CALIFORNIA INVESTMENT TRUST II
485BPOS, 2000-12-29
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As filed with the Securities and Exchange Commission on December 29, 2000
                                                             File Nos. 033-00500
                                                                       811-04418

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM N-1A
             Registration Statement Under the Securities Act of 1933
                         Post-Effective Amendment No. 31
                                       and
         Registration Statement Under the Investment Company Act of 1940
                                Amendment No. 33

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

                         CALIFORNIA INVESTMENT TRUST II
             (Exact Name of Registrant as Specified in its Charter)

        44 Montgomery Street, Suite 2100, San Francisco, California 94104
                     (Address of Principal Executive Office)

                  Registrant's Telephone Number: (415) 398-2727

                                STEPHEN C. ROGERS
        44 Montgomery Street, Suite 2100, San Francisco, California 94104
                     (Name and Address of Agent for Service)

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

It is proposed that this filing will become effective:
___ immediately upon filing pursuant to Rule 485(b)
_X_ on December 31, 2000 pursuant to Rule 485(b)
___ 60 days after filing pursuant to Rule 485(a)(1)
___ 75 days after filing pursuant to Rule 485(a)(2)
___ on (date) pursuant to Rule 485(a)

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

                     Please Send Copy of Communications to:

                               JULIE ALLECTA, ESQ.
                      Paul, Hastings, Janofsky & Walker LLP
                       345 California Street - 29th Floor
                         San Francisco, California 94104
                            Telephone: (415) 835-1600

<PAGE>

                         CALIFORNIA INVESTMENT TRUST II

                      CONTENTS OF POST-EFFECTIVE AMENDMENT

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

     Facing Sheet

     Contents of Post-Effective Amendment

     Part A -  Combined  prospectus  for  shares of U.S.  Government  Securities
               Fund, The United States Treasury  Trust,  S&P 500 Index Fund, S&P
               MidCap Index Fund, S&P SmallCap  Index Fund,  Equity Income Fund,
               European Growth & Income Fund,  Nasdaq-100 Index Fund, Short-Term
               U.S. Government Bond Fund and series of another Registrant.

     Part B -  Statement of Additional Information for shares of U.S. Government
               Securities  Fund, The United States Treasury Trust, S&P 500 Index
               Fund,  S&P MidCap  Index Fund,  S&P SmallCap  Index Fund,  Equity
               Income  Fund,  European  Growth & Income Fund,  Nasdaq-100  Index
               Fund,  Short-Term U.S. Government Bond Fund and series of another
               Registrant.

     Part C -  Other Information

     Signature page

     Exhibits

<PAGE>

                         CALIFORNIA INVESTMENT TRUST II

                                    FORM N-1A

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

<PAGE>

                                   CALIFORNIA
                                INVESTMENT TRUST
                               ------------------
                               F U N D  G R O U P

PROSPECTUS
January 1, 2001

     CALIFORNIA TAX-FREE INCOME FUND
     CALIFORNIA INSURED INTERMEDIATE FUND
     CALIFORNIA TAX-FREE MONEY MARKET FUND


     S&P 500 INDEX FUND
     S&P MIDCAP INDEX FUND
     S&P SMALLCAP INDEX FUND
     EQUITY INCOME FUND
     NASDAQ-100 INDEX FUND
     EUROPEAN GROWTH & INCOME FUND

     U.S. GOVERNMENT SECURITIES FUND
     SHORT-TERM U.S. GOVT. BOND FUND
     THE UNITED STATES TREASURY TRUST


                                 (800) 225-8778
                                www.caltrust.com

The Funds are not bank deposits and are not  guaranteed,  endorsed or insured by
any  financial  institution  or  government  entity such as the Federal  Deposit
Insurance Corporation (FDIC).

As with all  mutual  funds,  the  Securities  and  Exchange  Commission  has not
approved  these  securities  or  passed  on  whether  the  information  in  this
prospectus is adequate or accurate. Anyone who indicates otherwise is committing
a criminal offense.

                                                  THE
                                                    CALIFORNIA
                                                      FUNDS
                                                        Opportunities since 1985

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

e-mail us at [email protected]

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

<PAGE>

                                   CALIFORNIA
                                INVESTMENT TRUST
                               ------------------
                               F U N D  G R O U P

PROSPECTUS
January 1, 2001

TABLE OF CONTENTS
-----------------

ABOUT THE FUNDS

     California Tax-Free Income Fund                                           1
     California Insured Intermediate Fund                                      5
     California Tax-Free Money Market Fund                                     9


     S&P 500 Index Fund                                                       13
     S&P MidCap Index Fund                                                    18
     S&P SmallCap Index Fund                                                  23
     Equity Income Fund                                                       28
     Nasdaq-100 Index Fund                                                    32
     European Growth & Income Fund                                            36

     U.S. Government Securities Fund                                          40
     Short-Term U.S. Govt. Bond Fund                                          44
     The United States Treasury Trust                                         47


INVESTING IN THE FUNDS

     Buying Shares                                                            52
     Selling and Exchanging Shares                                            58
     Other Policies                                                           61
     Dividends and Taxes                                                      63

<PAGE>

--------------------------------------------------------------------------------
CALIFORNIA TAX-FREE INCOME FUND
Ticker Symbol: CFNTX
--------------------------------------------------------------------------------

GOAL

Seek high current tax-free income for California residents.

The California Tax-Free Income Fund seeks as high a level of income, exempt from
regular  federal and California  personal  income taxes,  as is consistent  with
prudent  investment  management  and  safety of  capital.  The Fund  invests  in
intermediate and long-term municipal bonds.

STRATEGY


The Manager will invest in municipal bonds issued by the State of California and
various  municipalities  located  within the state.  Generally,  these bonds are
rated in one of the four highest  ratings  (investment  grade) by an independent
rating organization such as Standard & Poor's,  Moody's or Fitch. In some cases,
securities  are not rated by  independent  agencies.  The Manager will generally
purchase  an unrated  security  only if it believes  the  security is of similar
quality to an investment-grade issue. Generally, the interest on municipal bonds
is not subject to federal and  California  personal  income taxes.  Under normal
circumstances,  it is the  Fund's  policy  to  invest  at least 80% of its total
assets in California  municipal  bonds,  but as a general rule the percentage is
much higher. The Fund's duration ranges from four to twelve years.


WHAT IS THE MANAGER'S APPROACH?


The Manager  tries to select  securities  that it believes will provide the best
balance   between  risk  and  return   within  the  Fund's  range  of  allowable
investments.  The Fund is actively  managed for total  return.  In managing  the
portfolio,  a number of factors  are  considered  including  general  market and
economic  conditions and their likely effects on the level and term-structure of
interest rates, yield spreads among securities,  and the credit type and quality
of the issuer.  Tax-free income to shareholders is achieved through the purchase
of  municipal  bonds that are not  subject to federal  and  California  personal
income taxes. No bonds subject to alternative  minimum taxes are included in the
portfolio.  While income is the greatest  portion of return over time, the total
return  from a municipal  security  includes  both  income and price  losses and
gains.


1
<PAGE>

MAIN RISKS

The Fund is subject to several risks,  any of which could cause the Fund to lose
money. The Fund is considered  non-diversified which means it may invest a large
percentage of its assets in the  securities  of a particular  issuer as compared
with other types of mutual funds.  Accordingly,  a chance exists that the Fund's
performance may be hurt  disproportionately  by poor performance of a relatively
few number of securities. The Fund is also subject to:

Interest  rate risk,  which is the chance that bond prices over all will decline
over short and long-term  periods due to rising interest rates. The Manager will
generally  maintain a longer  maturity in this Fund  relative to the  California
Insured  Intermediate  Fund (our other municipal bond fund).  Thus, the interest
rate risk is higher in this Fund than the other  Fund.  The  California  Insured
Intermediate Fund is discussed in detail on page 5.

State  Specific  risk,  which is the chance that the Fund is more  vulnerable to
unfavorable  economic  and  political  developments  that  impact  the  State of
California than funds that diversify across many states.

Income risk,  which is the chance that declining  interest rates will reduce the
amount of income paid by the Fund.

OTHER RISKS OF THE FUND

Call risk,  which is the chance that during  declining  interest  rates,  a bond
issuer will call or prepay a high-yielding bond before the bond's maturity date.
This would force the Fund to purchase  lower  yielding  bonds which would reduce
the income generated from the portfolio and could potentially  result in capital
gains paid out by the Fund.

Credit  risk,  which is the chance that a bond issuer will fail to pay  interest
and  principal  in a timely  manner,  reducing  the Fund's  return.  The manager
attempts to minimize this risk by investing in investment grade bonds.

Manager risk,  which is the chance that poor security  selection  will cause the
Fund to under perform other mutual funds with similar investment objectives.

IS THIS FUND RIGHT FOR YOU?

This Fund is intended  primarily for residents of California  but may be held by
residents  of other  states.  If you are  looking  for  tax-free  income and are
comfortable with the moderate volatility of a long-term bond fund, this Fund may
be the right investment for you.  Generally,  this Fund will fluctuate more than
our other tax-free Funds, but will pay a higher rate of dividends.

                                                                               2
<PAGE>

PERFORMANCE

Below are a chart and a table showing the variability of the Fund's  performance
from  year to year.  The  table  compares  the  performance  of the Fund  with a
benchmark index. These figures assume that all distributions are reinvested.  It
is important  to remember  that past  performance  does not  accurately  predict
future performance.

[GRAPHIC OMITTED]


 1990    1991    1992    1993    1994    1995    1996    1997    1998    1999
 6.73%  12.11%   8.81%  14.77%  -8.63%  20.55%   3.10%   9.29%   6.32%  -3.57%

Best Quarter:   11.11% (Q1, 1986)      Worst Quarter:   -7.42% (Q1, 1994)
Year to date performance as of 11/30/00:  9.36%

AVERAGE ANNUAL RETURNS AS OF 12/31/99    1  year   5 years   10 years
                                         -------   -------   --------
California Tax-Free Income Fund           -3.58%     6.85%     6.64%
Lehman Municipal Bond Index               -2.07%     6.91%     6.78%
Date of inception: 12/4/85


FUND FEES & EXPENSES

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


--------------------------------------------------------------------------------
SHAREHOLDER FEES
   Sales and redemption charges                        NONE
ANNUAL FUND OPERATING EXPENSES
     (expenses that are deducted from Fund assets)
   Management fees                                    0.48%
   Distribution (12b-1) fees                           NONE
   Other expenses                                     0.16%
                                                      -----
TOTAL ANNUAL FUND OPERATING EXPENSE                   0.64%
--------------------------------------------------------------------------------


This  example is intended to help you compare the cost of  investing in the Fund
with the cost of investing in other mutual funds.

The example  assumes  that you invest  $10,000 in the Fund for the time  periods
indicated and then redeem all of your shares at the end of those periods. The

3
<PAGE>

example also assumes that your investment has a 5% return each year and that the
Fund's  operating  expenses  remain the same.  Although your actual costs may be
higher or lower, based on these assumptions your costs would be:


          1 year     3 years     5 years     10 years
            $65        $205        $357        $798


FINANCIAL HIGHLIGHTS

The financial  highlights  table is intended to help you  understand  the Fund's
financial  performance for the past 5 fiscal years. Certain information reflects
financial  results  for a single  Fund  share.  The total  returns  in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming  reinvestment  of all dividends and  distributions).  This
information  has been audited by Tait Weller & Baker,  whose report,  along with
the Fund's  financial  statements  are included in the Annual  Report,  which is
available upon request.

<TABLE>

<CAPTION>
                                                                     Year Ended August 31,
                                              -----------------------------------------------------------------
CALIFORNIA TAX-FREE INCOME FUND                  2000          1999          1998          1997          1996
---------------------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>           <C>           <C>           <C>
Net asset value, beginning of year ........   $   12.40     $   13.18     $   12.86     $   12.31     $   12.22
                                              -----------------------------------------------------------------
   INCOME FROM INVESTMENT
    OPERATIONS
   Net investment income ..................        0.55          0.56          0.58          0.60          0.62
   Net gain (loss) on securities
      (both realized and unrealized) ......        0.41         (0.68)         0.51          0.54          0.09
                                              -----------------------------------------------------------------
         Total from investment operations .        0.96         (0.12)         1.09          1.14          0.71
                                              -----------------------------------------------------------------
   LESS DISTRIBUTIONS
   Dividends from net investment income ...       (0.55)        (0.57)        (0.58)        (0.59)        (0.62)
   Distribution from capital gains ........       (0.06)        (0.09)        (0.19)         .---          .---
                                              -----------------------------------------------------------------
         Total distributions ..............       (0.61)        (0.66)        (0.77)        (0.59)        (0.62)
                                              -----------------------------------------------------------------
Net asset value, end of year ..............   $   12.75     $   12.40     $   13.18     $   12.86     $   12.31
                                              =================================================================

Total return ..............................        8.07%        (1.07)%        8.75%         9.48%         5.40%

RATIOS/SUPPLEMENTAL DATA
   Net assets, end of year (in 000's) .....   $ 196,786     $ 200,946     $ 225,507     $ 212,198     $ 194,926
   Ratio of expenses to average net assets:
      Before expense reimbursements .......        0.64%         0.61%         0.61%         0.59%         0.60%
      After expense reimbursements ........        0.64%         0.61%         0.61%         0.59%         0.60%
   Ratio of net investment income
   to average net assets:
      Before expense reimbursements .......        4.54%         4.33%         4.47%         4.75%         4.96%
      After expense reimbursements ........        4.54%         4.33%         4.47%         4.75%         4.96%
Portfolio Turnover ........................       18.05%        16.36%        20.95%        34.96%        10.34%
</TABLE>


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

                                                                               4
<PAGE>

--------------------------------------------------------------------------------
CALIFORNIA INSURED INTERMEDIATE FUND
Ticker Symbol: CATFX
--------------------------------------------------------------------------------

GOAL

Seek high current tax-free income for California residents.

The California Insured  Intermediate Fund seeks as high a level of income exempt
from regular federal and California  personal income taxes as is consistent with
prudent investment  management and safety of capital. The Fund invests primarily
in municipal  securities that are covered by insurance  guaranteeing  the timely
payment of principal and interest.

STRATEGY


The Manager will invest in municipal bonds issued by the State of California and
various  municipalities  located  within the state.  Generally,  these bonds are
rated AAA (the highest  rating) by an independent  rating  organization  such as
Standard & Poor's,  Moody's or Fitch and are insured by an independent insurance
company.  Some  securities  are  not  rated  by  independent  agencies  but  are
considered  AAA because of the insurance on the bond.  The insurance  guarantees
the timely principal and interest  payments of the bond, but does not insure the
Fund.  The interest on the  municipal  bonds is generally not subject to federal
and California  personal  income taxes.  Under normal  circumstances,  it is the
Fund's policy to invest at least 80% of its total assets in California municipal
bonds, but as a general rule the percentage is much higher.  The Fund's duration
ranges from two to seven years.


WHAT IS THE MANAGER'S APPROACH?


The Manager  tries to select  securities  that it believes will provide the best
balance   between  risk  and  return   within  the  Fund's  range  of  allowable
investments.  The Fund is actively  managed for total  return.  In managing  the
portfolio,  a number of factors are  considered,  including  general  market and
economic  conditions and their likely effects on the level and term-structure of
interest rates,  yield spreads among securities,  and the underlying credit type
and quality of the issuer.  Tax-free income to shareholders is achieved  through
purchase  of  municipal  bonds that are not  subject to federal  and  California
personal  income  taxes.  No bonds  subject  to  alternative  minimum  taxes are
included in the portfolio.  While income is the greatest  portion of return over
time, the total return from a municipal  security includes both income and price
losses and gains.


5
<PAGE>

MAIN RISKS

The Fund is subject to several risks,  any of which could cause the Fund to lose
money. The Fund is considered  non-diversified which means it may invest a large
percentage of its assets in the  securities  of a particular  issuer as compared
with other types of mutual funds.  Accordingly,  a chance exists that the Fund's
performance may be hurt  disproportionately  by poor performance of a relatively
few number of securities. The Fund is also subject to:

Interest  rate risk,  which is the chance that bond prices  overall will decline
over short and long-term  periods due to rising  interest  rates.  Interest rate
risk  is  usually  moderate  for  intermediate-term  bonds.  We also  offer  the
California  Tax-Free  Income Fund for investors who want tax-free income and are
more comfortable with interest rate risk. The California Tax-Free Income Fund is
discussed in detail on page 1.

State  Specific  risk,  which is the chance that the Fund is more  vulnerable to
unfavorable  economic  and  political  developments  that  impact  the  State of
California than mutual funds that diversify across many states.

Income risk,  which is the chance that declining  interest rates will reduce the
amount of income paid by the Fund.

OTHER RISKS OF THE FUND

Call risk,  which is the chance that during  declining  interest rates, the bond
issuer will call or prepay a high-yielding bond before the bond's maturity date.
This would force the Fund to purchase  lower  yielding  bonds which would reduce
the income generated from the portfolio and could potentially  result in capital
gains paid out by the Fund.

Credit  risk,  which is the chance that a bond issuer will fail to pay  interest
and  principal  in a timely  manner,  reducing the Fund's  return.  This risk is
moderated by the bond insurance which guarantees timely payment of principal and
interest.  It is  important  to note  that the  insurance  protects  the  Fund's
holdings, not the Fund itself.

Manager risk,  which is the chance that poor security  selection  will cause the
Fund to underperform other mutual funds with similar investment objectives.

IS IT RIGHT FOR YOU?

This Fund is intended primarily for residents of California.  If you are looking
for  tax-free  income and are  comfortable  with the moderate  volatility  of an
intermediate-term  bond  fund,  this Fund may be the right  investment  for you.
Generally,  this Fund will fluctuate less than our other tax-free bond Fund, but
will pay a lower rate of dividends.

                                                                               6
<PAGE>

PERFORMANCE

Below are a chart and a table showing the variability of the Fund's  performance
from  year to year.  The  table  compares  the  performance  of the Fund  with a
benchmark index. These figures assume that all distributions are reinvested.  It
is important  to remember  that past  performance  does not  accurately  predict
future performance.

[GRAPHIC OMITTED]


 1992*   1993    1994    1995    1996    1997    1998    1999
 1.16%  11.63%  -4.99%  14.37%   3.89%   6.39%   5.97%  -0.67%

Best Quarter:   5.64% (Q1, 1995)      Worst Quarter:   -4.85% (Q1, 1994)
Year to date performance as of 11/30/00:  6.98%

AVERAGE ANNUAL RETURNS AS OF 12/31/99                          Since
                                          1 year    5 years  Inception
                                          ------    -------  ---------
California Insured Intermediate Fund      -0.68%     5.88%     5.07%
Lehman 5 Year Muni Bond Index              0.74%     5.69%     4.94%
*Date of inception:  10/20/92


FUND FEES AND EXPENSES

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


--------------------------------------------------------------------------------
SHAREHOLDER FEES
   Sales and redemption charges                              NONE
ANNUAL OPERATING EXPENSES
   (expenses  that  are  deducted  from  Fund  assets)
   Management  fees                                         0.50%
   Distribution  (12b-1) fees                                NONE
   Other expenses                                           0.22%
                                                            -----
   Total annual operating expenses                          0.72%
   Expense reimbursement*                                   0.17%
                                                            -----
NET ANNUAL FUND OPERATING EXPENSE*                          0.55%


*    The  Manager  has  agreed  to limit the  Fund's  expenses  at  0.55%.  This
     limitation is guaranteed through 12/31/01.
--------------------------------------------------------------------------------

7
<PAGE>

This  example is intended to help you compare the cost of  investing in the Fund
with the cost of investing in other mutual funds.

The example  assumes  that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
example also assumes that your investment has a 5% return each year and that the
Fund's  operating  expenses  remain the same.  Although your actual costs may be
higher or lower, based on these assumptions your costs would be:


          1 year     3 years     5 years     10 years
            $56        $213        $384        $879


FINANCIAL HIGHLIGHTS

The financial  highlights  table is intended to help you  understand  the Fund's
financial  performance for the past 5 fiscal years. Certain information reflects
financial  results  for a single  Fund  share.  The total  returns  in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming  reinvestment  of all dividends and  distributions).  This
information  has been audited by Tait Weller & Baker,  whose report,  along with
the Fund's  financial  statements  are included in the Annual  Report,  which is
available upon request.

<TABLE>

<CAPTION>
                                                                                  Year Ended August 31,
                                                           -----------------------------------------------------------------
CALIFORNIA INSURED INTERMEDIATE FUND                          2000          1999          1998          1997          1996
----------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>           <C>           <C>           <C>           <C>
Net asset value, beginning of year .....................   $   10.54     $   10.92     $   10.72     $   10.42     $   10.49
                                                           -----------------------------------------------------------------
   INCOME FROM INVESTMENT
    OPERATIONS
   Net investment income ...............................        0.44          0.43          0.44          0.45          0.46
   Net gain (loss) on securities
      (both realized and unrealized) ...................        0.20         (0.26)         0.25          0.30         (0.07)
                                                           -----------------------------------------------------------------
   Total from investment operations ....................        0.64          0.17          0.69          0.75          0.39
                                                           -----------------------------------------------------------------
   LESS DISTRIBUTIONS
   Dividends from net investment income ................       (0.44)        (0.43)        (0.44)        (0.45)        (0.46)
   Distributions from capital gains ....................       (0.02)        (0.12)        (0.05)         --            --
                                                           -----------------------------------------------------------------
         Total distributions ...........................       (0.46)        (0.55)        (0.49)        (0.45)        (0.46)
                                                           -----------------------------------------------------------------
Net asset value, end of year ...........................   $   10.72     $   10.54     $   10.92     $   10.72     $   10.42
                                                           =================================================================
Total return ...........................................        6.25%         1.51%         6.64%         7.34%         3.75%

RATIOS/SUPPLEMENTAL DATA
   Net assets, end of year (in 000's) ..................   $  22,878     $  24,175     $  23,572     $  24,390     $  24,207
   Ratio of expenses to average net assets:
      Before expense reimbursements ....................        0.72%         0.66%         0.70%         0.70%         0.70%
      After expense reimbursements .....................        0.55%         0.55%         0.55%         0.55%         0.55%
   Ratio of net investment income to average net assets:
      Before expense reimbursements ....................        3.93%         3.85%         3.94%         4.12%         4.22%
      After expense reimbursements .....................        4.10%         3.96%         4.09%         4.27%         4.37%
Portfolio turnover .....................................       24.24%         8.38%        26.76%        32.11%        36.08%
</TABLE>


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

                                                                               8
<PAGE>

--------------------------------------------------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND
Ticker Symbol: CAXXX
--------------------------------------------------------------------------------

GOAL

Seek high current tax-free income for California  residents while  maintaining a
stable $1.00 share price.

The  California  Tax-Free  Money  Market  Fund  has the  objectives  of  capital
preservation,  liquidity,  and the highest achievable current income exempt from
regular  federal and California  personal  income taxes  consistent with safety.
This Fund invests in short-term  securities  and attempts to maintain a constant
net asset value of $1.00 per share.

STRATEGY

The Manager  invests in  high-quality,  short-term  municipal  securities  whose
interest is not subject to federal and California personal income taxes.

WHAT IS THE MANAGER'S APPROACH?

The Fund  invests  at least  80% of its  assets in a  variety  of  high-quality,
short-term California municipal  securities.  The Fund seeks to provide a stable
net asset value of $1.00 per share by investing in securities  with an effective
maturity of 13 months or less, and by maintaining an average  weighted  maturity
of 90 days or less. To be considered high-quality,  a security must generally be
rated  in one of the  two  highest  credit  quality  categories  for  short-term
securities  by at least two  nationally  recognized  rating  such as  Standard &
Poor's, Moody's or Fitch (or by one, if only one credit rating service has rated
the security).  If unrated, the security must be determined by the Manager to be
of an equivalent quality to those in the two highest credit-quality ratings.

MAIN RISKS

The Fund is subject to several risks,  any of which could cause the Fund to lose
money. The Fund is considered  non-diversified which means it may invest a large
percentage of its assets in the  securities  of  particular  issuers as compared
with  other  mutual  funds.  Accordingly,   a  chance  exists  that  the  Fund's
performance may be hurt  disproportionately  by poor performance of a relatively
few number of securities. The Fund is also subject to:

State  Specific  risk,  which is the chance that the Fund is more  vulnerable to
unfavorable  economic  and  political  developments  that  impact  the  State of
California than funds that diversify across many states.

9
<PAGE>

Interest rate risk, which is the chance that interest rates will decline and the
Fund will produce less income.  There is a chance that  dramatic  interest  rate
movements could lower the share price to a value less than one dollar.

Income risk,  which is the chance that declining  interest rates will reduce the
amount of income paid by the Fund.

Credit  risk,  which is the chance that a bond issuer will fail to pay  interest
and principal in a timely manner, reducing the Fund's return.

Manager risk,  which is the chance that poor security  selection  will cause the
Fund to underperform other mutual funds with similar investment objectives.

An investment  in the Fund is not insured or  guaranteed by the Federal  Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve  the  $1.00  share  price,  it is  possible  for you to lose  money  by
investing in the Fund.

IS IT RIGHT FOR YOU?

This Fund is intended primarily for residents of California.  If you are looking
for tax-free income and want to avoid share price fluctuation,  this Fund may be
right for you.  Investors  in this Fund do not pay  personal  income  tax on the
dividends  paid. Your investment time frame may be short or long-term in nature.
This  Fund  is  designed  as  a  cash  management  account  and  offers  a  free
checkwriting feature.

PERFORMANCE

Below are a chart and a table showing the variability of the Fund's  performance
from year to year. These figures assume that all  distributions  are reinvested.
It is important to remember that past  performance  does not accurately  predict
future performance.

Best Quarter:   1.67% (Q2, 1989)      Worst Quarter:   0.48% (Q3, 1994)
Year to date performance as of 11/30/00:  2.83%

[GRAPHIC OMITTED]


 1990    1991    1992    1993    1994    1995    1996    1997    1998    1999
 5.62%   4.23%   2.69%   2.17%   2.46%   3.38%   3.07%   3.13%   2.87%   2.58%

                                                                              10
<PAGE>

AVERAGE ANNUAL RETURNS AS OF 12/31/99     1 year    5 years    10 years
                                          ------    -------    --------
California Tax-Free Money Market Fund      2.58%     3.01%       3.22%
Date of inception: 12/4/85

Seven day yield as of 11/30/00: 3.49%


FUND FEES AND EXPENSES

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


--------------------------------------------------------------------------------
SHAREHOLDER FEES
   Sales and redemption charges                              NONE
ANNUAL OPERATING EXPENSES
   (expenses  that  are  deducted  from  Fund  assets)
   Management  fees                                         0.50%
   Distribution  (12b-1) fees                                NONE
   Other expenses                                           0.16%
                                                            -----
   Total annual operating expenses                          0.66%
   Expense reimbursement*                                   0.26%
                                                            -----
NET ANNUAL FUND OPERATING EXPENSE                           0.40%


*    The  Manager  has  limited  the Fund's  expenses  at 0.40% since the Fund's
     inception. This limitation is guaranteed through 12/31/01.
--------------------------------------------------------------------------------

This  example is intended to help you compare the cost of  investing in the Fund
with the cost of investing in other mutual funds.

The example  assumes  that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
example also assumes that your investment has a 5% return each year and that the
Fund's  operating  expenses  remain the same.  Although your actual costs may be
higher or lower, based on these assumptions your costs would be:


          1 year    3 years    5 years    10 years
            $41       $185       $342       $798


11
<PAGE>

FINANCIAL HIGHLIGHTS

The financial  highlights  table is intended to help you  understand  the Fund's
financial  performance for the past 5 fiscal years. Certain information reflects
financial  results  for a single  Fund  share.  The total  returns  in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming  reinvestment  of all dividends and  distributions).  This
information  has been audited by Tait Weller & Baker,  whose report,  along with
the Fund's  financial  statements  are included in the Annual  Report,  which is
available upon request.

<TABLE>

<CAPTION>
                                                                     Year Ended August 31,
                                              ---------------------------------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET FUND            2000          1999          1998         1997         1996
-------------------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>           <C>          <C>          <C>
Net asset value, beginning of year ........   $   1.000     $   1.000     $   1.000    $   1.000    $   1.000
                                              ---------------------------------------------------------------
   INCOME FROM INVESTMENT
    OPERATIONS
   Net investment income ..................       0.029         0.026         0.030        0.031        0.032
   LESS DISTRIBUTIONS
   Dividends from net investment income ...      (0.029)       (0.026)       (0.030)      (0.031)      (0.032)
                                              ---------------------------------------------------------------
Net asset value, end of year ..............   $   1.000     $   1.000     $   1.000    $   1.000    $   1.000
                                              ===============================================================
Total return ..............................        2.92%         2.61%         3.09%        3.09%        3.26%

RATIOS/SUPPLEMENTAL DATA
   Net assets, end of year (in 000's) .....   $ 102,848     $ 105,606     $  88,236    $  92,818    $ 103,402
   Ratio of expenses to average net assets:
      Before expense reimbursements .......        0.66%         0.61%         0.61%        0.61%        0.61%
      After expense reimbursements ........        0.40%         0.40%         0.40%        0.40%        0.40%
   Ratio of net investment income
    to average net assets:
      Before expense reimbursements .......        2.63%         2.33%         2.77%        2.86%        2.90%
      After expense reimbursements ........        2.89%         2.54%         2.98%        3.07%        3.11%
</TABLE>


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

                                                                              12
<PAGE>

--------------------------------------------------------------------------------
S&P 500 INDEX FUND
Ticker Symbol: SPFIX
--------------------------------------------------------------------------------

GOAL

Replicate  the total return of the U.S.  stock market as measured by the S&P 500
Composite Stock Price Index.

The S&P 500  Index  Fund is a  diversified  mutual  fund that  seeks to  provide
investment results that correspond to the total return of common stocks publicly
traded in the  United  States,  as  represented  by the  Standard  & Poor's  500
Composite Stock Price Index.

STRATEGY

The S&P 500 Index includes the common stocks of 500 leading U.S.  companies from
a broad range of industries.  Standard & Poor's,  the company that maintains the
index, makes all determinations  regarding the inclusion of stocks in the index.
Each stock is weighted in proportion to its total market value.

In order to meet the investment goal, the Fund is passively managed.  It invests
primarily  in the stocks  that make up the index so that the  weighting  of each
stock in the portfolio approximates the index. The Manager's goal is to maintain
a return  correlation of at least .95 to the S&P 500 Index (a return correlation
of 1.0 is  perfect).  Under  normal  circumstances,  it is the Fund's  policy to
invest at least 80% of its total assets in the  underlying  stocks of the index.
As a rule of thumb, the percentage is generally higher.

Like many  index  funds,  the Fund may  invest  in  futures  contracts  and lend
securities to minimize the performance variation between the Fund and the index.
This  performance  gap  occurs  because,  unlike  the  index,  the Fund must pay
operating expenses and contend with the

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


         SECTOR BREAKDOWNS
        as of December 2000

INDUSTRY                    % OF FUND

Capital good                   6.6%
Consumer cyclical              5.8%
Consumer non-durable          26.1%
Banking & financial service   16.0%
Utility                        8.2%
Service                        1.2%
Transportation                 1.0%
Manufacturing                  5.4%
Technology                    23.2%
Energy                         6.5%


LARGECAP STOCKS


The stocks that are  represented in the S&P 500 Index make-up about 90.7% of the
total market Index, as measured by the S&P 1500 Index.  For many investors,  the
S&P 500 Index  functions  as the  benchmark  for the entire  stock  market.  The
individual stocks that make up the index have market values ranging in size from
$155 million to $477 billion. The median market value is $8.5 billion.


The index is made up of stocks from many diverse industries.  The industry table
above gives you a general idea of the exposure to specific sectors.

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

13
<PAGE>

flow of cash in and out of the portfolio. While we expect the Fund's performance
to closely represent the index, the Fund will generally underperform the index.

MAIN RISKS

The stock  market  goes up and down  every  day.  As with any  investment  whose
performance  is linked  to these  markets,  the  value of the Fund will  change.
During a declining stock market, an investment in this Fund would lose money.

The Fund is  primarily  invested  in the U.S.  stock  market and is  designed to
passively  track the  performance  of the  LargeCap  sector.  In an  attempt  to
accurately  track the performance of the S&P 500 Index, the Fund does not intend
to take steps to reduce its market exposure in any market.

Many factors will affect the performance of the stock market.  Two major factors
are economic and  political  events.  The impact of positive or negative  events
could be  short-term  (by causing a change in the market that is  corrected in a
year or less) or long-term  (by causing a change in the market that may last for
many years).  Events may affect one sector of the economy or a single stock, but
may not have a significant impact on the overall market.

The Fund invests in large companies from many sectors.  In doing so, the Fund is
not as  sensitive  to the  movements  of a  single  company's  stock or a single
economic sector.  However,  during periods where alternative investments such as
MidCap stocks,  SmallCap stocks,  bonds and money market instruments  outperform
LargeCap  stocks,  we expect the performance of the Fund to  underperform  other
mutual funds that invest in these alternative categories.

The S&P 500 Index is a  capitalization  weighted  index,  meaning  companies are
weighted based on their size.  Thus, poor  performance of the largest  companies
could result in negative performance of the index and the Fund.

Although  the Fund's  primary  risks are  associated  with  changes in the stock
market,  there are other risks  associated with the Fund.  These risks generally
apply to how well the Fund tracks the index.  For  example,  the Fund invests in
futures  contracts to the extent that it holds cash in the  portfolio.  If these
futures contracts do not track the index, the Fund's performance relative to the
index will change.

Some mutual funds lend  portfolio  securities in order to offset  expenses.  The
Fund has never  engaged  in this  strategy,  however,  in the event that it did,
there is a risk that the practice could negatively impact the share price of the
Fund.

OTHER RISKS OF THE FUND

Under normal  circumstances the Fund may follow a number of investment  policies
to  achieve  its  objective.  The Fund may invest in stock  futures.  Losses (or
gains)  involving  futures  can  sometimes  be  substantial,  in part  because a
relatively small price movement in a futures contract may result in an immediate
and

                                                                              14
<PAGE>

substantial loss (or gain) for the Fund. In an effort to minimize this risk, the
Fund usually will not use futures for speculative purposes or as leverage. It is
the Fund's policy to hold cash  deposits  equal or greater than the total market
value of any futures position. The value of all futures and options contracts in
which the Fund acquires an interest will not exceed 20% of current total assets.

IS IT RIGHT FOR YOU?

If you are looking for a diversified stock fund, this Fund may be right for you.
You should be  comfortable  with the volatility of the stock market and the risk
that your investment could decline in value.  Your investment  time-frame should
be long-term in nature. This Fund is designed as a passive  investment,  meaning
that you should not try to use the Fund to time  movements in the overall  stock
market. Since trading can increase the Fund's operating expenses, it is strongly
discouraged.

