SEFTON FUNDS, 485BPOS, 1997-06-30

SEFTON FUNDS
485BPOS, 1997-06-30

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 1997

REGISTRATION NOS. 33-88568
811-8948
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A

REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/

PRE-EFFECTIVE AMENDMENT NO. / /

POST-EFFECTIVE AMENDMENT NO. 4 /X/

AND/OR

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/

AMENDMENT NO. 6 /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) (Zip Code)

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

GEORGE MARTINEZ, ESQ.
3435 STELZER ROAD
COLUMBUS, OHIO 43219
(Name and Address of Agent for Service)

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 (check appropriate
box):

X immediately upon filing pursuant to paragraph (b)
on (date) pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a) of Rule 485

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

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Total Pages:

Exhibit Index:
<PAGE>
SEFTON FUNDS TRUST
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(a)
UNDER THE SECURITIES ACT OF 1933
U.S. GOVERNMENT FUND
CALIFORNIA TAX-FREE FUND
EQUITY VALUE FUND
SMALL COMPANY VALUE FUND
<TABLE>
<CAPTION>
PART A PROSPECTUS CAPTION
- -------- ---------------------------------------------------
<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

PART B STATEMENT OF ADDITIONAL INFORMATION CAPTION
- -------- ---------------------------------------------------
<S> <C> <C>
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
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>
<PAGE>

SEFTON FUNDS TRUST

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

PROSPECTUS
JUNE 30, 1997

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

/ / U.S. GOVERNMENT FUND

/ / CALIFORNIA TAX-FREE FUND

/ / EQUITY VALUE FUND

/ / SMALL COMPANY VALUE FUND
<PAGE>

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

SEFTON CAPITAL MANAGEMENT - Investment Adviser
("SCM" or the "Adviser")
BISYS FUND SERVICES - Administrator, Distributor and Sponsor
("BISYS" or the "Distributor")

This prospectus describes four funds (each, a "Fund" or, collectively, the
"Funds"), managed by Sefton Capital Management, a California corporation. The
Funds and their objectives are:

The U.S. Government Fund attempts to provide investors with as high a
level of current income as is consistent with preservation of capital.

The California Tax-Free Fund attempts to provide investors with as high a
level of current income, exempt from both Federal and California personal income
taxes, as is consistent with preservation of capital.

The Equity Value Fund attempts to provide investors with long-term capital
appreciation.

The Small Company Value Fund attempts to provide investors with long-term
capital appreciation.

Shares of the Funds are sold to the public by the Distributor as an
investment vehicle for individuals, institutions, corporations and fiduciaries.
The Funds are separate investment funds of Sefton Funds Trust (the "Trust"), a
Delaware business trust and registered management investment company.
Investments in shares of the Funds involve risk, including possible loss of
principal.

This Prospectus sets forth concisely the information a prospective
investor should know before investing in any of the Funds and should be read and
retained for information about each Fund.

A Statement of Additional Information (the "SAI"), dated June 30, 1997,
containing additional and more detailed information about the Funds, has been
filed with the Securities and Exchange Commission ("SEC") and is hereby
incorporated by reference into this Prospectus. It is available without charge
and can be obtained by writing or calling the Funds at the address and
information number printed above.

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

June 30, 1997

1
<PAGE>
Table of Contents

Page

HIGHLIGHTS ................................................................ 3

FUND EXPENSES ............................................................. 6

FINANCIAL HIGHLIGHTS ...................................................... 8

THE FUNDS ................................................................ 12

THE INVESTMENT POLICIES AND PRACTICES OF THE FUNDS ....................... 12

MANAGEMENT OF THE FUNDS .................................................. 14

FUND SHARE VALUATION ..................................................... 17

PRICING OF FUND SHARES ................................................... 18

MINIMUM PURCHASE REQUIREMENTS ............................................ 18

PURCHASE OF FUND SHARES .................................................. 18

INDIVIDUAL RETIREMENT ACCOUNTS ........................................... 19

EXCHANGE OF FUND SHARES .................................................. 19

REDEMPTION OF FUND SHARES ................................................ 20

DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX .......................... 23

DESCRIPTION OF SECURITIES AND INVESTMENT PRACTICES ....................... 27

INVESTMENT RESTRICTIONS .................................................. 38

RISKS OF INVESTING IN THE FUNDS .......................................... 39

OTHER INFORMATION ........................................................ 42

2
<PAGE>
HIGHLIGHTS

INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS

This Prospectus describes four funds managed by SCM. Each Fund has a
distinct investment objective and policies.

THE FUNDS:

U.S. GOVERNMENT FUND. The investment objective of the U.S. Government
Fund is to provide investors with as high a level of current income as is
consistent with preservation of capital. The Fund pursues its objective by
investing, under normal conditions, at least 65% of its total assets in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. The Fund may also invest in certificates of deposit, bankers'
acceptances, and commercial paper rated in one of the two highest categories by
a nationally recognized statistical rating organization ("NRSRO"), investment
grade corporate debt securities, and investment grade mortgage- and asset-backed
securities, including securities issued by foreign issuers, or unrated
securities of these types determined by the Adviser to be of comparable quality.
The Fund may also enter into repurchase agreements with respect to securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
The securities of foreign issuers in which the Fund may invest are: corporate
debt securities, floating rate and variable rate debt, forward commitments and
when-issued securities, market-auction preferred stock, certificates of deposit
and bankers' acceptances issued by foreign banks, and obligations of foreign
governments or their subdivisions, agencies and instrumentalities, international
agencies and supranational entities. The Fund invests primarily in U.S.
Government and U.S. Government agency securities such that its average weighted
maturity will be from 5 to 10 years.

CALIFORNIA TAX-FREE FUND. The investment objective of the California Tax-
Free Fund is to provide investors with as high a level of current income, exempt
from both Federal and California personal income taxes, as is consistent with
preservation of capital. The Fund pursues this objective by investing primarily
in California municipal obligations ("Obligations") such that the portfolio's
weighted average stated maturity will be 10 or more years. The Fund invests in
obligations that present acceptable credit risks in the judgment of the Adviser
and that, at the time of purchase, are rated investment grade or, if such
securities are unrated but are determined by the Adviser to be of comparable
quality, the Fund may invest up to 15% of its portfolio in such unrated
securities. The Fund may continue to hold obligations subsequently downgraded to
below investment grade. The Fund intends to invest 100% of its net assets in
municipal obligations exempt from California and federal income taxes. As a
fundamental policy, the California Tax-Free Fund will have at least 80% of its
net assets invested in tax-exempt securities and in securities the interest on
which is not a tax preference item for purposes of the Federal alternative
minimum tax. At least 65% of the value of its total assets will be invested in
Obligations. Some of the Obligations in which the Fund invests may be "private
activity bonds," the interest on which is a tax

3
<PAGE>
preference item for purposes of the Federal alternative minimum tax. For
temporary defensive purposes, including times when Obligations may not be
available in the marketplace, the Adviser may determine that a temporary
defensive position is warranted and may invest more than 20% of the Fund's net
assets in securities that are subject to Federal income tax, California personal
income tax, or both, limited to securities issued or guaranteed by the United
States Government, its agencies or instrumentalities, and related repurchase
agreements. To the extent the Fund is so invested, it will not be invested in
accordance with its investment objectives and policies.

The California Tax-Free Fund may invest not more than 15% of its net
assets in illiquid securities. The Board of Trustees will make a determination
as to the liquidity of such investments based upon guidelines established by the
Adviser which provide for analysis of such factors as the frequency of trades
and quotes for the security, the number of dealers willing to purchase or sell
the security and the number of other potential buyers, and the willingness of
dealers to undertake and make a market in the security.

EQUITY VALUE FUND. The investment objective of the Equity Value Fund is
to provide investors with long-term capital appreciation. The Fund pursues this
objective by investing primarily in common stocks of both domestic and foreign
companies. The Fund may invest in large, well-established companies and smaller
companies with market capitalizations exceeding $50 million at the time of
purchase. Income generation is a secondary consideration for the Fund. However,
the Fund may purchase dividend paying stocks of particular issuers when the
issuer's dividend record may, in the Adviser's opinion, have a favorable
influence on the market value of the securities.

SMALL COMPANY VALUE FUND. The investment objective of the Small Company
Value Fund is to provide investors with long-term capital appreciation. The Fund
pursues its investment objective by investing primarily in a portfolio of equity
securities of both foreign and domestic small capitalization companies, defined
as companies having stock market capitalization of $1 billion or less at the
time of initial purchase, that the Adviser considers to be relatively
undervalued. Current income is a secondary consideration in selecting portfolio
investments. Under normal market conditions, the Fund will invest at least 65%
of its total assets in common stocks, preferred stocks, and securities
convertible into common stocks of small capitalization companies.

For additional information concerning the investment policies, practices
and risk considerations of the Funds, see "THE INVESTMENT POLICIES AND PRACTICES
OF THE FUNDS" and "RISKS OF INVESTING IN THE FUNDS" in this Prospectus.

4
<PAGE>
INVESTMENT RISKS

GENERAL. The price per share of each Fund will fluctuate with changes in
value of the investments held by such Fund. Additionally, there can be no
assurance that a Fund will achieve its investment objective or be successful in
preventing or minimizing the risk of loss that is inherent in investing in
particular types of investment products. Further, investment in the securities
of issuers in any foreign country involves special risks and considerations not
typically associated with investing in U.S. companies. Because there are no
restrictions on the maturity of any individual assets in which a Fund will
invest, an investment in a Fund carries some risk of volatility in principal
value.

SPECIAL RISKS SPECIFIC TO CALIFORNIA TAX-FREE FUND. Because the
California Tax-Free Fund will be highly concentrated in the securities of
California State and municipal issuers, the Fund will not be diversified.
Investment in a non-diversified fund could, therefore, entail greater risks than
investment in a "diversified" fund, including a risk of greater fluctuations in
yield and share price. There are risks to investment in the California Tax-Free
Fund posed by the economic strength of and pending legal actions against, the
State of California. It is not currently possible to assess the impact of such
economic factors and cases or current legislation and policies on the long-term
ability of California state and municipal issuers to pay interest or repay
principal on their obligations.

