SEFTON FUNDS, 485BPOS, 1997-11-20

SEFTON FUNDS
485BPOS, 1997-11-20

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<PAGE>

As Filed with the Securities and Exchange Commission on November 20,1997

Registration Nos. 33-88568
811-8948
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- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/

Pre-Effective Amendment No. / /
Post-Effective Amendment No. 5 /X/
and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 7 /X/
(Check appropriate box or boxes)

SEFTON FUNDS TRUST
(Exact name of Registrant as specified in charter)

3435 Stelzer Road
Columbus, Ohio 43219
(Address of Principal Executive Offices with Zip Code)

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

Registrant's Telephone Number, including Area Code: (800) 524-2276

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George O. Martinez, Esq.
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
(Name and Address of Agent for Service)

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with a copy to:
Steven R. Howard, Esq.
Baker & McKenzie
805 Third Avenue
New York, New York 10022

It is proposed that this filing will become effective:

__X__ immediately upon filing pursuant to paragraph (b)
_____ on (date) pursuant to paragraph (b)
_____ on (date) pursuant to paragraph (a)(i)
_____ 75 days after filing pursuant to paragraph (a)(ii)
_____ on (date) pursuant to paragraph (a)(ii) of rule 485
_____ 60 days after filing pursuant to paragraph (a)(i)

If appropriate, check the following box:

_____ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment

Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has previously filed an indefinite number of shares of beneficial interest, par
value $.001 per share, under the Securities Act of 1933, as amended. The
Registrant's 24f-2 Notice for the fiscal year ended March 31, 1997 was filed on
May 28, 1997.

<PAGE>

SEFTON FUNDS TRUST
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
UNDER THE SECURITIES ACT OF 1933

U.S. GOVERNMENT FUND
CALIFORNIA TAX-FREE FUND
EQUITY VALUE FUND
SMALL COMPANY VALUE FUND

N-1A ITEM NO. LOCATION
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PART A PROSPECTUS CAPTION
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<S> <C> <C>
Item 1. Cover Page . . . . . . . . . . . . . . . . . . . Cover Page

Item 2. Synopsis . . . . . . . . . . . . . . . . . . . . Fund Expenses; Fee Table

Item 3. Condensed Financial Information . . . . . . . . . Prospectus Supplement

Item 4. General Description of Registrant . . . . . . . . The Funds; The Investment Policies and
Practices of the Funds; Investment
Restrictions: Risks of Investing in
the Funds; Description of Securities
and Investment Practices

Item 5. Management of the Fund . . . . . . . . . . . . . Management of the Funds

Item 5A. Management's Discussion of Fund
Performance . . . . . . . . . . . . . . . . . . . Not Applicable

Item 6. Capital Stock and Other Securities . . . . . . . Dividends, Distributions and Federal
Income Tax; Other Information

Item 7. Purchase of Securities Being Offered . . . . . . Fund Share Valuation; Pricing of Fund
Shares; Purchase of Fund Shares;
Minimum Purchase Requirements;
Individual Retirement Accounts

Item 8. Redemption or Repurchase . . . . . . . . . . . . Redemption of Fund Shares

Item 9. Legal Proceedings . . . . . . . . . . . . . . . . Not Applicable

INFORMATION CAPTION
PART B STATEMENT OF ADDITIONAL
------ -----------------------

Item 10. Cover Page . . . . . . . . . . . . . . . . . . . Cover Page

Item 11. Table of Contents . . . . . . . . . . . . . . . . Table of Contents

Item 12. General Information and History . . . . . . . . . Not Applicable

Item 13. Investment Objective and Policies . . . . . . . . Investment Policies; Investment
Restrictions
</TABLE>

<PAGE>

<S> <C> <C>
Item 14. Management of the Registrant . . . . . . . . . . Management

Item 15. Control Persons and Principal Holders
of Securities . . . . . . . . . . . . . . . . . . Other Information

Item 16. Investment Advisory and Other
Services . . . . . . . . . . . . . . . . . . . . Management; Custodian; Independent
Accountants

Item 17. Brokerage Allocation . . . . . . . . . . . . . . Portfolio Transactions

Item 18. Capital Stock and Other Securities . . . . . . . Other Information

Item 19. Purchase, Redemption and Pricing of
Securities Being Offered . . . . . . . . . . . . Pricing of Fund Shares (Part A);
Purchase of Fund Shares (Part A);
Redemption of Fund Shares (Part A);
Determination of Net Asset Value

Item 20. Tax Status . . . . . . . . . . . . . . . . . . . Taxation

Item 21. Underwriters . . . . . . . . . . . . . . . . . . Management

Item 22. Calculation of Performance Data . . . . . . . . . Expenses and Expense Limits;
Calculation of Yields; Performance
Information

Item 23. Financial Statements . . . . . . . . . . . . . . Financial Statements
</TABLE>

PART C

Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
<PAGE>

PRELIMINARY NOTE

The Registrant's Prospectus dated June 30, 1997, to which the interim financial
statements contained herein are added by Post-Effective Amendment No. 5, are
incorporated by reference to the Registrant's filing of definitive copies under
Rule 497(c).

<PAGE>

SEFTON FUNDS TRUST

SMALL COMPANY VALUE FUND

Supplement Dated November 20, 1997
to the Prospectus Dated June 30, 1997

FINANCIAL HIGHLIGHTS
(UNAUDITED)

The table below of Financial Highlights (unaudited) sets forth per-share data
for a share of beneficial interest outstanding for the Small Company Value Fund
(the "Fund"), a fund of Sefton Funds Trust (the "Trust"), for the period
ended September 30, 1997. This Supplement is provided to update, and should
be read in conjunction with, the information provided in the Prospectus and
the related financial statements and notes thereto appearing in the Fund's
Statement of Additional Information. The Statement of Additional Information
may be obtained from the Fund free of charge by calling (800) 524-2276.

SELECTED RATIOS AND DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGH THE PERIOD INDICATED:
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FOR THE PERIOD FROM
JUNE 30, 1997(1)
THROUGH SEPT. 30, 1997
----------------------

PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD............... $ 12.00
------------
Net investment income.......................... 0.06
Net realized and unrealized gain from
investment transactions....................... 1.18
------------
Total income from investment operations.... 1.24
------------
LESS DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income........... (0.06)
Distributions from net realized gain from
investment transactions................ 0.00
------------
Total dividends and distributions.......... (0.06)
------------
NET ASSET VALUE, END OF PERIOD..................... $ 13.18
------------
------------
TOTAL INVESTMENT RETURN(2)......................... 10.32%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)....... $ 30,031
Ratio of expenses to average net assets........ 1.54% (3)
Ratio of net investment income to average
net assets.................................... 1.94% (3)
Ratio of expenses to average net assets
without fee waivers........................... 1.78% (3)
Ratio of net investment income to average
net assets without fee waivers................ 1.70% (3)
AVERAGE COMMISSION RATE(4)......................... 0.0595
PORTFOLIO TURNOVER RATE............................ 8.10%

(1) Commencement of operations.

(2) Not annualized. Total return is based on the change in net asset value
during the period and assumes reinvestment of all dividends and
distributions.

(3) Annualized.

(4) Represents total dollar amount of commission paid on portfolio
transactions for the period ended September 30, 1997, divided by total
number of portfolio shares purchased and sold for which commission were
charged.

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

SEFTON FUNDS TRUST
3435 Stelzer Road
Columbus, Ohio 43219
General and Account Information: (800) 524-2276

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Sefton Capital Management, Investment Adviser
("SCM" or the "Adviser")

BISYS Funds Services, Administrator, Distributor and Sponsor
("BISYS" or the "Sponsor")

This Statement of Additional Information ("SAI") describes the shares of
four funds (the "Funds") managed by SCM. Each Fund is a portfolio of Sefton
Funds Trust (the "Trust"). The Funds are:

U.S. GOVERNMENT FUND

CALIFORNIA TAX-FREE FUND

EQUITY VALUE FUND

SMALL COMPANY VALUE FUND

The SAI is not a prospectus and is only authorized for distribution when
preceded or accompanied by the prospectus for shares of the Funds dated June 30,
1997 as supplemented November 20, 1997 (the "Prospectus"). This SAI contains
additional and more detailed information than that set forth in the Prospectus
and should be read in conjunction with the Prospectus. The Prospectus may be
obtained without charge by writing or calling the Funds at the address and
information number printed above.

JUNE 30, 1997
AS SUPPLEMENTED NOVEMBER 20, 1997

<PAGE>

TABLE OF CONTENTS

PAGE
----

INVESTMENT POLICIES. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Bank Obligations. . . . . . . . . . . . . . . . . . . . . . . . . 1
Commercial Paper. . . . . . . . . . . . . . . . . . . . . . . . . 1
Corporate Debt Securities . . . . . . . . . . . . . . . . . . . . 1
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . 1
Reverse Repurchase Agreements . . . . . . . . . . . . . . . . . . 2
Variable and Floating Rate Demand and Master Demand Notes . . . . 2
Loans of Portfolio Securities . . . . . . . . . . . . . . . . . . 2
Mortgage-Related Securities . . . . . . . . . . . . . . . . . . . 2
Foreign Securities. . . . . . . . . . . . . . . . . . . . . . . . 3
Real Estate Securities. . . . . . . . . . . . . . . . . . . . . . 3
Investment Company Securities . . . . . . . . . . . . . . . . . . 4
Interest Rate Futures Contracts . . . . . . . . . . . . . . . . . 4
Stock Index Futures Contracts . . . . . . . . . . . . . . . . . . 4
Put Options on Stock Index Futures Contracts. . . . . . . . . . . 5
California Municipal Obligations. . . . . . . . . . . . . . . . . 5

INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . 13

MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . 14
Investment Adviser. . . . . . . . . . . . . . . . . . . . . . . . 16
Distribution of Fund Shares . . . . . . . . . . . . . . . . . . . 17
Administrators, Bookkeeping and Pricing Agent . . . . . . . . . . 17
Service Organizations . . . . . . . . . . . . . . . . . . . . . . 19

DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . 19

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . 19

PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . 20
Portfolio Turnover. . . . . . . . . . . . . . . . . . . . . . . . 21

TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . 27
Control Persons and Principal Holders of Securities . . . . . . . 27
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Custodian and Transfer Agent. . . . . . . . . . . . . . . . . . . 29
Yield and Performance Information . . . . . . . . . . . . . . . . 29
Independent Accountants . . . . . . . . . . . . . . . . . . . . . 31
Registration Statement. . . . . . . . . . . . . . . . . . . . . . 31

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 31
<PAGE>

INVESTMENT POLICIES

The Prospectus discusses the investment objectives of the Funds and the
policies to be employed to achieve those objectives. This section contains
supplemental information concerning certain types of securities and other
instruments in which the Funds may invest, the investment policies and portfolio
strategies that the Funds may utilize, and certain risks attendant to such
investments, policies and strategies.

BANK OBLIGATIONS (U.S. Government Fund, Equity Value Fund and Small
Company Value Fund). These obligations include negotiable certificates of
deposit and bankers' acceptances. A description of the banks, the obligations of
which the Funds may purchase, is set forth in the Prospectus. A certificate of
deposit is a short-term, interest-bearing negotiable certificate issued by a
commercial bank against funds deposited in the bank. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. The borrower is liable for
payment, as is the bank, which unconditionally guarantees to pay the draft at
its face amount on the maturity date.

COMMERCIAL PAPER (All Funds). Commercial paper includes short-term
unsecured promissory notes, variable rate demand notes and variable rate master
demand notes issued by domestic and foreign bank holding companies, corporations
and financial institutions and similar taxable instruments issued by government
agencies and instrumentalities. All commercial paper purchased by the Funds is,
at the time of investment, (i) rated in one of the two highest rating categories
by at least two nationally recognized statistical rating organizations
("NRSROs"), (ii) issued or guaranteed as to principal and interest by issuers
having an existing debt security rating in one of the two highest rating
categories by a least two NRSROs, or (iii) securities which, if not rated or
single rated, are, in the opinion of the Funds' Adviser, of an investment
quality comparable to rated commercial paper in which the Funds may invest. See
"Variable and Floating Rate and Master Demand Notes."

CORPORATE DEBT SECURITIES (U.S. Government Fund, Equity Value Fund and
Small Company Value Fund). Fund investment in these securities is limited to
corporate debt securities (corporate bonds, debentures, notes and similar
corporate debt instruments) which meet the rating criteria established for each
Fund.

The ratings of Standard & Poor's Corporation, Moody's Investors Service,
Inc., and other NRSROs represent their respective opinions as to the quality of
the obligations they undertake to rate. Ratings, however, are general and are
not absolute standards of quality. Consequently, obligations with the same
rating, maturity and interest rate may have different market prices. After
purchase by a Fund, a security may cease to be rated or its rating may be
reduced below the minimum required for purchase by the Fund. Neither event will
require a sale of such security by the Fund. However, the Funds' Adviser will
consider such event in its determination of whether the Fund should continue to
hold the security. To the extent the ratings given by an NRSRO may change as a
result of changes in such organizations or their rating systems, the Adviser
will attempt to use comparable ratings as standards for investments in
accordance with the investment policies contained in the Prospectus and in this
SAI.

It is possible that unregistered securities purchased by a Fund in reliance
upon Rule 144A under the Securities Act of 1933 could have the effect of
increasing the level of the Fund's illiquidity to the extent that qualified
institutional buyers become, for a period, uninterested in purchasing these
securities.

REPURCHASE AGREEMENTS (All Funds). The Funds may invest in securities
subject to repurchase agreements with U.S. banks or broker-dealers. Such
agreements may be considered to be loans by the Funds for purposes of the
Investment Company Act of 1940, as amended (the "1940 Act"). A repurchase
agreement is a transaction in which the seller of a security commits itself at
the time of the sale to repurchase that security from the buyer at a mutually
agree upon time and price. The repurchase price exceeds the sale price,
reflecting an agreed-upon interest rate effective for the period the buyer owns
the security subject to repurchase. The agreed-upon rate is unrelated to the
interest rate on that security. The Adviser will monitor the value of the
underlying security at the time the transaction is entered into and at all times
during the term of the repurchase agreement to ensure that the value of the
security always equals or exceeds the repurchase price. In the event of default
by the seller under the repurchase agreement, the Funds may have problems in
exercising their rights to the underlying securities and may incur costs and
experience time delays in connection with the disposition of such securities.

1
<PAGE>

REVERSE REPURCHASE AGREEMENTS (U.S. Government Fund, Equity Value Fund and
Small Company Value Fund). A Fund may borrow funds by selling portfolio
securities to financial institutions such as banks and broker/dealers and
agreeing to repurchase them at a mutually specified date and price ("reverse
repurchase agreements"). Reverse repurchase agreements involve the risk that the
market value of the securities sold by a Fund may decline below the repurchase
price. A Fund will pay interest on amounts obtained pursuant to a reverse
repurchase agreement. While reverse repurchase agreements are outstanding, a
Fund will maintain in a segregated account cash, or other liquid assets (as
determined by the Board) of an amount at least equal to the market value of the
securities, plus accrued interest, subject to the agreement.

VARIABLE AND FLOATING RATE DEMAND AND MASTER DEMAND NOTES (All Funds).
The Funds may acquire variable and floating rate instruments as described in the
Prospectus. Variable and floating rate instruments are frequently not rated by
credit rating agencies; however, unrated variable and floating rate instruments
purchased by a Fund will be determined by the Adviser under guidelines
established by the Board of Trustees to be of comparable quality at the time of
purchase to rated instruments eligible for purchase by the Funds. In making such
determinations, the Adviser will consider the earning power, cash flows and
other liquidity ratios of the issuers of such instruments (such issuers include
financial, merchandising, investment banking, bank holding and other companies)
and will continuously monitor their financial condition. There may not be an
active secondary market with respect to a particular variable or floating rate
instrument purchased by a Fund. The absence of such an active secondary market
could make it difficult for a Fund to dispose of the variable or floating rate
instrument involved. In the event the issuer of the instrument defaulted on its
payment obligations, a Fund could, for this or other reasons, suffer a loss to
the extent of the default. Variable and floating rate instruments may be secured
by bank letters of credit, guarantees or lending commitments.

Instruments having variable or floating interest rates or demand features
may be deemed to have remaining maturities as follows: (a) a U.S. Government
security with a variable rate of interest readjusted no less frequently than
every 762 days may be deemed to have a maturity equal to the period remaining
until the next readjustment of the interest rate; (b) an instrument with a
floating rate of interest, the principal amount of which is scheduled on the
face of the instrument to be paid in 397 days or less, may be deemed to have a
maturity equal to one day; (c) an instrument with a variable rate of interest,
the principal amount of which is scheduled on the face of the investment to be
paid in more than 397 days, and that is subject to a demand feature may be
deemed to have a maturity equal to the longer of the period remaining until the
next readjustment of the interest rate or the period remaining until the
principal amount can be recovered through demand; (d) an instrument with a
variable rate of interest, the principal amount of which is scheduled to be paid
in 397 days or less may be deemed to have a maturity equal to the earlier of the
period remaining until the next readjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand; and (e) an
instrument with a floating rate of interest, the principal amount of which is
scheduled to be paid in more than 397 days, that is subject to a demand feature,
may be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand.

LOANS OF PORTFOLIO SECURITIES (All Funds). The Funds may lend their
portfolio securities to brokers, dealers and financial institutions, provided:
(1) the loan is secured continuously by collateral consisting of U.S. Government
securities or cash or letters of credit maintained on a daily mark-to-market
basis in an amount at least equal to the current market value of the securities
loaned; (2) the Funds may at any time call the loan and obtain the return of the
securities loaned within five business days; (3) the Funds will receive any
interest or dividends paid on the loaned securities; and (4) the aggregate
market value of securities loaned will not at any time exceed 5% of the total
assets of a particular Fund.

The Funds will earn income for lending their securities because cash
collateral pursuant to these loans will be invested in short-term money market
instruments. In connection with lending securities, the Funds may pay reasonable
finders, administrative and custodial fees. Loans of securities involve a risk
that the borrower may fail to return the securities or may fail to provide
additional collateral.

MORTGAGE-RELATED SECURITIES (All Funds). There are a number of important
differences among the agencies and instrumentalities of the U.S. Government that
issue mortgage-related securities and among the securities that they issue.
Mortgage-related securities guaranteed by the Government National Mortgage
Association ("GNMA") include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments

2
<PAGE>

under its guarantee. Mortgage-related securities issued by the Federal National
Mortgage Association ("FNMA") include FNMA Guaranteed Mortgage Pass-Through
Certificates (also known as "Fannie Maes") which are solely the obligations of
the FNMA and are not backed by or entitled to the full faith and credit of the
United States, but are supported by the right of the issuer to borrow from the
Treasury. FNMA is a government-sponsored organization owned entirely by private
stockholders. Fannie Maes are guaranteed as to timely payment of the principal
and interest by FNMA. Mortgage-related securities issued by the Federal Home
Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage Participation
Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a corporate
instrumentality of the United States, created pursuant to an Act of Congress,
which is owned entirely by Federal Home Loan Banks. Freddie Macs are not
guaranteed by the United States or by any Federal Home Loan Bank and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or timely
payment of all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage but in no event later than one year after it
becomes payable.

FOREIGN SECURITIES (U.S. Government Fund, Equity Value Fund and Small
Company Value Fund). As described in the Prospectus, changes in foreign
exchange rates will affect the value of securities denominated or quoted in
currencies other than the U.S. dollar.

Since Funds may invest in securities denominated in currencies other than
the U.S. dollar, and since those Funds may temporarily hold funds in bank
deposits or other money market investments denominated in foreign currencies, a
Fund may be affected favorably or unfavorably by exchange control regulations or
changes in the exchange rate between such currencies and the dollar. Changes in
foreign currency exchange rates will influence values within the Fund from the
perspective of U.S. investors. Changes in foreign currency exchange rates may
also affect the value of dividends and interest earned, gains and losses
realized on the sale of securities, and net investment income and gains, if any,
to be distributed to shareholders by the Fund. The rate of exchange between the
U.S. dollar and other currencies is determined by the forces of supply and
demand in the foreign exchange markets. These forces are affected by the
international balance of payments and other economic and financial conditions,
government intervention, speculation and other factors.

Those Funds that purchase foreign currency-denominated securities may enter
into foreign currency exchange contracts in order to protect against uncertainty
in the level of future foreign exchange rates. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are entered into in the interbank market conducted between
currency traders (usually large commercial banks) and their customers. Forward
foreign currency exchange contracts may be bought or sold to protect a Fund
against a possible loss resulting from an adverse change in the relationship
between foreign currencies and the U.S. dollar, or between foreign currencies.
Although such contracts are intended to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time, they tend to
limit any potential gain which might result should the value of such currency
increase.

REAL ESTATE SECURITIES (Equity Value Fund and Small Company Value Fund).
The Funds may invest in REITs. Investing in REITs involves certain unique risks
in addition to those risks associated with investing in the real estate industry
in general. Although the Funds will not invest directly in real estate, the
funds may invest in equity securities of issuers primarily engaged in or related
to the real estate industry. Therefore, an investment in REITs is subject to
certain risks associated with the direct ownership of real estate and with the
real estate industry in general. These risks include, among others: possible
declines in the value of real estate; risks related to general and local
economic conditions; possible lack of availability of mortgage funds;
overbuilding; extended vacancies of properties; increases in competition,
property taxes and operating expenses; changes in zoning laws; costs resulting
from the clean-up of, and liability to third parties for damages resulting from,
environmental problems; casualty or condemnation losses; uninsured damages from
floods, earthquakes or other natural disasters; limitations on and variations in
rents; and changes in interest rates. To the extent that assets underlying the
REITs' investments are concentrated geographically, by property type or in
certain other respects, the REITs may be subject to certain of the foregoing
risks to a greater extent. Equity REITs may be affected by changes in the value
of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of any credit extended. REITs are dependent upon
management skills, are not diversified, are subject to heavy cash flow
dependency, default by borrowers and self-liquidation. REITs are also subject
to the possibilities of failing to

3
<PAGE>

qualify for tax free pass-through of income under the U.S. Internal Revenue Code
and failing to maintain their exemptions from registration under the 1940 Act.

REITs (especially mortgage REITs) are also subject to interest rate risks.
When interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's investment in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on a REIT's investment in such loans will gradually
align themselves to reflect changes in market interest rates, causing the value
of such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.

Investing in REITs involves risks similar to those associated with
investing in small capitalization companies. REITs may have limited financial
resources, may trade less frequently and in a limited volume and may be subject
to more abrupt or erratic price movements than larger company securities.

INVESTMENT COMPANY SECURITIES (All Funds). The Funds may invest in
securities issued by other investment companies. Each Fund currently intends to
limit its investments in securities issued by other investment companies so
that, as determined immediately after a purchase of such securities is made: (i)
not more than 5% of the value of the Fund's total assets will be invested in the
securities of any one investment company; (ii) not more than 10% of the value of
its total assets will be invested in the aggregate in securities of investment
companies as a group; and (iii) not more than 3% of the outstanding voting stock
of any one investment company will be owned by the Fund or by the Funds as a
whole.

INTEREST RATE FUTURES CONTRACTS (U.S. Government Fund only). This Fund
may purchase and sell interest rate futures contracts ("futures contracts") as a
hedge against changes in interest rates. A futures contract is an agreement
between two parties to buy and sell a security for a set price on a future date.
Future contracts are traded on designated "contracts markets" which, through
their clearing corporations, guarantee performance of the contracts. Currently,
there are futures contracts based on securities such as long-term U.S. Treasury
bonds, U.S. Treasury notes, GNMA Certificates and three-month U.S. Treasury
bills.

Generally, if market interest rates increase, the value of outstanding debt
securities declines (and vice versa). Entering into a futures contract for the
sale of securities has an effect similar to the actual sale of securities,
although sale of the futures contract might be accomplished more easily and
quickly. For example, if a Fund holds long-term U.S. Government securities and
the Adviser anticipates a rise in long-term interest rates, it could, in lieu of
disposing of its portfolio securities, enter into futures contracts for the sale
of similar long-term securities. If rates increased and the value of the Fund's
portfolio securities declined, the value of the Fund's futures contracts would
increase, thereby protecting the Fund by preventing its net asset value from
declining as much as it otherwise would have. Similarly, entering into futures
contracts for the purchase of securities has an effect similar to actual
purchase of the underlying securities, but permits the continued holding of
securities other than the underlying securities. For example, if the Adviser
expects long-term interest rates to decline, the Fund might enter into futures
contracts for the purchase of long-term securities, so that it could gain rapid
market exposure that may offset anticipated increases in the cost of securities
it intends to purchase, while continuing to hold higher-yielding short-term
securities or waiting for the long-term market to stabilize. Futures
transactions may fail as hedging techniques where price movements of the
underlying securities do not follow price movements of the portfolio securities
subject to the hedge. The loss with respect to futures transactions is
potentially unlimited. Also, the Fund may be unable to control losses by closing
its position where a liquid secondary market does not exist.

STOCK INDEX FUTURES CONTRACTS (Equity Value Fund and Small Company Value
Fund). A stock index futures contract is an agreement in which one party agrees
to deliver to the other an amount of cash equal to a specific dollar amount
times the difference between the value of a specific stock index at the close of
the last trading day of the contract and the price at which the agreement is
made. As the aggregate market value of the stocks in the index changes, the
value of the index also will change. In the event that the index level rises
above the level at which the stock index futures contract was sold, the seller
of the stock index futures contract will realize a loss determined by the
difference between the two index levels at the time of expiration of the stock

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<PAGE>

index futures contract, and the purchaser will realize a gain in that amount.
In the event the index level falls below the level at which the stock index
futures contract was sold, the seller will recognize a gain determined by the
difference between the two index levels at the expiration of the stock index
futures contract, and the purchaser will realize a loss. Stock index futures
contracts expire on a fixed date, currently one to seven months from the date of
the contract, and are settled upon expiration of the contract.

The Funds intend to utilize stock index futures contracts primarily for the
purpose of attempting to protect the value of its common stock portfolio in the
event of a decline in stock prices. The Funds, therefore, usually will be
sellers of stock index futures contracts. This risk management strategy is an
alternative to selling securities in the portfolio and investing in money market
instruments. Also, stock index futures contracts may be purchased to protect a
Fund against an increase in prices of stocks which the Fund intends to purchase.
If a Fund is unable to invest its cash (or cash equivalents) in stock in an
orderly fashion, the Fund could purchase a stock index futures contract which
may be used to offset any increase in the price of the stock. However, it is
possible that the market may decline instead, resulting in a loss on the stock
index futures contract. If the Fund then concludes not to invest in stock at
that time, or if the price of the securities to be purchased remains constant or
increases, the Fund will realize a loss on the stock index futures contract that
is not offset by a reduction in the price of securities purchased. The Fund
also may buy or sell stock index futures contracts to close out existing futures
positions. See "Interest Rate Futures Contracts" above for more information on
the risks of stock index futures contracts.

PUT OPTIONS ON STOCK INDEX FUTURES CONTRACTS (Equity Value Fund and Small
Company Value Fund). The Funds may also purchase put options on stock index
futures contracts. Sales of such options may also be made to close out an open
option position. The Funds may, for example, purchase a put option on a
particular stock index futures contract or stock index to protect against a
decline in the value of the common stocks it holds. If the stocks in the index
decline in value, the put should become more valuable and a Fund could sell it
to offset losses in the value of the common stocks. In this way, put options
may be used to achieve the same goals the Funds seek in selling futures
contracts. A put option on a stock index future gives the purchaser the right,
in return for a premium paid, to assume a short (i.e., the right to sell stock
index futures) position in a stock index futures contract at a specified
exercise price ("strike price") at any time during the period of the option. If
the option is exercised by the holder before the last trading date during the
option period, the holder receives the futures position, as well as any balance
in the futures margin account. If an option is exercised on the last trading
day prior to the expiration date of the option, the settlement will be made
entirely in cash in an amount equal to the difference between the strike price
and the closing level of the relevant index on the expiration date.

