trusts, charitable organizations and
other businesses may open accounts.
- - IRAs and other tax-deferred accounts. The Fund offers a variety of retirement
accounts for individuals and institutions. Please refer to "Retirement Account
Options," below, for more information about these types of accounts.

7
<PAGE> 30

- ------------------------------------- --------------------------------- -------------------------------------
TYPE OF ACCOUNT INITIAL MINIMUM PURCHASE ADDITIONAL MINIMUM PURCHASE
- ------------------------------------- --------------------------------- -------------------------------------
<S> <C> <C>
Regular (Individual, joint,
business or trust) $2,500 $100
- ------------------------------------- --------------------------------- -------------------------------------
IRA (including spousal,
Roth and SEP) $2,500 $100
- ------------------------------------- --------------------------------- -------------------------------------
Gifts to Minors
(UTMA/UGMA) $1,000 $100
- ------------------------------------- --------------------------------- -------------------------------------
Automatic Investment Plan $2,500 $100
- ------------------------------------- --------------------------------- -------------------------------------
</TABLE>

DETERMINING YOUR SHARE PRICE. The price at which you purchase and sell the
Fund's shares is called the Fund's net asset value (NAV) per share. The Fund
calculates NAV by taking the total value of its assets, subtracting its
liabilities, and dividing the total by the number of Fund shares that are
outstanding. The Fund calculates its NAV as of the close of trading on the New
York Stock Exchange (usually 4:00 p.m. Eastern time) on each day the Exchange is
open for trading. The Fund does not calculate NAV on days the Exchange is closed
(including national holidays and Good Friday). The price of the shares you
purchase or redeem will be the next NAV calculated after your order is received
and accepted by the Fund's transfer agent, or other financial intermediary with
the authority to accept orders on the Fund's behalf.

PURCHASING SHARES

<PAGE> 31
<TABLE>
<CAPTION>
- ------------------------------------------------------- -----------------------------------------------------
TO OPEN AN ACCOUNT TO ADD TO AN EXISTING ACCOUNT
- ------------------------------------------------------- -----------------------------------------------------
<S> <C>
BY MAIL: BY MAIL:
- - Complete and sign the account application or - Complete the investment slip that is
an IRA application. If you don't complete the included in your account statement, and write
application properly, your purchase may be your account number on your check.
delayed or rejected. - If you no longer have your investment slip,
- - Make your check payable to "The Choice please reference your name, account
Funds." The Fund does not accept cash, number and address on your check.
third party checks, travelers checks or checks - Make your check payable to "The Choice Funds."
drawn on banks outside the U.S.
- - For IRA accounts, please specify the year for
which the contributions is made.

- ------------------------------------------------------- -----------------------------------------------------
MAIL YOUR APPLICATION AND CHECK TO: MAIL THE SLIP AND THE CHECK TO:
Choice Funds Choice Funds
P.O. Box 759 P.O. Box 759
Milwaukee, WI 53201-0759 Milwaukee, WI 53201-0759

- ------------------------------------------------------- -----------------------------------------------------
BY OVERNIGHT COURIER, SEND TO:
Choice Funds
207 E. Buffalo Street
Suite 315
Milwaukee, WI 53202

- ------------------------------------------------------- -----------------------------------------------------
BY TELEPHONE: BY TELEPHONE:
- You automatically have the privilege
You may not make your initial purchase by to purchase additional shares by
telephone. telephone unless you have declined this
service on your account application. You
may call 1-800-392-7107 to purchase shares
for an existing account.
- Investments made by electronic funds transfer
must be in amounts of at least $100 and not
greater than $50,000.

- ------------------------------------------------------- -----------------------------------------------------
BY WIRE: BY WIRE:
- - To purchase shares by wire, the transfer Send your investment to UMB Bank, n.a. by following
agent must have received a completed application the instructions listed in the column to the left.
and issued an account number to you. Call
1-800-392-7107 for instructions prior to wiring
the funds.
- - Send your investment to UMB Bank, n.a. with
these instructions:
UMB Bank, n.a.
ABA #101000695
For Credit to the Choice Funds
A/C #9870983788
For further credit to: investor account number;
name(s) of investor(s); SSN or TIN; name of Fund.
- ------------------------------------------------------- -----------------------------------------------------
</TABLE>

9
<PAGE> 32

If your purchase request is received by the Fund's transfer agent, broker-dealer
or other authorized agent before close of trading on the New York Stock Exchange
(typically 4:00 p.m. Eastern time) on a business day, your request will be
executed at that day's NAV, provided that your application is in good order.
"Good order" means that we have received your completed, signed application,
your payment, and your tax identification number information. If your request is
received after close of trading, it will be priced at the next business day's
NAV. Shares purchased by wire will receive the NAV next determined after the
transfer agent receives your completed application, the wired funds and all
required information is provided in the wire instructions.

ADDITIONAL PURCHASE INFORMATION.
- - The Fund does not issue certificates for shares.
- - If your check does not clear, your purchase will be cancelled. You will
be responsible for any resulting losses or expenses (including a $20 fee)
incurred by the Fund or the transfer agent. The Fund may redeem shares you
own in this or another identically registered Choice Funds account as
reimbursement for any such losses.
- - You must provide the Fund with a Social Security Number or Taxpayer
Identification Number before your account can be established. If you do not
certify the accuracy of your Social Security or Taxpayer Identification
Number on your account application, the Fund will be required to withhold
Federal income tax at a rate of 31% from all of your dividends, capital
gain distributions and redemptions.
- - The Fund is only offered and sold to residents of the United States.
Your application will be accepted only if it contains a U.S. address. This
prospectus should not be considered a solicitation to buy or an offer to
sell shares of the Fund in any jurisdiction where it would be unlawful to
do so under the securities laws of that jurisdiction.
- - The Fund will not accept your application if you are investing for
another person as attorney-in-fact. The Fund will not accept applications
that list "Power of Attorney" or "POA" in the registration section.
- - Once you place your order, you may not cancel or revoke it. The Fund
may reject a purchase order for any reason.

SELLING SHARES

10
<PAGE> 33

redemption proceeds until your check has cleared, which may take up to 15 days
from the date of purchase. You can avoid this delay by purchasing shares by a
federal funds wire. Please note that this provision is intended to protect the
Fund and its shareholders from loss.

BY MAIL

- - Send a letter of instruction that includes your account number, the
Fund name, the dollar value or number of shares you want to sell, and how
and where to send the proceeds.
- - Sign the request exactly as the shares are registered. All registered
owners must sign.
- - Include a signature guarantee, if necessary (see "Signature Guarantees",
below).
- - Mail your request to:

REGULAR MAIL OVERNIGHT COURIER
------------ -----------------
Choice Funds Choice Funds
P.O. Box 759 207 East Buffalo Street, Suite 315
Milwaukee, WI 53201-0759 Milwaukee, WI 53202

BY TELEPHONE
- - You automatically have the privilege to redeem shares by telephone
unless you have declined this option on your account application.
- - Call 1-800-392-7107, between 8:00 a.m. and 8:00 p.m. Eastern time. You
may redeem as little as $1000 and as much as $50,000 by telephone.

ADDITIONAL REDEMPTION PROVISIONS
- - Once we receive your order to sell shares, you may not revoke or cancel
it. We cannot accept an order to sell that specifies a particular date,
price or any other special conditions.
- - If you are redeeming from an IRA, please tell us the proper tax
withholding on your redemption request. If you did not make a tax election
on your IRA application, we will automatically withhold 10% of your
redemption proceeds.
- - If your redemption request exceeds the amount that you currently have
in your account, your entire account will be redeemed. Any automatic
purchase or systematic withdrawal plan that you have initiated for the
account will be cancelled.
- - The Fund reserves the right to suspend the redemption of Fund shares
when the securities markets are closed, trading is restricted for any
reason, an emergency exists and disposal of

11
<PAGE> 34
securities owned by the Fund is not reasonably practicable, the Fund cannot
fairly determine the value of its net assets or the Securities and Exchange
Commission permits the suspension of the right of redemption or postpones
the date of payment of a redemption.
- - If the amount you redeem is large enough to affect the Fund's
operations, the Fund may pay your redemption "in kind." This means that the
Fund may pay you in portfolio securities rather than cash. If this occurs,
you may incur transaction costs when you sell the securities you receive.

REDEEMING SHARES THROUGH THIRD PARTIES. A broker-dealer, financial institution
or other service provider may charge a fee to redeem your Fund shares. If the
service provider is the shareholder of record, the Fund may accept redemption
requests only from that provider.

TELEPHONE TRANSACTIONS
- - In times of drastic economic or market conditions, you may have difficulty
selling shares by telephone. The Fund reserves the right to temporarily
discontinue or limit the telephone purchase, redemption or exchange
privileges at any time during such periods. If you are unable to reach the
Fund by telephone, please send your redemption request via overnight courier.
- - The Fund reserves the right to refuse a telephone redemption request if it
believes it is advisable to do so. The Fund uses procedures reasonably
designed to confirm that telephone redemption instructions are genuine. These
may include recording telephone transactions, testing the identity of the
caller by asking for account information and sending prompt written
confirmations. The Fund may implement other procedures from time to time. If
these procedures are followed, the Fund and its service providers will not be
liable for any losses due to unauthorized or fraudulent instructions.

SIGNATURE GUARANTEES. The Fund will require the signature guarantee of each
account owner to redeem shares in the following situations:
- - to change ownership on your account;
- - to send redemption proceeds to a different address than is currently on the
account;
- - to have the proceeds paid to someone other than the account's owner;
- - to transmit redemption proceeds by federal wire transfer or ACH to a bank
other than your bank of record;
- - if a change of address request has been received by the transfer agent within
the last 30 days; or
- - if your redemption is for $50,000 or more.

12
<PAGE> 35

we close your account, and you will have 60 days to add additional money to
bring the balance up to $1,000 or to renew your automatic investment plan. This
provision does not apply to retirement plan accounts, automatic investment plans
or UGMA/UTMA accounts.

EXCHANGING SHARES

MAKING CHANGES TO YOUR ACCOUNT

You may call or write us to make changes to your account. Common changes
include:

Address changes. The easiest way to notify us is to return the stub from a
recent confirmation or statement. You can also call the transfer agent with any
changes at 1-800-392-7107.

13
<PAGE> 36

living registered owners must sign the letter. You will also need to include a
signature guarantee. Corporations, businesses and trusts may have to provide
additional documents. In order to avoid delays in processing account transfers,
please call the transfer agent at 1-800-392-7107 to determine what additional
documents are required.

SPECIAL FEATURES AND SERVICES

The Fund currently accepts investments into the following kinds of retirement
accounts:
- - Traditional IRA (including spousal IRA)
- - "Rollover" IRA
- - Roth IRA
- - SEP-IRA

14
<PAGE> 37

OTHER SHAREHOLDER INFORMATION

Quarterly and annual statements. You will receive a quarterly statement listing
all distributions, purchases and redemptions of Fund shares for the preceding
calendar quarter. Your December statement will include a listing of all
transactions for the entire year.

Prospectus. Each year, the Fund sends all shareholders a new prospectus.
Please read the prospectus and keep it for future reference.

Form 1099. Each year you will receive a Form 1099-DIV, showing the source of
distributions for the preceding year and a Form 1099-B showing shares you sold
during the year.

Form 5498. If you contributed to an IRA during the year, you will receive a Form
5498 verifying your contribution.

15
<PAGE> 38

paid by the Fund, its expenses will increase. Because 12b-1 fees are paid out of
the Fund's net assets on an ongoing basis, over time these fees will increase
the cost of your investment and could cost long-term investors more than paying
other types of sales charges.

YEAR 2000
Like other investment companies and financial service providers, the Fund could
be adversely affected if the computer systems used by its investment adviser and
the Fund's other service providers do not properly process and calculate
date-related information beginning on January 1, 2000. This possibility is
commonly known as the "Year 2000 Problem." The Year 2000 Problem arises because
most computer systems were designed only to recognize a two-digit year, not a
four-digit year. As a result, computers may interpret "00" as the year 1900 and
either stop processing date-related computations or process them incorrectly.
These failures could have a negative impact on the Fund's securities trades,
pricing and accounting services. The Fund's investment adviser and each of its
service providers are taking steps to address the Year 2000 Problem with respect
to the computer systems they use. There can be no assurance that the steps taken
by these service providers will be successful, or that interaction with other
non-complying computer systems will not adversely impact the Fund. Also,
companies in which the Fund invests could be adversely affected by the Year 2000
Problem. It is also possible that the normal operation of the Fund and its
service providers will be interrupted in any event by the failure of
communications and public utility companies, governmental entities, financial
processors or others to perform their services as a result of the Year 2000
Problem.

DIVIDENDS, DISTRIBUTIONS AND TAXES

16
<PAGE> 39

sells a portfolio security. Each realized capital gain is either short-term or
long-term, depending on whether the Fund held the security for one year or less
or more than one year.

The Fund will distribute any net realized capital gains annually, normally in
December. If the Fund is not able to correctly estimate capital gains it will
make an additional capital gains distribution in the first quarter of the next
calendar year. The Fund will distribute dividends on a quarterly basis,
typically in March, June, September and December.

- --------------------------------------------------------------------------------
Buying a dividend. Unless you invest in a tax-deferred retirement account (such
as an IRA), it is not to your advantage to buy shares of the Fund shortly before
it makes a distribution. This is known as "buying a dividend." Buying a dividend
can cost you money in taxes because you will receive, in the form of a taxable
distribution, a portion of the money you just invested (even if you elected to
have it reinvested in additional Fund shares). To avoid "buying a dividend,"
check the Fund's distribution schedule before you invest by calling
1-800-392-7107.
- --------------------------------------------------------------------------------

17
<PAGE> 40
FOR MORE INFORMATION

For more information about the Choice Funds, ask for a free copy of the
following:

STATEMENT OF ADDITIONAL INFORMATION

ANNUAL AND SEMI-ANNUAL REPORTS

- --------------------------------------------------------------------------------
To obtain copies of the SAI, annual or semi-annual reports, or to get other
information about the Fund, please write or call us at:

Choice Funds
P.O. Box 759
207 E. Buffalo Street, Suite 315 (for overnight deliveries)
Milwaukee, WI 53202

1-800-392-7107
- --------------------------------------------------------------------------------

Investment Company Act No. 811-09485

<PAGE> 41

STATEMENT OF ADDITIONAL INFORMATION

FOR THE

CHOICE FUNDS

FOCUS FUND

This Statement of Additional Information should be read in conjunction
with the Prospectus for the Choice Focus Fund dated October 31, 1999, and is
incorporated by reference in its entirety into such Prospectus. Because this
Statement of Additional Information is not itself a prospectus, you should not
make an investment in shares of the Choice Focus Fund based solely on the
information contained herein. You may obtain copies of the Prospectus for the
Choice Focus Fund without charge by calling 1-800-392-7107 or by writing to
Choice Funds, P.O. Box 759, Milwaukee, Wisconsin 53201-0759.

This Statement of Additional Information is dated October 31, 1999.

<PAGE> 42

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----

<S> <C>
FUND ORGANIZATION................................................................................ 1
INVESTMENT POLICIES AND PRACTICES................................................................ 1
Investment Restrictions................................................................. 1
Investment Strategies and Risks......................................................... 3
MANAGEMENT OF THE FUND........................................................................... 22
Trustees and Officers................................................................... 22
Control Persons and Principal Holders of Securities..................................... 24
INVESTMENT ADVISORY AND OTHER SERVICES........................................................... 24
Investment Adviser...................................................................... 24
Administration and Fund Accounting...................................................... 25
Transfer Agent and Dividend-Paying Agent................................................ 26
Custodian............................................................................... 26
Distributor............................................................................. 27
Legal Counsel .......................................................................... 27
Independent Accountants................................................................. 27
DISTRIBUTION OF SHARES........................................................................... 27
PORTFOLIO TRANSACTIONS AND BROKERAGE............................................................. 28
CAPITAL STRUCTURE................................................................................ 30
TAXES............................................................................................ 31
General................................................................................. 31
Original Issue Discount................................................................. 31
Options, Futures and Foreign Currency Forward Contracts; Straddles...................... 32
Currency Fluctuations - "Section 988" Gains or Losses................................... 33
Passive Foreign Investment Companies.................................................... 33
Distributions........................................................................... 34
Disposition of Shares................................................................... 35
Back-up Withholding..................................................................... 35
Other Taxation.......................................................................... 35
PURCHASE, REDEMPTION AND PRICING OF SHARES....................................................... 36
Determination of Net Asset Value........................................................ 36
Exchanging Shares....................................................................... 37
Retirement Accounts..................................................................... 37
Suspension of Redemptions............................................................... 37
Redemptions in Kind..................................................................... 38
PERFORMANCE INFORMATION.......................................................................... 38
MISCELLANEOUS.................................................................................... 40
FINANCIAL STATEMENTS............................................................................. 41
APPENDIX A (Description of Securities Ratings)................................................... A-1
</TABLE>

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

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

<PAGE> 43

FUND ORGANIZATION

Choice Funds is an open-end management investment company
organized as a Delaware business trust on July 16, 1999 (the "Trust"). The Trust
is authorized by its Declaration of Trust to issue an unlimited number of shares
of beneficial interest in series and classes. The Trust currently offers one
series of shares, the Focus Fund (the "Fund").

INVESTMENT POLICIES AND PRACTICES

INVESTMENT RESTRICTIONS

Consistent with the Fund's investment objective, the Fund has adopted
certain investment restrictions. Unless otherwise noted, whenever an investment
restriction states a maximum percentage of the Fund's assets that may be
invested in any security or other asset, such percentage restriction will be
determined immediately after and as a result of the Fund's acquisition of such
security or other asset. Accordingly, any subsequent change in values, net
assets, or other circumstances will not be considered when determining whether
the investment complies with the Fund's investment limitations except with
respect to the Fund's restrictions on borrowings as set forth in restriction 6
below.

The Fund's fundamental restrictions cannot be changed without the
approval of the holders of the lesser of: (i) 67% of the Fund's shares present
or represented at a shareholders meeting at which the holders of more than 50%
of such shares are present or represented; or (ii) more than 50% of the
outstanding shares of the Fund.

The following are the Fund's fundamental investment restrictions.
Except as otherwise noted, the Fund may not:

1. Issue senior securities, except as permitted under the Investment
Company Act of 1940, as amended (the "Investment Company Act"); provided,
however, the Fund may engage in transactions involving options, futures and
options on futures contracts.

2. Lend money or securities (except by purchasing debt securities or
entering into repurchase agreements or lending portfolio securities); provided,
however, that the Fund may make loans to affiliated investment companies to the
extent permitted by the Investment Company Act or any exemptions there from that
may be granted by the SEC.

3. Purchase the securities of any issuer if, as a result, 25% or more
of the value of its total assets, determined at the time an investment is made,
exclusive of U.S. government securities, are in securities issued by companies
primarily engaged in the same industry.

4. Act as an underwriter or distributor of securities other than
shares of the Fund except to the extent that the Fund's participation as part of
a group in bidding or by bidding alone, for the purchase of permissible
investments directly from an issuer or selling shareholders for the Fund's own
portfolio may be deemed to be an underwriting, and except to the extent that the
Fund may be deemed an underwriter under the Securities Act, by virtue of
disposing of portfolio securities.

3
<PAGE> 44

5. Purchase or sell real estate (but this shall not prevent the Fund
from investing in securities that are backed by real estate or issued by
companies that invest or deal in real estate or in participation interests in
pools of real estate mortgage loans exclusive of investments in real estate
limited partnerships).

6. Borrow money, except that the Fund may borrow money from a bank or
affiliated investment companies to the extent permitted by the Investment
Company Act or any exemption there from that may be granted by the SEC or for
temporary or emergency purposes (not for leveraging) in an amount not exceeding
25% of the value of its total assets (including the amount borrowed) less
liabilities (other than borrowings), or pledge, mortgage or hypothecate its
assets, except to secure indebtedness, and then only if such pledging,
mortgaging or hypothecating does not exceed 25% of the Fund's total assets.
Transactions involving options, futures and options on futures, will not be
deemed to be borrowings if properly covered by a segregated account where
appropriate. The Fund will not purchase securities while its borrowings exceed
5% of its total assets.

7. Purchase or sell physical commodities or commodities contracts
unless acquired as a result of ownership of securities or other instruments (but
this shall not prevent the Fund from engaging in transactions involving foreign
currencies, futures contracts, options on futures contracts or options, or from
investing in securities or other instruments backed by physical commodities).

The Trustees have adopted additional investment restrictions for the
Fund. These restrictions are operating policies of the Fund and may be changed
by the Trustees without shareholder approval.

The Fund may not:

1. Purchase securities of other investment companies except to the
extent permitted by the Investment Company Act and the rules and regulations
thereunder.

2. Make investments for the purpose of exercising control or
management of any company except that the Fund may vote portfolio securities in
the Fund's discretion.

3. Acquire illiquid securities if, as a result of such investments,
more than 15% of the Fund's net assets (taken at market value at the time of
each investment) would be invested in illiquid securities. "Illiquid securities"
means securities that cannot be disposed of within seven days in the normal
course of business at approximately the amount at which the Fund has valued the
securities.

4. Purchase securities on margin (except to obtain such short-term
credits as are necessary for the clearance of purchases and sales of securities)
or participate in a joint trading account; provided, however, the Fund may (i)
purchase or sell futures contracts and options on futures, (ii) make initial and
variation margin payments in connection with purchases or sales of futures
contracts or options on futures contracts, (iii) write or invest in put or call
options on securities and indexes, and (iv) engage in foreign currency
transactions. (The "bunching" of orders for the sale or purchase of marketable
portfolio securities with other accounts under the

<PAGE> 45

management of the Adviser to save brokerage costs or average prices among them
is not deemed to result in a securities trading account.)