The foregoing is a summary of risks; see "RISKS OF INVESTING IN THE FUNDS"
in this Prospectus.

MANAGEMENT OF THE FUNDS

SCM acts as investment adviser to the Funds. For its services, the Adviser
receives from the Funds fees at annual rates based on each Fund's average daily
net assets. See "FUND EXPENSES - Fee Table" and "MANAGEMENT OF THE FUNDS" in
this Prospectus.

BISYS acts as administrator to the Funds. BISYS provides certain
administrative services to the Funds, for which it receives a fee from each Fund
payable at the annual rate of 0.15% of the Fund's average daily net assets.
BISYS will also distribute the Funds' shares and may be reimbursed for certain
of its distribution-related expenses.

For information on how to purchase or redeem shares in a Fund, please see
"PURCHASE OF FUND SHARES" and "REDEMPTION OF FUND SHARES" in this Prospectus.

5
<PAGE>
FUND EXPENSES

The purpose of the following table is to assist the shareholder in
understanding the various costs and expenses that an investor in each Fund will
bear, either directly or indirectly. Each Fund's costs and expenses are based
upon the Fund's operating expenses for the fiscal year ended March 31, 1997,
adjusted to reflect current fees and expenses, except the costs and expenses of
the Small Company Value Fund are based on estimates:

FEE TABLE

<TABLE>
<CAPTION>
Small
U.S. California Equity Company
Government Tax-Free Value Value
Fund Fund Fund Fund
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES

Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) None None None None
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price) None None None None
Deferred Sales Load (as a
percentage of redemption
proceeds) None None None None
Redemption Fees None None None None
Exchange Fees None None None None

ANNUAL FUND OPERATING EXPENSE
(as a percentage of average net
assets)

Management Fees (after waivers)* .50% .45% 1.00% 1.00%
12b-1 Fees None None None None
Other Expenses** .45% .44% .34% .56%

TOTAL PORTFOLIO OPERATING EXPENSES
(after waivers)*** .95% .89% 1.34% 1.56%
</TABLE>

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

* Management Fees consisting of investment advisory fees (before waivers) would
be .60%, .60%, 1.00% and 1.25%, respectively. The fee waivers reflected in
the table are voluntary and may be modified or terminated at any time without
the Funds' consent.

** Certain Service Organizations may receive fees from a Fund in amounts up to
an annual rate of 0.25% of the daily net asset value of the Fund shares owned
by the shareholders with whom the Service Organization has a servicing
relationship.

***Total Portfolio Operating Expenses (before waivers) would be 1.05%, 1.04%,
1.34% and 1.81%, respectively.

6
<PAGE>
Example:

You would pay the following expenses on a $1,000 investment, assuming (1)
5% gross annual return, (2) redemption at the end of each time period, (3) that
operating expenses are the same as described above, and (4) reinvestment of all
dividends and distributions:

<TABLE>
<CAPTION>
U.S. California Equity Small Company
Government Tax-Free Value Value
Fund Fund Fund Fund
--------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
1 Year $ 10 $ 9 $ 14 $ 16
3 Years 30 28 42 49
5 Years 53 49 73 85
10 Years 117 111 161 186
</TABLE>

THIS ASSUMED 5% ANNUAL RETURN AND THE EXPENSES SHOWN SHOULD NOT BE
CONSIDERED INDICATIONS OF ACTUAL OR EXPECTED PERFORMANCE OR OPERATING EXPENSES
OF ANY FUND, BOTH OF WHICH MAY VARY SIGNIFICANTLY.

7
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout the period)

The Financial Highlights for the period April 3, 1995 (commencement of
investment operations) to March 31, 1996 and for the fiscal year ended March 31,
1997 have been audited by Price Waterhouse LLP, independent accountants, whose
report thereon appears in the Trust's annual report and which is incorporated by
reference in the Statement of Additional Information ("SAI"). This information
should be read in conjunction with the financial statements and notes thereto
which are included in the SAI.

8
<PAGE>

SEFTON U.S. GOVERNMENT FUND

<TABLE>
<CAPTION>
For the Year Ended For the Period Ended
March 31, 1997 March 31, 1996 (1)
------------------- ---------------------
<S> <C> <C>
Net asset value - beginning of period $ 12.35 $ 12.00

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

Ratios/Supplemental Data:

Net assets, end of period (000) $ 30,062 $ 19,096
Ratio of expenses to average net assets 1.09% 1.02%(3)
Ratio of net investment income to average net
assets 5.64% 5.68%(3)
Ratio of expenses to average net assets without
fee waivers 1.39% 1.39%(3)
Ratio of net investment income to average net
assets without fee waivers 5.34% 5.31%(3)
Portfolio turnover rate (4) 11.94% 45.41%
</TABLE>

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(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
March 31, 1997 were $11,224,220 and $2,451,287, respectively.

9
<PAGE>

SEFTON CALIFORNIA TAX FREE FUND

<TABLE>
<CAPTION>
For the Year Ended For the Period Ended
March 31, 1997 March 31, 1996 (1)
------------------- ---------------------
<S> <C> <C>
Net asset value - beginning of period $ 12.19 $ 12.00

Income from investment operations
Net investment income 0.59 0.58
Net realized and unrealized gain from investment
transactions 0.09 0.20
Total income from investment operations 0.68 0.78
Dividends and distributions to shareholders
Dividends from net investment income (0.59) (0.58)
Distributions from net realized gain from
investment transactions (0.02) (0.01)
Total dividends and distributions (0.61) (0.59)
------- -------
Net asset value - end of period $ 12.26 $ 12.19
------- -------
------- -------
Total return 5.69% 6.60%(2)
------- -------
------- -------

Ratios/Supplemental Data:

Net assets, end of period (000) $ 35,504 $ 42,593
Ratio of expenses to average net assets 0.88% 0.83%(3)
Ratio of net investment income to average net
assets 4.83% 4.83%(3)
Ratio of expenses to average net assets without
fee waivers 1.17% 1.16%(3)
Ratio of net investment income to average net
assets without fee waivers 4.54% 4.51%(3)
Portfolio turnover rate (4) 14.52% 93.90%
</TABLE>

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

(1) Fund commenced investment operations April 3, 1995.

(2) Total return is not annualized.

(3) Annualized.

10
<PAGE>

SEFTON EQUITY VALUE FUND

<TABLE>
<CAPTION>
For the Year Ended For the Period Ended
March 31, 1997 March 31, 1996 (1)
------------------- ---------------------
<S> <C> <C>
Net asset value - beginning of period $ 14.92 $ 12.00

Income from investment operations
Net investment income 0.17 0.21
Net realized and unrealized gain from investment
transactions 3.14 2.92
Total income from investment operations 3.31 3.13
Dividends and distributions to shareholders
Dividends from net investment income (0.17) (0.21)
Distributions from net realized gain from
investment transactions (1.64) --
Total Dividends and distributions (1.81) (0.21)
------- -------
Net asset value - end of period $ 16.42 $ 14.92
------- -------
------- -------
Total return 23.15% 26.31%(2)
------- -------
------- -------

Ratios/Supplemental Data:

Net assets, end of period (000) $ 86,316 $ 36,326
Ratio of expenses to average net assets 1.52% 1.55%(3)
Ratio of net investment income to average net
assets 1.13% 1.68%(3)
Ratio of expenses to average net assets without
fee waivers 1.56% 1.66%(3)
Ratio of net investment income to average net
assets without fee waivers 1.09% 1.57%(3)
Average Commission Rate (4) .0520 --
Portfolio turnover rate (5) 77.65% 62.76%
</TABLE>

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

(1) Fund commenced investment operations April 3, 1995.

(2) Total return is not annualized.

(3) Annualized.

(4) Represents total dollar amount of commissions paid on portfolio
transactions for the year ended March 31, 1997, divided by total number of
portfolio shares purchased and sold for which commissions were charged.
Disclosure not required for periods prior to December 31, 1996.

(5) 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
March 31, 1997 were $67,785,869 and $34,941,037, respectively.

11
<PAGE>
THE FUNDS

Each Fund is a separate investment fund or portfolio, commonly known as a
mutual fund. The Funds are portfolios of a Delaware business trust organized
under the laws of the State of Delaware as an open-end management investment
company on January 6, 1995. The Trust's Board of Trustees oversees the overall
management of the Funds and elects the officers of each Fund.

THE INVESTMENT POLICIES AND PRACTICES OF THE FUNDS

- The investment objective of the U.S. Government Fund is to provide
investors with as high a level of current income as is consistent with
preservation of capital.

- The investment objective of the California Tax-Free Fund is to provide
investors with as high a level of current income, exempt from both
Federal and California personal income taxes, as is consistent with
preservation of capital.

- The investment objective of the Equity Value Fund is to provide
investors with long-term capital appreciation.

- The investment objective of the Small Company Value Fund is to provide
investors with long-term capital appreciation.

Each Fund follows its own investment policies and practices, including
certain investment restrictions. The "Investment Restrictions" section of the
SAI contains specific investment restrictions (the "Investment Restrictions")
which govern each Fund's investments. The Investment Restrictions and each
Fund's investment objective are fundamental policies which may not be changed
without a majority vote of shareholders of the affected Fund. Except for the
objectives and those restrictions specifically identified as fundamental, all
other investment policies and practices described in this Prospectus and in the
SAI are not fundamental, and may therefore be changed by the Board of Trustees
without shareholder approval.

The Adviser selects investments and makes investment decisions based on
the investment objective and policies of each Fund.

U.S. GOVERNMENT FUND. In selecting debt securities for the U.S.
Government Fund, the Adviser seeks to select those instruments that appear best
calculated to achieve the Fund's investment objective within the credit and risk
tolerances established for the Fund. In accordance with those policies, the Fund
may purchase commercial paper rated in one of the two highest rating categories
by nationally recognized statistical rating organization ("NRSRO"), corporate
debt securities rated in one of the four highest rating categories by an NRSRO,
mortgage- and asset-backed securities rated in one of the four highest rating
categories by an NRSRO, and other debt instruments which are of comparable
quality in the Adviser's opinion.