The Adviser expects that an increase or decrease in the index in relation
to the strike price level would normally correlate to an increase or decrease
(but not necessarily to the same extent) in the value of the Fund's common stock
portfolio against which the option was written. Thus, any loss in the option
transaction may be offset by an increase in the value of the common stock
portfolio to the extent changes in the index correlate to changes in the value
of that portfolio. The Funds may liquidate the put options they have purchased
by effecting a "closing sale transaction," rather than exercising the option.
This is accomplished by selling an option of the same series as the option
previously purchased. There is no guarantee that a Fund will be able to effect
the closing sale transaction. The Funds will realize a gain from a closing sale
transaction if the price at which the transaction is effected exceeds the
premium paid to purchase the option and, if less, the Funds will realize a loss.

CALIFORNIA MUNICIPAL OBLIGATIONS (California Tax-Free Fund). The ability
of this Fund to achieve its investment objective depends on the ability of
issuers of California Municipal Obligations to meet their continuing obligations
for the payment of principal and interest. Recent amendments to the California
State Constitution and certain State statutes which limit the taxing and
spending authority of California governmental entities may impair the ability of
the issuers of some California Municipal Obligations to maintain debt service on
their obligations. The following information as to certain California risk
factors is given to investors in view of the Fund's policy of investing
primarily in California state and municipal issuers. The information is based
primarily upon information derived from public documents relating to securities
offerings of California state and municipal issuers, from independent municipal
credit reports and historically reliable sources, but has not been independently
verified by the Fund.

California's economy is the largest among the 50 states and one of the
largest in the world. The 1995 population of 32 million represents 12% of the
U.S. total. The State's per capita personal income in 1994 exceeded the U.S.
average by 3%.

Due in part to its rapidly growing population, the California economy has
proven to be more cyclical than that of the nation. During the recessionary
period of the early 1980s and again in the 1990s, California's unemployment
levels

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averaged above the national rate. Federal defense spending cuts and military
base closing have negatively affected the California economy in recent years.
The level of economic activity within the State is important as it influences
the growth or contraction of State and local government revenues available for
operations and debt service.

Recessionary influences and the effects of overbuilding in selected areas
have resulted in a contraction in real estate values in many regions of the
State during the last five years. A decline in property values could have a
negative effect on the ability of certain local governments to meet their
obligations.

As a state, California is more prone to earthquakes than most other states
in the country, creating potential economic losses from damages. On January 17,
1994, a major earthquake, measuring 6.8 on the Richter scale, hit Southern
California centered in the area of Northridge. Total damage has been estimated
at $20 billion. Significant federal aid has been received.

Due to the Fund's concentration in the state of California and its
municipal issuers, the Fund may be affected by certain amendments to the
California constitution and state statutes which limit the taxing and spending
authority of California governmental entities and may affect their ability to
meet their debt service obligations.

In 1978, California voters approved "Proposition 13," adding Article XIII
A, an amendment to the state constitution which limits ad valorem taxes on real
property to 1% of "full cash value" and restricts the ability of taxing entities
to increase real property taxes. The full cash value may be adjusted annually
to reflect increases (not to exceed 2%) or decreases in the consumer price index
or comparable local data, or declining property value caused by damage,
destruction or other factors. The foregoing limitation does not apply to ad
valorem taxes or special assessments to pay the interest and redemption charges
on any indebtedness approved by the voters before July 1, 1978 or, pursuant to
an amendment to Article XIII A, any bonded indebtedness for the acquisition or
improvement of real property approved by two-thirds of the votes cast by the
voters voting on the proposition.

Counties, in particular, have had fewer options to raise revenues than many
other local government entities, and have been required to maintain many
services. The entire statewide welfare system will be changed in response to
the change in federal welfare law enacted in 1996. It is yet not known how the
final system will affect county finances. Under current law, counties are
required to provide "general assistance" aid to certain persons who cannot
obtain welfare from other programs, but this mandate may be eliminated as part
of the overhaul.

In the aftermath of Proposition 13, the State provided aid from the General
Fund to make up some of the loss of property tax moneys, including taking over
the principal responsibility for funding local K-12 schools and community
colleges. Under the pressure of the recent recession, the Legislature had
eliminated the remnants of this post-Proposition 13 aid to entities other than
K-14 education districts, although it has also provided additional funding
sources (such as sales taxes) and reduced mandates for local services. Many
counties continue to be under severe fiscal stress. While such stress has in
recent years most often been experienced by smaller, rural counties, larger
urban counties, such as Los Angeles, have also been affected. Orange County
implemented significant reductions in services and personnel, and continues to
face fiscal constraints in the aftermath of its bankruptcy, which had been
caused by large investment losses in its pooled investment funds.

In 1979 California voters approved another constitutional amendment,
Article XIII B, which may have an adverse impact on California state and
municipal issuers. Article XIII B prohibits the State from spending
"appropriations subject to limitation" in excess of an annual appropriations
limit (the "Appropriations Limit"). "Appropriations subject to limitation," with
respect to the State, are authorizations to spend "proceeds of taxes," which
consist of tax revenues, and certain other funds, including proceeds from
regulatory licenses, user charges or other fees to the extent that such proceeds
exceed "the cost reasonably borne by that entity in providing the regulation,
product or service," but "proceeds of taxes" exclude most state subventions to
local governments, tax refunds and some benefit payments such as unemployment
insurance. No limit is imposed on appropriations of funds which are not
"proceeds of taxes," such as reasonable user charges or fees, and certain other
non-tax funds.

Not included in the Appropriations Limit are appropriations for the debt
service costs of bonds existing or authorized by January 1, 1979, or
subsequently authorized by the voters, appropriations required to comply with
mandates of courts or the federal government, appropriations for qualified
capital outlay projects, appropriations of revenues derived from any increase in
gasoline taxes and motor vehicle weight fees above January 1, 1990 levels and

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<PAGE>

appropriations of certain special taxes imposed by initiatives (e.g., increased
cigarette and tobacco taxes). The Appropriations Limit may also be exceeded in
cases of emergency. However, unless the emergency arises from civil disturbance
or natural disaster declared by the Governor, and the appropriations are
approved by two-thirds of the Legislature, the Appropriations Limit for the next
three years must be reduced by the amount of the excess. The Appropriations
Limit in each year is based on the limit for the prior year, adjusted annually
for changes in California per capita personal income and changes in population,
and adjusted, when applicable, for any transfer of financial responsibility of
providing services to or from another unit of government. The measurement of
change in population is a blended average of statewide overall population
growth, and change in attendance at local school and community college ("K-14")
districts. The Appropriations Limit is tested over consecutive two-year
periods. Any excess of the aggregate "proceeds of taxes" received over such two-
year period above the combined Appropriations Limits for those two years is
divided equally between transfers to K-14 districts and refunds to taxpayers.

The Legislature has enacted legislation to implement Article XIII B which
defines certain terms used in Article XIII B and sets forth the methods for
determining the Appropriations Limit. Government Code Section 7912 requires an
estimate of the Appropriations Limit to be included in the annual budget
proposed by the Governor in January of each year for the next fiscal year, and
thereafter to be subject to the budget process and established in the Budget
Act.

On November 4, 1986, California voters approved an initiative statute known
as Proposition 62. This statute (i) requires that any tax for general
governmental purposes imposed by local governments be approved by resolution or
ordinance adopted by a two-thirds vote of the governmental entity's legislative
body and by a majority vote of the electorate of the governmental entity; (ii)
requires that any special tax (defined as taxes levied for other than general
governmental purposes) imposed by a local governmental entity be approved by a
two-thirds vote of the voters within that jurisdiction; (iii) restricts the use
of revenues from a special tax to the purposes or for the service for which the
special tax was imposed; (iv) prohibits the imposition of ad valorem taxes on
real property by local governmental entities except as permitted by Article XIII
A of the California Constitution; (v) prohibits the imposition of transaction
taxes and sales taxes on the sale of real property by local governments; (vi)
requires that any tax imposed by a local government on or after August 1, 1985
be ratified by a majority of the electorate within two years of the adoption of
the initiative or be terminated by November 15, 1988; (vii) requires that, in
the event a local government fails to comply with the provisions of this
measure, a reduction in the amount of tax revenue allocated to such local
government occur in a an amount equal to the revenues received by such entity
attributable to the tax levied in violation of the initiative; and (viii)
permits these provisions to be amended exclusively by the voters of the State of
California.

On November 5, 1996, voters approved Proposition 218, entitled the "Right
to Vote on Taxes Act," which incorporates new Articles XIIIC and XIIID into the
California Constitution. These new provisions enact limitations on the ability
of local government agencies to impose or raise various taxes, fees, charges and
assessments without voter approval. Certain "general taxes" imposed after
January 1, 1995 must be approved by voters in order to remain in effect. In
addition, Article XIIIC clarifies the right of local voters to reduce taxes,
fees, assessments or charges through local initiatives.

Proposition 218 does not affect the State or its ability to levy or collect
taxes. There are a number of ambiguities concerning the Proposition and its
impact on local governments and their bonded debt which will require
interpretation by the courts or the Legislature. The Legislative Analyst
estimated that enactment of Proposition 218 would reduce local government
revenues statewide by over $100 million a year, and that over time revenues to
local government would be reduced by several hundred million dollars a year
under this Proposition.

On November 8, 1988, voters approved Proposition 98, which has
significantly altered the operation and effect of the Article XIII B spending
limit, the first changes since its adoption in 1979. This combined initiative
constitutional amendment and statute called the "Classroom Instructional
Improvement and Accountability Act" (the "Act"), changes State funding of public
education below the university level, and the operation of the State's
Appropriations Limit. The Act (as modified by Proposition 111, which was
enacted on June 5, 1990), guarantees State funding for K-12 school districts and
community college districts ("K-14 Schools") at a level equal to the greater of
(a) in general, a fixed percent of General Fund revenues (the "first test"), (b)
the amount appropriated to K-14 schools in the prior year, adjusted for changes
in the cost of living (measured as in Article XIII B by reference to California
per capita personal income) and enrollment (the "second test"), or (c) a third
test, which would replace the second test in any year when the percentage growth
in per capita General Fund revenues from the prior year plus one half of one
percent is less than the percentage growth in California per capita personal
income (the "third test"). Under the third test, schools would receive the
amount

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<PAGE>

appropriated in the prior year adjusted for changes in enrollment and per capita
General Fund revenues, plus an additional small adjustment factor. If the third
test is used in any year, the difference between the third test and the second
test would become a "credit" to schools which would be the basis of payments in
future years when per capita General Fund revenue growth exceeds per capita
personal income growth.

Proposition 98 permits the Legislature by two-thirds vote of both houses,
with the Governor's concurrence, to suspend the K-14 schools' minimum funding
formula for a one-year period. In the fall of 1989, the Legislature and the
Governor utilized this provision to avoid having 40.3 percent of revenues
generated by a special supplemental sales tax enacted for earthquake relief go
to K-14 schools. Proposition 98 also contains provisions transferring certain
State tax revenues in excess of the Article XIII B limit to K-14 schools.

During the recent recession, General Fund revenues for several years were
less than originally projected, so that the original Proposition 98
appropriations turned out to be higher than the minimum percentage provided in
the law. The Legislature responded to these developments by designating the
"extra" Proposition 98 payments in one year as a "loan" from future years'
Proposition 98 entitlements, and also intended that the "extra" payments would
not be included in the Proposition 98 "base" for calculating future years'
entitlements. By implementing these actions, per-pupil funding from Proposition
98 sources stayed almost constant at approximately $4,220 from Fiscal Year 1991-
92 to Fiscal Year 1993-94.

In 1992, a lawsuit was filed, called CALIFORNIA TEACHERS' ASSOCIATION V.
GOULD, which challenged the validity of these off-budget loans. The settlement
of this case, finalized in July, 1996, provides, among other things, that both
the State and K-14 schools share in the repayment of prior years' emergency
loans to schools. Of the total $1.76 billion in loans, the State will repay
$935 million by forgiveness of the amount owed, while schools will repay $825
million. The State share of the repayment will be reflected as an appropriation
above the current Proposition 98 base calculation. The schools' share of the
repayment will count as appropriations that count toward satisfying the
Proposition 98 guarantee, or from "below" the current base. Repayments are
spread over the eight-year period of 1994-95 through 2001-02 to mitigate any
adverse fiscal impact.

The State's budget problems in recent years have been caused by a
combination of external economic conditions and a structural imbalance in that
the largest General Fund Programs -- K-14 education, health, welfare and
corrections -- were increasing faster than the revenue base, driven by the
State's rapid population growth. These pressures are expected to continue as
population trends maintain strong demand for health and welfare services, as the
school age population continues to grow, and as the State's corrections program
responds to a "Three Strikes" law enacted in 1994, which requires mandatory life
prison terms for certain third-time felony offenders.

As a result of these factors and others, and especially because a severe
recession between 1990-94 reduced revenues and increased expenditures for social
welfare programs, from the late 1980's until 1992-93, the State had a period of
budget imbalance. During this period, expenditures exceeded revenues in four
out of six years, and the State accumulated and sustained a budget deficit in
its budget reserve, the Special Fund for Economic Uncertainties ("SFEU")
approaching $2.8 billion at its peak at June 30, 1993. Starting in the 1990-91
Fiscal Year and for each fiscal year thereafter, each budget required multi
billion dollar actions to bring projected revenues and expenditures into
balance. The Legislature and Governor agreed on the following principal steps
to produce Budget Acts in the years 1991-92 to 1994-95, although not all these
actions were taken in each year:

- significant cuts in health and welfare program expenditures;
- transfers of program responsibilities and funding from the State to
local governments (referred to as "realignment"), coupled with some
reduction in mandates on local government;
- transfer of about $3.6 billion in local property tax revenues from
cities, counties, redevelopment agencies and some other districts to
local school districts, thereby reducing State funding for schools
under Proposition 98;
- reduction in growth of support for higher education programs, coupled
with increases in student fees, through the 1994-95 Fiscal Year;
- maintenance of the minimum Proposition 98 funding guarantee for K-14
schools, and the disbursement of additional funds to keep a constant
level of about $4,200 per K-12 pupil through the 1993-94 Fiscal Year;
- revenue increases (particularly in the 1991-92 Fiscal Year budget),
most of which were for a short duration;

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<PAGE>

- increased reliance on aid from the federal government to offset the
costs of incarcerating, educating and providing health and welfare
services to illegal immigrants, although during this time frame, most
of the additional aid requested by the Administration was not
received; and
- various one-time adjustments and accounting changes.

Despite these budget actions, as noted, the effects of the recession led to
large, unanticipated deficits in the budget reserve, the SFEU, as compared to
projected positive balances. By the 1993-94 Fiscal Year, the accumulated
deficit was so large that it was impractical to budget to retire it in one year,
so a two-year program was implemented, using the issuance of revenue
anticipation warrants to carry a portion of the deficit over the end of the
fiscal year. When the economy failed to recover sufficiently in 1993-94, a
second two-year plan was implemented in 1994-95, again using cross-fiscal year
revenue anticipation warrants to partly finance the deficit into the 1995-96
fiscal year.

Another consequence of the accumulated budget deficits, together with other
factors such as disbursement of funds to local school districts "borrowed" from
future fiscal years and hence not shown in the annual budget, was to
significantly reduce the State's cash resources available to pay its ongoing
obligations. When the Legislature and the Governor failed to adopt a budget for
the 1992-93 Fiscal Year by July 1, 1992, which would have allowed the State to
carry out its normal annual cash flow borrowing to replenish its cash reserves,
the State Controller issued registered warrants to pay a variety of obligations
representing prior years' or continuing appropriations, and mandates from court
orders. Available funds were used to make constitutionally-mandated payments,
such as debt service on bonds and warrants. Between July 1 and September 4,
1992, when the budget was adopted, the State Controller issued a total of
approximately $3.8 billion of registered warrants.

During the past several fiscal years, the State was forced to rely
increasingly on external debt markets to meet its cash needs, as a succession of
notes and revenue anticipation warrants were issued in the period from June 1992
to July 1994, often needed to pay previously maturing notes or warrants. These
borrowings were used also in part to spread out the repayment of the accumulated
budget deficit over the end of a fiscal year, as noted earlier. The last and
largest of these borrowings was $4.0 billion of revenue anticipation warrants
which were issued in July, 1994 and matured on April 25, 1996.

The 1995-96 Budget Act was signed by the Governor on August 3, 1995, 34
days after the start of the fiscal year. The Budget Act projected General Fund
revenues and transfers of $44.1 billion, a 3.5 percent increase from the prior
year. Expenditures were budgeted at $43.4 billion, a 4 percent increase. The
Budget Act also projected Special Fund revenues of $12.7 billion and
appropriated Special Fund expenditures of $13.0 billion.

Final data for the 1995-96 Fiscal Year showed revenues and transfers of
$46.1 billion, some $2 billion over the original fiscal year estimate, which was
attributed to the strong economic recovery. Expenditures also increased, to an
estimated $45.4 billion, as a result of the requirement to expend revenues for
schools under Proposition 98, and, among other things, failure of the federal
government to enact welfare reform during the fiscal year and to budget new aid
for illegal immigrant costs, both of which had been counted on to allow
reductions in State costs. The Special Fund for Economic Uncertainties had a
small negative balance of about $87 million at June 30, 1996, all but
eliminating the accumulated budget deficit from the early 1990's. Available
internal borrowable resources (available cash, after payment of all obligations
due) on June 30, 1996 was about $3.8 billion, representing a significant
improvement in the State's cash position, and ending the need for deficit
borrowing over the end of the fiscal year. The State's improved cash position
allowed it to repay the $4.0 billion Revenue Anticipation Warrant issue on April
25, 1996, and to issue only $2.0 billion of revenue anticipation notes during
the fiscal year, which matured on June 28, 1996.

The 1995-96 Budget Act included substantial additional funding under
Proposition 98 for schools and community colleges (about $1.0 billion General
Fund and $1.2 billion total above 1994-95 levels). Because of higher than
projected revenues in 1994-95, an additional $561 million ($92 per K-12 ADA) was
appropriated to the 1994-95 Proposition 98 entitlement. A large part of this
was a block grant of about $50 per pupil for any one-time purpose. For the
first time in several years, a full 2.7 percent cost of living allowance was
funded. The budget was based on the settlement of the CTA v. GOULD litigation.
Cuts in health and welfare costs totaled about $220 million, almost $700 million
less than had been anticipated, because of the failure by the federal government
to approve certain of these actions in a timely manner. The federal government
also failed to appropriate all but $31 million of an anticipated $500 million in
new federal aid for incarceration and health care costs of illegal immigrants.
Funding from the General Fund

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for the University of California was increased by $106 million and for the
California State University system by $97 million, with no increases in student
fees.

The 1996-97 Budget Act was signed by the Governor on July 15, 1996, along
with various implementing bills. The Governor vetoed about $82 million of
appropriations (both General Fund and Special Fund). With the signing of the
Budget Act, the State implemented its regular cash flow borrowing program with
the issuance of $3.0 billion of Revenue Anticipation Notes to mature on June 30,
1997. The Budget Act appropriated a modest budget reserve in the SFEU of $305
million, as of June 30, 1997. The Department of Finance projected that, on June
30, 1997, the State's available internal borrowable (cash) resources will be
$2.9 billion, after payment of all obligations due by that date, so that no
cross-fiscal year borrowing will be needed.

The following are principal features of the 1996-97 Budget Act:

(1) Proposition 98 funding for schools and community college districts
increased by almost $1.6 billion (General Fund) and $1.65 billion
total above revised 1995-96 levels. Almost half of this money was
budgeted to fund class-size reductions in kindergarten and grades 1-3.
Also, for the second year in a row, the full cost of living allowance
(3.2 percent) was funded. The Proposition 98 increases have brought
K-12 expenditures to almost $4,800 per pupil (also called per ADA, or
Average Daily Attendance), an almost 15% increase over the level
prevailing during the recession years. Community colleges will
receive an increase in funding of $157 million for 1996-97 out of this
$1.6 billion total.

Because of the higher than projected revenues in 1995-96, an
additional $1.1 billion ($190 per K-12 ADA and $145 million for
community colleges) was appropriated and retroactively applied towards
the 1995-96 Proposition 98 guarantee, bringing K-12 expenditures in
that year to over $4,600 per ADA. These new funds were appropriated
for a variety of purposes, including block grants, allocations for
each school site, facilities for class size reduction, and a reading
initiative. Similar retroactive increases totaling $230 million,
based on final figures on revenues and State population growth, were
made to the 1991-92 and the 1994-95 Proposition 98 guarantees, most of
which was allocated to each school site.

(2) The Budget Act assumed savings of approximately $660 million in health
and welfare costs which required changes in federal law, including
federal welfare reform. The Budget Act further assumed federal law
changes in August 1996 which would allow welfare cash grant levels to
be reduced by October 1, 1996. These cuts totaled approximately $163
million of the anticipated $660 million savings. See "Federal Welfare
Reform" below.

(3) A 4.9 percent increase in funding for the University of California
($130 million General Fund) and the California State University system
($101 million General Fund), with no increases in student fees,
maintaining the second year of the Governor's four-year "Compact" with
the State's higher education units.

(4) The Budget Act assumed the federal government will provide
approximately $700 million in new aid for incarceration and health
care costs of illegal immigrants. These funds reduce appropriations
in these categories that would otherwise have to be paid from the
General Fund. (For purposes of cash flow projections, the Department
of Finance expects $540 million of this amount to be received during
the 1996-97 fiscal year.)

(5) General Fund support for the Department of Corrections was increased
by about 7 percent over the prior year, reflecting estimates of
increased prison population.

(6) With respect to aid to local governments, the principal new programs
included in the Budget Act are $100 million in grants to cities and
counties for law enforcement purposes, and budgeted $50 million for
competitive grants to local governments for programs to combat
juvenile crime.

The Budget Act did not contain any tax increases. As noted, there was a
reduction in corporate taxes. In addition, the Legislature approved another
one-year suspension of the Renters Tax Credit, saving $520 million in
expenditures.

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Following enactment of the 1996-97 Budget Act, Congress passed and the
President signed (on August 22, 1996) the Personal Responsibility and Work
Opportunity Act of 1996 (P.L. 104-193, the "Law") making a fundamental reform of
the current welfare system. Among many provisions, the Law includes: (i)
conversion of Aid to Families with Dependent Children from an entitlement
program to a block grant titled Temporary Assistance for Needy Families (TANF),
with lifetime time limits on TANF recipients, work requirements and other
changes; (ii) provisions denying certain federal welfare and public benefits to
legal noncitizens, allowing states to elect to deny additional benefits
(including TANF) to legal noncitizens, and generally denying almost all benefits
to illegal immigrants; and (iii) changes in the Food Stamp program, including
reducing maximum benefits and imposing work requirements.

The Law requires states to implement the new TANF program not later than
July 1, 1997 and provides California approximately $3.7 billion in block grant
funds for FY 1996-97 for the provisions of the Law. States are allowed to
implement TANF as soon as possible and will receive a prorated block grant
effective the date of application. The California State Plan was approved
November 27, 1996 to allow grant reductions to be implemented effective January
1, 1997 and to allow the State to capture approximately $267 million in
additional federal block grant funds over the currently budgeted level. None of
the other federal changes needed to achieve the balance of the $660 million cost
savings were enacted. Thus, in lieu of the $660 million savings initially
assumed, it is now projected that savings will total approximately $320 million.

A preliminary analysis of the Law by the Legislative Analyst's Office
indicates that an overall assessment of how these changes will affect the
State's General Fund will not be known for some time, and will depend on how the
State implements the Law. There are many choices including how quickly the
State implements the Law; the degree to which the State elects to make up for
cuts in federal aid. provide more aid to counties, or cut some of its own
existing programs for noncitizens; and the State's ability to avoid certain
penalties written into the Law.

With the continued strong economic recovery in the State, the Department
of Finance has estimated, in connection with the release of the Governor's 1997-
98 Budget Proposal, that revenues for the 1996-97 Fiscal Year will exceed
initial projections by about $760 million. This increase will be offset by
higher expenditures for K-14 school aid (Pursuant to Proposition 98) and for
health and welfare costs, because federal law changes and other federal actions
did not provide as much assistance to the State as was initially planned in the
Budget Act. The Department's updated projections show a balance in the Special
Fund for Economic Uncertainties of $197 million, slightly lower than projected
in July, 1996. The Department also projects the State's cash position will be
stronger than originally estimated, with unused internal borrowable resources at
June 30, 1997 of about $4.3 billion.

On January 9, 1997, the Governor released his proposed budget for the 1997-
98 Fiscal Year (the "Governor's Budget"). The Governor's Budget projects
General Fund revenues and transfers in 1997-98 of $50.7 billion, a 4.6% increase
from revised 1996-97 figures. The Governor proposes expenditures of $50.3
billion, a 3.9% increase from 1996-97. The Governor's Budget projects a balance
in the SFEU of $553 million on June 30, 1998. The Governor's Budget also
anticipates about $3 billion of external borrowing for cash flow purposes during
the year, with no requirement for cross-fiscal year borrowing.

Among the major initiatives and features of the Governor's Budget are the
following:

(7) A proposed 10% cut in the Bank and Corporation Tax rate, to be phased
in over two years.

(8) Proposition 98 funding for K-14 schools will be increased again, as a
result of stronger revenues. Per-pupil funding for K-12 schools will
reach $5,010, compared to $4,220 as recently as the 1993-94 Fiscal
Year. Part of the new funding is proposed to be dedicated to the
completion of the current program to reduce class size to 20 pupils in
lower elementary grades, and to expand the program by one grade, so
that it will cover K-3rd grade.

(9) Funding for higher education will be increased consistent with a four-
year "compact" established in 1995-96. There is not projected to be
any increase in student fees at any of the three levels of the State
higher education system.

11
<PAGE>

(10) The 1997-98 proposed Governor's Budget assumes approximately $500
million in savings contingent upon federal action. The Budget assumes
that federal law will be enacted to remove the maintenance-of-effort
requirement for Supplemental Security Income (SSI) payments, thereby
enabling the state to reduce grant levels pursuant to previously
enacted state law ($279 million). The Budget also assumes the federal
government will fund $216 million in costs of health care for illegal
immigrants.

The State is a party to numerous legal proceedings, many of which normally
occur in governmental operations. In addition, the State is involved in certain
other legal proceedings that, if decided against the State, may require the
State to make significant future expenditures or may impair future revenue
sources. Because of the prospective nature of these proceedings, no estimate of
the potential loss can be made.

While at any given time, including the present, there are numerous civil
actions pending against the State which could, if determined adversely to the
State, affect the State's expenditures and, in some cases, its revenues, the
Attorney General of the State of California is of the opinion that no pending
actions are likely to have a material adverse effect on the State's ability to
pay debt service as it becomes due.

Because of the uncertain impact of the aforementioned statutes and cases,
the possible inconsistencies in the respective terms of the statutes and the
impossibility of predicting the level of future appropriations and applicability
of related statutes to such questions, it is not currently possible to assess
the impact of such legislation, cases and policies on the long-term ability of
California state and municipal issuers to pay interest or repay principal on
their obligations.

Due to budgetary and financial difficulties, California's bond ratings have
deteriorated in the early 1990's. S&P initially lowered California's bond
rating in December 1991 from AAA to AA. Then, in July 1992, S&P again lowered
California's bond rating, from AA to A+, and then A. The S&P rating for
California General Obligation Bonds is now A+. Likewise, in February 1992,
Moody's lowered its California general obligation bond rating from Aaa to Aal.
Moody's subsequently lowered the State's general obligation rating in July 1992
from Aal to Aa, and it is now A1.

On December 6, 1994, Orange County, California (the "County"), together
with its pooled investment funds (the "County Funds") filed for protection under
Chapter 9 of the Federal Bankruptcy Code, after reports that the County Funds
had suffered significant market losses in their investments, causing a liquidity
crisis for the County Funds and the County. More than 200 other public entities,
most of which, but not all, are located in the County, were also depositors in
the County Funds. As of mid-January 1995, following a restructuring of most of
the County Funds' assets to increase their liquidity and reduce their exposure
to interest rate increases, the County estimated the County Funds' loss at about
$1.69 billion, or about 23% of their initial deposits of approximately $7.5
billion. Many of the entities which deposited monies in the County Funds,
including the County, faced interim and/or extended cash flow difficulties
because of the bankruptcy filing and may be required to reduce programs or
capital projects. The County has embarked on a fiscal recovery plan based on
sharp reductions in services and personnel, and rescheduling of outstanding
short term debt using certain new revenues transferred to the County from other
local governments pursuant to special legislation enacted in October, 1995.