PERFORMANCE

Below are a chart and a table showing the variability of the Fund's  performance
from  year to year.  The  table  compares  the  performance  of the Fund  with a
benchmark index. These figures assume that all distributions are reinvested.  It
is important  to remember  that past  performance  does not  accurately  predict
future performance.

[GRAPHIC OMITTED]


 1992*   1993    1994    1995    1996    1997    1998    1999
 7.63%   9.77%   1.04%  37.20%  22.63%  32.99%  28.75%  21.02%

Best Quarter:   21.50% (Q4, 1998)      Worst Quarter:   -9.86% (Q3, 1998)
Year to date performance as of 11/30/00:   -9.41%

AVERAGE ANNUAL RETURNS AS OF 12/31/99                            Since
                                        1 year     5 years     Inception
                                        ------     -------     ---------
CIT S&P 500 Index Fund                  21.02%      28.37%       20.34%
S&P 500 Composite Stock Price Index     21.04%      28.54%       20.66%
*Date of inception:  4/20/92


15
<PAGE>

FUND FEES & EXPENSES

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


--------------------------------------------------------------------------------
SHAREHOLDER FEES
   Sales and redemption charges                                NONE
ANNUAL OPERATING EXPENSES
  (expenses that are deducted from Fund assets)
   Management fees                                            0.25%
   Distribution (12b-1) fees                                   NONE
   Other expenses                                             0.15%
                                                              -----
   Total annual operating expenses                            0.40%
   Expense reimbursement*                                     0.20%
                                                              -----
NET ANNUAL FUND OPERATING EXPENSE                             0.20%


Annual account fee                                          $ 10.00

*    The  Manager  has  limited  the Fund's  expenses  at 0.20% since the Fund's
     inception. This limitation is guaranteed through 12/31/01.
--------------------------------------------------------------------------------

This  example is intended to help you compare the cost of  investing in the Fund
with the cost of investing in other mutual funds.

The example  assumes  that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
example also assumes that your investment has a 5% return each year and that the
Fund's  operating  expenses  remain the same.  Although your actual costs may be
higher or lower, based on these assumptions your costs would be:


          1 year    3 years    5 years    10 years
            $30       $138      $254        $586


"Standard  & Poor's",  "S&P",  "S&P 500",  "Standard & Poor's 500" and "500" are
trade marks of  McGraw-Hill  Cos.,  Inc.  and have been  licensed for use by the
Fund. The Fund is not sponsored, endorsed, sold or promoted by S&P and S&P makes
no representation regarding the advisability of investing in the Fund.

                                                                              16
<PAGE>

FINANCIAL HIGHLIGHTS

The financial  highlights  table is intended to help you  understand  the Fund's
financial  performance for the past 5 fiscal years. Certain information reflects
financial  results  for a single  Fund  share.  The total  returns  in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming  reinvestment  of all dividends and  distributions).  This
information  has been audited by Tait Weller & Baker,  whose report,  along with
the Fund's  financial  statements  are included in the Annual  Report,  which is
available upon request.

<TABLE>

<CAPTION>
                                                                   Year Ended August 31,
                                            ---------------------------------------------------------------
S&P 500 Index Fund                             2000          1999          1998         1997         1996
-----------------------------------------------------------------------------------------------------------
<S>                                         <C>           <C>           <C>          <C>          <C>
Net asset value, beginning of year ......   $   28.12     $   20.90     $   19.98    $   14.81    $   13.31
                                            ---------------------------------------------------------------
   INCOME FROM INVESTMENT
    OPERATIONS
   Net investment income ................        0.38          0.39          0.36         0.38         0.36
   Net gain on securities
      (both realized and unrealized) ....        4.06          7.79          1.28         5.44         2.05
                                            ---------------------------------------------------------------
         Total from investment operations        4.44          8.18          1.64         5.82         2.41
                                            ---------------------------------------------------------------
   LESS DISTRIBUTIONS ...................
   Dividends from net investment
      income ............................       (0.40)        (0.39)        (0.34)       (0.37)       (0.37)
   Distribution from capital gains ......       (1.32)        (0.57)        (0.38)       (0.28)       (0.54)
                                            ---------------------------------------------------------------
         Total distributions ............       (1.72)        (0.96)        (0.72)       (0.65)       (0.91)
                                            ---------------------------------------------------------------
Net asset value, end of year ............   $   30.84     $   28.12     $   20.90    $   19.98    $   14.81
                                            ===============================================================

Total return ............................       16.38%        39.76%         8.14%       40.19%       18.63%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's) ......   $ 165,891     $ 142,276     $  87,621    $  71,860    $  43,849
   Ratio of expenses to average net
      assets:
         Before expense reimbursements ..        0.40%         0.37%         0.40%        0.46%        0.57%
         After expense reimbursements ...        0.20%         0.20%         0.20%        0.20%        0.20%
   Ratio of net investment income to
     average net assets:
         Before expense reimbursements ..        1.11%         1.33%         1.48%        1.85%        2.13%
         After expense reimbursements ...        1.31%         1.50%         1.68%        2.11%        2.50%
Portfolio turnover ......................        9.00%         9.76%         1.82%        2.10%        1.87%
</TABLE>


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

17
<PAGE>

--------------------------------------------------------------------------------
S&P MIDCAP INDEX FUND
Ticker Symbol: SPMIX
--------------------------------------------------------------------------------

GOAL

Replicate the performance of medium-sized U.S.  companies as measured by the S&P
MidCap 400 Index.

The S&P MidCap  Index Fund is a  diversified  mutual  fund that seeks to provide
investment results that correspond to the total return of publicly traded common
stocks of medium-size  domestic companies,  as represented by the S&P MidCap 400
Index.

STRATEGY

The S&P  MidCap  Index  includes  the  common  stocks of 400  medium-sized  U.S.
companies from a broad range of industries.  Standard & Poor's, the company that
maintains the index, makes all determinations  regarding the inclusion of stocks
in the index. Each stock is weighted in proportion to its total market value.

In order to meet the investment goal, the Fund is passively managed.  It invests
primarily in the stocks that make up the S&P MidCap Index so that the  weighting
of each stock in the portfolio  approximates the index. The Manager's goal is to
maintain a return  correlation of at least .95 to the S&P MidCap Index (a return
correlation  of 1.0 is  perfect).Under  normal  circumstances,  it is the Fund's
policy to invest at least 80% of its total  assets in the  underlying  stocks of
the index. As a rule of thumb, the percentage is generally higher.

Like many  index  funds,  the Fund may  invest  in  futures  contracts  and lend
securities to minimize the performance variation between the Fund and the index.
This  performance  gap  occurs  because,  unlike  the  index,  the Fund must pay
operating  expenses  and  contend  with  the  flow  of  cash  in and  out of the
portfolio.  While we expect the Fund's  performance  to  closely  represent  the
index, the Fund will generally underperform the index.

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


         SECTOR BREAKDOWNS
        as of December 2000

INDUSTRY                   % OF FUND

Capital good                   4.0%
Consumer cyclical              5.1%
Consumer non-durable          27.2%
Banking & financial service   14.6%
Utility                       10.1%
Service                        4.4%
Transportation                 1.8%
Manufacturing                  9.0%
Technology                    18.0%
Energy                         5.8%

MIDCAP STOCKS

The stocks that are  represented  in the S&P MidCap 400 Index make-up about 6.7%
of the total market Index, as measured by the S&P 1500 Index. The S&P MidCap 400
Index was designed to track the overall  performance of the MidCap  sector.  The
individual  stocks that make up the index have total  market  values  ranging in
size from  $102  million  to $10.4  billion.  The  median  market  value is $1.4
billion.


The index is made up of stocks from many diverse industries.  The industry table
above gives you a general idea of the exposure to specific sectors.

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

                                                                              18
<PAGE>

MAIN RISKS

The stock  market  goes up and down  every  day.  As with any  investment  whose
performance  is linked  to these  markets,  the  value of the Fund will  change.
During a declining stock market, an investment in this Fund would lose money.

The Fund is  primarily  invested  in the U.S.  stock  market and is  designed to
passively  track  the  performance  of  the  MidCap  sector.  In an  attempt  to
accurately  track the performance of the S&P MidCap 400 Index, the Fund does not
intend to take steps to reduce its market exposure in any market.

Many factors will affect the performance of the stock market.  Two major factors
are economic and  political  events.  The impact of positive or negative  events
could be  short-term  (by causing a change in the market that is  corrected in a
year or less) or long-term  (by causing a change in the market that may last for
many years).  Events may affect one sector of the economy or a single stock, but
may not have a significant impact on the overall market.

The Fund invests in medium-sized  companies from many sectors.  In doing so, the
Fund is not as  sensitive  to the  movements  of a single  company's  stock or a
single economic sector.  However,  during periods where alternative  investments
such as LargeCap  stocks,  SmallCap stocks,  bonds and money market  instruments
out-perform MidCap stocks, we expect the performance of the Fund to underperform
other mutual funds that invest in these alternative categories.

The S&P MidCap Index is a capitalization  weighted index,  meaning companies are
weighted based on their size.  Thus, poor  performance of the largest  companies
could result in negative performance of the index and the Fund.

Although  the Fund's  primary  risks are  associated  with  changes in the stock
market,  there are other risks  associated with the Fund.  These risks generally
apply to how well the Fund tracks the index.  For  example,  the Fund invests in
futures  contracts to the extent that it holds cash in the  portfolio.  If these
futures contracts do not track the index, the Fund's performance relative to the
index will change.

Some mutual funds lend  portfolio  securities in order to offset  expenses.  The
Fund has never  engaged  in this  strategy,  however,  in the event that it did,
there is a risk that the practice could negatively impact the share price of the
Fund.

OTHER RISKS OF THE FUND

Under normal  circumstances the Fund may follow a number of investment  policies
to  achieve  its  objective.  The Fund may invest in stock  futures.  Losses (or
gains)  involving  futures  can  sometimes  be  substantial,  in part  because a
relatively small price movement in a futures contract may result in an immediate
and substantial loss (or gain) for the Fund. In an effort to minimize this risk,
the Fund

19
<PAGE>

usually will not use futures for speculative purposes or as leverage.  It is the
Fund's policy to hold cash deposits equal or greater than the total market value
of any futures position. The value of all futures and options contracts in which
the Fund acquires an interest will not exceed 20% of current total assets.

IS IT RIGHT FOR YOU?

If you are looking for a diversified stock fund, this Fund may be right for you.
You should be  comfortable  with the volatility of the stock market and the risk
that your investment could decline in value.  Your investment  time-frame should
be long-term in nature. This Fund is designed as a passive  investment,  meaning
that you should not try to use the Fund to time  movements in the overall  stock
market. Since trading can increase the Fund's operating expenses, it is strongly
discouraged.

PERFORMANCE

Below are a chart and a table showing the variability of the Fund's  performance
from  year to year.  The  table  compares  the  performance  of the Fund  with a
benchmark index. These figures assume that all distributions are reinvested.  It
is important  to remember  that past  performance  does not  accurately  predict
future performance.

[GRAPHIC OMITTED]


 1992*   1993    1994    1995    1996    1997    1998    1999
14.95%  12.88%  -3.96%  30.62%  18.85%  31.89%  18.49%  14.71%

Best Quarter:   27.54% (Q4, 1998)      Worst Quarter:   -14.55% (Q3, 1998)
Year to date performance as of 11/30/00:  10.64%

                                                                 Since
AVERAGE ANNUAL RETURNS AS OF 12/31/99     1 year    5 years    Inception
                                          ------    -------    ---------
CIT S&P MidCap Index Fund                 14.71%     22.71%      17.52%
S&P MidCap 400 Index                      14.70%     23.03%      18.07%
*Date of inception:  4/20/92


                                                                              20
<PAGE>

FUND FEES & EXPENSES

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

--------------------------------------------------------------------------------
SHAREHOLDER FEES
   Sales and redemption charges                                NONE
ANNUAL OPERATING EXPENSES
   (expenses that are deducted from Fund assets)
   Management fees                                            0.40%
   Distribution (12b-1) fees                                   NONE
   Other expenses                                             0.17%
                                                              -----
   Total annual operating expenses                            0.57%
   Expense reimbursement*                                     0.17%
                                                              -----
NET ANNUAL FUND OPERATING EXPENSE                             0.40%

Annual account fee                                          $ 10.00

*    The  Manager  has  limited  the Fund's  expenses  at 0.40% since the Fund's
     inception. This limitation is guaranteed through 12/31/01.
--------------------------------------------------------------------------------

This  example is intended to help you compare the cost of  investing in the Fund
with the cost of investing in other mutual funds.

The example  assumes  that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
example also assumes that your investment has a 5% return each year and that the
Fund's  operating  expenses  remain the same.  Although your actual costs may be
higher or lower, based on these assumptions your costs would be:

          1 year    3 years    5 years    10 years
            $51       $196       $351       $797

"Standard & Poor's", "S&P", and "Standard and Poor's Midcap 400 Index" are Trade
marks of McGraw-Hill  Cos., Inc. and have been licensed for use by the Fund. The
Fund is not  sponsored,  endorsed,  sold or  promoted  by S&P and S&P  makes  no
representation regarding the advisability of investing in the Fund.

21
<PAGE>

FINANCIAL HIGHLIGHTS

The financial  highlights  table is intended to help you  understand  the Fund's
financial  performance for the past 5 fiscal years. Certain information reflects
financial  results  for a single  Fund  share.  The total  returns  in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming  reinvestment  of all dividends and  distributions).  This
information  has been audited by Tait Weller & Baker,  whose report,  along with
the Fund's  financial  statements  are included in the Annual  Report,  which is
available upon request.

<TABLE>

<CAPTION>
                                                                   Year Ended August 31,
                                            -----------------------------------------------------------------
S&P MIDCAP INDEX FUND                          2000          1999          1998          1997          1996
-------------------------------------------------------------------------------------------------------------
<S>                                         <C>           <C>           <C>           <C>           <C>
Net asset value, beginning of year ......   $   18.70     $   15.41     $   18.57     $   14.45     $   13.82
                                            -----------------------------------------------------------------
   INCOME FROM INVESTMENT
    OPERATIONS
   Net investment income ................        0.22          0.20          0.23          0.22          0.24
   Net gain (loss) on securities
      (both realized and unrealized) ....        6.05          5.80         (1.76)         4.85          1.33
                                            -----------------------------------------------------------------
         Total from investment operations        6.27          6.00         (1.53)         5.07          1.57
                                            -----------------------------------------------------------------
   LESS DISTRIBUTIONS
   Dividends from net investment
      income ............................       (0.21)        (0.20)        (0.23)        (0.22)        (0.25)
   Distribution from capital gains ......       (4.01)        (2.51)        (1.40)        (0.73)        (0.69)
                                            -----------------------------------------------------------------
         Total distributions ............       (4.22)        (2.71)        (1.63)        (0.95)        (0.94)
                                            -----------------------------------------------------------------
Net asset value, end of year ............   $   20.75     $   18.70     $   15.41     $   18.57     $   14.45
                                            =================================================================

Total return ............................       40.44%        41.13%        (9.37)%       36.63%        11.77%

RATIOS/SUPPLEMENTAL DATA
   Net assets, end of year (in 000's) ...   $  74,749     $  57,164     $  39,855     $  46,271     $  33,559
   Ratio of expenses to average net
    assets:
      Before expense reimbursements .....        0.57%         0.57%         0.56%         0.61%         0.71%
      After expense reimbursements ......        0.40%         0.40%         0.40%         0.40%         0.40%
   Ratio of net investment income to
    average net assets:
      Before expense reimbursements .....        1.03%         0.90%         1.04%         1.19%         1.38%
      After expense reimbursements ......        1.20%         1.07%         1.20%         1.40%         1.69%
Portfolio turnover ......................       46.23%        42.98%        19.35%        17.80%        18.18%
</TABLE>


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

                                                                              22
<PAGE>

--------------------------------------------------------------------------------
S&P SMALLCAP INDEX FUND
Ticker Symbol: SMCIX
--------------------------------------------------------------------------------

GOAL

Replicate the performance of small-sized  U.S.  companies as measured by the S&P
SmallCap 600 Stock Index.

The S&P SmallCap  Index Fund is a diversified  mutual fund that seeks to provide
investment results that correspond to the total return of publicly traded common
stocks of small-sized companies, as represented by the S&P SmallCap 600 Index.

STRATEGY

The S&P SmallCap 600 Index  includes  common stocks of 600 small U.S.  companies
from a broad range of industries.  Standard & Poor's, the company that maintains
the index,  makes all  determinations  regarding  the inclusion of stocks in the
index. Each stock is weighted in proportion to its total market value.

In order to meet the investment goal, the Fund is passively managed.  It invests
primarily  in the  stocks  that make up the S&P  SmallCap  600 Index so that the
weighting of each stock in the portfolio  approximates  the index. The Manager's
goal is to maintain a return correlation of at least .95 to the S&P SmallCap 600
Index (a return correlation of 1.0 is perfect).  Under normal circumstances,  it
is the Fund's  policy to invest at least 80% of its total  assets (65% if assets
are less than $25 million) in the  underlying  stocks.  As a rule of thumb,  the
percentage is generally higher.

Like many  index  funds,  the Fund may  invest  in  futures  contracts  and lend
securities to minimize the performance variation between the Fund and the index.
This  performance  gap  occurs  because,  unlike  the  index,  the Fund must pay
operating expenses

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


         SECTOR BREAKDOWNS
        as of December 2000

INDUSTRY                    % OF FUND
Capital good                    6.9%
Consumer cyclical               9.5%
Consumer non-durable           22.5%
Banking & financial service    14.2%
Utility                         3.7%
Service                         2.7%
Transportation                  3.2%
Manufacturing                  14.2%
Technology                     17.1%
Energy                          6.0%


SMALLCAP STOCKS

The stocks that are  represented  in the S&P SmallCap 600 Index make up about 3%
of the total market  Index,  as measured by the S&P 1500 Index.  The  individual
stocks  that make up the  index  have  market  values  ranging  in size from $12
million to $2.8 billion. The median market value is $413 million.

Over long periods of time,  SmallCap  stocks have generally  outperformed  other
segments of the market.  In doing so,  they also have more  volatility  in share
price.  While many  investors  believe  SmallCap  stocks are the best choice for
long-term holdings, there can be no assurance that this trend will continue.

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

23
<PAGE>

and contend with the flow of cash in and out of the  portfolio.  While we expect
the Fund's  performance to closely  represent the index, the Fund will generally
underperform the index.

MAIN RISKS

The stock  market  goes up and down  every  day.  As with any  investment  whose
performance  is linked  to these  markets,  the  value of the Fund will  change.
During a declining stock market, an investment in this Fund would lose money.

The Fund is  primarily  invested  in the U.S.  stock  market and is  designed to
passively  track the  performance  of the  SmallCap  sector.  In an  attempt  to
accurately  track the  performance of the S&P SmallCap 600 Index,  the Fund does
not intend to take steps to reduce its market exposure in any market.

Many factors will affect the performance of the stock market.  Two major factors
are economic and  political  events.  The impact of positive or negative  events
could be  short-term  (by causing a change in the market that is  corrected in a
year or less) or  long-term  (by  causing a change in the market  that lasts for
many years).  Events may affect one sector of the economy or a single stock, but
may not have a significant impact on the overall market.

The Fund invests in small-sized  companies  from many sectors.  In doing so, the
Fund is not as  sensitive  to the  movements  of a single  company's  stock or a
single economic sector.  However,  during periods where alternative  investments
such as LargeCap  stocks,  MidCap  stocks,  bonds and money  market  instruments
outperform   SmallCap  stocks,   we  expect  the  performance  of  the  Fund  to
underperform other mutual funds that invest in these alternative categories.

The S&P SmallCap 600 Index is a capitalization weighted index, meaning companies
are  weighted  based  on their  size.  Thus,  poor  performance  of the  largest
companies could result in negative performance of the index and the Fund.

Although  the Fund's  primary  risks are  associated  with  changes in the stock
market,  there are other risks  associated with the Fund.  These risks generally
apply to how well the Fund tracks the index.  For  example,  the Fund invests in
futures  contracts to the extent that it holds cash in the  portfolio.  If these
futures contracts do not track the index, the Fund's performance relative to the
index will change.

Some funds lend portfolio  securities in order to offset expenses.  The Fund has
never engaged in this  strategy,  however,  in the event that it did, there is a
risk that the practice could negatively impact the share price of the Fund.

OTHER RISKS OF THE FUND

Under normal  circumstances the Fund may follow a number of investment  policies
to  achieve  its  objective.  The Fund may invest in stock  futures.  Losses (or
gains) involv-

                                                                              24
<PAGE>

ing futures can  sometimes be  substantial,  in part because a relatively  small
price movement in a futures  contract may result in an immediate and substantial
loss (or gain)  for the Fund.  In an effort  to  minimize  this  risk,  the Fund
usually will not use futures for speculative purposes or as leverage.  It is the
Fund's policy to hold cash deposits equal or greater than the total market value
of any futures position. The value of all futures and options contracts in which
the Fund  acquires an interest  will not exceed 20% (35% if under $25 million in
total net assets) of current total assets.

IS IT RIGHT FOR YOU?

If you are looking for a diversified stock fund, this Fund may be right for you.
You should be  comfortable  with the volatility of the stock market and the risk
that your investment could decline in value.  Your investment  time-frame should
be long-term in nature. This Fund is designed as a passive  investment,  meaning
that you should not try to use the Fund to time movements in the overall market.
Since  trading  can  increase  the Fund's  operating  expenses,  it is  strongly
discouraged.

PERFORMANCE

Below are a chart and a table showing the variability of the Fund's  performance
from  year to year.  The  table  compares  the  performance  of the Fund  with a
benchmark index. These figures assume that all distributions are reinvested.  It
is important  to remember  that past  performance  does not  accurately  predict
future performance.

[GRAPHIC OMITTED]


 1996*   1997    1998    1999
 3.73%  24.05%  -2.91%  13.44%

Best Quarter:   17.68% (Q2, 1997)      Worst Quarter:   -20.77% (Q3, 1998)
Year to date performance as of 11/30/00:  -0.97%

                                                      Since
AVERAGE ANNUAL RETURNS AS OF 12/31/99     1 year    Inception
                                          ------    ---------
CIT S&P SmallCap Index Fund               13.44%      12.97%
S&P SmallCap 600 Index                    12.41%      12.42%
*Date of inception:  10/2/96


25
<PAGE>

FUND FEES & EXPENSES

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


--------------------------------------------------------------------------------
SHAREHOLDER FEES
   Sales and redemption charges                        NONE
ANNUAL OPERATING EXPENSES
   (expenses that are deducted from Fund assets)
   Management fees                                    0.50%
   Distribution (12b-1) fees                           NONE
   Other expenses                                     0.50%
                                                      -----
   Total annual operating expenses                    1.00%
   Expense reimbursement*                             0.35%
                                                      -----
NET ANNUAL FUND OPERATING EXPENSE                     0.65%


*    The  Manager  has  limited  the Fund's  expenses  at 0.65% since the Fund's
     inception. This limitation is guaranteed through 12/31/01.
--------------------------------------------------------------------------------

This  example is intended to help you compare the cost of  investing in the Fund
with the cost of investing in other mutual funds.

The example  assumes  that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
example also assumes that your investment has a 5% return each year and that the
Fund's  operating  expenses  remain the same.  Although your actual costs may be
higher or lower, based on these assumptions your costs would be:


          1 year    3 years    5 years    10 years
           $66        $284      $518       $1,193


"Standard & Poor's",  "S&P",  and "Standard  and Poor's  SmallCap 600 Index" are
trade marks of Standard and Poor's Corporation and have been licensed for use by
the Fund. The Fund is not sponsored,  endorsed,  sold or promoted by S&P and S&P
makes no representation regarding the advisability of investing in the Fund.

                                                                              26
<PAGE>

FINANCIAL HIGHLIGHTS

The financial  highlights  table is intended to help you  understand  the Fund's
financial  performance since the Fund's inception.  Certain information reflects
financial  results  for a single  Fund  share.  The total  returns  in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming  reinvestment  of all dividends and  distributions).  This
information  has been audited by Tait Weller & Baker,  whose report,  along with
the Fund's  financial  statements  are included in the Annual  Report,  which is
available upon request.

<TABLE>

<CAPTION>
                                                     Year Ended August 31,           October 2, 1996*
                                            ----------------------------------------  to August 31,
S&P SMALLCAP INDEX FUND                        2000           1999           1998          1997
--------------------------------------------------------------------------------------------------
<S>                                         <C>            <C>            <C>           <C>
Net asset value, beginning of period ....   $    11.46     $     9.46     $    12.25    $    10.00
                                            ------------------------------------------------------
   INCOME FROM INVESTMENT
    OPERATIONS
   Net investment income ................         0.12           0.08           0.13          0.23
   Net gain (loss) on securities (both
      realized and unrealized) ..........         3.14           2.13          (2.39)         2.22
                                            ------------------------------------------------------
         Total from investment operations         3.26           2.21          (2.26)         2.45
                                            ------------------------------------------------------
   LESS DISTRIBUTIONS
   Dividends from net investment
      income ............................        (0.10)         (0.08)         (0.14)        (0.20)
   Distributions from capital gains .....        (0.53)         (0.13)         (0.39)           --
                                            ------------------------------------------------------
         Total distributions ............        (0.63)         (0.21)         (0.53)        (0.20)
                                            ------------------------------------------------------
Net asset value, end of period ..........   $    14.09     $    11.46     $     9.46    $    12.25
                                            ======================================================

Total Return ............................        29.63%         23.53%        (19.38)%       24.86%

RATIOS/SUPPLEMENTAL DATA
   Net assets, end of period (in 000's) .   $   12,863     $   10,881     $    7,916    $    5,933
   Ratio of expenses to average net
      assets: ...........................         1.00%          1.05%          1.10%         2.32%**
         Before expense reimbursements ..         0.65%          0.65%          0.65%         0.65%**
         After expense reimbursements
   Ratio of net investment income
      to average net assets:
         Before expense reimbursements ..         0.58%          0.31%          0.57%         0.27%**
         After expense reimbursements ...         0.93%          0.71%          1.02%         1.94%**
   Portfolio Turnover ...................        37.21%         25.40%         24.58%        19.99%
</TABLE>


---------------------
*    Commencement of operations.
**   Annualized.

27
<PAGE>

--------------------------------------------------------------------------------
EQUITY INCOME FUND
Ticker Symbol: EQTIX
--------------------------------------------------------------------------------

GOAL

Achieve a high level of income and capital  appreciation  (when  consistent with
high income) by investing primarily in income-producing U.S. equity securities.

The Equity Income Fund is a  diversified  mutual fund that seeks a high level of
current income by investing primarily in income producing equity securities.  As
a secondary  objective,  the Fund will also  consider  the  potential  for price
appreciation when consistent with seeking current income.

STRATEGY

In order to meet the investment  goal, the Fund invests  primarily in securities
which generate a relatively high level of dividend income and have potential for
capital  appreciation.  These  securities will generally be stocks of medium and
large U.S. corporations. It is the Fund's policy that under normal circumstances
it will invest at least 80% of its total  assets  (65% if total  assets are less
than $25 million) in stocks.

Although  the Fund will  attempt to invest as much of the assets as is practical
in  income-producing  stocks,  the Fund may  maintain a  reasonable  position in
high-quality,  short-term debt  securities and money market  instruments to meet
redemption requests and other liquidity needs.

The Fund will invest in futures contracts when the Manager wants to remain fully
invested in the market.  Utilizing futures allows the Manager to maintain a high
percentage of the portfolio in the market while  maintaining  cash for liquidity
needs.

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


          SECTOR BREAKDOWNS
         as of December 2000

INDUSTRY                    % OF FUND

Capital good                    8.9%
Consumer cyclical               2.6%
Consumer non-durable           13.6%
Banking & financial service    34.9%
Utility                        14.5%
Service                         0.9%
Transportation                  0.8%
Manufacturing                   4.3%
Technology                      6.5%
Energy                         13.0%


VALUE STOCKS

The Fund invests  primarily in value stocks. It attempts to manage the assets so
that the average  dividend yield of the stocks held will be at least 50% greater
than the yield of the S&P 500 Index.  "Value stock" is a term used to describe a
stock that pays a higher dividend.  Over long periods of time, value stocks have
demonstrated lower volatility as compared to the overall market.

The Fund is made up of stocks  from many  diverse  industries.  The table  above
gives you a general idea of the exposure to specific sectors.

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

                                                                              28
<PAGE>

MAIN RISKS

The stock  market  goes up and down  every  day.  As with any  investment  whose
performance  is linked  to these  markets,  the  value of the Fund will  change.
During a declining stock market, an investment in this Fund would lose money.

The Fund is primarily invested in U.S. value stocks and is designed to provide a
dividend yield as well as potential for capital appreciation.

Many factors will affect the performance of the stock market.  Two major factors
are economic and  political  events.  The impact of positive or negative  events
could be  short-term  (by causing a change in the market that is  corrected in a
year or less) or long-term  (by causing a change in the market that may last for
many years).  Events may affect one sector of the economy or a single stock, but
may not have a significant impact on the overall market.

The Fund invests in large and medium-sized companies from many sectors. In doing
so, the Fund is not as sensitive to the movements of a single company's stock or
a single economic sector.  However, during periods where alternative investments
such as growth  stocks,  SmallCap  stocks,  bonds and money  market  instruments
outperform  value stocks,  we expect the performance of the Fund to underperform
other mutual funds that invest in these alternative categories.

The Fund's  primary  risks are  associated  with  changes  in the stock  market,
however,  there are other risks associated with the Fund. For example,  the Fund
may  invest  in  futures  contracts  to the  extent  that it  holds  cash in the
portfolio. If these futures contracts owned by the Fund do not perform well, the
Fund's performance will be impacted.

Some  mutual  funds  are able to lend  portfolio  securities  in order to offset
expenses.  The Fund has never engaged in this  strategy,  however,  in the event
that it did, there is a risk that the practice could  negatively  impact the net
assets value of the Fund.

OTHER RISKS OF THE FUND

Under normal  circumstances the Fund may follow a number of investment  policies
to  achieve  its  objective.  The Fund may invest in stock  futures.  Losses (or
gains)  involving  futures  can  sometimes  be  substantial  in part  because  a
relatively small price movement in a futures contract may result in an immediate
and substantial loss (or gain) for the Fund. In an effort to minimize this risk,
the Fund usually will not use futures for  speculative  purposes or as leverage.
It is the Fund's  policy to hold cash  deposits  equal or greater than the total
market  value of any  futures  position.  The value of all  futures  and options
contracts  in which the Fund  acquires an  interest  will not exceed 20% (35% if
under 25 million in total net assets) of current total assets.

IS IT RIGHT FOR YOU?

If you are looking for a conservative,  value oriented stock fund, this Fund may
be right for you.  You should be  comfortable  with the  changing  values of the
stock market and

29
<PAGE>

the risk that your investment could decline in value. Your investment time frame
should be  long-term in nature.  This Fund is designed as a passive  investment,
meaning that you should not try to use the Fund to time movements in the overall
market. Since trading can increase the Fund's operating expenses, it is strongly
discouraged.

PERFORMANCE

Below are a chart and a table showing the variability of the Fund's  performance
from  year to year.  The  table  compares  the  performance  of the Fund  with a
benchmark index. These figures assume that all distributions are reinvested.  It
is important  to remember  that past  performance  does not  accurately  predict
future performance.

[GRAPHIC OMITTED]


 1996*   1997    1998    1999
10.97%  29.29%  13.15%   3.91%

Best Quarter:   17.08% (Q4, 1998)      Worst Quarter:   -14.56% (Q3, 1998)
Year to date performance as of 11/30/00:  -3.35%

                                                      Since
AVERAGE ANNUAL RETURNS AS OF 12/31/99     1 year    Inception
                                          ------    ---------
CIT Equity Income Fund                     3.91%      17.04%
S&P/BARRA Value Index                     12.72%      18.82%
*Date of inception:  9/4/96


FUND FEES & EXPENSES

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


--------------------------------------------------------------------------------
SHAREHOLDER FEES
   Sales and redemption charges                     NONE
ANNUAL OPERATING EXPENSES
   (expenses that are deducted from Fund assets)
   Management fees                                 0.50%
   Distribution (12b-1) fees                        NONE
   Other expenses                                  0.48%
                                                   -----
   Total annual operating expenses                 0.98%
   Expense reimbursement*                          0.18%
                                                   -----
NET ANNUAL FUND OPERATING EXPENSE                  0.80%


*    The  manager  has  limited  the fund's  expenses  at 0.80% since the Fund's
     inception. This limitation is guaranteed through 12/31/01.
--------------------------------------------------------------------------------

                                                                              30
<PAGE>

This  example is intended to help you compare the cost of  investing in the Fund
with the cost of investing in other mutual funds.

The example  assumes  that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
Example also assumes that your investment has a 5% return each year and that the
Fund's  operating  expenses  remain the same.  Although your actual costs may be
higher or lower, based on these assumptions your costs would be:


          1 year    3 years    5 years    10 years
            $82       $294       $524      $1,185


FINANCIAL HIGHLIGHTS

The financial  highlights  table is intended to help you  understand  the Fund's
financial  performance since the Fund's inception.  Certain information reflects
financial  results  for a single  Fund  share.  The total  returns  in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming  reinvestment  of all dividends and  distributions).  This
information  has been audited by Tait Weller & Baker,  whose report,  along with
the Fund's  financial  statements  are included in the Annual  Report,  which is
available upon request.

<TABLE>

<CAPTION>
                                                      Year Ended August 31,          September 4 1996*
                                            ----------------------------------------   to August 31,
EQUITY INCOME FUND                             2000           1999           1998           1997
---------------------------------------------------------------------------------------------------
<S>                                         <C>            <C>            <C>            <C>
Net asset value, beginning of period ....   $    14.38     $    11.98     $    12.64     $    10.00
                                            -------------------------------------------------------
   INCOME FROM INVESTMENT
    OPERATIONS
   Net investment income ................         0.36           0.32           0.37           0.39
   Net gain (loss) on securities (both
      realized and unrealized) ..........         0.76           2.41          (0.25)          2.84
                                            -------------------------------------------------------
         Total from investment operations         1.12           2.73           0.12           3.23
                                            -------------------------------------------------------
   LESS DISTRIBUTIONS
   Dividends from net investment
      income ............................        (0.27)         (0.33)         (0.37)         (0.32)
   Distributions from capital gains .....        (0.42)            --          (0.41)         (0.27)
                                            -------------------------------------------------------
         Total distributions ............        (0.69)         (0.33)         (0.78)         (0.59)
                                            -------------------------------------------------------
Net asset value, end of period ..........   $    14.81     $    14.38     $    11.98     $    12.64
                                            =======================================================

Total Return ............................         8.23%         22.89%          0.46%         33.28%

RATIOS/SUPPLEMENTAL DATA
   Net assets, end of period (in 000's) .   $   11,813     $   13,716     $   12,080      $   9,747
   Ratio of expenses to average net
      assets:
         Before expense reimbursements ..         0.98%          0.86%          0.91%          1.55%**
         After expense reimbursements ...         0.80%          0.80%          0.78%          0.76%**
   Ratio of net investment income
      to average net assets:
         Before expense reimbursements ..         2.49%          2.09%          2.56%          2.48%**
         After expense reimbursements ...         2.67%          2.15%          2.69%          3.27%**
   Portfolio Turnover ...................        38.34%         54.03%         41.23%          2.80%
</TABLE>


*    Commencement of operations.
**   Annualized.
-------------------

31
<PAGE>


--------------------------------------------------------------------------------
THE NASDAQ-100 INDEX
Ticker symbol:  NASDX
--------------------------------------------------------------------------------

GOAL

The Fund  attempts to replicate  the  performance  of the largest  non-financial
companies as measured by The Nasdaq-100 Index(R).