12
<PAGE>
CALIFORNIA TAX-FREE FUND. In selecting debt securities for the California
Tax-Free Fund, the Adviser seeks to select those instruments that appear best
calculated to achieve the Fund's investment objective within the credit and risk
tolerances established for the Fund. In accordance with those policies, the Fund
may purchase California Municipal Obligations rated BBB, SP-2 or better by
Standard & Poor's ("S&P") or Baa, MIG-2 or better by Moody's Investors Service
("Moody's"), commercial paper rated in one of the two highest rating categories
by an NRSRO or, if any such securities are not rated, are of comparable quality
in the Adviser's opinion. Under normal conditions, the Fund will have at least
80% of its net assets invested in tax-exempt securities and in securities the
interest on which is not a tax preference item for purposes of the Federal
alternative minimum tax. At least 65% of the value of its total assets will be
invested in California Municipal Obligations. The remaining net assets may be
invested in U.S. Government Securities and related repurchase agreements.

EQUITY VALUE FUND. In selecting equity investments (which include common
stocks of both domestic and foreign companies) for the Equity Value Fund
(formerly known as the Equity Fund) the Adviser selects companies for investment
using both quantitative and qualitative analysis to identify those issuers that,
in the Adviser's opinion, exhibit one or more of the following criteria: below-
average valuation multiples, improving financial strength, and a catalyst which
will allow the stock to reach what the Adviser believes to be the stock's
intrinsic value within a year.

The Adviser may also select other equity securities in addition to common
stocks for investment by the Equity Value Fund. Such other equity securities are
preferred stocks, common stock of real estate investment trusts, high grade
securities convertible into common stocks, and warrants. The Fund may invest no
more than 5% of its net assets in warrants, no more than 2% of which may be
invested in warrants which are not listed on the New York or American Stock
Exchanges. Normally, the Fund will invest at least 65% of its total assets in
common stocks or securities convertible into common stocks. For temporary
defensive purposes, however, the Fund may invest in U.S. Government securities,
certificates of deposit, bankers' acceptances, commercial paper, repurchase
agreements (maturing in seven days or less) and debt obligations of corporations
(corporate bonds, debentures, notes and other similar corporate debt
instruments) which are rated investment grade or better by S&P or Moody's.

SMALL COMPANY VALUE FUND. In selecting equity investments (which include
common stocks of both domestic and foreign companies) for the Small Company
Value Fund, the Adviser seeks to select small capitalization companies (defined
as companies with stock market capitalization of $1 billion or less at the time
of initial purchase) for investment using both quantitative and qualitative
analysis to identify those issuers that, in the Adviser's opinion, exhibit one
or more of the following criteria: below-average valuation multiples, improving
financial strength, and a catalyst which will allow the stock to reach what the
Adviser believes to be the stock's intrinsic value within a year.

13
<PAGE>

The Adviser may also select other equity securities in addition to common
stocks for investment by the Small Company Value Fund. Such other equity
securities are preferred stocks, common stock of real estate investment trusts,
and warrants. The Fund may invest no more than 5% of its net assets in warrants.
The Small Company Value Fund will invest at least 65% of its total assets in
common stocks, preferred stocks and securities convertible into common stocks of
small capitalization companies. For temporary defensive purposes, however, the
Fund may invest in U.S. Government securities, certificates of deposit, bankers'
acceptances, commercial paper, repurchase agreements (maturing in seven days or
less) and debt obligations of corporations (corporate bonds, debentures, notes
and other similar corporate debt instruments) which are rated investment grade
or better by S&P or Moody's.

The types of securities and investment practices used by the Funds are
described in greater detail at "DESCRIPTION OF SECURITIES AND INVESTMENT
PRACTICES."

MANAGEMENT OF THE FUNDS

The business and affairs of each Fund are managed under the direction of
the Board of Trustees. The Trustees are Harley K. Sefton, Grace Evans
Cherashore, Gordon T. Frost, Jr. and John J. Pileggi. Additional information
about the Trustees, as well as the Funds' executive officers, may be found in
the SAI under the heading "MANAGEMENT - Trustees and Officers."

THE ADVISER: SEFTON CAPITAL MANAGEMENT

Sefton Capital Management, 2550 Fifth Avenue, Suite 808, San Diego, CA
92103, acts as the investment adviser to the Funds. 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. Mr. Harley Sefton, President and
CEO of the Adviser, is responsible for the day to day management of the Funds.
Mr. Sefton started SCM in November, 1994. Prior to SCM, he was President of
First Interstate Capital Management, Inc. and San Diego Financial Capital
Management, Inc. (a wholly-owned subsidiary of San Diego Trust Savings Bank).
Prior to that, from January 1992 until January 1994, he was Vice Chairman and
Division Manager for San Diego Trust and Savings Bank, and from July 1986 until
December 1991 he was Senior Vice President and Chief Operating Officer of San
Diego Financial Capital Management, Inc. (a wholly-owned subsidiary of San Diego
Trust Savings Bank). Mr. Ted Piorkowski is the primary fund manager for the U.S.
Government Fund and the California Tax-Free Fund. Mr. Piorkowski is a Chartered
Financial Analyst who has been managing fixed income portfolios since 1988. From
March 1994 through May 1994 he managed portfolios for First Interstate Capital
Management, Inc. From January 1988 through March 1994 he managed portfolios for
San Diego Financial Capital Management, Inc. (a wholly-owned subsidiary of San
Diego Trust & Savings Bank). Mr. Leif O. Sanchez is

14
<PAGE>
the fund co-manager for the Equity Value Fund and the Small Company Value Fund.
Mr. Sanchez is a Chartered Financial Analyst who has been managing portfolios
since 1985. From March 1994 through January 1995 he managed portfolios for First
Interstate Capital Management, Inc. From March 1985 through March 1994 he
managed portfolios for San Diego Financial Capital Management, Inc. (a
wholly-owned subsidiary of San Diego Trust Savings Bank). Mr. Thomas C. Bowden
is fund co-manager for the Equity Value Fund and the Small Company Value Fund.
Mr. Bowden is a Chartered Financial Analyst who has been managing portfolios
since 1986. From March 1994 through January 1995 he managed portfolios for First
Interstate Capital Management, Inc. From June 1986 through March 1994 he managed
portfolios for San Diego Financial Capital Management, Inc. (a wholly-owned
subsidiary of San Diego Trust Savings Bank).

For the advisory services it provides to the Funds, SCM receives from each
Fund a monthly fee, based on average daily net assets, at the annual rates set
forth below:

<TABLE>
<CAPTION>
Investment
Fund Advisory Fee
- ----------------------------------- ---------------
<S> <C>
U.S. Government Fund .60%
California Tax-Free Fund .60%
Equity Value Fund 1.00%
Small Company Value Fund 1.25%
</TABLE>

THE ADMINISTRATOR AND DISTRIBUTOR

On January 1, 1997, BISYS replaced ALPS Mutual Funds Services, Inc. as
Administrator and Distributor. BISYS is located at 3435 Stelzer Road, Columbus,
Ohio 43219. As Distributor, BISYS sells shares of each Fund on behalf of the
Trust. As Administrator, BISYS provides certain administrative services
necessary for the Funds' operations including: (i) coordination of the services
performed by the Funds' investment adviser, transfer agent, custodian,
independent accountants and legal counsel; regulatory compliance, including the
compilation of information for documents such as reports to, and filings with,
the SEC and state securities commissions; and preparation of proxy statements
and shareholder reports for the Funds; (ii) general supervision relative to the
compilation of data required for the preparation of periodic reports distributed
to the Funds' Officers and Board of Trustees; and (iii) furnishing office space
and certain facilities required for conducting the business of the Funds. For
these services, BISYS receives a fee from each Fund, payable monthly, at the
annual rate of 0.15% of each Fund's average daily net assets. BISYS also serves
as administrator and distributor of other mutual funds.

SERVICE ORGANIZATIONS

Various banks, trust companies, broker-dealers (other than BISYS) or other
financial organizations (collectively, "Service Organizations") also may provide
administrative services for the Funds, such as maintaining shareholder

15
<PAGE>
accounts and records at a fee of up to an annual rate of 0.25% of Fund average
daily net assets serviced. The Glass-Steagall Act and other applicable laws
provide that, among other things, banks may not engage in the business of
underwriting, selling or distributing securities. There is currently 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 regulations relating to the permissible activities of
banks and their subsidiaries or affiliates, could prevent a bank Service
Organization from continuing to perform all or part of its servicing activities.
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. It is not
expected that shareholders would suffer any adverse financial consequences as a
result of any of these occurrences.

OTHER EXPENSES

Each Fund bears all costs of its operations other than expenses
specifically assumed by BISYS or the Adviser. The costs borne by the Funds
include legal and accounting expenses; Trustees' fees and expenses; insurance
premiums; custodian and transfer agent fees and expenses; expenses incurred in
acquiring or disposing of the Funds' portfolio securities; expenses of
registering and qualifying the Funds' shares for sale with the SEC and with
various state securities commissions; expenses of obtaining quotations on the
Funds' portfolio securities and pricing of the Funds' shares; expenses of
maintaining the Funds' legal existence and of shareholders' meetings; and
expenses of preparation and distribution to existing shareholders of reports,
proxies and prospectuses. Each Fund bears its own expenses associated with its
establishment as a series of the Funds; these expenses are amortized over a
five-year period from the commencement of the fund's operations. Expenses of the
Funds directly attributable to the Fund are charged to that Fund; other expenses
are allocated proportionately among all of the Funds in relation to the net
assets of each Fund.