5. Purchase or sell securities on a when-issued or delayed delivery
basis, if, as a result, more than 5% of its total assets taken at market value
at the time of purchase would be invested in such securities.

6. Purchase and sell financial futures, forward foreign currency
exchange contracts and put and call options, except for hedging purposes;
provided that no more than 5% of the Fund's net assets at the time of purchase
may be invested initial margins for financial futures transactions and premiums
for options, and provided further that the Fund may only write call options that
are covered and only up to 25% of the Fund's total assets.

7. With respect to fifty percent (50%) of its total assets, purchase
(a) the securities of any issuer (except securities of the U.S. government or
any agency or instrumentality thereof), if such purchase would cause more than
five percent (5%) of the value of the Fund's total assets to be invested in
securities of any one issuer or (b) more than 10% of the outstanding voting
securities of any one issuer.

In determining industry classifications with respect to the Fund, the
Adviser intends to use the industry classification titles in the Standard
Industrial Classification Manual.

A security is considered to be issued by the entity, or entities, whose
assets and revenues back the security. A guarantee of a security is not deemed
to be a security issued by the guarantor when the value of all securities issued
and guaranteed by the guarantor, and owned by the Fund, does not exceed 10% of
the value of the Fund's assets.

INVESTMENT STRATEGIES AND RISKS

The Fund is a non-diversified fund that seeks capital appreciation. The
Prospectus describes the Fund's investment objective, as well as the principal
investment strategies used to achieve that objective and the principal risks
associated with such strategy. The following information supplements the
discussion about the Fund set forth in the Prospectus under the headings "Fund
Overview" and "Investment Practices and Risks."

TEMPORARY DEFENSIVE MEASURES. The Fund may increase its investment in
government securities, and other short-term, interest-bearing securities without
regard to the Fund's otherwise applicable percentage limits, policies or its
normal investment emphasis, when its Advisor believes market conditions warrant
a temporary defensive position. Taking larger positions in such short-term
investments may serve as a means of preserving capital in unfavorable market
conditions. When in a defensive position, the Fund could miss the opportunity to
participate in any stock or bond market advances that occur during those
periods, which the Fund might have been able to participate in if it had
remained more fully invested.

NON-DIVERSIFICATION. The Fund is classified as a "non-diversified" Fund
under the Investment Company Act, which means that the Fund is not limited by
that Act in the proportion

<PAGE> 46

of its assets that it may invest in the securities of a single issuer. The
Fund's net asset value may be more volatile than that of a more-widely
diversified fund because the Fund invests more of its assets in a smaller number
of issuers. Consequently, the Fund may be more vulnerable to any single
economic, political or regulatory occurrence, and the gains or losses on a
single stock will have a greater impact on the Fund's net asset value.

PORTFOLIO TURNOVER RATE. The Fund may engage in a high level of trading
in seeking to achieve its investment objective. The portfolio turnover rate for
the Fund is calculated by dividing the lesser of purchases or sales of portfolio
investments for the reporting period by the monthly average value of the
portfolio investments owned during the reporting period. A 100% portfolio
turnover rate results, for example, if the equivalent of all the securities in
the Fund's portfolio are replaced in a one year period. The calculation excludes
all securities, including options, whose maturities or expiration dates at the
time of acquisition are one year or less. Portfolio turnover may vary greatly
from year to year as well as within a particular year, and may be affected by
cash requirements for redemption of shares. The Fund is not restricted by policy
with regard to portfolio turnover and will make changes in its investment
portfolio from time to time as business and economic conditions as well as
market prices may dictate. Higher portfolio turnover rates result in
correspondingly higher brokerage costs for the Fund. Although the existence of a
higher portfolio turnover rate has no direct correlation to the tax liability of
the Fund, sales of certain stocks will result in realized gains, and, possibly,
in increased taxable distributions to shareholders.

INITIAL PUBLIC OFFERINGS. The Fund may invest in a company's securities
at the time of the company's initial public offering (IPO). Companies involved
in IPOs are often smaller and have a limited operating history, which involves a
greater risk that the value of their securities will be impaired following the
IPO. In addition, market psychology prevailing at the time of an IPO can have a
substantial and unpredictable effect on the price of an IPO security, causing
the price of a company's securities to be particularly volatile at the time of
its IPO and for a period thereafter. As a result, the Fund's Adviser might
decide to sell an IPO security more quickly than it would otherwise, which may
result in a significant gain or loss to the Fund.

U.S. GOVERNMENT OBLIGATIONS. As a temporary defensive measure, the Fund
may invest in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. Some of the obligations purchased by the Fund,
such as U.S. Treasury bills, notes and bonds, are backed by the full faith and
credit of the U.S. Government and are guaranteed as to both principal and
interest by the U.S. Treasury. While the obligations of many of the agencies and
instrumentalities of the U.S. Government are not direct obligations of the U.S.
Treasury, they are generally backed indirectly by the U.S. Government. Some of
the agencies are indirectly backed by their right to borrow from the U.S.
Government. Others are supported solely by the credit of the agency or
instrumentality itself, but are given additional support due to the U.S.
Treasury's authority to purchase their outstanding debt obligations. However, no
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-established or sponsored agencies where it is not obligated
to do so by law. The U.S. Government does not guarantee the market value or
current yield of these obligations, and the U.S. Government's guarantee does not
extend to the Fund itself.

6
<PAGE> 47

FOREIGN SECURITIES. The Fund may invest without limitation in
securities of foreign issuers which are publicly traded in the United States,
either directly or through sponsored and unsponsored American Depositary
Receipts ("ADRs"). ADRs typically are issued by a U.S. bank or trust company and
evidence ownership of underlying securities issued by a foreign corporation.
Unsponsored ADRs differ from sponsored ADRs in that the establishment of
unsponsored ADRs is not approved by the issuer of the underlying securities. As
a result, available information concerning the issuer may not be as current or
reliable as the information for sponsored ADRs, and the price of unsponsored
ADRs may be more volatile.

Investments in foreign securities involve special risks and costs in
addition to those inherent in domestic investments. Political, economic or
social instability of the issuer or the country of issue, the possibility of
expropriation or confiscatory taxation, limitations on the removal of assets or
diplomatic developments, and the possibility of adverse changes in investment or
exchange control regulations are among the inherent risks. Foreign companies are
not subject to the regulatory requirements of U.S. companies and, as such, there
may be less publicly available information about such companies. Moreover,
foreign companies are not subject to uniform accounting, auditing and financial
reporting standards and requirements comparable to those applicable to U.S.
companies. Dividends and interest payable on the Fund's foreign portfolio
securities may be subject to foreign withholding taxes. To the extent such taxes
are not offset by credits or deductions allowed to investors under U.S. federal
income tax law, such taxes may reduce the net return to shareholders. Because of
these and other factors, securities of foreign companies acquired by the Fund
may be subject to greater fluctuation than securities of domestic companies.

Changes in foreign currency exchange rates will affect the value of the
Fund's portfolio securities that are denominated or quoted in currencies other
than the U.S. dollar, as well as the unrealized appreciation or depreciation of
such investments insofar as U.S. investors are concerned. If the foreign
currency in which a security is denominated appreciates against the U.S. dollar,
the dollar value of the security will increase. Conversely, a decline in the
exchange rate of the foreign currency against the U.S. dollar would adversely
affect the dollar value of the foreign securities. Foreign currency exchange
rates are determined by forces of supply and demand on the foreign exchange
markets, which are in turn affected by the international balance of payments and
other economic and financial conditions, government intervention, speculation
and other factors.

SECURITIES OF COMPANIES WITH LIMITED OPERATING HISTORIES. The Fund may
invest in securities of companies with limited operating histories. The Fund
considers these to be securities of companies with a record of less than three
years' continuous operation, including the operations of any predecessors and
parents. Because these companies have only a limited operating history, it is
more difficult for the Adviser to evaluate the company's growth prospects. As a
result, the Adviser's investment decisions for these securities may place a
greater emphasis on current or planned product lines and the reputation and
experience of the company's management and less emphasis on fundamental
valuation factors than would be the case for more mature companies. In addition,
many of these companies may also be small companies and involve the risks and
price volatility associated with investments in smaller companies.

<PAGE> 48

SECURITIES OF SMALLER COMPANIES. The Fund may invest in securities of
companies with small or mid-sized market capitalizations. An investment in
companies with smaller capitalizations involves greater risks than investing in
larger, more established companies. Smaller company stocks may be subject to
more abrupt or erratic price movements, because the stocks are traded in lower
volumes in fewer markets and their issuers are more sensitive to changing
conditions and have less certain growth prospects. Smaller companies in which
the Fund invests may have limited product lines, markets or financial resources,
or may be dependent on a small management group. Smaller companies also may be
less significant factors within their industries and may have difficulty
withstanding competition from larger companies. While smaller companies may be
subject to these additional risks, they may also realize more substantial growth
than larger or more established companies.

SPECIAL SITUATIONS. The Fund may also invest in securities of companies
that have recently experienced or are anticipated to experience a significant
change in structure, management, products or services or other special situation
that may significantly affect the value of their securities. Examples of special
situations are companies being reorganized or merged, companies emerging from
bankruptcy, companies introducing unusual new products or which enjoy particular
tax advantages. Other examples include companies experiencing changes in senior
management, extraordinary corporate events, significant changes in cost or
capital structure or which are believed to be probable takeover candidates. The
opportunity to invest in special situations, however, is limited and depends in
part on the market's assessment of these companies and their circumstances. By
its nature, a "special situation" company involves to some degree a break with
the company's past experience. This creates greater uncertainty and potential
risk of loss than if the company were operating according to long-established
patterns. In addition, stocks of companies in special situations may decline or
not appreciate as expected if an anticipated change or development does not
occur or is not assessed by the market as favorably as expected.

ILLIQUID AND RESTRICTED SECURITIES. The Fund is authorized to invest up
to 15% of its net assets in securities which are illiquid or not readily
marketable because they are subject to restrictions on their resale ("restricted
securities") or because, based upon their nature or the market for such
securities, no ready market is available. Investments in illiquid securities
involve certain risks to the extent that the Fund may be unable to dispose of
such a security at the time desired or at a reasonable price or, in some cases,
may be unable to dispose of it at all. In addition, in order to resell a
restricted security, the Fund might have to incur the potentially substantial
expense and delay associated with effecting registration. The Fund may have to
lower the price, sell other portfolio securities instead or forego an investment
opportunity, any of which could have a negative impact on Fund management or
performance. Because illiquid and restricted securities may be difficult to sell
at an acceptable price, they may be subject to greater volatility and may result
in a loss to the Fund.

<PAGE> 49

or the issuer thereof (e.g., certain repurchase obligations and demand
instruments), (iii) the availability of market quotations (e.g., for securities
quoted in PORTAL system), and (iv) other permissible relevant factors. Certain
securities are deemed illiquid by the Securities and Exchange Commission,
including repurchase agreements maturing in more than seven days and options not
listed on a securities exchange or not issued by the Options Clearing
Corporation. These securities will be treated as illiquid and subject to the
Fund's limitation on illiquid securities. Because an active market may not exist
for illiquid securities, the Fund may experience delays and additional cost when
trying to sell illiquid securities.

Restricted securities may be sold in privately negotiated or other
exempt transactions, qualified non-U.S. transactions, such as under Regulation
S, or in a public offering with respect to which a registration statement is in
effect under the Securities Act. Where registration is required, the Fund may be
obligated to pay all or part of the registration expenses and a considerable
time may elapse between the decision to sell and the sale date. If, during such
period, adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
will be priced at fair value as determined in good faith by the Board.

If, through the appreciation of illiquid securities or the depreciation
of liquid securities, the Fund should be in a position where more than 15% of
the value of its net assets are invested in illiquid assets, including
restricted securities which are not readily marketable, the Fund will take such
steps as it deems advisable, if any, to reduce the percentage of such securities
to 15% or less of the value of its net assets.

CONVERTIBLE SECURITIES. The Fund may invest in convertible securities.
A convertible security may be converted either at a stated price or rate within
a specified period of time into a specified number of shares of common stock. By
investing in convertible securities, the Fund seeks the opportunity, through the
conversion feature, to participate in a portion of the capital appreciation of
the common stock into which the securities are convertible, while earning higher
current income than is available from the common stock. Convertible securities
entitle the holder to receive interest paid or accrued on debt or the dividend
paid on preferred stock until the convertible securities mature or are redeemed,
converted or exchanged. Prior to conversion, convertible securities have
characteristics similar to ordinary debt securities or preferred stocks in that
they normally provide a stable stream of income with generally higher yields
than those of common stock of the same or similar issuers. Convertible
securities rank senior to common stock in a corporation's capital structure.

In selecting convertible securities for the Fund, the Adviser will
consider, among other factors, its evaluation of the creditworthiness of the
issuers of the securities; the interest or dividend income generated by the
securities; the potential for capital appreciation of the securities and the
underlying common stocks; the prices of the securities relative to other
comparable securities and to the underlying common stocks; whether the
securities are entitled to the benefits of sinking funds or other protective
conditions; the diversification of the Fund's portfolio as to issuers; and
whether the securities are rated by a rating agency and, if so, the ratings
assigned.

<PAGE> 50

The value of convertible securities is a function of their investment
value (determined by yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and
their conversion value (their worth, at market value, if converted into the
underlying common stock). The investment value of convertible securities is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline, and by the
credit standing of the issuer and other factors. The conversion value of
convertible securities is determined by the market price of the underlying
common stock. If the conversion value is low relative to the investment value,
the price of the convertible securities is governed principally by their
investment value. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
securities will be increasingly influenced by their conversion value. In
addition, convertible securities generally sell at a premium over their
conversion value determined by the extent to which investors place value on the
right to acquire the underlying common stock while holding fixed income
securities.

The Fund may realize capital appreciation from an improvement in the
credit standing of an issuer whose securities are held in the Fund or from a
general lowering of interest rates, or a combination of both. Conversely, a
reduction in the credit standing of an issuer whose securities are held by the
Fund or a general increase in interest rates may be expected to result in
capital depreciation to the Fund.

NON-INVESTMENT GRADE SECURITIES. The Fund has the authority to invest
in convertible debt securities that are of a quality less than investment grade
(so-called "junk bonds"). The Fund has no pre-established minimum quality
standards for convertible securities and may invest in convertible securities of
any quality, including lower rated or unrated securities. However, the Fund will
not invest in any securities in default at the time of purchase, and will limit
its investment in non-investment grade convertible debt securities to less than
20% of its net assets at the time of purchase. In addition, investment grade
bonds in which the Fund invests may be downgraded. If convertible securities
purchased by the Fund are downgraded following purchase, or if other
circumstances cause 20% or more of the Fund's assets to be invested in
convertible securities rated below investment grade, the Trustees of the Fund
will consult with the Adviser to determine what action, if any, is appropriate
in light of all relevant circumstances.

Junk bonds, while generally offering higher yields than investment
grade securities with similar maturities, involve greater risks, including the
possibility of default or bankruptcy. They are regarded as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal. The special risk considerations in connection with investments in
these securities are discussed below. Refer to Appendix A of this Statement of
Additional Information for a discussion of securities ratings.

Effect of Interest Rates and Economic Changes. There remains some
uncertainty about the performance level of the market for lower quality
securities. A prolonged recession or economic downturn could severely disrupt
the market for and adversely affect the value of such securities.

<PAGE> 51

All interest-bearing securities typically experience appreciation when
interest rates decline and depreciation when interest rates rise. The market
values of junk bond securities tend to reflect individual corporate developments
to a greater extent than do higher rated securities, which react primarily to
fluctuations in the general level of interest rates. Junk bond securities also
tend to be more sensitive to economic conditions than higher-rated categories.
During an economic downturn or a sustained period of rising interest rates,
highly leveraged issuers of junk bond securities may experience financial stress
and may not have sufficient revenues to meet their payment obligations. The risk
of loss due to default by an issuer of these securities is significantly greater
than issuers of higher-rated securities because such securities are generally
unsecured and are often subordinated to other creditors. Further, if the issuer
of a junk bond security defaulted, the Fund might incur additional expenses to
seek recovery. Periods of economic uncertainty and changes would also generally
result in increased volatility in the market prices of these securities and thus
in the Fund's net asset value.

As previously stated, the value of a junk bond security will generally
decrease in a rising interest rate market. If the Fund experiences unexpected
net redemptions in such a market, it may be forced to liquidate a portion of its
portfolio securities without regard to their investment merits. Due to the
limited liquidity of junk bond securities, the Fund may be forced to liquidate
these securities at a substantial discount. Any such liquidation would reduce
the Fund's asset base over which expenses could be allocated and could result in
a reduced rate of return for the Fund.

Payment Expectations. Junk bond securities typically contain
redemption, call or prepayment provisions that permit the issuer of such
securities containing such provisions to redeem the securities at its
discretion. During periods of falling interest rates, issuers of these
securities are likely to redeem or prepay the securities and refinance them with
debt securities with a lower interest rate. To the extent an issuer is able to
refinance the securities, or otherwise redeem them, the Fund may have to replace
the securities with a lower yielding security, which could result in a lower
return for the Fund.

Credit Ratings. Credit ratings issued by credit-rating agencies
evaluate the safety of principal and interest payments of rated securities. They
do not, however, evaluate the market value risk of junk bond securities and,
therefore may not fully reflect the true risks of an investment. In addition,
credit rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the condition of the issuer that affect the market
value of the security. Consequently, credit ratings are used only as a
preliminary indicator of investment quality. Investments in junk bond securities
will be more dependent on the Adviser's credit analysis than would be the case
with investments in investment grade debt securities. The Adviser employs its
own credit research and analysis, which includes a study of existing debt,
capital structure, ability to service debt and to pay dividends, the issuer's
sensitivity to economic conditions, its operating history and the current trend
of earnings. The Adviser continually monitors the Fund's investments and
carefully evaluates whether to dispose of or to retain junk bond securities
whose credit ratings or credit quality may have changed.

Liquidity and Valuation. The Fund may have difficulty disposing of
certain junk bond securities because there may be a thin trading market for such
securities. Because not all dealers

<PAGE> 52

maintain markets in all junk bond securities, there may not be an established
retail secondary market for certain of these securities. The secondary trading
market is generally not as liquid as the secondary market for higher-rated
securities, which may have an adverse impact on the market price of the security
and may also make it more difficult for the Fund to obtain accurate market
quotations for purposes of valuing the Fund. Market quotations for certain junk
bond issues may only be available from a limited number of dealers and may not
necessarily represent firm bids of such dealers or prices for actual sales.
During periods of thin trading, the spread between bid and asked prices is
likely to increase significantly. In addition, adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of junk bond securities, especially in a thinly traded
market.

In general, investments in non-investment grade convertible securities
are subject to a significant risk of a change in the credit rating or financial
condition of the issuing entity. Investments in convertible securities of medium
or lower quality are also likely to be subject to greater market fluctuations
and to greater risk of loss of income and principal due to default than
investments of higher-rated fixed income securities. Such lower-rated securities
generally tend to reflect short-term corporate and market developments to a
greater extent than higher-rated securities, which react more to fluctuations in
the general level of interest rates. The Fund will generally reduce risk to the
investor by diversification, credit analysis and attention to current
developments in trends of both the economy and financial markets. However, while
diversification reduces the effect on the Fund of any single investment, it does
not reduce the overall risk of investing in lower-rated securities.

ZEROS/STRIPS. The Fund may invest in zero coupon bonds or in strips.
Zero coupon bonds are sold at a discount from face value and do not make regular
interest payments. Such bonds pay principal and accreted discount (representing
interest accrued but not paid) at maturity. "Strips" are debt securities that
are stripped of their interest coupons after the securities are issued, but are
otherwise comparable to zero coupon bonds. These securities are issued at a
discount from their face value because interest payments are typically postponed
until maturity. The amount of discount rate varies depending on factors
including the time remaining until maturity, prevailing interest rates, the
security's liquidity and the issuer's credit quality. The market values of zero
coupon bonds and strips generally fluctuate in response to changes in interest
rates to a greater degree than do interest-paying securities of comparable terms
and quality.

REPURCHASE AGREEMENTS. The Fund may agree to purchase portfolio
securities from financial institutions subject to the seller's agreement to
repurchase them at a mutually agreed upon date and price ("repurchase
agreements"). Although the securities subject to a repurchase agreement may bear
maturities exceeding one year, settlement for the repurchase agreement will
never be more than one year after the Fund's acquisition of the securities and
normally will be within a shorter period of time. The Fund will not enter into a
repurchase agreement maturing in more than seven days if, as a result, more than
15% of the Fund's total assets would be invested in repurchase agreements and
other illiquid securities.