STRATEGY

The Fund is managed  passively,  which means the Manager is trying to  replicate
the  performance  of The  Nasdaq-100  Index(R).  To do this,  the  Fund  invests
primarily  in the  stocks  comprising  the index.  The Fund will  attempt to buy
stocks so that the holdings in the portfolio approximate those of The Nasdaq-100
Index(R). The Manager's goal is to maintain a return correlation of at least .95
to The  Nasdaq-100  Index(R) (a return  correlation  of 1.0 is  perfect).  Under
normal  circumstances,  it is the  Fund's  policy  to invest at least 80% of its
total  assets in the stocks  comprising  the index (65% if total Fund assets are
under $25 million).

The Fund may invest in securities issued by other investment  companies if those
companies invest in securities  consistent with the Fund's investment  objective
and policies.

Like most  index  funds,  the Fund will  invest in futures  contracts.  The Fund
generally  maintains  some  short-term  securities  and cash  equivalents in the
portfolio  to meet  redemptions  and  needs  for  liquidity.  The  Manager  will
typically  buy  futures  contracts  so that  the  market  value  of the  futures
contracts is as close to the cash balance as possible.  This helps  minimize the
tracking error of the Fund.

MAIN RISKS

The  stock  markets  go up and down  every  day.  As with any  investment  whose
performance is linked to these markets, the value of your investment in the Fund
will  fluctuate.  If the Fund's  value drops during the period in which you hold
the Fund, you could lose money.

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

THE NASDAQ-100 INDEX(R)

The  Nasdaq-100  Index(R)  is made up of the 100  largest  non-financial  stocks
traded on the  Nasdaq  Stock  Market.  The  stocks  that make up this  index are
currently   heavily   weighted  in  the  technology   sector.   Because  of  the
concentration in a specific  sector,  high volatility or poor performance of the
sector will directly affect the Fund's performance.

The individual stocks that make up the index have total market values ranging in
size from $460 million to $332 billion, with a median of $7.7 billion.

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

                                                                              32
<PAGE>

The Fund primarily  invests in U.S.  stocks and is designed to track the overall
performance of The Nasdaq-100  Index(R).  In an attempt to accurately  represent
the Index,  the Fund will typically not take steps to reduce its market exposure
so that in a declining  market,  the Manager will not take steps to minimize the
exposure of the Fund.

Many factors will affect the performance of the stock markets. Two major factors
that may have both a  positive  and  negative  effect on the stock  markets  are
economic and  political  events.  These  effects may be  short-term by causing a
change  in the  market  that is  corrected  in a year or less;  or they may have
long-term  impacts  which may cause changes in the market that may last for many
years.  Some  factors  may affect  changes  in one sector of the  economy or one
stock, but don't have an impact on the overall market.  The particular sector of
the economy or the individual stock may be affected for a short or long-term.

The Fund invests in the largest,  non-financial companies that are traded on the
Nasdaq Stock Market.  They may comprise various sectors of the economy,  but are
currently  concentrated  in the technology  sector.  During periods in which The
Nasdaq-100  Index  underperforms  alternative  investments  such as bond,  money
market  and  alternative  stock  sectors,   the  Manager  expects  the  Fund  to
underperform other mutual funds that invest in these alternative categories.

The Nasdaq-100 Index is subject to concentration  risk. First, it is a modified-
capitalization  weighted  index,  meaning  that  except for some  modifications,
companies  are  weighted  based on their size.  Thus,  poor  performance  of the
largest  companies  could  result in negative  performance  of the index and the
Fund. Additionally, the significant concentration of technology stocks makes the
Fund's  performance  particularly  sensitive to this specific  sector.  Negative
performance in the technology sector will result in negative Fund performance.

OTHER RISKS OF THE FUND

The Fund's  primary  risks are  associated  with  changes  in the stock  market,
however,  there are other risks  associated with the Fund. These risks generally
apply to how well the Fund tracks the index.  For  example,  the Fund invests in
futures  contracts  to the extent  that it holds cash in the  portfolio.  If the
futures  contracts  owned  by the  Fund  do not  track  the  index,  the  Fund's
performance relative to the index will change.

Some  mutual  funds  are able to lend  portfolio  securities  in order to offset
expenses.  The Fund does not expect to engage in this strategy;  however, in the
event that it did,  there is a slight risk that this practice  could  negatively
impact the net assets value of the Fund.

IS THE FUND RIGHT FOR YOU?

If you are looking for an aggressive  growth stock fund,  this Fund may be right
for you. You should be comfortable  with the changing values of the stock market
and the risk that your investment  could decline in value.  Your investment time
frame  should  be  long-term  in  nature.  This  Fund is  designed  as a passive
investment,  meaning that you should not try to time  movements in the market by
trading  in and out of the Fund.  Short-term  trading  of the  Fund's  shares is
strongly  discouraged.   Recently,  the  index  has  shown  more  volatility  in
comparison to other broader benchmarks such as the S&P 500 Index.

33
<PAGE>

PERFORMANCE

Performance  results  have not been  provided  because  the Fund has not been in
existence for a full calendar year.

FUND FEES & EXPENSES

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

--------------------------------------------------------------------------------
SHAREHOLDER FEES
   Sales and redemption charges                       NONE
ANNUAL OPERATING EXPENSES
   (expenses that are deducted from Fund assets)
   Management fees                                   0.50%
   Distribution (12b-1) fees                          NONE
   Other expenses                                    0.49%
                                                     -----
   Total annual operating expenses                   0.99%
   Expense reimbursement*                            0.34%
                                                     -----
NET ANNUAL FUND OPERATING EXPENSE                    0.65%

*    The  Manager  has  limited  the Fund's  expenses  at 0.65% since the Fund's
     inception. This limitation is guaranteed through 12/31/01.
--------------------------------------------------------------------------------

This  example is intended to help you compare the cost of  investing in the Fund
with the cost of investing in other mutual funds.

The example  assumes  that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
example also assumes that your investment has a 5% return each year and that the
Fund's  operating  expenses  remain the same.  Although your actual costs may be
higher or lower, based on these assumptions your costs would be:

          1 year    3 years    5 years    10 years
            $66       $281       $514      $1,182

Nasdaq(R),  Nasdaq-100(R) and Nasdaq-100  Index(R) are trade or service marks of
The Nasdaq Stock Market,  Inc. (which with its affiliates are referred to as the
"Corporations")  and are  licensed  for use by the  Fund.  The Fund has not been
passed on by the Corporations as to its legality or suitability. The Fund is not
issued, endorsed,  sold, or promoted by the Corporations.  THE CORPORATIONS MAKE
NO EXPRESS OR IMPLIED  WARRANTIES,  AND DISCLAIM ALL  WARRANTIES  INCLUDING  ALL
WARRANTIES OF  MERCHANTABILITY  OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT
TO THE  FUND/INDEX  (MEANING THE INDEX,  THE FUND,  THEIR USE, THE RESULTS TO BE
OBTAINED FROM THEIR USE, OR ANY DATA INCLUDED  THEREIN).  THE CORPORATIONS SHALL
HAVE NO LIABILITY FOR ANY DAMAGES,  CLAIMS,  LOSSES, OR EXPENSES WITH RESPECT TO
THE FUND/INDEX. THE CORPORATIONS SHALL HAVE NO LIABILITY FOR ANY LOST PROFITS OR
SPECIAL,  PUNITIVE,  INCIDENTAL,  INDIRECT,  OR CONSEQUENTIAL  DAMAGES,  EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

                                                                              34
<PAGE>

FINANCIAL HIGHLIGHTS

The financial  highlights  table is intended to help you  understand  the Fund's
financial  performance since the Fund's inception.  Certain information reflects
financial  results  for a single  Fund  share.  The total  returns  in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming  reinvestment  of all dividends and  distributions).  This
information  has been audited by Tait Weller & Baker,  whose report,  along with
the Fund's  financial  statements  are included in the Annual  Report,  which is
available upon request.



                                          January 18, 2000*
                                         to August 31, 2000
                                         ------------------
NASDAQ-100 INDEX FUND
Net asset value, beginning of period ....   $    10.00
                                            ----------
   INCOME FROM INVESTMENT
    OPERATIONS
   Net investment income ................         0.03
   Net gain on securities (both
      realized and unrealized) ..........         0.67
                                            ----------
         Total from investment operations         0.70
                                            ----------
   LESS DISTRIBUTIONS
   Dividends from net investment income .        (0.03)
                                            ----------
Net asset value, end of period ..........   $    10.67
                                            ==========
Total Return ............................         7.02%

RATIOS/SUPPLEMENTAL DATA
   Net assets, end of period (in 000's) .   $   14,498
   Ratio of expenses to average net
      assets:
         Before expense reimbursements ..         0.99%**
         After expense reimbursements ...         0.65%**
   Ratio of net investment income to
      average net assets:
         Before expense reimbursements ..         0.54%**
         After expense reimbursements ...         0.88%**
   Portfolio Turnover ...................         0.62%

------------------------
*    Commencement of operations.
**   Annualized.

35
<PAGE>

--------------------------------------------------------------------------------
EUROPEAN GROWTH & INCOME FUND
Ticker Symbol:  EUGIX
--------------------------------------------------------------------------------

GOAL

The  Fund's  goal is to provide  long-term  capital  appreciation  and income by
investing in large-sized European companies.

STRATEGY

The Fund  seeks to  invest  primarily  in the  stocks of  large-sized  companies
located in Europe.  In selecting  securities,  the Fund  attempts to use the Dow
Jones  European  Stoxx 50 Index as a target  portfolio and a basis for selecting
investments.   Most   companies   considered  for  the  Fund  will  have  market
capitalizations of at least $10 billion (U.S. dollars).

The Fund intends to invest using American Depository Receipts, commonly referred
to as ADRs.  ADRs are traded on U.S. stock exchanges and are available for some,
but not all securities that make up the target  portfolio.  If a company that is
in the target portfolio does not have an ADR available on a U.S. exchange or if,
in the Manager's opinion,  the Fund is better served, the Manager will invest in
ADRs of other  companies  that the Manager  believes best serve the Fund and its
investors.

The Fund is not  considered  an  index  fund  because  it will  not  attempt  to
precisely  track the  performance  or invest in securities  that make up the Dow
Jones European Stoxx 50 Index.  However,  similar to index funds,  the Fund will
generally  remain fully  invested and its  performance  will track the Dow Jones
European  Stoxx 50 Index to the extent that the Fund is  successful in investing
in the companies that make up the index. Additionally,  the Manager will attempt
to minimize portfolio turnover.

Under normal  circumstances,  it is the Fund's policy to invest 80% of its total
assets  in ADRs  (65% if total  Fund  assets  are  under  $25  million).  At the
Manager's  option,  the Manager may elect to purchase  futures  contracts and/or
options to attempt to remain fully invested in the markets.  This  percentage of
futures  and/or options held in the portfolio will typically not exceed the cash
(or cash equivalents) balance of the Fund.

MAIN RISKS

The  stock  markets  go up and down  every  day.  As with any  investment  whose
performance is linked to these markets, the value of your investment in the Fund
will  fluctuate.  If the Fund's  value drops during the period in which you hold
the Fund, you could lose money.

                                                                              36
<PAGE>

Because foreign stock markets operate  differently  than the U.S.  markets,  the
Fund may encounter risks not typically  associated with those of U.S. companies.
For  instance,  foreign  companies  are  not  subject  to the  same  accounting,
auditing, and financial reporting standards and procedures as required from U.S.
companies;  and their  stocks may not be as liquid as the stocks of similar U.S.
companies.  In  addition,  foreign  stock  exchanges,   brokers,  and  companies
generally  have  less   government   supervision   and  regulation   than  their
counterparts in the United States. These factors, among others, could negatively
impact the returns of the Fund.

When  investing  in an  international  fund such as this  Fund,  there is always
country  risk,  which is the chance  that a  country's  economy  will be hurt by
political troubles, financial problems, or natural disasters.

There is also  currency  risk which is the chance that returns will be hurt by a
rise in the  value  of one  currency  against  the  value of  another.  Non-U.S.
dollar-denominated   securities  may   experience   adverse   foreign   currency
fluctuation which could also lower the value of the Fund's share price.

There is liquidity  risk in that the Fund buys ADRs,  some of which may have low
daily trading volume. In the event the Fund was forced to liquidate its holdings
of a security with limited trading  volume,  it is likely that the Fund would be
forced  to sell the  security  at a price  lower  than  what it might  otherwise
receive.

OTHER RISKS OF THE FUND

Under normal  circumstances the Fund may follow a number of investment  policies
to achieve its objective.  The Fund may invest in futures contracts and options.
Losses (or gains) involving futures and options can sometimes be substantial, in
part  because a  relatively  small price  movement  in a futures  contract or an
option may result in an immediate and  substantial  loss (or gain) for the Fund.
In an effort to minimize  this risk,  the Fund  usually  will not use futures or
options for speculative purposes or as leverage. It is the Fund's policy to hold
cash  deposits  equal to or greater  than the total  market value of any futures
and/or options  position.  The value of all futures  contracts and/or options in
which the Fund  acquires an interest will not exceed 20% of current total assets
(35% if under $25 million in total net assets).

IS THE FUND RIGHT FOR YOU?

The  Fund  may  be a  suitable  investment  for  you  if  you  wish  to  add  an
international  stock fund to your existing  holdings,  which could include other
stock,  bond and money market  investments.  You should be willing to accept the
additional risks associated with international  investments.  If you are seeking
growth of capital and income over the  long-term (at least five years) this Fund
may be an attractive investment for you.

37
<PAGE>

PERFORMANCE

Performance  results  have not been  provided  because  the Fund has not been in
existence for a full calendar year.

FUND FEES & EXPENSES

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

--------------------------------------------------------------------------------
SHAREHOLDER FEES
   Sales and redemption charges                     NONE
ANNUAL OPERATING EXPENSES
   (Expenses that are deducted from Fund Assets)
   Management fees                                 0.85%
   Distribution (12b-1) fees                        NONE
   Other expenses                                  3.14%
                                                   -----
   Total annual operating expense                  3.99%
   Expense reimbursement                           3.04%
                                                   -----
NET ANNUAL FUND OPERATING EXPENSE                  0.95%*

*    The  Manager  has  limited  the Fund's  expenses  at 0.95% since the Fund's
     inception. This limitation is guaranteed through 12/31/01.
--------------------------------------------------------------------------------

This  example is intended to help you compare the cost of  investing in the Fund
with the cost of investing in other mutual funds.

The example  assumes  that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
example also assumes that your investment has a 5% return each year and that the
Fund's  operating  expenses  remain the same.  Although your actual costs may be
higher or lower, based on these assumptions your costs would be:

          1 year     3 years     5 years     10 years
           $97         $936       $1,791      $4,008

                                                                              38
<PAGE>

FINANCIAL HIGHLIGHTS

The financial  highlights  table is intended to help you  understand  the Fund's
financial  performance since the Fund's inception.  Certain information reflects
financial  results  for a single  Fund  share.  The total  returns  in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming  reinvestment  of all dividends and  distributions).  This
information  has been audited by Tait Weller & Baker,  whose report,  along with
the Fund's  financial  statements  are included in the Annual  Report,  which is
available upon request.

                                         January 18, 2000*
                                        to August 31, 2000
                                        ------------------
EUROPEAN GROWTH & INCOME FUND
Net asset value, beginning of period ....   $   10.00
                                            ---------
   INCOME FROM INVESTMENT
     OPERATIONS
   Net investment income ................        0.09
   Net loss on securities (both
      realized and unrealized) ..........       (0.45)
                                            ---------
         Total from investment operations       (0.36)
                                            ---------
   LESS DISTRIBUTIONS
    Dividends from net investment income        (0.05)
                                            ---------
Net asset value, end of period ..........   $    9.59
                                            =========

Total Return ............................       (3.59)%

RATIOS/SUPPLEMENTAL DATA
   Net assets, end of period (in 000's) .   $   1,505
   Ratio of expenses to average net
      assets:
         Before expense reimbursements ..        3.99%**
         After expense reimbursements ...        0.95%**
   Ratio of net investment loss to
      average net assets:
         Before expense reimbursements ..       (1.53)%**
         After expense reimbursements ...        1.51%**
   Portfolio Turnover ...................      114.30%

---------------------
* Commencement of operations.
** Annualized.


39
<PAGE>

--------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND
Ticker Symbol:  CAUSX
--------------------------------------------------------------------------------

GOAL

Maximize current income for investors.

The U.S. Government Securities Fund seeks liquidity, safety from credit risk and
as high a level of income as is consistent with these objectives by investing in
full faith and credit  obligations  of the U.S.  government  and its agencies or
instrumentalities,    primarily   Government   National   Mortgage   Association
Certificates ("GNMA").

STRATEGY

The Fund invests primarily in high-quality bonds whose interest is guaranteed by
the full faith and credit of the United  States  government  and its agencies or
instrumentalities.

WHAT IS THE MANAGER'S APPROACH?

The  Manager  will select  securities  that it  believes  will  provide the best
balance   between  risk  and  return   within  the  Fund's  range  of  allowable
investments. Generally, the Manager will select a balance between treasury bonds
and GNMA  securities  in an attempt to maximize the overall  performance  of the
Fund. The Fund is actively managed for total return.  In managing the portfolio,
a number of  factors  are  considered  including  general  market  and  economic
conditions and their likely effects on the level and  term-structure of interest
rates,  yield  spreads,  and  mortgage  prepayment  rates  on GNMA  pass-through
securities.  While income is the most  important  past of return over time,  the
total  return for a bond fund  includes  both income and price losses and gains.
Under normal  circumstances,  it is the Fund's  policy to invest at least 65% of
its total assets in securities issued by the U.S. government and its agencies or
instrumentalities, but as a general rule the percentage is much higher.

MAIN RISKS

The Fund is subject to several risks,  any of which could cause the fund to lose
money. These include:

Interest  rate risk,  which is the chance that bond prices  overall will decline
over short and  long-term  periods  due to rising  interest  rates.  This is the
primary risk of this Fund.

Income risk,  which is the chance that declining  interest rates will reduce the
amount of income paid by the Fund over long periods of time.

                                                                              40
<PAGE>

Prepayment  risk  is  similar  to call  risk.  In the  case of GNMA  securities,
payments to the Fund are based on payments from the underlying mortgages. During
periods where homeowners  refinance their  mortgages,  these securities are paid
off  and  the  Fund  may  have to  reinvest  the  principal  in  lower  yielding
securities. This would reduce the income generated from the portfolio.

Manager risk,  which is the chance that poor security  selection  will cause the
Fund to underperform other mutual funds with similar investment objectives.

The Fund invests in intermediate and long-term fixed income  securities.  During
periods  where   alternative   investments  such  as  stocks  and  money  market
instruments  out  perform  bonds,  we  expect  the  performance  of the  Fund to
underperform other mutual funds that invest in these alternative categories.

IS IT RIGHT FOR YOU?

If you are looking for a  conservative  income fund,  this Fund may be right for
you. You should be comfortable  with the changing  values of the bond market and
the risk that your investment could decline in value. Your investment time frame
should be long-term in nature. This Fund is better used as a passive investment,
meaning that you should not try to use the Fund to time movements in the overall
market.

PERFORMANCE

Below are a chart and a table showing the variability of the Fund's  performance
from  year to year.  The  table  compares  the  performance  of the Fund  with a
benchmark  indices.  These figures assume that all distributions are reinvested.
It is important to remember that past  performance  does not accurately  predict
future performance.

[GRAPHIC OMITTED]


 1990    1991    1992    1993    1994    1995    1996    1997    1998    1999
 8.59%  17.49%   8.36%  15.79%  -6.99%  23.35%  -0.48%   9.33%  12.08%  -4.94%

Best Quarter:   7.33% (Q2, 1989)      Worst Quarter:   -5.89% (Q1, 1996)
Year to date performance as of 11/30/00:  10.68%

AVERAGE ANNUAL RETURNS AS OF 12/31/99     1 year    5 years    10 years
                                          ------    -------    --------
US Government Securities Fund             -4.94%     7.41%      7.85%
Lehman Brothers Treasury Index            -2.53%     7.40%      7.33%
Lehman Brothers GNMA Treasury Index        1.92%     8.50%      7.58%
Date of inception: 12/5/85


41
<PAGE>

FUND FEES & EXPENSES

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


--------------------------------------------------------------------------------
SHAREHOLDER FEES
   Sales and redemption charges                        NONE
ANNUAL OPERATING EXPENSES
   (expenses that are deducted from Fund assets)
   Management fees                                    0.50%
   Distribution (12b-1) fees                           NONE
   Other expenses                                     0.22%
                                                      -----
   Total annual operating expenses                    0.72%
   Expense reimbursement*                             0.07%
                                                      -----
NET ANNUAL FUND OPERATING EXPENSE                     0.65%


*    The  Manager  has  limited  the Fund's  expenses  at 0.65% since the Fund's
     inception. This limitation is guaranteed through 12/31/01.
--------------------------------------------------------------------------------

This  example is intended to help you compare the cost of  investing in the Fund
with the cost of investing in other mutual funds.

The example  assumes  that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
example also assumes that your investment has a 5% return each year and that the
Fund's  operating  expenses  remain the same.  Although your actual costs may be
higher or lower, based on these assumptions your costs would be:


          1 year    3 years    5 years    10 years
           $66        $223       $394       $888


                                                                              42
<PAGE>

FINANCIAL HIGHLIGHTS

The financial  highlights  table is intended to help you  understand  the Fund's
financial  performance for the past 5 fiscal years. Certain information reflects
financial  results  for a single  Fund  share.  The total  returns  in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming  reinvestment  of all dividends and  distributions).  This
information  has been audited by Tait Weller & Baker,  whose report,  along with
the Fund's  financial  statements  are included in the Annual  Report,  which is
available upon request.

<TABLE>
<CAPTION>

                                                                     Year Ended August 31,
                                              -----------------------------------------------------------------
U.S. GOVERNMENT SECURITIES FUND                  2000          1999          1998          1997          1996
---------------------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>           <C>           <C>           <C>
Net asset value, beginning of year ........   $   10.24     $   11.30     $   10.38     $   10.15     $   10.66
                                              -----------------------------------------------------------------
   INCOME FROM INVESTMENT
    OPERATIONS
   Net investment income ..................        0.58          0.56          0.59          0.64          0.66
   Net gain (loss) on securities
      (both realized and unrealized) ......        0.14         (0.80)         1.01          0.36         (0.51)
                                              -----------------------------------------------------------------
         Total from investment operations .        0.72         (0.24)         1.60          1.00          0.15
                                              -----------------------------------------------------------------
   LESS DISTRIBUTIONS
   Dividends from net investment income ...       (0.58)        (0.56)        (0.61)        (0.63)        (0.66)
   Distribution from capital gains ........       (0.05)        (0.26)        (0.07)        (0.14)          .--
                                              -----------------------------------------------------------------
         Total distributions ..............       (0.63)        (0.82)        (0.68)        (0.77)        (0.66)
                                              -----------------------------------------------------------------
Net asset value, end of year ..............   $   10.33     $   10.24     $   11.30     $   10.38     $   10.15
                                              =================================================================

Total return ..............................        7.35%        (2.42)%       15.88%        10.00%         1.26%

RATIOS/SUPPLEMENTAL DATA
   Net assets, end of year (in 000's) .....   $  24,476     $  30,950     $  36,063     $  31,277     $  29,088
   Ratio of expenses to average net assets:
      Before expense reimbursements .......        0.72%         0.66%         0.68%         0.69%         0.71%
      After expense reimbursements ........        0.65%         0.65%         0.65%         0.65%         0.65%
   Ratio of net investment income
   to average net assets:
      Before expense reimbursements .......        5.82%         5.11%         5.46%         6.00%         6.10%
      After expense reimbursements ........        5.89%         5.12%         5.49%         6.04%         6.16%
   Portfolio Turnover .....................      184.60%       139.00%        65.27%       170.76%        89.11%
</TABLE>


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

43
<PAGE>


--------------------------------------------------------------------------------
SHORT-TERM U.S. GOVERNMENT BOND FUND
Ticker symbol: STUSX
--------------------------------------------------------------------------------

GOAL

The Fund will  attempt  to  maximize  current  income  and  preserve  investor's
principal.

STRATEGY

The  Fund  typically  invests  in  short  and  intermediate-term   fixed  income
securities  whose principal and interest are backed by the full faith and credit
of the U.S. Federal  Government.  In addition,  the Manager may invest in higher
yielding  securities  which are not  backed by the full  faith and credit of the
U.S.  Federal  Government.  The Fund  intends to  maintain  an average  maturity
between 2 and 6 years in an effort to reduce share price volatility.

The Fund's Manager  intends to select  securities  that it believes will provide
the best balance  between  risk and return  within the Fund's range of allowable
investments.  The Manager's investments will typically consist of full faith and
credit   obligations  of  the  U.S.  Federal  Government  and  its  agencies  or
instrumentalities,  as well as other  securities which the Manager believes will
enhance the Fund's  total  return.  The Manager  will invest at least 65% of the
Fund's  assets in  short-term  U.S.  government  notes and  bonds.  The  Manager
considers a number of factors, including general market and economic conditions,
to balance the portfolio. While income is the most important part of return over
time,  the total return from a bond or note includes both income and price gains
or losses.  The  Fund's  focus on income  does not mean it  invests  only in the
highest-yielding securities available, or that it can avoid losses of principal.

MAIN RISKS

This Fund tends to be very  conservative  in nature.  However,  it is subject to
several risks, any of which could cause the Fund to lose money. These include:

Interest  rate risk,  which is the chance that bond prices  overall will decline
over short and long-term periods due to rising interest rates.

Income risk,  which is the chance that declining  interest rates will reduce the
amount of income paid by the Fund.  Income risk is generally  moderate for short
and intermediate-term bonds.

Call risk,  which is the chance that during  declining  interest rates, the bond
issuer will call or prepay a high-yielding bond before the bond's maturity date.
This would force the Fund to purchase  lower  yielding  bonds which would reduce
the income generated from the portfolio and could potentially  result in capital
gains paid out by the Fund.

Manager risk, which is the chance that the Manager's security selection strategy
may cause the Fund to  underperform  other mutual funds with similar  investment
objectives.

                                                                              44
<PAGE>

IS THE FUND RIGHT FOR YOU?

The  Fund  may be  suitable  for you if you  have a short  to  intermediate-term
investment  horizon and want to earn dividend income from your  investment.  The
Fund may be  appropriate  for  investors  in  regular  accounts  and  retirement
accounts who want to avoid credit risk but are comfortable  with some volatility
of the Fund's share price.

PERFORMANCE

Performance  results  have not been  provided  because  the Fund has not been in
existence for a full calendar year.

FUND FEES & EXPENSES

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

--------------------------------------------------------------------------------
SHAREHOLDER FEES
   Sales and redemption charges                            NONE
ANNUAL OPERATING EXPENSES
   (expenses that are deducted from Fund assets)
   Management fees                                        0.50%
   Distribution (12b-1) fees                               NONE
   Other expenses                                         0.76%
                                                          -----
   Total annual operating expense                         1.26%
   Expense reimbursement*                                 0.81%
                                                          -----
NET ANNUAL FUND OPERATING EXPENSE                         0.45%*

*    The Manager has limited the Fund's  expenses at 0.45%.  This  limitation is
     guaranteed through 12/31/01.
--------------------------------------------------------------------------------

This  example is intended to help you compare the cost of  investing in the Fund
with the cost of investing in other mutual funds.

The example  assumes  that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
example also assumes that your investment has a 5% return each year and that the
Fund's  operating  expenses  remain the same.  Although your actual costs may be
higher or lower, based on these assumptions your costs would be:

          1 year     3 years     5 years     10 years
            $46        $319        $614       $1,451

45
<PAGE>

FINANCIAL HIGHLIGHTS

The financial  highlights  table is intended to help you  understand  the Fund's
financial  performance since the Fund's inception.  Certain information reflects
financial  results  for a single  Fund  share.  The total  returns  in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming  reinvestment  of all dividends and  distributions).  This
information  has been audited by Tait Weller & Baker,  whose report,  along with
the Fund's  financial  statements  are included in the Annual  Report,  which is
available upon request.


                                          January 18, 2000*
SHORT-TERM U.S. GOVT. BOND FUND          to August 31, 2000
                                         ------------------
Net asset value, beginning of period ....   $   10.00
                                            ---------
   INCOME FROM INVESTMENT
    OPERATIONS
   Net investment income ................        0.36
   Net gain on securities (both
      realized and unrealized) ..........        0.05
                                            ---------
         Total from investment operations        0.41
                                            ---------
   LESS DISTRIBUTIONS
   Dividends from net investment income .       (0.36)
                                            ---------
Net asset value, end of period ..........   $   10.05
                                            =========

Total Return ............................        4.15%

RATIOS/SUPPLEMENTAL DATA
   Net assets, end of period (in 000's) .   $   5,432
   Ratio of expenses to average net
      assets:
         Before expense reimbursements ..        1.26%**
         After expense reimbursements ...        0.09%**
   Ratio of net investment income to
      average net assets:
         Before expense reimbursements ..        5.02%**
         After expense reimbursements ...        6.19%**
   Portfolio Turnover ...................          --

-------------------
*    Commencement of operations.
**   Annualized.


                                                                              46
<PAGE>

--------------------------------------------------------------------------------
THE UNITED STATES TREASURY TRUST
Ticker Symbol: UTSXX
--------------------------------------------------------------------------------

GOAL

Maximize current income for investors and maintain a stable $1.00 share price.

The United States Treasury Trust seeks capital preservation,  safety, liquidity,
and,  consistent with these objectives,  the highest  attainable  current income
exempt  from state  income  taxes.  This Fund will  invest  its  assets  only in
short-term  U.S.  Treasury  securities  and  its  income  will  be  exempt  from
California (and most other states') personal income taxes.

STRATEGY

The Fund primarily invests its assets in high-quality, short-term Treasury bills
whose  interest is  guaranteed by the full faith and credit of the United States
government.  The Fund generally buys only securities that mature in 13 months or
less. The Fund's weighted average maturity will generally be less than 90 days.

WHAT IS THE MANAGER'S APPROACH?

The Manager selects securities that it believes will attain the highest possible
yield and maintain the $1.00 share price. The Manager  generally  purchases only
U.S Treasury  bills,  notes and bonds,  but may invest in other  securities from
time to time.

MAIN RISKS

The Fund is subject to some risks which  could cause the Fund to lose money.  It
is  important  to remember  that this Fund is not a  FDIC-insured  money  market
account. The risks include:

Interest rate risk, which is the chance that short-term  security prices overall
will  decline due to rising  interest  rates.  In an extreme  case, a short-term
movement could potentially change the Fund's share price to something other than
the $1.00 target.

Income risk,  which is the chance that declining  interest rates will reduce the
amount of income paid by the Fund.

Manager risk,  which is the chance that poor security  selection  will cause the
Fund to under perform other mutual funds with similar investment objectives.

The  securities  that the Fund  holds are backed by the full faith and credit of
the United States federal  government and are those that the Manager believes do
not  represent  credit risk to the Fund.  It is  important to note that the U.S.
government backs the securities held by the Fund, but not the Fund itself.

An investment  in the Fund is not insured or  guaranteed by the Federal  Deposit
Insurance Corporation or any other governmental agency.  Although the Fund seeks
to preserve the $1.00 share price,  it is possible to lose money by investing in
the Fund.

47
<PAGE>

IS IT RIGHT FOR YOU?

The Fund may be  appropriate  for those  seeking a cash  management  account and
investors who wish to protect their investment from volatile markets.  It may be
used in retirement accounts such as 401ks and IRAs. Lastly, the Fund's dividends
are generally not subject to state personal  income taxes.  Thus,  investors who
pay a high rate of state income taxes may benefit from this feature.

PERFORMANCE

Below are a chart and a table showing the variability of the Fund's  performance
from year to year. These figures assume that all  distributions  are reinvested.
It is important to remember that past  performance  does not accurately  predict
future performance.

[GRAPHIC OMITTED]


 1990   1991    1992    1993    1994    1995    1996    1997    1998    1999
 7.80%  5.82%   3.48%   2.81%   3.70%   5.32%   4.91%   4.90%   4.74%   4.29%

Best Quarter:   2.07% (Q2, 1993)      Worst Quarter:   0.68% (Q3, 1989)
Year to date performance as of 11/30/00:  5.02%

AVERAGE ANNUAL RETURNS AS OF 12/31/99     1year     5 years     10 Years
                                          -----     -------     --------
The United States Treasury Trust          4.29%      4.83%        4.77%
Date of inception: 4/26/89

Seven day yield as of 11/30/00: 5.85%


FUND FEES & EXPENSES

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


--------------------------------------------------------------------------------
SHAREHOLDER FEES
   Sales and redemption charges                     NONE
ANNUAL OPERATING EXPENSES
   (expenses that are deducted from Fund assets)
   Management fees                                 0.50%
   Distribution (12b-1) fees                        NONE
   Other expenses                                  0.16%
                                                   -----
   Total annual operating expenses                 0.66%
   Expense reimbursement*                          0.26%
                                                   -----
NET ANNUAL FUND OPERATING EXPENSE                  0.40%


*    The  Manager  has  agreed  to limit  the  Fund's  expenses  at 0.40% . This
     limitation is guaranteed through 12/31/01.
--------------------------------------------------------------------------------

                                                                              48
<PAGE>

This  example is intended to help you compare the cost of  investing in the Fund
with the cost of investing in other mutual funds.