The State has no existing obligations with respect to any outstanding
obligations or securities of the County or any of the other participating
entities. However, in the event the County is unable to maintain county
administered State programs because of insufficient resources, it may be
necessary for the State to intervene, but the State cannot presently predict
what, if any, action may occur.

12
<PAGE>

INVESTMENT RESTRICTIONS

The following restrictions restate or are in addition to those described
under "Investment Restrictions" in the Prospectus.

Each Fund, except as indicated, may not:

(1) Invest more than 15% of the value of its net assets in investments which
are illiquid (including repurchase agreements having maturities of more
than seven calendar days, variable and floating rate demand and master
demand notes not requiring receipt of principal note amount within seven
days notice and securities of foreign issuers which are not listed on a
recognized domestic or foreign securities exchange);

(2) Borrow money or pledge, mortgage or hypothecate its assets, except that a
Fund may enter into reverse repurchase agreements or borrow from banks up
to 5% of the current value of its net assets for temporary or emergency
purposes and those borrowings may be secured by the pledge of not more
than 5% of the current value of its total net assets (but investments may
not be purchased by the Fund while any such borrowings exist);

(3) Issue senior securities, except insofar as a Fund may be deemed to have
issued a senior security in connection with any repurchase agreement or
any permitted borrowing;

(4) Make loans, except loans of portfolio securities and except that a Fund
may enter into repurchase agreements with respect to its portfolio
securities and may purchase the types of debt instruments described in
its Prospectus or the SAI;

(5) Invest in companies for the purpose of exercising control or management;

(6) Invest more than 10% of its net assets in shares of other investment
companies;

(7) Invest in real property or Mortgage loans (including limited partnership
interest but excluding real estate investment trusts and master limited
partnerships), commodities, commodity contracts, or oil, gas and other
mineral resource, exploration, development, lease or arbitrage
transactions, provided that the Fund may invest in collateralized
mortgage obligations;

(8) Engage in the business of underwriting securities of other issuers,
except to the extent that the disposal of an investment position may
technically cause it to be considered an underwriter as that term is
defined under the Securities Act of 1933;

(9) Sell securities short, except to the extent that a Fund contemporaneously
owns or has the right to acquire at no additional cost securities
identical to those sold short;

(10) Purchase securities on margin, except that a Fund may obtain such short-
term credits as may be necessary for the clearance of purchases and sales
of securities;

(11) Purchase or retain the securities of any issuer, if the individual
officers and Trustees of the Funds, the Adviser or the Distributor, each
owning beneficially more than 1/2 of 1% of the securities of such issuer,
together own more than 5% of the securities of such issuer;

(12) Purchase a security if, as a result, more than 25% of the value of its
total assets would be invested in securities of one or more issuers
conducting their principal business activities in the same industry,
provided that (a) this limitation shall not apply to obligations issued
or guaranteed by the U.S. Government or its agencies and
instrumentalities; (b) wholly-owned finance companies will be considered
to be in the industries of their parents; and (c) utilities will be
divided according to their services. For example, gas, gas transmission,
electric and gas, electric, and telephone will each be considered a
separate industry;

13
<PAGE>

(13) Invest more than 5% of its net assets in warrants which are unattached to
securities, included within that amount (except for the Small Company
Value Fund), no more than 2% of the value of the Fund's net asset, may be
warrants which are not listed on the New York or American Stock
Exchanges;

(14) Write, purchase or sell puts, calls or combinations thereof, except that
the equity and fixed income funds may purchase or sell puts and calls as
otherwise described in the Prospectus or SAI; however, no Fund will
invest more than 5% of its total assets in these classes of securities
for purposes other than bona fide hedging;

(15) Invest more than 5% of the current value of its total assets in the
securities of companies which, including predecessors, have a record of
less than three years' continuous operation; or

(16) Invest more than 5% of the value of a Fund's total assets in the
securities of any one investment company; invest more than 10% of the
value of a Fund's total assets in the aggregate in securities of
investment companies as a group; or invest such that more than 3% of the
outstanding voting stock of any one investment company will be owned by
any Fund or by the Funds as a whole.

In addition, each of the Equity Value Fund and the Small Company Value
Fund are diversified funds. As such, each will not, with respect to 75% of its
total assets, invest more than 5% of its total assets in the securities of any
one issuer (except for U.S. Government securities) or purchase more than 10% of
the outstanding voting securities of any one issuer.

If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in the
value of a Fund's investments will not constitute a violation of such
limitation, except that any borrowing by a Fund that exceeds the fundamental
investment limitations stated above must be reduced to meet such limitations
within the period required by the 1940 Act (currently three days). Otherwise, a
Fund may continue to hold a security even though it causes the Fund to exceed a
percentage limitation because of fluctuation in the value of the Fund's assets.

MANAGEMENT

TRUSTEES AND OFFICERS

The principal occupations of the Trustees and executive officers of the
Funds for the past five years are listed below. The address of each, unless
otherwise indicated, is 3435 Stelzer Road, Columbus, Ohio, 43219. Trustees
deemed to be "interested persons" of the Funds for purposes of the 1940 Act are
indicated by an asterisk.

POSITIONS(S) HELD
NAME AND ADDRESS AGE WITH REGISTRANT OCCUPATION(S) DURING PAST 5 YEARS
---------------- --- --------------- ---------------------------------
<S> <C> <C> <C>
Harley K. Sefton * 43 Trustee, Chairman of President and Chief Executive Officer, Sefton Capital Management,
Sefton Capital Management the Board and President August 1994 to present; President, First Interstate Capital
2550 Fifth Avenue, Suite 808 Management, Inc., March 1994 through August 1994; President, San
San Diego, California 92103 Diego Financial Capital Management, Inc., January 1994 through
March 1994; Executive Vice President/Division Manager, San Diego
Trust & Savings Bank, January 1992 through January 1994.

Grace Evans Cherashore 41 Trustee Chief Executive Officer, Bahia and Catamaran Hotels since 1992.
988 West Mission Bay Drive San
Diego, CA 92109

Gordon T. Frost, Jr. 50 Trustee President/General Manager, Frost Hardwood Lumber Company since
P.O. Box 15 1990.
San Diego, CA 92122

14
<PAGE>

John J. Pileggi 38 Trustee Director of Furman Selz LLC, since 1994; Senior Managing Director
Furman Selz LLC of Furman Selz LLC (1992-1994).
237 Park Avenue
New York, New York 10017

Thomas C. Bowden 38 Vice President Vice President and Fund Manager, Sefton Capital Management,
Sefton Capital Management February 1995 to present; Vice President and Portfolio Manager,
2550 Fifth Avenue, Suite 808 First Interstate Capital Management, Inc., March 1994 through
San Diego, California 92103 January 1995; Vice President and Portfolio Manager, San Diego
Financial Capital Management, Inc., June 1986 through March 1994.

Alan A. Lordi 34 Vice President Vice President and Portfolio Manager, Sefton Capital Management,
Sefton Capital Management July 1996 to present; Managing Director of Mutual Funds, Furman
2550 Fifth Avenue, Suite 808 Selz LLC, April 1995 through July 1996; Vice President and
San Diego, California 92103 Investment Marketing Director of First Interstate Capital
Management, Inc., March 1994 through April 1995; Vice President
and Investment Marketing Director of San Diego Financial Capital
Management, Inc., August 1991 through March 1994.

Ted J. Piorkowski 38 Vice President Vice President and Fund Manager, Sefton Capital Management; Vice
Sefton Capital Management President and Portfolio Manager, First Interstate Capital
2550 Fifth Avenue, Suite 808 Management Inc., March 1994 through May 1994; Vice President and
San Diego, California 92103 Portfolio Manager, San Diego Financial Capital Management, Inc.,
1989 through March 1994.

Leif O. Sanchez 35 Vice President Vice President and Fund Manager, Sefton Capital Management,
Sefton Capital Management February 1995 to present; Vice President and Portfolio Manager,
2550 Fifth Avenue, Suite 808 First Interstate Capital Management, Inc., March 1994 through
San Diego, California 92103 January 1995; Vice President and Portfolio Manager, San Diego
Financial Capital Management, Inc., March 1985 through March 1994.

Lani Capossere 35 Vice President and Vice President and Chief Operating Officer, Sefton Capital
Sefton Capital Management Secretary Management, October 1994 to present; Assistant Vice President and
2550 Fifth Avenue Operations Manager, First Interstate Capital Management, Inc.,
Suite 808 March 1994 through May 1994; Assistant Vice President and
San Diego, California 92103 Operations Manager, San Diego Financial Capital Management, Inc.,
April 1992 through March 1994.

Thresa B. Dewar 41 Vice President and Treasurer, BISYS Fund Services, since March 1997; previously, Vice
BISYS Fund Services Treasurer President and Controller, Federated Administrative Services, a
subsidiary of Federated Investors, Inc.

Greg Maddox 29 Assistant Treasurer Director, BISYS Fund Services, 1991 to present.
BISYS Fund Services
1230 Columbia Street
San Diego, California 92101

Frank Deutchki 43 Assistant Treasurer Compliance Officer, BISYS Fund Services, April 1996 to present;
BISYS Fund Services Vice President, Chase Global Funds Service, September 1995 through
April 1996; Vice President, Mutual Funds Service Company, 1989
through September 1995.

Matthew Constancio 33 Assistant Secretary Associate Manager, Client Legal Services, BISYS Fund Services,
BISYS Fund Services since November 1996; previously Mutual Fund Administrator, Payden
& Rygel Investment Group.

15
<PAGE>

Ellen Stoutamire 48 Assistant Secretary Vice President, Client Legal Services, BISYS Fund Services;
BISYS Fund Services previously, Associate Counsel Franklin Templeton Mutual Funds;
Vice President and General Counsel, Pioneer Western Corporation.

Irimga McKay 37 Assistant Secretary Senior Vice President, BISYS Fund Services, since 1994 to present;
BISYS Fund Services Senior Vice President, Concord Financial Group, 1988 through 1992.
1230 Columbia Street
San Diego, California 92101

Alaina Metz 30 Assistant Secretary Chief Administrator, BISYS Fund Services, June 1995 to present;
BISYS Fund Services Supervisor, Mutual Fund Legal Department, Alliance Capital
Management, L.P., May 1989 through June 1995.
</TABLE>

- ---------------
* Mr. Sefton is considered to be an "interested person" of the Trust as
defined in the 1940 Act.

COMPENSATION TABLE
For Fiscal Year Ended March 31, 1997

TOTAL COMPENSATION FROM
AGGREGATE PENSION OR RETIREMENT ESTIMATED TRUST AND
COMPENSATION BENEFITS ACCRUED AS PART ANNUAL BENEFITS FUND COMPLEX
NAME OF TRUSTEE FROM THE TRUST OF FUND EXPENSES UPON RETIREMENT PAID TO TRUSTEES
-------------- -------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Harley K. Sefton $0 $0 $0 $0

Grace Evans Cherashore $4,500 $0 $0 $4,500

Gordon T. Frost, Jr. $4,500 $0 $0 $4,500

John J. Pileggi $1,250* $0 $0 $1,250*

</TABLE>

- ---------------
* Mr. Pileggi was added as a trustee in February, 1997. Mr. Pileggi is
expected to earn approximately $4,500 in aggregate compensation.

Trustees of the Funds not affiliated with Sefton or BISYS Fund Services
receive from the Funds an annual retainer of $1,000 and a fee of $500 for each
Board of Trustees meeting and $500 for each Board committee meeting of the Funds
attended and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. Trustees who are affiliated with Sefton or BISYS
Fund Services do not receive compensation from the Funds.

INVESTMENT ADVISER

Sefton Capital Management, Inc. ("SCM"), 2550 Fifth Avenue, Suite 808, San
Diego, CA 92103, acts as the investment adviser to the Funds. Mr. Harley K.
Sefton owns 100% of the capital stock of SCM. SCM manages the investment and
reinvestment of the assets of the Funds and continuously reviews, supervises and
administers the Funds' investments. The Adviser is responsible for placing
orders for the purchase and sale of the Funds' investments directly with brokers
and dealers selected by it in its discretion.

16
<PAGE>

The following tables summarize the advisory fees paid by the Funds and any
advisory fee waivers for the period April 3, 1995 (commencement of investment
operations) to March 31, 1996 and for the fiscal year ending March 31, 1997.

April 3, 1995 (Commencement of Investment Operations) to March 31, 1996

Fund Name Advisory Fees (before waivers) Waiver Advisory Fees Paid
--------- ------------------------------ -------- ------------------
<S> <C> <C> <C>
U.S. Government Fund $112,654 $52,605 $59,635
California Tax-Free Fund $228,931 $91,958 $126,067
Equity Value Fund $255,969 $6,226 $219,367

Fiscal Year Ended March 31, 1997

Fund Name Advisory Fees (before waivers) Waiver Advisory Fees Paid
--------- ------------------------------ ------ ------------------
<S> <C> <C> <C>
U.S. Government Fund $133,578 $54,584 $78,994
California Tax-Free Fund $257,339 $98,461 $158,878
Equity Value Fund $482,659 $0 $482,659

</TABLE>

The current Master Investment Advisory contract and Supplements thereto
("Advisory Agreement") for the U.S. Government, California Tax-Free and Equity
Value Funds became effective on April 3, 1995. The Advisory Agreement for the
Small Company Value Fund became effective on May 2, 1997. Each Advisory
Agreement will continue in effect for a two-year period and thereafter from year
to year so long as such continuance is approved annually by a majority of the
Funds' Trustees who are not parties to the Advisory Agreements or interested
persons of any such party, and by either a majority of the outstanding voting
shares or the Trustees of the Funds. Each Advisory Agreement: (i) may be
terminated without the payment of any penalty by the Fund or SCM on 60 days
written notice; (ii) terminates automatically in the event of its assignment;
and (iii) generally, may not be amended without the approval by vote of a
majority of the outstanding voting securities of such Fund.

The Agreements provide that the investment adviser shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Funds in
connection with its performance of services pursuant to the Advisory Agreement,
except loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the investment adviser
in the performance of its obligations under the Advisory Agreement.

DISTRIBUTION OF FUND SHARES

Effective January 1, 1997, BISYS Fund Services Limited Partnership d/b/a
BISYS Fund Services ("BISYS"), 3435 Stelzer Road, Columbus, Ohio 43219,
replaced ALPS Mutual Funds Services, Inc. ("ALPS") as Sponsor and Distributor of
the Funds. BISYS also serves as administrator and distributor of other mutual
funds. As distributor, BISYS acts as the Funds' agent to underwrite, sell and
distribute shares in a continuous offering.

ADMINISTRATOR, BOOKKEEPING AND PRICING AGENT

Effective January 1, 1997, BISYS replaced ALPS as Administrator for the
Funds. BISYS provides management and administrative services necessary for the
operation of the Funds, including among other things, (i) preparation of
shareholder reports and communications, (ii) regulatory compliance, such as
reports to and filings with the Securities and Exchange Commission ("SEC") and
state securities commissions and (iii) general supervision of the operation of
the Funds, including coordination of the services performed by the Funds'
Adviser, custodian, independent accountants, legal

17
<PAGE>

counsel and others. In addition, BISYS furnishes office space and facilities
required for conducting the business of the Funds and pays the compensation of
the Funds' officers, employees and Trustees affiliated with BISYS. For these
services, BISYS is entitled to receive a fee, payable monthly, at the annual
rate of 0.15% of the average daily net assets of the Funds.

The Administration Agreements for the California Tax-Free, U.S. Government
and Equity Value Funds were approved by the Board of Trustees, including a
majority of the Trustees who are not parties to the Contracts or interested
persons of such parties, at its meeting held on October 15, 1996. The
Administration Agreement for the Small Company Value Fund was approved by the
Board by Trustees, including a majority of the Trustees who are not parties to
the contract or "interested persons" of such parties at its meeting on May 2,
1997. At any time after December 31, 1999, each Administration Agreement is
terminable with respect to a Fund without penalty, at any time, by vote of a
majority of the Trustees who are not "interested persons" of the Funds and who
have no direct or indirect financial interest in the Administration Agreement
upon not more than 60 days written notice to BISYS or by vote of the holders of
a majority of the shares of the Fund involved, or, upon 60 days notice, by
BISYS.

BISYS Fund Services, Inc., an affiliate of BISYS serves as fund accounting
agent pursuant to a Fund Accounting Agreement, to maintain the financial
accounts and records of the Funds and to compute the net asset value and certain
other financial information of the Funds. Under the Fund Accounting Agreement,
BISYS Fund Services, Inc. is not liable for any error of judgment or mistake of
law or for any loss suffered by the Funds, except for a loss resulting from
willful misfeasance, bad faith or negligence on the part of BISYS in the
performance of its duties under the Agreement. For the year ended March 31,
1997 BISYS Fund Services, Inc. and ALPS collectively earned $31,617, $32,823 and
$33,170 for their fund accounting services to the U.S. Government Fund,
California Tax-Free Fund and Equity Value Fund.

The following table summarizes the administration fees paid by the Funds to
BISYS and ALPS and any fee waivers, for the fiscal year ended March 31, 1997.

Fiscal Year Ended March 31, 1997

Administration Fees
Fund Name (before waivers) Waiver Administration Fees Paid
--------- ---------------- ------ ------------------------
<S> <C> <C> <C>
U.S. Government Fund $44,158 $9,975 $34,183
California Tax-Free Fund $85,431 $27,036 $58,395
Equity Value Fund $95,828 $21,831 $73,997

</TABLE>

The following table summarizes the administration fees paid by the Funds to
ALPS and Furman Selz LLC and any administrative fee waivers, for the period
April 3, 1995 to March 31, 1996:

April 3, 1995 (Commencement of Investment Operations) to March 31, 1996

Administration Fees
Fund Name before waivers) Waiver Administration Fees Paid
-------- --------------- ------ ------------------------
<S> <C> <C> <C>
U.S. Government Fund $37,324 $16,798 $15,226
California Tax-Free Fund $76,311 $32,529 $27,176
Equity Value Fund $51,142 $21,668 $19,824

</TABLE>

18
<PAGE>

SERVICE ORGANIZATIONS

The Funds may also contract with banks, trust companies, broker-dealers
(other than BISYS) or other financial organizations ("Service Organizations") to
provide certain administrative services with respect to the Funds for a fee paid
at an annual rate of up to 0.25% of daily net Fund assets serviced. Services
provided by Service Organizations may include among other things: providing
necessary personnel and facilities to establish and maintain certain shareholder
accounts and records; assisting in processing purchase and redemption
transactions; arranging for the wiring of funds; transmitting and receiving
funds in connection with client orders to purchase or redeem shares; verifying
and guaranteeing client signatures in connection with redemption orders,
transfers among and changes in client-designating accounts; providing periodic
statements showing a client's account balance and, to the extent practicable,
integrating such information with other client transactions, furnishing periodic
and annual statements and confirmations of all purchases and redemptions of
shares in a client's account; transmitting proxy statements, annual reports, and
updating prospectuses and other communications from the Funds to clients; and
providing such other services as the Funds or a client reasonably may request,
to the extent permitted by applicable statute, rule or regulation.

Some Service Organizations may impose additional or different conditions on
their clients, such as requiring their clients to invest more than the minimum
initial or subsequent investments specified by the Funds or charging a direct
fee for servicing. If imposed, these fees would be in addition to any amounts
which might be paid to the Service Organization by the Funds. Each Service
Organization has agreed to transmit to its clients a schedule of any such fees.
Shareholders using Service Organizations are urged to consult them regarding any
such fees or conditions.

The Glass-Steagall Act and other applicable laws, among other things,
prohibit banks from engaging in the business of underwriting, selling or
distributing securities. There currently is no precedent prohibiting banks from
performing administrative and shareholder servicing functions as Service
Organizations. However, judicial or administrative decisions or interpretations
of such laws, as well as changes in either Federal or state statutes or
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, could prevent a bank from continuing to perform all
or a part of its servicing activities. In addition, state securities laws on
this issue may differ from the interpretations of federal law expressed herein
and banks and financial institutions may be required to register as dealers
pursuant to state law. If a bank were prohibited from so acting, its shareholder
clients would be permitted to remain shareholders of the Funds and alternative
means for continuing the servicing of such shareholders would be sought. In that
event, changes in the operation of the Funds might occur and a shareholder
serviced by such a bank might no longer be able to avail itself to any services
then being provided by the bank. It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of these
occurrences.

DETERMINATION OF NET ASSET VALUE

As indicated under "Fund Share Valuation" in the Prospectus, each Fund's
net asset value per share for the purpose of pricing purchase and redemption
orders is determined at 4:00 p.m. (Eastern time) on each day the New York Stock
Exchange is open for trading with the exception of certain bank holidays. The
Funds will be closed on the following holidays: New Year's Day, Martin Luther
King Jr.'s Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Payment for shares may, in the discretion of the Adviser, be made in the
form of securities that are permissible investments for the Funds as described
in the Prospectus. For further information about this form of payment please
contact BISYS. In connection with an in-kind securities payment, a Fund will
require, among other things, that the securities be valued on the day of
purchase in accordance with the pricing methods used by the Fund and that the
Fund receive satisfactory assurances that (1) it will have good and marketable
title to the securities received by it; (2) the securities are in proper form
for transfer to the Fund; and (3) adequate information will be provided
concerning the basis and other matters relating to the securities.

Under the 1940 Act, a Fund may suspend the right of redemption or postpone
the date of payment upon redemption for any period during which the New York
Stock Exchange is closed (other than customary weekend and

19
<PAGE>

holiday closings), or during which trading on said Exchange is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (A Fund
may also suspend or postpone the recordation of the transfer of its shares upon
the occurrence of any of the foregoing conditions.)

The Funds may suspend redemption rights or postpone redemption payments (as
well as suspend the recordation of the transfer of shares) for such periods as
are permitted under the 1940 Act. The Funds may also redeem shares
involuntarily or make payment for redemption in securities or other property if
it appears appropriate to do so in light of the Funds' responsibilities under
the 1940 Act.

In addition, the Funds may redeem shares involuntarily to reimburse a Fund
for any loss sustained by reason of the failure of a shareholder to make full
payment for shares purchased by the shareholder.

All redemptions of shares of the Funds will be made in cash, except that
the commitment to redeem shares in cash extends only to redemption requests made
by each shareholder of a Fund during any 90-day period of up to the lesser of
$250,000 or 1% of the net asset value of that Fund at the beginning of such
period. This commitment is irrevocable without the prior approval of the SEC and
is a fundamental policy of the Funds that may not be changed without shareholder
approval. In the case of redemption requests by shareholders in excess of such
amounts, the Board of Trustees reserves the right to have the Funds make
payment, in whole or in part, in securities or other assets in case of an
emergency or any time a cash distribution would impair the liquidity of a Fund
to the detriment of its existing shareholders. In this event, the securities
would be valued in the same manner as the securities of that Fund are valued. If
the recipient were to sell such securities, he or she may incur brokerage or
other transactional charges.

PORTFOLIO TRANSACTIONS

Investment decisions for the Funds and for the other investment advisory
clients of the Adviser are made with a view to achieving their respective
investment objectives. Investment decisions are the product of many factors in
addition to basic suitability for the particular client involved. Thus, a
particular security may be bought or sold for certain clients even though it
could have been bought or sold for other clients at the same time. Likewise, a
particular security may be bought for one or more clients when one or more
clients are selling the security. In some instances, one client may sell a
particular security to another client. It also sometimes happens that two or
more clients simultaneously purchase or sell the same security, in which event
each day's transactions in such security are, insofar as possible, averaged as
to price and allocated between such clients in a manner which in the Adviser's
opinion is equitable to each and in accordance with the amount being purchased
or sold by each. There may be circumstances when purchases or sales of portfolio
securities for one or more clients will have an adverse effect on other clients.

The Funds have no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to policies
established by the Funds' Board of Trustees, the Adviser is primarily
responsible for portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Funds to obtain the best results
taking into account the broker-dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities. While the Adviser generally seeks
reasonably competitive spreads or commissions, the Funds will not necessarily be
paying the lowest spread or commission available. The reasonableness of such
spreads or brokerage commissions will be evaluated by comparing spreads or
commissions among brokers or dealers in consideration of the factors listed
immediately above and research services described below.

Purchases and sales of securities will often be principal transactions in
the case of debt securities and equity securities traded otherwise than on an
exchange. The purchase or sale of equity securities will frequently involve the
payment of a commission to a broker-dealer who effects the transaction on behalf
of a Fund. Debt securities normally will be purchased or sold from or to issuers
directly or to dealers serving as market makers for the securities at a net
price. Under the 1940 Act, persons affiliated with the Funds or the Sponsor are
prohibited from dealing with the Funds as a principal in the purchase and sale
of securities except in limited situations permitted by SEC regulations, unless
a permissive order allowing such transactions is obtained from the SEC.

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The Adviser may, in circumstances in which two or more broker-dealers are
in a position to offer comparable results, give preference to a dealer which has
provided statistical or other research services to the Adviser. By allocating
transactions in this manner, the Adviser is able to supplement its research and
analysis with the views and information of securities firms. These items, which
in some cases may also be purchased for cash, include such matters as general
economic and security market reviews, industry and company reviews, evaluations
of securities and recommendations as to the purchase and sale of securities.
Some of these services are of value to the Adviser in advising various of its
clients (including the Funds), although not all of these services are
necessarily useful and of value in managing the Funds. The management fee paid
by the Funds is not reduced because the Adviser and its affiliates receive such
services.

As permitted by Section 28(e) of the Securities Exchange Act of 1934 (the
"Act"), the Adviser may cause the Funds to pay a broker-dealer which provides
"brokerage and research services" (as defined in the Act) to the Adviser an
amount of disclosed commission for effecting a securities transaction for the
Funds in excess of the commission which another broker-dealer would have charged
for effecting that transaction.

Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Trustees may determine, the
Adviser may consider sales of shares of the Funds as a factor in the selection
of broker-dealers to execute portfolio transactions for the Funds.

For the year ended March 31,1997, the Equity Value Fund paid $162,097 in
brokerage commissions. The U.S. Government Fund and California Tax-Free Fund
did not pay any brokerage commissions.

For the period April 3, 1995 (commencement of investment operations) to
March 31, 1996, the Equity Value Fund paid $84,000 in brokerage commissions.
The U.S. Government Fund and California Tax-Free Fund did not pay any brokerage
commissions.

PORTFOLIO TURNOVER

Changes may be made in the portfolio consistent with the investment
objectives and policies of the Funds whenever such changes are believed to be in
the best interests of the Funds and their shareholders. Portfolio turnover rate
is, in general, the percentage computed by taking the lesser of purchases or
sales of portfolio securities (excluding securities with a maturity date of one
year or less at the time of acquisition) for the period and dividing it by the
monthly average of the market value of such securities during the period. For
purposes of this calculation, portfolio securities exclude all securities having
a maturity when purchased of one year or less.

For the year ended March 31, 1997 the Funds' annual portfolio turnover
rates were: U.S. Government Fund 11.94%; California Tax-Free Fund 14.02% and
Equity Value Fund 77.65%.

For the period April 3, 1995 (commencement of investment operations) to
March 31, 1996, the Funds' annualized portfolio turnover rates were: U.S.
Government Fund, 45.41%; California Tax-Free Fund, 93.90%; and Equity Value
Fund, 62.76%.