Securities subject to repurchase agreements are held either by the
Fund's custodian or subcustodian (if any), or in the Federal Reserve/Treasury
Book-Entry System. The seller under a

<PAGE> 53

repurchase agreement will be required to maintain the value of the securities
subject to the agreement in an amount at least equal to the repurchase price
(including accrued interest). Repurchase agreements may be considered loans to
the seller, collateralized by the underlying securities. The risk to the Fund is
limited to the ability of the seller to pay the agreed upon sum on the
repurchase date; in the event of default, the repurchase agreement provides that
the Fund is entitled to sell the underlying collateral. If the value of the
collateral declines after the agreement is entered into, however, and if the
seller defaults under a repurchase agreement when the value of the underlying
collateral is less than the repurchase price, the Fund could incur a loss of
both principal and interest. The Adviser monitors the value of the collateral at
the time the agreement is entered into and at all times during the term of the
repurchase agreement in an effort to determine that the value of the collateral
always equals or exceeds the agreed upon repurchase price to be paid to the
Fund. If the seller were to be subject to a federal bankruptcy proceeding, the
ability of the Fund to liquidate the collateral could be delayed or impaired
because of certain provisions of the bankruptcy laws. The Adviser will acquire
repurchase agreements in accordance with procedures established by the Trust's
Board of Trustees that are designed to evaluate the creditworthiness of the
other parties to the repurchase agreements.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase and
sell securities on a when-issued or delayed delivery basis. However, the Fund
does not currently intend to purchase or sell securities on a when-issued or
delayed delivery basis, if as a result, more than 5% of its total assets taken
at market value at the time of purchase would be invested in such securities.
When-issued or delayed delivery transactions arise when securities (normally,
obligations of issuers eligible for investment by the Fund) are purchased or
sold by the Fund with payment and delivery taking place in the future in order
to secure what is considered to be an advantageous price or yield. However, the
yield available on a comparable security when delivery takes place may vary from
the yield on the security at the time that the when-issued or delayed delivery
transaction was entered into. Any failure to consummate a when-issued or delayed
delivery transaction may result in the Fund missing the opportunity to obtain a
price or yield considered to be advantageous. When-issued and delayed delivery
transactions may generally be expected to settle within one month from the date
the transactions are entered into, but in no event later than 90 days. However,
no payment or delivery is made by the Fund until it receives delivery or payment
from the other party to the transaction.

When the Fund purchases securities on a when-issued basis, it will
maintain in a segregated account with its Custodian cash, U.S. government
securities or other liquid assets having an aggregate value equal to the amount
of such purchase commitments, until payment is made. If necessary, additional
assets will be placed in the account daily so that the value of the account will
equal or exceed the amount of the Fund's purchase commitments.

LENDING OF PORTFOLIO SECURITIES. The Fund may lend its securities to
qualified institutional investors (such as brokers, dealers or other financial
organizations) who need to borrow securities in order to complete certain
transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. By lending its securities, the
Fund will be attempting to generate income through the receipt of interest on
the loan which, in turn, can be invested in additional securities to pursue the
Fund's investment objective. Any gain or loss in the market price of the
securities loaned that might occur during the term of the loan would be for the
account of the Fund.

13
<PAGE> 54

The Fund may lend its portfolio securities to qualified brokers,
dealers, banks or other financial institutions, so long as the terms, the
structure and the aggregate amount of such loans are not inconsistent with the
Investment Company Act, or the rules and regulations or interpretations of the
Securities and Exchange Commission thereunder, which currently require that (a)
the borrower pledge and maintain with the Fund collateral consisting of cash, an
irrevocable letter of credit or securities issued or guaranteed by the United
States government having a value at all times not less than 100% of the value of
the securities loaned, (b) the borrower add to such collateral whenever the
price of the securities loaned rises (i.e., the borrower "marks to the market"
on a daily basis), (c) the loan be made subject to termination by the Fund at
any time, (d) the Fund receives reasonable interest on the loan, which interest
may include the Fund's investing cash collateral in interest bearing short-term
investments, and (e) the Fund receives all dividends and distributions on the
loaned securities and any increase in the market value of the loaned securities.

The Fund bears risk of loss in the event that the other party to a
securities lending transaction defaults on its obligations and the Fund is
delayed in or prevented from exercising its rights to dispose of the collateral,
including the risk of a possible decline in the value of the collateral
securities during the period in which the Fund seeks to assert these rights, the
risk of incurring expenses associated with asserting these rights and the risk
of losing all or a part of the income from the transaction. The Fund will not
lend its portfolio securities if, as a result, the aggregate value of such loans
would exceed 33-1/3% of the value of the Fund's total assets. Loan arrangements
made by the Fund will comply with all other applicable regulatory requirements,
including the rules of the New York Stock Exchange, which rules presently
require the borrower, after notice, to redeliver the securities within the
normal settlement time of three business days. All relevant facts and
circumstances, including creditworthiness of the broker, dealer or institution,
will be considered in making decisions with respect to the lending of
securities, subject to review by the Fund's trustees.

HEDGING TRANSACTIONS. The Fund is authorized to make limited use of
certain types of futures, forwards and/or options, but only for the purpose of
hedging, that is, to protect against market risk due to market movements that
may adversely affect the value of the Fund's securities or the price of
securities that the Fund is considering purchasing. The utilization of futures,
forwards and options is also subject to policies and procedures that may be
established by the Trustees from time to time. In addition, the Fund is not
required to hedge. Decisions regarding hedging are subject to the Adviser's
judgment of the cost of the hedge, its potential effectiveness and other factors
the Advisor considers pertinent. No assurance can be given that any of these
instruments will be available to the Fund on a cost-effective basis, that they
will be used or, if used, will achieve the intended result.

<PAGE> 55

Fund is permitted to use such instruments for hedging purposes only, and only if
the aggregate amount of its obligations under these contracts does not exceed
the total market value of the assets the Fund is attempting to hedge, such as a
portion or all of its exposure to equity securities or its holding in a specific
foreign currency. To help ensure that the Fund will be able to meet its
obligations under its futures and forward contracts and its obligations under
options written by the Fund, the Fund will be required to maintain liquid assets
in a segregated account with its custodian bank or to set aside portfolio
securities to "cover" its position in these contracts.

The principal risks of the Fund utilizing futures transactions, forward
contracts and options are: (a) losses resulting from market movements not
anticipated by the Fund; (b) possible imperfect correlation between movements in
the prices of futures, forwards and options and movements in the prices of the
securities or currencies hedged or used to cover such positions; (c) lack of
assurance that a liquid secondary market will exist for any particular futures
or options at any particular time, and possible exchange-imposed price
fluctuation limits, either of which may make it difficult or impossible to close
a position when so desired; (d) lack of assurance that the counterparty to a
forward contract would be willing to negotiate an offset or termination of the
contract when so desired; and (e) the need for additional information and skills
beyond those required for the management of a portfolio of traditional
securities. In addition, when the Fund enters into an over-the-counter contract
with a counterparty, the Fund will assume counterparty credit risk, that is, the
risk that the counterparty will fail to perform its obligations, in which case
the Fund could be worse off than if the contract had not been entered into.

Following is additional information concerning the futures, forwards
and options which the Fund may utilize, provided that no more than 5% of the
Fund's net assets at the time the contract is entered into may be used for
initial margins for financial futures transactions and premiums paid for the
purchase of options. In addition, the Fund may only write call options that are
covered and only up to 25% of the Fund's total assets.

Options. The Fund may purchase and write (i.e. sell) put and call
options. Such options may relate to particular securities or stock indices, and
may or may not be listed on a domestic or foreign securities exchange and may or
may not be issued by the Options Clearing Corporation. Options trading is a
highly specialized activity that entails greater than ordinary investment risk.
Options may be more volatile than the underlying instruments, and therefore, on
a percentage basis, an investment in options may be subject to greater
fluctuation than an investment in the underlying instruments themselves.

A call option for a particular security gives the purchaser of the
option the right to buy, and the writer (seller) the obligation to sell, the
underlying security at the stated exercise price at any time prior to the
expiration of the option, regardless of the market price of the security. The
premium paid to the writer is in consideration for undertaking the obligation
under the option contract. A put option for a particular security gives the
purchaser the right to sell the security at the stated exercise price at any
time prior to the expiration date of the option, regardless of the market price
of the security.

15
<PAGE> 56

Stock index options are put options and call options on various stock
indexes. In most respects, they are identical to listed options on common
stocks. The primary difference between stock options and index options occurs
when index options are exercised. In the case of stock options, the underlying
security, common stock, is delivered. However, upon the exercise of an index
option, settlement does not occur by delivery of the securities comprising the
index. The option holder who exercises the index option receives an amount of
cash if the closing level of the stock index upon which the option is based is
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. This amount of cash is equal to the difference
between the closing price of the stock index and the exercise price of the
option expressed in dollars times a specified multiple. A stock index fluctuates
with changes in the market value of the stocks included in the index. For
example, some stock index options are based on a broad market index, such as the
Standard & Poor's 500 Index or the Value Line Composite Index or a narrower
market index, such as the Standard & Poor's 100. Indexes may also be based on an
industry or market segment, such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index. Options on stock indexes are currently traded on
the Chicago Board Options Exchange, the New York Stock Exchange, the American
Stock Exchange, the Pacific Stock Exchange, and the Philadelphia Stock Exchange.

The Fund's obligation to sell an instrument subject to a call option
written by it, or to purchase an instrument subject to a put option written by
it, may be terminated prior to the expiration date of the option by the Fund's
execution of a closing purchase transaction, which is effected by purchasing on
an exchange an option of the same series (i.e., same underlying instrument,
exercise price and expiration date) as the option previously written. A closing
purchase transaction will ordinarily be effected to realize a profit on an
outstanding option, to prevent an underlying instrument from being called, to
permit the sale of the underlying instrument or to permit the writing of a new
option containing different terms on such underlying instrument. The cost of
such a liquidation purchase plus transactions costs may be greater than the
premium received upon the original option, in which event the Fund will have
incurred a loss in the transaction. There is no assurance that a liquid
secondary market will exist for any particular option. An option writer unable
to effect a closing purchase transaction will not be able to sell the underlying
instrument or liquidate the assets held in a segregated account, as described
below, until the option expires or the optioned instrument is delivered upon
exercise. In such circumstances, the writer will be subject to the risk of
market decline or appreciation in the instrument during such period.

<PAGE> 57

Certain Risks Regarding Options. There are several risks associated
with transactions in options. For example, there are significant differences
between the securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to achieve
its objectives. In addition, a liquid secondary market for particular options,
whether traded over-the-counter or on an exchange, may be absent for reasons
which include the following: there may be insufficient trading interest in
certain options; restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; trading halts, suspensions or
other restrictions may be imposed with respect to particular classes or series
of options or underlying securities or currencies; unusual or unforeseen
circumstances may interrupt normal operations on an exchange; the facilities of
an exchange or the Options Clearing Corporation may not at all times be adequate
to handle current trading value; or one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.

Successful use by the Fund of options on stock indexes will be subject
to the ability of the Adviser to correctly predict movements in the directions
of the stock market. This requires different skills and techniques than
predicting changes in the prices of individual securities. In addition, the
Fund's ability to effectively hedge all or a portion of the securities in its
portfolio, in anticipation of or during a market decline, through transactions
in put options on stock indexes, depends on the degree to which price movements
in the underlying index correlate with the price movements of the securities
held by the Fund. Inasmuch as the Fund's securities will not duplicate the
components of an index, the correlation will not be perfect. Consequently, the
Fund will bear the risk that the prices of its securities being hedged will not
move in the same amount as the prices of its put options on the stock indexes.
It is also possible that there may be a negative correlation between the index
and the Fund's securities which would result in a loss on both such securities
and the options on stock indexes acquired by the Fund.

The hours of trading for options may not conform to the hours during
which the underlying securities are traded. To the extent that the options
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying markets that cannot be
reflected in the options markets. The purchase of options is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. The
purchase of stock index options involves the risk that the premium and
transaction costs paid by the Fund in purchasing an option will be lost as a
result of unanticipated movements in prices of the securities comprising the
stock index on which the option is based.

There is no assurance that a liquid secondary market on an options
exchange will exist for any particular option, or at any particular time, and
for some options no secondary market on an exchange or elsewhere may exist. If
the Fund is unable to close out a call option on securities that it has written
before the option is exercised, the Fund may be required to purchase the
optioned securities in order to satisfy its obligation under the option to
deliver such securities. If the Fund is unable to effect a closing sale
transaction with respect to options on securities that it

<PAGE> 58

has purchased, it would have to exercise the option in order to realize any
profit and would incur transaction costs upon the purchase and sale of the
underlying securities.

Cover for Options Positions. Transactions using options (other than
options that the Fund has purchased) expose the Fund to an obligation to another
party. The Fund will not enter into any such transactions unless it owns either
(1) an offsetting ("covered") position in securities or other options or (2)
cash or liquid securities with a value sufficient at all times to cover its
potential obligations not covered as provided in (1) above. The Fund will comply
with SEC guidelines regarding cover for these instruments and, if the guidelines
so require, set aside cash or liquid securities in a segregated account with its
Custodian in the prescribed amount. Under current SEC guidelines, the Fund will
segregate assets to cover transactions in which the Fund writes or sells
options.

Assets used as cover or held in a segregated account cannot be sold
while the position in the corresponding option is open, unless they are replaced
with similar assets. As a result, the commitment of a large portion of the
Fund's assets to cover or segregated accounts could impede portfolio management
or the Fund's ability to meet redemption requests or other current obligations.

Futures Contracts. Financial futures contracts are exchange-traded
contracts on financial instruments (such as securities and foreign currencies)
and securities indices that obligate the holder to take or make delivery of a
specified quantity of the underlying financial instrument, or the cash value of
an index, at a future date. Although futures contracts by their terms call for
the delivery or acquisition of the underlying instruments or a cash payment
based on the mark-to-market value of the underlying instruments, in most cases
the contractual obligation will be offset before the delivery date by buying (in
the case of an obligation to sell) or selling (in the case of an obligation to
buy) an identical futures contract. Such a transaction cancels the original
obligation to make or take delivery of the instruments.

The Fund may enter into contracts for the purchase or sale for future
delivery of financial instruments, such as securities and foreign currencies, or
contracts based on financial indices including indices of U.S. Government
securities, foreign government securities or equity securities. U.S. futures
contracts are traded on exchanges which have been designated "contract markets"
by the Commodity Futures Trading Commission ("CFTC") and must be executed
through a futures commission merchant (an "FCM"), or brokerage firm, which is a
member of the relevant contract market. Through their clearing corporations, the
exchanges guarantee performance of the contracts as between the clearing members
of the exchange.

<PAGE> 59

credited to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Unlike margin extended by a
securities broker, initial and variation margin payments do not constitute
purchasing securities on margin for purposes of the Fund's investment
limitations. The Fund will incur brokerage fees when it buys or sells futures
contracts.

In the event of the bankruptcy of the FCM that holds margin on behalf
of the Fund, the Fund may be entitled to return of margin owed to the Fund only
in proportion to the amount received by the FCM's other customers. The Fund will
attempt to minimize the risk by careful monitoring of the creditworthiness of
the FCMs with which the Fund does business and by depositing margin payments in
a segregated account with the Fund's custodian for the benefit of the FCM when
practical or otherwise required by law.

Where applicable, the Fund intends to comply with guidelines of
eligibility for exclusion from the definition of the term "commodity pool
operator" with the CFTC and the National Futures Association, which regulate
trading in the futures markets. Accordingly, the Fund will not enter into any
futures contract or option on a futures contract if, as a result, the aggregate
initial margin and premiums required to establish such positions would exceed 5%
of the Fund's net assets.

Although the Fund would hold cash and liquid assets in a segregated
account with a mark-to-market value sufficient to cover the Fund's open futures
obligations, the segregated assets would be available to the Fund immediately
upon closing out the futures position.

The acquisition or sale of a futures contract may occur, for example,
when the Fund is considering purchasing or holds equity securities and seeks to
protect itself from fluctuations in prices without buying or selling those
securities. For example, if prices were expected to decrease, the Fund might
sell equity index futures contracts, thereby hoping to offset a potential
decline in the value of equity securities in the portfolio by a corresponding
increase in the value of the futures contract position held by the Fund and
thereby preventing the Fund's net asset value from declining as much as it
otherwise would have. The Fund also could protect against potential price
declines by selling portfolio securities and investing in money market
instruments. However, the use of futures contracts as a hedging technique allows
the Fund to maintain a defensive position without having to sell portfolio
securities.

Similarly, when prices of equity securities are expected to increase,
futures contracts may be bought to attempt to hedge against the possibility of
having to buy equity securities at higher prices. This technique is sometimes
known as an anticipatory hedge. Since the fluctuations in the value of futures
contracts should be similar to those of equity securities, the Fund could take
advantage of the potential rise in the value of equity securities without buying
them until the market has stabilized. At that time, the futures contracts could
be liquidated and the Fund could buy equity securities on the cash market.

<PAGE> 60

additional variation margin requirements, investors may close out futures
contracts through offsetting transactions, which could distort the normal price
relationship between the cash and futures markets. Second, the liquidity of the
futures market depends on participants entering into offsetting transactions
rather than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced and prices in
the futures market distorted. Third, from the point of view of speculators, the
margin deposit requirements in the futures market are less than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market may cause temporary price distortions. Due to
the possibility of the foregoing distortions, a correct forecast of general
price trends by the Fund still may not result in a successful use of futures.

Futures contracts entail additional risks. Although the Fund will only
utilize futures contracts when it believes that use of such contracts will
benefit the Fund, if the Fund's investment judgment is incorrect, the Fund's
overall performance could be worse than if the Fund had not entered into futures
contracts. For example, if the Fund has hedged against the effects of a possible
decrease in prices of securities held in the Fund's portfolio and prices
increase instead, the Fund will lose part or all of the benefit of the increased
value of these securities because of offsetting losses in the Fund's futures
positions. In addition, if the Fund has insufficient cash, it may have to sell
securities from its portfolio to meet daily variation margin requirements. Those
sales may be, but will not necessarily be, at increased prices which reflect the
rising market and may occur at a time when the sales are disadvantageous to the
Fund. Although the buyer of an option cannot lose more than the amount of the
premium plus related transaction costs, a buyer or seller of futures contracts
could lose amounts substantially in excess of any initial margin deposits made,
due to the potential for adverse price movements resulting in additional
variation margin being required by such positions. However, the Fund intends to
monitor its investments closely and will attempt to close its positions when the
risk of loss to the Fund becomes unacceptably high.

The prices of futures contracts depend primarily on the value of their
underlying instruments. Because there are a limited number of types of futures
contracts, it is possible that the standardized futures contracts available to
the Fund will not match exactly the Fund's current or potential investments. The
Fund may buy and sell futures contracts based on underlying instruments with
different characteristics from the securities in which it typically invests --
for example, by hedging investments in portfolio securities with a futures
contract based on a broad index of securities -- which involves a risk that the
futures position will not correlate precisely with the performance of the Fund's
investments.

Futures prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments closely correlate with the
Fund's investments. Futures prices are affected by such factors as current and
anticipated short-term interest rates, changes in volatility of the underlying
instruments and the time remaining until expiration of the contract. Those
factors may affect securities prices differently from futures prices. Imperfect
correlations between the Fund's investments and its futures positions may also
result from differing levels of demand in the futures markets and the securities
markets, from structural differences in how futures and securities are traded,
and from imposition of daily price fluctuation limits for futures contracts. The
Fund may buy or sell futures contracts with a value less than or equal to the

<PAGE> 61

securities it wishes to hedge or is considering purchasing. If price changes in
the Fund's futures positions are poorly correlated with its other investments,
its futures positions may fail to produce desired gains or result in losses that
are not offset by the gains in the Fund's other investments.

Because futures contracts are generally settled within a day from the
date they are closed out, compared with a longer settlement period for most
types of securities, the futures markets can provide superior liquidity to the
securities markets. Nevertheless, there is no assurance a liquid secondary
market will exist for any particular futures contract at any particular time. In
addition, futures exchanges may establish daily price fluctuation limits for
futures contracts and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days when the
price fluctuation limit is reached, it may be impossible for the Fund to enter
into new positions or close out existing positions. If the secondary market for
a futures contract is not liquid because of price fluctuation limits or
otherwise, the Fund may not be able to promptly liquidate unfavorable futures
positions and potentially could be required to continue to hold a futures
position until the delivery date, regardless of changes in its value. As a
result, the Fund's access to other assets held to cover its futures positions
also could be impaired.

Options On Futures Contracts. The Fund may buy and write options on
futures contracts for hedging purposes. An option on a futures contract gives
the Fund the right (but not the obligation) to buy or sell a futures contract at
a specified price on or before a specified date. The purchase of a call option
on a futures contract is similar in some respects to the purchase of a call
option on an individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based or
the price of the underlying instrument, ownership of the option may or may not
be less risky than ownership of the futures contract or the underlying
instrument. As with the purchase of futures contracts, the Fund may buy a call
option on a futures contract to hedge against a market advance, and the Fund
might buy a put option on a futures contract to hedge against a market decline.

The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign currency which
is deliverable under, or of the index comprising, the futures contract. If the
futures price at the expiration of the call option is below the exercise price,
the Fund will retain the full amount of the option premium which provides a
partial hedge against any decline that may have occurred in the Fund's portfolio
holdings. If a call option the Fund has written is exercised, the Fund will
incur a loss that will be reduced by the amount of the premium it received.
Depending on the degree of correlation between change in the value of its
portfolio securities and changes in the value of the futures positions, the
Fund's losses from existing options on futures may to some extent be reduced or
increased by changes in the value of portfolio securities.

The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, the Fund may buy a put option on a futures contract to hedge the Fund's
portfolio against the risk of falling prices.

21
<PAGE> 62

The amount of risk the Fund assumes when it buys an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the options bought.

Forward Foreign Currency Exchange Contracts. A forward contract is a
privately negotiated agreement between two parties in which one party is
obligated to deliver a stated amount of a stated asset at a specified time in
the future and the other party is obligated to pay a specified invoice amount
for the assets at the time of delivery. The Fund currently intends that it will
only use forward contracts or commitments for hedging purposes and will only use
forward foreign currency exchange contracts, although the Fund may enter into
additional forms of forward contracts or commitments in the future if they
become available and advisable in light of the Fund's objectives and investment
policies. Forward contracts generally are negotiated in an interbank market
conducted directly between traders (usually large commercial banks) and their
customers. Unlike futures contracts, which are standardized exchange-traded
contracts, forward contracts can be specifically drawn to meet the needs of the
parties that enter into them. The parties to a forward contract may agree to
offset or terminate the contract before its maturity, or may hold the contract
to maturity and complete the contemplated exchange.