The example  assumes  that you invest  $10,000 in the Fund for the time  periods
indicated  and then redeem all of your shares at the end of those  periods.  The
example also assumes that your investment has a 5% return each year and that the
Fund's  operating  expenses  remain the same.  Although your actual costs may be
higher or lower, based on these assumptions your costs would be:


          1 year     3 years     5 years     10 years
           $41         $185        $342        $798


FINANCIAL HIGHLIGHTS

The financial  highlights  table is intended to help you  understand  the Fund's
financial  performance for the past 5 fiscal years. Certain information reflects
financial  results  for a single  Fund  share.  The total  returns  in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming  reinvestment  of all dividends and  distributions).  This
information  has been audited by Tait Weller & Baker,  whose report,  along with
the Fund's  financial  statements  are included in the Annual  Report,  which is
available upon request.

<TABLE>

<CAPTION>
                                                                Year Ended August 31,
                                              --------------------------------------------------------------
THE UNITED STATES TREASURY TRUST                 2000         1999         1998         1997          1996
------------------------------------------------------------------------------------------------------------
<S>                                           <C>          <C>          <C>          <C>           <C>
Net asset value, beginning of year ........   $   1.000    $   1.000    $   1.000    $   1.000     $   1.000
                                              --------------------------------------------------------------
   INCOME FROM INVESTMENT
     OPERATIONS
   Net investment income ..................       0.050        0.042        0.051        0.048         0.050
   LESS DISTRIBUTIONS
   Dividends from net investment
      income ..............................      (0.050)      (0.042)      (0.051)      (0.048)       (0.050)
                                              --------------------------------------------------------------
Net asset value, end of year ..............   $   1.000    $   1.000    $   1.000    $   1.000     $   1.000
                                              ==============================================================

Total return ..............................        5.12%        4.22%        5.21%        4.92%         5.11%

RATIOS/SUPPLEMENTAL DATA
   Net assets, end of year (in 000's) .....   $  56,464    $  50,517    $  44,341    $ 104,509     $  37,903
   Ratio of expenses to average net assets:
      Before expense reimbursements .......        0.66%        0.63%        0.64%        0.64%         0.66%
      After expense reimbursements ........        0.40%        0.41%        0.40%        0.40%         0.43%
   Ratio of net investment income
    to average net assets:
      Before expense reimbursements .......        4.76%        3.92%        4.54%        4.58%         4.60%
      After expense reimbursements ........        5.02%        4.14%        4.78%        4.82%         4.83%
</TABLE>


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

49
<PAGE>

FUND MANAGEMENT


The portfolio manager for the Funds is CCM Partners, 44 Montgomery Street, Suite
2100, San Francisco,  CA 94104. CCM Partners manages $650 million in mutual fund
assets  and  has  been  managing  mutual  funds  since  1985.  CCM  Partners  is
responsible for managing the portfolios and handling the  administrative  duties
of the Funds.  As  compensation  for these  services,  CCM  Partners  receives a
management  fee from each Fund. For the period ended 8/31/00 the fees were 0.48%
for the  California  Tax-Free  Income  Fund;  0.33% for the  California  Insured
Intermediate  Fund;  0.24% for the California  Tax-Free Money Market Fund; 0.05%
for the S&P 500 Index Fund;  0.23% for the S&P MidCap Index Fund;  0.15% for the
S&P SmallCap  Index Fund;  0.32% for the Equity Income Fund;  0.43% for the U.S.
Government  Securities  Fund;  0.24% for The United States Treasury  Trust;  and
0.16% of the Nasdaq-100  Index Fund. For the period ended 8/31/00,  CCM Partners
reimbursed two Funds in excess of management fees to limit operating expenses of
those Funds.  The amounts  were 2.19% for the European  Growth & Income Fund and
0.67% for the Short-Term U.S. Government Bond Fund.


Phillip W.  McClanahan  is the  portfolio  manager for the  California  Tax-Free
Income Fund,  the California  Insured  Intermediate  Fund,  the U.S.  Government
Securities Fund and The United States Treasury Trust. He joined the firm in 1985
and has over 35 years of investment  experience.  Mr. McClanahan  graduated from
the  University  of Kansas in 1958 and  earned  his MBA from the  University  of
Pennsylvania, Wharton School in 1966.

Roderick G.  Baldwin is the  portfolio  manager for the S&P 500 Index Fund,  S&P
MidCap  Index Fund,  S&P  SmallCap  Index Fund,  European  Growth & Income Fund,
Nasdaq-100  Index Fund and the Equity  Income  Fund.  He joined CCM  Partners in
1999. Prior to his employment with CCM Partners,  he was Vice President of Index
Investing at Bank of America  Capital  Management.  Mr.  Baldwin  graduated from
Hamilton College in 1968 and earned his MBA from the University of Pennsylvania,
Wharton School in 1970. He has  approximately 30 years of experience with equity
fund management.

                                                                              50
<PAGE>

Michael J. Conn is the  portfolio  manager  for the  California  Tax-Free  Money
Market Fund and the Short-Term  U.S.  Government  Bond Fund. Mr. Conn joined CCM
Partners in 1996 and prior to his  joining the firm,  spent 3 years at Gruntal &
Co.  specializing in trading and institutional sales of fixed income securities.
Mr. Conn graduated from the Leavy School of Business at Santa Clara University.


When referring to Bond Funds,  we are discussing the California  Tax-Free Income
Fund,  California Insured Intermediate Fund, U.S. Government Securities Fund and
the  Short-Term  U.S.  Government  Bond Fund. The Money Market Funds include our
California  Tax-Free Money Market Fund and The United States Treasury Trust. Our
Stock Funds include the S&P 500 Index Fund,  S&P MidCap Index Fund, S&P SmallCap
Index Fund, European Growth & Income Fund,  Nasdaq-100 Index Fund and the Equity
Income Fund.


ADDITIONAL INVESTMENT RELATED RISKS

PORTFOLIO TURNOVER
Except  for the Money  Market  Funds,  the Funds  generally  intend to  purchase
securities for long-term  investments  rather than short-term gains.  However, a
security may be held for a shorter than expected  period of time if, among other
things,  the Manager needs to raise cash or feels that it is  appropriate  to do
so.  Portfolio  holdings  may  also  be  sold  sooner  than  anticipated  due to
unexpected  changes in the markets.  Buying and selling  securities  may involve
incurring some expense to a Fund, such as commissions  paid to brokers and other
transaction  costs.  By selling a security,  a Fund may realize  taxable capital
gains that it will subsequently distribute to shareholders.  Generally speaking,
the higher a Fund's annual portfolio  turnover,  the greater its brokerage costs
and the greater likelihood that it will realize taxable capital gains. Increased
brokerage  costs  may  affect  a  Fund's  performance.  Also,  unless  you are a
tax-exempt investor or you purchase shares through a tax-deferred  account,  the
distributions of capital gains may affect your after-tax return. For some Funds,
annual  portfolio  turnover  of  100%  or  more is  considered  high.  The  U.S.
Government Securities Fund and the European Growth & Income Fund had turnover in
excess of 100% during their last fiscal year.

51
<PAGE>

OPENING AN ACCOUNT

Shares of the Funds may be purchased  through the Funds'  distributor or through
other  third party  distributors,  brokerage  firms and  retirement  plans.  The
following   information   is  specific  to  buying   directly  from  the  Funds'
distributor.  If you  invest  through  a third  party  distributor,  many of the
policies,  options and fees charged for the  transaction  may be different.  You
should contact them directly for  information  regarding how to invest or redeem
through them.

You'll  find all the  necessary  application  materials  included  in the packet
accompanying  this Prospectus or you may download an investment kit by accessing
our Web site at  www.caltrust.com.  Additional  paperwork  may be  required  for
corporations,  associations,  and certain other fiduciaries. The minimum initial
investments and subsequent investments for each Fund are listed below.


                             Minimum     Minimum
                             initial   subsequent    IRA
                           investment  investment  minimum
                           -------------------------------
     Bond Funds              $10,000      $250      $500
     Money Market Funds      $10,000      $250      $500
     Stock Funds             $ 5,000      $250      $500


The Fund's  distributor may change the minimum investment amounts at any time or
waive them at its discretion.  To protect against fraud, it is the policy of the
Funds not to accept  third party checks for the purposes of opening new accounts
or  purchasing  additional  shares.  If you have any  questions  concerning  the
application  materials,  wire  transfers,  or our yields  and net asset  values,
please call us, toll-free at (800) 225-8778. If you have any questions about our
investment  policies and  objectives,  please call us at (415) 398-2727 or (800)
225-8778.

BUYING AND SELLING SHARES
If you need an account  application  call us at (800)  225-8778  or down load an
investment kit from our web site at www.caltrust.com. Keep in mind the following
important policies:

o    A Fund may take up to 7 days to pay redemption proceeds.

o    If your shares were recently purchased by check, the Fund will not

                                                                              52
<PAGE>

     release your redemption proceeds until payment of the check can be verified
     which may take up to 15 days.

o    Exchange purchases must meet the minimum investment amounts of the Fund you
     are purchasing.

o    You must obtain and read the  prospectus  for the Fund you are buying prior
     to making the exchange.

o    If you  have  not  selected  the  convenient  exchange  privileges  on your
     original account application, you must provide a signature guarantee letter
     of instruction to the Fund, directing any changes in your account.

o    The Manager may refuse any purchase or exchange  purchase  transaction  for
     any reason.

HOW TO BUY SHARES

INITIAL PURCHASE
Make your check  payable to the name of Fund in which you are investing and mail
it with the application to the agent of the Funds, Firstar Mutual Fund Services,
LLC, at the address indicated below. Please note the minimum initial investments
previously listed.

     Firstar Mutual Fund Services, LLC
     PO Box 701
     Milwaukee, WI 53201-0701


You many also forward the account application to the Fund's offices,  which will
in turn forward the check on your behalf to the Fund's  agent.  Please note that
the shares will be purchased at the next  calculated  price after receipt by the
agent,  which is typically the next business day following receipt at the Funds'
offices. The Funds offices are located at the following address:


     CALIFORNIA INVESTMENT TRUST FUND GROUP
     44 MONTGOMERY STREET, SUITE 2100
     SAN FRANCISCO, CA 94104

53
<PAGE>

PURCHASING BY EXCHANGE
You may purchase shares in a Fund by exchanging shares from an account in one of
our other  Funds.  Such  exchanges  must meet the minimum  amounts  required for
initial or subsequent  investments described on page 52. When opening an account
by  exchanging  shares,  your  new  account  must be  established  with the same
registration as your other California Investment Trust Fund Group account and an
exchange  authorization  must be in effect. If you have an existing account with
us, call (800)  225-8778  during  normal  business  hours (8 AM to 5 PM, PST) to
exchange shares.

You may also exchange shares by accessing our Web site at www.caltrust.com.  You
must  complete  the on-line  access  agreement  in order to access your  account
on-line.

Each  exchange  actually  represents  the  sale of  shares  of one  Fund and the
purchase  of  shares  in  another,  which  may  produce  a gain or loss  for tax
purposes. We will confirm each exchange transaction with you by mail.

All  transactions  are  processed  at the  share  price  next  calculated  after
receiving the instructions in good form, normally at 4:00 p.m., eastern standard
time.

                               -------------------------------------------------
WIRE INSTRUCTIONS:             Firstar Bank Milwaukee, NA
   Provide your bank or        ABA # 075000022
   broker with these           For: Firstar Mutual Fund Services, LLC
   instructions                Account # 112-952-137

                               For further credit to:
                               Name of fund:         (name of fund here)
                               Account registration: (name on account here)
                               Account number:       (account number here)
                               -------------------------------------------------

If you are  opening  a new  account  by wire,  you must  first  call  California
Investment Trust Fund Group at (800) 225-8778 to obtain an account number.

                                                                              54
<PAGE>

In order to make your  order  effective,  we must have your  order in good form.
Accordingly,  your  purchase  will be  processed  at the net  asset  value  next
calculated  after your order has been  received  by the Funds'  agent.  You will
begin to earn  dividends as of the first  business day following the day of your
purchase.

All your  purchases  must be made in U.S.  dollars  and checks  must be drawn on
banks located in the U.S. We reserve the right to limit the number of investment
checks  processed at one time. If the check does not clear,  we will cancel your
purchase, and you will be liable for any losses and fees incurred.

When you purchase by check,  redemption  proceeds  will not be sent until we are
satisfied that the investment has been collected  (confirmation of clearance may
take up to 15 days).  Payments by check or other  negotiable  bank  deposit will
normally be effective  within two business  days for checks drawn on a member of
the Federal  Reserve System and longer for most other checks.  Wiring your money
to us will  generally  reduce  the  time  you  must  wait  before  redeeming  or
exchanging  shares.  You can wire federal funds from your bank or broker,  which
may charge you a fee.

You may buy shares of a Fund through selected securities brokers. Your broker is
responsible for the transmission of your order to Firstar, the Funds' agent, and
may charge you a fee. You will generally receive the share price next determined
after your order is placed with your broker,  in  accordance  with your broker's
agreed upon  procedures  with the Funds.  Your broker can advise you of specific
details.

If you wish, you may also deliver your investment checks (and  application,  for
new accounts) to the Fund's office. Your order will be forwarded promptly to the
Funds' agent for  processing.  You will receive the share price next  determined
after your check has been received by Firstar Mutual Fund Services,  LLC. Checks
delivered to the Funds' office will be  over-nighted  to the Funds' agent, so in
most cases, the shares will be purchased on the following business day.

The Funds do not consider the U.S. Postal Service or other independent  delivery
service to be their agents. Therefore, deposit in the mail or with such delivery
services does not constitute receipt by Firstar or the Funds.

55
<PAGE>

PURCHASING ADDITIONAL SHARES
Make your  check  payable  to the name of the Fund in which  you are  investing,
write  your  account  number  on the  check,  and  mail  your  check  with  your
confirmation stub to the address printed on your account  statement.  There is a
$250 minimum for subsequent investments.

After setting up your on-line account,  you may obtain a history of transactions
for your account(s) by accessing our Web site at www.caltrust.com.

AUTOMATIC SHARE ACCUMULATION PLAN

Using the Funds' Automatic Share  Accumulation  Plan (ASAP),  you may arrange to
make  additional  purchases  (minimum $250)  automatically  by electronic  funds
transfer (EFT) from your checking or savings account. Your bank must be a member
of the Automated  Clearing  House.  You can terminate the program with ten-day's
written  notice.  There is no fee to  participate  in this program,  however,  a
service fee of $20.00 will be deducted  from your account for any ASAP  purchase
that does not clear due to  insufficient  funds,  or if prior to  notifying  the
Funds in writing or by  telephone  to  terminate  the plan,  you close your bank
account  or in any  manner  that  prevents  withdrawal  of the  funds  from  the
designated  checking  or NOW  account.  Investors  may obtain  more  information
concerning this program, including the application form, from the Funds.

The share prices of the Funds are subject to  fluctuations.  Before  undertaking
any plan for systematic investment,  you should keep in mind that such a program
does not assure a profit or protect against a loss.

We reserve the right to suspend the offering of shares of any of the Funds for a
period of time and to reject any specific purchase order in whole or in part.

HOW FUND SHARES ARE PRICED

The Funds are open for business  every day that both the New York Stock Exchange
(NYSE) and the Federal Reserve Bank of New York are open.

                                                                              56
<PAGE>

Stock Funds are closed on days that the U.S.  equity markets are closed and Bond
Funds are closed on days that the bond  markets are closed.  The net asset value
of each Fund is  computed  by adding  all of its  portfolio  holdings  and other
assets, deducting its liabilities, and then dividing the result by the number of
shares  outstanding  for that Fund. Our Shareholder  Servicing Agent  calculates
this value at market close, normally 4:00 p.m. eastern time or 1:00 p.m. Pacific
time,  on each day that the  markets  are open.  The number of shares your money
buys is determined by the share price of the Fund on the day your transaction is
processed.  Orders that are received in good form by Firstar are executed at the
net  asset  value  next  calculated.  The  Funds'  net asset  value  will not be
calculated, nor transactions processed, on certain holidays observed by national
banks and/or the NYSE.

The share prices of the Funds,  (except the Money  Market  Funds) will vary over
time as  interest  rates  and the  value of  their  securities  vary.  Portfolio
securities of the Stock Funds that are listed on a national  exchange are valued
at the last reported  sale price.  U.S.  Treasury  Bills are valued at amortized
cost, which approximates  market value.  Portfolio  securities of the Bond Funds
are  valued  by an  independent  pricing  service  that uses  market  quotations
representing  the latest  available  mean between the bid and ask price,  prices
provided by market  makers,  or estimates of market  values  obtained from yield
data  relating  to  instruments  or  securities  with  similar  characteristics.
Securities  with  remaining  maturities  of 60 days or less are valued using the
amortized cost basis as reflecting fair value.  All other  securities are valued
at their fair value as  determined  in good  faith by the  respective  Boards of
Trustees.

The  share  price of the Funds  are  reported  by the  National  Association  of
Securities  Dealers,  Inc. in the mutual funds section of most newspapers  after
the heading "California Trust".

PERFORMANCE INFORMATION
All performance  information  published in advertisements,  sales literature and
communications  to investors,  including  various  expressions of current yield,
effective yield, tax equivalent  yield,  total return and distribution  rate, is
calculated  and  presented  in  accordance  with  the  rules  prescribed  by the
Securities and Exchange Commission.  In each case, performance  information will
be based on past performance and will reflect all recurring charges against Fund
income.  Performance  information  is  based  on  historical  data  and does not
indicate the future performance of any Fund.

57
<PAGE>

HOW TO SELL SHARES

BY MAIL
You may  redeem  all or a portion of your  shares on any  business  day that the
Funds are open for business. Your shares will be redeemed at the net asset value
next  calculated  after we have received your  redemption  request in good form.
Remember that we may hold  redemption  proceeds  until we are satisfied  that we
have collected the funds which were deposited by check.  To avoid these possible
delays, which could be up to 15 days, you should consider making your investment
by wire, following the instructions on page 54.

If you have not elected telephone  redemption or transfer  privileges,  you must
send a  "signature-guaranteed  letter of instruction" specifying the name of the
Fund, the number of shares to be sold, your name, and your account number to the
Funds'  offices.  If you have additional  questions,  please contact us at (800)
225-8778.

The Custodian  requires that signature(s) be guaranteed by an eligible signature
guarantor such as a commercial  bank,  broker-dealer,  credit union,  securities
exchange or association,  clearing agency or savings association. This policy is
designed to protect shareholders and their accounts.

BY CHECK
With checkwriting,  our most convenient  redemption  procedure,  your investment
will continue to earn income until the check clears your account. You must apply
for the checkwriting  feature for your account. You may redeem by check provided
that  the  proper  signatures  you  designated  are on the  check.  The  minimum
redemption  amount by check is $500. There is no charge for this service and you
may write an unlimited number of checks.

You should not attempt to close your account by check,  since you cannot be sure
of the  number of  shares  and value of your  account.  You must use the  phone,
on-line  or mail  redemption  feature to close your  account.  The  checkwriting
feature is not available  for any of our Stock Funds.  Please note that a $20.00
fee will be charged to your account for any returned check.

BY EXCHANGE
You must meet the minimum investment requirement of the Fund into

                                                                              58
<PAGE>

which you are exchanging  shares.  You can only exchange  between  accounts with
identical  registration.  Same day  exchanges  are accepted  until market close,
normally 4:00 p.m., Eastern time (1:00 p.m., Pacific time).


BY WIRE
You must have applied for the wire feature on your  account.  We will notify you
when this feature is active and you may then make wire redemptions by calling us
before 4:00 p.m. eastern time (1:00 p.m.,  Pacific time).  This means your money
will be wired to your bank the next  business  day.  There is a charge  for each
wire (currently $15.00).


BY ELECTRONIC FUNDS TRANSFER
You must have applied for the EFT withdrawal feature on your account. Typically,
money sent by EFT will be sent to your bank within three business days after the
sales of your securities. There is no fee for this service.

ONLINE
You  can  sell  shares  in a  regular  account  by  accessing  our  Web  site at
www.caltrust.com.  You may not buy or sell shares in a retirement  account using
our on-line feature.

BY TELEPHONE
You must have this feature set up in advance on your account.  Call the Funds at
(800) 225-8778. Give the name of the Fund in which you are redeeming shares, the
exact name in which  your  account  is  registered,  your  account  number,  the
required  identification  number and the number of shares or dollar  amount that
you wish to redeem.  Telecommunications  Device for the Deaf (TDD)  services for
hearing impaired shareholders are available for telephone redemptions by calling
(800) 864-3416.

Unless you submit an account  application  that indicates that you have declined
telephone and/or online exchange privileges,  you agree, by signing your account
application, to authorize and direct the Funds to accept and act upon telephone,
on-line,  telex,  fax, or telegraph  instructions  for exchanges  involving your
account  or any other  account  with the same  registration.  The  Funds  employ
reasonable  procedures  in  an  effort  to  confirm  the  authenticity  of  your
instructions, such as requiring a seller

59
<PAGE>

to give a special authorization number.  Provided these procedures are followed,
you further  agree that neither a Fund nor the Fund's agent will be  responsible
for any loss, damage,  cost or expense arising out of any instructions  received
for an account.

You should realize that by electing the telephone exchange or the on-line access
options,  you may be giving up a measure of  security  that you might  otherwise
have if you were to exchange your shares in writing.  For reasons  involving the
security of your account, telephone transactions may be tape recorded.

SYSTEMATIC WITHDRAWAL PLAN
If you own shares of a Fund with a value of $10,000 or more, you may establish a
Systematic  Withdrawal  Plan. You may receive  monthly or quarterly  payments in
amounts of not less than $100 per payment.  Details of this plan may be obtained
by calling the Funds at (800) 225-8778.

OTHER REDEMPTION POLICIES
Retirement Plan shareholders  should complete a  Rollover-Distribution  Election
Form in order to sell  shares of the Funds so that the sale is treated  properly
for tax purposes.

Once your shares are  redeemed,  we will  normally  mail you the proceeds on the
next  business  day, but no later than within  seven days.  When the markets are
closed (or when trading is  restricted)  for any reason other than its customary
weekend or holiday closings, or under any emergency  circumstances as determined
by the Securities and Exchange  Commission to merit such action,  we may suspend
redemption or postpone  payment dates. If you want to keep your account(s) open,
please be sure that the value of your account does not fall below $5,000 ($1,000
in the case of Stock  Funds)  because of  redemptions.  The manager may elect to
close an account and mail you the  proceeds  to the  address of record.  We will
give you 30 days' written notice that your  account(s) will be closed unless you
make an  investment to increase  your account  balance(s) to the $5,000  minimum
($1,000 in the case of the Stock Funds). If you close your account,  any accrued
dividends will be paid as part of your redemption proceeds.

                                                                              60
<PAGE>

The share  prices of the Funds will  fluctuate  and you may receive more or less
than your original investment when you redeem your shares.

THE FUNDS AND THE MANAGER RESERVE CERTAIN RIGHTS,
INCLUDING THE FOLLOWING:

     o    To  automatically  redeem your shares if your  account  balance  falls
          below the minimum balance due to the sale of shares.
     o    To modify or  terminate  the exchange  privilege  on 60 day's  written
          notice.
     o    To refuse any purchase or exchange purchase order.
     o    To change or waive a Fund's minimums.
     o    To  suspend  the  right to sell  shares  back to the  Fund,  and delay
          sending  proceeds,  during times when trading on the principal markets
          for the Funds are  restricted or halted,  or otherwise as permitted by
          the SEC.
     o    To  withdraw  or  suspend  any  part  of the  offering  made  by  this
          Prospectus.

OTHER POLICIES

TAX-SAVING RETIREMENT PLANS
We can set up your new  account  in a Fund  under one of  several  tax-sheltered
plans.  The following  plans let you save for your  retirement  and shelter your
investment earnings from current income taxes:

IRAs/Roth IRAs: You can also make investments in the name of your spouse if your
spouse has no earned  income.  Each Fund is subject to an annual  custodial fee,
currently  $12.50  with a maximum  annual  charge of $25.00 per social  security
number. This fee is normally assessed in September of each year.

SIMPLE, SEP,  401(k)/Profit-Sharing  and Money-Purchase  Plans (Keogh):  Open to
corporations,  self-employed people and partnerships,  to benefit themselves and
their employees.

403(b)  Plans.  Open to  eligible  employees  of certain  states and  non-profit
organizations.

We can provide you with complete  information  on any of these plans,  including
information that discusses benefits, provisions and fees.

61
<PAGE>

CASH  DISTRIBUTIONS
Unless you otherwise indicate on the account  application,  we will reinvest all
dividends  and  capital  gains  distributions  back into your  account.  You may
indicate on the application  that you wish to receive either income dividends or
capital  gains  distributions  in  cash.  Electronic  Funds  Transfer  (EFT)  is
available  to those  investors  who would  like their  dividends  electronically
transferred to their bank accounts.  For those investors who do not request this
feature,  dividend  checks  will be mailed  via  regular  mail.  If you elect to
receive  distributions  by mail and the U.S.  Postal Service cannot deliver your
checks,  we will void such checks and reinvest your money in your account at the
then current net asset value and reinvest your subsequent distributions.

STATEMENTS AND REPORTS
Shareholders  of the Funds will receive  statements  at least  monthly and after
every transaction that affects their share balance and/or account  registration.
A  statement  with tax  information  will be mailed to you by January 31 of each
year,  a copy of which will be filed  with the IRS if it  reflects  any  taxable
distributions.  Twice a year you will receive our financial statements, at least
one of which will be audited.

The account  statements you receive will show the total number of shares you own
and a current  market value.  You may rely on these  statements in lieu of share
certificates  which are not necessary  and are not issued.  You should keep your
statements to assist in record keeping and tax calculations.

We pay for regular reporting services,  but not for special services,  such as a
request for an historical transcript of an account. You may be required to pay a
separate fee for these special services.  After setting up your on-line account,
you may also obtain a transaction  history for your account (s) by accessing our
Web site at www.caltrust.com.


CONSOLIDATED MAILINGS & HOUSEHOLDING
Consolidated  statements offer  convenience to investors by summarizing  account
information  and reducing  unnecessary  mail.  We send these  statements  to all
shareholders,   unless  shareholders   specifically  request  otherwise.   These
statements include a summary of all Funds held by each shareholder as identified
by the  first  line of  registration,  social  security  number  and  zip  code.
Householding refers to the practice of mailing one

                                                                              62
<PAGE>

prospectus,  Annual Report and Semi-Annual Report to each home for all household
investors.  The Funds will use this  practice  for all future  mailings.  If you
would  like  extra  copies  of  these  reports,  please  download  a  copy  from
caltrust.com or call the Funds at (800) 225-8778.


DIVIDENDS & TAXES
Any investment in the Funds typically involves several tax  considerations.  the
information below is meant as a general summary for U.S. citizens and residents.
Because your  situation may be different,  it is important that you consult your
tax advisor about the tax implications of your investment in any of the Funds.

As a  shareholder,  you are  entitled to your share of the  dividends  your Fund
earns. The Stock Funds distribute  substantially all their dividends  quarterly.
Shareholders  of record on the second to last  business  day of the quarter will
receive the dividends.


The Bond Funds and the Money Market  Funds  distribute  substantially  all their
dividends monthly.  Shareholders of record on the second to last business day of
the month will receive the dividends.


Capital gains are generally paid on the last day of November, to shareholders of
record on the second to last  business day of November of each year.  The United
States  Treasury  Trust and the  California  Tax-Free  Money  Market Fund do not
expect to pay any capital gains. At the beginning of each year, shareholders are
provided  with  information  detailing  the tax status of any dividend the Funds
have paid during the previous year.


After every  distribution,  the value of a Fund share drops by the amount of the
distribution.  If you purchase shares of one of the Funds before the record date
of a distribution and elect to have  distributions paid to you in cash, you will
pay the full price for the shares and then  receive  some  portion of that price
back in the form of a taxable  distribution.  This is  sometimes  referred to as
buying a dividend.


63
<PAGE>

TO LEARN MORE

This prospectus  contains important  information on the Funds and should be read
and kept for  future  reference.  You can  also  get more  information  from the
following sources:

ANNUAL AND SEMI-ANNUAL REPORTS
These are automatically mailed to all shareholders without charge. In the Annual
Report,  you  will  find  a  discussion  of  market  conditions  and  investment
strategies that  significantly  affected each Fund's performance during its most
recent fiscal year.  The Annual Report is  incorporated  by reference  into this
Prospectus, making it a legal part of the Prospectus.

STATEMENT OF ADDITIONAL INFORMATION
This includes more details about the Funds,  including a detailed  discussion of
the risks  associated with the various  investments.  The SAI is incorporated by
reference into this Prospectus, making it a legal part of the Prospectus.

You may obtain a copy of these  documents free of charge by calling the Funds at
(800) 225-8778,  emailing the Funds at  [email protected],  or by contacting the
SEC at the address noted below or via e-mail at [email protected].  The SEC may
charge you a duplication  fee. You can also review these  documents in person at
the SEC's  Public  Reference  Room,  or by visiting the SEC's  Internet  Site at
www.sec.gov.

     CALIFORNIA INVESTMENT TRUST FUND GROUP
     44 MONTGOMERY STREET, SUITE 2100
     SAN FRANCISCO, CA 94104
     (800) 225-8778
     www.caltrust.com

     Securities and Exchange Commission
     Washington,  DC 20549-6009
     (202) 942-8090 (Public Reference Section)
     www.sec.gov
     SEC File Number     811-5049



<PAGE>

CALIFORNIA INVESTMENT TRUST FUND GROUP
44 Montgomery Street, Suite 2100
San Francisco, California 94104
(800) 225-8778
Statement of Additional Information - January 1, 2001


     The California  Investment  Trust Fund Group  presently  consists of twelve
separate  series which are part of California  Investment  Trust and  California
Investment Trust II (collectively the "Trusts"): California Tax-Free Income Fund
(the "Income Fund"),  California Insured Intermediate Fund (the "Insured Fund"),
California  Tax-Free  Money  Market Fund (the  "Money  Fund"),  U.S.  Government
Securities Fund (the "Government  Fund"),  The United States Treasury Trust (the
"Treasury Trust"), the S&P 500 Index Fund (the "500 Fund"), the S&P MidCap Index
Fund (the "MidCap Fund"), the S&P SmallCap Index Fund (the "SmallCap Fund"), the
Equity Income Fund, the European Growth & Income Fund (the "European Fund"), the
Nasdaq-100  Index  Fund  (the  "Nasdaq-100   Fund"),  and  the  Short-Term  U.S.
Government Bond Fund (the "Short-Term Government Fund").


     This  Statement  of  Additional  Information  relates  to all series of the
Trusts.  These  series are  sometimes  referred  to herein  collectively  as the
"Funds" and individually as a "Fund."

     THE  COMBINED  PROSPECTUS  FOR THE FUNDS DATED  JANUARY 1, 2001,  AS MAY BE
AMENDED FROM TIME TO TIME, PROVIDES THE BASIC INFORMATION YOU SHOULD KNOW BEFORE
INVESTING IN A FUND,  AND MAY BE OBTAINED  WITHOUT  CHARGE FROM THE FUNDS AT THE
ABOVE ADDRESS. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.  IT
CONTAINS  INFORMATION  IN  ADDITION  TO AND IN MORE DETAIL THAN SET FORTH IN THE
PROSPECTUS.  THIS STATEMENT OF ADDITIONAL INFORMATION IS INTENDED TO PROVIDE YOU
WITH  ADDITIONAL  INFORMATION  REGARDING THE  ACTIVITIES  AND  OPERATIONS OF THE
TRUSTS AND EACH FUND, AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS.

     The Income  Fund and the  Insured  Fund both seek as high a level of income
exempt  from  regular  federal  and  California  personal  income  taxes  as  is
consistent with prudent investment  management and safety of capital. The Income
Fund invests in intermediate  and long-term  municipal  bonds.  The Insured Fund
invests  primarily  in  municipal  securities  that  are  covered  by  insurance
guaranteeing the timely payment of principal and interest.

     The Money Fund  seeks  capital  preservation,  liquidity,  and the  highest
achievable current income,  exempt from regular federal and California  personal
income taxes consistent with safety. This Fund invests in short-term  securities
and attempts to maintain a constant net asset value of $1.00 per share.

     The Government Fund seeks liquidity,  safety from credit risk and as high a
level of income as is  consistent  with these  objectives  by  investing in full
faith  and  credit  obligations  of the  U.S.  Government  and its  agencies  or
instrumentalities,  primarily  Government National Mortgage Association ("GNMA")
Certificates.

     The Treasury  Trust seeks  capital  preservation,  safety,  liquidity,  and
consistent with these objectives,  the highest  attainable current income exempt
from  state  income  taxes.  This Fund  intends  to invest  its  assets  only in
short-term  U.S.  Treasury  securities  and  its  income  will  be  exempt  from
California (and most other states') personal income taxes.

     The 500 Fund is a diversified  mutual fund that seeks to provide investment
results that  correspond to the total return of common stocks publicly traded in
the United  States,  as represented by the Standard & Poor's (S&P) 500 Composite
Stock Price Index (the "S&P 500").

     The  MidCap  Fund is a  diversified  mutual  fund  that  seeks  to  provide
investment results that correspond to the total return of publicly traded common
stocks of medium-size  domestic companies,  as represented by the S&P MidCap 400
Index (the "MidCap Index").

     The  SmallCap  Fund is a  diversified  mutual  fund that  seeks to  provide
investment results that correspond to the total return of publicly traded common
stocks of  small-sized  companies,  as represented by the S&P SmallCap 600 Index
(the "SmallCap Index").

                                                                               1
<PAGE>

     The Equity Income Fund is a diversified mutual fund that seeks a high level
of current income by investing  primarily in income producing equity securities.
As a secondary  objective,  the Fund will also  consider the potential for price
appreciation when consistent with seeking current income.  Generally, the Equity
Income  Fund will be  managed  so that the  average  income  yield of the common
stocks held by the Fund will be at least 50%  greater  than the yield of the S&P
500.  Because  of these  strategies,  the Fund is  expected  to have less  price
volatility than the S&P 500.


     The  Nasdaq-100  Fund is a  diversified  mutual  fund that seeks to provide
investment   results  that  correspond  to  the  total  return  of  the  largest
non-financial,   publicly  traded,  companies  as  measured  by  The  Nasdaq-100
Index(R).

     The European Fund is a diversified mutual fund that seeks long-term capital
appreciation and income by investing in large-sized European companies.

     The  Short-Term  Government  Fund  seeks to  maximize  current  income  and
preserve  investor's  principal.   The  Fund  typically  invests  in  short  and
intermediate-term  fixed  income  securities  whose  principal  and interest are
backed  by  the  full  faith  and  credit  of  the  United  States   Government.
Additionally,  CCM  Partners  (the  "Manager")  may  invest in  higher  yielding
securities  which are not  backed by the full  faith  and  credit of the  United
States Government.