TAXATION

The Funds have elected to be treated and have qualified as regulated
investment companies and intend to continue to qualify to be treated as
regulated investment companies for each taxable year pursuant to the provisions
of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
To qualify as a regulated investment company, a Fund must (a) distribute to
shareholders at least 90% of its investment company taxable income (which
includes, among other items, dividends, taxable interest and the excess of net
short-term capital gains over net long-term capital losses); (b) derive in each
taxable year at least 90% of its gross income from dividends, interest, payments
with respect to securities loans and gains from the sale or other disposition of
stock, securities or foreign currencies or other income derived with respect to
its business of investing in such stock, securities or currencies; (c) derive
less than 30% of its gross income from the sale or other disposition of certain
assets (namely, (i) stock or securities; (ii) options, futures, and forward
contracts (other than those on foreign currencies), and (iii) foreign currencies
(including options, futures, and forward contacts on such currencies) not
directly related to the Fund's principal business of investing in stock or

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<PAGE>

securities (or options and futures with respect to stocks or securities)) held
less than 3 months; and (d) diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items (including receivables), U.S.
Government securities, the securities of other regulated investment companies
and other securities, with such other securities of any one issuer limited for
the purposes of this calculation to an amount not greater than 5% of the value
of the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies). In addition, a Fund earning tax-exempt interest must, in each year,
distribute at least 90% of its net tax-exempt income. By meeting these
requirements, the Funds generally will not be subject to Federal income tax on
its investment company taxable income and net capital gains which are
distributed to shareholders. If the Funds do not meet all of these Code
requirements, they will be taxed as ordinary corporations and their
distributions will be taxed to shareholders as ordinary income.

Amounts, other than tax-exempt interest, not distributed on a timely basis
in accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To prevent imposition of the excise tax, each Fund
must distribute for each calendar year an amount equal to the sum of (1) at
least 98% of its ordinary income (excluding any capital gains or losses) for the
calendar year, (2) at least 98% of the excess of its capital gains over capital
losses (adjusted for certain ordinary losses) for the one-year period ending
October 31 of such year, and ( 3) all ordinary income and capital gain net
income (adjusted for certain ordinary losses) for previous years that were not
distributed during such years. A distribution, including an "exempt-interest
dividend," will be treated as paid on December 31, of a calendar year if it is
declared by a Fund during October, November or December of that year to
shareholders of record on a date in such a month and paid by the Fund during
January of the following year. Such distributions will be taxable to
shareholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received.

Some Funds may invest in stocks of foreign companies that are classified
under the Code as passive foreign investment companies ("PFICs"). In general, a
foreign company is classified as a PFIC under the Code if at least one-half of
its assets constitutes investment-type assets or 75% or more of its gross income
is investment-type income. Under the PFIC rules, an "excess distribution"
received with respect to PFIC stock is treated as having been realized ratably
over the period during which the Fund held the PFIC stock. A Fund itself will be
subject to tax on the portion, if any, of the excess distribution that is
allocated to the Fund's holding period in prior taxable years (and an interest
factor will be added to the tax, as if the tax had actually been payable in such
prior taxable years) even though the Fund distributes the corresponding income
to shareholders. Excess distributions include any gain from the sale of PFIC
stock as well as certain distributions from a PFIC. All excess distributions are
taxable as ordinary income.

A Fund may be able to elect alternative tax treatment with respect to PFIC
stock. Under an election that currently may be available, a Fund generally would
be required to include in its gross income its share of the earnings of a PFIC
on a current basis, regardless of whether any distributions are received from
the PFIC. If this election is made, the special rules, discussed above, relating
to the taxation of excess distributions, would not apply. In addition, other
elections may become available that would affect the tax treatment of PFIC stock
held by a Fund. Each Fund's intention to qualify annually as a regulated
investment company may limit its elections with respect to PFIC stock.

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

Distributions of investment company taxable income generally are taxable to
shareholders as ordinary income. Distributions from certain of the Funds may be
eligible for the dividends-received deduction available to corporations. To the
extent dividends received by a Fund are attributable to foreign corporations, a
corporation that owns shares will not be entitled to the dividends-received
deduction with respect to its pro rata portion of such dividends, since the
dividends-received deduction is generally available only with respect to
dividends paid by domestic corporations. Proposed legislation, if enacted,
would reduce the dividends-received deduction from 70 to 50 percent.

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<PAGE>

Distributions of net long-term capital gains, if any, designated by the
Funds as long- term capital gain dividends are taxable to shareholders as long-
term capital gain, regardless of the length of time the Funds' shares have been
held by a shareholder. All distributions are taxable to the shareholder in the
same manner whether reinvested in additional shares or received in cash.
Shareholders will be notified annually as to the Federal tax status of
distributions.

Distributions by a Fund reduce the net asset value of the Fund's shares.
Should a distribution reduce the net asset value below a shareholder's cost
basis, such distribution, nevertheless, would be taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution by the Funds. The price of shares
purchased at that time includes the amount of the forthcoming distribution.
Those purchasing just prior to a distribution will receive a distribution which
nevertheless generally will be taxable to them.

Upon the taxable disposition (including a sale or redemption) of shares of
a Fund, a shareholder may realize a gain or loss depending upon his basis in his
shares. Such gain or loss generally will be treated as capital gain or loss if
the shares are capital assets in the shareholder's hands. Such gain or loss will
be long-term or short-term, generally depending upon the shareholder's holding
period for the shares. However, a loss realized by a shareholder on the
disposition of Fund shares with respect to which capital gain dividends have
been paid will, to the extent of such capital gain dividends, be treated as
long-term capital loss if such shares have been held by the shareholder for six
months or less. A loss realized on the redemption, sale or exchange of Fund
shares will be disallowed to the extent an exempt interest dividend was received
with respect to those shares if the shares have been held by the shareholder for
six months or less. Further, a loss realized on a disposition will be disallowed
to the extent the shares disposed of are replaced (whether by reinvestment of
distributions or otherwise) within a period of 61 days beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss.
Shareholders receiving distributions in the form of additional shares will have
a cost basis for Federal income tax purposes in each share received equal to the
net asset value of a share of the Funds on the reinvestment date.

The taxation of equity options is governed by Code section 1234. Pursuant
to Code section 1234, the premium received by a Fund for selling a put or call
option is not included in income at the time of receipt. If the option expires,
the premium is short-term capital gain to the Fund. If the Fund enters into a
closing transaction, the difference between the amount paid to close out its
position and the premium received is short-term capital gain or loss. If a call
option written by a Fund is exercised, thereby requiring the Fund to sell the
underlying security, the premium will increase the amount realized upon the sale
of such security and any resulting gain or loss will be a capital gain or loss,
and will be long-term or short-term depending upon the holding period of the
security. With respect to a put or call option that is purchased by a Fund, if
the option is sold any resulting gain or loss will be a capital gain or loss,
and will be long-term or short-term, depending upon the holding period of the
option. If the option expires, the resulting loss is a capital loss and is long-
term or short-term, depending upon the holding period of the option. If the
option is exercised, the cost of the option, in the case of a call option, is
added to the basis of the purchased security and in the case of a put option,
reduces the amount realized on the underlying security in determining gain or
loss.

Certain of the options, futures contracts, and forward foreign currency
exchange contracts that several of the Funds may invest in are so-called
"section 1256 contracts." With certain exceptions, gains or losses on section
1256 contracts generally are considered 60% long-term and 40% short-term capital
gains or losses ("60/40"). Also, section 1256 contracts held by a Fund at the
end of a taxable year (and, generally, for purposes of the 4% excise tax, on
October 31 of each year) are "marked-to market" with the result that unrealized
gains or losses are treated as though they were realized and the resulting gain
or loss is treated as 60/40 gain or loss. Investors should consult their own
tax advisors in this regard.

Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for Federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by a Fund. In addition, losses realized
by a Fund on a position that is part of a straddle may be deferred under the
straddle rules, rather than being taken into account in calculating the taxable
income for the taxable year in which such losses are realized. Because only a
few regulations implementing the straddle rules have been promulgated, the tax
consequences to a Fund of hedging transactions are not entirely clear. Hedging
transactions may increase the amount of short-term capital gain realized by a
Fund which is taxed as ordinary income when distributed to stockholders.

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<PAGE>

A Fund may make one or more of the elections available under the Code which
are applicable to straddles. If a Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under the rules according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.

Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount which must be distributed to
shareholders and which will be taxed to shareholders as ordinary income or long-
term capital gain may be increased or decreased substantially as compared to a
Fund that did not engage in such hedging transactions. Investors should consult
their own tax advisors in this regard.

Certain requirements that must be met under the Code in order for a Fund to
qualify as a regulated investment company, may limit the extent to which a Fund
will be able to engage in transactions in options, futures, and forward
contracts.

Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues interest, dividends or other
receivables, or accrues expenses or other liabilities denominated in a foreign
currency, and the time the Fund actually collects such receivables, or pays such
liabilities, generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain options and forward and futures contracts, gains
or losses attributable to fluctuations in the value of foreign currency between
the date of acquisition of the security or contract and the date of disposition
also are treated as ordinary gain or loss. These gains or losses, referred to
under the Code as "section 988" gains or losses, may increase, decrease, or
eliminate the amount of a Fund's investment company taxable income to be
distributed to its shareholders as ordinary income. Investors should consult
their own tax advisors in this regard.

Income received by a Fund from sources within foreign countries may be
subject to withholding and other similar income taxes imposed by the foreign
country. If more than 50% of the value of a Fund's total assets at the close of
its taxable year consists of securities of foreign corporations, the Fund will
be eligible and intends to elect to "pass-through" to its shareholders the
amount of such foreign taxes paid by the Fund. Pursuant to this election, a
shareholder would be required to include in gross income (in addition to taxable
dividends actually received) his pro rata share of the foreign taxes paid by a
Fund and would be entitled either to deduct his pro rata share of foreign taxes
in computing his taxable income or to use it as a foreign tax credit against his
U.S. Federal income tax liability, subject to limitations. No deduction for
foreign taxes may be claimed by a shareholder who does not itemize deductions,
but such a shareholder may be eligible to claim the foreign tax credit (see
below). Each shareholder will be notified within 60 days after the close of a
Fund's taxable year whether the foreign taxes paid by a Fund will "pass-through"
for that year and, if so, such notification will designate (a) the shareholder's
portion of the foreign taxes paid to each such country, and (b) the portion of
the dividend which represents income derived from foreign sources.

Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to his total foreign
source taxable income. For this purpose, if a Fund makes the election described
in the preceding paragraph, the source of the Fund's income flows through to its
shareholders. With respect to a Fund, gains from the sale of securities will be
treated as derived from U.S. sources and certain currency fluctuations gains,
including fluctuation gains from foreign currency-denominated debt securities,
receivables and payables, will be treated as ordinary income derived from U.S.
sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income (as defined for purposes of the foreign tax
credit) including foreign source passive income of a Fund. The foreign tax
credit may offset only 90% of the alternative minimum tax imposed on
corporations and individuals, and foreign taxes generally may not be deducted in
computing alternative minimum taxable income.

The Funds are required to report to the Internal Revenue Service ("IRS")
all distributions except in the case of certain exempt shareholders. All such
distributions generally are subject to withholding of Federal income tax at a
rate of 31% ("backup withholding") in the case of non-exempt shareholders if (1)
the shareholder fails to furnish the Funds with and to certify the shareholder's
correct taxpayer identification number or social security number, (2) the IRS
notifies the Funds or a shareholder that the shareholder has failed to report
properly certain interest and dividend income to the IRS and to respond to
notices to that effect, or (3) when required to do so, the shareholder fails to
certify that he is not subject to backup withholding. If the withholding
provisions are applicable, any such distributions, whether reinvested

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<PAGE>

in additional shares or taken in cash, will be reduced by the amounts required
to be withheld. Backup withholding is not an additional tax. Any amount withheld
may be credited against the shareholder's U.S. Federal income tax liability.
Investors may wish to consult their tax advisers about the applicability of the
backup withholding provisions.

The foregoing discussion relates only to Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
corporations, partnerships, trusts and estates). Distributions by the Funds also
may be subject to state and local taxes and their treatment under state and
local income tax laws may differ from Federal income tax treatment.
Distributions of a Fund which are derived from interest on obligations of the
U.S. Government and certain of its agencies and instrumentalities may be exempt
from state and local income taxes in certain states. Shareholders should consult
their tax advisers with respect to particular questions of Federal, state and
local taxation. Shareholders who are not U.S. persons should consult their tax
advisers regarding U.S. and foreign tax consequences of ownership of shares of
the Funds including the likelihood that distributions to them would be subject
to withholding of U.S. tax at a rate of 30% (or at a lower rate under a tax
treaty).

THE CALIFORNIA TAX-FREE FUND. The Fund intends to manage its portfolio so
that it will be eligible to pay "exempt-interest dividends" to shareholders.
The Fund will so qualify if, at the close of each quarter of its taxable year,
at least 50% of the value of its total assets consists of state, municipal, and
certain other securities, the interest on which is exempt from the regular
Federal income tax. To the extent that the Fund's dividends distributed to
shareholders are derived from such interest income and are designated as exempt-
interest dividends by the Fund, they will be excludable from a shareholder's
gross income for Federal income tax purposes. Exempt-interest dividends,
however, must be taken into account by shareholders in determining whether their
total incomes are large enough to result in taxation of up to 85% of their
Social Security benefits and certain railroad retirement benefits. The Fund
will inform shareholders annually as to the portion of the distributions from
the Fund which constitute exempt-interest dividends. In addition, for corporate
shareholders of each Fund, exempt-interest dividends may comprise part or all of
an adjustment to alternative minimum taxable income. Exempt-interest dividends
that are attributable to certain private activity bonds, while not subject to
the regular Federal income tax, may constitute an item of tax preference for
purposes of the alternative minimum tax.

To the extent that a Fund's dividends are derived from its investment
company taxable income (which includes interest on its temporary taxable
investments and the excess of net short-term capital gain over net long-term
capital loss), they are considered ordinary (taxable) income for Federal income
tax purposes. Such dividends will not qualify for the dividends-received
deduction for corporations. Distributions, if any, of net long-term capital
gains (the excess of net long-term capital gain over net short-term capital
loss) designated by a Fund as long-term capital gain dividends are taxable to
shareholders as long-term capital gain regardless of the length of time the
shareholder has owned shares of the Fund.

Upon redemption, sale or exchange of shares in the Fund, a shareholder will
realize a taxable gain or loss, depending on whether the gross proceeds are more
or less than the shareholder's tax basis for the shares. The discussion above
provides additional detail about the income tax consequences of disposing of
Fund shares.

Deductions for interest expense incurred to acquire or carry shares of the
Fund may be subject to limitations that reduce, defer or eliminate such
deductions. This includes limitations on deducting interest on indebtedness
properly allocable to investment property (which may include shares of the
Fund). In addition, a shareholder may not deduct a portion of interest on
indebtedness incurred or continued to purchase or carry shares of an investment
company (such as one of the Funds) paying exempt-interest dividends. Such
disallowance would be in an amount which bears the same ratio to the total of
such interest as the exempt-interest dividends bear to the total dividends,
excluding net capital gain dividends received by the shareholder. Under rules
issued by the IRS for determining when borrowed funds are considered used for
purposes of purchasing or carrying particular assets, the purchase of shares may
be considered to have been made with borrowed funds even though the borrowed
funds are not directly traceable to the purchase of shares.

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

25
<PAGE>

discount on an obligation, the interest from which is exempt from Federal income
tax, generally will constitute tax-exempt interest income.

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

Under California law, a mutual fund which qualifies as a regulated
investment company generally must have at least 50% of its total assets in
California state and local issues at the end of each quarter of its taxable year
in order to be eligible to pay dividends which will be exempt from California
personal income tax. Generally, shareholders who are California residents will
not incur California personal income tax on the amount of exempt-interest
dividends received by them from a Fund and derived from California state and
local issues, whether taken in cash or reinvested in additional shares. Gain on
the sale or redemption of Fund shares is subject to California personal
income tax.

Shareholders will normally be subject to California personal income tax on
dividends paid from income derived from taxable securities and other taxable
investments, and from securities issued by states other than California and on
distribution of capital and other taxable gains.

Each Fund will be required to report to the IRS all distributions of
investment company taxable income and net capital gains and gross proceeds from
the redemption or exchange of the Fund's shares, except in the case of certain
exempt shareholders. All such distributions and proceeds from the redemption or
exchange of the Fund's shares may be subject to withholding of Federal income
tax at the rate of 31% in the case of non-exempt shareholders who fail to
furnish a Fund with their taxpayer identification numbers and with required
certifications regarding their status under Federal income tax laws.

It is important to note that although the deductible "environmental tax"
expired for taxable years beginning on or after January 1, 1996, proposed
legislation, if enacted, would extend the applicability of such tax to taxable
years beginning after December 31, 1996 and before January 1, 2003. This tax,
as proposed, would continue to be 0.12% of a corporation's modified alternative
minimum taxable income in excess of $2 million. Additionally, the environmental
tax would continue to be imposed even if the corporation is not required to pay
an alternative minimum tax because the corporation's regular income tax
liability exceeds its minimum tax liability. To the extent that exempt-interest
dividends paid by a Fund are included in alternative minimum taxable income,
corporate shareholders could be subject to the environmental tax, if the
proposed extension of such tax is enacted.

Opinions relating to the validity of municipal securities and the exemption
of interest thereon from Federal income tax are rendered by bond counsel to the
issuers. The Funds, the Adviser and its affiliates, and the Funds' counsel make
no review of proceedings relating to the issuance of state or municipal
securities on the bases of such opinions.

Persons who may be "substantial users" (or "related persons" of substantial
users) of facilities financed by private activity bonds should consult their tax
advisers before purchasing shares of one of these Funds since the acquisition of
shares of the Fund may result in adverse tax consequences to them. In addition,
all shareholders of a Fund should consult their tax advisers about the tax
consequences to them of their investments in the Fund.

Changes in the tax law, including provisions relating to tax-exempt income,
frequently come under consideration. If such changes are enacted, the tax
consequences arising from an investment in the California Tax-Free Fund may be
affected. Since the Funds do not undertake to furnish tax advice, it is
important for shareholders to consult their tax advisers regularly about the tax
consequences to them of investing in one or more of the Funds.

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OTHER INFORMATION

CAPITALIZATION

The Trust is a Delaware business trust established under a Declaration of
Trust dated January 6, 1995 and currently consists of four separately managed
portfolios, all of which are discussed in this SAI.

The capitalization of the Funds consists solely of an unlimited number of
shares of beneficial interest with a par value of $0.001 each. The Board of
Trustees may establish additional Funds (with different investment objectives
and fundamental policies) at any time in the future. Establishment and offering
of additional Funds will not alter the rights of the shareholders. When issued,
shares are fully paid, non-assessable, redeemable and freely transferable.
Shares do not have preemptive rights or subscription rights. In any liquidation
of a Fund, each shareholder is entitled to receive his pro rata share of the net
assets of that Fund.

In the event of a liquidation or dissolution of the Funds or an individual
Fund, shareholders of a particular Fund would be entitled to receive the assets
available for distribution belonging to such Fund, and a proportionate
distribution, based upon the relative net asset values of the respective Funds,
of any general assets not belonging to any particular Fund which are available
for distribution. Shareholders of a Fund are entitled to participate in the net
distributable assets of the particular Fund involved in liquidation, based on
the number of shares of the Fund that are held by each shareholder.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of October 30, 1997, to the knowledge of the Administrator, the Officers
and Trustees of the Trust, as a group, own less than 1% of the outstanding
voting securities of each Fund.

As of October 30, 1997, the following persons were known by the Fund to own
of record 5% or more of the outstanding voting securities of each Fund.

Name and Address Percentage of
of Holder of Record Shares Outstanding
------------------- ------------------
U.S. Government Fund
--------------------

SBT & CO 7.93%
P.O. Box 8469
La Jolla, CA 92038-8469

J.P. Morgan and William T. Stephens, Jr.19.60%
TRST Sefton CRUT DTD 08/26/94
333 S. Hope St. 35th Floor
Los Angeles, CA 90071-1406

J.P. Morgan and William T. Stephens, Jr. 13.02%
TRST Thomas & Donna Sefton
CRUT DTD 08/26/94
333 S. Hope St. 35th Floor
Los Angeles, CA 90071-1406

CORELINK Financial, Inc. 26.13%(1)
1855 Gateway Blvd.
P.O. Box 4054
Concord, CA 94524

27
<PAGE>

SBT & CO 29.08%(1)
Reinvest Account
P.O. Box 8469
La Jolla, CA 92038-8469

California Tax-Free Fund
------------------------

SBT & CO 9.88%
P.O. Box 8469
La Jolla, CA 92038-8469

CORELINK Financial, Inc. 58.43%(1)
1855 Gateway Blvd.
P.O. Box 4054
Concord, CA 94524

SBT & CO 25.24%(1)
Reinvest Account
P.O. Box 8469
La Jolla, CA 92038-8469

Equity Value Fund
-----------------

SBT & CO
6.31%
P.O. Box 8469
La Jolla, CA 92038-8469

CORELINK Financial, Inc. 45.90%(1)
1855 Gateway Blvd.
P.O. Box 4054
Concord, CA 94524

SBT & CO 40.61%(1)
Reinvest Account
P.O. Box 8469
La Jolla, CA 92038-8469

Small Company Value Fund
------------------------

CORELINK Financial, Inc. 67.57%(1)
1855 Gateway Blvd.
P.O. Box 4054
Concord, CA 94524

SBT & CO 27.19%(1)
Reinvest Account
P.O. Box 8469
La Jolla, CA 92038-8469

- ---------------
(1) May be deemed to "control" the Fund as that term is defined
under the 1940 Act.

28
<PAGE>

VOTING RIGHTS

Under the Declaration of Trust, the Funds are not required to hold annual
meetings of each Fund's shareholders to elect Trustees or for other purposes. It
is not anticipated that the Funds will hold shareholders' meetings unless
required by law or the Declaration of Trust. In this regard, the Trust will be
required to hold a meeting to elect Trustees to fill any existing vacancies on
the Board if, at any time, fewer than a majority of the Trustees have been
elected by the shareholders of the Funds. In addition, the Declaration of Trust
provides that the holders of not less than two-thirds of the outstanding shares
of the Funds may remove persons serving as Trustee either by declaration in
writing or at a meeting called for such purpose. The Trustees are required to
call a meeting for the purpose of considering the removal of persons serving as
Trustee if requested in writing to do so by the holders of not less than 10% of
the outstanding shares of the Funds. To the extent required by applicable law,
the Trustees shall assist shareholders who seek to remove any person serving as
Trustee.

The Funds' shares do not have cumulative voting rights, so that the holders
of more than 50% of the outstanding shares may elect the entire Board of
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees.

Shareholders of all of the Funds, as well as those of any other investment
portfolio now or hereafter offered by the Fund, will vote together in the
aggregate and not separately on a Fund-by-Fund basis, except as otherwise
required by law or when permitted by the Board of Trustees. Rule 18f-2 under the
1940 Act provides that any matter required to be submitted to the holders of the
outstanding voting securities of an investment company such as the Funds shall
not be deemed to have been effectively acted upon unless approved by the holders
of a majority of the outstanding shares of each Fund affected by the matter. A
Fund is affected by a matter unless it is clear that the interests of each Fund
in the matter are substantially identical or that the matter does not affect any
interest of the Fund. Under the Rule, the approval of an investment advisory
agreement or any change in a fundamental investment policy would be effectively
acted upon with respect to a Fund only if approved by a majority of the
outstanding shares of such Fund. However, the Rule also provides that the
ratification of the appointment of independent auditors, the approval of
principal underwriting contracts and the election of trustees may be effectively
acted upon by shareholders of the Funds voting together in the aggregate without
regard to a particular Fund.

CUSTODIAN AND TRANSFER AGENT

Effective February 13, 1997 Union Bank of California, ("UBC") has been
appointed as the Funds' custodian to replace State Street Bank and Trust
Company. Pursuant to a Custodian Agreement, UBC is responsible for holding the
Funds' cash and portfolio securities.

Effective January 1, 1997, BISYS Fund Services, Inc. replaced State Street
Bank and Trust Company ("SSB") as Transfer Agent for the Funds. For the year
ended March 31, 1997, BISYS Fund Services, Inc. and SSB collectively earned
$40,021, $37,358 and $45,336 for performing transfer agency and custodian
services provided to the U.S. Government Fund, California Tax-Free Fund and
Equity Value Fund, respectively. For the period April 3, 1995 (commencement of
investment operations) to March 31, 1996, the Trust paid, $29,448, $35,613 and
$31,387 for transfer agency and custodian services provided to the U.S.
Government Fund, California Tax-Free Fund and Equity Value Fund.

YIELD AND PERFORMANCE INFORMATION

The Funds may, from time to time, include their yields, effective yields,
tax equivalent yields and average annual total returns in advertisements or
reports to shareholders or prospective investors.

Quotations of yield for the Funds will be based on the investment income
per share earned during a particular 30-day period, less expenses accrued during
a period ("net investment income") and will be computed by dividing net
investment income by the maximum offering price per share on the last day of the
period, according to the following formula:

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

29
<PAGE>

where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of any
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.

For the 30 day period ending March 31, 1997, the U.S. Government Fund's
yield was 5.68%.

Quotations of tax-equivalent yield for the California Tax-Free Fund will be
calculated by: (a) dividing the portion of the Fund's yield that is exempt from
both federal and California state income taxes by one minus a stated combined
federal and state income tax rate; (b) dividing the portion of the Fund's yield
that is exempt from federal income tax only by one minus a stated federal income
tax rate, and (c) adding the figures resulting from (a) and (b) above to that
portion, if any, of the Fund's yield that is not exempt from federal income tax.

Based on the foregoing calculations, the yield and tax-equivalent yield of
the California Tax-Free Fund for the 30 day period ended March 31, 1997 were
4.50% and 7.45%. Tax-equivalent yield is based upon the combined state and
federal tax rate assumptions of 37.3% (assuming a 28% federal tax rate and a
9.3% California tax rate).

Quotations of average annual total return will be expressed in terms of the
average annual compounded rate of return of a hypothetical investment in a Fund
over periods of 1, 5 and 10 years (up to the life of the Fund), calculated
pursuant to the following formula:

n
P ( l + T ) = ERV

where: P = a hypothetical initial payment of $1,000.
T = the average annual total return.
n = the number of years.
ERV = the ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period.

All total return figures will reflect a proportional share of Fund expenses
(net of certain reimbursed expenses) on an annual basis, and will assume that
all dividends and distributions are reinvested when paid.

The total return for the Small Company Value Fund for the period June 30,
1997 (commencement of operations) to September 30, 1997 was 10.32%.

For the fiscal year ended March 31, 1997, the total return for the U.S.
Government Fund, the California Tax-Free Fund and the Equity Value Fund was
3.31%, 5.69%, and 23.15%, respectively.

For the period April 3, 1995 (commencement of investment operations)
through March 31, 1997, the average annual total return for the U.S. Government
Fund, the California Tax-Free Fund and the Equity Value Fund was 6.16%, 6.17%
and 24.80%, respectively.

Quotations of yield and total return will reflect only the performance of a
hypothetical investment in the Funds during the particular time period shown.
Yield and total return for the Funds will vary based on changes in the market
conditions and the level of a Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future.

In connection with communicating its yields or total return to current or
prospective shareholders, the Funds also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
other unmanaged indices which may assume reinvestment of dividends but generally
do not reflect deductions for administrative and management costs.

Performance information for the Funds may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index, Dow Jones
Industrial Average, or other unmanaged indices so that investors may

30
<PAGE>

compare the Funds' results with those of a group of unmanaged securities widely
regarded by investors as representative of the securities markets in general;
(ii) other groups of mutual funds tracked by Lipper Analytical Services, a
widely used independent research firm which ranks mutual funds by overall
performance, investment objectives, and assets, or tracked by other services,
companies, publications, or persons who rank mutual funds on overall performance
or other criteria; and (iii) the Consumer Price Index (measure for inflation) to
assess the real rate of return from an investment of dividends but generally do
not reflect deductions for administrative and management costs and expenses.

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP serves as the independent accountants for the Funds.
Price Waterhouse LLP provides audit services, tax return preparation and
assistance and consultation in connection with review of SEC filings. Price
Waterhouse LLP's address is 950 Seventeenth Street, Suite 2500, Denver, Colorado
80202.

REGISTRATION STATEMENT

This SAI and the Prospectus do not contain all the information included in
the Funds' Registration Statement filed with the SEC under the Securities Act of
1933 with respect to the securities offered hereby, certain portions of which
have been omitted pursuant to the rules and regulations of the SEC. The
Registration Statement, including the exhibits filed therewith, may be examined
at the office of the SEC in Washington, D.C.