PORTFOLIO TRANSACTIONS

Pursuant to the Investment Advisory Contracts, the Adviser places orders
for the purchase and sale of portfolio investments for the Funds' accounts with
brokers or dealers selected by it in its discretion. In effecting purchases and
sales of equity and debt securities for the account of the Funds, the Adviser
will seek the best execution of the Funds' orders. Purchase or sale of equity
securities will generally involve the payment of a commission to a broker-dealer
who executes the transaction on behalf of a Fund. Purchases and sales of
portfolio debt securities for the Funds are generally placed by the Adviser with
primary market makers for these securities on a net basis, without any brokerage
commission being paid by the Funds. Trading of portfolio debt securities does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers

16
<PAGE>

reflect the spread between the bid and asked prices. As permitted by Section
28(e) of the Securities Exchange Act of 1934, the Adviser may cause a Fund to
pay a broker-dealer which provides "brokerage and research services" (as defined
in the Act) to the Adviser an amount of disclosed commissions for executing a
securities transaction for the Funds in excess of the commissions another
broker-dealer would have charged if the Adviser believes the commission paid is
reasonable in relation to the value of the brokerage and research services
received by the Adviser. Broker-dealers are selected on the basis of a variety
of factors such as reputation, capital strength, size and difficulty of order,
sale of Fund shares and research provided to the Adviser. The Adviser may
allocate purchase and sales orders for portfolio securities to broker-dealers
that are affiliated with the Adviser or Distributor, if the Adviser believes the
quality of the
transaction and commissions are comparable to what they would be with other
qualified brokerage firms.

FUND SHARE VALUATION

The net asset value per share of the Funds is calculated at 4:00 p.m.
(Eastern time) for each of the Funds, Monday through Friday, on each day the New
York Stock Exchange is open for trading, which excludes the following business
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. The net asset value per share of the Funds is computed by
dividing the value of each Fund's net assets (i.e., the value of the assets less
the liabilities) by the total number of such Fund's outstanding shares. All
expenses, including fees paid to the Adviser and BISYS, are accrued daily and
taken into account for the purpose of determining the net asset value.

Securities listed on an exchange or over-the-counter are valued on the
basis of the last sale prior to the time the valuation is made. If there has
been no sale since the immediately previous valuation, then the average of the
last bid and asked prices is used. Quotations are taken from the exchange where
the security is primarily traded. Portfolio securities which are primarily
traded on foreign exchanges may be valued with the assistance of pricing
services and are generally valued at the preceding closing values of such
securities on their respective exchanges, except that when an occurrence
subsequent to the time a foreign security is valued is likely to have changed
such value, then the fair value of those securities will be determined by
consideration of other factors by or under the direction of the Board of
Trustees. Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by or at the direction of the
Board of Trustees. Notwithstanding the above, bonds and other fixed-income
securities are valued by using market quotations and may be valued on the basis
of prices provided by a pricing service approved by the Board of Trustees. All
assets and liabilities initially expressed in foreign currencies will be
converted into U.S. dollars at the mean between the bid and asked prices of such
currencies against U.S. dollars as last quoted by any major bank.

17
<PAGE>
With respect to options contracts entered into by the Equity Value Fund
and Small Company Value Fund, the premium received is recorded as an asset and
equivalent liability, and thereafter the liability is adjusted to the market
value of the option determined in accordance with the preceding paragraph. The
premium paid for an option purchased by the Fund is recorded as an asset and
subsequently adjusted to market value.

PRICING OF FUND SHARES

Orders for the purchase of shares will be executed at the net asset value
per share (the "public offering price") next determined after an order has been
received.

MINIMUM PURCHASE REQUIREMENTS

The minimum initial investment in a Fund is $2,000; including an IRA
investment. Any subsequent investments must be at least $50, including an IRA
investment. All initial investments should be accompanied by a completed
Purchase Application. A Purchase Application accompanies this Prospectus. A
separate application is required for an IRA. The Funds reserve the right to
reject any purchase order.

PURCHASE OF FUND SHARES

All funds received are invested in full and fractional shares of the
appropriate Fund. Certificates for shares are not issued. BISYS serves as
Transfer Agent pursuant to a Transfer Agent Agreement dated January 1, 1997. The
Trust reserve the right to reject any purchase. BISYS maintains records of each
shareholder's holdings of Fund shares, and each shareholder receives a statement
of transactions, holdings and dividends. A completed Account Application
together with a check payable to Sefton Funds should be forwarded to Sefton
Funds, P.O. Box 182494, Columbus, Ohio 43218-2494. Purchases made by check in
any Fund are not permitted to be redeemed until payment of the purchase has been
collected, which may take up to fifteen calendar days. Third party and foreign
checks will not be accepted. Please include the Fund name and your account
number on all checks.

All investments may be made using any of the following methods.

THROUGH AN AUTHORIZED BROKER, INVESTMENT ADVISER OR SERVICE ORGANIZATION.
Shares are available to new and existing shareholders through authorized
brokers, investment advisers and Service Organizations. To make an investment
using this method, simply complete a Purchase Application and contact your
broker, investment adviser or Service Organization with instructions as to the
amount you wish to invest. Your broker will then contact the Fund to place the
order on your behalf on that day. In addition, shares in any Fund may be
purchased by forwarding an application directly to Sefton Funds at P.O. Box
182494, Columbus, Ohio 43218-2494. Authorized brokers, investment advisers and
Service Organizations may impose additional requirements and charges for the
services rendered.

18
<PAGE>
Orders received by your broker or Service Organization for the Funds in
proper order prior to the determination of net asset value and transmitted to
the Fund prior to the close of its trading (which is currently 4:00 p.m.,
Eastern time), will become effective that day. Brokers who receive orders are
obligated to transmit them promptly. You should receive written confirmation of
your order within a few days of receipt of instructions from your broker.

BY WIRE. Investments may be made directly through the use of wire
transfers of Federal funds. Contact your bank and request it to wire Federal
funds to the applicable Fund. In most cases, your bank will either be a member
of the Federal Reserve Banking System or have a relationship with a bank that
is. Your bank will normally charge you a fee for handling the transaction. To
purchase shares by a Federal funds wire, please first contact BISYS at
1-800-524-2276. An application must be sent for overnight delivery to:

Sefton Funds
c/o BISYS Funds Services
3435 Stelzer Road
Columbus, Ohio 43219-2494

INDIVIDUAL RETIREMENT ACCOUNTS

The U.S. Government Fund, the Equity Value Fund and the Small Company
Value Fund (the California Tax-Free Fund is not recommended for IRAs) may be
used as a funding medium for IRAs. In addition, an IRA may be established
through a custodial account with Fifth Third Bank. Completion of a special
application is required in order to create such an account, and the minimum
initial investment for an IRA is $2,000. Contributions to IRAs are subject to
prevailing amount limits set by the Internal Revenue Service. For more
information and IRA information, call the Funds at 1-800-524-2276. Additional
account level fees may be imposed for IRA accounts.

EXCHANGE OF FUND SHARES

The Funds offer two convenient ways to exchange shares in one Fund for
shares in another Fund in the Trust. Before engaging in an exchange transaction,
a shareholder should read carefully the Prospectus describing the Fund into
which the exchange will occur, which is available without charge and can be
obtained by writing to Sefton Funds, P.O. Box 182494, Columbus, Ohio 43218-2494,
or by calling (800) 524-2276. A shareholder may not exchange shares of one Fund
for shares of another Fund if the new Fund is not qualified for sale in the
state of the shareholder's residence. The minimum amount for an initial and
subsequent exchange is $50. The Trust may terminate or amend the terms of the
exchange privilege at any time upon at least 60 days' prior written notice to
shareholders of any modification or termination of the exchange privilege.

A new account opened by exchange must be established with the same
name(s), address and social security number as the existing account. All

19
<PAGE>
exchanges will be made based on the net asset value next determined following
receipt of the request by a Fund in good order, plus any applicable sales
charge.

An exchange is taxable as a sale of a security on which a gain or loss may
be recognized. Shareholders will receive written confirmation of the exchange
following completion of the transaction.

EXCHANGE BY MAIL. To exchange Fund shares by mail, simply send a letter
of instruction to the Fund. The letter of instruction must include: (i) your
account number; (ii) the Fund from and the Fund into which you wish to exchange
your investment; (iii) the dollar or share amount you wish to exchange; and (iv)
the signatures of all registered owners or authorized parties. All signatures
must be guaranteed by an eligible guarantor institution, including a member of a
national securities exchange, or by a commercial bank or trust company,
broker/dealer, credit union or savings association.

EXCHANGE BY TELEPHONE. To exchange Fund shares by telephone or if you
have any questions simply call the Funds at (800) 524-2276. You should be
prepared to give the telephone representative the following information: (i)
your account number, social security or tax identification number and account
registration; (ii) the name of the Fund from and the Fund into which you wish to
transfer your investment; and (iii) the dollar or share amount you wish to
exchange. The conversation may be recorded to protect you and the Funds.
Telephone exchanges are available only if the shareholder so indicates by
checking the "yes" box on the Purchase Application. Telephone exchanges will be
suspended for a period of ten days following a telephone address change. See
"REDEMPTION OF FUND SHARES - By Telephone" for a discussion of telephone
transactions generally.

AUTOMATIC INVESTMENT PROGRAM. An eligible shareholder may also
participate in the Automatic Investment Program, an investment plan that
automatically debits money from the shareholder's bank account and invests it in
one or more of the Funds in the Trust through the use of electronic funds
transfer or automatic bank drafts. Shareholders may elect to make subsequent
investments by transfers of a minimum of $50 on either the fifth or twentieth
day of each month into their established Fund account. Contact the Funds at
(800) 524-2276 for more information about the Automatic Investment Program.

REDEMPTION OF FUND SHARES

Shareholders may redeem their shares, in whole or in part, on each day the
Fund is valued. Shares will be redeemed at the net asset value next determined
after a redemption request in good order has been received and accepted by the
applicable Fund. See "DETERMINATION OF NET ASSET VALUE" in the SAI.

A redemption may be a taxable transaction on which gain or loss may be
recognized.

20
<PAGE>
Where the shares to be redeemed have been purchased by check, the
redemption request will be returned if the purchasing check has not cleared,
which may take up to 15 calendar days. Shareholders may avoid this delay by
investing through wire transfers of Federal funds. During the period prior to
the time the shares are redeemed, dividends on the shares will continue to
accrue and be payable and the shareholder will be entitled to exercise all other
beneficial rights of ownership.

Once the shares are redeemed, a Fund will ordinarily send the proceeds by
check to the shareholder at the address of record on the next business day. The
Funds may, however, take up to seven days to make payment. This will not be the
customary practice. Also, if the New York Stock Exchange is closed (or when
trading is restricted) for any reason other than the customary weekend or
holiday closing or if an emergency condition as determined by the SEC merits
such action, the Funds may suspend redemptions or postpone payment dates.