CONTENTS
                                                                            Page
About the California Investment Trust Fund Group ...................        B-3
Investment Objectives and Policies of the Tax-Free Funds ...........        B-3
Investment Objectives and Policies of the Government
  Fund, the Short Term Government Fund and the Treasury Trust ......        B-4
Investment Objectives and Policies of the Stock Funds ..............        B-6
Description of Investment Securities and
  Portfolio Techniques .............................................        B-6
Investment Restrictions ............................................        B-18
Trustees and Officers ..............................................        B-20
Investment Management and Other Services ...........................        B-21
The Trusts' Policies Regarding Broker-Dealers
  Used for Portfolio Transactions ..................................        B-24
Additional Information Regarding Purchases and
  Redemptions of Fund Shares .......................................        B-25
Taxation ...........................................................        B-27
Yield Disclosure and Performance Information .......................        B-29
Miscellaneous Information ..........................................        B-32
Financial Statements ...............................................        B-35
Appendix ...........................................................        B-35


                                                                               2
<PAGE>

ABOUT THE CALIFORNIA INVESTMENT TRUST FUND GROUP

     The  California  Investment  Trust Fund  Group  currently  consists  of two
diversified,  open-end management  investment  companies:  California Investment
Trust ("CIT") and California  Investment  Trust II ("CIT II"). Each Trust issues
its shares of beneficial  interest with no par value in different  series,  each
known as a "Fund." Shares of each Fund represent equal proportionate interest in
the assets of that Fund only, and have identical voting,  dividend,  redemption,
liquidation and other rights.  Shareholders have no preemptive or other right to
subscribe  to any  additional  shares  and  conversion  rights.  The  Trusts are
organized as Massachusetts business trusts. Currently, CIT has three Funds, each
of which maintains an entirely separate investment  portfolio:  the Income Fund,
the Money Fund,  and the Insured  Fund.  CIT II  currently  has nine Funds:  the
Government  Fund, the Treasury Trust,  the Short-Term  Government  Fund, the 500
Fund,  the MidCap Fund,  the SmallCap Fund, the Equity Income Fund, the European
Fund and the  Nasdaq-100  Fund.  The Income Fund, the Money Fund and the Insured
Fund are also  referred to herein as the  "Tax-Free  Funds."  The 500 Fund,  the
MidCap Fund,  the SmallCap  Fund and the  Nasdaq-100  Fund are also  referred to
herein as the "Index  Funds." The Index Funds,  combined  with the Equity Income
Fund and the European Fund are referred to as the "Stock Funds."


     As business  trusts,  the Trusts are not required,  nor do they intend,  to
hold annual shareholder meetings.  However, the Trusts may hold special meetings
for a specific Fund or a specific Trust as a whole for purposes such as electing
Trustees,  changing fundamental  policies, or approving an investment management
agreement.  You have equal rights as to voting and to vote separately by Fund as
to issues  affecting only your Fund (such as changes in  fundamental  investment
policies and  objectives).  Your voting rights are not  cumulative,  so that the
holders of more than 50% of the shares  voting in any election of Trustees  can,
if they choose to do so, elect all of the Trustees. Meetings of shareholders may
be called by the Trustees in their  discretion  or upon demand of the holders of
10% or more of the outstanding shares of any Fund for the purpose of electing or
removing Trustees.


INVESTMENT  OBJECTIVES AND POLICIES OF THE TAX-FREE FUNDS

     The  following  information  supplements  each Tax-Free  Fund's  investment
objectives and basic policies as set forth in the Prospectus.

     As noted in the Prospectus,  each Tax-Free Fund seeks to provide  investors
with income  exempt from federal and from  California  personal  income tax. The
Tax-Free  Funds  generally  are as fully  invested as  practicable  in municipal
securities.  However,  because the  Tax-Free  Funds do not  presently  intend to
invest in  taxable  obligations,  there may be  occasions  when,  as a result of
maturities of portfolio  securities or sales of Fund shares, or in order to meet
anticipated  redemption  requests,  a Fund may hold  cash  which is not  earning
income.


     Under California law, a mutual fund, or series thereof,  must have at least
50% of its total assets  invested in obligations  that produce  interest that is
exempt  from  California  personal  income  tax  if  received  by an  individual
(including  California state and local  obligations,  direct  obligations of the
U.S. Government and obligations of certain U.S.  territories and possessions) at
the end of each  quarter  of its  taxable  year in order to be  eligible  to pay
dividends to California  residents which will be exempt from California personal
income tax.  Accordingly,  as described in the Funds'  Prospectus,  under normal
market  conditions,  each  Tax-Free  Fund attempts to invest at least 80% of the
value of its net assets in securities,  the interest on which is, in the opinion
of legal  counsel,  exempt from  regular  federal and from  California  personal
income taxes,  and is not a separate tax preference  item subject to the federal
alternative minimum tax. Thus, it is possible, although not anticipated, that up
to 20% of a Tax-Free  Fund's  assets could be invested in  municipal  securities
from another state and/or in taxable obligations.


     The Income  Fund and the  Insured  Fund both seek as high a level of income
exempt from federal and California  personal  income taxes as is consistent with
prudent  investment  management and safety of capital.  The Income Fund seeks to
reduce,  to the extent possible,  the credit risks of its portfolio by investing
in California municipal securities having at the time of purchase one of the top
four  ratings,  or if unrated,  being of similar  quality to one of the top four
ratings provided by Standard & Poor's  Corporation  ("S&P"),  Moody's  Investors
Service  ("Moody's")  or Fitch  Investors  Service,  Inc.  ("Fitch").  These are
considered to be "investment grade" securities,  although  securities rated BBB,
Baa, BBB by S&P, Moody's and Fitch, respectively, in the fourth highest category
are regarded as having an adequate  capacity to pay  principal  and interest but
with  greater  vulnerability  to adverse  economic  conditions  and to have some
speculative characteristics.  No more than 20% of the Income Fund's total assets
will be invested in

                                                                               3
<PAGE>

securities in the fourth  highest category.

     The  Insured  Fund  seeks to reduce the credit  risks of its  portfolio  by
investing in California  municipal  securities that are insured as to the timely
payment of principal  and interest  under an  insurance  policy  obtained by the
issuer.  The  Insured  Fund also may  invest  up to 20% of its  total  assets in
uninsured  California  municipal  securities  in  one  of the  top  two  ratings
categories or if unrated of similar  quality to securities in one of the top two
ratings.

     If the rating on an issue held in either  the  Income  Fund or the  Insured
Fund's  portfolio is  downgraded,  the Manager will  consider  such event in its
evaluation  of  the  overall   investment  merits  of  that  security  but  such
consideration will not necessarily result in the automatic sale of the security.
When the Income Fund or the Insured Fund invests in securities not rated by S&P,
Moody's,  or Fitch, it is the responsibility of the Manager to evaluate them and
reasonably determine that they are of at least equal quality to securities rated
in the four highest categories.

     The  Money  Fund  invests  in  high-quality  securities,  whether  rated or
unrated.  Such issues  include those rated,  at the time of purchase,  not lower
than Aa (applicable to municipal bonds),  MIG-2 (applicable to municipal notes),
or P-1 (applicable to commercial paper) by Moody's; AA (bonds), SP-1 (notes), or
A-1  (commercial  paper) by S&P;  or AA  (bonds),  FIN-1+  (notes),  or  Fitch-2
(commercial paper) by Fitch. Generally, all of the instruments held by the Money
Fund are offered on the basis of a quoted yield to maturity and the price of the
security is adjusted so that  relative to the stated rate of  interest,  it will
return the quoted rate to the purchaser.

     Subsequent  to its  purchase by the Income  Fund,  the Insured  Fund or the
Money Fund,  a municipal  security may be assigned a lower rating or cease to be
rated. Such an event would not necessarily  require the elimination of the issue
from the  portfolio,  but the Manager will consider such an event in determining
whether the Income Fund,  the Insured Fund or the Money Fund should  continue to
hold the security in its portfolio.  In addition to considering ratings assigned
by the rating  services in its selection of portfolio  securities for the Income
Fund or the Money Fund, the Manager considers,  among other things,  information
concerning the financial history and condition of the issuer and its revenue and
expense  prospects and, in the case of revenue bonds, the financial  history and
condition of the source of revenue to service the debt securities.


INVESTMENT OBJECTIVES AND POLICIES OF THE
GOVERNMENT FUND, THE SHORT-TERM GOVERNMENT
FUND, AND THE TREASURY TRUST

     The following  information  supplements the investment objectives and basic
policies of the Government Fund, the Short-Term Government Fund and the Treasury
Trust as set forth in the Prospectus.


     The Government Fund seeks to provide liquidity, safety from credit risk and
as high a level of income as is consistent  with such objectives by investing in
full faith and credit  obligations  of the U.S.  Government  and its agencies or
instrumentalities.   To  achieve  its  objective,  the  Fund  currently  invests
primarily in "GNMA Certificates"  (popularly called "GNMA's" or "Ginnie Mae's").
GNMA's are mortgage-backed  securities  representing part ownership of a pool of
mortgage loans on real property.

     A GNMA Certificate differs from a bond in that principal is scheduled to be
paid back by the borrower  over the length of the loan rather than returned in a
lump sum at maturity. The Government Fund will purchase "modified  pass-through"
type GNMA  Certificates  for which the payment of  principal  and  interest on a
timely basis is guaranteed, rather than the "straight-pass through" Certificates
for which such guarantee is not available. The Government Fund may also purchase
"variable  rate" GNMA  Certificates  or any other type which may be issued  with
GNMA's  guarantee.  The balance of the  Government  Fund's assets is invested in
other  securities  issued or guaranteed by the U.S.  Government,  including U.S.
Treasury bills, notes, and bonds.

     Securities  of  the  type  to be  included  in  the  Government  Fund  have
historically involved little risk of principal if held to maturity. However, due
to fluctuations in interest rates,  the market value of such securities may vary
during the period of a shareholder's investment in the Government Fund.

     GNMA  Certificates  are created by an "issuer,"  which is a Federal Housing
Administration

                                                                               4
<PAGE>

("FHA") approved lender, such as mortgage bankers,  commercial banks and savings
and loan  associations,  who also meet  criteria  imposed  by GNMA.  The  issuer
assembles a specific pool of mortgages  insured by either the FHA or the Farmers
Home  Administration  or  guaranteed  by  the  Veterans   Administration.   Upon
application by the issuer, and after approval by GNMA of the pool, GNMA provides
its commitment to guarantee timely payment of principal and interest on the GNMA
Certificates   secured  by  the  mortgages   included  in  the  pool.  The  GNMA
Certificates,  endorsed by GNMA, are then sold by the issuer through  securities
dealers.

     The GNMA  guarantee  of timely  payment of  principal  and interest on GNMA
Certificates  is backed by the full faith and credit of the United States.  GNMA
may borrow U.S.  Treasury  funds to the extent needed to make payments under its
guarantee.

     When  mortgages in the pool  underlying a GNMA  Certificate  are prepaid by
mortgagees  or by result of  foreclosure,  such  principal  payments  are passed
through  to  the  GNMA  Certificate  holders  (such  as  the  Government  Fund).
Accordingly,  the life of the GNMA  Certificate  is likely  to be  substantially
shorter  than the stated  maturity  of the  mortgages  in the  underlying  pool.
Because of such  variation in prepayment  rights,  it is not possible to predict
the life of a particular GNMA Certificate,  but FHA statistics  indicate that 25
to  30  year   single-family   dwelling   mortgages  have  an  average  life  of
approximately 12 years.

     Generally,  GNMA Certificates bear a nominal "coupon rate" which represents
the effective FHA-Veterans Administration mortgage rates for the underlying pool
of  mortgages,  less  GNMA  and  issuer's  fees.  Payments  to  holders  of GNMA
Certificates consist of the monthly distributions of interest and principal less
the GNMA and  issuer's  fees.  The actual  yield to be earned by the holder of a
GNMA  Certificate  is calculated by dividing such payments by the purchase price
paid for the GNMA Certificate  (which may be at a premium or a discount from the
face value of the Certificate). Monthly distributions of interest, as contrasted
to  semi-annual   distributions  which  are  common  for  other  fixed  interest
investments,  have the effect of compounding  and thereby  raising the effective
annual yield earned on GNMA Certificates.

     The portion of the payments  received by the Government Fund as a holder of
the GNMA  Certificates  which  constitutes a return of principal is added to the
Government  Fund's cash available for investment in additional GNMA Certificates
or other U.S. Government guaranteed securities. The interest portion received by
the  Government  Fund is  distributed  as net  investment  income to the  Fund's
shareholders.

     The Government Fund may be exposed to prepayment risk, which is a risk that
principal of a GNMA will be  unexpectedly  returned to the Fund.  Under  certain
market  conditions  mortgages  are more likely to be pre-paid by the  borrowers.
This is most likely during  periods  where  interest  rates are declining  below
recent  market  levels.  By  refinancing  a mortgage,  a borrower pays off their
existing  balance and the  payment is passed  through to the holder of the GNMA.
Because of market circumstances, the Fund may be forced to reinvest the returned
principal in securities  with lower  yields.  This would  ultimately  reduce the
income  available  to  shareholders  and could  potentially  result in  realized
capital gains.

     The Manager  continually  monitors the Government Fund's  investments,  and
changes are made as market conditions warrant.


     The  Short-Term   Government  Fund  will  typically   invest  in  short-and
intermediate-term bills, notes and bonds whose principal and interest are backed
by the full faith and credit of the U.S.  Government.  In addition,  the Manager
may invest in higher yielding  securities which are not backed by the full faith
and  credit of the U.S.  Government.  The Fund  intends to  maintain  an average
maturity between 2 and 6 years in an effort to reduce share price volatility.


     The Treasury  Trust seeks capital  preservation,  safety,  liquidity,  and,
consistent with these objectives,  the highest  attainable current income exempt
from state income taxes, by investing  exclusively in U.S. Treasury  securities,
namely  bills,  notes  or  bonds  which  are  direct  obligations  of  the  U.S.
Government.  The Treasury Trust's net assets will at the time of investment have
remaining  maturities of 397 days or less. The dollar weighted  average maturity
of the Fund's  portfolio  will generally be 90 days or less and the Manager will
attempt to maintain the net asset value at $1.00 per share.

INVESTMENT OBJECTIVES AND POLICIES OF THE STOCK FUNDS


     As stated in the Prospectus, the investment objective of the 500 Fund is to
seek  investment  results  that  correspond  to  the  total  return  (i.e.,  the
combination of capital changes and income) of common stocks

                                                                               5
<PAGE>

publicly  traded in the United  States,  as represented by the Standard & Poor's
500  Composite  Stock Price Index (the "S&P 500").  The S&P 500 is a  well-known
stock  market  index  that  includes  common  stocks of  companies  representing
approximately 90.7% of the total market Index as measured by the S&P 1500 Index.
As of December 2000,  companies included in the Index range from $115 million to
$477 billion in market capitalization. The Manager believes that the performance
of the S&P 500 is  representative  of the  performance of publicly traded common
stocks in general. The median market capitalization of the stocks in the S&P 500
Index is approximately $8.5 billion.

The investment  objective of the MidCap Fund is to seek investment  results that
correspond to the total return (i.e.,  the  combination  of capital  changes and
income) of publicly traded common stocks of medium-size  domestic companies,  as
represented by the Standard & Poor's MidCap 400 Index (the "MidCap Index").  The
MidCap Index is a well-known  stock market index that includes  common stocks of
companies representing  approximately 6.7% of the total market index as measured
by the S&P 1500 Index.  As of December  2000,  companies  included in the MidCap
Index range from $102 million to $10.45  billion in market  capitalization.  The
median market  capitalization of the stocks in the MidCap Index is approximately
$4 billion.

     The investment objective of the SmallCap Fund is to seek investment results
that  correspond  to the total return of publicly  traded common stocks of small
sized  companies,  as  represented  by the S&P SmallCap 600 Index (the "SmallCap
Index").  The SmallCap  Index is a well-known  stock market index that  includes
common  stocks of companies  representing  approximately  3% of the total market
index as measured by the S&P 1500 Index. As of December 2000, companies included
in the  SmallCap  Index  range  from  $12  million  to $2.8  billion  in  market
capitalization.  The median market  capitalization of the stocks in the SmallCap
Index is approximately $413 million.


     The Equity Income Fund is a diversified mutual fund that seeks a high level
of current income by investing  primarily in income producing equity securities.
As a  secondary  objective,  the Fund  may  consider  the  potential  for  price
appreciation when consistent with seeking current income.

     The  Manager  will  attempt to manage the  Equity  Income  Fund so that the
average  dividend yield of the common stocks held by the Equity Income Fund will
be at least  50%  greater  that  the  yield  of the S&P  500.  Because  of these
strategies,  the Manager  expects that the Fund will have less price  volatility
that the S&P 500.


     The  investment  objective  of the  European  Fund is to provide  long-term
capital  appreciation and income by investing in large-sized  European companies
located in Europe.  The Fund  expects to invest  primarily in ADRs that trade on
U.S. equity exchanges.  The Manager may elect at some future period to invest in
non-U.S.  dollar  denominated  securities  but does not  intend to do so at this
time.

     The  investment  objective of the  Nasdaq-100  Fund is to seek to replicate
performance  of the largest and most  actively  traded  non-financial  stocks as
measured by The Nasdaq-100  Stock Index.  Companies  included in the Index range
from $460 million to $332 billion in market capitalization as of December, 2000.
The  majority of  portfolio  transactions  in the Fund (other than those made in
response to shareholder activity) will be made to adjust the Fund's portfolio to
track the Index or to reflect occasional changes in the Index's composition.


DESCRIPTION OF INVESTMENT SECURITIES AND PORTFOLIO TECHNIQUES

Municipal Securities
--------------------

     Discussed below are the major attributes of the various municipal and other
securities  in which each of the Tax-Free  Funds may invest and of the portfolio
techniques the Income Fund or the Money Fund may utilize.

     Tax  Anticipation  Notes  are  used to  finance  working  capital  needs of
municipalities  and are issued in anticipation of various seasonal tax revenues,
to be  payable  from these  specific  future  taxes.  They are  usually  general
obligations of the issuer,  secured by the issuer's taxing power for the payment
of principal and interest.

     Revenue  Anticipation  Notes are issued in  expectation of receipt of other
kinds of revenue,  such as federal revenues  available under the Federal Revenue
Sharing Program. They also are usually general

                                                                               6
<PAGE>

obligations of the issuer.

     Bond  Anticipation  Notes normally are issued to provide interim  financing
until long-term financing can be arranged.  The long-term bonds then provide the
money  for the  repayment  of the  notes.

     Construction  Loan Notes are sold to  provide  construction  financing  for
specific  projects.  After successful  completion and acceptance,  many projects
receive permanent  financing through the FHA under the Federal National Mortgage
Association or the Government National Mortgage Association.

     Project Notes are  instruments  sold by the Department of Housing and Urban
Development  but issued by a state or local housing agency to provide  financing
for a variety of  programs.  They are backed by the full faith and credit of the
U.S. Government, and generally are for periods of one year or less.

     Short-Term Discount Notes (tax-exempt commercial paper) are short-term (397
days or less) promissory notes issued by municipalities to supplement their cash
flow.

     Municipal  Bonds,  which meet longer term capital needs and generally  have
maturities   of  more   than  one  year   when   issued,   have  two   principal
classifications: general obligation bonds and revenue bonds.

     1. General  Obligation Bonds.  Issuers of general  obligation bonds include
states,  counties,  cities, towns and regional districts.  The proceeds of these
obligations  are  used  to  fund a wide  range  of  public  projects,  including
construction or improvement of schools,  highways and roads, and water and sewer
systems.  The basic  security  behind general  obligation  bonds is the issuer's
pledge of its full faith,  credit and taxing  power for the payment of principal
and  interest.  The taxes that can be levied for the payment of debt service may
be limited or unlimited as to the rate or amount of special assessments.

     General  obligation bonds are generally paid from a municipality's  general
fund, so that the credit of the security is determined by the overall  credit of
the  issuer.   Economic  and  political   events  that  negatively   impact  the
municipality   could  also  affect  the  value  of  the  bonds   issued  by  the
municipality.

     2. Revenue Bonds.  A revenue bond is not secured by the full faith,  credit
and taxing power of an issuer. Rather, the principal security for a revenue bond
is  generally  the net revenue  derived  from a  particular  facility,  group of
facilities,  or,  in some  cases,  the  proceeds  of a  special  excise or other
specific  revenue source.  Revenue bonds are issued to finance a wide variety of
capital projects including:  electric, gas, water, and sewer systems;  highways,
bridges,  and tunnels;  port and airport facilities;  colleges and universities;
and hospitals. Although the principal security behind these bonds may vary, many
provide additional security in the form of a debt service reserve fund which may
be used to make  principal  and interest  payments on the issuer's  obligations.
Housing finance  authorities have a wide range of security,  including partially
or fully insured  mortgages,  rent subsidized and/or  collateralized  mortgages,
and/or the net revenues from housing or other public projects.  Some authorities
are  provided  further  security  in the form of a state's  assurance  (although
without obligation) to make up deficiencies in the debt service reserve fund.

     Revenue bonds are generally paid from revenues generated from facilities or
projects  financed by the bond.  Economic and political  events which affect the
ability to  generate  revenue  could  potentially  impact the value of a revenue
bond.

     Industrial  development  bonds which pay  tax-exempt  interest  are in most
cases  revenue  bonds and are  issued by or on behalf of public  authorities  to
raise  money to finance  various  privately  operated  facilities  for  business
manufacturing, housing, sports, and pollution control. These bonds are also used
to finance public facilities such as airports,  mass transit systems, ports, and
parking.  The payment of the  principal  and interest on such bonds is dependent
solely on the ability of the facility's  user to meet its financial  obligations
and the  pledge,  if any,  of the real and  personal  property  so  financed  as
security  for  such  payment.  As a  result  of 1986  federal  tax  legislation,
industrial  revenue  bonds may no longer  be  issued on a  tax-exempt  basis for
certain previously permissible purposes,  including sports and pollution control
facilities.

     The  quality  of an  industrial  development  bond is in part  based on the
corporation's  ability to make payments of principal  and interest.  Unfavorable
developments  that affect the ability or willingness for the corporation to make
the payments could have an impact on the value of the bond.

                                                                               7
<PAGE>

     There may, of course,  be other types of municipal  securities  that become
available which are similar to the foregoing described  municipal  securities in
which the Tax-Free Funds may invest.


Special Considerations Affecting Investment in California Municipal Obligations
-------------------------------------------------------------------------------

     The  Money  Fund  invests a high  proportion  of its  assets in  California
municipal securities. The Income Fund and the Insured Fund also invest primarily
in California  municipal  securities.  Payment of interest and  preservation  of
principal is dependent upon the continuing  ability of California issuers and/or
obligors of state, municipal and public authority debt obligations to meet their
obligations  thereunder.  In addition  to general  economic  pressures,  certain
California constitutional  amendments,  legislative measures,  executive orders,
administrative  regulations  and  voter  initiatives  could  adversely  affect a
California issuer's ability to raise revenues to meet its financial obligations.
The following is not an exhaustive list,  constitutes only a brief summary, does
not purport to be a complete description, and is based on information drawn from
official  statements and  prospectuses  relating to securities  offerings of the
State of California  that have come to the  attention of the Tax-Free  Funds and
were available before the date of this Statement of Additional Information.  The
Tax-Free Funds have not independently verified such information.

     As used below, "California Tax-Exempt Securities" include issues secured by
a direct payment  obligation of the State of California and obligations of other
issuers  that  rely in  whole or in part on  California  revenues  to pay  their
obligations,  the interest on which is, in the opinion on bond  counsel,  exempt
from  federal  income tax and  California  personal  income  tax.  Property  tax
revenues  and part of the  State's  General  Fund  surplus  are  distributed  to
counties, cities and their various taxing entities; whether and to what extent a
portion of the  State's  General  Fund will be so  distributed  in the future is
unclear.

     State Budgetary Considerations
     ------------------------------

     Overview. The California economy and general financial condition affect the
ability of the State and local governments to raise and redistribute revenues to
assist  issuers  of  municipal  securities  to make  timely  payments  on  their
obligations.  California is the most  populous  state in the nation with a total
population  estimated at 33.4 million.  California has a diverse  economy,  with
major employment in the agriculture,  manufacturing,  high technology, services,
trade,  entertainment and construction sectors. After experiencing strong growth
throughout much of the 1980s, from 1990-1993 the State suffered through a severe
recession,  the worst since the 1930's,  heavily influenced by large cutbacks in
defense/aerospace  industries,  military  base closures and a major drop in real
estate construction. California's economy has been performing strongly since the
start of 1994.

     Certain of the State's significant industries, such as high technology, are
sensitive to economic  disruptions  in their export markets and the State's rate
of  economic  growth,  therefore,  could  be  adversely  affected  by  any  such
disruption.  A significant  downturn in U.S. stock market prices could adversely
affect  California's   economy  by  reducing  household  spending  and  business
investment,  particularly in the important high technology sector.  Moreover,  a
large and  increasing  share of the State's  General Fund revenue in the form of
income and capital  gains taxes is directly  related to, and would be  adversely
affected by a significant downturn in the performance of, the stock markets.

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

     The recession severely affected State revenues while the State's health and
welfare costs were increasing.  Consequently,  the State had a lengthy period of
budget imbalance; the State's accumulated budget deficit approached $2.8 billion
at its peak at June 30,  1993.  The large budget  deficits  depleted the State's
available  cash  resources and it had to use a series of external  borrowings to
meet its  cash  needs.  With the end of the  recession,  the  State's  financial
condition  improved,  with a  combination  of  better  than  expected  revenues,
slowdown in growth of social welfare programs, and continued spending restraint.
The  accumulated  budget  deficit from the recession  years was  eliminated.  No
deficit  borrowing has occurred at the end of the last several fiscal years. The
State has also increased aid to local  governments and reduced certain  mandates
for local services.

                                                                               8
<PAGE>

     The combination of resurging  exports, a strong stock market, and a rapidly
growing economy in 1999 and early 2000 resulted in  unprecedented  growth in the
State's  General  Fund  revenues  during  fiscal year  1999-2000.  Revenues  are
estimated to have been about $71.2  billion,  which is $8.2 billion  higher than
projected  for the 1999  Budget  Act.  The  State's  Special  Fund for  Economic
Uncertainties  ("SFEU")  had a record  balance of over $7.2  billion on June 30,
2000. On that date, the Governor signed the 2000 Budget Act enacting the State's
fiscal year 2000-01 budget.  The spending plan assumes General Fund revenues and
transfers of $73.9  billion,  an increase of 3.8 percent above the estimates for
1999-2000.  The Budget Act appropriates  $78.8 billion from the General Fund, an
increase of 17.3  percent over  1999-2000,  and reflects the use of $5.5 billion
from the SFEU. The Budget Act also includes  Special Fund  expenditures of $15.6
billion,  from revenues estimated at $16.5 billion, and Bond Fund expenditure of
$5.0 billion.

     In order not to place undue  pressure on future  budget  years,  about $7.0
billion of the increased  spending in 2000-01 will be for one-time  expenditures
and  investments.  The State  estimates  the SFEU will have a balance  of $1.781
billion at June 30, 2001. In addition,  the Governor held back $500 million as a
set aside for  litigation  costs.  The  Governor  vetoed just over $1 billion in
General Fund and Special Fund  appropriations  from the 2000 Budget Act in order
to  achieve  the  budget  reserve.  The  State  will  not  undertake  a  revenue
anticipation note borrowing in 2000-01.

     After the State's budget and cash situation deteriorated as a result of the
recession,   all  three   major   nationally   recognized   statistical   rating
organizations  lowered their ratings for the State's general  obligation  bonds.
The  State's  improved  economy and budget,  however,  have  resulted in several
upgrades in its general  obligation  bond  ratings.  As of October 6, 2000,  the
State's  general  obligation  bonds were rated Aa2 by Moody's,  AA by Standard &
Poor's, and AA by Fitch. It is not presently  possible to determine whether,  or
the extent to which,  Moody's,  S&P or Fitch  will  change  such  ratings in the
future. It should be noted that the  creditworthiness  of obligations  issued by
local California issuers may be unrelated to the creditworthiness of obligations
issued by the State, and there is no obligation on the part of the State to make
payment on such local obligations in the event of default.

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

     Constitutional challenges to Article XIII A to date have been unsuccessful.
In 1992,  the  United  States  Supreme  Court  ruled  that  notwithstanding  the
disparate  property  tax burdens  that  Proposition  13 might place on otherwise
comparable  properties,  those  provisions of  Proposition 13 do not violate the
Equal Protection Clause of the United States Constitution.

     In response to the  significant  reduction  in local  property  tax revenue
caused by the  passage of  Proposition  13,  the State  enacted  legislation  to
provide local  governments  with increased  expenditures  from the General Fund.
This fiscal relief has ended, however.

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

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

                                                                               9
<PAGE>

may  invalidate  other  taxes  that have been  imposed by local  governments  in
California and make it more difficult for local governments to raise taxes.

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

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

     The  effect  of   constitutional   and  statutory  changes  and  of  budget
developments on the ability of California  issuers to pay interest and principal
on their  obligations  remains  unclear,  and may depend on whether a particular
bond is a general  obligation or limited  obligation  bond  (limited  obligation
bonds being generally less  affected).  It is not possible to predict the future
impact of the voter initiatives, State constitutional amendments, legislation or
economic considerations  described above, or of such initiatives,  amendments or
legislation that may be enacted in the future,  on the long-term  ability of the
State of  California or  California  municipal  issuers to pay interest or repay
principal on their obligations. There is no assurance that any California issuer
will make full or timely  payments of principal  or interest or remain  solvent.
For example,  in December  1994,  Orange County,  California,  together with its
pooled  investment  funds,  which  included  investment  funds from other  local
governments,  filed for  bankruptcy.  Los Angeles County,  the nation's  largest
county,  in the recent past has also  experienced  financial  difficulty and its
financial  condition  will continue to be affected by the large number of County
residents who are dependent on government  services and by a structural  deficit
in its health department. Moreover, California's improved economy has caused Los
Angeles County,  and other local  governments,  to come under increased pressure
from public employee unions for improved compensation and retirement benefits.

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

     Issues Affecting Local Governments and Special Districts
     --------------------------------------------------------

     Proposition 13. Certain California Tax-Exempt Securities may be obligations
of issuers that rely in whole or in part on ad valorem real  property  taxes for
revenue. In 1978,  California voters approved  Proposition 13, which amended the
State  Constitution  to limit ad valorem  real  property  taxes and restrict the
ability of taxing  entities to increase  property tax and other  revenues.  With
certain exceptions, the maximum ad valorem real property tax is limited to 1% of
the value of real property.  The value of real property may be adjusted annually
for  inflation  at a rate not  exceeding  2% per year,  or  reduced  to  reflect
declining value, and may also be adjusted when there is a change in ownership or
new  construction  with respect to the  property.  Constitutional  challenges to
Proposition 13 to date have been unsuccessful.

     The State, in response to the  significant  reduction in local property tax
revenues as a result of the passage of Proposition  13,  enacted  legislation to
provide local government with increased expenditures from the General Fund. This
post-Proposition 13 fiscal relief has, however, ended.

     Proposition 62. This initiative placed further  restrictions on the ability
of local governments to raise taxes and allocate approved tax revenues.  Several
recent  decisions  of the  California  Courts  of  Appeal  have  held  parts  of
Proposition 62 unconstitutional. Recently, however, the California Supreme Court
upheld a requirement  imposed by Proposition 62 that "special taxes" be approved
by  two-thirds  of the voters  voting in an election  on the issue.  This recent
decision may invalidate other taxes that have been

                                                                              10
<PAGE>

imposed by local  governments in California and make it more difficult for local
governments to raise taxes.

     Propositions 98 and 111. These initiatives changed the State appropriations
limit and  State  funding  of public  education  below the  university  level by
guaranteeing  K-14  schools  a  minimum  share of  General  Fund  revenues.  The
initiatives  also  require that the State  establish a prudent  reserve fund for
public education.

     Proposition 218. Passed in November 1996, this initiative places additional
limitations on the ability of California  local  governments to increase general
taxes and impose special assessments.  Taxes,  assessments and fees have a grace
period of up to two years from November 1996 to receive voter approval.

     Appropriations  Limit.  Local  governmental  entities  are also  subject to
annual  appropriations  limits.  If a local  government's  revenues  in any year
exceed the limit,  the excess must be returned to the public  through a revision
of tax rates or fee schedules over the following two years.

     Conclusion. The effect of these Constitutional and statutory changes and of
budget  developments  on the ability of  California  issuers to pay interest and
principal on their  obligations  remains unclear,  and may depend upon whether a
particular  bond is a general  obligation  or limited  obligation  bond (limited
obligation   bonds  being   generally  less   affected).   The  Tax-Free  Funds'
concentration in California  tax-exempt  securities  provides a greater level of
risk  than a fund  that is  diversified  across  numerous  state  and  municipal
entities.


     Additional Issues
     -----------------

     Mortgages and Deeds of Trust.  The Tax-Free Funds may invest in issues that
are secured in whole or in part by mortgages or deeds of trust on real property.
California law limits the remedies of a creditor secured by a mortgage or a deed
of trust,  which may  result in  delays  in the flow of  revenues  to,  and debt
service paid by an issuer.

     Lease  Financing.  Some local  governments  and districts  finance  certain
activities  through  lease  arrangements.  It is  uncertain  whether  such lease
financing are debt that requires voter approval.

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

     Variable Rate Demand Notes
     --------------------------

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

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

     VRDN's may be unrated or rated and their creditworthiness may be a function
of  the   creditworthiness  of  the  issuer,  the  institution   furnishing  the
irrevocable letter of credit, or both.

                                                                              11
<PAGE>

Accordingly, a Tax-Free Fund may invest in such VRDN's the issuers or underlying
institutions  of which the Manager  believes  are  creditworthy  and satisfy the
quality  requirements  of each  Tax-Free  Fund.  The Manager  will  continuously
monitor the creditworthiness of the issuer of such securities and the underlying
institution.

     Periods of high inflation and periods of economic  slowdown,  together with
the fiscal  measures  adopted to attempt  to deal with them,  have  caused  wide
fluctuations  in  interest  rates.  While the value of the  underlying  VRDN may
change with changes in interest rates generally, the variable rate nature of the
underlying  VRDN should tend to reduce changes in the value of the  instruments.
Accordingly,  as interest rates decrease or increase,  the potential for capital
appreciation and the risk of potential  capital  depreciation is less than would
be the case with a portfolio of fixed income securities.  The Tax-Free Funds may
invest in VRDNs on which stated minimum or maximum  rates,  or maximum rates set
by state law, limit the degree to which interest on such VRDNs may fluctuate; to
the extent it does, increases or decreases in value may be somewhat greater than
would be the case without such limits.  Because the adjustment of interest rates
on the  VRDNs  is made  in  relation  to  movements  of  various  interest  rate
adjustment  indices,  the VRDNs  are not  comparable  to  long-term  fixed  rate
securities.  Accordingly, interest rates on the variable rate demand instruments
may be higher or lower than current  market rates for fixed rate  obligations of
comparable quality with similar maturities.