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

FINANCIAL STATEMENTS

The audited financial statements for the U.S. Government Fund, California
Tax-Free Fund and Equity Value Fund for the period ended March 31, 1997 are
incorporated herein by reference to the Trust's Annual Report to Shareholders
dated March 31, 1997. The unaudited financial statements for the Small Company
Value Fund for the period ended September 30, 1997 are included herein. The
March 31, 1997 financial statements are incorporated herein in reliance upon the
report of Price Waterhouse LLP, independent accountants, given on the authority
of such firm as experts in auditing and accounting. The Annual Report to
shareholders, which contains the referenced financial statements, is available
upon request and without charge.

31
<PAGE>

SEFTON U.S. GOVERNMENT FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997
(Unaudited)

ASSETS:
Investments, at value (cost-$30,581,893) $31,556,415
Repurchase Agreements (cost - $2,087,000) 2,087,000
Interest receivable 501,911
Receivable for capital shares issued 409,989
Organizational costs, net of accumulated amortization 20,221
Prepaid expenses 1,146
------------------------------------------------------------------------------

Total Assets 34,576,682
------------------------------------------------------------------------------

LIABILITIES:
Payables:
Investment advisory fees 13,578
Administration fees 559
Shareholder servicing fees 1,008
Dividends 150,275
Legal and audit fees 15,962
Custodian and accounting fees 9,726
Printing costs 5,117
Other 2,296
------------------------------------------------------------------------------

Total Liabilities 198,521
------------------------------------------------------------------------------

NET ASSETS: 34,378,161
------------------------------------------------------------------------------
------------------------------------------------------------------------------

COMPOSITION OF NET ASSETS
Paid-in capital 33,458,419
Undistributed (distributions in excess of) net investment income 34,961
Accumulated net realized gain (loss) from investment transactions (89,741)
Net unrealized appreciation (depreciation) of investments 974,522
------------------------------------------------------------------------------

NET ASSETS: $34,378,161
------------------------------------------------------------------------------
------------------------------------------------------------------------------

Shares of beneficial interest outstanding 2,761,415
------------------------------------------------------------------------------

Net asset value, offering, and redemption price per share $ 12.45
------------------------------------------------------------------------------
------------------------------------------------------------------------------

See notes to financial statements.
<PAGE>

SEFTON U.S. GOVERNMENT FUND
SCHEDULE OF PORTFOLIO INVESTMENTS SEPTEMBER 30, 1997
(Unaudited)
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
------ ----------- -----
<S> <C> <C>
CORPORATE BONDS (10.8%)
Finance (4.6%)
500,000 Integra Bank, MTN, 6.55%, 6/15/00 $ 502,932
500,000 Lehman Brothers Holdings, 8.75%, 5/15/02 541,393
500,000 Salomon Brothers Inc., 9.25%, 5/1/01 543,255
------------------
1,587,580
------------------
Industrial (6.2%)
1,000,000 Boise Cascade Co., 7.70%, 1/30/03, Series A 1,046,311
1,000,000 Royal Caribbean, 8.25%, 4/1/05 1,085,503
------------------
2,131,814
------------------
TOTAL CORPORATE BONDS 3,719,394
------------------
U.S. GOVERNMENT AGENCIES (28.7%)
500,000 Federal Home Loan Mortgage Corp., 8.63%, 11/29/04 520,183
875,000 Federal Home Loan Mortgage Corp., 8.53%, 2/2/05 915,041
653,842 Federal Home Loan Mortgage Corp., 7.50%, 7/1/09, Pool #E00326 671,476
1,435,785 Federal Home Loan Mortgage Corp., 7.50%, 4/1/14, Pool #C90060 1,476,934
901,399 Federal Home Loan Mortgage Corp., 7.00%, 4/1/16, Pool #C90133 911,603
2,041,000 Federal Home Loan Mortgage Corp., 6.10%, 11/15/16, Series 1501, 2,041,387
Class F, CMO
778,686 Federal National Mortgage Association, 7.00%, 5/1/14, Pool 787,486
#190783
646,209 Federal National Mortgage Association, 8.00%, 1/1/15, Pool 670,933
#250232
1,869,356 Federal National Mortgage Association, 6.50%, 6/1/16, Pool 1,856,757
------------------
#368930
TOTAL U.S. GOVERNMENT AGENCIES 9,851,800
------------------
U.S. TREASURY BONDS (3.2%)
1,000,000 7.25%, 5/15/16 1,086,251
------------------
TOTAL U.S. TREASURY BONDS 1,086,251
------------------
U.S. TREASURY NOTES (46.5%)
1,000,000 7.75%, 2/15/01 1,055,313
1,500,000 6.25%, 10/31/01 1,515,001
3,000,000 7.50%, 5/15/02 3,180,939
2,200,000 6.25%, 2/15/03 2,222,002
2,000,000 7.25%, 8/15/04 2,128,126
2,000,000 7.88%, 11/15/04 2,200,626
2,000,000 7.50%, 2/15/05 2,160,626
1,500,000 6.50%, 10/15/06 1,532,344
------------------
TOTAL U.S. TREASURY NOTES 15,994,977
------------------
U.S. TREASURY STRIPS (2.6%)
4,000,000 8/15/20 903,840
------------------
TOTAL U.S. TREASURY STRIPS 903,840
------------------
REPURCHASE AGREEMENTS (6.1%)
2,087,000 Union Bank Of California Repurchase Agreement, 5.75%, dated 2,087,000
9/30/97 and maturing 10/1/97, collaterialized by U.S. Treasury ------------------
Notes, 5.38 - 5.63%, due 10/31/97 - 11/30/97 with a value of
$2,177,586.
TOTAL REPURCHASE AGREEMENTS 2,087,000
------------------
CASH SWEEP ACCOUNT (0.0%)
153 Union Bank Of California 153
------------------
TOTAL CASH SWEEP ACCOUNT 153
------------------

TOTAL INVESTMENTS (COST $32,668,893) - 97.9% 33,643,415
OTHER ASSETS IN EXCESS OF LIABILITIES 2.1% 734,746
------------------
TOTAL NET ASSETS - 100.0% $ 34,378,161
------------------
------------------

- ----------------
Percentages indicated are based on net assets of $34,378,161.

CMO -- Collaterialized Mortgage Obligations
MTN -- Medium Term Note
</TABLE>
<PAGE>

SEFTON U.S. GOVERNMENT FUND
STATEMENT OF OPERATIONS
For the period ended September 30, 1997
(Unaudited)

INVESTMENT INCOME:
Interest income $1,065,980
- --------------------------------------------------------------------------------

Total Investment Income 1,065,980
- --------------------------------------------------------------------------------

EXPENSES:
Investment advisory fees 95,468
Administration fees 27,724
Shareholder servicing fees 2,053
Fund Accounting fees 16,361
Legal fees 6,763
Audit fees 13,125
Custodian fees 7,917
Amortization of organization costs 4,024
Transfer Agency fees 2,480
Printing costs 3,101
Insurance costs 2,475
Registration and filing fees 3,860
Trustees' fees and expenses 2,664
Other 727
- --------------------------------------------------------------------------------

Total expenses 188,742
- --------------------------------------------------------------------------------

Expenses waived by:
Investment Adviser (23,625)
Administrator (3,857)
- --------------------------------------------------------------------------------

Net Expenses 161,260
- --------------------------------------------------------------------------------

NET INVESTMENT INCOME 904,720
- --------------------------------------------------------------------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investment transactions (13,463)
Net change in unrealized appreciation (depreciation) 1,135,486
- --------------------------------------------------------------------------------

NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 1,122,023
- --------------------------------------------------------------------------------

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 2,026,743
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

See notes to financial statements.

<PAGE>

SEFTON U.S. GOVERNMENT FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
(Unaudited)

For the Period Ended For the Year Ended
September 30, 1997 March 31, 1997
<S> <C> <C>
FROM INVESTMENT ACTIVITIES
Net investment income (loss) 904,720 1,246,503
Net realized gain (loss) from investment transactions (13,463) (75,863)
Net change in unrealized appreciation (depreciation) 1,135,486 (542,430)
-------------------- ------------------
Net increase (decrease) in net assets resulting from operations 2,026,743 628,210
-------------------- ------------------
Dividends to shareholders from net investment income (904,720) (1,246,412)
Distributions to shareholders from net realized gain from
investment transactions 0 (106,341)
-------------------- ------------------

Change in net assets from investment activities 1,122,023 (724,543)
-------------------- ------------------
FROM BENEFICIAL INTEREST TRANSACTIONS
Proceeds from sale of shares 3,468,860 16,373,936
Net asset value of shares issued to shareholders from reinvestment
of dividends and distributions 551,283 325,070
-------------------- ------------------
4,020,143 16,699,006
Cost of shares redeemed (826,081) (5,008,735)
-------------------- ------------------
Change in net assets from beneficial interest transactions 3,194,062 11,690,271
-------------------- ------------------
NET INCREASE (DECREASE) IN NET ASSETS 4,316,085 10,965,728

NET ASSETS:
Beginning of period 30,062,076 19,096,348
-------------------- ------------------
End of period 34,378,161 30,062,076
-------------------- ------------------
-------------------- ------------------
</TABLE>

See notes to financial statements.

<PAGE>

SEFTON U.S. GOVERNMENT FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest
outstanding throughout the periods indicated:

For the Period Ended For the Year Ended For the Period Ended
September 30, 1997 March 31, 1997 March 31, 1996 (1)
-------------------- ------------------ --------------------
(Unaudited)
<S> <C> <C> <C>
Net asset value - beginning of period 12.01 12.35 12.00

Income from investment operations
Net investment income 0.35 0.69 0.71
Net realized and unrealized gain from investment transactions 0.44 (0.29) 0.37
-------------------- ------------------ --------------------
Total income from investment operations 0.79 0.40 1.08
-------------------- ------------------ --------------------
Dividends and distributions to shareholders
Dividends from net investment income (0.35) (0.69) (0.71)
Distributions from net realized gain from investment transactions 0.00 (0.05) (0.02)
-------------------- ------------------ -------------------
Total Dividends and distributions (0.35) (0.74) (0.73)
-------------------- ------------------ -------------------
-------------------- ------------------ -------------------
Net asset value - end of period 12.45 12.01 12.35
-------------------- ------------------ -------------------
-------------------- ------------------ -------------------
Total return 6.64%(2) 3.31% 9.06%(2)

Ratios/Supplemental Data:

Net assets, end of period (000) $34,378 $30,062 $19,096

Ratio of expenses to average net assets 1.01%(3) 1.09% 1.02%(3)

Ratio of net investment income to average net assets 5.68%(3) 5.64% 5.68%(3)

Ratio of expenses to average net assets without fee waivers 1.19%(3) 1.39% 1.39%(3)

Ratio of net investment income to average net assets without fee waivers 5.50%(3) 5.34% 5.31%(3)

Portfolio turnover rate (4) 3.29% 11.94% 45.41%

(1) Fund commenced investment operations April 3, 1995
(2) Total return is not annualized.
(3) Annualized.
(4) A portfolio turnover rate is, in general, the percentage computed by taking
the lesser of purchases or sales of portfolio securities (excluding securities
with maturity dates of one year or less at the time of acquisition) for the period
and dividing it by the monthly average of the market value of such securities
during the period. Purchases and sales of investment securities (excluding
short-term securities) for the year ended September 30, 1997 were
$4,920,315 and $966,189, respectively.
</TABLE>

See notes to financial statements.
<PAGE>

SEFTON CALIFORNIA TAX-FREE FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997
(Unaudited)

ASSETS:
Investments, at value (cost-$36,409,505) $38,348,104
Cash 88,572
Interest receivable 622,739
Receivable for capital shares sold 56,886
Organizational costs, net of accumulated amortization 20,221
Prepaid expenses 12,233
-----------------------------------------------------------------------------

Total Assets 39,148,755
-----------------------------------------------------------------------------

LIABILITIES:
Payables:
Investment advisory fees 14,315
Administration fees 640
Dividends 142,973
Legal and audit fees 18,355
Custodian and accounting fees 9,646
Printing costs 9,238
Other 1,252
-----------------------------------------------------------------------------

Total Liabilities 196,419
-----------------------------------------------------------------------------

NET ASSETS: 38,952,336
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------

COMPOSITION OF NET ASSETS
Paid-in capital 36,801,935
Undistributed (distributions in excess of) net investment income 3,609
Accumulated net realized gain (loss) from investment transactions 208,193
Net unrealized appreciation (depreciation) of investments 1,938,599
-----------------------------------------------------------------------------

NET ASSETS: $38,952,336
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------

Shares of beneficial interest outstanding 3,062,667
-----------------------------------------------------------------------------

Net asset value, offering, and redemption price per share $ 12.72
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------

See notes to financial statements.
<PAGE>

<TABLE>
<CAPTION>
SEFTON CALIFORNIA TAX-FREE FUND
SCHEDULE OF PORTFOLIO INVESTMENTS SEPTEMBER 30, 1997
(Unaudited)
SHARES
OR MOODY'S/S&P
PRINCIPAL SECURITY RATINGS MARKET
AMOUNT DESCRIPTION (UNAUDITED) VALUE
------ ----------- ----------- ------
<S> <C> <C>
CERTIFICATE OF PARTICIPATION (4.2%)
California (4.2%)
1,500,000 West Covina, California Hospital, Certificate of Participation, A2/A $ 1,639,770
6.50%, 8/15/14, Callable 8/15/04 @ 102 ---------
TOTAL CERTIFICATE OF PARTICIPATION 1,639,770
---------
GENERAL OBLIGATION BONDS (8.0%)
California (8.0%)
1,325,000 California State, 6.25%, 4/1/08 A1/A+ 1,501,941
1,500,000 San Francisco City & County Public Safety, 6.50%, 6/15/08, Aaa/AAA 1,607,100
Callable 6/15/01 @ 100, FGIC ---------

3,109,041
---------
TOTAL GENERAL OBLIGATION BONDS 3,109,041
---------
LEASE REVENUE BONDS (4.2%)

California (4.2%)
1,000,000 California State Public Works Board University, 5.25%, 12/1/08 Aaa/AAA 1,053,530
500,000 California State Public Works Board University, 6.63%, 10/1/10, Aaa/A 564,380
AMBAC -------

1,617,910
---------
TOTAL LEASE REVENUE BONDS 1,617,910
---------
REVENUE BONDS (82.0%)
California (82.0%)
1,690,000 California Educational Facilities Authority, Pomona College, Aa1/AA+ 1,823,578
6.13%, 2/15/08, Callable 2/15/02 @ 102
1,500,000 California Educational Facilities Authority, Santa Clara A1/NR 1,651,035
University, 6.25%, 2/1/16, Callable 2/1/02 @ 102
1,500,000 California Health Facilities Finance Authorities -- Scripps, Aaa/AAA 1,603,740
6.25%, 10/1/13, Callable 10/1/01 @ 102, MBIA
1,000,000 California Health Facilities Finance Authorities -- Sutter, Aaa/AAA 1,052,970
7.00%, 1/1/09, Callable 1/1/99 @102, MBIA
1,460,000 California Housing Finance Agency, Series F, 5.95%, 8/1/14, Aaa/AAA 1,517,144
Callable 8/1/05 @ 102, MBIA
800,000 California Housing Finance Agency, Series L, 5.90%, 8/1/17, Aaa/AAA 828,736
Callable 2/1/06 @ 102, MBIA
200,000 California Pollution Control Finance Authority Southern P-1/A-1 200,000
California Edison Series B, 3.85% 2/28/08, (1)
1,000,000 Los Angeles, California, Waste Water Systems, Series-B, 6.25%, Aaa/AAA 1,078,140
6/1/12, Callable 6/1/02 @ 102, AMBAC
1,500,000 M-S-R Pubic Power Agency, California San Juan Project, Series-F, Aaa/AAA 1,576,605
6.00%, 7/1/20, Callable 7/1/03 @ 102, AMBAC
1,700,000 Marin California Municipal Water District, 5.55%, 7/1/13, A1/AA 1,725,500
Callable 7/1/03 @ 102
1,000,000 Mountain View California, Shoreline Regional Park, 5.50%, 8/1/21, Aaa/AAA 1,005,600
Callable 8/1/06 @ 102, MBIA
1,000,000 Oakland California, 5.88%, 6/15/19, Callable 6/15/05 @ 102, FSA Aaa/AAA 1,040,030
1,000,000 Port Of Oakland, 5.60%, 11/1/19, Callable 11/01/07 @ 102, MBIA Aaa/AAA 1,019,310
2,000,000 Rancho California, Water District Financing Authority, 5.88%, Aaa/AAA 2,176,180
11/1/10, Callable 11/1/05 @ 102, FGIC
1,500,000 San Diego Regional Transportation Commission, California Sales Aaa/AAA 1,561,005
Tax, Series A, 5.00%, 4/1/07, FGIC
1,800,000 San Francisco Airport, California, City/County, 5.38%, 5/1/17, Aaa/AAA 1,804,950
Callable 5/1/02 @ 102, MBIA
1,500,000 San Francisco Bay Area Rapid Transit, Sales Tax Revenue, 5.50%, Aaa/AAA 1,529,070
7/1/15, Callable 7/1/05 @ 101, FGIC
1,500,000 San Francisco Port Commission, 5.90%, 7/1/09, Callable 7/1/04 @ A/BBB+ 1,560,105
102
1,500,000 San Francisco, California, City/County, Public Utility Commission Aa/AA- 1,563,135
Water, 6.00%, 11/1/15, Callable 11/1/02 @ 100
1,500,000 San Jose-Santa Clara Water District Financing, 5.38%, 11/15/15, Aaa/AAA 1,513,305

<PAGE>

Callable 11/15/05 @ 101, FGIC
1,000,000 Stockton, California, Health Facilities, Dameron Hospital Assoc., NR/BBB+ 1,009,730
Series A, 5.35%, 12/1/09, Callable 12/1/07 @ 102
500,000 Stockton, California, Health Facilities, Dameron Hospital Assoc., NR/BBB+ 503,945
Series A, 5.45%, 12/1/10, Callable 12/1/07 @ 102
1,000,000 Tulare California Sewer Revenue, 5.70%, 11/15/15, Callable Aaa/AAA 1,047,630
11/15/06 @ 102, MBIA
1,500,000 University California Revenue Series-B, 6.30%, 9/1/15 NR/A 1,589,940
---------
31,981,383
----------
TOTAL REVENUE BONDS 31,981,383
----------

TOTAL INVESTMENTS (COST $36,409,505) - 98.4% 38,348,104
OTHER ASSETS IN EXCESS OF LIABILITIES 1.6% 604,232
-------
TOTAL NET ASSETS - 100.0% $ 38,952,336
----------
----------
</TABLE>
________________
Percentages indicated are based on net assets of $38,952,336.
(1) Floating rate security - rate disclosed as of September 30, 1997.

AMBAC - American Municipal Bond Assurance Corporation.
FGIC - Financial Guaranty Insurance Company.
FSA - Financial Security Assurance Corporation.
MBIA - Municipal Bond Insurance Company.

<PAGE>

SEFTON CALIFORNIA TAX-FREE FUND
STATEMENT OF OPERATIONS
For the period ended September 30, 1997
(Unaudited)

INVESTMENT INCOME:
Interest income $1,033,087
------------------------------------------------------------------------------

Total Investment Income 1,033,087
------------------------------------------------------------------------------

EXPENSES:
Investment advisory fees 112,610
Administration fees 32,711
Shareholder servicing fees 40
Fund Accounting fees 19,572
Legal fees 6,125
Audit fees 15,017
Custodian fees 6,643
Amortization of organization costs 4,024
Transfer Agency fees 6,165
Printing costs 3,279
Insurance costs 2,009
Registration and filing fees 1,006
Trustees' fees and expenses 3,673
Other 1,093
------------------------------------------------------------------------------

Total expenses 213,967
------------------------------------------------------------------------------

Expenses waived by:
Investment Adviser (32,711)
Administrator (4,559)
------------------------------------------------------------------------------

Net Expenses 176,697
------------------------------------------------------------------------------

NET INVESTMENT INCOME 856,390
------------------------------------------------------------------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investment transactions 0
Net change in unrealized appreciation (depreciation) 1,366,181
------------------------------------------------------------------------------

NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 1,366,181
------------------------------------------------------------------------------

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 2,222,571
------------------------------------------------------------------------------
------------------------------------------------------------------------------

See notes to financial statements.
<PAGE>

SEFTON CALIFORNIA TAX-FREE FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>

For the Period Ended For the Year Ended
September 30, 1997 March 31, 1997
<S> <C> <C>
FROM INVESTMENT ACTIVITIES
Net investment income (loss) 856,390 2,058,949
Net realized gain (loss) from investment transactions 0 277,205
Net change in unrealized appreciation (depreciation) 1,366,181 66,683
----------------- ------------------
Net increase (decrease) in net assets resulting from operations 2,222,571 2,402,837
----------------- ------------------
Dividends to shareholders from net investment income (856,390) (2,058,315)
Distributions to shareholders from net realized gain from
investment transactions 0 (69,012)
----------------- ------------------

Change in net assets from investment activities 1,366,181 275,510
----------------- ------------------

FROM BENEFICIAL INTEREST TRANSACTIONS
Proceeds from sale of shares 2,393,169 7,705,704
Net asset value of shares issued to shareholders from reinvestment
of dividends and distributions 734,599 271,084
----------------- ------------------

3,127,768 7,976,788
Cost of shares redeemed (1,045,992) (15,340,540)
----------------- ------------------

Change in net assets from beneficial interest transactions 2,081,776 (7,363,752)
----------------- ------------------
NET INCREASE (DECREASE) IN NET ASSETS 3,447,957 (7,088,242)

NET ASSETS:
Beginning of period 35,504,379 42,592,621
----------------- ------------------
End of period 38,952,336 35,504,379
----------------- ------------------
----------------- ------------------
</TABLE>

See notes to financial statements.
<PAGE>

SEFTON CALIFORNIA TAX-FREE FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest
outstanding throughout the period indicated:
<TABLE>
<CAPTION>

For the Period Ended For the Year Ended For the Period Ended
September 30, 1997 March 31, 1997 March 31, 1996 (1)
(Unaudited)
------------------ -------------- ------------------
<S> <C> <C> <C>
Net asset value - beginning of period 12.26 12.19 12.00

Income from investment operations
Net investment income 0.29 0.59 0.58
Net realized and unrealized gain from investment transactions 0.46 0.09 0.20
-------------- -------------- ---------------
Total income from investment operations 0.75 0.68 0.78
-------------- -------------- ---------------

Dividends and distributions to shareholders
Dividends from net investment income (0.29) (0.59) (0.58)
Distributions from net realized gain from investment transactions 0.00 (0.02) (0.01)
-------------- -------------- ---------------

Total Dividends and distributions (0.29) (0.61) (0.59)
-------------- -------------- ---------------
-------------- -------------- ---------------

Net asset value - end of period 12.72 12.26 12.19
-------------- -------------- ---------------
-------------- -------------- ---------------

Total return 6.14%(2) 5.69% 6.60%(2)

Ratios/Supplemental Data:

Net assets, end of period (000) $38,952 $35,504 $42,593

Ratio of expenses to average net assets 0.94%(3) 0.88% 0.83%(3)

Ratio of net investment income to average net assets 4.56%(3) 4.83% 4.83%(3)

Ratio of expenses to average net assets without fee waivers 1.14%(3) 1.17% 1.16%(3)

Ratio of net investment income to average net assets without fee waivers 4.36%(3) 4.54% 4.51%(3)

Portfolio turnover rate (4) 0.00% 14.52% 93.90%
</TABLE>

(1) Fund commenced investment operations April 3, 1995
(2) Total return is not annualized.
(3) Annualized.
(4) A portfolio turnover rate is, in general, the percentage computed by
taking the lesser of purchases or sales of portfolio securities
(excluding securities with maturity dates of one year or less at the time
of acquisition) for the period and dividing it by the monthly average of
the market value of such securities during the period. Purchases and
sales of investment securities (excluding short-term securities) for the
year ended September 30, 1997 were $3,501,145 and $0, respectively.

See notes to financial statements.

<PAGE>

SEFTON EQUITY VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997
(Unaudited)

ASSETS:
Investments, at value (cost-$59,906,711) $77,343,701
Repurchase Agreements (cost - $7,966,000) $ 7,966,000
Interest receivable 111,060
Receivable for capital shares issued 3,150
Organizational costs, net of accumulated amortization 20,221
Prepaid expenses 15,780
-----------------------------------------------------------------------------

Total Assets 85,459,912
-----------------------------------------------------------------------------

LIABILITIES:
Payable for investments purchased 947,237
Payable for capital shares redeemed 521,145
Payables:
Investment advisory fees 67,666
Administration fees 1,384
Shareholder servicing fees 4,351
Legal and audit fees 31,916
Custodian and accounting fees 10,929
Printing costs 10,707
Other 393
-----------------------------------------------------------------------------

Total Liabilities 1,595,728
-----------------------------------------------------------------------------

NET ASSETS: 83,864,184
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------

COMPOSITION OF NET ASSETS
Paid-in capital 56,729,885
Undistributed (distributions in excess of) net investment income (837)
Accumulated net realized gain (loss) from investment transactions 9,698,146
Net unrealized appreciation (depreciation) of investments 17,436,990
-----------------------------------------------------------------------------

NET ASSETS $83,864,184
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------

Shares of beneficial interest outstanding 4,119,562
-----------------------------------------------------------------------------

Net asset value, offering, and redemption price per share $ 20.36
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------

See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>

SEFTON EQUITY VALUE FUND
SCHEDULE OF PORTFOLIO INVESTMENTS SEPTEMBER 30, 1997
(Unaudited)
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
------ ----------- -----
<S> <C> <C>
COMMON STOCKS (92.2%)
Basic Industry (10.5%)
20,000 Aluminum Company of America $ 1,640,000
50,000 International Paper 2,753,125
38,000 PPG Industries, Inc. 2,382,125
70,000 Synthetic Industries, Inc. * 2,030,000
------------------
8,805,250
------------------
Consumer Cyclicals (7.3%)
60,500 BJ's Wholesale Club, Inc. * 1,765,844
45,000 J.C. Penney Co., Inc. 2,621,250
78,000 Quaker Fabric Corp. * 1,764,750
------------------
6,151,844
------------------
Consumer Staples (5.0%)
26,900 Great Atlantic & Pacific Tea Company 854,075
80,000 Phillip Morris Companies, Inc. 3,325,000
------------------
4,179,075
------------------
Energy (6.9%)
60,000 American Oilfield Divers * 926,250
88,000 Domain Energy Corp. * 1,628,000
75,000 Repsol S.A. -- ADR 3,253,125
------------------
5,807,375
------------------
Finance (15.0%)
58,000 American Financial Group, Inc. 2,581,000
10,000 CCB Financial Corp. 806,250
30,000 Chase Manhattan Corp. 3,540,000
92,000 IMC Mortgage Co. * 1,414,500
68,000 Reliastar Financial Corp. 2,707,250
30,000 Selective Insurance Group 1,545,000
------------------
12,594,000
------------------
Health Care (6.9%)
100,000 Maxxim Medical, Inc. * 2,600,000
100,000 Sun Healthcare Group * 2,056,250
20,000 Wellpoint Health Networks * 1,158,750
------------------
5,815,000
------------------
Manufacturing (7.8%)
65,000 Dana Corp. 3,209,375
89,250 Mark IV Industries, Inc. 2,398,594
46,000 Mascotech, Inc. 943,000
------------------
6,550,969
------------------
Services (9.9%)
25,000 AMR Corp. * 2,767,188
50,000 CSX Corp. 2,924,999
30,000 Royal Caribbean Cruises Ltd. 1,312,500
51,300 World Fuel Services Corp. 1,276,088
------------------
8,280,775
------------------
Technology (7.0%)
30,000 International Business Machine 3,178,125
40,000 Tektronix, Inc. 2,697,500
------------------
5,875,625
------------------
Utilities/REITS (15.9%)
54,200 Bedford Property Investors 1,192,400
50,000 Eastgroup Properties 1,093,750
100,200 Equity Inns, Inc. 1,584,413
77,000 General Public Utility Corp. 2,762,374
122,000 Ohio Edison Co. 2,859,374
55,000 Price Reit, Inc. 2,210,313
45,000 TriNet Corporate Realty Trust, Inc. 1,580,625
------------------
13,283,249
------------------
TOTAL COMMON STOCKS 77,343,162
------------------

<PAGE>

REPURCHASE AGREEMENT (9.5%)
7,966,000 Union Bank Of California Repurchase Agreement, 5.75%, dated 7,966,000
9/30/97 and maturing 10/1/97, collaterialized by U.S. Treasury ------------------
Notes, 5.63%, due 10/31/97 with a value of $8,311,763.
TOTAL REPURCHASE AGREEMENT 7,966,000
------------------
CASH SWEEP ACCOUNT (0.0%)
539 Union Bank Of California 539
------------------
TOTAL CASH SWEEP ACCOUNT 539
------------------

TOTAL INVESTMENTS (COST $67,872,711) - 101.7% 85,309,701
LIABILITIES IN EXCESS OF OTHER ASSETS (1.7)% (1,445,517)
------------------
TOTAL NET ASSETS - 100.0% $ 83,864,184
------------------
------------------
</TABLE>

- ----------------
Percentages indicated are based on net assets of $83,864,184.
* Denotes non-income producing security.