REDEMPTION METHODS. To ensure acceptance of your redemption request, it
is important to follow the procedures described below. Although the Funds have
no present intention to do so, the Funds reserve the right to refuse or to limit
the frequency of any telephone or wire redemptions. Of course, it may be
difficult to place orders by telephone during periods of severe market or
economic change, and a shareholder should consider alternative methods of
communications, such as couriers. The Funds may modify or terminate their
services and provisions at any time. If the Funds terminate any particular
service, they will do so only after giving written notice to shareholders.
Redemption by mail will always be available to shareholders.

You may redeem your shares using any of the following methods:

THROUGH AN AUTHORIZED BROKER, INVESTMENT ADVISER OR SERVICE ORGANIZATION.
You may redeem your shares by contacting your authorized broker or investment
adviser and instructing him or her to redeem your shares. He or she will then
contact BISYS and place a redemption trade on your behalf.

BY MAIL. You may redeem your shares by sending a letter directly to
BISYS. To be accepted, a letter requesting redemption must include: (i) the Fund
name and account registration from which you are redeeming shares; (ii) your
account number; (iii) the amount to be redeemed; (iv) the signatures of all
registered owners; and (v) for redemptions exceeding $50,000, a signature
guarantee by any eligible guarantor institution, including a member of a
national securities exchange, or a commercial bank or trust company,
broker-dealer, credit union or savings association. Corporations, partnerships,
trusts or other legal entities will be required to submit additional
documentation.

21
<PAGE>
BY TELEPHONE. You may redeem your shares by calling the Funds at (800)
524-2276. You should be prepared to give the telephone representative the
following information: (i) your account number, social security number and
account registration; (ii) the Fund name from which you are redeeming shares;
and (iii) the amount to be redeemed. The conversation may be recorded to protect
you and the Funds. Telephone redemptions are available only if the shareholder
so indicates by checking the "yes" box on the Purchase Application. The Funds
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Funds fail to employ such reasonable procedures,
they may be liable for any loss, damage or expense arising out of any telephone
transactions purporting to be on a shareholder's behalf. In order to assure the
accuracy of instructions received by telephone, the Funds require some form of
personal identification prior to acting upon instructions received by telephone,
record telephone instructions and provide written confirmation to investors of
such transactions. Telephone redemptions will be suspended for a period of 10
days following a telephone address change.

You may instruct the Funds to send your redemption proceeds via a wire
transmission to your personal bank. Your instructions should include: (i) your
account number, social security number and account registration; (ii) the Fund
name from which you are redeeming shares; and (iii) the amount to be redeemed.
Wire redemptions can be made only if the "yes" box has been checked in the
"Telephone Redemption Authorization" section on your Purchase Application, and
you have attached a copy of a voided check or a letter summarizing the wiring
instructions of the account where proceeds are to be wired. Your bank may charge
you a fee for receiving a wire payment on your behalf.

The above-mentioned services "By Telephone" and "By Wire" are not
available for clients of Sefton Capital Management or for IRAs. Sefton Capital
Management clients should contact their representative.

SYSTEMATIC WITHDRAWAL PLAN. An owner of $100,000 or more of a Fund may
elect to have periodic redemptions from his or her account to be paid on a
monthly, quarterly, semi-annual or annual basis. The minimum periodic payment is
$50. A sufficient number of shares to make the scheduled redemption will
normally be redeemed on the fifth or twentieth day of the selected month(s).
Depending on the size of the payment requested and fluctuation in the net asset
value, if any, of the shares redeemed, redemptions for the purpose of making
such payments may reduce or even exhaust the account. A shareholder may request
that these payments be sent to a predesignated bank or other designated party.
Capital gains and dividend distributions paid to the account will automatically
be reinvested at net asset value on the distribution payment date.

REDEMPTION IN KIND. All redemptions of shares of the Funds shall 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

22
<PAGE>
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 the 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 receive more or less than the value of such securities as determined above,
and might incur brokerage charges.

DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX

Each Fund has elected to be treated and has qualified and in the case of
the Small Company Value Fund, intends to qualify as a regulated investment
company and intends to continue to qualify to be treated as a regulated
investment company for each taxable year pursuant to the provisions of
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). By
so qualifying and electing, each Fund generally will not be subject to Federal
income tax to the extent that it distributes investment company taxable income
and net realized capital gains in the manner required under the Code.

Each Fund intends to distribute to its shareholders substantially all of
its investment company taxable income (which includes, among other items,
dividends and interest and the excess, if any, of net short-term capital gains
(generally including any net option premium income) over net long-term capital
losses). The Equity Value Fund and Small Company Value Fund will distribute
investment company taxable income quarterly. The other Funds will declare
distributions of such income daily and pay those dividends monthly. Each Fund
intends to distribute, at least annually, substantially all net capital gains
(the excess of net long-term capital gains over net short-term capital losses).
In determining amounts of capital gains to be distributed, any capital loss
carryovers from prior years will be applied against capital gains.

The amount declared each day as a dividend may be based on projections of
estimated monthly net investment income and may differ from the actual
investment income determined in accordance with generally accepted accounting
principles. An adjustment will be made to the dividend each month to account for
any difference between the projected and actual monthly investment income.

For all distributions, the shareholder may elect in writing, not less than
five full business days prior to the record date, to receive such distributions
in cash. Dividends declared in, and attributable to, the preceding period will
be paid within five business days after the end of the period. Unless the
shareholder chooses to receive dividend and/or capital gain distributions in
cash, distributions will be automatically reinvested in additional shares of the
respective Fund at net asset value. If you elect to receive distributions in
cash and checks (1) if returned and marked as "undeliverable" or (2) remain
uncashed for six months, your cash

23
<PAGE>
election will be changed automatically and your future dividend and capital
gains distributions will be reinvested in the Fund at the per share net asset
value determined as of the date of payment of the distribution. In addition, any
undeliverable checks or checks that remain uncashed for six months will be
canceled and will be reinvested in the Fund at the per share net asset value
determined as of the date of cancellation.

Investors who redeem all or a portion of Fund shares prior to a dividend
payment date will be entitled on the next dividend payment date to all dividends
declared but unpaid on those shares at the time of their redemption.

Distributions of net investment company taxable income (regardless of
whether derived from dividends, interest or short-term capital gains) generally
will be taxable to shareholders as ordinary income. Distributions of net
long-term capital gains designated by a Fund as capital gain distributions will
be taxable as long-term capital gains, regardless of how long a shareholder has
held his Fund shares. Distributions are taxable in the same manner whether
received in additional shares or in cash.

Earnings of the Funds 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 this tax, each Fund intends to comply with
this distribution requirement.

A distribution, including an "exempt-interest dividend," will be treated
as paid on December 31 of the calendar year if it is declared by a Fund during
October, November, or December of that year to shareholders of record in such a
month and paid by a Fund during January of the following calendar year. Such
distributions will be treated as received by shareholders (and therefore
taxable) in the calendar year in which the distributions are declared, rather
than the calendar year in which the distributions are received.

Special tax rules may apply to a Fund's acquisition of financial futures
contracts, forward contracts, and options on futures contracts. Such rules may,
among other things, affect whether gains and losses from such transactions are
considered to be short-term or long-term, may have the effect of deferring
losses and/or accelerating the recognition of gains or losses, and, for purposes
of qualifying as a regulated investment company, may limit the extent to which a
Fund may be able to engage in such transactions.

A Fund's distributions with respect to a given taxable year may exceed the
current and accumulated earnings and profits of that Fund available for
distribution. In that event, distributions in excess of such earnings and
profits would be characterized as a return of capital to shareholders for
Federal income tax purposes, thus reducing each shareholder's cost basis in his
Fund shares. Distributions in excess of a shareholder's cost basis in his shares
would be treated as a gain realized from a sale of such shares.

Any gain or loss realized by a shareholder upon the sale or other
disposition of shares of a Fund, or upon receipt of a distribution in complete
liquidation

24
<PAGE>
of a Fund, generally will be a capital gain or loss which will be long-term or
short-term generally depending upon the shareholder's holding period of the
shares. A loss realized by a shareholder on a redemption, sale, or exchange of
shares of a Fund with respect to which capital gain dividends have been paid
will be characterized as a long-term capital loss to the extent of such capital
gain dividends.

The Funds may be required to withhold for Federal income tax ("backup
withholding") 31% of the distributions and the proceeds of redemptions payable
to shareholders who fail to provide a correct taxpayer identification number or
to make required certifications, or where a Fund or shareholder has been
notified by the Internal Revenue Service that the shareholder is subject to
backup withholding. Most corporate shareholders and certain other shareholders
specified in the Code are exempt from backup withholding. Backup withholding is
not an additional tax. Any amounts withheld may be credited against the
shareholder's U.S. Federal income tax liability.

If the U.S. Government Fund, the Equity Value Fund or the Small Company
Value Fund invest in the securities of foreign issuers, they may be subject to
withholding and other similar income taxes imposed by a foreign country. Each
Fund intends to elect, if it is eligible to do so under the Code, to
"pass-through" to its shareholders the amount of such foreign taxes it paid. If
such an election is made by a Fund, each shareholder of that Fund would be
required to include in gross income the taxable dividends received by him and
the amount of his pro rata share of those foreign taxes paid by the Fund. Each
shareholder would be entitled either to deduct (as an itemized deduction) his
pro rata share of the foreign taxes in computing his taxable income or to use it
(subject to limitations) as a foreign tax credit against his U.S. Federal income
tax liability. No deduction for foreign taxes may be claimed by a shareholder
who does not itemize deductions. Each shareholder will be notified within 60
days after the close of a Fund's taxable year whether the foreign taxes paid by
such Fund will "pass-through" for that year.

Shareholders will be notified annually by the Funds as to the Federal tax
status of distributions made by the Funds in which they invest. Depending on the
residence of the shareholder for tax purposes, distributions also may be subject
to state and local taxes, including withholding taxes. Foreign shareholders may,
for example, be subject to special withholding requirements. Special tax
treatment, including a penalty on certain pre-retirement distributions, is
accorded to accounts maintained as IRAs. Shareholders should consult their own
tax advisers as to the Federal, state and local tax consequences of ownership of
shares of the Funds in their particular circumstances.