     For purposes of determining  whether a VRDN held by a Tax-Free Fund matures
within one year from the date of its acquisition, the maturity of the instrument
will be deemed to be the longer of (1) the  demand  period  required  before the
Tax-Free  Fund is entitled  to receive  payment of the  principal  amount of the
instrument,  or (2) the period  remaining until the  instrument's  next interest
rate  adjustment.  The maturity of a VRDN will be  determined in the same manner
for purposes of computing a Tax-Free Fund's  dollar-weighted  average  portfolio
maturity.

     Obligations with Puts Attached.  Each Tax-Free Fund may purchase  municipal
securities  together with the right to resell the securities to the seller at an
agreed upon price or yield within a specified  period prior to the maturity date
of the  securities.  Although it is not a put option in the usual sense,  such a
right to  resell  is  commonly  known as a "put"  and is also  referred  to as a
"stand-by  commitment." The Tax-Free Funds will use such puts in accordance with
regulations  issued by the  Securities  and  Exchange  Commission  ("SEC").  The
Manager  understands  that the Internal Revenue Service (the "IRS") has issued a
revenue ruling to the effect that, under specified  circumstances,  a registered
investment  company  will  be the  owner  of  tax-exempt  municipal  obligations
acquired subject to a put option. The IRS has also issued private letter rulings
to certain  taxpayers  (which do not serve as precedent for other  taxpayers) to
the effect that tax-exempt  interest received by a regulated  investment company
with respect to such  obligations will be tax-exempt in the hands of the company
and may be distributed to its shareholders as exempt-interest dividends. The IRS
has  subsequently  announced  that it will not  ordinarily  issue advance ruling
letters as to the identity of the true owner of property in cases  involving the
sale of securities or participation  interests  therein if the purchaser has the
right to cause  the  security,  or the  participation  interest  therein,  to be
purchased by either the seller or a third party.  Each  Tax-Free Fund intends to
take the position  that it is the owner of any  municipal  obligations  acquired
subject  to a  stand-by  commitment  or  similar  put right and that  tax-exempt
interest earned with respect to such municipal obligations will be tax-exempt in
its hands. There is no assurance that stand-by  commitments will be available to
the Tax-Free  Funds nor have the Tax-Free  Funds  assumed that such  commitments
would continue to be available under all market conditions.

     U.S. Government Obligations, Other Securities and Portfolio Techniques
     ----------------------------------------------------------------------

     U.S. Government  Obligations.  U.S. Treasury  obligations are issued by the
U.S.  Treasury and include U.S.  Treasury bills (maturing within one year of the
date they are issued),  certificates  of  indebtedness,  notes and bonds (issued
with maturities  longer than one year).  Such obligations are backed by the full
faith and credit pledge of the U.S. Government.  Agencies and  instrumentalities
of the U.S. Government are established under the authority of an act of Congress
and  include,   but  are  not  limited  to,  the  Government  National  Mortgage
Association,  the Tennessee Valley  Authority,  the Bank for  Cooperatives,  the
Farmer's  Home  Administration,  Federal  Home  Loan  Banks,  the  FHA,  Federal
Intermediate Credit Banks,  Federal Land Banks and the Federal National Mortgage
Association.  Obligations are issued by such agencies or  instrumentalities in a
range of  maturities  and may be either  (1) backed by the full faith and credit
pledge of the U.S. Government, or (2) backed only by the rights of the issuer to
borrow from the U.S. Treasury.

     Repurchase  Transactions.  The Tax-Free Funds,  the Government Fund and the
Stock Funds may

                                                                              12
<PAGE>

enter into repurchase  agreements with government  securities dealers recognized
by the Federal Reserve Board or with member banks of the Federal Reserve System.
Such a  transaction  is an  agreement  in which the  seller  of U.S.  Government
securities  agrees to repurchase the  securities  sold to the Fund at a mutually
agreed  upon time and  price.  It may also be viewed as the loan of money by the
Fund to the  seller.  The resale  price  normally  is in excess of the  purchase
price,  reflecting an agreed upon interest  rate.  The rate is effective for the
period of time in the  agreement  and is not  related to the coupon  rate on the
underlying security. The period of these repurchase agreements is usually short,
from overnight to one week,  and in  particular,  at no time will the Money Fund
invest in  repurchase  agreements  with a term of more  than one year.  The U.S.
Government securities which are subject to repurchase  agreements,  however, may
have  maturity  dates in  excess  of one year  from  the  effective  date of the
repurchase  agreement.  A Fund always  receives as  collateral  U.S.  Government
securities whose market value,  including accrued interest, is at least equal to
100% of the dollar amount invested by the Fund in each agreement,  and such Fund
makes payment for such  securities  only upon  physical  delivery or evidence of
book entry transfer to the account of its custodian. If the seller defaults, the
Fund might incur a loss if the value of the  collateral  securing the repurchase
agreement  declines  and  might  incur  disposition  costs  in  connection  with
liquidating  the  collateral.  A Fund may not enter into a repurchase  agreement
with more than  seven  days to  maturity  if, as a result,  more than 10% of the
market value of the Fund's  total  assets  would be invested in such  repurchase
agreements.  With respect to the Tax-Free  Funds and the  Government  Fund,  the
Manager on an ongoing  basis will  review and monitor  the  creditworthiness  of
institutions with which it has entered into repurchase  agreements.  The current
policy of the Stock Funds is to limit  repurchase  agreements  to those  parties
whose creditworthiness has been reviewed and found satisfactory by the Manager.

     When-Issued   Purchases  and  Forward  Commitments.   New  issues  of  U.S.
Government  securities and municipal  securities may be offered on a when-issued
basis.  Accordingly,  the Tax-Free  Funds and the  Government  Fund may purchase
securities on a when-issued or forward commitment basis.  When-issued  purchases
and forward commitments involve a commitment by the Funds to purchase securities
at a future date. The price of the underlying  securities  (usually expressed in
terms of yield) and the date when the securities  will be delivered and paid for
(the settlement date) are fixed at the time the transaction is negotiated. Thus,
the Fund  bears  the  market  risk of the  security  immediately  following  its
commitment  to buy the  security.  The  value  of the  securities  underlying  a
when-issued  purchase or a forward  commitment to purchase  securities,  and any
subsequent fluctuations in their value, is taken into account when determining a
Fund's net asset  value  starting  on the day the Fund  agrees to  purchase  the
securities.  Therefore,  if a Fund remains  substantially  fully invested at the
same time that it has  committed  to purchase  securities  on a  when-issued  or
forward  commitment  basis,  its net asset  value per  share may be  subject  to
greater price  fluctuation.  A Fund does not earn interest on the  securities it
has  committed  to  purchase  until  they  are  paid  for and  delivered  on the
settlement  date.  Settlement of when-issued  purchases and forward  commitments
generally  takes  place  within two months of the date of the  transaction,  but
delayed settlements beyond two months may be negotiated.

     The Funds make  commitments  to purchase  securities  on a  when-issued  or
forward  commitment basis only with the intention of completing the transaction.
If deemed advisable as a matter of investment strategy,  however,  each Fund may
dispose of or  renegotiate a commitment  after it is entered into,  and may sell
securities it has committed to purchase before those securities are delivered to
that Fund on the  settlement  date.  In these cases a Fund may realize a capital
gain or loss.

     When a Fund enters into a when-issued  purchase or a forward  commitment to
purchase   securities,   the  Funds'  Custodian,   Firstar  Trust  Company  (the
"Custodian")  will establish,  and maintain on a daily basis, a separate account
of that Fund consisting of cash or portfolio  securities having a value at least
equal to the amount of that Fund's purchase  commitments.  These  procedures are
designed to insure  that the Fund  maintains  sufficient  assets at all times to
cover its obligations under when-issued purchases and forward commitments.

Lending Portfolio Securities
----------------------------

Each of the Tax-Free Funds,  and the Government Fund may lend up to [100% of its
portfolio   securities  to  non-affiliated   brokers,   dealers,  and  financial
institutions  provided that cash or U.S. Government securities equal to at least
100% of the market value of the  securities  loaned is deposited by the borrower
with the lending Fund and is maintained  each  business day.  Although the Stock
Funds have no current  intention to do so, each Stock Fund may lend up to 10% of
its  portfolio  securities  to  non-affiliated  brokers,  dealers and  financial
institutions  provided that cash or U.S. Government securities equal to at least
100% of the market value of the  securities  loaned is deposited by the borrower
with the lending Fund and is maintained

                                                                              13
<PAGE>

each business day. While such securities are on loan, the borrower will pay such
Fund any  income  accruing  thereon,  and the Fund may  invest or  reinvest  the
collateral  (depending  on whether  the  collateral  is cash or U.S.  Government
securities) in portfolio  securities,  thereby earning additional  income.  Each
Fund will not lend its  portfolio  securities if such loans are not permitted by
the laws or regulations of any state in which its shares are qualified for sale.
Loans are typically  subject to termination  by a Fund in the normal  settlement
time, currently five business days after notice, or by the borrower on one day's
notice.  Borrowed  securities must be returned when the loan is terminated.  Any
gain or loss in the market price of the borrowed  securities which occurs during
the term of the loan inures to the lending Fund and its shareholders. A Fund may
pay  reasonable  finders',  borrowers',  administrative,  and custodial  fees in
connection  with a loan of its  securities.  The Manager will review and monitor
the creditworthiness of such borrowers on an ongoing basis.

Stock Index Futures Contracts
-----------------------------

     The Stock Funds may enter into  agreements to "buy" or "sell" a stock index
at a fixed price at a specified  date.  No stock  actually  changes  hands under
these contracts; instead, changes in the underlying index's value are settled in
cash.  The cash  settlement  amounts  are based on the  difference  between  the
index's current value and the value contemplated by the contract. An option on a
stock index  futures  contract is an agreement  to buy or sell an index  futures
contract;  that is, exercise of the option results in ownership of a position in
a futures  contract.  Most stock index futures are based on  broad-based  common
stocks, such as the S&P 500 and the MidCap Index, both registered  trademarks of
Standard & Poor's  Corporation.  Other broad-based  indices include the New York
Stock  Exchange  Composite  Index,  S&P  BARRA/Value,  Russell 2000,  Value Line
Composite Index,  Standard & Poor's 100 Stock Index,  The Nasdaq-100  Index, Dow
Jones Euro Stoxx,  and the MSCI  (Morgan  Stanley  Capital  International)  Euro
Index.

     Additionally,  each Stock Fund may take advantage of  opportunities  in the
area of  futures  contracts  and  options  on  futures  contracts  and any other
derivative investments which are not presently contemplated for use by such Fund
or which are not currently  available but which may be developed,  to the extent
such  opportunities  are both  consistent  with  each  Stock  Fund's  investment
objective  and legally  permissible  for such Fund.  Before  entering  into such
transactions or making any such  investment,  the Fund will provide  appropriate
disclosure in its Prospectus.


     The Manager expects that futures  transactions for the 500 Fund, the MidCap
Fund, the SmallCap Fund and the Nasdaq-100  Fund will typically  involve the S&P
500 Index,  the  MidCap  Index,  the  Russell  2000,  and the  Nasdaq-100  Index
respectively.  Futures  transactions  for the Equity Income Fund may involve any
major  index for which  the  Manager  believes  is in the best  interest  of the
shareholders. The indices used may include, but are not limited to, the S&P 500,
the MidCap  Index and the  SmallCap  Index.  Because the value of index  futures
depends primarily on the value of their underlying  indices,  the performance of
broad-based  contracts  will  generally  reflect  broad  changes in common stock
prices.  Each  Fund's  investments  may be  more  or less  heavily  weighted  in
securities  of  particular  types  of  issuers,  or  securities  of  issuers  in
particular industries,  than the indexes underlying its index futures positions.
Therefore,  while a Fund's index futures  positions  should provide  exposure to
changes in value of the underlying  indexes (or protection  against  declines in
their value in the case of hedging transactions), it is likely that, in the case
of hedging  transactions,  the price changes of a Fund's index futures positions
will not match the price changes of the Fund's other investments.  Other factors
that could affect the  correlation of a Fund's index futures  positions with its
other investments are discussed below.


Futures Margin Payments. Both the purchaser and seller of a futures contract are
required to deposit  "initial margin" with a futures broker (known as a "futures
commission  merchant,"  or "FCM"),  when the contract is entered  into.  Initial
margin deposits are equal to a percentage of the contract's value, as set by the
exchange  where the contract is traded,  and may be  maintained  in cash or high
quality liquid  securities.  If the value of either party's  position  declines,
that party will be required to make additional  "variation  margin"  payments to
settle  the change in value on a daily  basis.  The party that has a gain may be
entitled  to receive  all or a portion of this  amount.  Initial  and  variation
margin payments are similar to good faith deposits or performance bonds,  unlike
margin  extended  by a  securities  broker,  and initial  and  variation  margin
payments do not  constitute  purchasing  securities  on margin for purposes of a
Fund's  investment  limitations.  In the event of the  bankruptcy  of a FCM that
holds  margin  on behalf of a Fund,  that  Fund may be  entitled  to a return of
margin owed to it only in proportion  to the amount  received by the FCM's other
customers.  The Manager will  attempt to minimize  this risk by  monitoring  the
creditworthiness of the FCMs with which the Stock Funds do business.

                                                                              14
<PAGE>

     Limitations on Stock Index Futures Transactions.  Each Stock Fund has filed
a notice of eligibility for exclusion from the definition of the term "commodity
pool operator" with the Commodity  Futures  Trading  Commission (the "CFTC") and
the National Futures Association, which regulate trading in the futures markets.
Pursuant to Section 4.5 of the  regulations  under the  Commodity  Exchange Act,
each Fund may use futures  contracts for bona fide hedging  purposes  within the
meaning of CFTC regulations;  provided, however, that, with respect to positions
in futures  contracts  which are not used for bona fide hedging  purposes within
the  meaning of CFTC  regulations,  the  aggregate  initial  margin  required to
establish such position will not exceed five percent of the liquidation value of
each  Fund's  portfolio,  after  taking  into  account  unrealized  profits  and
unrealized losses on any such contracts into which the Fund has entered.

     The Manager also intends to follow certain other limitations on each of the
Stock Fund's futures activities.  Under normal conditions, a Fund will not enter
into any futures  contract if, as a result,  the sum of (i) the current value of
assets hedged in the case of strategies  involving the sale of  securities,  and
(ii) the current value of the indexes or other instruments underlying the Fund's
other  futures  positions  would  exceed 20% of such Fund's total assets (35% if
total assets are below $25 million).  In addition,  each Fund does not intend to
enter  into  futures  contracts  that are not traded on  exchanges  or boards of
trade.

     The above limitations on the Stock Funds' investments in futures contracts,
and these Funds' policies  regarding  futures contracts  discussed  elsewhere in
this Statement of Additional  Information,  are not fundamental policies and may
be  changed as  regulatory  agencies  permit.  Non-fundamental  policies  may be
changed without shareholder approval.

     Various  exchanges and regulatory  authorities  have undertaken  reviews of
futures trading in light of market  volatility.  Among the possible actions that
have been  presented  are proposals to adopt new or more  stringent  daily price
fluctuation  limits for futures  transactions,  and  proposals  to increase  the
margin requirements for various types of strategies. It is impossible to predict
what actions, if any, will result from these reviews at this time.

     Each Stock Fund may purchase index futures contracts in order to attempt to
remain fully invested in the stock market.  For example,  if a Fund had cash and
short-term  securities on hand that it wished to invest in common stocks, but at
the same time it wished to  maintain  a highly  liquid  position  in order to be
prepared to meet redemption requests or other obligations,  it could purchase an
index futures  contract in order to  approximate  the activity of the index with
that  portion  of its  portfolio.  Each  Stock  Fund may also  purchase  futures
contracts as an alternative to purchasing actual securities.  For example,  if a
Fund  intended to purchase  stocks but had not yet done so, it could  purchase a
futures  contract in order to participate in the index's activity while deciding
on particular  investments.  This strategy is sometimes known as an anticipatory
hedge.  In these  strategies  a Fund would use futures  contracts  to attempt to
achieve an overall  return -- whether  positive  or  negative  -- similar to the
return from the stocks included in the underlying index,  while taking advantage
of potentially  greater liquidity than futures  contracts may offer.  Although a
Fund would hold cash and liquid debt  securities in a segregated  account with a
value  sufficient to cover its open future  obligations,  the segregated  assets
would  be  available  to the  Fund  immediately  upon  closing  out the  futures
position, while settlement of securities transactions can take several days.

     When a Fund  wishes to sell  securities,  it may sell stock  index  futures
contracts  to  hedge  against  stock  market  declines  until  the  sale  can be
completed.  For example,  if the Manager  anticipated  a decline in common stock
prices at a time when a Fund anticipated  selling common stocks, it could sell a
futures  contract in order to lock in current  market  prices.  If stock  prices
subsequently  fell, the futures  contract's  value would be expected to rise and
offset all or a portion of the  anticipated  loss in the common  stocks the Fund
had hedged in  anticipation of selling them. Of course,  if prices  subsequently
rose, the futures contract's value could be expected to fall and offset all or a
portion of any gains from those securities. The success of this type of strategy
depends to a great extent on the degree of correlation between the index futures
contract and the securities hedged.

     Asset  Coverage  for  Futures  Positions.  Each Stock Fund will comply with
guidelines established by the SEC with respect to coverage of futures strategies
by mutual  funds,  and if the  guidelines  so require will set aside cash and or
other appropriate liquid assets (e.g., U.S. equities, U.S. Government securities
or other high grade debt  obligations) in a segregated  custodial account in the
amount prescribed.  Securities held in a segregated account cannot be sold while
the futures or option  strategy is  outstanding,  unless they are replaced  with
other suitable assets. As a result, there is a possibility that segregation of a
large

                                                                              15
<PAGE>

percentage of a Fund's assets could impede  portfolio  management or such Fund's
ability to meet redemption requests or other current obligations.

     Correlation  of Price  Changes.  As noted above,  price changes of a Fund's
futures  positions  may not be well  correlated  with price changes of its other
investments  because of differences between the underlying indexes and the types
of  securities  the Fund invests in. For example,  if a Fund sold a  broad-based
index futures  contract to hedge  against a stock market  decline while the Fund
completed a sale of specific  securities in its  portfolio,  it is possible that
the price of the securities could move differently from the broad market average
represented by the index futures contract, resulting in an imperfect hedge which
could  affect  the  correlation  between  the  Fund's  return  and  that  of the
respective  benchmark index. In the case of an index futures contract  purchased
by the Fund either in  anticipation of actual stock purchases or in an effort to
be fully invested,  failure of the contract to track its index  accurately could
hinder such Fund in the achievement of its objective.

     Stock  index  futures  prices  can also  diverge  from the  prices of their
underlying  indexes.  Futures prices are affected by such factors as current and
anticipated  short-term interest rates,  changes in volatility of the underlying
index,  and the time remaining until  expiration of the contract,  which may not
affect security prices the same way. Imperfect  correlation 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,  or from
imposition of daily price fluctuation limits for futures  contracts.  A Fund may
sell futures  contracts  with a greater or lesser value than the  securities  it
wishes to hedge in order to attempt to compensate for  differences in historical
volatility  between the futures  contract and the securities,  although this may
not be successful in all cases.

     Liquidity of Futures  Contracts.  Because  futures  contracts are generally
settled  within a day  from  the date  they  are  closed  out,  compared  with a
settlement  period of up to five days for some types of securities,  the futures
markets can provide superior  liquidity to the securities markets in many cases.
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 a Fund to enter into new positions or
close out  existing  positions.  Trading in index  futures can also be halted if
trading in the underlying index stocks is halted.  If the secondary market for a
futures contract is not liquid because of price fluctuation limits or otherwise,
it would prevent  prompt  liquidation  of  unfavorable  futures  positions,  and
potentially  could require a Fund to continue to hold a futures  position  until
the delivery date regardless of potential consequences.  If a Fund must continue
to hold a  futures  position,  its  access  to other  assets  held to cover  the
position could also be impaired.


American Depository Receipts (ADRS)
-----------------------------------

     Under  normal  circumstances,   the  European  Fund  typically  invests  in
sponsored  and  unsponsored  ADRs.  Such  investments  may  subject  the Fund to
significant  investment risks that are different from, and in addition to, those
related  to  investments  of  U.S.  domestic  issuers  or in the  U.S.  markets.
Unsponsored ADRs may involve additional risks in that they are organized without
the  cooperation  of the  issuer  of the  underlying  securities.  As a  result,
available  information  concerning  the issuer may not be as current as that for
sponsored ADRs.

     The value of securities denominated in or indexed to foreign currencies and
of dividends and interest from such  securities  can change  significantly  when
foreign currencies  strengthen or weakened relative to the U.S. dollar.  Foreign
securities  markets  generally  have less trading volume and less liquidity than
the U.S. markets, and prices on some foreign securities can be highly volatile.

     Many foreign  countries lack uniform  accounting  and disclosure  standards
comparable to those applicable to U.S. companies, and it may seem more difficult
to obtain reliable  information  regarding an issuer's financial  conditions and
operations.

     Settlement of transaction in some foreign  markets may be delayed or may be
less frequent  than in the U.S.,  which could affect the liquidity of the Fund's
investments.  In addition, the cost of foreign investing,  including withholding
taxes,  brokerage commissions and custodial costs, are generally higher than for
U.S. investments.

                                                                              16
<PAGE>

     Foreign markets may offer less  protection to investors than U.S.  markets.
Foreign  issuers,  brokers,  and  securities  markets  may be  subject  to  less
government  supervision.  Foreign  security trading  practices,  including those
involving  the  release of assets in advance of payment,  may involve  increased
risks in the event of a failed  trade or the  insolvency  of the  broker-dealer,
which  may  result in  substantial  delays  in  settlement.  It may also be more
difficult to enforce legal rights in foreign countries.

     Investing  abroad also involves  different  political  and economic  risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S.  investors,  including the possibility of expropriation or
nationalization   of  assets,   confiscatory   taxation,   restriction  on  U.S.
investments or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility of
default by foreign  governments  or foreign  government  sponsored  enterprises.
Investments  in foreign  countries  also  involve  the risk of local  political,
economic,  or  social  instability,   military  action  or  unrest,  or  adverse
diplomatic developments.  There is no assurance that the Manager will be able to
anticipate these potential events or counter their effects.

Options on Securities, Securities Indices and Currencies.
---------------------------------------------------------

     The European  Fund may purchase put and call options on securities in which
it has invested, on foreign currencies  represented in its portfolios and on any
securities  index based in whole or in part on  securities in which the Fund may
invest.  In an effort to minimize  risks,  the Fund usually will not use options
for speculative purposes or as leverage.

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

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

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

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

Securities of Other Investment Companies - Closed End Funds
-----------------------------------------------------------

     The  European  Fund may  purchase  closed end funds that  invest in foreign
securities.  Unlike open-end  investment  companies,  like the Fund,  closed end
funds issue a fixed number of shares that trade on major stock exchanges or over
the  counter.  Additionally,  closed-end  funds do not  stand  ready to issue or
redeem on a continuous  basis.  Closed-end funds often sell at a discount to net
asset value.

                                                                              17
<PAGE>

     The  Nasdaq-100  Index  Fund  may  invest  in  securities  issued  by other
investment companies.  Those investment companies must invest in securities that
the Fund can invest in a manner consistent with the Fund's investment  objective
and policies.

     Applicable  provisions  of the  Investment  Company Act of 1940, as amended
(the  "1940  Act")  require  that a Fund  limit  its  investments  so  that,  as
determined  immediately  after a securities  purchase is made: (a) not more than
10% of the value of that Fund's total  assets will be invested in the  aggregate
in securities of investment  companies as a group;  and (b) either (i) that Fund
and  affiliated  persons of that Fund not own together more than 3% of the total
outstanding  shares of any one  investment  company at the time of purchase (and
that all shares of the  investment  company held by that Fund in excess of 1% of
the company's total outstanding  shares be deemed  illiquid),  or (ii) that Fund
not invest more than 5% of its total  assets in any one  investment  company and
the investment not represent more than 3% of the total outstanding  voting stock
of the  investment  company  at the time of  purchase.  As a  shareholder  in an
investment company, a Fund bears its ratable share of that investment  company's
expenses, including advisory and administration fees, resulting in an additional
layer of management  fees and expenses for  shareholders.  This  duplication  of
expenses  would  occur  regardless  of the  type of  investment  company,  i.e.,
open-end (mutual fund) or closed-end.


INVESTMENT RESTRICTIONS

     Except as noted  with  respect  to any Fund,  each  Trust has  adopted  the
following  restrictions as additional  fundamental  policies of its Funds, which
means that they may not be changed  without  the  approval  of a majority of the
outstanding  voting securities of that Fund. Under the Investment Company Act of
1940, as amended,  ("1940 Act"), a "vote of a majority of the outstanding voting
securities" of the Trust or of a particular Fund means the  affirmative  vote of
the  lesser  of (l) more than 50% of the  outstanding  shares of the Trust or of
such Fund, or (2) 67% or more of the shares of the Trust or of such Fund present
at a meeting of shareholders  if more than 50% of the outstanding  shares of the
Trust or of such Fund are  represented  at the meeting in person or by proxy.  A
Fund may not:

     1.  Borrow  money or  mortgage  or pledge any of its  assets,  except  that
borrowings (and a pledge of assets therefor) for temporary or emergency purposes
may be made  from  banks in any  amount  up to 10% (15% in the case of the Stock
Funds) of the  Fund's  total  asset  value.  However,  a Fund will not  purchase
additional  securities while the value of its outstanding  borrowings exceeds 5%
of its total assets. Secured temporary borrowings may take the form of a reverse
repurchase  agreement,  pursuant to which a Fund would sell portfolio securities
for cash and simultaneously agree to repurchase them at a specified date for the
same  amount  of cash plus an  interest  component.  (As a matter  of  operating
policy,  the  Funds  currently  do not  intend  to  utilize  reverse  repurchase
agreements, but may do so in the future.)

     2. Except as required in  connection  with  permissible  futures  contracts
(Stock  Funds  only),  buy any  securities  on "margin"  or sell any  securities
"short," except that it may use such short-term credits as are necessary for the
clearance  of  transactions.

     3. Make loans, except (a) through the purchase of debt securities which are
either publicly distributed or customarily purchased by institutional investors,
(b) to the extent the entry into a repurchase agreement may be deemed a loan, or
(c) to lend  portfolio  securities  to  broker-dealers  or  other  institutional
investors if at least 100% collateral,  in the form of cash or securities of the
U.S. Government or its agencies and instrumentalities, is pledged and maintained
by the borrower.

     4. Act as underwriter of securities  issued by other persons except insofar
as the  Fund  may  be  technically  deemed  an  underwriter  under  the  federal
securities laws in connection with the disposition of portfolio securities.

     5. With respect to 75% of its total assets,  purchase the securities of any
one issuer (except  securities  issued or guaranteed by the U.S.  Government and
its agencies or instrumentalities, as to which there are no percentage limits or
restrictions)  if  immediately  after and as a result of such  purchase  (a) the
value of the holdings of the Fund in the  securities of such issuer would exceed
5% of the value of the Fund's total assets,  or (b) the Fund would own more than
10% of the  voting  securities  of any  such  issuer  (both  the  issuer  of the
municipal obligation as well as the financial institution/ intermediary shall be
considered issuers of a participation certificate), except that the Insured Fund
may  invest  more  than 25% of its  assets  in  securities  insured  by the same
insurance company.

                                                                              18
<PAGE>

     6. Purchase  securities from or sell to the Trust's  officers and Trustees,
or any firm of which any officer or Trustee is a member, as principal, or retain
securities of any issuer if, to the  knowledge of the Trust,  one or more of the
Trust's officers, Trustees, or investment adviser own beneficially more than 1/2
of 1% of the  securities  of such  issuer  and all such  officers  and  Trustees
together own beneficially more than 5% of such securities  (non-fundamental  for
the Stock Funds).

     7. Acquire,  lease or hold real estate,  except such as may be necessary or
advisable for the maintenance of its offices,  and provided that this limitation
shall  not  prohibit  the  purchase  of  securities  secured  by real  estate or
interests therein.

     8.   (a) Invest in  commodities  and commodity  contracts,  or interests in
oil,  gas, or other  mineral  exploration  or  development  programs;  provided,
however,  that a Fund may  invest  in  futures  contracts  as  described  in the
Prospectus and in this Statement of Additional Information (Stock Funds only).

          (b)  Invest in  commodities  and  commodity  contracts,  puts,  calls,
straddles,  spreads,  or any combination  thereof,  or interests in oil, gas, or
other mineral  exploration or development  programs,  except that the Government
Fund may purchase,  hold,  and dispose of  "obligations  with puts  attached" in
accordance with its investment policies (all Funds except the Stock Funds).

     9. Invest in companies for the purpose of exercising control or management.


     10.  (a) Purchase securities of other investment  companies,  except to the
extent  permitted  by the 1940 Act and as such  securities  may be  acquired  in
connection with a merger,  consolidation,  acquisition,  or reorganization  (the
Stock Funds only, except the Nasdaq-100 Fund).


          (b)  Purchase  securities  of other  investment  companies,  except in
connection with a merger,  consolidation,  acquisition,  or reorganization  (all
Funds except the Stock Funds).

     11.   Purchase   illiquid   securities,   including   (under   current  SEC
interpretations)  securities  that are not readily  marketable,  and  repurchase
agreements with more than seven days to maturity if, as a result,  more than 10%
of the total assets of the Fund would be invested in such illiquid securities.

     12.  Invest 25% or more of its assets in  securities  of any one  industry,
although for purposes of this limitation,  tax-exempt securities and obligations
of the U.S. Government and its agencies or instrumentalities  are not considered
to be part of any  industry  (both the  industry of the issuer of the  municipal
obligation  as well as the  industry of the  financial  institution/intermediary
shall be considered in the case of a participation certificate), except that the
Insured Fund may invest more than 25% of its assets in securities insured by the
same insurance company.

     13. Issue senior  securities,  as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit a Fund from (a) making any permitted
borrowings,  mortgages or pledges, and (b) entering into permissible  repurchase
and futures transactions.

     In  addition,  each Stock Fund has adopted the  following  restrictions  as
operating  policies,  which are not  fundamental  policies,  and may be  changed
without  shareholder  approval in accordance with applicable  regulations.  Each
Stock Fund may not:

     1. Engage in short sales of securities.

     2. Invest in warrants,  valued at the lower of cost or market, in excess of
5% of the value of a Fund's net  assets.  Included  in such  amount,  but not to
exceed 2% of the value of the Fund's net assets,  may be  warrants  that are not
listed on the New York Stock Exchange (the "NYSE") or American  Stock  Exchange.
Warrants  acquired by a Fund in units or attached to securities may be deemed to
be without value.

     3. Enter into a futures contract or option on a futures contract,  if, as a
result  thereof,  more than 5% of the Fund's total assets (taken at market value
at the  time of  entering  into the  contract)  would be  committed  to  initial
deposits and premiums on open futures contracts and options on such contracts.

     4. With the exception of the  Nasdaq-100  Fund,  invest more than 5% of its
total assets in the securities of companies  (including  predecessors) that have
been in continuous operation for a period of less

                                                                              19
<PAGE>

than three years.

     5. Invest in puts, calls,  straddles or spread options,  or any combination
thereof. (Except the SmallCap Fund, the Nasdaq-100 Fund and the European Fund.)

     If a  percentage  restriction  is adhered to at the time of  investment,  a
subsequent  increase or decrease in a percentage  resulting from a change in the
values of assets will not constitute a violation of that restriction,  except as
otherwise noted.

                                                                              20
<PAGE>

TRUSTEES AND OFFICERS

     The  Trustees  of each  Trust  have  the  responsibility  for  the  overall
management of the respective Trust,  including general supervision and review of
the Funds' investment activities.  The Trustees elect the officers of each Trust
who are responsible for  administering  the day-to-day  operations of such Trust
and its Funds. The affiliations of the officers and Trustees and their principal
occupations for the past five years are listed below.  The Trustees and officers
of each  Trust are  identical.  Trustees  who are  deemed  to be an  "interested
person" of the Trust,  as defined in the 1940 Act, are  indicated by an asterisk
(*).

<TABLE>
<CAPTION>
                                      Position
                                      and
                                      Offices
                           Date of    with the     Principal Occupation within the Past
Name and Address           Birth      Trusts       five years
-----------------------    --------   ---------    ------------------------------------
<S>                        <C>        <C>          <C>
*Stephen C. Rogers         06/27/66   President    Chief Executive Officer, CCM Partners
44 Montgomery Street                  & Trustee    1999 to present; Chief Operating
Suite 2100                                         Officer, CCM Partners 1997 to 1999;
San Francisco, CA 94104                            Administrative Officer, CCM Partners
                                                   1993-1997; Marketing Representative, CCM
                                                   Partners, 1992 to 1993.

*Phillip W. McClanahan     12/26/35   Vice         Director of Investments, CCM Partners:
44 Montgomery Street                  President,   1985-present 1984-1985: Vice President
Suite 2100                            Treasurer    and Portfolio Manager, Transamerica
San Francisco, CA 94104               and Trustee  Investment Services: 1966-1984: Vice
                                                   President and Portfolio Manager,
                                                   Fireman's Fund Insurance Company and
                                                   Amfire, Inc.

Harry Holmes               12/5/25    Trustee      Principal, Harry Holmes & Associates
Del Ciervo at Midwood                              (consulting); 1982-1984: President and
Pebble Beach, CA  93953                            Chief Executive Officer, Aspen Skiing
                                                   Company; 1973-1984: President and Chief
                                                   Executive Officer, Pebble Beach Company
                                                   (property management).

John B. Sias               01/22/27   Trustee      President and CEO, Chronicle Publishing
1100 Sacramento Street                             Company, 1993 to Present; Company
#1002                                              formerly, Director and Executive Vice
San Francisco, CA  94108                           President, Capital Cities/ABC Inc. and
                                                   President, ABC Network T.V. Group.

Guy Rounsaville, Jr.       11/26/43   Trustee      Partner, Allen, Matkins, Leck, Gamble &
333 Bush Street, #1700                             Mallory LLP: General Counsel, Wells
San Francisco, CA 94104                            Fargo Bank; 1977-1999: Corporate
                                                   Secretary, Wells Fargo & Company;
                                                   1978-1999.
</TABLE>

                                                                              21
<PAGE>


     As shown on the following table, the Funds pay the fees of the Trustees who
are not affiliated with the Manager,  which are currently $2,500 per quarter and
$500 for each meeting  attended.  The table provides  information  regarding all
series of the California Investment Trust as of November 30, 2000.