<PAGE>

SEFTON EQUITY VALUE FUND
STATEMENT OF OPERATIONS
For the period ended September 30, 1997
(Unaudited)

INVESTMENT INCOME:
Interest income $157,578
Dividend income 837,266
---------------------------------------------------------------------------

Total Investment Income 994,844
---------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 415,489
Administration fees 73,009
Shareholder servicing fees 7,520
Fund Accounting fees 17,174
Legal fees 20,902
Audit fees 14,205
Custodian fees 9,464
Amortization of organization costs 4,024
Transfer Agency fees 6,780
Printing costs 7,215
Insurance costs 7,069
Registration and filing fees 6,513
Trustees' fees and expenses 5,876
Other 1,183
---------------------------------------------------------------------------

Total expenses 596,423
---------------------------------------------------------------------------

Expenses waived by:
Administrator (10,686)
---------------------------------------------------------------------------

Net Expenses 585,737
---------------------------------------------------------------------------

NET INVESTMENT INCOME 409,107
---------------------------------------------------------------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investment transactions 6,811,816
Net change in unrealized appreciation (depreciation) 10,987,288
---------------------------------------------------------------------------

NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 17,799,104
---------------------------------------------------------------------------

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 18,208,211
---------------------------------------------------------------------------

See notes to financial statements.
<PAGE>

SEFTON EQUITY VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
(Unaudited)

<TABLE>
<CAPTION>
For the Period Ended For the Year Ended
September 30, 1997 March 31, 1997
<S> <C> <C>
FROM INVESTMENT ACTIVITIES
Net investment income (loss) 409,107 549,337
Net realized gain (loss) from investment transactions 6,811,816 6,634,179
Net change in unrealized appreciation (depreciation) 10,987,288 1,277,884
-------------------- -----------------
Net increase (decrease) in net assets resulting from operations 18,208,211 8,461,400
-------------------- -----------------
Dividends to shareholders from net investment income (408,923) (544,866)
Distributions to shareholders in excess of net investment income 0 (13,818)
Distributions to shareholders from net realized gain from
investment transactions 0 (4,451,927)
-------------------- -----------------

Change in net assets from investment activities 17,799,288 3,450,789
-------------------- -----------------

FROM BENEFICIAL INTEREST TRANSACTIONS
Proceeds from sale of shares 3,734,005 45,875,135
Net asset value of shares issued to shareholders from reinvestment
of dividends and distributions 399,838 2,995,495
-------------------- -----------------
4,133,843 48,870,630
Cost of shares redeemed (24,384,616) (2,331,718)
-------------------- -----------------
Change in net assets from beneficial interest transactions (20,250,773) 46,538,912
-------------------- -----------------
NET INCREASE (DECREASE) IN NET ASSETS (2,451,485) 49,989,701

NET ASSETS:
Beginning of period 86,315,669 36,325,968
-------------------- -----------------

End of period 83,864,184 86,315,669
-------------------- -----------------
-------------------- -----------------
</TABLE>

See notes to financial statements.
<PAGE>

SEFTON EQUITY VALUE FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest
outstanding throughout the period indicated:
<TABLE>
<CAPTION>

For the Period Ended For the Year Ended For the Period Ended
September 30, 1997 March 31, 1997 March 31, 1996 (1)
------------------ -------------- -------------------
(Unaudited)
<S> <C> <C> <C>
Net asset value - beginning of period 16.42 14.92 12.00

Income from investment operations
Net investment income 0.09 0.17 0.21
Net realized and unrealized gain from investment transactions 3.94 3.14 2.92
----------------- -------------- ------------------
Total income from investment operations 4.03 3.31 3.13
----------------- -------------- ------------------

Dividends and distributions to shareholders
Dividends from net investment income (0.09) (0.17) (0.21)
Distributions from net realized gain from investment transactions 0.00 (1.64) --
----------------- -------------- ------------------

Total Dividends and distributions (0.09) (1.81) (0.21)
----------------- -------------- ------------------
----------------- -------------- ------------------

Net asset value - end of period 20.36 16.42 14.92
----------------- -------------- ------------------
----------------- -------------- ------------------

Total return 24.58%(2) 23.15% 26.31%(2)

Ratios/Supplemental Data:

Net assets, end of period (000) $83,864 $86,316 $36,326

Ratio of expenses to average net assets 1.41%(3) 1.52% 1.55%(3)

Ratio of net investment income to average net assets 0.98%(3) 1.13% 1.68%(3)

Ratio of expenses to average net assets without fee waivers 1.44%(3) 1.56% 1.66%(3)

Ratio of net investment income to average net assets without fee waivers 0.95%(3) 1.09% 1.57%(3)

Average Commission Rate $0.0600 $0.0520 --

Portfolio turnover rate (4) 32.87% 77.65% 62.76%
</TABLE>

(1) Fund commenced investment operations April 3, 1995
(2) Total return is not annualized.
(3) Annualized.
(4) A portfolio turnover rate is, in general, the percentage computed by
taking the lesser of purchases or sales of portfolio securities
(excluding securities with maturity dates of one year or less at the time
of acquisition) for the period and dividing it by the monthly average of
the market value of such securities during the period. Purchases and
sales of investment securities (excluding short-term securities) for the
year ended September 30, 1997 were $25,009,394 and $39,834,963,
respectively.

See notes to financial statements.
<PAGE>

SEFTON SMALL COMPANY VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1997
(Unaudited)

ASSETS:
Investments, at value (cost-$23,336,559) $26,175,285
Repurchase Agreements (cost - $4,877,000) $4,877,000
Interest receivable 54,586
Receivable for capital shares issued 1,800
Organizational costs, net of accumulated amortization 21,782
Prepaid expenses 1,846
-----------------------------------------------------------------------------

Total Assets 31,132,299
-----------------------------------------------------------------------------

LIABILITIES:
Payable for investments purchased 912,079
Payable for capital shares redeemed 145,081
Payables:
Investment advisory fees 23,747
Administration fees 494
Transfer agent fees 1,437
Legal and audit fees 12,420
Custodian and accounting fees 3,460
Printing costs 1,546
Other 735
-----------------------------------------------------------------------------

Total Liabilities 1,100,999
-----------------------------------------------------------------------------

NET ASSETS: 30,031,300
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------

COMPOSITION OF NET ASSETS
Paid-in capital 27,496,149
Undistributed (distributions in excess of) net investment income 450
Accumulated net realized gain (loss) from investment transactions (304,025)
Net unrealized appreciation (depreciation) of investments 2,838,726
-----------------------------------------------------------------------------

NET ASSETS $30,031,300
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------

Shares of beneficial interest outstanding 2,278,784
-----------------------------------------------------------------------------

Net asset value, offering, and redemption price per share $ 13.18
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------

See notes to financial statements.
<PAGE>

SEFTON SMALL COMPANY VALUE FUND
SCHEDULE OF PORTFOLIO INVESTMENTS SEPTEMBER 30, 1997
(Unaudited)
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
------ ----------- -----
<S> <C> <C>

COMMON STOCKS (87.2%)
Basic Industry (8.2%)
93,400 Dravo Corp. * $ 1,109,125
62,500 JLM Industries, Inc. * 773,438
20,000 Synthetic Industries, Inc. * 580,000
2,462,563
------------------

Consumer Cyclicals (7.3%)
50,000 Quaker Fabric Corp. * 1,131,250
72,000 Tarrant Apparel Group * 1,071,000
------------------
2,202,250
------------------
Consumer Staples (3.4%)
32,000 Great Atlantic & Pacific Tea Company 1,016,000
------------------
Energy (9.4%)
55,000 American Oilfield Divers * 849,063
37,000 Domain Energy Corp. * 684,500
41,700 Midcoast Energy Resources 857,456
24,000 Plains Resources, Inc. * 432,000
------------------
2,823,019
------------------
Finance (11.7%)
21,400 Delta Financial Corp. * 432,013
66,200 Gryphon Holdings, Inc. * 1,092,299
60,000 IMC Mortgage Co. * 922,500
20,500 Selective Insurance Group 1,055,750
------------------
3,502,562
------------------
Health Care (7.3%)
44,500 Maxxim Medical, Inc. * 1,157,000
50,000 Sun Healthcare Group * 1,028,125
------------------
2,185,125
------------------
Manufacturing (8.5%)
15,000 DT Industries, Inc. 495,000
28,000 Mascotech, Inc. 574,000
37,400 Standard Products Co. 984,088
18,000 Watts Industries, Inc. 499,500
------------------
2,552,588
------------------
Services (11.6%)
41,500 Cameron Ashley Building Products * 757,375
29,300 Carmike Cinemas, Inc., Class A * 879,000
45,000 Garden Fresh Restaurant Corp. * 663,750
1,500 Harveys Casinos Resorts 26,438
47,000 World Fuel Services Corp. 1,169,124
------------------
3,495,687
------------------
Utilities/REITS (19.8%)
32,100 Bedford Property Investors 706,200
54,000 Eastgroup Properties 1,181,250
75,000 Equity Inns, Inc. 1,185,937
28,000 Price Reit, Inc. 1,125,250
35,000 RFS Hotel Investors, Inc. 682,500
30,000 TriNet Corporate Realty Trust, Inc. 1,053,750
------------------
5,934,887
------------------
TOTAL COMMON STOCKS 26,174,681
------------------
REPURCHASE AGREEMENTS (16.2%)
4,877,000 Union Bank Of California Repurchase Agreement, 5.75%, dated 4,877,000
------------------
9/30/97 and maturing 10/1/97, collaterialized by U.S. Treasury
Notes, 5.63%, due 10/31/97 with a value of $5,088,686
TOTAL REPURCHASE AGREEMENTS 4,877,000
------------------
CASH SWEEP ACCOUNT (0.0%)
604 Union Bank Of California 604
------------------
TOTAL CASH SWEEP ACCOUNT 604
------------------

<PAGE>

TOTAL INVESTMENTS (COST $28,213,559) - 103.4%
31,052,285
LIABILITIES IN EXCESS OF OTHER ASSETS (3.4)%
(1,020,985)
------------------
TOTAL NET ASSETS - 100.0% $ 30,031,300
------------------
------------------

</TABLE>

- ----------------
Percentages indicated are based on net assets of $30,031,300.
* Denotes non-income producing security.

<PAGE>

SEFTON SMALL COMPANY VALUE FUND
STATEMENT OF OPERATIONS
For the period ended September 30, 1997 (1)
(Unaudited)

INVESTMENT INCOME:
Interest income $134,250
Dividend income 102,426
-----------------------------------------------------------------------------

Total Investment Income 236,676
-----------------------------------------------------------------------------

EXPENSES:
Investment advisory fees 83,943
Administration fees 10,073
Fund Accounting fees 8,096
Legal fees 2,760
Audit fees 9,660
Custodian fees 552
Transfer Agency fees 1,840
Printing costs 2,484
Registration and filing fees 736
Trustees' fees and expenses 1,196
Other 96
-----------------------------------------------------------------------------

Total expenses 121,436
-----------------------------------------------------------------------------

Expenses waived by:
Investment Adviser (16,789)
-----------------------------------------------------------------------------

Net Expenses 104,647
-----------------------------------------------------------------------------

NET INVESTMENT INCOME 132,029
-----------------------------------------------------------------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investment transactions (304,025)
Net change in unrealized appreciation (depreciation) 2,838,726
-----------------------------------------------------------------------------

NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 2,534,701
-----------------------------------------------------------------------------

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 2,666,730
-----------------------------------------------------------------------------

(1) Fund commenced investment operations June 30, 1997.

See notes to financial statements.
<PAGE>

SEFTON SMALL COMPANY VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
(Unaudited)
For the Period Ended
September 30, 1997 (1)
FROM INVESTMENT ACTIVITIES
Net investment income (loss) 132,029
Net realized gain (loss) from investment transactions (304,025)
Net change in unrealized appreciation (depreciation) 2,838,726
---------------------
Net increase (decrease) in net assets resulting
from operations 2,666,730
---------------------

Dividends to shareholders from net investment income (131,579)
---------------------

Change in net assets derived from investment activities 2,535,151
---------------------

FROM BENEFICIAL INTEREST TRANSACTIONS
Proceeds from sale of shares 28,631,176
Net asset value of shares issued to shareholders from
reinvestment of dividends and distributions 130,538
---------------------
28,761,714
Cost of shares redeemed (1,265,565)
---------------------
Change in net assets from beneficial interest
transactions 27,496,149
---------------------
NET INCREASE (DECREASE) IN NET ASSETS 30,031,300

NET ASSETS:
Beginning of period 0
---------------------

End of period 30,031,300
---------------------
---------------------

(1) Fund commenced investment operations June 30, 1997.

See notes to financial statements.
<PAGE>

SEFTON SMALL COMPANY VALUE FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest
outstanding throughout the period indicated:

For the Period Ended
September 30, 1997 (1)
----------------------
(Unaudited)

Net asset value - beginning of period 12.00

Income from investment operations
Net investment income 0.06
Net realized and unrealized gain from investment
transactions 1.18
------------------
Total income from investment operations 1.24
------------------

Dividends and distributions to shareholders
Dividends from net investment income (0.06)
Distributions from net realized gain from investment
transactions 0.00
------------------
Total Dividends and distributions (0.06)
------------------
------------------

Net asset value - end of period 13.18
------------------
------------------

Total return 10.32%(2)

Ratios/Supplemental Data:

Net assets, end of period (000) $30,031

Ratio of expenses to average net assets 1.54%(3)

Ratio of net investment income to average net assets 1.94%(3)

Ratio of expenses to average net assets without fee waivers 1.78%(3)

Ratio of net investment income to average net assets without
fee waivers 1.70%(3)

Average Commission Rate $0.0595

Portfolio turnover rate (4) 8.10%

(1) Fund commenced investment operations June 30, 1997.
(2) Total return is not annualized.
(3) Annualized.
(4) A portfolio turnover rate is, in general, the percentage computed by
taking the lesser of purchases or sales of portfolio securities
(excluding securities with maturity dates of one year or less at the time
of acquisition) for the period and dividing it by the monthly average of
the market value of such securities during the period. Purchases and
sales of investment securities (excluding short-term securities) for the
year ended September 30, 1997 were $24,888,048 and $1,248,067,
respectively.

<PAGE>

NOTES TO FINANCIAL STATEMENTS (Unaudited)

Sefton Funds Trust (the "Trust", formerly known as Kennebec Funds Trust), a
Delaware business trust was organized on January 6, 1995. The Trust is
registered under the Investment Company Act of 1940, as amended (the "1940 Act")
as an open-end management investment company. The Trust offers four series of
shares - Sefton U.S. Government, Sefton California Tax-Free, Sefton Equity
Value, and Sefton Small Company Value (the "Funds"). The Funds commenced
investment operations on April 3, 1995 except the Sefton Small Company Value
which commenced investment operations on June 30, 1997. The assets for each
series are segregated and accounted for separately.

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by each Fund in preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles. The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expense during the reporting period. The
actual results could differ from those estimates.

a. INVESTMENT VALUATION: Marketable securities are valued at the last sales
price on the principal exchange or market on which they are traded; or, if there
were no sales that day, the closing bid prices are used. Securities for which
market quotations are not readily available are valued at their fair market
value as determined in good faith by or under the direction of the Board of
Trustees. Short-term securities having a remaining maturity of 60 days or less
are valued at amortized cost which approximates market value.

b. REPURCHASE AGREEMENTS: Repurchase agreements are fully collateralized by
securities issued by the U.S. government or its agencies. All collateral is
held by the Trust's custodian and is monitored daily to ensure that the
collateral's market value equals at least 100% of the repurchase price under the
agreement. However, in the event of default or bankruptcy by the counter party
to the agreement, realization and/or retention of the collateral may be subject
to legal proceedings. Each Funds's policy is to limit repurchase agreement
transactions to those parties deemed by the Fund's Investment Adviser to have
satisfactory creditworthiness in accordance with guidelines adopted by the Board
of Trustees.

c. FEDERAL INCOME TAXES: The Funds have made no provision for federal income
tax for the period ended September 30, 1997. The Funds intend to distribute to
shareholders all taxable investment income and realized gains and otherwise
comply with the Internal Revenue Code applicable to regulated investment
companies.

d. SECURITIES TRANSACTIONS: Securities transactions are accounted for on the
date the securities are purchased or sold (trade date).

<PAGE>

e. ORGANIZATIONAL COSTS: Each of the Funds, except Sefton Small Company Value,
deferred certain organizational costs of $38,529 at inception. Sefton Small
Company Value deferred certain organizational costs of $21,782. Such costs are
being amortized over a 60 month period from the commencement of investment
operations.

f. INVESTMENT INCOME: Dividend income is recorded on the ex-dividend date.
Interest income, which includes amortization of premium and accretion of
discount, is accrued and recorded daily.

g. DIVIDENDS, DISTRIBUTIONS AND EXPENSES: The Sefton Equity Value Fund and
Sefton Small Company Value will distribute net investment income quarterly. The
Sefton U.S. Government Fund and Sefton California Tax-Free Fund will declare and
pay dividends from net investment income daily and monthly, respectively.
Distributions of net realized gains, if any, are declared at least once a year.
Each Fund bears expenses incurred specifically on its behalf as well as a
portion of general expenses.

h. CAPITAL ACCOUNTS: The Funds follow the provisions of the AICPA's Statement
of Position 93-2 "Determination, Disclosure and Financial Statement Presentation
of Income, Capital Gain and Return of Capital Distributions by Investment
Companies" ("SOP"). The purpose of this SOP is to report undistributed net
investment income and accumulated net realized gain or loss in such a manner as
to approximate amounts available for future distributions to shareholders, if
any.

i. CONCENTRATION OF CREDIT RISK: The Sefton California Tax-Free Fund invests
primarily in securities issued by the State of California (the "State") and its
various political subdivisions. The performance of Sefton California Tax-Free
is closely tied to economic conditions within the state and the financial
condition of the State and its agencies and municipalities.

NOTE 2 - SHARES OF BENEFICIAL INTEREST

On September 30, 1997 there was an unlimited number of no par value shares
of beneficial interest authorized. Transactions in shares of beneficial
interest for the period April 1, 1997 to September 30, 1997 were as follows:

Sefton U.S. Government Fund
For the period ended For the year ended
September 30, 1997 March 31, 1997

Shares Sold 281,568 1,343,180
Shares Reinvested 45,068 26,400
---------- ----------
Total 326,636 1,369,580
Shares Redeemed (67,791) (412,823)
---------- ----------

Net Increase (Decrease) 258,845 956,757
---------- ----------
---------- ----------

<PAGE>

Sefton California Tax-Free Fund
For the period ended For the year ended
September 30, 1997 March 31, 1997

Shares Sold 192,181 624,399
Shares Reinvested 58,778 21,827
---------- ----------
Total 250,959 646,226
Shares Redeemed (84,624) (1,242,645)
---------- ----------

Net Increase (Decrease) 166,335 (596,419)
---------- ----------
---------- ----------

Sefton Equity Value Fund
For the period ended For the year ended
September 30, 1997 March 31, 1997

Shares Sold 197,938 2,774,203
Shares Reinvested 20,670 195,029
---------- ----------
Total 218,608 2,969,232
Shares Redeemed (1,356,290) (146,071)
---------- ----------

Net Increase (Decrease) (1,137,682) 2,823,161
---------- ----------
---------- ----------

Sefton Small Company Value Fund
For the period ended
September 30, 1997 (1)

Shares Sold 2,370,247
Shares Reinvested 9,927
----------
Total 2,380,174
Shares Redeemed (101,390)
----------

Net Increase (Decrease) 2,278,784
----------
----------

(1) Fund commenced investment operations June 30, 1997.

NOTE 3 - INVESTMENT ADVISORY FEES, ADMINISTRATION FEES AND OTHER RELATED PARTY
TRANSACTIONS

Each Fund has entered into an Investment Advisory Agreement with Sefton Capital
Management, Inc. ("Investment Adviser"). Pursuant to its advisory agreement
with the Funds, the Investment Adviser is entitled to an advisory fee, computed
daily and payable monthly at an annual rate of

<PAGE>

NOTES TO FINANCIAL STATEMENTS (Continued)

.60%, .60%, 1.00%, and 1.25% of the daily average net assets for the Sefton U.S.
Government Fund, Sefton California Tax-Free Fund, Sefton Equity Value Fund and
Sefton Small Company Value, respectively. Sefton Capital Management, Inc.
voluntarily waived a portion of its advisory fee for the year ended September
30, 1997. Mr. Harley K. Sefton, President and CEO of the Investment Adviser, is
responsible for the day to day management of the Funds. As of September 30,
1997, affiliates of the Funds own 96%, 94%, 93%, and 96% of the Sefton U.S.
Government, Sefton California Tax-Free, Sefton Equity Value, and Sefton Small
Company Value Funds' shares outstanding, respectively.

On January 1, 1997, each of the Funds entered into an Administrative Services
Contract with BISYS Fund Services ("BISYS" or "Administrator"). The
Administrator is entitled to receive a fee from the Funds for its services
computed daily and payable monthly, at an annual rate of .15% of each Fund's
average daily net assets. BISYS voluntarily waived a portion of the
administration fees for the period ended September 30, 1997. BISYS assisted in
each of the Fund's administration and operations, including providing office
space and various legal and accounting services in connection with the
regulatory requirements applicable to each Fund.

Certain Trustees and officers of the Funds are also officers of Sefton Capital
Management or BISYS. All access persons, as defined in the 1940 Act, follow
guidelines and policies on personal trading as outlined in the Trust's Code of
Ethics.

Trustees and officers of the Funds who are affiliated persons receive no
compensation from the Funds. Trustees who are not interested persons of the
Trust, as defined in the 1940 Act, collectively received compensation and
reimbursement of expenses of $2,664, $3,673, $5,876 and $1,196 from the Sefton
U.S. Government, Sefton California Tax Free Fund, Sefton Equity Value Fund and
Sefton Small Company Value Fund, respectively, for the period ended September
30, 1997.

NOTE 4 - UNREALIZED GAINS AND LOSSES ON INVESTMENTS

As of September 30, 1997:

Sefton Sefton Sefton Sefton
U.S. Government California Equity Small Company
Fund Tax-Free Fund Value Fund Value Fund
---- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Gross Appreciation
(excess of value over cost) $974,522 $1,938,599 $17,441,227 $2,953,701
Gross Depreciation
(excess of cost over value) (0) (0) (4,237) (114,975)
-------- ----------- ----------- ----------
Net Unrealized Appreciation/
(Depreciation) $974,522 $1,938,599 $17,436,990 $2,838,726
-------- ----------- ----------- ----------
-------- ----------- ----------- ----------
</TABLE>
<PAGE>

PART C.

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

(a) FINANCIAL STATEMENTS:

INCLUDED IN PART A OF THIS REGISTRATION STATEMENT:

(1) Financial Highlights for the Year ended March 31, 1997 and
the period from April 3, 1995 (commencement of investment
operations) to March 31, 1996 (audited).
(2) Financial Highlights for the Small Company Value Fund for
the period from June 30, 1997 (commencement of investment
operations) to September 30, 1997 (unaudited).

INCLUDED IN PART B OF THIS REGISTRATION STATEMENT:

The following audited financial statements of Sefton U.S.
Government Fund, Sefton California Tax-Free Fund and Sefton
Equity Value Fund and the notes thereto for the fiscal year ended
March 31, 1997, and the report of Price Waterhouse LLP with
respect to such financial statements are incorporated by
reference in Part B of this Registration Statement:

(1) Statements of Assets and Liabilities dated March 31, 1997
(audited).*
(2) Statements of Investments dated March 31, 1997 (audited).*
(3) Statements of Operations for the year ended March 31, 1997
(audited).*
(4) Statements of Changes in Net Assets for the year ended March
31, 1997 and the period from April 3, 1995 (commencement of
investment operations) to March 31, 1996 (audited).*
(5) Financial Highlights for the year ended March 31, 1997 and
the period from April 3, 1995 (commencement of investment
operations) to March 31, 1996 (audited).*
(6) Notes to Financial Statements dated March 31, 1997
(audited).*
(7) Report of Independent Accountants to Financial Statements
for the period ended March 31, 1997 (audited).*
(8) Statement of Assets and Liabilities for the Small Company
Value Fund dated September 30, 1997 (unaudited).
(9) Statement of Investments for the Small Company Value Fund
dated September 30, 1997 (unaudited).
(10) Statement of Operations for the Small Company Value Fund for
the period ended September 30, 1997 (unaudited).
(11) Statement of Changes in Net Assets for the Small Company
Value Fund for the period from June 30, 1997 (commencement
of investment operations) to September 30, 1997 (unaudited).
(12) Financial Highlights for the Small Company Value Fund for
the period from June 30, 1997 (commencement of investment
operations) to September 30, 1997 (unaudited).
(13) Notes to Financial Statements dated September 30, 1997
(unaudited).

(b) EXHIBITS:

Exhibit
Number Description of Exhibit
------ ----------------------

1(a) Trust Instrument. (1)(4)

1(b) Amendment to Trust Instrument. (4)

2(a) Bylaws of Registrant. (1)

3 None.

C-1
<PAGE>

4 None.

5(a) Form of Master Investment Advisory Contract and Supplements
between Registrant and Sefton Capital Management, Inc.(1)(7)

5(b) Form of Master Administration Agreement and Supplements
between Registrant and BISYS Fund Services Limited
Partnership. (5)(6)

6 Form of Master Distribution Agreement and Supplements
between Registrant and BISYS Fund Services Limited
Partnership. (5)

7 None.

8(a) Form of Custodian Contract between Registrant and State
Street Bank and Trust Company. (3)

8(b) Form of Custodian Contract between Registrant and Union Bank
of California, N.A. (7)

9(a) Form of Transfer Agency Agreement between Registrant and
BISYS Fund Services, Inc. (5)

9(b) Form of Fund Accounting Agreement between Registrant and
BISYS Fund Services, Inc. (5)

10 Consent of Baker & McKenzie. (7)

11 Consent of Independent Accountants. (7)

12 None.

13 Subscription Agreement. (2)

14 None.

15 None.

16 Schedule of Computation of Performance Calculation. (7)
(a) Sefton Small Company Value Fund

17 Financial Data Schedule. (7)

18 None.

Other Exhibits

A Power of Attorney. (5)

- --------
* Incorporated by reference to the Registrant's Annual Report filed with the
Securities and Exchange Commission on May 30, 1997.
(1) Filed as an Exhibit to Registrant's Initial Registration Statement on Form
N-1A on January 13, 1995 and incorporated herein by reference.
(2) Filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1 to the
Registration Statement on March 20, 1995 and incorporated herein by
reference.
(3) Filed as an Exhibit to Registrant's Post-Effective Amendment No. 1 to the
Registration Statement on November 2, 1995 and incorporated herein by
reference.

C-2
<PAGE>

(4) Filed as an Exhibit to Registrant's Post-Effective Amendment No. 2 to the
Registration Statement on July 12, 1996 and incorporated herein by
reference.
(5) Filed as an Exhibit to Registrant's Post-Effective Amendment No. 3 to the
Registration Statement on April 16, 1997 and incorporated herein by
reference.
(6) Filed as an Exhibit to Registrant's Post-Effective Amendment No. 4 to the
Registration Statement on June 30, 1997 and incorporated herein by
reference.
(7) Filed herewith.