CALIFORNIA TAX-FREE FUND (THE "CALIFORNIA FUND"). With respect to the
California Fund, dividends derived from interest excludable from gross income
under Code Section 103 on obligations issued by states or political subdivisions
thereof and which are designated by a Fund as "exempt-interest dividends" are
not subject to the regular Federal income tax. The California Fund will be
qualified to

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<PAGE>
designate and pay exempt-interest dividends if, at the close of each quarter of
its taxable year, at least 50% of the value of its total assets consists of
securities on which the interest payments are exempt from Federal income tax
under Code Section 103. To the extent that the California Fund's dividends
distributed to shareholders are derived from earnings on interest income exempt
from Federal income tax and are designated as "exempt-interest dividends" by
that Fund, they will be excludable from a shareholder's gross income for regular
Federal income tax purposes. Other dividends paid by the Fund, if any, will be
taxable to shareholders.

The California Fund may derive interest on temporary taxable investments
and realize capital gains or losses from its portfolio transactions, including
the sale of securities. Dividends derived from such interest, short-term capital
gains, and long-term capital gains, respectively, will be taxable to
shareholders as described, whether such distributions are made in cash or in
additional shares of the Fund. In addition, a sale of shares in the California
Fund (including a redemption of such shares and an exchange of shares between
Funds) may be a taxable event and may result in a taxable gain or loss to the
shareholder. It is possible that a portion of the distributions of the
California Fund may constitute taxable rather than tax-exempt income in the
hands of a shareholder. A loss realized by a shareholder on the redemption,
sale, or exchange of shares of the California Fund with respect to which
exempt-interest dividends have been paid will be disallowed to the extent of the
exempt-interest dividends received if such shares have been held by the
shareholder for six months or less.

Tax-exempt interest from certain private activity bonds and
exempt-interest dividends attributable to that interest income constitute an
item of tax preference under the alternative minimum tax. Therefore, if the
California Fund invests in such private activity bonds, certain shareholders may
become subject to the alternative minimum tax on that part of the Fund's
exempt-interest dividends derived from interest income on such bonds. See the
SAI for further information about the tax consequences for certain types of
investors of a Fund investing in private activity bonds.

The entire amounts of exempt-interest dividends received from the
California Fund by most corporations will be part of an adjustment in computing
alternative minimum taxable income.

There could be retroactive revocation of the tax-exempt status of certain
municipal obligations after their issuance. In addition, in connection with
budget and tax reform efforts, proposals may be made or adopted which would
change the tax treatment arising from an investment in the California Fund. It
is not possible to predict the precise impact of any of these events, but they
may affect the value of the securities in the Fund's portfolio.

Shareholders should be aware that redeeming shares of the California Fund
after tax-exempt interest income has been accrued by the Fund but before that
income has been declared as a dividend may be disadvantageous. This is because
the gain, if any, on the redemption will be taxable, even though such

26
<PAGE>
gain may be attributable in part to the accrued tax-exempt interest which, if
distributed to the shareholder as a dividend rather than as a redemption
proceed, might have qualified as an exempt-interest dividend.

Deductions for interest expense incurred (or deemed incurred) to acquire
or carry shares of the California Fund may be subject to limitations that reduce
or eliminate such deductions. In addition, under rules issued by the Internal
Revenue Service for determining when borrowed funds are considered used for the
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.

Up to 85% of an individual's social security benefits and certain railroad
benefits may be subject to Federal income tax. Along with other factors, total
tax-exempt income, including exempt-interest dividends, is used to calculate the
portion of such benefits that are taxed.

The treatment for state, local and municipal tax purposes of distributions
of exempt-interest dividends from the California Fund will vary according to the
laws of the state and local taxing authorities. Exempt-interest dividends and
other dividends may be subject to state and local taxation. Investors should
consult with their tax advisers as to the availability of any exemptions from
such taxes. Persons who may be "substantial users" (or "related persons" of
substantial users) of facilities financed by private activity bonds may suffer
adverse tax consequences from investing in a Fund and, therefore, should consult
their tax advisers before purchasing Fund shares. In some instances, a state or
city may exempt from tax the portion of the distribution from a Fund that
represents interest received on obligations of that state or its political
subdivisions. Under the laws of certain other states and cities, the entire
amount of any such distribution may be taxable. California law provides that if,
at the close of each quarter of its taxable year, at least 50% of the value of
the total assets of a regulated investment company consists of obligations the
interest of which is exempt from tax under California law or of obligations the
interest of which is exempt from tax under U.S. law, distributions designated as
"exempt-interest" dividends for California purposes are exempt from California
personal income taxes. Shareholders will be notified annually of the Federal
income tax status of distributions and the percentage of municipal obligation
interest income received, with its source indicated. The interest on most
private activity bonds is subject to the Federal alternative minimum tax and,
except under unusual market conditions, the Fund will invest at least 80% of its
net assets in securities that pay interest that is exempt (except for certain
corporate shareholders) from the Federal alternative minimum tax.

DESCRIPTION OF SECURITIES AND INVESTMENT PRACTICES

U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
U.S. Treasury bills, which have a maturity of up to one year, are direct
obligations

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<PAGE>
of the United States and are the most frequently issued marketable U.S.
Government security. The U.S. Treasury also issues securities with longer
maturities in the form of notes and bonds.

U.S. Government agency and instrumentality obligations are debt securities
issued by U.S. Government-sponsored enterprises and Federal agencies. Some
obligations of agencies are supported by the full faith and credit of the United
States or by U.S. Treasury guarantees, such as mortgage-backed certificates,
which may be guaranteed by the Government National Mortgage Association; others,
such as obligations of the Federal Home Loan Banks, Federal Farm Credit Bank,
Bank for Cooperatives, Federal Intermediate Credit Banks and the Federal Land
Bank, are guaranteed by the right of the issuer to borrow from the U.S.
Treasury; others, such as obligations of the Federal National Mortgage
Association, are supported by discretionary authority of the U.S. Government to
purchase certain obligations of the agency or instrumentality; and others, such
as obligations of the Student Loan Marketing Association and the Tennessee
Valley Authority, are backed only by the credit of the agency or instrumentality
issuing the obligation. In the case of obligations not backed by the full faith
and credit of the United States, the investor must look principally to the
agency issuing or guaranteeing the obligation for ultimate repayment.

BANK OBLIGATIONS. (U.S. Government Fund, Equity Value Fund and Small
Company Value Fund) These obligations include negotiable certificates of deposit
and bankers' acceptances. The Funds limit their bank investments to dollar-
denominated obligations of U.S. or foreign banks which have more than $1 billion
in total assets at the time of investment and, in the case of U.S. banks, are
members of the Federal Reserve System or are examined by the Comptroller of the
Currency, or whose deposits are insured by the Federal Deposit Insurance
Corporation.

COMMERCIAL PAPER. Commercial paper includes short-term unsecured
promissory notes, variable rate demand notes and variable rate master demand
notes issued by domestic bank holding companies, corporations and financial
institutions (and foreign counterparts of the above), as well as similar
instruments issued by foreign and domestic government agencies and
instrumentalities. The Funds may purchase commercial paper rated in one of the
two highest categories by a NRSRO, or if unrated, of comparable quality in the
Adviser's opinion.

CORPORATE DEBT SECURITIES. (U.S. Government Fund, Equity Value Fund and
Small Company Value Fund) A Fund's investments in U.S. dollar- or foreign
currency-denominated corporate debt securities of domestic or foreign issuers
are limited to corporate debt securities (corporate bonds, debentures, notes and
other similar corporate debt instruments) which meet the previously disclosed
minimum ratings and maturity criteria (see "HIGHLIGHTS") or, if unrated, are in
the Adviser's opinion comparable in quality to rated investment grade corporate
debt securities in which the Fund may invest. See "THE INVESTMENT POLICIES AND
PRACTICES OF THE FUNDS." The rate of return or return of principal

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<PAGE>
on some debt obligations may be linked or indexed to the level of exchange rates
between the U.S. dollar and a foreign currency or currencies.

REPURCHASE AGREEMENTS. The Funds may enter into repurchase agreements
collateralized by securities issued by the U.S. Government and its agencies. 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 agreed-upon time and price. These agreements may be considered to be
loans by the purchaser collateralized by the underlying securities. These
agreements will be fully collateralized and the collateral will be
marked-to-market daily. The Funds will enter into repurchase agreements only
with dealers, domestic banks or financial institutions which, in the opinion of
the Adviser, present minimal credit risks in accordance with guidelines adopted
by the Board of Trustees. See "INVESTMENT RESTRICTIONS." In the event of default
by the seller under the repurchase agreement, a Fund may have problems in
exercising its rights to the underlying securities and may experience time
delays in connection with the disposition of such securities.

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.

LOANS OF PORTFOLIO SECURITIES. To increase current income each Fund may
lend its portfolio securities up to 5% of that Fund's total assets to brokers,
dealers and financial institutions, provided certain conditions are met,
including the condition that each loan is secured continuously by collateral
maintained on a daily mark-to-market basis in an amount at least equal to the
current market value of the securities loaned. For further information, see the
SAI.

VARIABLE AND FLOATING RATE DEMAND AND MASTER DEMAND NOTES. The Funds may,
from time to time, buy variable or floating rate demand notes issued by
corporations, bank holding companies and financial institutions and similar
instruments issued by government agencies and instrumentalities. These
securities will typically have a maturity over one year but carry with them the
right of the holder to put the securities to a remarketing agent or other entity
at designated time intervals and on specified notice. The obligation of the
issuer of the put to repurchase the securities may be backed by a letter of
credit or other obligation issued by a financial institution. The purchase price
is ordinarily par plus accrued and unpaid interest. Generally, the remarketing
agent will adjust the interest rate every seven days (or at other specified
intervals) in order to maintain the interest

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<PAGE>
rate at the prevailing rate for securities with a seven-day or other designated
maturity. A Fund's investment in demand instruments which provide that the Fund
will not receive the principal note amount within seven days' notice, in
combination with the Fund's other investments in illiquid instruments, will be
limited to an aggregate total of 15% of that Fund's net assets.