The following discussion summarizes the Fund's possible principal uses
of forward foreign currency exchange contracts ("forward currency contracts").
The Fund may enter into forward currency contracts with stated contract values
of up to the value of the Fund's assets. A forward currency contract is an
obligation to buy or sell an amount of a specified currency for an agreed price
(which may be in U.S. dollars or a foreign currency) on a specified date. The
Fund will exchange foreign currencies for U.S. dollars and for other foreign
currencies in the normal course of business and may buy and sell currencies
through forward currency contracts in order to fix a price (in terms of a
specified currency) for securities it has agreed to buy or sell ("transaction
hedge"). The Fund also may hedge some or all of its investments denominated in
foreign currency against a decline in the value of that currency (or a proxy
currency whose price movements are expected to have a high degree of correlation
with the currency being hedged) relative to the U.S. dollar by entering into
forward currency contracts to sell an amount of that currency approximating the
value of some or all of its portfolio securities denominated in that currency
("position hedge") or by participating in futures contracts (or options on such
futures) with respect to the currency. The Fund also may enter into a forward
currency contract with respect to a currency where the Fund is considering the
purchase or sale of investments denominated in that currency but has not yet
selected the specific investments ("anticipatory hedge").

These types of hedging minimize the effect of currency appreciation as
well as depreciation, but do not eliminate fluctuations in the underlying U.S.
dollar equivalent value of the proceeds of or rates of return on the Fund's
foreign currency denominated portfolio securities. The matching of the increase
in value of a forward contract and the decline in the U.S. dollar equivalent
value of the foreign currency denominated asset that is the subject of the hedge
generally will not be precise. Shifting the Fund's currency exposure from one
foreign currency to another limits the Fund's opportunity to profit from
increases in the value of the original currency and involves a risk of increased
losses to the Fund if its investment manager's

22
<PAGE> 63

projection of future exchange rates is inaccurate. Unforeseen changes in
currency prices may result in poorer overall performance for the Fund than if it
had not entered into such contracts.

The Fund will cover outstanding forward currency contracts by
maintaining liquid portfolio securities denominated in the currency underlying
the forward contract or the currency being hedged. To the extent that the Fund
is not able to cover its forward currency positions with underlying portfolio
securities, the Fund's Custodian will segregate cash or liquid assets having a
value equal to the aggregate amount of the Fund's commitments under forward
contracts entered into. If the value of the securities used to cover a position
or the value of segregated assets declines, the Fund must find alternative cover
or segregate additional cash or liquid assets on a daily basis so that the value
of the covered and segregated assets will be equal to the amount of the Fund's
commitments with respect to such contracts.

While forward contracts are not currently regulated by the CFTC, the
CFTC may in the future assert authority to regulate forward contracts. In such
event, the Fund's ability to utilize forward contracts may be restricted. The
Fund may not always be able to enter into forward contracts at attractive prices
and may be limited in its ability to use these contracts to hedge Fund assets.
In addition, when the Fund enters into a privately negotiated forward contract
with a counterparty, the Fund assumes counterparty credit risk, that is, the
risk that the counterparty will fail to perform its obligations, in which case
the Fund could be worse off than if the contract had not been entered into.
Unlike many exchange-traded futures contracts and options on futures, there are
no daily price fluctuation limits with respect to forward contracts and other
negotiated or over-the-counter instruments, and with respect to those contracts,
adverse market movements could therefore continue to an unlimited extent over a
period of time. However, the Fund intends to monitor its investments closely and
will attempt to renegotiate or close its positions when the risk of loss to the
Fund becomes unacceptably high.

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

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

23
<PAGE> 64

The Fund may make short sales "against the box," i.e., when a security
identical to or convertible or exchangeable into one owned by the Fund is
borrowed and sold short.

Whenever the Fund engages in short sales, it segregates liquid
securities in an amount that, when combined with the amount of collateral
deposited with the broker in connection with the short sale, equals the current
market value of the security sold short. The segregated assets are marked to
market daily.

MANAGEMENT OF THE FUND

TRUSTEES AND OFFICERS

As a Delaware business trust, the business and affairs of the Trust are
managed by its officers under the direction of its Board of Trustees.
Information regarding the Board of Trustees and officers of the Funds, including
their principal business occupations during at least the last five years, is set
forth below. Each Trustee who is an "interested person," as defined in the
Investment Company Act, is indicated by an asterisk. Except where otherwise
indicated, each of the individuals below has served in his or her present
capacity with the Trust since September 30, 1999.

- -------------------------------------------------------------------------------------------------------------------------------
NAME, ADDRESS AND AGE POSITIONS HELD WITH TRUST PRINCIPAL OCCUPATION
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Patrick S. Adams* President, CEO, Trustee, President and Director, Choice Investment
DOB: 1960 Chairman of the Board Management, LLC, since August, 1999. Senior Vice
5299 DTC Boulevard President to Berger Associates, Executive Vice
Englewood, Colorado 80111 President and portfolio manager of the Berger
100 Fund, President and portfolio manager of
the Berger IPT-100 Fund, President and co-portfolio
manager of the Berger IPT-Growth and Income Fund and
Executive Vice President and co-portfolio manager of
the Berger Growth and Income Fund since February
1997. President and co-portfolio manager of the Berger
Balanced Fund from August 1997, and President and
portfolio manager of the Berger Select Fund from
December 31, 1997 until April 1999. Senior Vice
President from June 1996 to January 1997 with
Zurich Kemper Investments. Portfolio manager
from March 1993 to May 1996 with Founders
Asset Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Gerard M. Lavin Trustee President and a director of Berger 100
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

24
<PAGE> 65

<TABLE>

<S> <C> <C>
DOB: 1942 Fund and Berger Growth and Income Fund, and President
52999 DTC Boulevard and a trustee of Berger Investment Portfolio Trust
Englewood, Colorado 80111 and Berger Omni Investment Trust from February 1997
through May 1999. President and a trustee of Berger/BIAM
Worldwide Portfolios Trust and Berger/BIAM Worldwide
Funds Trust from May 1996 through May 1999. President
and a trustee of Berger Institutional Products Trust from
October 1995 through May 1999. President and a director of
Berger Associates, Inc. from April 1995 to May 1999. Member
and Chairman of the Board of Managers and Chief Executive
Officer on the Management Committee of BBOI Worldwide
LLC from November 1996 to May 1999. A Vice President
of DST Systems, Inc. (data processing) from July
1995 to February 1998. President and Chief Executive
Officer of Investors Fiduciary Trust Company
(banking) from February 1992 to March 1995.
- -------------------------------------------------------------------------------------------------------------------------------
Dr. Richard A. Hathaway Trustee Physician with Colorado Permanente since 1992.
DOB: 1961 Dr. Hathaway is a board certified orthopedic surgeon.
2045 Franklin Street
Denver, Colorado 80205
- -------------------------------------------------------------------------------------------------------------------------------
Christelle C. Beck Treasurer Director of Choice Investment Management, LLC
DOB: 1948 since August 1999. Has maintained private law
250 Arapahoe Ave., Ste. 301 practice since March 1993.
Boulder, Colorado 80302
- -------------------------------------------------------------------------------------------------------------------------------
Sharon E. Adams Secretary Vice President of Choice Investment Management, LLC
DOB: 1963 since August 1999. Full-time homemaker from
5299 DTC Boulevard 1993 until August 1999. Account executive -
Englewood, Colorado 80111 outside sales for Sprint from 1990 to 1993.
Sales manager for Allnet Communications
from 1989 to 1990.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The Trustees of the Trust who are officers of the Adviser receive no
remuneration from the Fund. Each of the other Trustees will be paid an annual
retainer fee of $2,500, will be paid the sum of $1000 per meeting attended, and
will be reimbursed for the expenses of attending meetings.

<PAGE> 66

COMPENSATION TABLE (a)

- -------------------------------------------------------------------------------------------------------------------------------
AGGREGATE COMPENSATION FROM TOTAL COMPENSATION FROM TRUST PAID
NAME OF PERSON TRUST TO TRUSTEES
-------------- ----- -----------
<S> <C> <C>
Patrick S. Adams $ 0 $ 0
Gerard M. Lavin $6,500 $6,500
Dr. Richard A. Hathaway $6,500 $6,500

- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) The information provided in the above table is based on an estimate of
payments to be made for the Fund's first fiscal year ended October 31, 2000. The
Trust has not adopted any pension or retirement plans for the officers or
Trustees of the Trust. Therefore, there have been no benefits accrued as part of
Trust expenses nor are there estimated currently any annual benefits upon
retirement.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of October 1, 1999, Patrick Adams and Sharon E. Adams jointly owned
all of the outstanding shares of the Fund. It is contemplated that soon after
the initial public offering of shares of the Fund, the Adams' ownership of the
shares of the Fund will represent less than 25% of the Fund's outstanding
shares.

INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT ADVISER. The investment adviser to the Fund is Choice
Investment Management, LLC (the "Adviser"). The Adviser was organized as a
Colorado limited liability company on August 27, 1999. Patrick S. Adams is the
founder and President of the Adviser and owns 50.25% of the outstanding
membership interests of the Adviser. As such, he controls the Adviser. Pursuant
to an Investment Advisory Agreement entered into between the Trust on behalf of
the Fund and the Adviser (the "Investment Advisory Agreement"), the Adviser
provides continuous investment advisory services to the Fund. The Adviser also
provides the Fund with office space, equipment and personnel necessary to
operate and administer the Fund's business and to supervise the provision of
services by third parties.

The Advisory Agreement is dated October 31, 1999. The Investment
Advisory Agreement has an initial term of two years and thereafter is required
to be approved annually by the Board of Trustees of the Trust or by vote of a
majority of the Fund's outstanding voting securities (as defined in the
Investment Company Act). Each annual renewal must also be approved by the vote
of a majority of the Fund's Trustees who are not parties to the Investment
Advisory Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval. The Investment
Advisory Agreement was approved by the vote of a majority of the Trustees who
are not parties to the Investment Advisory Agreement or interested persons of
any such party on September 30, 1999 and by the initial shareholder of the Fund
on September 30, 1999. The Investment Advisory Agreement is terminable without
penalty on 60 days' written notice by the Trustees, by vote of a majority of a

<PAGE> 67

Fund's outstanding voting securities, or by the Adviser, and will terminate
automatically in the event of its assignment.

As compensation for its services, the Fund pays to the Adviser an
advisory fee at the annual rate of 1.0% of its average daily net assets. The
advisory fee is accrued daily and paid monthly.

For the fiscal year ending October 31, 2000, the Adviser has agreed to
waive its management fees and/or reimburse the Fund's operating expenses to the
extent necessary to ensure that the total annual operating expenses for the Fund
will not exceed 2.25% of its average daily net assets. After such time, the
Adviser may from time to time voluntarily waive all or a portion of its
management fee. Unless extended by the Adviser, after October 31, 2000, the
waiver may be terminated at any time in the Adviser's discretion. Reimbursement
of expenses in excess of the applicable limitation will be made on a monthly
basis and will be paid to the Fund by reducing the Adviser's fee, subject to
later adjustment, month by month, for the remainder of the Fund's fiscal year.
The Adviser may from time to time voluntarily absorb expenses for the Fund in
addition to the reimbursement of expenses in excess of the foregoing.

The Investment Advisory Agreement provides that the Adviser shall not
be liable to the Fund or its shareholders for any error of judgment or mistake
of law or for anything other than willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations or duties. The Investment
Advisory Agreement also provides that nothing therein shall limit the freedom of
the Adviser and its affiliates to render investment supervisory and corporate
administrative services to other investment companies, to act as investment
adviser or investment counselor to other persons, firms or corporations, or to
engage in other business activities.

The Investment Advisory Agreement permits the Adviser to seek
reimbursement of any reductions made to its management fee and payments made to
limit expenses which are the responsibility of the Fund within the three-year
period following such reduction, subject to the Fund's ability to effect such
reimbursement and remain in compliance with applicable expense limitations. Any
such management fee or expense reimbursement will be accounted for on the
financial statement of the Fund as a contingent liability of the Fund until such
time as it appears that the Fund will be able to effect such reimbursement. At
such time as it appears probable that the Fund is able to effect such
reimbursement, the amount of reimbursement that the Fund is able to effect will
be accrued as an expense of the Fund for that current period.

ADMINISTRATION AND FUND ACCOUNTING. Sunstone Financial Group, Inc., 207
East Buffalo Street, Suite 400, Milwaukee, Wisconsin 53202 ("Sunstone") has
agreed to provide various administrative and fund accounting services to the
Fund under an Administration and Fund Accounting Agreement dated October 31,
1999 (the "Administration Agreement"). Sunstone's services include, but are not
limited to, the following: calculating daily net asset values for the Fund;
overseeing the Fund's Custodian; assist in preparing and filing all federal
income and excise tax filings (other than those to be made by the Fund's
Custodian); overseeing

<PAGE> 68
the Fund's fidelity insurance relationships; participating in the preparation of
the Fund's registration statement; preparing notice and renewal securities
filings pursuant to state securities laws; compiling data for and preparing
notices to the SEC; preparing financial statements for the annual and
semi-annual reports to the SEC and current investors; monitoring the Fund's
expenses; monitoring the Fund's status as a regulated investment company under
Subchapter M of the Code; monitoring compliance with the Fund's investment
policies and restrictions and generally assisting the Fund's administrative
operations.

Sunstone, at its own expense, and without reimbursement from the Fund,
furnishes office space and all necessary office facilities, equipment, supplies
and clerical and executive personnel for performing the services required to be
performed by it under the Administration Agreement. The Administration Agreement
will remain in effect until October 31, 2000 (the "Initial Term") and thereafter
for successive annual periods. After the Initial Term, the Administration
Agreement may be terminated on not less than 60 days' notice, without the
payment of any penalty, by the Board of Trustees of the Trust or by Sunstone.
Under the Administration Agreement, Sunstone is not liable for any loss suffered
by the Fund or its shareholders in connection with the performance of the
Administration Agreement, except a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of Sunstone in the performance of its
duties or reckless disregard of its obligations and duties. The Administration
Agreement also provides that Sunstone may provide similar services to others,
including other investment companies.

For the foregoing, Sunstone receives a fee on the value of the Fund
computed daily and payable monthly, at the annual rate of 0.15 percent of the
first $50 million of its average daily net assets, and decreasing as assets
reach certain levels, subject to an annual minimum fee of $70,000.00, plus
out-of-pocket expenses.

TRANSFER AGENT AND DIVIDEND-PAYING AGENT. Sunstone also acts as the
Fund's transfer agent and dividend-paying agent. As such, Sunstone processes
purchase and redemption requests for the securities of the Fund, keeps records
of shareholder accounts and transactions, pays dividends as declared by the
Board of Trustees and issues confirmations of transactions to shareholders. For
these services, the Fund pays Sunstone a fee based on the number of shareholder
accounts, transactions and other activities, subject to a minimum annual fee.
Sunstone does not exercise any supervisory functions over the management of the
Fund or the purchase and sale of Fund securities.

From time to time, the Trust, on behalf of the Fund, either directly or
indirectly through arrangements with the Adviser, the Distributor (as
hereinafter defined) or Sunstone, in its capacity as transfer agent, may pay
amounts to third parties that provide transfer agent-type services and other
administrative services relating to the Fund to persons who have a beneficial
interest in the Fund, such as 401(k) plan participants. These services may
include, among other things, sub-accounting services, transfer agent type
activities, answering Fund-related inquiries, transmitting proxy statements,
annual reports, updated prospectuses and other communications regarding the Fund
and other related services as the Fund may request.

CUSTODIAN. UMB Bank, n.a. (the "Custodian") serves as the custodian for
the Fund. Under the terms of the Custody Agreement, the Custodian is responsible
for the receipt and

<PAGE> 69

delivery of the Fund's securities and cash. The Custodian does not exercise any
supervisory functions over the management of the Fund or the purchase and sale
of securities.

DISTRIBUTOR. Under a distribution agreement dated October 31, 1999,
Sunstone Distribution Services, LLC, 207 East Buffalo Street, Suite 400,
Milwaukee, Wisconsin 53202 (the "Distributor") acts as principal underwriter for
the Fund and acts as exclusive agent for the Fund in selling its shares to the
public. The Distributor shall offer shares of the Fund on a continuous basis and
may engage in advertising and solicitation activities in connection therewith.
The Distributor is not obligated to sell any certain number of shares of the
Fund. For marketing and distribution services provided, the Fund pay the
Distributor compensation at the annual rate of 0.02% of the first $250 million
of its average daily net assets and decreasing as assets reach certain levels,
subject to an annual minimum fee of $25,000.00, plus out-of-pocket expenses.

LEGAL COUNSEL. Stradley, Ronon, Stevens & Young, LLP, with offices at
2600 One Commerce Square, Philadelphia, Pennsylvania 19103, serves as counsel to
the Fund.

INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP are the independent
accountants for the Fund. They are responsible for performing an audit of the
Fund's year-end financial statements as well as providing accounting and tax
advice to the management of the Fund.

DISTRIBUTION OF SHARES

The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 under the Investment Company Act. The Plan authorizes payments by the Fund
in connection with the distribution of its shares at an annual rate, as
determined from time to time by the Board of Trustees, of up to 0.25% of the
Fund's average daily net assets. Payments may be made by the Fund under the Plan
for the purpose of financing any activity primarily intended to result in the
sales of shares of the Fund as determined by the Board of Trustees. Such
activities include advertising, shareholder account servicing, compensation to
the Distributor, production and dissemination of prospectuses and sales and
marketing materials, and capital or other expenses of associated equipment,
rent, salaries, bonuses, interest and other overhead. To the extent any activity
is one that the Fund may finance without the Plan, the Fund may also make
payments to finance such activity outside of the Plan and not be subject to its
limitations. The Plan provides for compensation to the Distributor regardless of
the expenses incurred by the Distributor.

The Plan was adopted in anticipation that the Fund will benefit from
the Plan through increased sales of shares of the Fund, thereby reducing the
Fund's expense ratio and providing an asset size that allows the Adviser greater
flexibility in management. The Plan may be terminated at any time by a vote of
the Trustees of the Fund who are not interested persons of the Fund and who have
no direct or indirect financial interest in the Plan or any agreement related
thereto (the "Rule 12b-1 Trustees") or by a vote of a majority of the Trust's
outstanding shares. Any change in the Plan that would materially increase the
distribution expenses of the Fund provided for in the Plan requires approval of
the shareholders and the Board of Trustees, including the Rule 12b-1 Trustees.

<PAGE> 70

While the Plan is in effect, the selection and nomination of Trustees
who are not interested persons of the Fund will be committed to the discretion
of the Trustees of the Fund who are not interested persons of the Fund. The
Board of Trustees must review the amount and purposes of expenditures pursuant
to the Plan quarterly as reported to it by the officers of the Trust. Unless
otherwise terminated, the Plan will continue in effect for as long as its
continuance is specifically approved at least annually by the Board of Trustees,
including the Rule 12b-1 Trustees. As of October 31, 1999, no payments had been
made under the Plan.

PORTFOLIO TRANSACTIONS AND BROKERAGE

The Adviser is responsible for decisions to buy and sell securities for
the Fund, for the placement of its portfolio business and the negotiation of the
commissions to be paid on such transactions, subject to the supervision of the
Trust's Board of Trustees. It is the policy of the Adviser to seek the best
execution at the best security price available with respect to each transaction,
in light of the overall quality of brokerage and research services provided to
the Adviser.

The Adviser will place orders pursuant to its investment determination
for the Fund either directly with the issuer or with any broker or dealer. In
executing portfolio transactions and selecting brokers or dealers, the Adviser
will use its best effort to seek on behalf of the Fund the best overall terms
available. In selecting brokers and assessing the best overall terms available
for any transaction, the Adviser shall consider all factors that it deems
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, and reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. The most favorable price to the Fund
means the best net price without regard to the mix between purchase or sale
price and commission, if any. Over-the-counter securities are generally
purchased or sold directly with principal market makers who retain the
difference in their cost in the security and its selling price (i.e., "markups"
when the market maker sells a security and "markdowns" when the market maker
purchases a security). In some instances, the Adviser may determine that better
prices are available from non-principal market makers who are paid commissions
directly. Subject to obtaining the best price and execution, the Adviser may
consider the sales of shares of the Fund when allocating Fund portfolio
transactions to brokers.

In evaluating the best overall terms available, and in selecting the
broker-dealer to execute a particular transaction, the Adviser may also consider
the brokerage and research services (as those terms are defined in Section 28(e)
of the Securities Exchange Act of 1934) provided to the Fund and/or other
accounts over which the Adviser or an affiliate of the Adviser exercises
investment discretion. While the Adviser believes these services have
substantial value, they are considered supplemental to its own efforts in the
performance of its duties. Other clients of the Adviser may indirectly benefit
from the availability of these services to the Adviser, and the Fund may
indirectly benefit from services available to the Adviser as a result of
transactions for other clients. The Adviser is authorized to pay to a broker or
dealer who provides such brokerage and research services a commission for
executing a portfolio transaction

30
<PAGE> 71

for the Fund which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if, but only if, the
Adviser determines in good faith that such commission was reasonable in relation
to the value of the brokerage and research services provided by such broker or
dealer viewed in terms of that particular transaction or in terms of the overall
responsibilities the Adviser has to the Fund. In no instance, however, will
portfolio securities be purchased from or sold to the Adviser, or any affiliated
person of either the Trust or the Adviser, acting as principal in the
transaction, except to the extent permitted by the Securities and Exchange
Commission through rules, regulations, decisions and no-action letters.