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

None.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

Name of Fund As of October 30, 1997
------------ ----------------------
Sefton U.S. Government Fund 32
Sefton California Tax-Free Fund 26
Sefton Equity Value Fund 114
Sefton Small Company Value Fund 19

ITEM 27. INDEMNIFICATION.

As permitted by Section 17(h) and (i) of the Investment Company Act of 1940
(the "1940 Act") and pursuant to Article X of the Registrant's Trust Instrument
(Exhibit 1(a) to this Registration Statement) and Section 4 of the Master
Investment Advisory Contract and Supplements (Exhibit 5(a) to the Registration
Statement), officers, trustees, employees and agents of the Registrant will not
be liable to the Registrant, any shareholder, officer, trustee, employee, agent
or other person for any action or failure to act, except for bad faith, willful
misfeasance, gross negligence or reckless disregard of duties, and those
individuals may be indemnified against liabilities in connection with the
Registrant, subject to the same exceptions.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant understands that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities 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 Securities
Act and will be governed by the final adjudication of such issue.

The Registrant has purchased an insurance policy insuring its officers and
trustees against liabilities, and certain costs of defending claims against such
officers and trustees, to the extent such officers and trustees are not found to
have committed conduct constituting willful misfeasance, bad faith, gross
negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers under certain circumstances.

Section 4 of the Master Investment Advisory Contract (Exhibit 5(a) to the
Registration Statement) and Section 3 of the Master Administration Contract
(Exhibit 5(b) to the Registration Statement) and Section 10 of the Master
Distribution Contract (Exhibit 6 to this Registration Statement) limit the
liability of Sefton Capital Management, Inc. and BISYS, respectively, to
liabilities arising from willful misfeasance, bad faith or gross negligence in
the performance of their respective duties or from reckless disregard by them of
their respective obligations and duties under the agreements.

C-3
<PAGE>

The Registrant hereby undertakes that it will apply the indemnification
provisions of its Declaration of Trust, By-Laws, Investment Advisory Contract
and Distribution Contract in a manner consistent with Release No. 11330 of the
Securities and Exchange Commission under the 1940 Act so long as the
interpretations of Section 17(h) and 17(i) of such Act remain in effect and are
consistently applied.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

Sefton Capital Management, Inc. provides investment advisory services to
the Funds pursuant to an Advisory Agreement with the Trust. The adviser was
formed in 1994.

The executive officers of Sefton Capital Management, Inc. and such
executive officers' and directors' positions during the past 2 years are as
follows:

Name and Position Other Businesses
----------------- ----------------

Harley Knox Sefton, President, First Interstate Capital
President and Chief Management, Inc. and San Diego Financial
Executive Officer Capital Management, Inc.

Theodore James Piorkowski, Vice President and Portfolio Manager,
Vice President and Fund Manager First Interstate Capital Management

Lorraine Aulani Capossere, Assistant Vice President and Operations
Vice President and Chief Manager, First Interstate Capital Inc.
Officer Officer

Jennifer Jones Sefton, Senior Accountant, Steres Alpert & Carne
Vice President and Chief
Financial Officer

Thomas Charles Bowden, Vice President and Portfolio Manager,
Vice President and Fund Manager First Interstate Capital Management,
Inc.

Leif Otto Sanchez, Vice President and Portfolio Manager,
Vice President and Fund Manager First Interstate Capital Management,
Inc.

Alan Ashwell Lordi, Managing Director, Furman Selz LLC
Vice President and Portfolio
Manager

ITEM 29. PRINCIPAL UNDERWRITER

(a) BISYS Fund Services Limited Partnership, an Ohio limited
partnership, is the distributor (the "Distributor") for the
shares of the Registrant. The Distributor also serves as the
principal underwriter or placement agent for other unrelated
registered investment companies.

(b) The information required by this item 29 with respect to the
Distributor is incorporated by reference to Schedule A of Form BD
filed by BISYS Fund Services Limited Partnership pursuant to the
Securities Exchange Act of 1934 (SEC File No. 8-32480).

C-4
<PAGE>

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the Rules
thereunder will be maintained at the offices of:

(1) Records relating to management and investment advisory functions:

Sefton Capital Management, Inc.
2550 Fifth Avenue, Suite 808
San Diego, California 92103

(2) Records relating to administration and distribution functions:

BISYS Fund Services Limited Partnership
3435 Stelzer Road,
Columbus, Ohio, 43219

(3) Records relating to fund accounting and registrar/transfer agency
functions:

BISYS Fund Services, Inc.
3435 Stelzer Road,
Columbus, Ohio, 43219

(4) Records relating to custodial functions:

Union Bank of California, N.A.
475 Sansome Street
San Francisco, California 94111

ITEM 31. MANAGEMENT SERVICES

Not applicable.

ITEM 32. UNDERTAKINGS.

(a) Registrant undertakes to call a meeting of shareholders for the
purpose of voting upon the removal of a trustee if requested to
do so by the holders of at least 10% of the Registrant's
outstanding shares.

(b) Registrant undertakes to provide the support to shareholders
specified in Section 16(c) of the 1940 Act as though that section
applied to the Registrant.

(c) Registrant undertakes to furnish to each person to whom a
prospectus is delivered, a copy of the Registrant's latest annual
report to Shareholders upon request and without charge.

C-5
<PAGE>

SIGNATURES

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 Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Post-Effective Amendment No. 5 to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of San
Diego and State of California, on November 20, 1997.

SEFTON FUNDS TRUST
(Registrant)

By: /s/ Harley K. Sefton
-------------------------------
Harley K. Sefton
President

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 5 to Registration Statement has been signed below
by the following persons in the capacities indicated and on the dates indicated.

Signatures Title Date
---------- ----- ----

/s/ Harley K. Sefton Chairman, President and Trustee November 20, 1997
- ------------------------
Harley K. Sefton

Grace Evans Cherashore * Trustee November 20, 1997
- ------------------------
Grace Evans Cherashore

Gordon T. Frost, Jr. * Trustee November 20, 1997
- ------------------------
Gordon T. Frost, Jr.

John J. Pileggi * Trustee November 20, 1997
- ------------------------
John J. Pileggi

/s/ Thresa Dewar Vice President and Treasurer November 20, 1997
- ------------------------ (Principal Financial Officer)
Thresa Dewar

/s/ Harley K. Sefton
- ------------------------
Harley K. Sefton
Attorney-in-fact

- ---------------
* Pursuant to Power of Attorney filed as an exhibit to Registrant's Post-
Effective Amendment No. 3 to the Registration Statement on April 16, 1997
and incorporated herein by reference.
<PAGE>

FILED EXHIBIT INDEX

Exhibit
Number Description of Exhibit
------ ---------------------------------------------------------------------
5(a) Form of Supplement to Master Investment Advisory Contract between
Registrant and Sefton Capital Management, Inc.

8(b) Form of Custodian Contract between Registrant and Union Bank of
California, N.A.

10 Consent of Baker & McKenzie

11 Consent of Independent Accountants

16 Schedule of Computation of Performance Calculation
(a) Sefton Small Company Value Fund

27 Financial Data Schedule

<PAGE>

SMALL COMPANY VALUE FUND
A SERIES OF SEFTON FUNDS TRUST
3435 STELZER ROAD, SUITE 1000
COLUMBUS, OH 43219-8499

May 1, 1997

Sefton Capital Management, Inc.
2550 Fifth Avenue, Suite 808
San Diego, CA 92103

INVESTMENT ADVISORY CONTRACT SUPPLEMENT

Dear Sirs or Madams:

This will confirm the agreement between Sefton Funds Trust (the "Trust")
and Sefton Capital Management, Inc. (the "Adviser") as follows:

Small Company Value Fund (the "Fund") is a series portfolio of the Trust
which had been organized as a business trust under the laws of the State of
Delaware and is an open-end management investment company. The Trust and the
Adviser have entered into a Master Investment Advisory Contract, dated, February
13, 1997 (as from time to time amended and supplemented, the "Master Advisory
Contract"), pursuant to which the Adviser has undertaken to provide or make
provision for the Trust for certain investment advisory and management services
identified therein and to provide certain other services, as more fully set
forth therein. Certain capitalized terms used without definition in his
Investment Advisory Contract Supplement have the meaning specified in the Master
Advisory Contract.

The Trust agrees with the Adviser as follows:

1. ADOPTION OF MASTER ADVISORY CONTRACT. The Master Advisory Contract is
hereby adopted for the Fund. The Fund shall be one of the "Funds" referred to
in the Master Advisory Contract; and its shares shall be a "Series" of shares as
referred to therein.

2. PAYMENT OF FEES. For all services to be rendered, facilities
furnished and expenses paid or assumed by the Adviser as provided in the Master
Advisory Contract and herein, the Fund shall pay a monthly fee on the first
business day of each month, based upon the average daily value (as determined on
each business day at the time set forth in the Prospectus for determining net
asset value per share) of the net assets of the Fund during the preceding month,
at the annual rate of 1.00%.

3. LIMITATION OF EXPENSES PAID BY THE FUND. (a) If the aggregate
expenses of every character incurred by, or allocated to, a Fund in any fiscal
year, other than interest, taxes, expenses under the Plan, brokerage commissions
and other portfolio transaction expenses, other expenditures which are
capitalizes in accordance with generally accepted accounting principles and any
extraordinary expenses (including, without limitation, litigation and
indemnification expenses) but including the fees payable under the Master
Administrative Services Contract and the fees provided for in paragraph 5 of the
Master Advisory Contract ("includable expenses"), shall exceed the expense
limitations applicable to the Fund imposed by state securities laws or
regulations thereunder, as these limitations may be raised or lowered from time
to time, the Fund may deduct from the fees to be paid to the Adviser, or the
Adviser will bear, to the extent required by state law, that portion of such
excess which bears the same relation to the total of such excess as the fee to
be paid to the Adviser bears to the total fee otherwise payable for the fiscal
year by the Fund pursuant to the Master Advisory Contract and the Master
Administrative Services Contract between the Trust and the Administrator
Services Contract between the Trust and the Administrator. The
<PAGE>

Adviser's obligation pursuant hereto will be limited to the amount of the fees
payable for the fiscal year by the Fund pursuant to the Master Advisory
Contract.

(b) With respect to portions of a fiscal year in which this Contract shall
be in effect, the limitation specified in subparagraph (a) of paragraph 3 above
shall be prorated according to the fiscal year bears to the full fiscal year.
At the end of each month of the Trust's fiscal year, the Administrator will
review the include expenses accrued during that fiscal year to the end of the
period and shall estimate the contemplated includable expenses for the balance
of that fiscal year. If, as a result of that review and estimation, it appears
likely that the includable expense will exceed such limitation for a fiscal year
with respect to the Fund, the monthly fees relating to that Fund payable to the
Adviser under this Contract for such month shall be reduced subject to the later
adjustments at the end of each month through the end of the fiscal year to
reflect actual expenses, by an amount equal to the proportionate share
attributable to the Adviser as described in subparagraph (a) of paragraph 3
above of a pro rata portion (prorated on the basis of the remaining month of the
fiscal year, including the month just ended) are expected to exceed such
limitations. For purposes of the foregoing, the value of t he net assets of the
Fund shall be computed in the manner specified in the penultimate sentence of
paragraph 5 of the Master Advisory Contract, and any payments required to be
made by the Adviser shall be made once a year promptly after the end of the
Trust's fiscal year.

If the foregoing correctly sets forth the agreement between the Trust and
the Adviser, please so indicate by signing and returning to the Trust the
enclosed copy hereof.

Very truly yours,

SMALL COMPANY VALUE FUND
a Series of Sefton Funds Trust

By:
-----------------------------
Title:

The foregoing Contract is hereby agreed
to of the date hereof:

SEFTON CAPITAL MANAGEMENT, INC.

By:
----------------------------
Title:

<PAGE>

MUTUAL FUND CUSTODY AGREEMENT

This AGREEMENT is entered into as of _____, 199__, between the Sefton Funds
Trust (the "Trust"), a Delaware business trust, having its principal office and
place of business at 2550 Fifth Avenue, Suite 808, San Diego, CA 92103 and
Union Bank of California, N.A. (the "Bank"), a National Banking Association
organized under the laws of the United States with its principal place of
business at 350 California Street, San Francisco, CA 94104.

In consideration of the mutual promises set forth below, the Trust and the Bank
agree as follows:

1. DEFINITIONS.

Whenever used in this Agreement or in any Schedules to this Agreement, the words
and phrases set forth below shall have the following meanings, unless the
context otherwise requires:

1.1 "Authorized Person" shall be deemed to include the President, and any
Vice President, the Secretary, the Assistant Secretary, the Treasurer and any
Assistant Treasurer of the Trust, or any other person, including persons
employed by the Investment Adviser, whether or not any such person is an officer
of the Trust, duly authorized by the Board of Directors of the Trust to give
Oral Instructions and Written Instructions on behalf of the Trust and listed in
the certification annexed hereto as Schedule A or such other successor
certification as may be received by the Bank from time-to-time.

1.2 "Book-Entry System" shall mean the Federal Reserve/Treasury book-entry
system for United States and federal agency securities, its successor or
successors and its nominee or nominees.

1.3 "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission under
Section 17(a) of the Securities Exchange Act of 1934, as amended, its successor
or successors and its nominee or nominees, in which the Bank is hereby
specifically authorized to make deposits. The term "Depository" shall further
mean and include any other person to be named in Written Instructions
authorized to act as a depository under the 1940 Act, its successor or
successors and its nominee or nominees.

1.4 "Money Market Security" shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to interest and principal
by the Government of the United States or agencies or instrumentalities thereof,
and repurchase and reverse repurchase agreements with respect to any of the
foregoing types of securities, commercial paper, bank certificates of deposit,
bankers' acceptances and short-term corporate obligations, where the purchase or
sale securities normally requires settlement in federal funds on the same day as
such purchase or sale.

1.5 "Prospectus" shall mean the Series' current prospectus and statement
of additional information relating to the registration of the Series' Shares
under the Securities Act of 1933, as amended.

1.6 "Security" or "Securities" shall be deemed to include bonds,
debentures, notes, stocks, shares, evidences of indebtedness, and other
securities and investments from time-to-time owned by each Series.

1.7 "Shares" refers to the shares of beneficial interest of a Series of
the Trust.

1.8 "Series" refers to Funds shown on Schedule B, attached hereto and made
a part hereof by this reference, and any such other Series as may from time-to-
time be created and designated in accordance with the provisions of the
Declaration of Trust.

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1.9 "Transfer Agent" shall mean the person which performs the transfer
agent, dividend disbursing agent and shareholder servicing agent functions for
the Trust.

1.0 "Written Instructions" shall mean a written or electronic
communication actually received by the Bank from an Authorized Person or from a
person reasonably believed by the Bank to be an Authorized Person by telecopy,
telex or any other such system whereby the receiver or such communication is
able to verify with a reasonable degree of certainty the authenticity of the
sender of such communication.

1.1 The "1940 Act" refers to the Investment Company Act of 1940, and the
rules and regulations thereunder, all as amended from time-to-time.

2. APPOINTMENT OF CUSTODIAL.

2.1 The Trust hereby constitutes and appoints the Bank as Custodian of all
the Securities and moneys owned by or in the possession of the Trust during the
period of this Agreement.

2.2 The Bank hereby accepts appointment as Custodian for the Trust and
agrees to perform the duties thereof as hereinafter set forth.

3. COMPENSATION.

3.1 The Trust will compensate the Bank for its services rendered under
this Agreement in accordance with the fees set forth in the Fee Schedule
attached as Schedule C and made a part of this Agreement by this reference.

3.2 The parties to this Agreement will agree upon the compensation for
acting as Custodian for any Series hereafter established and designed, and at
the time that the Bank commences serving as such for said Series, such agreement
shall be reflected in a Fee Schedule for the Trust, which shall be attached to
Schedule C of this Agreement.

3.3 Bank shall not change its compensation for the initial year of this
Agreement. Thereafter, any adjustment in fees shall require at 90 days advance
written notice of such fee increase from Bank to Trust.

3.4 The Bank will bill the Trust as soon as practicable after the end of
each month, and said billings will be detailed in accordance with the Fee
Schedule. The Trust will promptly pay to the Bank the amount of such billing.
In the event such bill is not promptly paid, the Bank may charge against any
money specifically allocated to the Trust such compensation and any expenses
incurred by the Bank in the performance of its duties pursuant to such
agreement. The Bank shall also be entitled to charge against any money held by
it and specifically allocated to the Trust the amount of any loss, damage,
liability or expense incurred with respect to such Trust, including counsel
fees, for which it shall be entitled to reimbursement under the provision of
this Agreement.

4. CUSTODY OF CASH AND SECURITIES.

4.1 RECEIPT AND HOLDING OF ASSETS. The Trust will deliver or cause to be
delivered to the Bank all Securities and moneys owned by it, including cash
received from the issuance's of its Shares, at any time during the period of
this Agreement and shall specify the Series to which the Securities and moneys
are to be specifically allocated. The Bank shall receive delivery of, keep
safely, and physically segregate and keep apart on its books, the assets of each
Series, including separate identification of Securities held in the Book-Entry
System. The Bank will not be responsible for such Securities and moneys until
actually received by it. The Trust shall instruct the Bank from time-to-time in
its sole discretion, by means of Written Instruction as to the manner in which
and in what amounts Securities and moneys of a Series are to be deposited on
behalf of such Series in the Book-Entry System or the depository and
specifically allocated on the books of the Bank to such Series. Securities and
moneys of the Trust deposited in the Book-Entry System or the Depository will be
represented in

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<PAGE>

accounts which include only assets held by the Bank for customers, including but
not limited to accounts in which the Bank acts in a fiduciary or representative
capacity.

4.2 ACCOUNTS AND DISBURSEMENTS. The Bank shall establish and maintain a
separate account for each Series and shall credit to the separate account of
each Series all moneys received by it for the account of such Series and shall
disburse the same only:

4.2.1 In payment for Securities purchased for such Series, as
provided in Section 5 hereof;

4.2.2 In payment of dividends or distributions with respect to the
Shares of such Series;

4.2.3 In payment of original issue or other taxes with respect to
the Shares of such Series;

4.2.4 In payment for Shares which have been redeemed by such
Series;

4.2.5 Pursuant to Written Instructions, setting forth the name of
such Series, the name and address of the person to whom the payment is to be
made, the amount to be paid and the purpose for which payment is to be made; or

4.2.6 In payment of fees and in reimbursement of the expenses and
liabilities of the Bank attributable to such Series.

4.3 CONFIRMATIONS AND STATEMENTS. Promptly after the close of business
each day, the Bank shall make available to the Trust and its Fund Accountant
information with respect to all transfers to and from the account of a Series
during that day. Upon the written request of Trust, Bank shall provide within
5 business days of such written request a copy of any confirmations which
include transactions of the Trust. At least monthly, the Bank shall furnish the
Trust with a detailed statement of the Securities and moneys held for each
Series under this Agreement.

4.4 REGISTRATION OF SECURITIES AND PHYSICAL SEPARATION.

All Securities held for a Series which are issued or issuable only in
bearer form, except such Securities as are held in the Book-Entry System, shall
be held by the Bank in that form; all other Securities held for a Series may be
registered in the name of any duly appointed registered nominee of the Bank may
from time-to-time determine, or in the name of the Book-Entry System or the
Depository of their successor or successors, or their nominee or nominees. When
a reference is made in this Agreement to an action to be taken by Bank, it is
understood by the parties that the action may be taken directly or in the case
of book-entry Securities, through the appropriate depository. The Trust agrees
to furnish to the Bank appropriate instruments to enable the Bank the
appropriate depository. The Trust agrees to furnish to the Bank appropriate
instruments to enable the Bank to hold or deliver in proper form for transfer,
or to register in the name of its registered nominee or in the name of the Book-
Entry System or the Depository, any Securities which it may hold for the account
of a Series. The Bank (or its Sub-Custodians) shall hold all such Securities
specifically allocated to a Series which are not held in the Book-Entry System
or the Depository in a separate account for such Series in the name of such
Series physically segregated at all times from those of any other person or
persons. Where Securities purchased by a Series are in a fungible bulk of
Securities registered in the name of the Bank (or its nominee) or shown on the
Bank's account on the books of the Depository or the Book-Entry System, the Bank
shall by book entry or otherwise identify the quantity of those Securities
belonging to such Series.

4.5 COLLECTION OF INCOME AND OTHER MATTERS AFFECTING SECURITIES. Unless
otherwise instructed to the contrary by Written Instructions, the Bank shall
with respect to all Securities held for a Series in accordance with this
Agreement:

4.5.1 Collect all income due or payable and credit such income
promptly on the contractual settlement date, whether or not actually received,
to the account of the appropriate Series, except for income from foreign issues.
Income which has not been collected after reasonable effort, within a time
agreed upon between the parties, shall be repaid to the Bank pending final
collection at such date as may be mutually agreed upon by the Trust and the
Bank.

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4.5.2 Present for payment and collect the amount payable upon all
Securities which may mature or be called, redeemed or retired, or otherwise
become payable. Bank shall monitor major publications for notice or corporate
actions in accordance with normal industry standards and shall make a good faith
effort to inform Trust of any call, redemption or retirement date with respect
to Securities which are owned by a Series and held by the Bank or its nominee.
Notwithstanding the foregoing, the Bank makes no guarantees to the Trust or a
Series that such normal monitoring shall identify any call, redemption or
retirement date with respect to Securities which are held by a Series and held
by Bank or its nominee. Nor shall the Bank have any responsibility or liability
to the Trust or to a Series for any loss by a Series for any missed payment or
other default resulting therefrom unless the Bank received timely notification,
which shall not be less than 5 business days, from the Trust or the Series or a
depository specifying the time, place and manner for the presentment of any put
bond owned by a Series and held by the Bank or its nominee. The Bank shall not
be responsible and assumes no liability to the Trust or a Series for the
accuracy or completeness of any notification provided to the Bank that the Bank
shall provide to the Trust or a Series with respect to put Securities;

4.5.3 Execute any necessary declarations or certificates or
ownership under the Federal income tax laws or the laws or regulations of any
other taxing authority now or hereafter in effect; and

4.5.4 Hold for the account of each Series all rights and other
Securities issued with respect to any Securities held by the Bank hereunder for
such Series.

4.6 DELIVERY OF SECURITIES AND EVIDENCE OF AUTHORITY. Upon receipt of
Written Instructions, the Bank shall:

4.6.1 Execute and deliver or cause to be executed and delivered to
such persons as may be designated in such Written Instructions, proxies,
consents, authorization, and any other instruments whereby the authority of the
Trust as owner of any Securities may be exercised;

4.6.2 Deliver or cause to be delivered any Securities held for a
Series in exchange for other Securities or cash issued or paid in connection
with the liquidation, reorganization, refinancing, merger, stock split,
consolidation or recapitalization of any corporation, or the exercise of any
conversion privilege;

4.6.3 Deliver or cause to be delivered any Securities held for a
Series to any protective committee, reorganization committee or other person in
connection with the reorganization, refinancing, merger, consolidation or
recapitalization or sale of assets of any corporation, and receive and hold
under the terms of this Agreement in the separate (bookkeeping) account for each
Series such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;

4.6.4 Make or cause to be made such transfers or exchanges of the
assets and take such steps as shall be states in said Written Instructions to be
for the purpose of effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of the Trust;

4.6.5 Deliver Securities owned by any Series upon sale of such
Securities for the account of such Series pursuant to Section 5;

4.6.6 Deliver Securities owned by any Series upon the receipt of
payment in connection with any repurchase agreement related to such Securities
entered into by such Series;

4.6.7 Deliver Securities owned by any Series to the issuer thereof
or its agent when such Securities are called, redeemed, retired or otherwise
become payable; provided, however, that in any such case the cash or other
consideration is to be delivered to the Bank.

4.6.8 Deliver Securities owned by any Series for delivery as
security in connection with any borrowings by such Series requiring a pledge of
Series assets, but only against receipt of amount borrowed;

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4.6.9 Deliver Securities owned by any Series upon receipt of
instructions from such Series for delivery to the Transfer Agent or to the
holders of Shares of such Series in connection with distributions in kind, as
may be described from time-to-time in the Series' Prospectus, in satisfaction of
requests by holders of Shares for repurchase or redemption; and

4.6.10 Deliver Securities owned by any Series for any other proper
business purpose, but only upon receipt of, in addition to Written Instructions,
a certified copy of a resolution of the Board of Directors signed by an
Authorized Person and certified by the Secretary or Assistant Secretary of the
Trust, specifying the Securities to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose to be a proper
business purpose, and naming the person or persons to whom delivery of such
Securities shall be made.

4.7 ENDORSEMENT AND COLLECTION OF CHECKS, ETC. The Bank is hereby
authorized to endorse and collect all checks, drafts or other orders for the
payment of money received by the Bank for the account of a Series.

5. PURCHASE AND SALE OF INVESTMENTS OF THE SERIES.

5.1 Promptly after each purchase of Securities held for the account of a
Series, the Trust shall deliver to the Bank Written Instructions specifying with
the respect to each purchase: (1) the name of the Series to which such
Securities are to be specifically allocated; (2) the name of the issuer and the
title of the Securities; (3) the number of shares or the principal amount
purchased and accrued interest, if any; (4) the date of purchase and settlement;
(5) the purchase price per unit; (6) the total amount payable upon such
purchase; (7) the name of the person from whom or the broker through whom the
purchase was MADE, if any; (8) whether or not such purchase is to be settled
through the Book-Entry System or the Depository; and (9) whether the Securities
purchased are to be deposited in the Book-Entry System or the Depository. The
Bank shall receive all Securities purchased by or for a Series and upon receipt
of such Securities shall pay out of the moneys held for the account of such
Series the total amount payable upon such purchase, provided that the same
conforms to the total amount payable as set forth in such Written Instructions.

5.2 Promptly after each sale of Securities of a Series, the Trust shall
deliver to the Bank Written Instructions specifying with respect to such sale:
(1) the name of the Series to which the Securities sold were specifically
allocated; (2) the name of the issuer and the title of the Securities; (3) the
number of shares or principal amount sold, and accrued interest, if any; (4) the
date of sale; (5) the sale price per unit; (6) the total amount payable to the
Series upon such sale; (7) the name of the broker through whom or the person to
whom the sale was made; and (8) whether or not such sale is to be settled
throughout the Book-Entry System or the Depository. The Bank shall deliver or
cause to be delivered the Securities to the broker or other person designated by
the Trust upon receipt of the total amount payable to such Series upon such
sale, provided that the same conforms to the total amount payable to such Series
as set forth in such Written Instructions. Subject to the foregoing, the Bank
may accept payment in such form as shall be satisfactory to it, and may deliver
Securities and arrange for payment in accordance with the customs prevailing
among dealers in Securities held by investment companies.

6. PAYMENT OF DIVIDENDS OR DISTRIBUTIONS.

6.1 The Trust shall furnish to the Bank the resolution of the Board of
Directors of the Trust certified by the Secretary or Assistant Secretary (i)
authorizing the declaration of dividends or distribution with respect to a
Series on a specified periodic basis and authorizing the Bank to rely on Written
Instructions specifying the date of the declaration of such dividend or
distribution, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount payable per
share to the shareholders of record as of the record date and the total amount
payable per shareholders of record as of the record date and the total amount
payable to the Transfer Agent on t he payment date, or (ii) setting forth the
date of declaration of any dividend or distribution by a Series, the date of
payment thereof , the record date as of which shareholders entitled to payment
shall be determined, the amount payable per share to the shareholders of record
as of the record date and the total payable to the Transfer Agent on the payment
date.

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<PAGE>

6.2 Upon the payment date specified in such resolution or Written
Instruction in the Bank shall pay out the moneys specifically allocated to and
held for the account of the appropriate Series of the total amount payable to
the Transfer Agent of the Trust.