The Funds may also buy variable rate master demand notes. The terms of
these obligations permit a Fund to invest fluctuating amounts at varying rates
of interest pursuant to direct arrangements between the Fund, as lender, and the
borrower. These instruments permit weekly and, in some instances, daily changes
in the amounts borrowed. The Funds have the right to increase the amount under
the note at any time up to the full amount provided by the note agreement, or to
decrease the amount, and the borrower may repay up to the full amount of the
note without penalty. The note may or may not be backed by bank letters of
credit. Because the notes are direct lending arrangements between the Fund and
borrower, it is not generally contemplated that they will be traded, and there
is no secondary market for them, although they are redeemable (and, thus,
immediately repayable by the borrower) at principal amount, plus accrued
interest, at any time. In connection with any such purchase and on an ongoing
basis, the Adviser will consider the earning power, cash flow and other
liquidity ratios of the issuer, and its ability to pay principal and interest on
demand, including a situation in which all holders of such notes make demand
simultaneously. While master demand notes, as such, are not typically rated by
credit rating agencies, a Fund may, under its minimum rating standards, invest
in them only if, at the time of an investment, the issuer meets the criteria set
forth in the immediately preceding pages of this Prospectus for commercial paper
obligations. The Funds may continue to hold variable rate master demand notes if
the creditworthiness of the issuers declines below the minimum standards
established by the Funds for investing in such notes.

FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES. Each Fund may purchase
when-issued securities and make contracts to purchase securities for a fixed
price at a future date beyond customary settlement time if a Fund holds, and
maintains until the settlement date in a segregated account, cash or other
liquid assets in an amount sufficient to meet the purchase price, or if that
Fund enters into offsetting contracts for the forward sale of other securities
it owns. Purchasing securities on a when-issued basis and forward commitments
involve a risk of loss if the value of the security to be purchased declines
prior to the settlement date, which risk is in addition to the risk of decline
in value of a Fund's other assets. No income accrues on securities purchased on
a when-issued basis prior to the time delivery of the securities is made,
although a Fund may earn interest on securities it has deposited in the
segregated account because it does not pay for the when-issued securities until
they are delivered. Investing in when-issued securities has the effect of (but
is not the same as) leveraging the Fund's assets. Although a Fund would
generally purchase securities on a when-issued basis or enter into forward
commitments with the intention of actually acquiring securities, that Fund may
dispose of a when-issued security or forward commitment

30
<PAGE>
prior to settlement, if the Adviser deems it appropriate to do so. A Fund may
realize short-term profits or losses upon such sales.

MORTGAGE-RELATED SECURITIES. Mortgage pass-through securities are
securities representing interests in "pools" of mortgages in which payments of
both interest and principal on the securities are made monthly, in effect
"passing through" monthly payments made by the individual borrowers on the
residential mortgage loans which underlie the securities (net of fees paid to
the issuer or guarantor of the securities). Early repayment of principal on
mortgage pass-through securities (arising from prepayments of principal due to
sale of the underlying property, refinancing, or foreclosure, net of fees and
costs which may be incurred) may expose a Fund to a lower rate of return upon
reinvestment of principal. Also, if a security subject to prepayment has been
purchased at a premium, in the event of prepayment the value of the premium
would be lost. Like other fixed-income securities, when interest rates rise, the
value of a mortgage-related security generally will decline and generally may
also increase the inherent volatility of the mortgage-related security by
effectively converting short-term debt instruments into long-term debt
instruments; however, when interest rates decline, the value of mortgage-related
securities with prepayment features may not increase as much as other
fixed-income securities. In recognition of this prepayment risk to investors,
the Public Securities Association (the "PSA") has standardized the method of
measuring the rate of mortgage loan principal prepayments. The PSA formula, the
Constant Prepayment Rate (the "CPR") or other similar models that are standard
in the industry will be used by a Fund in calculating maturity for purposes of
its investment in mortgage-related securities. Because the average life of
mortgage-related securities may lengthen with increases in interest rates, the
portfolio-weighted average life of the securities in which a Fund is invested
may at times lengthen due to this effect. Under these circumstances, the Adviser
may, but is not required to, sell securities in order to maintain an appropriate
portfolio-weighted average life.

Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government in the case of securities
guaranteed by the Government National Mortgage Association ("GNMA"); or
guaranteed by agencies or instrumentalities of the U.S. Government in the case
of securities guaranteed by the Federal National Mortgage Association ("FNMA")
or the Federal Home Loan Mortgage Corporations ("FHLMC"), which are supported
only by the discretionary authority of the U.S. Government to purchase the
agency's obligations. Mortgage pass-through securities created by
non-governmental issuers (such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers and other
secondary market issuers) may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance, and
letters of credit, which may be issued by governmental entities, private
insurers or the mortgage poolers.

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A Fund may also invest in investment grade Collateralized Mortgage
Obligations ("CMOs") which are hybrid instruments with characteristics of both
mortgage-backed bonds and mortgage pass-through securities. CMOs may be
collateralized by whole mortgage loans but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC or
FNMA. CMOs are structured into multiple classes, with each class bearing a
different stated maturity. Monthly payments of principal, including prepayments,
are first returned to investors holding the shortest maturity class; investors
holding the longer maturity classes receive principal only after the first class
has been retired. To the extent a particular CMO is issued by an investment
company, a Fund's ability to invest in such CMOs will be limited. See
"INVESTMENT RESTRICTIONS" in the SAI.

Assumptions generally accepted by the industry concerning the probability
of early payment may be used in the calculation of maturities for debt
securities that contain put or call provisions, sometimes resulting in a
calculated maturity different than the stated maturity of the security.

The Adviser expects that governmental, government-related or private
entities may create mortgage loan pools and other mortgage-related securities
offering mortgage pass-through and mortgage-collateralized investments in
addition to those described above. As new types of mortgage-related securities
are developed and offered to investors, the Adviser will, consistent with a
Fund's investment objectives, policies and quality standards, consider making
investments in such new types of mortgage-related securities. The Funds will
invest in new types of mortgage-related securities posing materially different
risks from existing types only after such securities have been described and
their ratings disclosed in the prospectus.

OTHER ASSET-BACKED SECURITIES. (U.S. Government Fund only) Other asset-
backed securities (unrelated to mortgage loans) have been offered to investors,
such as Certificates for Automobile Receivables ("CARS"). CARS represent
undivided fractional interests in a trust ("trust") whose assets consist of a
pool of motor vehicle retail installment sales contracts and security interest
in the vehicles securing the contracts. Payments of principal and interest on
CARS are "passed through" monthly to certificate holders and are guaranteed up
to certain amounts and for a certain time period by a letter of credit issued by
a financial institution unaffiliated with the trustee or originator of the
trust. Underlying sales contracts are subject to prepayment, which may reduce
the overall return to certificate holders. If the letter of credit is exhausted,
certificate holders may also experience delays in payment or losses on CARS if
the full amounts due on underlying sales contracts are not realized by the trust
because of unanticipated legal or administrative costs of enforcing the
contracts, or because of depreciation, damage or loss of the vehicles securing
the contracts, or other factors. For asset-backed securities, the industry
standard uses a principal prepayment model, the "ABS Model," which is similar to
the PSA identified previously under the first paragraph of "Mortgage-Related
Securities." Either the PSA model, the ABS model or other similar models that
are standard in the industry will be used by a

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Fund in calculating maturity for purposes of its investment in asset-backed
securities.

TAX-EXEMPT ASSET-BACKED SECURITIES. (California Tax-Free Fund only)
Assets of the California Fund may be invested in various types of tax-exempt,
asset-backed securities (unrelated to mortgage loans), similar to the asset
backed securities in which the U.S. Government Fund may invest, to the extent
they are or become available for investment. The Fund will invest in new types
of such securities posing materially different risks from existing types only
after such securities have been described and their ratings disclosed in the
prospectus.

COMMON STOCKS. (Equity Value Fund and Small Company Value Fund) Common
stock represents the residual ownership interest in the issuer after all of its
obligations and preferred stocks are satisfied. Common stock fluctuates in price
in response to many factors, including historical and prospective earnings of
the issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions and market volatility. Furthermore, the Small
Company Value Fund primarily will invest and the Equity Value Fund may invest in
smaller companies. Small companies may have limited product lines, markets or
financial resources; may lack depth of experience; and may be more vulnerable to
adverse general market or economic developments than larger companies. The
prices of small company securities are often more volatile than prices
associated with large company issues, and can display abrupt or erratic
movements at times, due to limited trading volumes and less publicly available
information.

PREFERRED STOCKS. (Equity Value Fund and Small Company Value Fund)
Preferred stock has a preference over common stock in liquidation and generally
in dividends as well, but is subordinated to the liabilities of the issuer in
all respects. Preferred stock may or may not be convertible into common stock.
As a general rule, the market value of preferred stock with a fixed dividend
rate and no conversion element varies inversely with interest rates and
perceived credit risk. Because preferred stock is junior to debt securities and
other obligations of the issuer, deterioration in the credit quality of the
issuer will cause greater changes in the value of a preferred stock than in a
more senior debt security with similar stated yield characteristics.

REAL ESTATE INVESTMENT TRUSTS. (Equity Value Fund and Small Company Value
Fund) The Funds may invest in the securities of real estate investment trusts
("REITs"). A REIT is a pooled investment vehicle that is organized as a
corporation or business trust which invests primarily in income producing real
estate or real estate related loans or interests. REITs are generally classified
as equity REITs, mortgage REITs or a combination of equity and mortgage REITs.
Equity REITs invest the majority of their assets directly in real property and
derive income primarily from the collection of rents. Equity REITs can realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. REITs involve risks similar to
those associated with investing in common stock (i.e., securities market risks)
and risks

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<PAGE>

associated with investing in the real estate industry in general: declines in
real estate value, general and local economic conditions, overbuilding and
competition, property tax and operating expense increases, changes in zoning
laws, casualty losses, variations in rental income, costs related to
environmental problems and increases in interest rates. In addition to these
risks, equity REITs may be affected by changes in the value of the underlying
property owned by the trusts, while mortgage REITs may be affected by the
quality of any credit extended. Further, equity and mortgage REITs are dependent
upon management skills and generally may not be diversified. Equity and mortgage
REITs are also subject to heavy cash flow dependency, defaults by borrowers and
self-liquidation. In addition, equity and mortgage REITS could possibly fail to
qualify for tax free pass-through of income under the Internal Revenue Code of
1986, as amended, or to maintain their exemptions from registration under the
Investment Company Act of 1940. The above factors may also adversely affect a
borrower's or a lessee's ability to meet its obligations to the REIT. In the
event of a default by a borrower or lessee, the REIT may experience delays in
enforcing its rights as a mortgagee or lessor and may incur substantial costs
associated with protecting its investments. Investors in REITs indirectly bear a
proportionate share of expenses incurred by the REITs. See "Investment Policies
- -Real Estate Securities" in the Statement of Additional Information.