The Adviser may retain advisory clients in addition to the Fund and
place portfolio transactions for these accounts. Research services furnished by
firms through which the Fund effects its securities transactions may be used by
the Adviser in servicing all of its accounts; not all of such services may be
used by the Adviser in connection with the Fund. In the opinion of the Adviser,
it will not be possible to separately measure the benefits from research
services to each of the accounts (including the Fund) to be managed by the
Adviser. Because the volume and nature of the trading activities of the accounts
will not be uniform, the amount of commissions in excess of those charged by
another broker paid by each account for brokerage and research services will
vary. However, such costs to the Fund will not, in the opinion of the Adviser,
be disproportionate to the benefits to be received by the Fund on a continuing
basis.

The Adviser intends to seek to allocate portfolio transactions
equitably among its accounts whenever concurrent decisions are made to purchase
or sell securities by the Fund and another advisory account. In some cases, this
procedure could have an adverse effect on the price or the amount of securities
available to the Fund. In making such allocations between the Fund and other
advisory accounts, if any, the main factors to be considered by the Adviser will
be the respective investment objectives, the relative size of portfolio holdings
of the same or comparable securities, the availability of cash for investment,
the size of investment commitments generally held, and the opinions of the
persons responsible for recommending the investment.

On occasions when the Adviser deems the purchase or sale of a security
to be in the best interests of the Fund as well as other fiduciary or agency
accounts managed by it, the Investment Advisory Agreement provides that the
Adviser, to the extent permitted by applicable laws and regulations, may
aggregate the securities to be sold or purchased for the Fund with those to be
sold or purchased for such other accounts in order to obtain the best overall
terms available with respect to common and preferred stocks and the best net
price and execution with respect to other securities. In such event, allocation
of the securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Adviser in the manner it considers to be most
equitable and consistent with its fiduciary obligations to the Fund and other
accounts involved. In some instances, this procedure may adversely affect the
size of the position obtainable for the Fund or the amount of the securities
that are able to be sold for the Fund.

CAPITAL STRUCTURE

<PAGE> 72

The Trust is an open-end management investment company organized as a
Delaware business trust. The Trust's Declaration of Trust authorizes the Board
of Trustees to issue an unlimited number of shares of beneficial interest in one
or more series and classes.

Shares of the Trust have no preemptive rights and only such conversion
or exchange rights as the Board may grant in its discretion. The Trust's shares
will be fully paid and non-assessable when issued for payment as described in
the Prospectus. Shareholders have the right to redeem their shares at any time,
subject to any rights the Fund may have to suspend redemptions under the
Investment Company Act.

Shareholders are entitled to one vote for each full share held, and
fractional votes for fractional shares held, and will generally vote in the
aggregate and not by Fund or class. Under certain circumstances, the Investment
Company Act or applicable Delaware law may require that the shareholders of a
particular Fund or class be permitted to vote on matters affecting that Fund or
class.

Rule 18f-2 under the Investment Company Act provides that any matter
required to be submitted to the holders of the outstanding voting securities of
an investment company such as the Trust shall not be deemed to have been
effectively acted upon unless approved by a majority of the outstanding shares
of the Fund affected by the matter. The Fund is affected by a matter unless it
is clear that the interests of the Fund in the matter are substantially
identical or that the matter does not affect any interest of the Fund. Under
Rule 18f-2, the approval of an investment advisory agreement or 12b-1
distribution plan or any change in a fundamental investment policy would be
effectively acted upon with respect to the Fund only if approved by a majority
of the outstanding shares of the Fund. However, the rule also provides that the
ratification of independent public accountants, the approval of principal
underwriting contracts and the election of Trustees may be effectively acted
upon by shareholders of the Trust voting without regard to particular funds.

Notwithstanding any provision of Delaware law requiring for any purpose
the concurrence of a proportion greater than a majority of all votes entitled to
be cast at a meeting at which a quorum is present, the affirmative vote of the
holders of a majority of the total number of shares of the Fund outstanding (or
of a class or series of the Fund, as applicable) will be effective, except to
the extent otherwise required by the Investment Company Act and rules
thereunder. In addition, the Declaration of Trust provides that, to the extent
consistent with Delaware law and other applicable law, the By-Laws may include
further provisions relating to shareholders' votes and related matters.

As a business trust, the Trust is not required to hold annual
shareholder meetings. If requested to do so by the holders of at least 10% of
the Trust's outstanding shares, the Trust will call a meeting of shareholders
for the purpose of voting upon the question of removal of a Trustee, and to
assist in communications with other shareholders as required by Section 16(c) of
the Investment Company Act.

<PAGE> 73

TAXES

GENERAL. The Fund intends to qualify for treatment as a regulated
investment company ("RIC") under Subchapter M of the Code. To so qualify, the
Fund must meet the following requirements: (1) the Fund must derive at least 90%
of its gross income each taxable year from dividends, interest, payments with
respect to securities loans, and gains from the sale or other disposition of
stock or securities or foreign currencies, or other income (including but not
limited to gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or those
currencies; (2) at the close of each quarter of the Fund's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. government securities, securities of other RICs, and other
securities, with these other securities limited, with respect to any one issuer,
to an amount that does not exceed 5% of the value of the Fund's total assets and
that does not represent more than 10% of the issuer's outstanding voting
securities; and (3) at the close of each quarter of the Fund's taxable year, not
more than 25% of the value of its total assets may be invested in securities
(other than U.S. government securities or the securities of other RICs) of any
one issuer.

As a RIC, the Fund generally will not be subject to U.S. Federal income
tax on income and gains that it distributes to shareholders, if at least 90% of
the Fund's investment company taxable income (which includes, among other items,
dividends, interest and the excess of any short-term capital gains over net
long-term capital losses) for the taxable year is distributed. The Fund intends
to distribute substantially all of such income.

If the Fund fails to qualify for treatment as a RIC in any fiscal year,
it will be treated as a corporation for federal income tax purposes. As such,
the Fund would be required to pay income taxes on its net investment income and
net realized capital gains, if any, at the rates generally applicable to
corporations. Shareholders of the Fund that did not qualify for treatment as a
RIC would not be liable for income tax on the Fund's net investment income or
net realized capital gains in their individual capacities. Distributions to
shareholders, whether from the Fund's net investment income or net realized
capital gains, would be treated as taxable dividends to the extent of current or
accumulated earnings and profits of the Fund.

ORIGINAL ISSUE DISCOUNT. Certain debt securities acquired by the Fund
may be treated as debt securities that were originally issued at a discount.
Original issue discount can generally be defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income is actually received by the Fund, original
issue discount that accrues on a debt security in a given year is generally
treated for federal income tax purposes as interest and, therefore, such income
would be subject to the distribution requirements applicable to regulated
investment companies.

Some debt securities may be purchased by the Fund at a discount that
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes.
The gain realized on the disposition of any taxable debt security having market
discount generally will be treated as ordinary income to the extent it does not
exceed the accrued market discount of such debt security. Generally, market
discount accrues on a daily basis for each day the debt security is held by the
Fund at a constant rate over

<PAGE> 74

the time remaining to the debt security's maturity or, at the election
of the Fund, at a constant yield to maturity which takes into account the
semi-annual compounding of interest.

OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS; STRADDLES. The
Fund's transactions in foreign currencies, forward contracts, options and
futures contact (including options and futures contracts on foreign currencies)
will be subject to special provisions of the Code that, among other things, may
affect the character of gains and losses realized by the Fund, defer Fund
losses, and affect the determination of whether capital gains and losses are
characterized as long-term or short-term capital gains or losses. These rules
could therefore, in turn, affect the character, amount, and timing of
distributions to shareholders. These provisions also may require the Fund to
mark-to-market certain types of the positions in its portfolio (i.e., treat them
as if they were closed out), which may cause the Fund to recognize income
without receiving cash with which to make distributions in amount necessary to
satisfy its distribution requirements for relief from income and excise taxes.
The Fund will monitor its transactions and may make such tax elections as Fund
management deems appropriate with respect to foreign currency, options, futures
contracts, forward contracts, or hedged investments. The Fund's status as a
regulated investment company may limit its transactions involving foreign
currency, futures, options, and forward contracts.

Certain option transactions have special tax results for the Fund.
Expiration of a call option written by the Fund will result in short-term
capital gain. If the call option is exercised, the Fund will realize a gain or
loss from the sale of the security covering the call option and, in determining
such gain or loss, the option premium will be included in the proceeds of the
sale.

If the Fund writes options other than "qualified covered call options,"
as defined in Section 1092 of the Code, or purchases puts, any losses on such
options transactions, to the extent they do not exceed the unrealized gains on
the securities covering the options, may be subject to deferral until the
securities covering the options have been sold.

In the case of transactions involving "nonequity options," as defined
in and subject to the rules of Code Section 1256, the Fund will treat any gain
or loss arising from the lapse, closing out or exercise of such positions as 60%
long-term and 40% short-term capital gain or loss as required by Section 1256 of
the Code. In addition, such positions must be marked-to-market as of the last
business day of the year, and gain or loss must be recognized for federal income
tax purposes in accordance with the 60%/40% rule discussed above even though the
position has not been terminated. A "nonequity option" subject to the rules of
Code Section 1256 includes options involving stock indexes such as the Standard
& Poor's 500 and 100 indexes.

Certain transactions undertaken by the Fund may result in "straddles"
for federal income tax purposes. The straddle rules may affect the character of
gains (or losses) realized by the Fund, and losses realized by the Fund on
positions that are part of a straddle may be deferred under the straddle rules,
rather than being taken into account in calculating the taxable income for the
taxable year in which the losses are realized. In addition, certain carrying
charges (including interest expense) associated with positions in a straddle may
be required to be capitalized rather than deducted currently. Certain elections
that the Fund may make with

<PAGE> 75

respect to its straddle positions may also affect the amount, character and
timing of the recognition of gains or losses from the affected positions.

Under certain circumstances, the Fund may recognize gain from a
constructive sale of an "appreciated financial position" it holds if it enters
into a short sale, forward contract or other transaction that substantially
reduces the risk of loss with respect to the appreciated position. In that
event, the Fund would be treated as if it had sold and immediately repurchased
the property and would be taxed on any gain (but not loss) from the constructive
sale. The character of gain from a constructive sale would depend upon the
Fund's holding period in the property. Loss from a constructive sale would be
recognized when the property was subsequently disposed of, and its character
would depend on the Fund's holding period and the application of various loss
deferral provisions of the Code. Constructive sale treatment does not apply to
transaction closed in the 90-day period ending with the 30th day after the close
of the taxable year, if certain conditions are met.

CURRENCY FLUCTUATIONS - "SECTION 988" GAINS OR LOSSES. The Fund will
maintain accounts and calculate income by reference to the U.S. dollar for U.S.
federal income tax purposes. Some of the Fund's investments will be maintained
and income therefrom calculated by reference to certain foreign currencies, and
such calculations will not necessarily correspond to the Fund's distributable
income and capital gains for U.S. federal income tax purposes as a result of
fluctuations in currency exchange rates. Furthermore, exchange control
regulations may restrict the ability of the Fund to repatriate investment income
or the proceeds of sales of securities. These restrictions and limitations may
limit the Fund's ability to make sufficient distributions to satisfy the 90%
distribution requirement for qualification as a regulated investment company.
Even if the Fund so qualified, these restrictions could inhibit its ability to
distribute all of its income in order to be fully relieved of tax liability.

Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund accrues income or other receivables (including
dividends) or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of some investments, including debt securities and
certain forward contracts denominated in a foreign currency, gains or losses
attributable to fluctuations in the value of the foreign currency between the
date of the acquisition of the security or other instrument and the date of
disposition also are treated as ordinary gain or loss. These gains and losses,
referred to under the Code as "Section 988" gains and losses, increase or
decrease the amount of the Fund's investment company taxable income available to
be distributed to its shareholders as ordinary income. If Section 988 losses
exceed other investment company taxable income during a taxable year, the Fund
would not be able to make any ordinary dividend distributions, or distributions
made before the losses were realized would be recharacterized as a return of
capital to shareholders, or, in some cases, as capital gain, rather than as an
ordinary dividend.

35
<PAGE> 76
of its assets constitute investment-type assets, or 75% or more of its gross
income is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which the Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from PFIC as well as gain from the sale of PFIC shares are treated
as excess distributions. Excess distributions are characterized as ordinary
income even though, absent application of the PFIC rules, certain distributions
might have been classified as capital gain.

The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently is available in some
circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of the PFIC in a five year period. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. In addition, another election would
involve marking to market the Fund's PFIC shares at the end of each taxable
year, with the result that unrealized gains would be treated as though they were
realized and reported as ordinary income. Any mark-to-market losses and any loss
from an actual disposition of Fund shares would be deductible as ordinary losses
to the extent of any net mark-to-market gains included in income in prior years.

Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject the Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gains, may be increased or decreased substantially
as compared to a fund that did not invest in PFIC shares.

DISTRIBUTIONS. Distributions of investment company taxable income are
taxable to a U.S. shareholder as ordinary income, whether paid in cash or
shares. Dividends pay by the Fund to a corporate shareholder, to the extent such
dividends are attributable to dividends received from U.S. corporations by the
Fund, may qualify for the dividends received deduction. However, the revised
alternative minimum tax applicable to corporations may reduce the value of the
dividends received deduction. Distributions of net capital gains (the excess of
net long-term capital gains over net short-term capital losses), if any,
designated by the Fund as capital gain dividends, are taxable to shareholders at
the applicable long-term capital gains rate, whether paid in cash or in shares,
regardless of how long the shareholder has held the Fund's shares, and they are
not eligible for the dividends received deduction. Shareholders will be notified
annual as to the U.S. federal tax status of distributions, and shareholders
receiving distributions in the form of newly issued shares will receive a report
as to the net asset value of the shares received.

<PAGE> 77

distributions are paid by the Fund during January of the following calendar
year. Accordingly, those distributions will be taxed to shareholders for the
year in which that December 31 falls.

If the net asset value of shares is reduced below a shareholder's cost
as the result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors also
should be aware that if shares are purchased shortly before the record date for
any distribution, the shareholder will pay full price for the shares and receive
some portion of the price back as a taxable dividend or capital gain
distribution.

The Fund will be subject to a nondeductible 4% excise tax to the extent
it fails to distribute, by the end of any calendar year, substantially all of
its ordinary income for that year and capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts. The Fund
intends to declare and distribute dividends during each year sufficient to
prevent imposition of the excise tax.

DISPOSITION OF SHARES. Upon a redemption, sale or exchange of shares of
the Fund, a shareholder will realize a taxable gain or loss that will be treated
as a capital gain or loss if the shares are capital assets in the shareholder's
hands and generally will be long-term or short-term, depending upon the
shareholder's holding period for the shares. Any loss realized on a redemption,
sale or exchange will be disallowed to the extent the shares disposed of are
replaced (including through reinvestment of dividends) within a period of 61
days beginning 30 days before and ending 30 days after the disposal of the
shares. In such a case, the basis of the shares acquired will be adjusted to
reflect the disallowed loss. Any loss realized by a shareholder on the
disposition of the Fund's shares held by the shareholder for six months or less
will be treated for tax purposes as a long-term capital loss to the extent of
any distributions of capital gain dividends received or treated as having been
received by the shareholder with respect to such shares.

BACKUP WITHHOLDING. The Fund will be required to report to the Internal
Revenue Service (the "IRS") all distributions and gross proceeds from the
redemption of the Fund's shares, except in the case of certain exempt
shareholders. All distributions and proceeds from the redemption of the Fund's
shares will be subject to withholding of federal income tax at a rate of 31%
("backup withholding") in the case of non-exempt shareholders if (1) the
shareholder fails to furnish the Fund with a Form W-9 to certify the
shareholder's correct taxpayer identification number or social security number,
(2) the IRS notifies the shareholder or the Fund that the shareholder has failed
to report properly certain interest and dividend income to the IRS and to
respond to notices to that effect, or (3) when required to do so, that
shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.

OTHER TAXATION. Distributions may also be subject to additional state,
local and foreign taxes depending on each shareholder's particular situation.
Non-U.S. shareholders may be subject to U.S. tax rules that differ significantly
from those summarized above. This discussion does not address all of the tax
consequences applicable to the Fund or shareholders,

<PAGE> 78
and shareholders are advised to consult their own tax advisers with respect to
the particular tax consequences to them of an investment in the Fund.

PURCHASE, REDEMPTION AND PRICING OF SHARES

DETERMINATION OF NET ASSET VALUE. As set forth in the Prospectus, the
net asset value of the Fund will be determined as of the close of trading on
each day the New York Stock Exchange is open for trading. The New York Stock
Exchange is open for trading Monday through Friday except New Year's Day, Dr.
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. Additionally,
if any of the aforementioned holidays falls on a Saturday, the New York Stock
Exchange will not be open for trading on the preceding Friday, and when any such
holiday falls on a Sunday, the New York Stock Exchange will not be open for
trading on the following Monday unless unusual business conditions exist, such
as the ending of a monthly or the yearly accounting period.

In connection with the determination of the Fund's net asset value,
securities which are traded on a recognized stock exchange are valued at the
last sale price on the securities exchange on which such securities are
primarily traded. Securities traded on only over-the-counter markets are valued
on the basis of closing over-the-counter trade prices. Securities for which
there were no transactions are valued at the closing bid prices. Options written
or purchased by the Fund are valued at the last sales price if such last sales
price is between the current bid and asked prices. Otherwise, options are valued
at the mean between the current bid and asked prices. Debt securities (other
than short-term instruments) are valued at prices furnished by a pricing
service, subject to review and possible revision by the Fund's Adviser. Any
modification of the price of a debt security furnished by a pricing service is
made pursuant to procedures adopted by the Trust's Board of Trustees. Debt
instruments maturing within 60 days are valued by the amortized cost method. Any
securities for which market quotations are not readily available are valued at
their fair value as determined in good faith by the Adviser under the
supervision of the Trust's Board of Trustees.

Generally, trading in foreign securities, as well as U.S. Government
securities and certain cash equivalents and repurchase agreements, is
substantially completed each day at various times prior to the close of the New
York Stock Exchange. The values of such securities used in computing the net
asset value of the shares of the Fund are determined as of such times. Foreign
currency exchange rates are also generally determined prior to the close of the
New York Stock Exchange. Occasionally, events affecting the value of such
securities and such exchange rates may occur between the times at which they are
determined and at the close of the New York Stock Exchange, which will not be
reflected in the computation of net asset value. If during such periods, events
occur which materially affect the value of such securities, the securities will
be valued at their fair market value as determined by management and approved in
good faith by the Trustees.

For purposes of determining the net asset value per share of the Fund,
all assets and liabilities initially expressed in foreign currencies will be
converted into U.S. dollars at the mean

38
<PAGE> 79

between the bid and offer prices of such currencies against U.S. dollars
furnished by a pricing service approved by the Trustees.

The Fund's net asset value per share will be calculated separately from
the per share net asset value of the other funds of the Trust. "Assets belonging
to" the Fund consist of the consideration received upon the issuance of shares
of the Fund together will all net investment income, earnings, profits, realized
gains/losses and proceeds derived from the investment thereof, including any
proceeds from the sale of such investments, any funds or payments derived from
any reinvestment of such proceeds, and a portion of any general assets of the
Trust not belonging to a particular series. The Fund will be charged with the
direct liabilities of that Fund and with a share of the general liabilities of
the Trust's funds. Subject to the provisions of the Trust's Declaration of
Trust, determinations by the Trustees as to the direct and allocable expenses,
and the allocable portion of any general assets, with respect to a particular
fund are conclusive.

EXCHANGING SHARES. Shares of the Fund may be exchanged for shares of
the Northern Money Market Fund as provided in the Prospectus. Sunstone, the
Fund's administrator and transfer agent, receives a service fee from the
Northern Money Market Fund at the annual rate of 0.25 of 1% of the average daily
net asset value of the shares of the Fund exchanged into the Northern Money
Market Fund pursuant to the expanded exchange privilege offered by the Trust.

RETIREMENT ACCOUNTS. The Fund offers several retirement account options
to shareholders. Qualifying shareholders may establish the following tax
deferred retirement accounts: traditional IRA, spousal IRA, SEP IRA and Roth
IRA. The shareholder's employer must establish a plan before the shareholder
opens a SEP account.

A description of accounts currently offered, applicable service fees
and certain limitations on account contributions and withdrawals, as well as
application forms, are available from the transfer agent upon request at
1-800-392-7107. The IRA documents contain a disclosure statement that the IRS
requires to be furnished to individuals who are adopting the IRA. Because a
retirement program involves commitments covering future years, it is important
that the investment objective of the Fund be consistent with the participant's
retirement objectives. Premature withdrawals from a retirement account will
result in adverse tax consequences. Consultation with a competent financial and
tax adviser regarding the foregoing retirement accounts is recommended.

SUSPENSION OF REDEMPTIONS. The right of redemption may be suspended, or
the date of payment postponed beyond the normal seven-day period by the Fund,
under the following conditions authorized by the Investment Company Act: (1) for
any period during which the New York Stock Exchange is closed, other than
customary weekend or holiday closings, or during which trading on the Exchange
is restricted; (2) for any period during which an emergency exists as the result
of which the disposal by the Fund of securities owned by it is not reasonably
practical, or it is not reasonably practical for the Fund to determine the fair
value of its net assets; or (3) for such other periods as the Securities and
Exchange Commission may by order permit for the protection of the Fund's
shareholders.

<PAGE> 80

REDEMPTIONS IN KIND. It is possible that conditions may exist in the
future which would, in the opinion of the Board of Trustees, make it undesirable
for the Fund to pay for redemptions in cash. In such cases the Board may
authorize payment to be made in portfolio securities of the Fund. Securities
delivered in payment of redemptions are valued at the same value assigned to
them in computing the net asset value per share. Shareholders receiving such
securities generally will incur brokerage costs when selling such securities.