7. SALE AND REDEMPTION OF SHARES OF A SERIES.

7.1 Whenever the Trust shall sell or redeem any Shares of a Series, the
Trust shall deliver or cause to be delivered to the Bank Written Instructions
duly specifying:

(1) The name of the Series whose Shares were sold or redeemed;

(2) The number of Shares sold or redeemed, trade date, and price; and

(3) The amount of money to be received or paid by the Bank for the
sale or redemption of such Shares.

7.2 Upon receipt of such money from the Transfer Agent, the Bank shall
credit such money to the separate account of the Series.

7.3 Upon issuance of any Shares of a Series in accordance with the
foregoing provisions of this Section 7, the Bank shall pay, out of the moneys
specifically allocated and held for the account of such Series, all original
issue or other taxes required to be paid in connection with such issuance upon
the receipt of Written Instructions specifying the amount to be paid.

7.4 Upon receipt from the Transfer Agent of advice setting forth the
number of Shares of a Series received by the Transfer Agent for redemption and
that such Shares are valid and in good form for redemption, the Bank shall make
appropriate payment to the Transfer Agent out of the moneys specifically
allocated to and held for the account of the Series.

8. INDEBTEDNESS.

8.1 The Trust will cause to be delivered to the Bank by any bank
(excluding the Bank) from which the Trust borrows money for temporary
administrative or emergency purposes using Securities as collateral for such
borrowings, a notice or undertaking in the form currently employed by any such
bank setting forth the amount which such bank will loan to the Trust against
delivery of a stated amount of collateral. The Trust shall promptly deliver to
the Bank Written Instructions stating with respect to each borrowing: (1) the
name of the Series for which the borrowing is to be made; (2) the name of the
bank; (3) the amount and terms of the borrowing, which may be set forth by
incorporating by reference an attached promissory note, duly endorsed by the
Trust, or other loan agreement; (4) the time and date, if known, on which the
loan is to be entered into (the "borrowing date"); (5) the date on which the
loan becomes due and payable; (6) the total amount payable to the Trust for the
separate of the Series on the borrowing date; (7) the market value of
Securities to be delivered as collateral for such loan, including the name of
the issuer, the title and the number of shares or the principal amount of any
particular Securities; (8) whether the Bank is to deliver such collateral
through the Book-Entry System or the Depository; and (9) a statement that such
loan is in conformance with the 1940 Act and the Series' Prospectus.

8.2 Upon receipt of the Written Instructions referred to above, the Bank
shall deliver on the borrowing date the specified collateral and the executed
promissory note, if any, against delivery by the lending bank of the total
amount of the loan payable, provided that the same conforms to the total amount
payable as set forth in the Written Instructions. The Bank may, at the option
of the lending bank, keep such collateral in its possession, but such collateral
shall be subject to all rights therein given the lending bank by virtue of any
promissory note or loan agreement. The Bank shall deliver as additional
collateral in the manner directed by the Trust from time-to-time such Securities
specifically allocated to such Series as may be specified in Written
Instructions to collateralize further any transaction described in this Section
8. The Trust shall cause all Securities released from collateral status to be
returned directly to the Bank, the Bank shall receive from time-to-time such
return of collateral as may be tendered to it. In the event that the Trust
fails to specify in

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Written Instructions all of the information required by this Section 8, the Bank
shall not be under any obligation to deliver any Securities. Collateral
returned to the Bank shall be held hereunder as it was prior to being used as
collateral.

9. PERSONS HAVING ACCESS TO ASSETS OF THE SERIES.

9.1 No Trustee, officer, employee or agent of the Trust, and no officer,
director, employee or agent of the Advisor, shall have physical access to the
assets of the Trust held by the Bank or be authorized or permitted to withdraw
any investments of the Trust, nor shall the Bank deliver any assets of the Trust
to any such person. No officer, director, employee or agent of the Bank who
holds any similar position with the Trust or the Advisor shall have access to
the Assets of the Trust.

9.2 The individual employees of the Bank initially duly authorized by the
Board of Directors of the Bank to have access to the assets of the Trust are
listed on Schedule A which is attached and made a part of this Agreement by this
reference. The Bank shall advise the Trust of any change in the individuals
authorized to have access to the assets of the Trust by written notice to the
Trust.

9.3 Nothing in this Section 9 shall prohibit any officer, employee or
agent of the Trust, or any officer, director, employee or agent of the Advisor,
from giving Written Instructions to the Bank so long as it does not result in
delivery of or access to assets of the Trust prohibited by this Section 9.

10. CONCERNING THE BANK.

10.1 STANDARD OF CONDUCT. The Bank shall not be responsible for the title,
validity or genuineness of any property or evidence of title thereto received by
it or delivered by it pursuant to this Agreement and reasonably believed by it
to be valid or genuine and shall be held harmless in acting upon proper
instructions, resolutions, any notice, request, consent, certificate or other
instrument reasonably believed by it to be genuine and to be signed by the
proper party or parties and shall be entitled to receive as conclusive proof of
any fact or matter required to be ascertained by it here under, a certificate
signed by the President, a Vice President, the Treasurer, the Secretary or an
Assistant Secretary of the Trust. The Bank may receive and accept a resolution
as conclusive evidence (a) of the authority of any person to act in accordance
with such vote or (b) of any determination or of any action by the Board of
Directors pursuant to the Declaration of Trust as described in such vote, and
such vote may be considered as in full force and effect until receipt by the
Bank of written notice from the Secretary or an Assistant Secretary to the
contrary.

The Bank shall be entitled to rely on and may act upon advice of counsel (who
may be counsel for the Trust) on all matters, and shall be without liability for
any action reasonably taken or omitted pursuant to such advice. Provided,
however, that if such reliance involves a potential material loss to the Trust,
the Bank shall advise the Trust of any such actions to be taken in accordance
with such advice of counsel to the Bank.

The Bank shall be held to the exercise of reasonable care in carrying out the
provisions of this Agreement but shall be liable only for its own negligent or
bad acts or willful misconduct or willful failures to act by the Bank and its
agents or Employees. Bank shall have no responsibility for reviewing or
questioning the acts or records of any prior Custodian. The Trust shall
indemnify the Bank and hold it harmless from and against all losses,
liabilities, demands, claims, actions, expenses, attorneys' fees, and taxes
(other than taxes on income) with respect to each Series which the Bank may
suffer or incur on account of being Bank hereunder except to the extent that
such losses, liabilities, demands, claims, actions, expenses, attorneys fees or
taxes arise from the Bank's own negligence, bad faith, willful misconduct, or
willful failure to act. Notwithstanding the foregoing the Bank shall be liable
to the Trust for any loss or damage resulting from the use of the Book-Entry
System or the Depository arising by reason of any negligence, misfeasance or
misconduct on the part of the Bank or any of its employees or agents.

10.2 LIMIT OF DUTIES. Without limiting the generality of the
foregoing, the Bank shall be under no duty or obligation to inquire into, and
shall not be liable for:

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10.2.1 The validity of the issue of any Securities purchased by any
Series, the legality of the purchase thereof, the permissibility of the purchase
thereof under the Trust's governing documents, or the propriety of the amount
paid therefor;

10.2.2 The legality of the sale of any Securities by any Series,
the permissibility of such sale under the Trust's governing documents, or the
propriety of the amount for which the same are sold;

10.2.3 The legality of the issue or the sale of any Shares, or the
sufficiency of the amount to be received therefor;

10.2.4 The legality of the redemption of any Shares , or the
sufficiency of the amount to be paid therefor;

10.2.5 The legality of the declaration or payment of any dividend
or other distribution of any Series;

10.2.6 The legality of any borrowing for temporary or emergency
administrative purposes.

10.3 NO LIABILITY UNTIL RECEIPT. The Bank shall not be liable for, or
considered to be the Custodian of, any money, whether or not represented by any
check, draft, or other instrument for the payment of money, received by it on
behalf of any Series until the Bank actually receives and collects such money
directly or by the final crediting of the account representing the Trust's
interest in the Book-Entry System or the Depository.

10.4 COLLECTION WHERE PAYMENT REFUSED. The Bank shall not be under any
duty or obligation to take action to effect collection of any amount, if the
Securities upon which such amount is payable are in default, or if payment is
refused after due demand or presentation, unless and until (a) it shall be
directed to take such action by Written Instructions and (b) it shall be assured
to its satisfaction of reimbursement of its costs and expenses in connection
with any such action.

10.5 APPOINTMENT OF AGENTS AND SUB-CUSTODIANS. The Bank may appoint one or
more banking institutions, including but not limited to banking institutions
located in foreign countries, to act as Depository or Depositories or as Sub-
Custodians of Securities and moneys at any time owned by any Series, upon terms
and conditions specified in Written Instructions provided, however, that such
sub-custodian will be a qualified custodian under the 1940 Act and the Bank will
be responsible for sub-custodian's actions to the same extent it is responsible
for its own. The Bank shall use reasonable care in selecting a Depository
and/or Sub-Custodian located in a country other than the United States ("Foreign
Sub-Custodian"), and shall oversee the maintenance of any Securities or moneys
of the Trust by any Foreign Sub-Custodian.

10.6 NO DUTY TO ASCERTAIN AUTHORITY. The Bank shall not be under any duty
or obligation to ascertain whether any Securities at any time delivered to or
held by it for the Trust and specifically allocated to a Series are such as may
properly be held by the Series and specifically allocated to such Series under
the provisions of the Declaration of Trust and the Series' Prospectus.

10.7 RELIANCE ON CERTIFICATES AND INSTRUCTIONS. The Bank shall be entitled
to rely upon any Written Instructions or Oral Instructions actually received by
the Bank pursuant to the applicable Sections of this Agreement and reasonably
believed by the Bank to be genuine and to be given by an Authorized Person. The
Trust agrees to forward to the Bank Written Instructions from an Authorized
Person confirming such Oral Instructions in such manner so that such Written
Instructions are received by the Bank, whether by hand delivery, telex, or
otherwise, by the close of business on the same day that such Oral Instructions
are given to the Bank. The Trust agrees that if such confirming instructions
are not received by the Bank that it shall in no way affect the validity for the
transactions or enforceability of the transactions hereby authorized by the
Trust. The Trust agrees that the Bank shall incur no liability to the Trust in
acting upon Oral Instructions given to the Bank hereunder concerning such
transactions provided such instructions reasonably appear to have been received
from a duly Authorized Person.

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10.8 INSPECTION OF BOOKS AND RECORDS. The books and records of the Bank
regarding the Trust shall be the property of the Trust, shall be prepared and
maintained in compliance with the Investment Company Act of 1940, and shall be
open to inspection and audit at reasonable times by officers and auditors
employed by the Trust and by employees of the Securities and Exchange
Commission. The Bank shall provide the Trust, upon request, with any report
obtained by the Bank on the system of internal accounting control of the Book-
Entry System or the Depository and with such reports on its own system of
internal accounting control as the Trust may reasonably request from time-to-
time. Provided, however, that in the event that the Trust shall require a
report of internal accounting control produced by the auditors of the Series
rather than of the Bank, then such report shall be prepared at the expense of
the Series.

11. TERM AND TERMINATION.

11.1 This Agreement shall become effective on the date first set forth
above (the "Effective Date") and shall continue in effect thereafter as the
parties may mutually agree.

11.2 Either of the parties hereto may terminate this Agreement with respect
to any Series by giving to the other party a notice in writing specifying the
date of such termination, which shall be not less than 60 days after the date of
receipt of such notice. In the event such notice is given by the Trust, it
shall designate a Successor Custodian or Custodians, which shall be a person
qualified to so act under the 1940 Act. In the event such notice is given by
the Bank, the Trust shall, on or before the termination date, deliver to the
Bank Written Instructions designating a Successor Custodian or Custodians. In
the absence of such designation by the Trust, the Bank may designate a Successor
Custodian, which shall be a person qualified to so act under the 1940 Act. If
the Trust fails to designate a Successor Custodian for any Series, the Trust
shall upon the date specified in the notice of termination of this Agreement and
upon the delivery by the Bank of all Securities (other than Securities held in
the Book-Entry Systems which cannot be delivered to the Trust) and moneys then
owned by such Series, by deemed to be its own Custodian, and the Bank shall
thereby be relieved of all duties and responsibilities pursuant to this
Agreement, other than the duty with respect to Securities held in the Book-Entry
System which cannot be delivered to the Trust.

11.3 Upon the date set forth in such notice under paragraph (b) of this
Section, this Agreement shall terminate to the extent specified in such notice,
and the Bank shall upon receipt of a notice of acceptance by the Successor
Custodian on that date deliver directly to the Successor Custodian all
Securities and moneys then held by the Bank and specifically allocated to the
Series or Series specified, after deducting all fees, expenses and other amounts
for the payment or reimbursement of which it shall then be entitled with respect
to such Series or Series.

12. ADDITIONAL SERVICES BY BANK.

12.1 If allowed by the prospectus, Investment Adviser may direct that the
assets of any Series be invested in deposits in Bank or its affiliates bearing a
reasonable rate of interest.

12.2 OTHER BANK SERVICES. Any Authorized Person may direct Bank to utilize
other services or facilities provided by UnionBanCal Corporation ("UBCC"), its
subsidiaries or affiliates including Bank. Such services shall include, but not
be limited to (1) the placing of orders for the purchase, sale exchange,
investment or reinvestment of Securities through any brokerage service conducted
by, or (2) the purchase of units of any investment company managed or advised by
Bank, UBCC, or their subsidiaries or affiliates and/or for which Bank, UBCC, or
their subsidiaries or affiliates act as Custodian or provide investment advice
or other services for a fee, including, without limitation, the HighMark Funds.
Trust hereby acknowledges that Bank, UBCC or their subsidiaries or affiliates
will receive fees for such services in addition to the fees payable under this
Agreement. Fee Schedules for such additional directed services shall be
delivered to the Authorized Person before provision of such services.

13. MISCELLANEOUS.

13.1 Annexed hereto as Schedule A is a certain signed by two of the present
Officers of the Trust setting forth the names of a the signatures of the present
Authorized Persons. The Trust agrees to furnish

-9-
<PAGE>

to the Bank a new certification in similar form the event that any such present
Authorized Person ceases to be such an Authorized Person or in the event that
other or additional Authorized Persons are elected or appointed. Until such new
certification shall be received, the Bank shall be fully protected in acting
under the provisions of this Agreement upon Oral Instructions or signatures of
the present Authorized Persons as set forth in the last delivered certification.

13.2 Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Bank, shall be sufficiently given if addressed
to the Bank and mailed or delivered to it at its offices at:

Union Bank of California, N.A.
Mutual Fund Services Dept., Trust Group
475 Sansome Street, 15th Floor
San Francisco, California 94111

or such other place as the Bank may from time-to-time designate in writing.

13.3 Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Trust, shall be sufficiently given if
addressed to the Trust and mailed or delivered to it at its offices at 2550
Fifth Avenue, Suite 808, San Diego, CA 92103 or at such other place as the
Trust may from time-to-time designate in writing.

13.4 This Agreement may not be amended or modified in any manner except by
a written agreement executed by both parties with the same formality as this
Agreement, and as may be permitted or required by the 1940 Act.

13.5 This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Trust without the written consent
of the Bank, or by the Bank without the written consent of the Trust authorized
or approved by a resolution of the Board of Directors of the Trust, and any
attempted assignment without such written consent shall be null and void.

13.6 This Agreement shall be construed in accordance with the laws of the
State of California.

13.7 It is expressly agreed to that the obligations of the Trust hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents, or employees of the Trust, personally, but bind only the property of the
Trust, as provided in the Declaration of Trust of the Trust. The execution and
delivery of this Agreement have been authorized by the Trustees of the Trust and
signed by an authorized officer of the Trust, acting as such, and neither such
authorization by such Trustees nor such execution and delivery by such officer
shall be deemed to have made by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust property of
the Trust as provided in its Declaration of Trust.

13.8 The captions of the Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.

13.9 This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.

-10-
<PAGE>

14. MERGER OR CONSOLIDATION OF BANK.

Any corporation or association (i) into which the Bank may be merged or
with which it may be consolidated, (ii) resulting from any merger,
consolidation, or reorganization to which the Bank may be a party, or (iii) to
which all or substantially all of the fiduciary business of the Bank may be
transferred shall become a Successor Custodian under this Agreement without the
necessity of executing any instrument or performing any further act subject to
the provision of this Agreement concerning resignation or removal of the
Custodian.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunder duly authorized as of the day
and year first above written.

THE SEFTON FUNDS TRUST

BY: /s/ Harley K. Sefton
------------------------------
Harley K. Sefton, Chairman

DATE: 5/7/97
------------------------------

UNION BANK OF CALIFORNIA, N.A.

BY: /s/ Toni Sarrica
------------------------------
Toni Sarrica, Vice President

DATE: 4/25/97
----------------------------

-11-
<PAGE>

Schedule A
Authorized Persons

Part I - Access Persons of Bank

Toni Sarrica
Mark Peterson
Marsha Aronovsky
Marlen Duque-Estrada
Phil Clarke

Part II - Authorized Persons of the Trust

Harley K. Sefton, President & CEO
Thomas C. Bowden, Vice President
Lani Capossere, Vice President & CEO
Alan A. Lordi, Vice President
Ted Piorkowski, Vice President
Leif O. Sanchez, Vice President

THE SEFTON FUNDS TRUST

BY: /s/ Harley K. Sefton
------------------------------
Harley K. Sefton, Chairman

DATE: 5/7/97
------------------------------

UNION BANK OF CALIFORNIA, N.A.

BY: /s/ Toni Sarrica
------------------------------
Toni Sarrica, Vice President

DATE: 4/25/97
----------------------------

-12-
<PAGE>

Schedule B - Funds

- - Sefton U.S. Government Fund
- - Sefton California Tax-Free Fund
- - Sefton Equity Value Fund

THE SEFTON FUNDS TRUST

BY: /s/ Harley K. Sefton
------------------------------
Harley K. Sefton, Chairman

DATE: 5/7/97
------------------------------

UNION BANK OF CALIFORNIA, N.A.

BY: /s/ Toni Sarrica
------------------------------
Toni Sarrica, Vice President

DATE: 4/25/97
----------------------------

-13-
<PAGE>

Amended - Schedule B - Funds

- - Sefton U.S. Government Fund
- - Sefton California Tax-Free Fund
- - Sefton Equity Value Fund
- - Sefton Small Company Value Fund

THE SEFTON FUNDS TRUST

BY: /s/ Harley K. Sefton
------------------------------
Harley K. Sefton, Chairman

DATE: June 27, 1997
------------------------------

UNION BANK OF CALIFORNIA, N.A.

BY: /s/ Toni Sarrica
------------------------------
Toni Sarrica, Vice President

DATE: June 9, 1997
----------------------------

-13-
<PAGE>

Schedule C
Mutual Fund Services
Schedule of Fees

Custody: One basis point of market value assessed quarterly at the end of the
quarter (annualized).

Minimum Fee:

THE SEFTON FUNDS TRUST

BY: /s/ Harley K. Sefton
------------------------------
Harley K. Sefton, Chairman

DATE: 5/7/97
------------------------------

UNION BANK OF CALIFORNIA, N.A.

BY: /s/ Toni Sarrica
------------------------------
Toni Sarrica, Vice President

DATE: 4/25/97
----------------------------

-14-

<PAGE>

[LETTERHEAD]

November 13, 1997

Sefton Funds Trust
3435 Stelzer Road
Columbus, Ohio 43219

RE: Sefton Funds Trust (Registration Nos. 33-88568 and 811-8948)
------------------------------------------------------------

Dear Sir or Madam:

We hereby consent to the reference to our firm as Counsel in
Post-Effective Amendment #5 to Registration No. 33-88568.

Sincerely,

/s/ BAKER & MCKENZIE

BAKER & MCKENZIE

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 5 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated May 22, 1997, relating to the financial
statements and financial highlights appearing in the March 31, 1997 Annual
Report to Shareholders of Sefton Funds Trust, which is also incorporated by
reference into the Registration Statement. We also consent to the references to
us under the headings "Other Information" and "Financial Statements" in the
Statement of Additional Information.

/S/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
950 Seventeenth Street, Suite 2500
Denver, Colorado
November 14, 1997

<PAGE>

THE SEFTON FUNDS
EXHIBIT 16
TOTAL RETURN

SMALL COMPANY VALVE FUND

AVERAGE ANNUAL TOTAL RETURN
- ---------------------------
WITH SALES CHARGE OF 0.00%

T = (ERV/P)^1/N - 1

WHERE: T = TOTAL RETURN

ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.

P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.

N = NUMBER OF DAYS

EXAMPLE:

SINCE INCEPTION: ( 06/30/97 TO 09/30/97 ):
( 1,103.15 /1,000^(1/( 92 /365))-1) = 47.62%

- ------------------------------
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%

T = (ERV/P) - 1

WHERE: T = TOTAL RETURN

ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.

P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.

EXAMPLE:

YEAR TO DATE: ( 06/30/97 TO 09/30/97 ):
1,103.15 /1,000) - 1 = 10.32%
QUARTERLY: ( 06/30/97 TO 09/30/97 ):
1,103.15 /1,000) - 1 = 10.32%
<PAGE>

SEFTON FUNDS
EXHIBIT 16
30-DAY S.E.C. YIELD CALCULATIONS
SMALL COMPANY VALUE FUND

(a-b)
------------
30-Day S.E.C. Yield Equation = 2 *{[( (cd) +1)^6]-1} =

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 (NAV for No Load) per
share on the last day of the period

WITH 0.00% LOAD:

(67,409.13 - 36,251.60 )
-------------------------------
2 *{[( +1)^6]-1} = 1.27%
(2,238,747.617 * 13.18)

The performance was computed based on the thirty day period ending September 30,
1997.
<PAGE>

THE SEFTON FUNDS
DISTRIBUTION RATES
EXHIBIT 16

DISTRIBUTION RATE (INCLUDING CAPITAL GAINS)(NO LOAD)
- ----------------------------------------------------

DISTRIBUTION RATE = D/P
WHERE: D = Distributions per share over a 3 month period
(income and capital gain distributions)
P = Net Asset Value at end of 3 month period

EXAMPLES ( 06/30/97 TO 09/30/97 )
SMALL COMPANY VALUE FUND 0.0577 / 13.18= 0.44%

DISTRIBUTION RATE (EXCLUDING CAPITAL GAINS)(NO LOAD)
- ----------------------------------------------------
DISTRIBUTION RATE = D/P
WHERE: D = Distributions per share over a 3 month period
(income distributions only)
P = Net Asset Value at end of 3 month period

EXAMPLES ( 06/30/97 TO 09/30/97 )
SMALL COMPANY VALUE FUND 0.0577 / 13.18= 0.44%

<PAGE>
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<NAME> SEFTON FUND TRUST
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<NAME> SEFTON US GOVERNMENT FUND

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<INVESTMENTS-AT-VALUE> 33643415
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<TOTAL-LIABILITIES> 198521
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<OVERDISTRIBUTION-GAINS> 89741
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<INTEREST-INCOME> 1065980
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<EXPENSES-NET> 161260
<NET-INVESTMENT-INCOME> 904720
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<APPREC-INCREASE-CURRENT> 1135486
<NET-CHANGE-FROM-OPS> 2026743
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<DISTRIBUTIONS-OF-INCOME> 904720
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<NUMBER-OF-SHARES-SOLD> 281568
<NUMBER-OF-SHARES-REDEEMED> 67791
<SHARES-REINVESTED> 45068
<NET-CHANGE-IN-ASSETS> 4316085
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<PER-SHARE-NII> .35
<PER-SHARE-GAIN-APPREC> .44
<PER-SHARE-DIVIDEND> .35
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<PER-SHARE-NAV-END> 12.45
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<PAGE>
<ARTICLE> 6
<CIK> 0000935742
<NAME> SEFTON FUND TRUST
<SERIES>
<NUMBER> 021
<NAME> SEFTON CALIFORNIA TAX-FREE FUND

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
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<INVESTMENTS-AT-VALUE> 38348104
<RECEIVABLES> 679625
<ASSETS-OTHER> 88572
<OTHER-ITEMS-ASSETS> 32454
<TOTAL-ASSETS> 39148755
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 196419
<TOTAL-LIABILITIES> 196419
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 36801935
<SHARES-COMMON-STOCK> 3062667
<SHARES-COMMON-PRIOR> 2896332
<ACCUMULATED-NII-CURRENT> 3609
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 208193
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1938599
<NET-ASSETS> 38952336
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1033087
<OTHER-INCOME> 0
<EXPENSES-NET> 176697
<NET-INVESTMENT-INCOME> 856390
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 1366181
<NET-CHANGE-FROM-OPS> 2222571
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 856390
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 192181
<NUMBER-OF-SHARES-REDEEMED> 84624
<SHARES-REINVESTED> 58778
<NET-CHANGE-IN-ASSETS> 3447957
<ACCUMULATED-NII-PRIOR> 3609
<ACCUMULATED-GAINS-PRIOR> 208193
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 112610
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 213967
<AVERAGE-NET-ASSETS> 37453469
<PER-SHARE-NAV-BEGIN> 12.26
<PER-SHARE-NII> .29
<PER-SHARE-GAIN-APPREC> .46
<PER-SHARE-DIVIDEND> .29
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.72
<EXPENSE-RATIO> 0.94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000935742
<NAME> SEFTON FUNDS TRUST
<SERIES>
<NUMBER> 031
<NAME> THE SEFTON EQUITY VALUE FUND

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 67872711
<INVESTMENTS-AT-VALUE> 85309701
<RECEIVABLES> 114210
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 36001
<TOTAL-ASSETS> 85459912
<PAYABLE-FOR-SECURITIES> 947237
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 648491
<TOTAL-LIABILITIES> 1595728
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 56729885
<SHARES-COMMON-STOCK> 4119562
<SHARES-COMMON-PRIOR> 5257244
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 837
<ACCUMULATED-NET-GAINS> 9698146
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17436990
<NET-ASSETS> 83864184
<DIVIDEND-INCOME> 837266
<INTEREST-INCOME> 157578
<OTHER-INCOME> 0
<EXPENSES-NET> 585737
<NET-INVESTMENT-INCOME> 409107
<REALIZED-GAINS-CURRENT> 6811816
<APPREC-INCREASE-CURRENT> 10987288
<NET-CHANGE-FROM-OPS> 18208211
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 408923
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 197938
<NUMBER-OF-SHARES-REDEEMED> 1356290
<SHARES-REINVESTED> 20670
<NET-CHANGE-IN-ASSETS> (2451485)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 2886330
<OVERDISTRIB-NII-PRIOR> 1021
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 415489
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 596423
<AVERAGE-NET-ASSETS> 82857126
<PER-SHARE-NAV-BEGIN> 16.42
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> 3.94
<PER-SHARE-DIVIDEND> .09
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.36
<EXPENSE-RATIO> 1.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000935742
<NAME> SEFTON FUNDS TRUST
<SERIES>
<NUMBER> 041
<NAME> THE SEFTON SMALL COMPANY VALUE FUND

<S> <C>
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<PERIOD-START> JUN-30-1997
<PERIOD-END> SEP-30-1997
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<INVESTMENTS-AT-VALUE> 31052285
<RECEIVABLES> 56386
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 23628
<TOTAL-ASSETS> 31132299
<PAYABLE-FOR-SECURITIES> 912079
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 188920
<TOTAL-LIABILITIES> 1100999
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27496149
<SHARES-COMMON-STOCK> 2278784
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 450
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 304025
<ACCUM-APPREC-OR-DEPREC> 2838726
<NET-ASSETS> 30031300
<DIVIDEND-INCOME> 102426
<INTEREST-INCOME> 134250
<OTHER-INCOME> 0
<EXPENSES-NET> 104647
<NET-INVESTMENT-INCOME> 132029
<REALIZED-GAINS-CURRENT> (304025)
<APPREC-INCREASE-CURRENT> 2838726
<NET-CHANGE-FROM-OPS> 2666730
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 131579
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2370247
<NUMBER-OF-SHARES-REDEEMED> 101390
<SHARES-REINVESTED> 9927
<NET-CHANGE-IN-ASSETS> 30031300
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-EXPENSE> 121436
<AVERAGE-NET-ASSETS> 27014387
<PER-SHARE-NAV-BEGIN> 12.00
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> 1.18
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<PER-SHARE-NAV-END> 13.18
<EXPENSE-RATIO> 1.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>