<TABLE>
<CAPTION>
                                              Pension or Estimated                    Total compensation
                             Aggregate        retirement benefits    Annual           respecting Registrant
                             Fund group       accrued as Fund        benefits upon    and Fund complex
Name/Position                compensation     expenses               retirement       paid to Trustees
-----------------------------------------------------------------------------------------------------------
<S>                          <C>              <C>                    <C>               <C>
Stephen C. Rogers            None             None                   None              None
CEO, Trustee

Phillip W. McClanahan        None             None                   None              None
Treasurer, Trustee

Harry Holmes                 $12,000          None                   None              $12,000
Trustee

John B. Sias                 $12,000          None                   None              $12,000
Trustee

Guy Rounsaville, Jr.         $12,000          None                   None              $12,000
Trustee
</TABLE>


     As of November 30, 2000, the Trustees and officers of the Trusts as a group
owned less than 1% of the  outstanding  shares of the Money Fund,  the  Treasury
Fund, the Insured Fund, the Tax-Free  Income Fund, the Government  Fund, the 500
Fund and the Equity  Income Fund As of  November  30,  2000,  the  Trustees  and
officers  owned more than 1% but less than 5% of the MidCap  Fund,  the SmallCap
Fund,  the European  Fund,  and the  Nasdaq-100  Fund.  As of November 30, 2000,
Stephen  C.  Rogers  owned  6.5% of the  Short-Term  Government  Fund.  No other
Trustees  or  officers  owned  shares in the  Short-Term  Government  Fund as of
November 30, 2000.


INVESTMENT MANAGEMENT AND OTHER SERVICES

Management Services


     CCM Partners,  a California  Limited  Partnership (the  "Manager"),  is the
Manager of the Funds under  Investment  Management  Agreements dated January 18,
2000  and  January  28,  2000.  (Such  Investment   Management   Agreements  are
collectively  referred  to as the  "Agreements.").  The  Manager  is  indirectly
controlled  by a  privately  held  corporation,  RFS,  Inc.,  which  in  turn is
controlled by a family trust of which Mr. Stephen C. Rogers is a co-trustee.


     Pursuant to the Agreements,  the Manager supplies  investment  research and
portfolio  management,  including the  selection of securities  for the Funds to
purchase, hold, or sell and the selection of brokers or dealers through whom the
portfolio  transactions of each Fund are executed.  The Manager's activities are
subject to review and  supervision  by the Trustees to whom the Manager  renders
periodic reports of the Funds' investment  activities.  The Manager,  at its own
expense, also furnishes the Trusts with executive and administrative  personnel,
office space and facilities, and pays certain additional administrative expenses
incurred in connection with the operation of each Fund.

     Each  Fund  pays for its own  operating  expenses  and for its share of its
respective  Trust's  expenses  not assumed by the  Manager,  including,  but not
limited to, costs of custodian services,  brokerage fees, taxes, interest, costs
of reports  and  notices  to  shareholders,  costs of  dividend  disbursing  and
shareholder  record-keeping  services (including telephone costs),  auditing and
legal  fees,  the  fees of the  independent  Trustees  and the  salaries  of any
officers or employees who are not affiliated with the Manager,  and its pro-rata
portion of premiums on the fidelity bond covering the Fund.

                                                                              22
<PAGE>


     For the  Manager's  services,  each Fund pays a monthly fee computed at the
annual rates shown in the table below:

<TABLE>
<CAPTION>
Funds                       Management Fee per annum      Range of average daily net assets of each fund
-----                       ------------------------      ----------------------------------------------
<S>                           <C>                       <C>
Income Fund , Insured
Fund, Money Fund,               1/2 of 1% (0.5%)            Up to and including assets of $100 million
Government Fund,              45/100 of 1% (0.45%)      over $100 million up to and including $500 million
Treasury Trust                 4/10 of 1% (0.40%)                       over $500 million

MidCap Fund                    4/10 of 1% (0.40%)                           All assets
500 Fund                      25/100 of 1% (0.25%)                          All assets
European Fund                 85/100 of 1% (0.85%)                          All assets

SmallCap Fund, Equity
Income Fund, Nasdaq-100         1/2 of 1% (0.5%)            Up to and including assets of $500 million
Fund, Short-Term              45/100 of 1% (0.45%)      over $500 million up to and including $1 billion
Government Fund                4/10 of 1% (0.40%)                        over $1 billion
</TABLE>

     The  Agreements  provide that the Manager is obligated to reimburse each of
the  other  Funds  monthly  (through  a  reduction  of its  management  fees and
otherwise)  for  all  expenses  (except  for  extraordinary   expenses  such  as
litigation)  in excess of 1.00% of each Fund's  average  daily net  assets.  The
Manager may also, and has to date, reduced its fees in excess of its obligations
under the Agreements.


The following fees were paid to the Manager:

For the fiscal year ended August 31, 1998:

Fund              Fee            Reimbursement     Net to Manager
-----------------------------------------------------------------
Money Fund        $505,199       $213,549          $291,650
Income Fund       $1,032,319     n/a               $1,032,319
Government Fund   $168,159       $10,318           $157,841
Treasury Trust    $238,447       $116,733          $121,714
Insured Fund      $116,198       $34,788           $81,410
500 Fund          $217,634       $173,969          $43,665
MidCap Fund       $203,446       $80,984           $122,462
SmallCap Fund     $48,850        $43,596           $5,254
Equity Income     $57,707        $15,526           $42,181

For the fiscal year ended August 31, 1999:

Fund              Fee            Reimbursement     Net to Manager
-----------------------------------------------------------------
Money Fund        $558,691       $233,014          $325,677
Income Fund       $1,043,156     n/a               $1,043,156
Government Fund   $174,183       $3,320            $170,863
Treasury Trust    $253,658       $109,740          $143,918
Insured Fund      $123,678       $27,698           $95,982
S&P 500           $313,194       $218,960          $94,234
S&P MidCap        $212,287       $89,438           $122,849
S&P SmallCap      $47,058        $38,043           $9,015
Equity Income     $67,107        $8,051            $59,056


For the fiscal year ended August 31, 2000:

Fund              Fee            Reimbursement     Net to Manager
-----------------------------------------------------------------
Money Fund        $511,950       $261,646          $250,304
Income Fund       $916,707       n/a               $916,707
Government Fund   $143,067       $20,149           $122,918
Treasury Trust    $324,840       $166,392          $158,448

                                                                              23
<PAGE>

Insured Fund      $115,709       $38,808           $76,901
S&P 500           $387,346       $306,200          $81,146
S&P MidCap        $253,142       $109,516          $143,626
S&P SmallCap      $58,187        $40,269           $17,918
Equity Income     $59,559        $20,881           $38,678
European Fund     $4,973         $17,863           ($12,890)
Nasdaq-100        $31,045        $21,291           $9,754
Short-Term
Government Fund   $11,380        $26,740           ($15,360)


     The  Agreements  with respect to the NASDAQ 100 Fund, the European Fund and
the Short Term  Government  Fund are currently in effect until January 18, 2002.
The  Agreements  with respect to the Income Fund,  the Insured  Fund,  the Money
Fund, the Government  Fund, the Treasury  Trust,  the 500 Fund, the MidCap Fund,
the  SmallCap  Fund and the Equity  Income Fund are  currently  in effect  until
January 28, 2002.  Each  Agreement  will be in effect  thereafter  only if it is
renewed for each Fund for  successive  periods not exceeding one year by (i) the
Board of  Trustees  of the  Trusts or a vote of a  majority  of the  outstanding
voting  securities of each Fund,  and (ii) a vote of a majority of such Trustees
who are not parties to said Agreement nor an interested person of any such party
(other than as a Trustee), cast in person at a meeting called for the purpose of
voting on such Agreement.

     Management  Agreements may be terminated without penalty at any time by the
applicable  Trust with respect to one or more of the Funds to which the relevant
Agreement  applies (either by the applicable  Board of Trustees or by a majority
vote  of the  terminating  Fund's  outstanding  shares);  or by the  Manager  on
60-days' written notice,  and will  automatically  terminate in the event of its
assignment as defined in the 1940 Act.


     The  Trusts  and the  Manager  have  adopted a Code of Ethics  pursuant  to
Section  17(j) of the 1940 Act and Rule  17j-1  thereunder.  The Code of  Ethics
conforms  to the  provisions  of Rule 17j-1 as adopted by the SEC on October 29,
1999.  Currently,  the Code of Ethics prohibits personnel subject to the Code of
Ethics from buying or selling  securities for their own  individual  accounts if
such  securities at the time of such  purchase or sale (i) are being  considered
for purchase or sale by a Fund (except the Index Funds) (ii) have been purchased
or  sold by a Fund  within  the  most  recent  seven  (7)  days  if such  person
participated in the  recommendation to, or the decision by, the Fund to purchase
or  sell  such  security  (except  the  Index  Funds).   Notwithstanding   these
prohibitions,  there are limited circumstances in which personnel subject to the
Code of Ethics may buy or sell securities for their own account (e.g.  purchases
which are part of an automatic dividend  reinvestment  plan). The Code of Ethics
also requires  personnel  subject to the Code to report personal holdings to the
Trusts or the Manger on both an annual and a quarterly basis.


Principal Underwriter


     RFS Partners, a California limited partnership,  is currently the principal
underwriter  of each Fund's  shares under an  underwriting  agreement  with each
Fund,  pursuant to which RFS Partners agrees to act as each Fund's  distribution
agent.  Each Fund's  shares are sold to the public on a best efforts  basis in a
continuous  offering  without a sales load or other  commission or compensation.
RFS Partners is the general partner of the Funds'  Manager.  The general partner
of RFS Partners is Richard F. Shelton, Inc., a corporation that is controlled by
a family trust, of which Stephen C. Rogers serves as a trustee.  Mr.  McClanahan
is a limited partner of RFS Partners.  While the shares of each Fund are offered
directly to the public with no sales  charge,  RFS Partners  may, out of its own
monies,  compensate  brokers  who  assist  in the  sale of a Fund's  shares.  In
addition,  the Manager may, out of its own monies,  make cash  contributions  to
tax-exempt  charitable  organizations which invest in the Government Fund or the
Treasury Trust.


Other Services

     Firstar Mutual Fund Services,  LLC is the  shareholder  servicing agent for
the Trusts and acts as the Trusts' transfer and  dividend-paying  agent. In such
capacities  it  performs  many  services,  including  portfolio  and  net  asset
valuation, bookkeeping, and shareholder record-keeping.

     Firstar  Bank  Milwaukee  (the   "Custodian")  acts  as  custodian  of  the
securities and other assets of the Trusts. The Custodian does not participate in
decisions relating to the purchase and sale of portfolio  securities.  Under the
custodian agreement,  the Custodian (i) maintains a separate account or accounts
in the name of each  Fund,  (ii) holds and  transfers  portfolio  securities  on
account of each Fund, (iii) accepts receipts and makes disbursements of money on
behalf of each Fund,  (iv)  collects and receives all income and other  payments
and  distribution  on account of each Fund's  securities  and (v) makes periodic
reports to the Trustees of each Trust concerning each Fund's operations.

                                                                              24
<PAGE>

     Tait, Weller & Baker (the "Auditors"),  Eight Penn Center Plaza, Suite 800,
Philadelphia,  Pennsylvania 19103, are the independent  auditors for the Trusts.
The Auditors provide audit services and assistance and consultation with respect
to  regulatory  filings with the SEC. The Auditors  also audit the books of each
Fund at least once each year.

     The  validity  of shares of  beneficial  interest  offered  hereby has been
passed on by Paul, Hastings,  Janofsky & Walker LLP, 345 California Street, 29th
Floor, San Francisco, California 94104.

                                                                              25
<PAGE>

THE TRUSTS' POLICIES REGARDING BROKER-DEALERS
USED FOR PORTFOLIO TRANSACTIONS

     Decisions to buy and sell  securities  for the Funds,  assignment  of their
portfolio  business,  and negotiation of commission rates and prices are made by
the Manager, whose policy is to obtain the "best execution" (prompt and reliable
execution  at  the  most  favorable  security  price)  available.  Since  it  is
anticipated  that most  purchases made by the Funds (other than the Stock Funds)
will be  principal  transactions  at net prices,  the Funds will incur few or no
brokerage  costs.  The Funds will deal  directly  with the selling or purchasing
principal  or market  maker  without  incurring  charges  for the  services of a
broker-dealer  on its  behalf  unless it is  determined  that a better  price or
execution  may  be  obtained  by  utilizing  the  services  of a  broker-dealer.
Purchases of portfolio  securities from underwriters may include a commission or
concession  paid by the issuer to the  underwriter,  and purchases  from dealers
will include a spread between the bid and asked price.

     When a broker-dealer is used for portfolio  transactions,  the Manager will
seek to determine that the amount of commissions  paid is reasonable in relation
to the value of the brokerage and research  services and  information  provided,
viewed  in  terms  of  either  that   particular   transaction  or  its  overall
responsibilities  with  respect to the Funds for which it  exercises  investment
discretion.  In selecting  broker-dealers  and in negotiating  commissions,  the
Manager considers the broker-dealer's  reliability, the quality of its execution
services on a continuing  basis,  the financial  condition of the firm,  and the
research services  provided,  which include furnishing advice as to the value of
securities,  the advisability of purchasing or selling  specific  securities and
furnishing   analysis  and  reports  concerning  state  and  local  governments,
securities, and economic factors and trends, and portfolio strategy. The Manager
considers  such  information,  which  is in  addition  to and not in lieu of the
services  required to be performed by the Manager  under the  Agreements,  to be
useful in varying degrees, but of indeterminable value.


     The Funds may pay brokerage commissions in an amount higher than the lowest
available rate for brokerage and research services as authorized,  under certain
circumstances,  by the  Securities  Exchange  Act of  1934,  as  amended.  Where
commissions paid reflect research services and information furnished in addition
to  execution,  the  Manager  believes  that  such  services  were bona fide and
rendered  for the benefit of its  clients.  For the fiscal year ended August 31,
1998,  the 500 Fund paid $728 in  brokerage  commissions,  the MidCap  Fund paid
$6,229 in brokerage  commissions,  the Equity Income Fund paid $327 in brokerage
commissions and the SmallCap Fund paid $5,309 in brokerage commissions.  For the
fiscal  year  ended  August  31,  1999,  the 500 Fund paid  $2,512 in  brokerage
commissions,  the MidCap Fund paid $10,102 in brokerage commissions,  the Equity
Income Fund paid $3,255 in  brokerage  commissions  and the  SmallCap  Fund paid
$3,033 in brokerage commissions.  For the fiscal year ended August 31, 2000, the
500 Fund paid $10,017 in brokerage commissions,  the MidCap Fund paid $16,855 in
brokerage  commissions,   the  Equity  Income  Fund  paid  $5,620  in  brokerage
commissions,  the  SmallCap  Fund paid  $6,571  in  brokerage  commissions,  the
European Fund paid $5,168 in brokerage commissions, and the Nasdaq-100 Fund paid
$179 in  brokerage  commissions.  In some cases,  a broker may provide  research
services to the  Manager.  Such  research  is paid for by the broker  using soft
dollars.  Any research received by the Manager is used for the exclusive benefit
of the Funds and their shareholders.


     Provided that the best execution is obtained,  the sale of shares of any of
the Funds may also be considered as a factor in the selection of  broker-dealers
to execute the Funds' portfolio  transactions.  No affiliates of the Funds or of
the Manager will receive commissions for business arising directly or indirectly
out of portfolio transactions of the Funds.

     If purchases or sales of securities of the Funds are considered at or about
the same time,  transactions  in such  securities  will be  allocated  among the
several  Funds in a manner deemed  equitable to all by the Manager,  taking into
account the  respective  sizes of the Funds,  and the amount of securities to be
purchased or sold. It is recognized  that it is possible that in some cases this
procedure could have a detrimental effect on the price or volume of the security
so far as a Fund is concerned.  In other cases, however, it is possible that the
ability to participate in volume  transactions  and to negotiate lower brokerage
commissions or net prices will be beneficial to a Fund.

                                                                              26
<PAGE>

ADDITIONAL INFORMATION REGARDING PURCHASES
AND REDEMPTIONS OF FUND SHARES

Purchase Orders

     The  purchase  price for shares of the Funds is the net asset value of such
shares next  determined  after  receipt and  acceptance  of a purchase  order in
proper form by the Funds'  Custodian,  Firstar Bank Milwaukee.  Once shares of a
Fund are purchased, they begin earning income immediately,  and income dividends
will start being  credited to the  investor's  account on the day  following the
effective  date of  purchase  and  continue  through  the day the  shares in the
account are redeemed. All checks are accepted subject to collection at full face
value in U.S.  funds and must be drawn in U.S.  dollars on a U.S.  bank.  Checks
drawn in U.S.  funds on foreign banks will not be credited to the  shareholder's
account and dividends  will not begin accruing until the proceeds are collected,
which can take a long period of time.

     Payments  transmitted  by wire and received by the  Custodian  prior to the
close of the Funds,  normally at 4:00 p.m. eastern time (1:00 p.m. Pacific time)
on any business day are  effective  on the same day as received.  Wire  payments
received by the Custodian after that time will normally be effective on the next
business  day and  such  purchases  will be made  at the net  asset  value  next
calculated after receipt of that payment.

Shareholder Accounting

     All  purchases of Fund shares will be credited to the  shareholder  in full
and  fractional  shares of the relevant Fund (rounded to the nearest 1/1000 of a
share) in an account  maintained  for the  shareholder  by the Trusts'  transfer
agent.  Share  certificates will not be issued for any Fund at any time. To open
an account in the name of a  corporation,  a  resolution  of that  corporation's
Board of Directors will be required.  Other evidence of corporate  status or the
authority of account signatories may be required.

     Each  Trust  reserves  the right to reject  any order for the  purchase  of
shares of any Fund, in whole or in part. In addition,  the offering of shares of
any Fund may be suspended  by the relevant  Trust at any time and resumed at any
time thereafter.

Shareholder Redemptions

     All requests for redemption and all share assignments should be sent to the
applicable  Fund, 44 Montgomery  Street,  Suite 2100, San Francisco,  California
94104, or, for telephone redemptions, by calling the Fund at (800) 225-8778. For
online redemptions, visit the Fund's web-site at www.caltrust.com.

     Redemptions  will be made in cash at the net asset  value  per  share  next
determined after receipt by the transfer agent of a redemption request in proper
form, including all share certificates, share assignments, signature guarantees,
and other  documentation  as may be required by the transfer  agent.  The amount
received upon  redemption  may be more or less than the  shareholder's  original
investment.

     The Trusts  will  attempt to make  payment for all  redemptions  within one
business  day,  but in no event  later than  seven  days  after  receipt of such
redemption  request in proper form.  However,  each Trust  reserves the right to
suspend  redemptions  or postpone the date of payment (1) for any periods during
which the New York  Stock  Exchange  is  closed  (other  than for the  customary
weekend  and  holiday  closings),  (2) when  trading in the  markets  the Trusts
usually utilize is restricted or an emergency  exists, as determined by the SEC,
so that disposal of the Trust's investments or the determination of a Fund's net
asset value is not reasonably practicable,  or (3) for such other periods as the
SEC by order may permit for the protection of a Trust's shareholders. Also, each
Trust will not mail  redemption  proceeds  until checks used for the purchase of
the shares have cleared, which can take up to 15 days.

     As of the date of this  Statement  of  Additional  Information,  the Trusts
understand  that  the New  York  Stock  Exchange  is  closed  for the  following
holidays:   New  Year's  Day,  President's  Day,  Good  Friday,   Memorial  Day,
Independence Day, Labor Day,  Thanksgiving  Day, and Christmas.  The Trusts have
been advised that the Custodian is also closed on Martin Luther King's Birthday.
On holidays in which the Custodian is closed, any transactions will be processed
on the following business day.

     Due to the relatively high cost of handling small  investments,  each Trust
reserves the right to redeem,  involuntarily,  at net asset value, the shares of
any shareholder whose accounts in the Trust have an

                                                                              27
<PAGE>

aggregate value of less than $5,000 ($1,000 in the case of the Stock Funds), but
only where the value of such  accounts  has been  reduced by such  shareholder's
prior voluntary  redemption of shares. In any event, before a Trust redeems such
shares and sends the proceeds to the shareholder, it will notify the shareholder
that the value of the  shares  in that  shareholder's  account  is less than the
minimum  amount  and  allow  that  shareholder  30 days  to  make an  additional
investment  in an  amount  which  will  increase  the  aggregate  value  of that
shareholder's  accounts to at least $5,000  before the  redemption  is processed
($1,000  in the case of the  Stock  Funds).

     Use of the Exchange Privilege as described in the Prospectus in conjunction
with market timing services  offered  through  numerous  securities  dealers has
become increasingly popular as a means of capital management.  In the event that
a substantial  portion of a Fund's shareholders  should,  within a short period,
elect to redeem  their shares of that Fund  pursuant to the Exchange  Privilege,
the Fund might have to liquidate  portfolio  securities it might  otherwise hold
and incur the  additional  costs  related  to such  transactions.  The  Exchange
Privilege may be terminated or suspended by the Funds upon 60-day's prior notice
to shareholders.

Redemptions in Kind

     Each Trust has committed  itself to pay in cash all requests for redemption
by any  shareholder  of record,  limited in amount,  however,  during any 90-day
period to the lesser of $250,000 or 1% of the value of the applicable Fund's net
assets at the beginning of such period.  Such commitment is irrevocable  without
the prior  approval of the SEC. In the case of requests for redemption in excess
of such amounts,  the Trustees reserve the right to make payments in whole or in
part in  securities  or other assets of the Fund from which the  shareholder  is
redeeming in case of an  emergency,  or if the payment of such a  redemption  in
cash  would be  detrimental  to the  existing  shareholders  of that Fund or the
Trust. In such circumstances,  the securities distributed would be valued at the
price  used to  compute  such  Fund's  net asset  value.  Should a Fund do so, a
shareholder  would likely incur transaction fees in converting the securities to
cash.

Determination of Net Asset Value Per Share ("NAV")

     The  valuation  of the  portfolio  securities  of the  Money  Fund  and the
Treasury Trust (including any securities held in the separate account maintained
for when-issued  securities) is based upon their amortized cost,  which does not
take into account unrealized  capital gains or losses.  This involves valuing an
instrument  at its cost and  thereafter  assuming  a  constant  amortization  to
maturity of any  discount or premium,  regardless  of the impact of  fluctuating
interest rates on the market value of the instrument. While this method provides
certainty  in  valuation,  it may  result in  periods  during  which  value,  as
determined by amortized cost, is higher or lower than the price such Funds would
receive if they sold the instrument. During periods of declining interest rates,
the daily yield on shares of the Money Fund and the Treasury  Trust  computed as
described  above may tend to be higher  than a like  computation  made by a Fund
with  identical  investments  utilizing a method of valuation  based upon market
prices.  Thus,  if the use of amortized  cost by such Funds  resulted in a lower
aggregate  portfolio value on a particular  day, a prospective  investor in such
Fund would be able to obtain a somewhat  higher  yield  than would  result  from
investment in a Fund utilizing solely market values,  and existing  investors in
such Fund would receive less  investment  income.  The converse would apply in a
period of rising interest rates.

     The use of amortized cost by the Money Fund and the Treasury Trust, and the
maintenance  of each Fund's per share net asset value at $1.00 is  permitted  by
Rule 2a-7 under the 1940 Act, pursuant to which each Fund must adhere to certain
conditions.  There are policies that the Manager follows  regarding 2a-7.  Under
the amortized cost method,  securities are valued at their  acquisition cost, as
adjusted for amortization of premium or discount,  rather than at current market
value.  Calculations  are made at least  weekly  to  compare  the value of these
Funds' investments valued at amortized cost with market values.

     The Money  Fund and the  Treasury  Trust each  maintain  a  dollar-weighted
average portfolio maturity of 90 days or less, only purchase  instruments having
remaining  maturities  of 397  days or  less,  and  only  invest  in  securities
determined by the Trustees to be of high quality with minimal credit risks.  The
Trustees have also established  procedures designed to stabilize,  to the extent
reasonably possible,  each Fund's price per share as computed for the purpose of
sales and redemptions at $1.00.  Such  procedures  include review of each Fund's
portfolio  holdings  by the  Trustees,  at  such  intervals  as  they  may  deem
appropriate,  to  determine  whether each Fund's net asset value  calculated  by
using  available  market  quotations  deviates  from  $1.00 per  share  based on
amortized cost. The extent of any deviation is examined by the Trustees. If such
deviation exceeds 1/2 of 1%, the Trustees will promptly consider what action, if

                                                                              28
<PAGE>

any, will be  initiated.  In the event the Trustees  determine  that a deviation
exists  which  may  result in  material  dilution  or other  unfair  results  to
investors  or existing  shareholders,  they have agreed to take such  corrective
action as they regard as necessary and  appropriate,  which may include the sale
of portfolio  securities prior to maturity to realize capital gains or losses or
to shorten average  portfolio  maturity,  adjusting or withholding of dividends,
redemptions  of shares in kind, or  establishing  a net asset value per share by
using available market quotations.

     The portfolio  securities  of the Stock Funds are  generally  valued at the
last  reported  sale  price.  Securities  held by the Stock  Funds  that have no
reported  last sale for any day that a Fund's NAV is calculated  and  securities
and other assets for which market quotations are readily available are valued at
the latest  available bid price.  Portfolio  securities held by the Income Fund,
the Insured Fund, the Government  Fund and the  Short-Term  Government  Fund for
which market quotations are readily available are valued at the latest available
bid  price.  All other  securities  and assets are valued at their fair value as
determined  in good faith by the Board of Trustees.  Securities  with  remaining
maturities of 60 days or less are valued on the amortized  cost basis unless the
Trustees  determine that such valuation does not reflect fair value.  The Trusts
may also utilize a pricing service,  bank, or broker/dealer  experienced in such
matters to perform any of the pricing functions.

TAXATION

     Provided that, as anticipated,  each Tax-Free Fund qualifies as a regulated
investment  company  under the Internal  Revenue  Code of 1986,  as amended (the
"Code"),  and, at the close of each quarter of its taxable year, at least 50% of
the value of the total  assets  of each  Tax-Free  Fund  consists  of  Municipal
Obligations,  each Tax-Free Fund may designate and pay exempt-interest dividends
from interest earned on such obligations.  Such exempt-interest dividends may be
excluded by  shareholders  of the  Tax-Free  Funds from their  gross  income for
federal   income   tax   purposes.   Corporate   shareholders   must   take  all
exempt-interest   dividends  into  account  in  determining   "adjusted  current
earnings"  for purposes of  calculating  their  alternative  minimum  tax.  Each
Tax-Free Fund might purchase municipal obligations at a discount from the prices
at which  they were  originally  issued,  especially  during  periods  of rising
interest  rates.  For federal  income tax  purposes,  some or all of this market
discount  may be included in the  Tax-Free  Funds'  ordinary  income and will be
taxable to shareholders as such when it is distributed. If, at the close of each
quarter of its taxable  year,  at least 50% of the value of the total  assets of
each Tax-Free Fund consists of obligations  that produce interest that is exempt
from California  personal  income tax if received by an individual,  and if each
maintains  its  qualification  as a  regulated  investment  company,  then  such
Tax-Free  Fund  will  be  qualified  to  pay  exempt-interest  dividends  to its
shareholders  that, to the extent they are attributable to interest  received by
such  Tax-Free Fund on such  obligations,  are exempt from  California  personal
income tax. The total  amount of  exempt-interest  dividends  paid by a Tax-Free
Fund to its  shareholders  with  respect to any taxable  year cannot  exceed the
amount  of  interest  received  by the  Fund  during  such  year  on  tax-exempt
obligations less any expenses attributable to such interest.

     Provided  the  Treasury  Trust  and the  Short-Term  Government  Fund  each
individually  qualify  as  a  regulated  investment  company  and  meet  certain
requirements of California tax law, including the requirement that, at the close
of each quarter of their respective  taxable years, at least 50% of the value of
their individual  total assets are invested in direct  obligations of the United
States (or other U.S. and California tax-exempt obligations),  then the Treasury
Trust and Short-Term Government Fund will be qualified to pay dividends to their
shareholders  that, to the extent they are attributable to interest  received by
the  Treasury  Trust  or  Short-Term  Government  Fund on such  U.S.  Government
obligations,  will be exempt from California  personal  income tax.  Because the
GNMA  certificates  in which  the  Government  Fund  primarily  invests  are not
considered  direct  obligations  of the  United  States  for this  purpose,  the
Government  Fund  does not  expect  to meet the 50%  requirement;  as a  result,
dividends  paid by the  Government  Fund will be subject to California  personal
income tax.

     Exempt-interest  dividends  paid to  Tax-Free  Fund  shareholders  that are
corporations  subject  to  California  franchise  or income tax will be taxed as
ordinary income to such shareholders. Moreover, no dividend paid by the Tax-Free
Funds will qualify for the  corporate  dividends-received  deduction for federal
income tax purposes.

     Interest on indebtedness incurred or continued by a shareholder to purchase
or carry  shares of a Tax-Free  Fund is not  deductible  for federal  income tax
purposes. Under regulations used by the Internal Revenue Service (the "IRS") for
determining  when  borrowed  funds  are  considered  used  for  the  purpose  of
purchasing  or  carrying  particular  assets,  the  purchase  of  shares  may be
considered to have been made with

                                                                              29
<PAGE>

borrowed funds even though the borrowed funds are not directly  traceable to the
purchase of shares of a Fund.  California  personal income tax law restricts the
deductibility of interest on indebtedness  incurred by a shareholder to purchase
or carry  shares of a Fund  paying  dividends  exempt from  California  personal
income  tax,  as  well  as the  allowance  of  losses  realized  upon a sale  or
redemption of shares, in substantially the same manner as federal tax law (which
is  described  in the  Prospectus).  Further,  a  Tax-Free  Fund  may  not be an
appropriate  investment  for persons who are  "substantial  users" of facilities
financed by  industrial  revenue  bonds or are "related  persons" of such users.
Such persons  should consult their tax advisers  before  investing in one of the
Tax-Free Funds.

     Up to 85%  of  Social  Security  or  railroad  retirement  benefits  may be
included in federal taxable income for benefit  recipients  whose adjusted gross
income  (including  income from tax-exempt  sources such as tax-exempt bonds and
the Tax-Free  Funds) plus 50% of their  benefits  exceeds  certain base amounts.
Income  from the  Tax-Free  Funds,  and others  like them,  is  included  in the
calculation of whether a recipient's income exceeds certain  established amounts
but is not taxable  directly.  California does not impose personal income tax on
Social Security or railroad retirement benefits.

     From time to time,  proposals have been introduced  before Congress for the
purpose of  restricting  or  eliminating  the federal  income tax  exemption for
interest on Municipal Obligations. It can be expected that similar proposals may
be introduced in the future. Proposals by members of state legislatures may also
be introduced  which could affect the state tax treatment of the Tax-Free Funds'
distributions.  If such proposals were enacted,  the  availability  of Municipal
Obligations  for  investment by the Tax-Free Funds and the value of the Tax-Free
Funds'  portfolios  would be affected.  In such event,  the Tax-Free Funds would
reevaluate their investment objectives and policies.

General

     Each Fund is treated  as a separate  entity  and  intends  to  continue  to
qualify in each year to be treated as a separate "regulated  investment company"
under the  Code.  Each of these  Funds has  elected  such  treatment  and has so
qualified  during its last fiscal  period ended August 31, 2000.  To continue to
qualify for the tax treatment afforded a regulated  investment company under the
Code,  a Fund must  distribute  for each fiscal year at least 90% of its taxable
income  (including  net realized  short-term  capital  gains) and tax-exempt net
investment income and meet certain source of income,  diversification  of assets
and other  requirements  of the Code.  Provided a Fund  continues to qualify for
such tax treatment,  it will not be subject to federal income tax on the part of
its  net  investment  income  and  its  net  realized  capital  gains  which  it
distributes  to  shareholders,  nor  will  it be  subject  to  Massachusetts  or
California  income or excise  taxation.  Each Fund must also meet  certain  Code
requirements  relating  to the  timing  of its  distributions,  which  generally
require the distribution of substantially  all of its taxable income and capital
gains each calendar  year, in order to avoid a 4% federal  excise tax on certain
retained amounts.

     Each Stock Fund may purchase or sell futures  contracts.  Such transactions
are  subject  to special  tax rules  which may  affect  the  amount,  timing and
character of distributions  to  shareholders.  Unless a Fund is eligible to make
and makes a special  election,  such futures  contracts  that are "Section  1256
contracts"  (such as a futures  contract the margin  requirements  for which are
based on a marked-to-market  system and which is traded on a "qualified board or
exchange") will be "marked to market" for federal income tax purposes at the end
of each taxable year,  i.e.,  each futures  contract will be treated as sold for
its fair market value on the last day of the taxable  year.  In general,  unless
the special  election is made,  gain or loss from  transactions  in such futures
contracts will be 60% long-term and 40% short-term capital gain or loss.


     Dividends of net  investment  income and realized  net  short-term  capital
gains in excess of net long-term  capital losses are taxable to  shareholders as
ordinary income,  whether such  distributions are taken in cash or reinvested in
additional  shares.  Distributions  of net long-term  capital  gains (i.e.,  the
excess of net long-term  capital gains over net short-term  capital losses),  if
any, are taxable as long-term  capital  gains,  whether such  distributions  are
taken in cash or  reinvested in additional  shares,  and  regardless of how long
shares of a Fund have been held. The current maximum federal individual tax rate
applicable to ordinary income is 39.6%.  The current maximum federal  individual
tax rate applicable to net long-term  capital gains is 20% for investments  held
longer than 12 months and 18% if held more than 5 years. Dividends declared by a
Fund in October,  November,  or December of any calendar year to shareholders of
record as of a record date in such a month will be treated  for  federal  income
tax purposes as having been received by shareholders on December 31 of that year
if they are paid during January of the following year.


     A portion of each Stock Fund's  ordinary  income  dividends may qualify for
the dividends received

                                                                              30
<PAGE>

deduction  available  to  corporate  shareholders  under Code Section 243 to the
extent that the Fund's income is derived from qualifying dividends. Availability
of the  deduction  is subject  to certain  holding  periods  and  debt-financing
limitations.  Because  a Fund may  also  earn  other  types  of  income  such as
interest, income from securities loans, non-qualifying dividends, and short-term
capital  gains,  the  percentage of dividends from a Fund that qualifies for the
deduction  generally  will be less  than  100%.  Each  Stock  Fund  will  notify
corporate  shareholders  annually  of the  percentage  of  Fund  dividends  that
qualifies for the dividends received deduction.


     For any of its  fiscal  year,  each  Fund may use the  accounting  practice
called  equalization in order to avoid the dilution of the dividends  payable to
existing shareholders. Under this procedure, that portion of the net asset value
per share of a Fund which is attributable to  undistributed  income is allocated
as a credit to undistributed income in connection with the purchase of shares or
a debit to  undistributed  income in connection  with the  redemption of shares.
Thus, after every distribution,  the value of a share drops by the amount of the
distribution.  The use of  equalization  accounting  by the Funds may affect the
amount, timing and character of their distributions to shareholders.