PERFORMANCE INFORMATION

From time to time, the Fund may advertise its "average annual total
return" over various periods of time. An average annual total return refers to
the rate of return which, if applied to an initial investment at the beginning
of a stated period and compounded over the period, would result in the
redeemable value of the investment at the end of the stated period assuming
reinvestment of all dividends and distributions and reflecting the effect of all
recurring fees. A shareholder's investment in the Fund and its return are not
guaranteed and will fluctuate according to market conditions. When considering
"average" annual total return figures for periods longer than one year,
shareholders should note that the Fund's annual total return for any one year in
the period might have been greater or less than the average for the entire
period. The Fund also may use "aggregate" total return figures for various
periods, representing the cumulative change in value of an investment in the
Fund for a specific period (again reflecting changes in the Fund's share price
and assuming reinvestment of dividends and distributions).

To facilitate the comparability of historical performance data from one
mutual fund to another, the Securities and Exchange Commission has developed
guidelines for the calculation of average annual total return. The average
annual total return for the Fund for a specific period is found by first taking
a hypothetical $1,000 investment ("initial investment") in the Fund's shares on
the first day of the period and computing the "redeemable value" of that
investment at the end of the period. The redeemable value is then divided by the
initial investment, and this quotient is taken to the Nth root (N representing
the number of years in the period) and 1 is subtracted from the result, which is
then expressed as a percentage. The calculation assumes that all income and
capital gains dividends paid by the Fund have been reinvested at net asset value
on the reinvestment dates during the period. This calculation can be expressed
as follows:

P(1 + T)(N) = ERV

Where: T= average annual total return.

ERV = ending redeemable value at the end of the period covered
by the computation of a hypothetical $1,000 payment made at
the beginning of the period.

P = hypothetical initial payment of $1,000.

N = period covered by the computation, expressed in terms of years.

40
<PAGE> 81

Total return performance for a specific period is calculated by first
taking an investment ("initial investment") in the Fund's shares on the first
day of the period and computing the "ending value" of that investment at the end
of the period. The total return percentage is then determined by subtracting the
initial investment from the ending value and dividing the remainder by the
initial investment and expressing the result as a percentage. The calculation
assumes that all income and capital gains dividends paid by the Fund have been
reinvested at net asset value on the reinvestment dates during the period. Total
return may also be shown as the increased dollar value of the investment over
the period or as a cumulative total return which represents the change in value
of an investment over a stated period and may be quoted as a percentage or as a
dollar amount.

The calculations of average annual total return and aggregate total
return assume the reinvestment of all dividends and capital gain distributions
on the reinvestment dates during the period. The ending redeemable value is
determined by assuming complete redemption of the hypothetical investment and
the deduction of all nonrecurring charges at the end of the period covered by
the computations.

The Fund's performance figures will be based upon historical results
and will not necessarily be indicative of future performance. The Fund's returns
and net asset value will fluctuate and the net asset value of shares when sold
may be more or less than their original cost. Any additional fees charged by a
dealer or other financial services firm would reduce the Fund's returns.

From time to time, in marketing and other literature, the Fund's
performance may be compared to the performance of other mutual funds in general
or to the performance of particular types of mutual funds with similar
investment goals, as tracked by independent organizations. Among these
organizations, Lipper Analytical Services, Inc. ("Lipper"), a widely used
independent research firm which ranks mutual funds by overall performance,
investment objective and assets, may be cited. Lipper performance figures are
based on changes in net asset value, with all income and capital gains dividends
reinvested. Such calculations do not include the effect of any sales charges
imposed by other funds. The Fund will be compared to Lipper's appropriate fund
category, that is, by fund objective and portfolio holdings.

The Fund's performance may also be compared to the performance of other
mutual funds by Morningstar, Inc., which ranks funds on the basis of historical
risk and total return. Morningstar's rankings range from five stars (highest) to
one star (lowest) and represent Morningstar's assessment of the historical risk
level and total return of a fund as a weighted average for 3, 5, and 10 year
periods. Rankings are not absolute or necessarily predictive of future
performance.
Evaluations of Fund performance made by independent sources may also be
used in advertisements concerning the Fund, including reprints of or selections
from, editorials or articles about the Fund. Sources for Fund performance and
articles about the Fund may include publications such as Money, Forbes,
Kiplinger's, Financial World, Business Week, U.S. News and World Report, the
Wall Street Journal, Barron's and a variety of investment newsletters.

41
<PAGE> 82

The Fund may compare its performance to a wide variety of indices and
measures of inflation including the Standard & Poor's Index of 500 Stocks and
the Nasdaq Over-the-Counter Composite Index. There are differences and
similarities between the investments that the Fund may purchase for its
portfolio and the investments measured by these indices.

Occasionally statistics may be used to specify the Fund's volatility or
risk. Measures of volatility or risk are generally used to compare the Fund's
net asset value or performance relative to a market index. One measure of
volatility is beta. Beta is the volatility of a fund relative to the total
market as represented by the Standard & Poor's 500 Stock Index. A beta of more
than 1.00 indicates volatility greater than the market, and a beta of less than
1.00 indicates volatility less than the market. Another measure of volatility or
risk is standard deviation. Standard deviation is used to measure variability of
net asset value or total return around an average, over a specified period of
time. The premise is that greater volatility connotes greater risk undertaken in
achieving performance.

Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Fund. The
description may include a "risk/return spectrum" which compares the Fund to
broad categories of funds, such as money market, bond or equity funds, in terms
of potential risks and returns. Risk/return spectrums also may depict funds that
invest in both domestic and foreign securities or a combination of bond and
equity securities. Money market funds are designed to maintain a constant $1.00
share price and have a fluctuating yield. Share price, yield and total return of
a bond fund will fluctuate. The share price and return of an equity fund also
will fluctuate. The description may also compare the Fund to bank products, such
as certificates of deposit. Unlike mutual funds, certificates of deposit are
insured up to $100,000 by the U.S. government and offer a fixed rate of return.

MISCELLANEOUS

The Prospectus and this Statement of Additional Information do not
contain all the information included in the Registration Statement filed with
the Commission under the Securities Act with respect to the securities offered
by the Fund's Prospectus. Certain portions of the Registration Statement have
been omitted from the Prospectus and this Statement of Additional Information,
pursuant to the rules and regulations of the Commission. The Registration
Statement including the exhibits filed therewith may be examined at the office
of the Commission in Washington, D.C.
Statements contained in the Prospectus or in this Statement of
Additional Information as to the contents of any contract or other documents
referred to are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement of which the Prospectus and this Statement of Additional
Information form a part, each such statement being qualified in all respects by
such reference.

FINANCIAL STATEMENTS

42
<PAGE> 83

The following financial statements have been audited and are attached
hereto:

1. Report of Independent Public Accountants
2. Statement of Assets and Liabilities
3. Statement of Operations
4. Notes to the Financial Statements

<PAGE> 84

APPENDIX A

Commercial Paper Ratings

A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of no more
than 365 days. The following summarizes the rating categories used by Standard &
Poor's for commercial paper in which the Funds may invest:

"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."

"A-2" - Issue's capacity for timely payment is satisfactory. However, the
relative degree of safety is not as high as for issues designated "A-1."

Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of 9 months. The following summarizes the rating categories used by
Moody's for commercial paper in which the Funds may invest:

"Prime-1" - Issuer or related supporting institutions are considered to
have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
capacities: 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 earning
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity.

"Prime-2" - Issuer or related supporting institutions are considered to
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 alternative liquidity is
maintained.

The three rating categories of Duff & Phelps for investment grade
commercial paper are "Duff 1," "Duff 2" and "Duff 3." Duff & Phelps employs
three designations, "Duff 1+," "Duff 1" and "Duff 1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper in which the Funds may invest:

"Duff 1+" - Debt possesses 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.

A-1

<PAGE> 85

"Duff 1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"Duff 1-" - Debt possesses high certainty of
timely payment. Liquidity factors are strong and supported by good fundamental
protection factors. Risk factors are very small.

"Duff 2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding need may
enlarge total financing requirements, access to capital markets is good.

Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years. The highest rating
category of Fitch for short-term obligations is "F-1." Fitch employs two
designations, "F-1+" and "F-1," within the highest category. The following
summarizes the rating categories used by Fitch for short-term obligations in
which the Funds may invest:

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

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

Fitch may also use the symbol "LOC" with its short-term ratings to indicate that
the rating is based upon a letter of credit issued by a commercial bank.

Thomson BankWatch short-term ratings assess the likelihood of an untimely
or incomplete payment of principal or interest of unsubordinated instruments
having a maturity of one year or less which are issued by a bank holding company
or an entity within the holding company structure. The following summarizes the
ratings used by Thomson BankWatch in which the Funds may invest:

"TBW-1" - This designation represents Thomson BankWatch's highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.

"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."

A-2

<PAGE> 86

IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for short-term debt ratings in which the Funds may
invest:

"A1" - Obligations are supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit feature, a rating
of A1+ is assigned.

"A2" - Obligations are supported by a good capacity for timely repayment.

Corporate Long-Term Debt Ratings

STANDARD & POOR'S DEBT RATINGS

A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees. The debt rating is not a recommendation to
purchase, sell, or hold a security, inasmuch as it does not comment as to market
price or suitability for a particular investor.

The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or for other
circumstances.

The ratings are based, in varying degrees, on the following
considerations:

1. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and repayment of
principal in accordance with the terms of the obligation.

2. Nature of and provisions of the obligation.

3. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization, or
other arrangement under the laws of bankruptcy and other laws
affecting creditors' rights.

A-3

<PAGE> 87

INVESTMENT GRADE

AAA - Debt rated `AAA' has the highest rating assigned by Standard &
Poor's. 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 highest 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 than debt in higher rated
categories.

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

SPECULATIVE GRADE

Debt rated `BB', `B', `CCC', `CC' and `C' is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. `BB' indicates the least degree of speculation and
`C' the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

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. The `BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied `BBB-' rating.

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, 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' or `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. The `CCC' rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied `B' or `B-' rating.

A-4

<PAGE> 88

CC - Debt rated `CC' typically is applied to debt subordinated to senior
debt that is assigned an actual or implied `CCC' rating.

C - Debt rated `C' typically is 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 period. The `D' rating also will be used upon
the filing of a bankruptcy petition if debt service payments are jeopardized.

MOODY'S LONG-TERM DEBT RATINGS

Aaa - Bonds which are 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 edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what 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 risk appear somewhat larger than in Aaa securities.

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

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

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

A-5

<PAGE> 89

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

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

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

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

FITCH INVESTORS SERVICE, INC. BOND RATINGS

Fitch investment grade bond ratings provide a guide to investors in
deterring the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.

The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.

Fitch ratings do not reflect any credit enhancement that may be provided
by insurance policies or financial guaranties unless otherwise indicated.

Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.

Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature of taxability of
payments made in respect of any security.

Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.

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

A-6

<PAGE> 90

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

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

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

Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
(`BB to `C') represent Fitch's assessment of the likelihood of timely payment of
principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating (`DDD' to `D') is an
assessment of the ultimate recovery value through reorganization or liquidation.

Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories cannot fully reflect the
differences in the degrees of credit risk. Moreover, the character of the risk
factor varies from industry to industry and between corporate, health care and
municipal obligations.

BB Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by
adverse economic changes. However, business and financial
alternatives can be identified which could assist the obligor
in satisfying its debt service requirements.

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

A-7

<PAGE> 91

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

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

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

DDD, DD
and D Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on
the basis of their ultimate recovery value in liquidation or
reorganization of the obligor.

DUFF & PHELPS, INC. LONG-TERM DEBT RATINGS

These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative and
quantitative factors which may vary according to the basic economic and
financial characteristics of each industry and each issuer. Important
considerations are vulnerability to economic cycles as well as risks related to
such factors as competition, government action, regulation, technological
obsolescence, demand shifts, cost structure, and management depth and expertise.
The projected viability of the obligor at the trough of the cycle is a critical
determination.

Each rating also takes into account the legal form of the security (e.g.,
first mortgage bonds, subordinated debt, preferred stock, etc.). The extent of
rating dispersion among the various classes of securities is determined by
several factors including relative weightings of the different security classes
in the capital structure, the overall credit strength of the issuer, and the
nature of covenant protection. Review of indenture restrictions is important to
the analysis of a company's operating and financial constraints.

A-8

<PAGE> 92

The Credit Rating Committee formally reviews all ratings once per quarter
(more frequently, if necessary). Ratings of `BBB-' and higher fall within the
definition of investment grade securities, as defined by bank and insurance
supervisory authorities.

RATING SCALE DEFINITION

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

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
AA is modest, but may vary slightly from time to time because
AA- of economic conditions.

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

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

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

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

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

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

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

B+ Below investment grade and possessing risk that
B obligations will not be met when due. Financial protection
B- factors will fluctuate widely according to economic
cycles.

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

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.
- --------------------------------------------------------------------------------

A-9

<PAGE> 93

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

DD Default debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
DP Preferred stock with dividend arrearages.

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

A-10

<PAGE> 94

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholder and Board of Trustees
of Choice Funds Focus Fund

In our opinion, the accompanying statement of assets and liabilities and the
related statement of operations present fairly, in all material respects, the
financial position of the Choice Funds Balanced Fund (one of the portfolios of
Choice Funds (the "Fund")) at October 1, 1999 and the results of it operations
for the period indicated, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Fund's
management, our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.

PRICEWATERHOUSECOOPERS LLP

Milwaukee, Wisconsin
October 5, 1999

<PAGE> 95

CHOICE FUNDS

STATEMENT OF ASSETS AND LIABILITIES

OCTOBER 1, 1999

ASSETS
<TABLE>
<CAPTION>
<S> <C>

FOCUS FUND
Cash............................................................................$100,000
Receivable from Sponsor.........................................................$ 43,475
Prepaid initial registration expenses...........................................$ 20,740
TOTAL ASSETS....................................................................$164,215

LIABILITIES AND NET ASSETS

Payable to Sponsor..............................................................$ 64,215

TOTAL LIABILITIES...............................................................$ 64,215

NET ASSETS......................................................................$100,000

NET ASSETS CONSIST OF:
Capital shares outstanding, no par value, indefinite shares authorized..........$ 10,000

Net asset value, redemption price and offering price per share..................$ 10.00
(net assets/shares outstanding) ========
</TABLE>

STATEMENT OF OPERATIONS
For the Period From July 16, 1999 (inception) to October 1, 1999

<TABLE>
<CAPTION>
Focus Fund
----------
<S> <C>
Organization expenses $ 43,475
Less: Expenses paid by Sponsor (43,475)
Net Investment Income $ --
</TABLE> ----------

The accompanying notes to the Financial Statements are an
integral part of this statement.
<PAGE> 96

NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD FROM
JULY 16, 1999 (INCEPTION) TO OCTOBER 1, 1999

Note 1-Organization and Registration

Choice Funds (the "Company") was established on July 16, 1999, as a Delaware
business trust and is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end management investment company. The
Focus Fund (the "Fund" is a separate, non-diversified investment portfolio of
the company). The Fund has had no operations other than those relating to
organizational matters, including the sale of 10,000 shares of beneficial
interest of the Fund to capitalize the Fund ("Original Shares"), which were sold
to Patrick and Sharon Adams on October 1, 1999 for cash in the amount of
$100,000.

Note 2-Significant Accounting Policies

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles
("GAAP").

a. Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported changes in net assets during
the reporting period. Actual results could differ from those estimates.

b. Organization and Prepaid Initial Registration Expenses

Expenses incurred by the Company in connection with the organization
and the initial public offering of shares are expenses as incurred. These
expenses were advanced by the Advisor, and the Advisor has agreed to voluntarily
reimburse the Fund for their expenses, subject to potential recovery (see Note
3). Prepaid initial registration expenses are deferred and amortized over the
period of benefit (not to exceed 12 months).

c. Federal Income Taxes

The Fund intends to qualify annually for treatment as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended, and, if so qualified, will not be liable for federal income taxes to
the extent earnings are distributed to shareholders on a timely basis.

Note 3-Investment Advisory and Other Agreements

Choice Investment Management, LLC serves as the Fund's investment adviser. As
compensation for its services to the Fund, the Adviser receives an investment
advisory fee at an annual rate of 1.0% of the average daily net assets of the
Fund which is accrued daily and paid monthly. The Adviser has also agreed to
voluntarily reduce fees for expenses (exclusive of brokerage, interest, taxes
and extraordinary expenses) that exceed 2.25% of average daily net assets of the
Fund until October 31, 2000. The Adviser is entitled to recoup amounts waived
or reimbursed for a period of up to three years from the date such amounts were
reimbursed or waived, to the extent actual fees and expenses for a period are
less than the expense limitation.

The Company has entered into an administration and fund accounting agreement and
transfer agent agreement with Sunstone Financial Group, Inc. The administrative
services agreement provides for an annual fee of 0.15% which decreases as the
assets of the Fund reach certain levels, subject to a minimum annual fee of
$70,000, plus out-of-pocket expenses. The transfer agent agreement provides for
an annual base fee per shareholder account, with a minimum annual fee of
$18,000. The transfer agent is also paid certain fees related to set-up costs,
processing and out-of-pocket expenses.

The Company has entered into a distribution agreement with Sunstone Distribution
Services, LLC (the "Distributor"). Under the Distribution Agreement, the
Distributor shall offer shares of the Fund on a continuous basis and may engage
in advertising and solicitation activities in connection therewith.

Note 4-Capital Stock

The Company is authorized to issue an unlimited number of shares with no par
value. A total of 10,000 shares were initially sold to Patrick and Sharon Adams
to capitalize the Company.
<PAGE> 97

STATEMENT OF ADDITIONAL INFORMATION

FOR THE

CHOICE FUNDS

BALANCED FUND

This Statement of Additional Information should be read in conjunction
with the Prospectus for the Choice Balanced Fund dated October 31, 1999, and is
incorporated by reference in its entirety into such Prospectus. Because this
Statement of Additional Information is not itself a prospectus, you should not
make an investment in shares of the Choice Balanced Fund based solely on the
information contained herein. You may obtain copies of the Prospectus for the
Choice Balanced Fund without charge by calling 1-800-392-7107 or by writing to
Choice Funds, P.O. Box 759, Milwaukee, Wisconsin 53201-0759.

This Statement of Additional Information is dated October 31, 1999.

<PAGE> 98

TABLE OF CONTENTS

Page

<S> <C>
FUND ORGANIZATION................................................................................
INVESTMENT POLICIES AND PRACTICES................................................................
Investment Restrictions.................................................................
Investment Strategies and Risks.........................................................

MANAGEMENT OF THE FUND...........................................................................
Trustees and Officers...................................................................
Control Persons and Principal Holders of Securities.....................................
INVESTMENT ADVISORY AND OTHER SERVICES...............................
Investment Adviser......................................................................
Administration and Fund Accounting......................................................
Transfer Agent and Dividend-Paying Agent................................................
Custodian...............................................................................
Distributor.............................................................................
Legal Counsel ..........................................................................
Independent Accountants.................................................................
DISTRIBUTION OF SHARES...........................................................................
PORTFOLIO TRANSACTIONS AND BROKERAGE.............................................................
CAPITAL STRUCTURE................................................................................
TAXES
General.................................................................................
Original Issue Discount.................................................................
Options, Futures and Foreign Currency Forward Contracts; Straddles......................
Currency Fluctuations - "Section 988" Gains or Losses...................................
Passive Foreign Investment Companies....................................................
Distributions...........................................................................
Disposition of Shares...................................................................
Back-up Withholding.....................................................................
Other Taxation..........................................................................
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Net Asset Value........................................................
Exchanging Shares.......................................................................
Retirement Accounts.....................................................................
Suspension of Redemptions...............................................................
Redemptions in Kind.....................................................................
PERFORMANCE INFORMATION..........................................................................
MISCELLANEOUS....................................................................................
FINANCIAL STATEMENTS.............................................................................
APPENDIX A (Description of Securities Ratings)...................................................
</TABLE>

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

2
<PAGE> 99

FUND ORGANIZATION
Choice Funds is an open-end management investment company
organized as a Delaware business trust on July 16, 1999 (the "Trust"). The Trust
is authorized by its Declaration of Trust to issue an unlimited number of shares
of beneficial interest in series and classes. The Trust currently offers two
series of shares, the Focus Fund, which is offered through a separate
prospectus, and the Balanced Fund (the "Fund").

INVESTMENT POLICIES AND PRACTICES

INVESTMENT RESTRICTIONS

The following are the Fund's fundamental investment restrictions.
Except as otherwise noted, the Fund may not:

2. Lend money or securities (except by purchasing debt securities or
entering into repurchase agreements or lending portfolio securities); provided,
however, that the Fund may make loans to affiliated investment companies to
the extent permitted by the Investment Company Act or any exemptions therefrom
that may be granted by the SEC.

3. With respect to seventy-five percent (75%) of its total assets,
purchase (a) the securities of any issuer (except securities of the U.S.
government or any agency or instrumentality thereof), if such purchase would
cause more than five percent (5%) of the value of the Fund's total assets to be
invested in securities of any one issuer or (b) more than ten percent (10%) of
the outstanding voting securities of any one issuer.
4. Purchase the securities of any issuer if, as a result, 25% or more
of the value of its total assets, determined at the time an investment is made,
exclusive of U.S. government securities, are in securities issued by companies
primarily engaged in the same industry.

<PAGE> 100

5. Act as an underwriter or distributor of securities other than shares
of the Fund except to the extent that the Fund's participation as part of a
group in bidding or by bidding alone, for the purchase of permissible
investments directly from an issuer or selling shareholders for the Fund's own
portfolio may be deemed to be an underwriting, and except to the extent that the
Fund may be deemed an underwriter under the Securities Act, by virtue of
disposing of portfolio securities.