     Each Fund is required to file information reports with the IRS with respect
to taxable distributions and other reportable payments made to shareholders. The
Code requires backup withholding of tax at a rate of 31% on redemptions  (except
redemptions  of Money  Fund and  Treasury  Trust  shares)  and other  reportable
payments made to non-exempt shareholders if they have not provided the Fund with
their correct social security or other taxpayer  identification  number and made
the  certifications  required  by the IRS or if the IRS or a  broker  has  given
notification that the number furnished is incorrect or that withholding  applies
as a result of previous  underreporting.  Such  withholding is not required with
respect  to  the  Tax-Free  Funds'  dividends   qualifying  as  "exempt-interest
dividends"  but will apply to the proceeds of  redemption  or repurchase of Fund
(except  Money Fund and Treasury  Trust)  shares for which the correct  taxpayer
identification  number  has not been  furnished  in the  manner  required  or if
withholding is otherwise  applicable.  Therefore,  investors should make certain
that their correct taxpayer  identification number and completed  certifications
are included in the application form when opening an account.

     The information  above is only a summary of some of the tax  considerations
generally affecting the Funds and their  shareholders.  No attempt has been made
to  discuss  individual  tax  consequences  and this  discussion  should  not be
construed as applicable to all  shareholders'  tax situations.  Investors should
consult their own tax advisers to determine the suitability of a particular Fund
and the applicability of any federal,  state, local, or foreign taxation.  Paul,
Hastings,  Janofsky & Walker LLP has  expressed  no opinion in respect  thereof.
Foreign shareholders should consider, in particular, the possible application of
U.S. withholding taxes on certain taxable  distributions from a Fund at rates up
to 30% (subject to reduction under certain income tax treaties).

YIELD DISCLOSURE AND PERFORMANCE INFORMATION

     As noted  in this  SAI,  each  Fund may  from  time to time  quote  various
performance figures in advertisements and investor  communications to illustrate
the Fund's past performance. Performance information published by the Funds will
be in compliance  with rules adopted by the SEC.  These rules require the use of
standardized    performance    quotations   or,   alternatively,    that   every
non-standardized  performance  quotation  furnished by a Fund be  accompanied by
certain standardized performance information computed as required by the SEC. An
explanation  of the methods used by the Funds to compute or express  performance
is discussed below.

Total Return

     Total  return  for the  Funds  may be  stated  for any  relevant  period as
specified in the advertisement or communication.  Any statements of total return
or other  performance  data for the Funds will be limited to or  accompanied  by
standardized  information on the Fund's average annual compounded rate of return
over  the  most  recent  four  calendar  quarters,  five  years,  10  years  (if
applicable)  and over the life of the Fund  (i.e.,  the  period  from the Fund's
inception of operations through the end of the most recent calendar quarter).

     The average annual  compounded rate of return is determined by reference to
a  hypothetical  $1,000  investment  that  includes  capital   appreciation  and
depreciation for the stated period and assumes reinvestment (on the reinvestment
date) of all  distributions  at net asset value and redemption at the end of the
stated period. It is calculated according to the following standardized formula:

                                                                              31
<PAGE>

                                       n
                                 P(1+T)  = ERV

where:

P = a hypothetical initial purchase order of $1,000 from which the maximum sales
    load is deducted
T = average annual total return
n = number of years
ERV = ending redeemable value of the  hypothetical $1,000 purchase at the end of
      the period


Aggregate total return information is calculated by the following formula:

                     ERV - P
                     -------
                        P

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


     The average annual  compounded  rates of return,  or total return,  for the
Income Fund,  the  Government  Fund,  the Insured Fund, the 500 Fund, the MidCap
Fund,  the SmallCap  Fund,  the Equity  Income  Fund,  the  European  Fund,  the
Nasdaq-100  Fund, and the Short-Term  Government Fund for the following  periods
were:


                       One Year    Five Years    Ten Years       Period From
                        Ended        Ended         Ended          Inception*
                      August 31,   August 31,    August 31,   through August 31,
Fund                     2000         2000         2000              2000
----                  ----------------------------------------------------------
Income Fund              8.07%        6.15%        7.34%             8.20%
Government Fund          7.35%        6.23%        8.31%             8.10%
Insured Fund             6.25%        5.08%         N/A              5.48%
500 Fund                16.38%       23.94%         N/A             19.15%
MidCap Fund             40.44%       22.36%         N/A             19.05%
SmallCap Fund           29.63%         N/A          N/A             12.97%
Equity Income Fund       8.23%         N/A          N/A             15.56%
European Fund             N/A          N/A          N/A             -3.59%
Nasdaq-100 Fund           N/A          N/A          N/A              7.02%
Short-Term
Government Fund           N/A          N/A          N/A              4.15%

      *     December  4,  1985  for the  Income  Fund and the  Government  Fund;
            October 20, 1992 for the  Insured  Fund;  April 20, 1992 for the 500
            Fund and the MidCap Fund;  September  4, 1996 for the Equity  Income
            Fund;  October 2, 1996 for the SmallCap  Fund;  January 18, 2000 for
            the  European  Fund,   the  Nasdaq-100   Fund,  and  the  Short-Term
            Government Fund.


Yield

     As stated in the  Prospectus,  a Fund may also quote its current yield and,
where  appropriate,  effective yield and tax equivalent yield in  advertisements
and investor communications.

     The current yield for the Income Fund,  Insured Fund,  Government  Fund and
the Equity Income Fund is determined by dividing the net  investment  income per
share earned  during a specified  30-day period by the net asset value per share
on the last day of the period and annualizing the resulting figure, according to
the following formula:

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

                                                                              32
<PAGE>

where:

a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of  shares outstanding  during the period that were
    entitled to receive dividends;
d = the maximum offering price per share on the last day of the period.


     The current yield for the Income Fund,  the  Government  Fund,  the Insured
Fund and the Short-Term  Government  Fund for the 30-day period ended August 31,
2000, was 4.03%, 5.85%, 3.80% and 6.06%, respectively.


     The current yield for the Money Fund and the Treasury  Trust is computed in
accordance with a standardized method which involves  determining the net change
in the value of a  hypothetical  pre-existing  account  having a balance  of one
share at the beginning of a specified  7-day period,  subtracting a hypothetical
charge  reflecting  deductions  of  expenses,  and  dividing  the net  change or
difference  by the value of the account at the beginning of the period to obtain
the base period return, and annualizing the results (i.e.,  multiplying the base
period  return by 365/7).  The net change in the value of the  account  does not
include realized gains and losses or unrealized appreciation and depreciation.

     The Money Fund and the Treasury  Trust may also quote an  effective  yield.
Effective yield is calculated by compounding the base period return  (calculated
as  described  above)  by  adding 1,  raising  that sum to a power  equal to 365
divided by 7, and  subtracting  1 from the result,  according  to the  following
formula:

                                                (365/7)
     EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)       ] - 1.


     The  current  yield and  effective  yield for the Money  Fund for the 7-day
period  ended August 31, 2000 was 3.18% and 3.23%,  respectively,  and 5.67% and
5.83%, respectively, for the Treasury Trust.

     A tax equivalent yield  demonstrates the taxable yield necessary to produce
an after-tax  yield  equivalent  to that of a Fund which  invests in  tax-exempt
obligations.  The tax equivalent  yields for the Treasury Trust and the Tax-Free
Funds are computed by dividing  that portion of the current  yield (or effective
yield) of each Fund  (computed  for each Fund as discussed for the current yield
indicated  above) which is  tax-exempt by one minus a stated income tax rate and
adding the product to that portion (if any) of the yield of the Fund that is not
tax-exempt.  In calculating tax equivalent  yields, the Tax-Free Funds assume an
effective  tax rate  (combining  federal  and  California  rates) of 45.2%.  The
effective  rate used in  determining  such yield does not  reflect the tax costs
resulting  from the loss of the  benefit of  personal  exemptions  and  itemized
deductions  that may result from the  receipt of  additional  taxable  income by
taxpayers  with  adjusted  gross  incomes  exceeding  certain  levels.  The  tax
equivalent yield may be higher than the rate stated for taxpayers subject to the
loss of these  benefits.As of August 31, 2000,  the 30 day tax equivalent  yield
for the Income Fund and the Insured Fund was 7.81% and 7.34%, respectively.  The
tax  equivalent  yield for the Money Fund for the 7-day  period ended August 31,
2000 was 5.80%.


Distribution Rate

     Each Fund may also include a reference to its current  distribution rate in
investor  communications  and sales  literature  preceded or  accompanied by the
Prospectus,  reflecting the amounts actually  distributed to  shareholders.  All
calculations of a Fund's  distribution  rate are based on the  distributions per
share, which are declared, but not necessarily paid, during the fiscal year. The
distribution  rate is determined by dividing the  distributions  declared during
the  period by the net asset  value per share on the last day of the  period and
annualizing the resulting  figure.  In calculating its  distribution  rate, each
Fund uses the same  assumptions  that  apply to its  calculation  of yield.  The
distribution rate will differ from a Fund's yield because it may include capital
gains and other items of income not  reflected in the Fund's  yield,  as well as
interest income  received by the Fund and  distributed to shareholders  which is
reflected in the Fund's yield.  The  distribution  rate does not reflect capital
appreciation or depreciation in the price of the Fund's shares and should not be
considered  to be a  complete  indicator  of the return to the  investor  on his
investment.

Comparisons


     From time to time, advertisements and investor communications may compare a
Fund's

                                                                              33
<PAGE>

performance  to the  performance  of other  investments  as  reported in various
indices or  averages,  in order to enable an investor  better to evaluate how an
investment in a particular  Fund might satisfy his  investment  objectives.  The
Funds may also publish an indication of past  performance  as measured by Lipper
Analytical Services,  Inc.,  Morningstar or other widely recognized  independent
services that monitor the performance of mutual funds. The performance  analysis
will include the reinvestment of dividends and capital gains distributions,  but
does not take any sales  charges  into  consideration  and is  prepared  without
regard  to tax  consequences.  Independent  sources  may  include  the  American
Association of Individual Investors, Weisenberger Investment Companies Services,
Donoghue's Money Fund Report,  Barron's,  Business Week,  Financial World, Money
Magazine, Forbes, and The Wall Street Journal.

     The Government Fund may also quote (among others) the following  indices of
bond prices  prepared by Lehman  Brothers:  Lehman  Brothers GNMA Index,  Lehman
Brothers Treasury Index and Lehman Brothers  Government  Composite Index.  These
indices are not managed for any investment goal. Their composition may, however,
be changed from time to time by Lehman Brothers.

     The MidCap Fund, 500 Fund, SmallCap Fund, European Fund, and the Nasdaq-100
Fund each may compare its  performance  to the  performance of the MidCap Index,
S&P 500, SmallCap Index, Dow Jones Euro Stoxx,  Nasdaq-100 Index,  respectively.
Each such Fund may compare its  performance to the Value Line  Composite  Index,
the Russell 2000 and/or other widely  recognized  market indices.  These indices
are unmanaged  indices of common stock prices.  The performance of each index is
based on changes in the prices of stocks  comprising  such index and assumes the
reinvestment of all dividends paid on such stocks. Taxes,  brokerage commissions
and other fees are disregarded in computing the level of each index.

     The  performance  of a Fund may also be  compared  to  compounded  rates of
return  regarding a hypothetical  investment of $10,000 at the beginning of each
year, earning interest throughout the year at the compounding  interest rates of
5%, 7.5% and 10%.


     In assessing any  comparisons of total return or yield,  an investor should
keep in mind that the  composition of the  investments in a reported  average is
not identical to a Fund's portfolio,  that such averages are generally unmanaged
and that the items  included in the  calculations  of such  averages  may not be
identical  to the  formula  used by the Fund to  calculate  its total  return or
yield.  In  addition,  there can be no assurance  that a Fund will  continue its
performance as compared to any such averages.

MISCELLANEOUS INFORMATION

     Shareholders  of Funds  other than the Stock  Funds who so request may have
their dividends paid out monthly in cash. Shareholders of the Stock Funds who so
request may have their  dividends  paid out  quarterly in cash. If a shareholder
withdraws the entire  amount in his or her Money Fund or Treasury  Trust account
at any time during the month, all daily dividends accrued with respect to his or
her account during the month to the time of withdrawal  will be paid in the same
manner and at the same time as the proceeds of withdrawal.

     The  shareholders  of a Massachusetts  business trust could,  under certain
circumstances,  be held  personally  liable  as  partners  for its  obligations.
However,  each Trust's  Declaration of Trust  contains an express  disclaimer of
shareholder  liability  for acts or  obligations  of the  relevant  Trust.  Each
Declaration  of Trust also provides for  indemnification  and  reimbursement  of
expenses  out of Trust assets for any  shareholder  held  personally  liable for
obligations of the relevant Trust.  Each Declaration of Trust also provides that
a Trust shall,  upon  request,  assume the defense of any claim made against any
shareholder  for any act or  obligation  of that Trust and satisfy any  judgment
thereon.  All such  rights are  limited to the assets of the  Fund(s) of which a
shareholder  holds shares.  Each Declaration of Trust further provides that each
Trust may maintain  appropriate  insurance  (for example,  fidelity  bonding and
errors  and  omissions   insurance)  for  the  protection  of  the  Trust,   its
shareholders,  Trustees,  officers,  employees and agents to cover possible tort
and other liabilities.  Furthermore,  the activities of the Trusts as investment
companies as distinguished  from operating  companies would not likely give rise
to  liabilities  in  excess  of a  Fund's  total  assets.  Thus,  the  risk of a
shareholder  incurring  financial  loss on account of  shareholder  liability is
limited to circumstances  in which both inadequate  insurance exists and a Trust
itself is unable to meet its obligations.

                                                                              34
<PAGE>


As of November 30, 2000, the following  shareholders,  to the Trusts' knowledge,
owned beneficially more than 5% of a Fund's outstanding shares, as noted:

MONEY FUND:
Fisher Holdings LP (6.10%)
One Maritime Plaza #1400
San Francisco, CA 94111-3503

INSURED FUND:
James P. Young & Gail W. Young,            John Larson (8.44%)
Trustees (15.07%)                          1 Market Plaza
JP Young 1975 Trust as amended             San Francisco, CA  94105
245 Polhemus Ave.
Atherton, CA 94027-5442

Northern Trust Co. (11.04%)
P.O. Box 92956
Chicago, IL  60675

GOVERNMENT FUND:
Susan T. Ballinger (5.96%)
50 Makin Grade
Kentfield, CA 94904-1081

TREASURY TRUST:
William C. Edwards, Trustee (22.21%)       Edwin C. Callan, Trustee (7.98%)
William C. Edwards Rev Trust               Callan Family Trust
3000 Sand Hill Rd.                         71 Stevenson Street, #1300
Menlo Park, CA  94025                      San Francisco, CA  94105

Hamilton W. Budge &
Max Gutierrez, Jr., Trustees (6.37%)
Richard F. Shelton Trust
C/o Brobeck Phleger & Harrison
One Market, Spear Street Tower
San Francisco, CA  94105

S&P 500 FUND:
State Street CA Inc., Custodian (17.23%)   Charles Schwab & Co. (16.46%)
FBO Cal/STRS                               101 Montgomery Street
1001 Marina Village PKWY FL 3              San Francisco, CA  94104
Alameda, CA 94501

MIDCAP FUND:
Charles Schwab & Co. (17.53%)              Donald Fisher & Doris Fisher,
101 Montgomery Street                      Trustees (12.00%)
San Francisco, CA  94104                   Donald G. Fisher 1991
                                           Charitable Remainder Trust 1
                                           c/o Pisces Inc.
                                           1 Maritime Plaza, Suite 1300
                                           San Francisco, CA  94111-3503

EQUITY INCOME FUND:
Timothy Abel (14.85%)                      Susan Ballinger (12.43%)
1331 B St., #B                             50 Makin Grade
Hayward, CA  94541                         Kentfield, CA  94904

                                                                              35
<PAGE>

SMALLCAP FUND:
Charles Schwab & Co. Inc. (11.11%)         Alexander D. Calhoun & (6.88)
101 Montgomery Street                      Charles S. Lafollette, Trustees
San Francisco, CA  94104                   Thomas B. Calhoun 1992 Trust
                                           1 Maritime Plaza, Suite 300
                                           San Francisco, CA  94111

EUROPEAN FUND:
Edward M. Davis (6.41%)
27500 NE 42nd Circle
Camas, WA  98607-9763

NASDAQ-100 FUND:
Charles Schwab & Co. Inc. (26.25%)
101 Montgomery Street
San Francisco, CA  94104

SHORT-TERM GOVERNMENT FUND:
John Tarlton, Trustee (12.37%)             Charlotte D. Meyerdick (7.73%)
Tarlton Properties Profit Sharing Plan     5479 Midway Road
955 Alma Street                            Vacaville, CA  95688-9439
Palo Alto, CA  94301-2405

James P. Conn &                            Hamilton W. Budge &
M. Joelle Walsh Conn (7.46%)               Max Gutierrez, Jr., Trustees (7.13%)
949 Chiltern Rd.                           Shelton Marital Trust
Hillsborough, CA  94010-7068               C/o Brobeck, Phleger & Harrison
                                           One Market Street, Spear St. Tower
                                           San Francisco, CA  94105

R. Koch & N Koch, Trustees (6.95%)         Lila S. Rich, Trustee (6.19%)
R. Koch & N. Koch Trust                    Lila S. Rich Residence Trust
44 Montgomery Street, Ste 850              120 Montgomery Street, Ste 1800
San Francisco, CA  94104-4610              San Francisco, CA  94104-4321

Neville Rich, Jr., Trustee (6.05%)         Celia Shelton Rogers &
Neville Rich, Jr. Residence Trust          Stephen C. Rogers (6.05%)
120 Montgomery Street, Ste 1800            25 Terrace Drive
San Francisco, CA  94104-4321              San Francisco, CA  94127-1527


     Although each Fund is offering only its own shares by this joint  Statement
of Additional Information and joint Prospectus, it is possible that a Fund might
become liable for any mis-statements in this Statement of Additional Information
or in the Prospectus about one of the other Funds. The Board of Trustees of each
Trust has considered this possibility in approving the use of a joint Prospectus
and Statement of Additional Information.


     The S&P Index  Funds  are not  sponsored,  endorsed,  sold or  promoted  by
Standard & Poor's ("S&P").  S&P makes no representation or warranty,  express or
implied,  to the owners of the Funds or any member of the public  regarding  the
advisability of investing in securities generally or in the Product particularly
or the ability of the S&P 500 Composite Stock Price Index,  S&P MidCap 400 Index
and the S&P SmallCap 600 Index to track general stock market performance.  S&P's
only  relationship  to the Licensee is the licensing of certain  trademarks  and
trade names of S&P and of the S&P 500  Composite  Stock Price Index,  S&P MidCap
400 Index and the S&P  SmallCap  600 Index which are  determined,  composed  and
calculated  by S&P without  regard to the  licensee or the  product.  S&P has no
obligation to

                                                                              36
<PAGE>

take the needs of the licensee or the owners of the product  into  consideration
in  determining,  composing or  calculating  the S&P 500  Composite  Stock Price
Index,  S&P  MidCap  400  Index  and  the S&P  SmallCap  600  Index.  S&P is not
responsible for and has not participated in the determination of- the prices and
amount of the product or the timing of the issuance or sale of the product or in
the  determination  or calculation of the equation by which the product is to be
converted into cash.  S&P has no obligation or liability in connection  with the
administration, marketing or trading of the product.

S&P DOES NOT  GUARANTEE  THE  ACCURACY  AND/OR THE  COMPLETENESS  OF THE S&P 500
COMPOSITE  STOCK PRICE  INDEX,  THE S&P MIDCAP 400 INDEX OR THE S&P SMALLCAP 600
INDEX OR ANY DATA  INCLUDED  THEREIN  AND S&P SHALL  HAVE NO  LIABILITY  FOR ANY
ERRORS,  OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY,  EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE PRODUCT, OR ANY
OTHER  PERSON OR ENTITY FROM THE USE OF THE S&P  SMALLCAP  600 INDEX OR ANY DATA
INCLUDED  THEREIN.  S&P MAKES NO EXPRESS OR IMPLIED  WARRANTIES,  AND  EXPRESSLY
DISCLAIMS ALL WARRANTIES OR  MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE WITH RESPECT TO THE S&P 500 COMPOSITE  STOCK PRICE INDEX,  THE S&P MIDCAP
400 INDEX OR THE S&P SMALLCAP 600 INDEX OR ANY DATA  INCLUDED  THEREIN.  WITHOUT
LIMITING ANY OF THE FOREGOING,  IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE,  INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

FINANCIAL STATEMENTS

     The audited financial  statements for the fiscal year ended August 31, 2000
for the Funds as contained in the combined Annual Report to Shareholders for the
fiscal year ended August 31, 2000 (the  "Report"),  are  incorporated  herein by
reference  to the  Report  which has been  filed  with the SEC.  Any  person not
receiving  the  Report  with this  Statement  should  call or write the Funds to
obtain a free copy.


APPENDIX

DESCRIPTION OF MUNICIPAL SECURITIES RATINGS

The following  paragraphs  summarize the  descriptions for the rating symbols of
municipal securities.

Municipal  Bonds

Moody's Investors Service:

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

Aa:  Municipal  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 or  fluctuation of protective  elements may be of
greater  amplitude  or  there  may be  other  elements  present  which  make the
long-term risks appear somewhat larger than in Aaa securities.

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

                                                                              37
<PAGE>

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.

Conditional Rating:  Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects  under  construction,  (b) earnings of
projects  unseasoned  in  operation  experience,  (c)  rentals  which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches.  Parenthetical  rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.

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

Standard & Poor's Corporation:

AAA: Municipal bonds rated AAA are highest grade  obligations.  They possess the
ultimate  degree of protection as to principal and interest.  In the market they
move with interest rates, and hence provide the maximum safety on all counts.

AA: Municipal bonds rated AA also qualify as high-grade obligations,  and in the
majority of instances  differ from AAA issues only in small degree.  Here,  too,
prices move with the long-term money market.

A:  Municipal  bonds  rated A are  regarded  as upper  medium  grade.  They have
considerable  investment strength but are not entirely free from adverse effects
of changes in economic and trade conditions. Interest and principal are regarded
as safe. They  predominantly  reflect money rates in their market behavior,  but
also to some extent, economic conditions.

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

Provisional Ratings: The letter "p" indicates that the rating is provisional.  A
provisional  rating  assumes the  successful  completion  of the  project  being
financed by the bonds being rated and  indicates  that  payment of debt  service
requirements  is largely or entirely  dependent  upon the  successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project,  makes no comment on the likelihood of,
or the risk of default upon  failure of, such  completion.  The investor  should
exercise his own judgment with respect to such likelihood and risk.

Note: The S&P ratings may be modified by the addition of a plus (+) or minus (-)
sign to show relative standing within the major rating categories.

Fitch Investor's Service:

AAA:  Bonds and notes rated AAA are  regarded  as being of the highest  quality,
with the  obligor  having an  extraordinary  ability to pay  interest  and repay
principal which is unlikely to be affect by reasonably foreseeable events.

AA:  Bonds and notes rated AA are  regarded  as high  quality  obligations.  The
obligor's  ability to pay interest and repay  principal,  while very strong,  is
somewhat less than for AAA rated securities, and more subject to possible change
over the term of the issue.

                                                                              38
<PAGE>

A: Bonds and notes rated A are regarded as being of good quality.  The obligor's
ability  to pay  interest  and  repay  principal  is  strong,  but  may be  more
vulnerable to adverse  changes in economic  conditions  and  circumstances  than
bonds and notes with higher ratings.

BBB:  Bonds and notes rated BBB are regarded as being of  satisfactory  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 weaken this ability than bonds with higher ratings.

Note:  Fitch  ratings may be modified by the addition of a plus (+) or minus (-)
sign to show relative  standing  within the major rating  categories.  These are
refinements more closely reflecting strengths and weaknesses,  and are not to be
used as trend indicators.

Municipal Notes

Moody's:

Moody's ratings for state and municipal and other short-term obligations will be
designated Moody's Investment Grade ("MIG").  This distinction is in recognition
of the differences  between  short-term credit risk and long-term risk.  Factors
affecting  the  liquidity  of  the  borrower  are  uppermost  in  importance  in
short-term  borrowing,  while various  factors of first  importance in long-term
borrowing risk are of lesser  importance in the short run.  Symbols used will be
as follows:

MIG-1: Notes are of the best quality enjoying strong protection from established
cash flows of funds for their  servicing  or from  established  and  broad-based
access to the market for refinancing, or both.

MIG-2: Notes are of high quality, with margins of protection ample, although not
so large as in the preceding group.

MIG-3: Notes are of favorable quality, with all security elements accounted for,
but lacking the undeniable  strength of the preceding grades.  Market access for
refinancing, in particular, is likely to be less well established.

MIG-4:  Notes are of
adequate  quality,  carrying  specific risk but having  protection and not being
distinctly or predominantly  speculative.

Standard  & Poor's:

Until June 29,  1984,  Standard & Poor's used the same rating  symbols for notes
and bonds. After June 29, 1984, for new municipal note issues due in three years
or less the ratings below usually will be assigned.  Notes maturing beyond three
years will most likely receive a bond rating of the type recited above.

SP-1:  Issues carrying this designation have a very strong or strong capacity to
pay principal and interest.  Issues  determined to possess  overwhelming  safety
characteristics will be given a "plus" (+) designation.

SP-2:  Issues carrying this designation have a
satisfactory capacity to pay principal and interest.

Fitch:

Fitch  Investment  Note  Ratings  are  grouped  into  four  categories  with the
indicated  symbols.  The ratings reflect Fitch's current appraisal of the degree
of assurance of timely payment, whatever the source.

FIN-1+:  Notes assigned this rating are regarded as having the strongest  degree
of assurance for timely  payment.FIN-1:  Notes  assigned this rating  reflect an
assurance of timely payment only slightly less than the strongest issues.

FIN-2:  Notes assigned this rating have a degree of assurance for timely payment
but with a lesser margin of safety than the prior two categories.

FIN-3:  Notes with this rating have  speculative  characteristics  which suggest
that the degree of assurance for timely payment is minimal.

                                                                              39
<PAGE>

Commercial Paper

Moody's:

Moody's  Commercial Paper ratings,  which are also applicable to municipal paper
investments  permitted  to be made by the Trust,  are opinions of the ability of
issuers to repay punctually their promissory  obligations not having an original
maturity in excess of nine months.  Moody's employs the following  designations,
all judged to be investment grade, to indicate the relative  repayment  capacity
of rated issuers:

P-1 (Prime-1): Superior capacity for repayment.

P-2 (Prime-2): Strong capacity for repayment.

P-3 (Prime-3): Acceptable capacity for repayment.

Standard & Poor's:

S&P's ratings are a current  assessment of the  likelihood of timely  payment of
debt  having an original  maturity of no more than 365 days.  Ratings are graded
into four  categories,  ranging from "A" for the highest quality  obligations to
"D" for the lowest.  Issues  within the "A"  category  are  delineated  with the
numbers 1, 2, and 3 to indicate the relative degree of safety, as follows:

A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation  indicates an even stronger  likelihood of
timely payment.

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

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

B: Issues rated "B" are regarded as having only an adequate  capacity for timely
payment.  However,  such  capacity  may be damaged  by  changing  conditions  or
short-term adversities.

The  Commercial  Paper  Rating is not a  recommendation  to  purchase  or sell a
security.  The ratings are based on current information  furnished to Standard &
Poor's by the issuer and  obtained by  Standard & Poor's  from other  sources it
considers  reliable.  The ratings may be changed,  suspended,  or withdrawn as a
result of changes in, or unavailability of, such information.

Fitch:

Fitch-1:  Commercial  paper  assigned  this  rating is  regarded  as having  the
strongest degree of assurance for timely payment.

Fitch-2: Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than the strongest issues.

Fitch-3:  Commercial  paper  carrying this rating has a  satisfactory  degree of
assurance for timely payment but the margin of safety is not as great as the two
higher categories.

Fitch-4:  Issues carrying this rating have  characteristics  suggesting that the
degree of assurance  for timely  payment is minimal and is  susceptible  to near
term adverse change due to less favorable financial or economic conditions.

                                                                              40
<PAGE>


                         CALIFORNIA INVESTMENT TRUST II

                                    FORM N-1A

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

                                     PART C
                                OTHER INFORMATION

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

Item 23.  Exhibits

          (a)  Agreement and  Declaration  of Trust dated  September 11, 1985 is
               incorporated by reference to  Post-Effective  Amendment No. 28 to
               the  Registration   Statement  as  Filed  on  December  22,  1999
               ("Post-Effective Amendment No. 28").

          (b)  By-Laws is incorporated by reference to Post-Effective  Amendment
               No. 28.

          (c)  Instruments Defining Rights of Security Holder - Not applicable.

          (d)  Investment Advisory Contracts

               (1)  Investment  Management Agreements dated January 18, 2000 are
                    incorporated  by reference to  Post-Effective  Amendment No.
                    30.

               (2)  Investment  Management  Agreement  dated January 28, 2000 is
                    filed herewith.

          (e)  Underwriting  Agreement  dated April 13, 1992 is  incorporated by
               reference to Post-Effective Amendment No. 28.

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

          (g)  Form of  Custodian  Agreement  is  incorporated  by  reference to
               Post-Effective Amendment No. 28.

          (h)  Other Material Contracts - Not applicable.

          (i)  Opinion of Counsel as to  legality of shares - Filed herewith.

          (j)  Other opinions - Independent Auditors' Consent - Filed herewith.

          (k)  Omitted Financial Statements - Not applicable.

          (l)  Initial Capital Agreement - Not applicable.

          (m)  Rule 12b-1 Plan - Not Applicable.

          (n)  Financial Data Schedule - Financial Data Schedule is incorporated
               by reference to Form NSAR-B filed on October 27, 2000.

          (o)  Rule 18f-3 - Not applicable.

          (p)  Code of Ethics - Filed herewith.

                                      C-1
<PAGE>

Item 24.  Persons Controlled by or under Common Control with Registrant.

          As of the date of this Post-Effective  Amendment,  to the knowledge of
the  Registrant,  the  Registrant  did not control any other person,  nor was it
under common control with another person.

Item 25.  Indemnification

          Please see Article VI of By-Laws  (filed  herewith).  Pursuant to Rule
484 under the Securities Act of 1933, as amended,  the Registrant  furnishes the
following undertaking:

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

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

Item 26.  Business and Other Connections of Investment Adviser.

          CCM Partners,  a California Limited  Partnership,  is the Registrant's
investment  adviser with  respect to these Funds.  CCM Partners has been engaged
during the past two fiscal  years as the  investment  adviser of the  California
Investment Trust, a diversified,  open-end management investment company,  which
comprises the following  series:  California  Tax-Free  Income Fund,  California
Insured  Intermediate  Fund and  California  Tax-Free  Money  Market  Fund.  The
principal  business  address of  California  Investment  Trust is 44  Montgomery
Street, Suite 2100, San Francisco, California 94104.

          From  December,  1990 through  February 27,  1993,  CCM Partners  also
served  as  investment  adviser  of  the  California  Tax-Free  Money  Trust,  a
registered  management  investment  company.  The principal  business address of
California  Tax-Free  Money Trust is 6 St. James Avenue,  Boston,  Massachusetts
02116.

                                       C-2
<PAGE>

          The officers of CCM Partners are Phillip W.  McClanahan and Stephen C.
Rogers.  Phillip W.  McClanahan  has served as an officer  and  Trustees  of the
Registrant  and  California  Investment  Trust during the past two fiscal years.
Stephen C. Rogers, an officer of CCM Partners,  has also served as an officer of
the Registrant and California  Investment  Trust since October 1994.  Stephen C.
Rogers was elected to the Board as Secretary  and Trustee on August 4, 1998.  He
was  elected  as  Chairman  of the Board on October  26,  1999.  For  additional
information, please see Part A of this Registration Statement.

Item 27.  Principal Underwriters

          RFS Partners, Inc. is the principal underwriter,  and in that capacity
distributes  the shares of the Funds.  RFS  Partners  also  serves as  principal
underwriter for the California  Investment Trust II. Certain limited partners of
RFS Partners also serve as officers and/or trustees of the Registrant.

Item 28.  Locations of Accounts and Records.

          The accounts,  books or other  documents  required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules thereunder are
kept by Registrant's  Shareholder  Servicing and Transfer Agent,  Firstar Mutual
Fund Services, LLC, 615 East Michigan Street, Milwaukee, Wisconsin 53202.

Item 29.  Management Services

          All  management-related  service  contracts are discussed in Part A or
Part B of this Form N-1A.

Item 30.  Undertakings.

          (a)  not applicable

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

          (c)  Registrant  has  undertaken  to comply with Section  16(a) of the
               Investment  Company Act of 1940, as amended,  which  requires the
               prompt  convening of a meeting of  shareholders to elect trustees
               to fill  vacancies in the  Registrant's  Board of Trustees in the
               event that less than a majority of the Trustees have been elected
               to such position by shareholders.  Registrant has also undertaken
               promptly  to call a meeting of  shareholders  for the  purpose of
               voting upon the  question of removal of Trustee or Trustees  when
               requested  in writing to do so by the record  holders of not less
               than 10% of the Registrant's outstanding shares and to assist its
               shareholders  in   communicating   with  other   shareholders  in
               accordance  with  the   requirements  of  section  16(c)  of  the
               Investment Company Act of 1940, as amended.

                                      C-2
<PAGE>

     Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all the requirements for  effectiveness of this amendment  puruant to Rule
485(b)  under  the  1933  Act and  that the  Registrant  has  duly  caused  this
Post-Effective  Amendment  to its  Registration  Statement  to be  signed on its
behalf  by the  undersigned,  thereunto  duly  authorized,  in the  City  of San
Francisco, the State of California, on the 29th day of December, 2000.


                                        CALIFORNIA INVESTMENT TRUST II
                                        ---------------------------
                                        (Registrant)


                                        By Stephen C. Rogers*
                                           -----------------------------
                                           Stephen C. Rogers, President

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


Stephen C. Rogers *       Principal Executive Officer,         December 29, 2000
----------------------    Secretary and Trustee
Stephen C. Rogers

Phillip W. McClanahan*    Principal Financial and Accounting   December 29, 2000
----------------------    Officer and Trustee
Philip W. McClanahan

Harry Holmes*             Trustee                              December 29, 2000
----------------------
Harry Holmes

John B. Sias*             Trustee                              December 29, 2000
----------------------
John B. Sias

Guy Rounsaville*          Trustee                              December 29, 2000
----------------------
Guy Rounsaville, Jr.

* By: /s/ Julie Allecta
      ----------------------------------------
      Julie Allecta, Attorney-in-Fact Pursuant
      to Power of Attorney filed herewith.

                                      C-3



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