6. Purchase or sell real estate (but this shall not prevent the Fund
from investing in securities that are backed by real estate or issued by
companies that invest or deal in real estate or in participation interests in
pools of real estate mortgage loans exclusive of investments in real estate
limited partnerships).

7. Borrow money, except that the Fund may borrow money from a bank or
affiliated investment companies to the extent permitted by the Investment
Company Act or any exemption therefrom that may be granted by the SEC for
temporary or emergency purposes (not for leveraging) in an amount not exceeding
25% of the value of its total assets (including the amount borrowed) less
liabilities (other than borrowings), or pledge, mortgage or hypothecate its
assets, except to secure indebtedness, and then only if such pledging,
mortgaging or hypothecating does not exceed 25% of the Fund's total assets.
Transactions involving options, futures and options on futures, will not be
deemed to be borrowings if properly covered by a segregated account where
appropriate. The Fund will not purchase securities while its borrowings exceed
5% of its total assets.

8. Purchase or sell physical commodities or commodities contracts
unless acquired as a result of ownership of securities or other instruments (but
this shall not prevent the Fund from engaging in transactions involving foreign
currencies, futures contracts, options on futures contracts or options, or from
investing in securities or other instruments backed by physical commodities).

The Trustees have adopted additional investment restrictions for the
Fund. These restrictions are operating policies of the Fund and may be changed
by the Trustees without shareholder approval.

The Fund may not:

1. Purchase securities of other investment companies except to the
extent permitted by the Investment Company Act and the rules and regulations
thereunder.

2. Make investments for the purpose of exercising control or management
of any company except that the Fund may vote portfolio securities in the Fund's
discretion.
3. Acquire illiquid securities if, as a result of such investments,
more than 15% of the Fund's net assets (taken at market value at the time of
each investment) would be invested in illiquid securities. "Illiquid securities"
means securities that cannot be disposed of within seven days in the normal
course of business at approximately the amount at which the Fund has valued the
securities.

<PAGE> 101

In determining industry classifications with respect to the Fund, the
Adviser intends to use the industry classification titles in the Standard
Industrial Classification Manual.

INVESTMENT STRATEGIES AND RISKS

The Fund is a diversified fund that seeks both capital appreciation and
current income. The Fund emphasized capital appreciation, but invests at least
25% of its total assets in fixed income securities. The Fund invests at least
25% of its total assets in equity securities.

The Prospectus describes the Fund's investment objective, as well as
the principal investment strategies used to achieve that objective and the
principal risks associated with such strategy. The following information
supplements the discussion about the Fund set forth in the Prospectus under the
headings "Fund Overview" and "Investment Practices and Risks."

<PAGE> 102

any stock or bond market advances that occur during those periods, which the
Fund might have been able to participate in if it had remained more fully
invested.

U.S. GOVERNMENT OBLIGATIONS. The Fund may invest in obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
Some of the obligations purchased by the Fund, such as U.S. Treasury bills,
notes and bonds, are backed by the full faith and credit of the U.S. Government
and are guaranteed as to both principal and interest by the U.S. Treasury. While
the obligations of many of the agencies and instrumentalities of the U.S.
Government are not direct obligations of the U.S. Treasury, they are generally
backed indirectly by the U.S. Government. Some of the agencies are indirectly
backed by their right to borrow from the U.S. Government. Others are supported
solely by the credit of the agency or instrumentality itself, but are given
additional support due to the U.S. Treasury's authority to purchase their
outstanding debt obligations. However, no assurance can be given that the U.S.
Government would provide financial support to U.S. Government-established or
sponsored agencies where it is not obligated to do so by law. The U.S.
Government does not guarantee the market value or current yield of these
obligations, and the U.S. Government's guarantee does not extend to the Fund
itself.

<PAGE> 103

bank or trust company and evidence ownership of underlying securities issued by
a foreign corporation. Unsponsored ADRs differ from sponsored ADRs in that the
establishment of unsponsored ADRs is not approved by the issuer of the
underlying securities. As a result, available information concerning the issuer
may not be as current or reliable as the information for sponsored ADRs, and the
price of unsponsored ADRs may be more volatile.
Investments in foreign securities involve special risks and costs in
addition to those inherent in domestic investments. Political, economic or
social instability of the issuer or the country of issue, the possibility of
expropriation or confiscatory taxation, limitations on the removal of assets or
diplomatic developments, and the possibility of adverse changes in investment or
exchange control regulations are among the inherent risks. Foreign companies are
not subject to the regulatory requirements of U.S. companies and, as such, there
may be less publicly available information about such companies. Moreover,
foreign companies are not subject to uniform accounting, auditing and financial
reporting standards and requirements comparable to those applicable to U.S.
companies. Dividends and interest payable on the Fund's foreign portfolio
securities may be subject to foreign withholding taxes. To the extent such taxes
are not offset by credits or deductions allowed to investors under U.S. federal
income tax law, such taxes may reduce the net return to shareholders. Because of
these and other factors, securities of foreign companies acquired by the Fund
may be subject to greater fluctuation than securities of domestic companies.

<PAGE> 104

Smaller company stocks may be subject to more abrupt or erratic price movements,
because the stocks are traded in lower volumes in fewer markets and their
issuers are more sensitive to changing conditions and have less certain growth
prospects. Smaller companies in which the Fund invests may have limited product
lines, markets or financial resources, or may be dependent on a small management
group. Smaller companies also may be less significant factors within their
industries and may have difficulty withstanding competition from larger
companies. While smaller companies may be subject to these additional risks,
they may also realize more substantial growth than larger or more established
companies.

The Board has delegated to the Adviser the day-to-day determination of
the liquidity of a security, although it has retained oversight and ultimate
responsibility for such determinations. Although no definite quality criteria
are used, the Adviser considers such factors as (i) the nature of the market for
a security (including the institutional, private or international resale
market), (ii) the terms of these securities or other instruments allowing for
the disposition to a third party or the issuer thereof (e.g., certain repurchase
obligations and demand instruments), (iii) the availability of market quotations
(e.g., for securities quoted in PORTAL system), and (iv) other permissible
relevant factors. Certain securities are deemed illiquid by the Securities and

<PAGE> 105
Exchange Commission, including repurchase agreements maturing in more than seven
days and options not listed on a securities exchange or not issued by the
Options Clearing Corporation. These securities will be treated as illiquid and
subject to the Fund's limitation on illiquid securities. Because an active
market may not exist for illiquid securities, the Fund may experience delays and
additional cost when trying to sell illiquid securities.

<PAGE> 106

converted into the underlying common stock). The investment value of convertible
securities is influenced by changes in interest rates, with investment value
declining as interest rates increase and increasing as interest rates decline,
and by the credit standing of the issuer and other factors. The conversion value
of convertible securities is determined by the market price of the underlying
common stock. If the conversion value is low relative to the investment value,
the price of the convertible securities is governed principally by their
investment value. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
securities will be increasingly influenced by their conversion value. In
addition, convertible securities generally sell at a premium over their
conversion value determined by the extent to which investors place value on the
right to acquire the underlying common stock while holding fixed income
securities.

<PAGE> 107

also tend to be more sensitive to economic conditions than higher-rated
categories. During an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of junk bond securities may experience financial
stress and may not have sufficient revenues to meet their payment obligations.
The risk of loss due to default by an issuer of these securities is
significantly greater than issuers of higher-rated securities because such
securities are generally unsecured and are often subordinated to other
creditors. Further, if the issuer of a junk bond security defaulted, the Fund
might incur additional expenses to seek recovery. Periods of economic
uncertainty and changes would also generally result in increased volatility in
the market prices of these securities and thus in the Fund's net asset value.

Liquidity and Valuation. The Fund may have difficulty disposing of
certain junk bond securities because there may be a thin trading market for such
securities. Because not all dealers maintain markets in all junk bond
securities, there may not be an established retail secondary market for certain
of these securities. The secondary trading market is generally not as liquid as
the secondary market for higher-rated securities, which may have an adverse
impact on the market price of the security and may also make it more difficult
for the Fund to obtain accurate

<PAGE> 108

market quotations for purposes of valuing the Fund. Market quotations for
certain junk bond issues may only be available from a limited number of dealers
and may not necessarily represent firm bids of such dealers or prices for actual
sales. During periods of thin trading, the spread between bid and asked prices
is likely to increase significantly. In addition, adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of junk bond securities, especially in a thinly traded
market.

Securities subject to repurchase agreements are held either by the
Fund's custodian or subcustodian (if any), or in the Federal Reserve/Treasury
Book-Entry System. The seller under a repurchase agreement will be required to
maintain the value of the securities subject to the agreement in an amount at
least equal to the repurchase price (including accrued interest). Repurchase
agreements may be considered loans to the seller, collateralized by the
underlying securities. The risk to the Fund is limited to the ability of the
seller to pay the agreed upon sum

<PAGE> 109

on the repurchase date; in the event of default, the repurchase agreement
provides that the Fund is entitled to sell the underlying collateral. If the
value of the collateral declines after the agreement is entered into, however,
and if the seller defaults under a repurchase agreement when the value of the
underlying collateral is less than the repurchase price, the Fund could incur a
loss of both principal and interest. The Adviser monitors the value of the
collateral at the time the agreement is entered into and at all times during the
term of the repurchase agreement in an effort to determine that the value of the
collateral always equals or exceeds the agreed upon repurchase price to be paid
to the Fund. If the seller were to be subject to a federal bankruptcy
proceeding, the ability of the Fund to liquidate the collateral could be delayed
or impaired because of certain provisions of the bankruptcy laws. The Adviser
will acquire repurchase agreements in accordance with procedures established by
the Trust's Board of Trustees that are designed to evaluate the creditworthiness
of the other parties to the repurchase agreements.

13
<PAGE> 110

or the rules and regulations or interpretations of the Securities
and Exchange Commission thereunder, which currently require that (a) the
borrower pledge and maintain with the Fund collateral consisting of cash, an
irrevocable letter of credit or securities issued or guaranteed by the United
States government having a value at all times not less than 100% of the value of
the securities loaned, (b) the borrower add to such collateral whenever the
price of the securities loaned rises (i.e., the borrower "marks to the market"
on a daily basis), (c) the loan be made subject to termination by the Fund at
any time, (d) the Fund receives reasonable interest on the loan, which interest
may include the Fund's investing cash collateral in interest bearing short-term
investments, and (e) the Fund receives all dividends and distributions on the
loaned securities and any increase in the market value of the loaned securities.

A hedging transaction may partially protect the Fund from a decline in
the value of a particular security or its portfolio generally, although hedging
may also limit the Fund's opportunity to profit from favorable price movements,
and the cost of the transaction will reduce the potential return on the security
or the portfolio. Use of these instruments by the Fund involves the potential
for a loss that may exceed the amount of initial margin the Fund would be
permitted to commit to the contracts under its investment limitation, or in the
case of a call option written by the Fund, may exceed the premium received for
the option. However, the Fund is permitted to use such instruments for hedging
purposes only, and only if the aggregate amount of its obligations under these
contracts does not exceed the total market value of the assets the Fund is
attempting to hedge, such as a portion or all of its exposure to equity
securities

14
<PAGE> 111
or its holding in a specific foreign currency. To help ensure that the Fund will
be able to meet its obligations under its futures and forward contracts and its
obligations under options written by the Fund, the Fund will be required to
maintain liquid assets in a segregated account with its custodian bank or to set
aside portfolio securities to "cover" its position in these contracts.

15
<PAGE> 112

index option, settlement does not occur by delivery of the securities comprising
the index. The option holder who exercises the index option receives an amount
of cash if the closing level of the stock index upon which the option is based
is greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. This amount of cash is equal to the difference
between the closing price of the stock index and the exercise price of the
option expressed in dollars times a specified multiple. A stock index fluctuates
with changes in the market value of the stocks included in the index. For
example, some stock index options are based on a broad market index, such as the
Standard & Poor's 500 Index or the Value Line Composite Index or a narrower
market index, such as the Standard & Poor's 100. Indexes may also be based on an
industry or market segment, such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index. Options on stock indexes are currently traded on
the Chicago Board Options Exchange, the New York Stock Exchange, the American
Stock Exchange, the Pacific Stock Exchange, and the Philadelphia Stock Exchange.
The Fund's obligation to sell an instrument subject to a call option
written by it, or to purchase an instrument subject to a put option written by
it, may be terminated prior to the expiration date of the option by the Fund's
execution of a closing purchase transaction, which is effected by purchasing on
an exchange an option of the same series (i.e., same underlying instrument,
exercise price and expiration date) as the option previously written. A closing
purchase transaction will ordinarily be effected to realize a profit on an
outstanding option, to prevent an underlying instrument from being called, to
permit the sale of the underlying instrument or to permit the writing of a new
option containing different terms on such underlying instrument. The cost of
such a liquidation purchase plus transactions costs may be greater than the
premium received upon the original option, in which event the Fund will have
incurred a loss in the transaction. There is no assurance that a liquid
secondary market will exist for any particular option. An option writer unable
to effect a closing purchase transaction will not be able to sell the underlying
instrument or liquidate the assets held in a segregated account, as described
below, until the option expires or the optioned instrument is delivered upon
exercise. In such circumstances, the writer will be subject to the risk of
market decline or appreciation in the instrument during such period.

If an option purchased by the Fund expires unexercised, the Fund
realizes a loss equal to the premium paid. If the Fund enters into a closing
sale transaction on an option purchased by it, the Fund will realize a gain if
the premium received by the Fund on the closing transaction is more than the
premium paid to purchase the option, or a loss if it is less. If an option
written by the Fund expires on the stipulated expiration date or if the Fund
enters into a closing purchase transaction, it will realize a gain (or loss if
the cost of a closing purchase transaction exceeds the net premium received when
the option is sold). If an option written by the Fund is exercised, the proceeds
of the sale will be increased by the net premium originally received and the
Fund will realize a gain or loss.
Certain Risks Regarding Options. There are several risks associated
with transactions in options. For example, there are significant differences
between the securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to achieve
its objectives. In addition, a liquid secondary market for particular options,
whether traded over-the-counter or on an exchange, may be absent for reasons
which

16
<PAGE> 113

include the following: there may be insufficient trading interest in certain
options; restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; trading halts, suspensions or other restrictions
may be imposed with respect to particular classes or series of options or
underlying securities or currencies; unusual or unforeseen circumstances may
interrupt normal operations on an exchange; the facilities of an exchange or the
Options Clearing Corporation may not at all times be adequate to handle current
trading value; or one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.

Cover for Options Positions. Transactions using options (other than
options that the Fund has purchased) expose the Fund to an obligation to another
party. The Fund will not enter into

17
<PAGE> 114

any such transactions unless it owns either (1) an offsetting ("covered")
position in securities or other options or (2) cash or liquid securities with a
value sufficient at all times to cover its potential obligations not covered as
provided in (1) above. The Fund will comply with SEC guidelines regarding cover
for these instruments and, if the guidelines so require, set aside cash or
liquid securities in a segregated account with its Custodian in the prescribed
amount. Under current SEC guidelines, the Fund will segregate assets to cover
transactions in which the Fund writes or sells options.

Both the buyer and seller are required to deposit "initial margin" for
the benefit of the FCM when a futures contract is entered into. Initial margin
deposits are equal to a percentage of the contract's value, as set by the
exchange on which the contract is traded, and may be maintained in cash or other
liquid assets. If the value of either party's position declines, that party will
be required to make additional "variation margin" payments to the other party to
settle the change in value on a daily basis. Initial and variation margin
payments are similar to good faith deposits or performance bonds or
party-to-party payments resulting from daily changes in the value of the
contract, unlike margin extended by a securities broker, and would be released
or credited to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Unlike margin extended by a
securities broker, initial and variation margin payments do not constitute
purchasing securities on margin for purposes of the Fund's investment
limitations. The Fund will incur brokerage fees when it buys or sells futures
contracts.

18
<PAGE> 115
In the event of the bankruptcy of the FCM that holds margin on behalf
of the Fund, the Fund may be entitled to return of margin owed to the Fund only
in proportion to the amount received by the FCM's other customers. The Fund will
attempt to minimize the risk by careful monitoring of the creditworthiness of
the FCMs with which the Fund does business and by depositing margin payments in
a segregated account with the Fund's custodian for the benefit of the FCM when
practical or otherwise required by law.

The ordinary spreads between prices in the cash and futures markets,
due to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial margin and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close out futures contracts through offsetting
transactions, which could distort the normal price relationship between the cash
and futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced and prices in the futures

19
<PAGE> 116

market distorted. Third, from the point of view of speculators, the margin
deposit requirements in the futures market are less than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility of
the foregoing distortions, a correct forecast of general price trends by the
Fund still may not result in a successful use of futures.

20
<PAGE> 117

21
<PAGE> 118

The Fund will cover outstanding forward currency contracts by
maintaining liquid portfolio securities denominated in the currency underlying
the forward contract or the currency

22
<PAGE> 119

being hedged. To the extent that the Fund is not able to cover its forward
currency positions with underlying portfolio securities, the Fund's Custodian
will segregate cash or liquid assets having a value equal to the aggregate
amount of the Fund's commitments under forward contracts entered into. If the
value of the securities used to cover a position or the value of segregated
assets declines, the Fund must find alternative cover or segregate additional
cash or liquid assets on a daily basis so that the value of the covered and
segregated assets will be equal to the amount of the Fund's commitments with
respect to such contracts.

The Fund may make short sales "against the box," i.e., when a security
identical to or convertible or exchangeable into one owned by the Fund is
borrowed and sold short.

Whenever the Fund engages in short sales, it segregates liquid
securities in an amount that, when combined with the amount of collateral
deposited with the broker in connection with

23
<PAGE> 120

the short sale, equals the current market value of the security sold short. The
segregated assets are marked to market daily.

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The Fund may invest in
certain mortgage-backed and asset-backed securities. Mortgage-backed securities
are securities that directly or indirectly represent a participation in, or are
secured by and payable from, mortgage loans secured by real property.
Asset-backed securities are similar, except that they are backed by assets other
than mortgages, such as motor vehicle installment sales contracts, installment
loan contracts, leases of various types of real and personal property and
receivables from revolving credit agreements (credit cards). The Fund will only
invest in mortgage-backed securities that are insured or guaranteed by the U.S.
Government or its agencies or instrumentalities, or in privately issued
mortgage-backed or asset-backed securities that are rated in the top two
investment categories by a nationally recognized rating agency.

The primary risk of any mortgage-backed or asset-backed security is the
uncertainty of the timing of cash flows from the assets underlying the
securities. See the subheading "Special Risks of Mortgage-Backed Securities"
below for more information about prepayment and extension risks. Also, see the
subheading "Asset-Backed Securities" below for more information about
asset-backed securities.

There are currently three basic types of mortgage-backed securities:
(i) those issued or guaranteed by the United States Government or one of its
agencies or instrumentalities, such as the Government National Mortgage
Association (GNMA), the Federal National Mortgage Association (FNMA) and the
Federal Home Loan Mortgage Corporation (FHLMC); (ii) those issued by private
issuers that represent an interest in or are collateralized by mortgage-backed
securities issued or guaranteed by the United States Government or one of its
agencies or instrumentalities; and (iii) those issued by private issuers that
represent an interest in or are collateralized by whole mortgage loans or
mortgage-backed securities without a government guarantee but usually having
some form of private credit enhancement.

U.S. Government Mortgage-Backed Securities. The Fund may invest in
mortgage-backed securities issued or guaranteed by GNMA, FNMA and FHLMC. GNMA
certificates are backed by the "full faith and credit" of the United States.
FNMA and FHLMC certificates are not backed by the full faith and credit of the
United States, but the issuing agency or instrumentality has the right to
borrow, to meet its obligations, from an existing line of credit with the U.S.
Treasury. The U.S. Treasury has no legal obligation to provide such line of
credit and may choose not to do so. Each of GNMA, FNMA and FHLMC guarantee
timely distribution of interest to certificate holders. GNMA and FNMA also
guarantee timely distribution of scheduled principal payments. FHLMC generally
guarantees only the ultimate collection of principal of the underlying mortgage
loans.

Collateralized Mortgage Obligations And Multiclass Pass-Through
Securities. The Fund may also invest in collateralized mortgage obligations
(CMOs). CMOs are debt obligations collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized by GNMA, FNMA or
FHLMC certificates, but also may be collateralized by whole loans or private
mortgage pass-through securities (such collateral is referred to in this

24
<PAGE> 121

section as Mortgage Assets). Multiclass pass-through securities are equity
interests in a trust composed of Mortgage Assets. Payments of principal of and
interest on the Mortgage Assets, and any reinvestment income thereon, provide
the funds to pay debt service on the CMOs or make scheduled distributions on the
multiclass pass-through securities. CMOs may be issued by agencies or
instrumentalities of the U. S. Government, or by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose subsidiaries of
the foregoing. The Fund may invest in CMOs issued by private entities only if
the CMOs are rated at least investment grade (at least BBB by S&P or Baa by
Moody's) or, if unrated, are determined to be of comparable quality.

In a CMO, a series of bonds or certificates is issued in multiple
classes. Each class of CMOs, often referred to as a "tranche," is issued at a
specific fixed or floating coupon rate and has a stated maturity or final
distribution date. Interest is paid or accrues on all classes of the CMOs on a
monthly, quarterly or semiannual basis. Certain CMOs may have variable or
floating interest rates. The principal of and interest on the Mortgage Assets
may be allocated among the several classes of a CMO series in a number of
different ways.

Generally, the purpose of the allocation of the cash flow of a CMO to
the various classes is to obtain a more predictable cash flow to the individual
tranches than exists with the underlying collateral of the CMO. As a general
rule, the more predictable the cash flow is on a CMO tranche, the lower the
anticipated yield will be on that tranche at the time of issuance relative to
prevailing market yields on mortgage-backed securities. As part of the process
of creating more predictable cash flows on most of the tranches in a series of
CMOs, one or more tranches generally must be created that absorb most of the
volatility in the cash flows on the underlying mortgage loans. The yields on
these tranches may be higher than prevailing market yields on mortgage-backed
securities with similar maturities. As a result of the uncertainty of the cash
flows of these tranches, the market prices of and yield on these tranches
generally are more volatile.

The Fund also may invest in parallel pay CMOs and Planned Amortization
Class CMOs (PAC Bonds). Parallel pay CMOs are structured to provide payments of
principal on each payment date to more than one class. These simultaneous
payments are taken into account in calculating the stated maturity date or final
distribution date of each class, which, as with other CMO structures, must be
retired by its stated maturity date or final distribution date but may be
retired earlier. PAC Bonds generally require payments of a specified amount of
principal on each payment date. PAC Bonds always are parallel pay CMOs with the
required principal payment on such securities having the highest priority after
interest has been paid to all classes.

The Fund may not invest in "stripped" mortgage-backed securities
(interest-only securities or principal-only securities) or in mortgage-backed
securities known as "inverse floaters."

Adjustable Rate Mortgages. The Fund may also invest in adjustable rate
mortgage securities (ARMs), which are pass-through mortgage securities
collateralized by mortgages with adjustable rather than fixed rates. ARMs, like
fixed rate mortgages, have a specified maturity date, and the principal amount
of the mortgage is repaid over the life of the mortgage. Unlike

25
<PAGE> 122

fixed rate mortgages, the interest rate on ARMs is adjusted at regular intervals
based on a specified, published interest rate "index" such as a Treasury rate
index. The new rate is determined by adding a specific interest amount, the
"margin," to the interest rate of the index. Investment in ARM securities allows
the Fund to participate in changing interest rate levels through regular
adjustments in the coupons of the underlying mortgages, resulting in more
variable current income and lower price volatility than longer-term fixed rate
mortgage securities. ARM securities are a less effective means of locking in
long-term rates than fixed rate mortgages since the income from rate mortgages
will increase during periods of rising interest rates and decline during periods
of falling rates.

Private Mortgage Pass-Through Securities. Private mortgage pass-through
securities are structured similarly to the GNMA, FNMA and FHLMC mortgage
pass-through securities and are issued by originators of and investors in
mortgage loans, including depository institutions, mortgage banks, investment
banks and special purpose subsidiaries of the foregoing. These securities
usually are backed by a pool of conventional fixed rate or adjustable rate
mortgage loans. Since private mortgage pass-through securities typically are not
guaranteed by an entity having the credit status of GNMA, FNMA and FHLMC, these
securities generally are structured with one or more types of credit enhancement
to make them more secure, which may be through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of those
approaches. The Fund may invest in private mortgage pass-through securities only
if they are rated AA/Aa (S&P/Moody's) or above.

Special Risks Of Mortgage-Backed Securities. Mortgage-backed securities
have certain different characteristics than traditional debt securities. As a
result of the risks associated with these securities, the Fund could realize a
loss by investing in them, regardless of their rating or their credit
enhancement features.

Among the major differences between mortgage-backed securities and
traditional debt securities are that on mortgage-backed securities, interest and
principal payments are made more frequently, usually monthly, and principal may
be prepaid at any time because the underlying mortgage loans or other assets
generally may be prepaid at any time, usually without penalty. Changes in the
rate of prepayments will generally affect the yield to maturity of the security.
Moreover, when the holder of the security attempts to reinvest prepayments of
principal and interest, it may receive a rate of interest that is higher or
lower than the rate on the mortgage-backed securities originally held. To the
extent that mortgage-backed securities are purchased at a premium, mortgage
foreclosures and principal prepayments may result in a loss to the extent of the
premium paid. If such securities are bought at a discount, both scheduled
payments of principal and unscheduled prepayments will increase current and
total returns and will accelerate the recognition of income which, when
distributed to shareholders, will be taxable as ordinary income.

Mortgage-backed securities, like all fixed-income securities, generally
decrease in value as a result of increases in interest rates. In addition,
although generally the value of fixed-income securities increases during periods
of falling interest rates and decreases during periods of rising

26
<PAGE> 123

interest rates, as a result of prepayments and other factors, this is not always
the case with respect to mortgage-backed securities.

Although the extent of prepayments on a pool of mortgage loans depends
on various economic and other factors, as a general rule, prepayments on fixed
rate mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Accordingly, during a period
of declining rates, the Fund is likely to have greater amounts to reinvest as a
result of prepayments and is likely to have to reinvest those amounts at lower
interest rates than during a period of rising interest rates. Mortgage-backed
securities generally decrease in value as a result of increases in interest
rates and may benefit less than other fixed-income securities from declining
interest rates because of the risk of prepayment.

The Fund may invest in mortgage derivative securities, such as CMOs,
the average life of which is determined using mathematical models that
incorporate prepayment assumptions and other factors that involve estimates of
future economic and market conditions. These estimates may vary from actual
future results, particularly during periods of extreme market volatility. In
addition, under certain market conditions, the average weighted life of mortgage
derivative securities may not accurately reflect the price volatility of such
securities. For example, in periods of supply and demand imbalances in the
market for such securities and/or in periods of sharp interest rate movements,
the prices of mortgage derivative securities may fluctuate to a greater extent
than would be expected from interest rate movements alone.

The Fund's investments in mortgage derivative securities also subject
the Fund to extension risk. Extension risk is the possibility that rising
interest rates may cause prepayments to occur at a slower than expected rate.
This particular risk may effectively change a security which was considered
short or intermediate-term at the time of purchase into a long-term security.
Long-term securities generally fluctuate more widely in response to changes in
interest rates than short or intermediate-term securities.

In addition, CMOs and other mortgage-backed securities issued by
private entities are not U.S. government securities and are not guaranteed by
any government agency, although the pool of securities underlying a privately
issued mortgage-backed security may be subject to a guarantee. Therefore, if the
collateral securing a privately issued mortgage-backed security held by the
Fund, in addition to any third party credit support or guarantees, is
insufficient to make payment, the Fund could sustain a loss on its investment in
that security. However, as stated above, the Fund will invest in CMOs and other
mortgage-backed securities issued by private entities only if they are rated
AA/Aa (S&P/Moody's) or above.

Asset-Backed Securities. The Fund may also invest in asset-backed
securities. Asset-backed securities are securities that represent direct or
indirect participation in, or are secured by and payable from, assets other than
mortgage-backed assets, such as motor vehicle installment sales contracts,
installment loan contracts, leases of various types of real and personal
property and receivables from revolving credit agreements (credit cards).
Asset-backed securities have yield characteristics similar to those of
mortgage-backed securities and are subject to many of the same risks. See the
subheading "Special Risks of Mortgage-Backed Securities" above for a discussion
of those risks. In addition, asset-backed securities involve certain risks that
are not

27
<PAGE> 124

posed by mortgage-backed securities, since asset-backed securities do not
usually contain the complete benefit of a security interest in the related
collateral. For example, credit card receivables generally are unsecured and the
debtors are entitled to the protection of a number of state and federal consumer
credit laws, including the bankruptcy laws, some of which may reduce the ability
to obtain full payment. In the case of automobile receivables, due to various
legal and economic factors, proceeds for repossessed collateral may not always
be sufficient to support payments on these securities. New instruments and
variations of existing mortgage-backed securities and asset-backed securities
continue to be developed. The Fund may invest in any such instruments or
variations as may be developed, to the extent consistent with its investment
objective and policies and applicable legal requirements.

MANAGEMENT OF THE FUND

TRUSTEES AND OFFICERS

NAME, ADDRESS AND AGE POSITIONS HELD WITH TRUST PRINCIPAL OCCUPATION

<S> <C> <C>
Patrick S. Adams* President, CEO, Trustee, President and Director, Choice Investment
DOB: 1960 Chairman of the Board Management, LLC, since August, 1999. Senior Vice
5299 DTC Boulevard President to Berger Associates, Executive Vice
Englewood, Colorado 80111 President and portfolio manager of the Berger
100 Fund, President and portfolio manager of the Berger
IPT-100 Fund, President and co-portfolio manager of the Berger
IPT-Growth and Income Fund and Executive Vice President and
co-portfolio manager of the Berger Growth and Income Fund
since February 1997. President and co-portfolio manager of the
Berger Balanced Fund from August 1997, and President and
portfolio manager of the Berger Select Fund from December 31,
1997 until April 1999. Senior Vice President from June 1996 to
January 1997 with Zurich Kemper Investments. Portfolio manager
from
</TABLE>

28
<PAGE> 125

<TABLE>

<S> <C> <C>
March 1993 to May 1996 with Founders Asset Management, Inc.

Gerard M. Lavin Trustee President and a director of Berger 100 Fund and
DOB: 1942 Berger Growth and Income Fund, and President and
5299 DTC Boulevard a trustee of Berger Investment Portfolio Trust
Englewood, Colorado 80111 and Berger Omni Investment Trust from February
1997 through May 1999. President and a trustee of Berger/BIAM
Worldwide Portfolios Trust and Berger/BIAM Worldwide Funds
Trust from May 1996 through May 1999. President and a trustee
of Berger Institutional Products Trust from October 1995
through May 1999. President and a director of Berger
Associates, Inc. from April 1995 to May 1999. Member and
Chairman of the Board of Managers and Chief Executive Officer
on the Management Committee of BBOI Worldwide LLC from November
1996 to May 1999. A Vice President of DST Systems, Inc.
(data processing) from July 1995 to February 1998 President and
Chief Executive Officer of Investors Fiduciary Trust Company
(banking) from February 1992 to March 1995.

Dr. Richard A. Hathaway Trustee Physician with Colorado Permanente since 1992.
DOB: 1961 Dr. Hathaway is a board certified orthopedic
2045 Franklin Street surgeon.
Denver, Colorado 80205

Christelle C. Beck Treasurer Director of Choice Investment Management, LLC
DOB: 1948 since August 1999. Has maintained private law
250 Arapahoe Ave., Ste. 301 practice since March 1993.
Boulder, Colorado 80302

Sharon E. Adams Secretary Vice President of Choice Investment Management, LLC
DOB: 1963 since August 1999. Full-time homemaker from
5299 DTC Boulevard 1993 until August 1999. Account executive -
Englewood, Colorado 80111 outside sales for Sprint from 1990 to 1993.
Sales manager for Allnet Communications from 1989
to 1990.
</TABLE>

The Trustees of the Trust who are officers of the Adviser receive no
remuneration from the Fund. Each of the other Trustees will be paid an annual
retainer fee of $2,500, will be paid

29
<PAGE> 126

the sum of $1000 per meeting attended, and will be reimbursed for the expenses
of attending meetings.

COMPENSATION TABLE (a)

AGGREGATE COMPENSATION FROM TOTAL COMPENSATION FROM
NAME OF PERSON TRUST TRUST PAID TO TRUSTEES
-------------- ----- ----------------------
--------------

<S> <C> <C>
Patrick S. Adams $0 $0
Gerard M. Lavin $6,500 $6,500
Dr. Richard A. Hathaway $6,500 $6,500
</TABLE>

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of October 1, 1999, Patrick S. Adams and Sharon E. Adams jointly
owned all of the outstanding shares of the Fund. It is contemplated that soon
after the initial public offering of shares of the Fund, the Adams' ownership of
the shares of the Fund will represent less than 25% of the Fund's outstanding
shares.

INVESTMENT ADVISORY AND OTHER SERVICES

30
<PAGE> 127
by the vote of a majority of the Trustees who are not parties to the Investment
Advisory Agreement or interested persons of any such party on September 30, 1999
and by the initial shareholder of the Fund on September 30, 1999. The Investment
Advisory Agreement is terminable without penalty on 60 days' written notice by
the Trustees, by vote of a majority of a Fund's outstanding voting securities,
or by the Adviser, and will terminate automatically in the event of its
assignment.

As compensation for its services, the Fund pays to the Adviser an
advisory fee at the annual rate of 0.75% of its average daily net assets. The
advisory fee is accrued daily and paid monthly.

For the fiscal year ending October 31, 2000, the Adviser has agreed to
waive its management fees and/or reimburse the Fund's operating expenses to the
extent necessary to ensure that the total annual operating expenses for the Fund
will not exceed 2.0% of its average daily net assets. After such time, the
Adviser may from time to time voluntarily waive all or a portion of its
management fee. Unless extended by the Adviser, after October 31, 2000, the
waiver may be terminated at any time in the Adviser's discretion. Reimbursement
of expenses in excess of the applicable limitation will be made on a monthly
basis and will be paid to the Fund by reducing the Adviser's fee, subject to
later adjustment, month by month, for the remainder of the Fund's fiscal year.
The Adviser may from time to time voluntarily absorb expenses for the Fund in
addition to the reimbursement of expenses in excess of the foregoing.

31
<PAGE> 128

and Fund Accounting Agreement dated October 31, 1999 (the "Administration
Agreement"). Sunstone's services include, but are not limited to, the following:
calculating daily net asset values for the Fund; overseeing the Fund's
Custodian; assist in preparing and filing all federal income and excise tax
filings (other than those to be made by the Fund's Custodian); overseeing the
Fund's fidelity insurance relationships; participating in the preparation of the
Fund's registration statement; preparing notice and renewal securities filings
pursuant to state securities laws; compiling data for and preparing notices to
the SEC; preparing financial statements for the annual and semi-annual reports
to the SEC and current investors; monitoring the Fund's expenses; monitoring the
Fund's status as a regulated investment company under Subchapter M of the Code;
monitoring compliance with the Fund's investment policies and restrictions and
generally assisting the Fund's administrative operations.

32
<PAGE> 129

transmitting proxy statements, annual reports, updated prospectuses and other
communications regarding the Fund and other related services as the Fund may
request.

CUSTODIAN. UMB Bank, n.a. (the "Custodian") serves as the custodian for
the Fund. Under the terms of the Custody Agreement, the Custodian is responsible
for the receipt and delivery of the Fund's securities and cash. The Custodian
does not exercise any supervisory functions over the management of the Fund or
the purchase and sale of securities.

LEGAL COUNSEL. Stradley, Ronon, Stevens & Young, LLP, with offices at
2600 One Commerce Square, Philadelphia, Pennsylvania 19103, serves as counsel to
the Fund.

DISTRIBUTION OF SHARES

33
<PAGE> 130

who have no direct or indirect financial interest in the Plan or any agreement
related thereto (the "Rule 12b-1 Trustees") or by a vote of a majority of the
Trust's outstanding shares. Any change in the Plan that would materially
increase the distribution expenses of the Fund provided for in the Plan requires
approval of the shareholders and the Board of Trustees, including the Rule 12b-1
Trustees.

PORTFOLIO TRANSACTIONS AND BROKERAGE

34
<PAGE> 131

value, they are considered supplemental to its own efforts in the performance of
its duties. Other clients of the Adviser may indirectly benefit from the
availability of these services to the Adviser, and the Fund may indirectly
benefit from services available to the Adviser as a result of transactions for
other clients. The Adviser is authorized to pay to a broker or dealer who
provides such brokerage and research services a commission for executing a
portfolio transaction for the Fund which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if, but only if, the Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer viewed in terms of that particular
transaction or in terms of the overall responsibilities the Adviser has to the
Fund. In no instance, however, will portfolio securities be purchased from or
sold to the Adviser, or any affiliated person of either the Trust or the
Adviser, acting as principal in the transaction, except to the extent permitted
by the Securities and Exchange Commission through rules, regulations, decisions
and no-action letters.

35
<PAGE> 132

involved. In some instances, this procedure may adversely affect the size of the
position obtainable for the Fund or the amount of the securities that are able
to be sold for the Fund.

CAPITAL STRUCTURE

36
<PAGE> 133

Trustee, and to assist in communications with other shareholders as required by
Section 16(c) of the Investment Company Act.

TAXES

Some debt securities may be purchased by the Fund at a discount that
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market

37
<PAGE> 134

discount for federal income tax purposes. The gain realized on the disposition
of any taxable debt security having market discount generally will be treated as
ordinary income to the extent it does not exceed the accrued market discount of
such debt security. Generally, market discount accrues on a daily basis for each
day the debt security is held by the Fund at a constant rate over the time
remaining to the debt security's maturity or, at the election of the Fund, at a
constant yield to maturity which takes into account the semi-annual compounding
of interest.

38
<PAGE> 135

for the taxable year in which the losses are realized. In addition, certain
carrying charges (including interest expense) associated with positions in a
straddle may be required to be capitalized rather than deducted currently.
Certain elections that the Fund may make with respect to its straddle positions
may also affect the amount, character and timing of the recognition of gains or
losses from the affected positions.

39
<PAGE> 136

PASSIVE FOREIGN INVESTMENT COMPANIES. The Fund may invest in shares of
foreign corporations that may be classified under the Code as passive foreign
investment companies ("PFICs"). In general, a foreign corporation is classified
as a PFIC if at least one-half of its assets constitute investment-type assets,
or 75% or more of its gross income is investment-type income. If the Fund
receives a so-called "excess distribution" with respect to PFIC stock, the Fund
itself may be subject to a tax on a portion of the excess distribution, whether
or not the corresponding income is distributed by the Fund to shareholders. In
general, under the PFIC rules, an excess distribution is treated as having been
realized ratably over the period during which the Fund held the PFIC shares. The
Fund itself will be subject to tax on the portion, if any, of an excess
distribution that is so allocated to prior Fund taxable years and an interest
factor will be added to the tax, as if the tax had been payable in such prior
taxable years. Certain distributions from PFIC as well as gain from the sale of
PFIC shares are treated as excess distributions. Excess distributions are
characterized as ordinary income even though, absent application of the PFIC
rules, certain distributions might have been classified as capital gain.

40
<PAGE> 137

Dividends and other distributions declared by the Fund in, and payable
to shareholders of record as of a date in, October, November or December of any
year will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during January of the following calendar year. Accordingly, those
distributions will be taxed to shareholders for the year in which that December
31 falls.

OTHER TAXATION. Distributions may also be subject to additional state,
local and foreign taxes depending on each shareholder's particular situation.
Non-U.S. shareholders may

41
<PAGE> 138

be subject to U.S. tax rules that differ significantly from those summarized
above. This discussion does not address all of the tax consequences applicable
to the Fund or shareholders, and shareholders are advised to consult their own
tax advisers with respect to the particular tax consequences to them of an
investment in the Fund.

PURCHASE, REDEMPTION AND PRICING OF SHARES

42
<PAGE> 139

For purposes of determining the net asset value per share of the Fund,
all assets and liabilities initially expressed in foreign currencies will be
converted into U.S. dollars at the mean between the bid and offer prices of such
currencies against U.S. dollars furnished by a pricing service approved by the
Trustees.

43
<PAGE> 140

of its net assets; or (3) for such other periods as the Securities and Exchange
Commission may by order permit for the protection of the Fund's shareholders.

PERFORMANCE INFORMATION

P(1 + T)N = ERV

Where: T = average annual total return.

ERV = ending redeemable value at the end of the period covered
by the computation of a hypothetical $1,000 payment made at
the beginning of the period.

P = hypothetical initial payment of $1,000.

N = period covered by the computation, expressed in terms of years.

44
<PAGE> 141

Evaluations of Fund performance made by independent sources may also be
used in advertisements concerning the Fund, including reprints of or selections
from, editorials or articles about the Fund. Sources for Fund performance and
articles about the Fund may include publications such as Money, Forbes,
Kiplinger's, Financial World, Business Week, U.S. News and World Report, the
Wall Street Journal, Barron's and a variety of investment newsletters.

45
<PAGE> 142

MISCELLANEOUS

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

46
<PAGE> 143

FINANCIAL STATEMENTS

The following financial statements have been audited and are attached
hereto:

1. Report of Independent Public Accountants
2. Statement of Assets and Liabilities
3. Statement of Operations
4. Notes to the Financial Statements

47
<PAGE> 144

APPENDIX A

Commercial Paper Ratings

"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."

"A-2" - Issue's capacity for timely payment is satisfactory. However, the
relative degree of safety is not as high as for issues designated "A-1."

A-1

<PAGE> 145

"Duff 1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.

"Duff 1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.

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

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

Fitch may also use the symbol "LOC" with its short-term ratings to indicate that
the rating is based upon a letter of credit issued by a commercial bank.

"TBW-1" - This designation represents Thomson BankWatch's highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.

A-2

<PAGE> 146

"A1" - Obligations are supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit feature, a rating
of A1+ is assigned.

"A2" - Obligations are supported by a good capacity for timely repayment.

Corporate Long-Term Debt Ratings

STANDARD & POOR'S DEBT RATINGS

The ratings are based, in varying degrees, on the following
considerations:

1. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and repayment of
principal in accordance with the terms of the obligation.

2. Nature of and provisions of the obligation.

A-3

<PAGE> 147

INVESTMENT GRADE

AAA - Debt rated `AAA' has the highest rating assigned by Standard &
Poor's. 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 highest rated issues only in small degree.

SPECULATIVE GRADE

A-4

<PAGE> 148

CC - Debt rated `CC' typically is applied to debt subordinated to senior
debt that is assigned an actual or implied `CCC' rating.

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

MOODY'S LONG-TERM DEBT RATINGS

A-5

<PAGE> 149

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

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

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

FITCH INVESTORS SERVICE, INC. BOND RATINGS

Fitch ratings do not reflect any credit enhancement that may be provided
by insurance policies or financial guaranties unless otherwise indicated.

Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.

A-6

<PAGE> 150

A-7

<PAGE> 151

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

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

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

DUFF & PHELPS, INC. LONG-TERM DEBT RATINGS

A-8

<PAGE> 152