FOREIGN SECURITIES. (U.S. Government Fund, Equity Value Fund and Small
Company Value Fund) The Funds may invest directly in both sponsored and
unsponsored U.S. dollar or foreign currency-denominated corporate securities
(including preferred or preference stock), certificates of deposit and bankers'
acceptances issued by foreign banks, and obligations of foreign governments or
their subdivisions, agencies and instrumentalities, international agencies and
supranational entities. There may be less information available to the Funds
concerning unsponsored securities, for which the paying agent is located outside
the United States. See "RISKS OF INVESTING IN THE FUNDS."

The Funds will ordinarily purchase foreign securities traded in the United
States. However, the Funds may purchase the securities of foreign issuers
directly in foreign markets, although the U.S. Government Fund does not intend
to invest more than 10% of its net assets, and the Equity Value Fund and Small
Company Value Fund do not intend to invest more than 15% of their net assets,
directly in foreign markets. Securities of foreign issuers that are not listed
on a recognized domestic or foreign securities exchange are deemed to be
illiquid investments subject to a limitation of no more than 15% of each Fund's
total assets. See "Illiquid Investments" below.

The Equity Value Fund and Small Company Value Fund may also invest
directly in foreign equity securities and in securities represented by European
Depositary Receipts ("EDRs") or American Depositary Receipts ("ADRs"). ADRs are
dollar-denominated receipts generally issued by domestic banks, which represent
the deposit with the bank of a security of a foreign issuer, and which are
publicly traded on exchanges or over-the-counter in the United States. EDRs are
receipts similar to ADRs and are issued and traded in Europe.

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There are certain risks associated with investments in unsponsored ADR
programs. Because the non-U.S. company does not actively participate in the
creation of the ADR program, the underlying agreement for service and payment
will be between the depositary and the shareholder. The company issuing the
stock underlying the ADRs pays nothing to establish the unsponsored facility, as
fees for ADR issuance and cancellation are paid by brokers. Investors directly
bear the expenses associated with certificate transfer, custody and dividend
payment.

In addition, in an unsponsored ADR program, there may be several
depositaries with no defined legal obligations to the non-U.S. company. The
duplicate depositaries may lead to marketplace confusion because there would be
no central source of information to buyers, sellers and intermediaries. The
efficiency of centralization gained in a sponsored program can greatly reduce
the delays in delivery of dividends and annual reports.

FOREIGN CURRENCY TRANSACTIONS. (U.S. Government Fund, Equity Value Fund
and Small Company Value Fund) The Funds may enter into forward foreign currency
exchange contracts for hedging purposes in anticipation of or in order to
attempt to minimize the effect of fluctuations in the level of future foreign
exchange rates. See the SAI for further information concerning foreign currency
transactions. The Funds will set aside cash or other liquid assets in an amount
at least equal to the market value of the instruments underlying the contract,
less the amount of initial margin.

INTEREST RATE FUTURES. (U.S. Government Fund only) The Fund may purchase
and sell interest rate futures contracts ("futures contracts") as a hedge
against changes in interest rates, provided that not more than 5% of the Fund's
net assets are committed to such transactions. See the SAI for further
information about interest rate futures. 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. The Fund will set aside cash or other liquid
assets in an amount at least equal to the market value of the instruments
underlying the contract, less the amount of initial margin.

ILLIQUID INVESTMENTS. It is the policy of the Funds that illiquid
securities whose transfer is restricted by law (including certain securities
unregistered under federal securities law) and other illiquid securities
(including repurchase agreements of more than seven days' duration, variable and
floating rate demand and master demand notes not requiring receipt of the
principal note amount within seven days' notice and securities of foreign
issuers that are not listed on a recognized domestic or foreign securities
exchange) may not constitute, at the time of purchase or at any time, more than
15% of the value of the total net assets of that Fund in which they are held.
Securities with restrictions on resale but that

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<PAGE>
have a readily available market are not deemed illiquid for purposes of this
limitation.

OPTIONS ON COMMON STOCKS AND STOCK INDICES. (Equity Value Fund and Small
Company Value Fund) The Funds may write (i.e., sell) call options ("calls") to
protect against market price uncertainty if the calls are "covered" throughout
the life of the option. A call is "covered" if a Fund owns the optioned
securities and maintains, in a segregated account with that Fund's custodian,
cash or other liquid assets (as determined by the Board) with a value sufficient
to meet its obligations under the call, or if the Fund owns an offsetting call
option. When a Fund writes a call, it receives a premium and gives the purchaser
the right to buy the underlying security at any time during the call period
(usually not more than nine months in the case of common stock or 15 months in
the case of U.S. Government securities) at a fixed exercise price, regardless of
market price changes during the call period. If the call is exercised, the Fund
forgoes any gain from an increase in the market price of the underlying security
over the exercise price.

The Funds also may purchase put options ("puts") for protective purposes.
When a Fund purchases a put, it pays a premium in return for the right to sell
the underlying security at the exercise price at any time during the option
period. If any put is not exercised or sold, it will become worthless on its
expiration date. If a put is purchased and becomes worthless on its expiration
date, then the Fund will have lost the premium and this will have the effect of
reducing the Fund's yield.

The Funds will realize a gain (or loss) on a closing purchase transaction
with respect to a call previously written by the Fund if the premium, plus
commission costs, paid to purchase the call is less (or greater) than the
premium, less commission costs, received on the sale of the call. A gain also
will be realized if a call which a Fund has written lapses unexercised, because
the Fund would retain the premium.

There can be no assurance that a liquid secondary market will exist at any
given time for a particular option.

STOCK INDEX FUTURES CONTRACTS. (Equity Value Fund and Small Company Value
Fund) The Funds may enter into stock index futures contracts in order to protect
the value of common stock investments, provided that not more than 5% of the
Fund's assets are committed to such transactions. See "DESCRIPTION OF SECURITIES
AND INVESTMENT PRACTICES - Interest Rate Futures" and the SAI for further
information about stock index futures contracts and related risks.

PUT OPTIONS ON STOCK INDEX FUTURES CONTRACTS. (Equity Value Fund and
Small Company Value Fund) The Funds may purchase put options on stock index
futures as another method of protecting their assets against market declines.
See the SAI for further information about these options contracts.

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<PAGE>
There can be no assurance that a liquid market will exist at a time when a
Fund seeks to close out a futures contract or a futures option position. Most
futures exchanges and boards of trade limit the amount of fluctuation permitted
in futures contract prices during a single day; once the daily limit has been
reached on a particular contract, no trades may be made that day at a price
beyond that limit. In addition, certain of these instruments are relatively new
and without a significant trading history. As a result, there is no assurance
that an active secondary market will develop or continue to exist. Lack of a
liquid market for any reason may prevent a Fund from liquidating an unfavorable
position and the Fund would remain obligated to meet margin requirements until
the position is closed.

The use of the techniques listed above which involve the segregation of
assets to cover future obligations may impair the liquidity of the Fund's assets
and its ability to operate as an open-end investment company. The Adviser will
monitor each Fund's use of such techniques and report to the Trustees concerning
their impact, if any, on liquidity and the Fund's ability to meet redemptions.

CALIFORNIA MUNICIPAL OBLIGATIONS. (California Tax-Free Fund only) The
Obligations in which the Fund invests include but are not limited to municipal
bonds, floating rate and variable rate municipal obligations, participation
interest in municipal bonds, tax-exempt asset-backed certificates, tax-exempt
commercial paper, short-term municipal notes, standby commitments, general
obligation bonds, revenue bonds, stripped municipal bonds, Mello-Roos Community
Facility Act Bonds, and callable and putable bonds. The Adviser expects that
governmental, government-related or private entities may create other tax-exempt
investments in addition to those described above. As new types of tax-exempt
vehicles are developed, the Adviser will, consistent with the Fund's investment
objectives, policies and quality standards, consider making investments in such
types of Obligations. The Fund will not invest in new types of tax-exempt
vehicles posing materially greater risks than existing types before describing
such securities and disclosing their ratings in the prospectus. The Fund will
only purchase Obligations rated BBB, SP-2 or better by S&P or Baa, MIG-2 or
better by Moody's (or given equivalent ratings by at least two other NRSROs) or,
if the securities are not rated, are of comparable quality in the Adviser's
opinion. The Fund will invest primarily in securities rated BBB (or equivalent)
or better and will maintain a weighted average rating of at least A (or
equivalent). The Fund's concentration in investments in Obligations may subject
the Fund to greater risk with respect to its portfolio securities than an
investment company with a broader range of investments, because changes in the
financial condition or market assessment of issuers of Obligations generally may
cause greater fluctuations in the Fund's yields and price of Fund shares. Also,
the political or economic developments that affect one such security might also
affect the other securities. See "INVESTMENT POLICIES" in the SAI. Municipal
bonds include industrial development bonds ("IDBs"), moral obligation bonds, put
bonds and private activity bonds ("PABs"). PABs generally relate to the
financing of a facility used by a private entity or entities. The credit quality
of such bonds is usually directly related to that of the

37
<PAGE>
users of the facilities. The interest on most private activity bonds is subject
to the Federal alternative minimum tax and, except under unusual market
conditions, the Fund will invest at least 80% of its assets in Obligations that
pay interest that is exempt (except for certain corporate shareholders) from the
Federal alternative minimum tax. The identification of the issuer of a municipal
security depends on the terms and conditions of the security. When the assets
and revenues of an agency, authority, instrumentality or other political
subdivision are separate from those of the government creating the subdivision
and the security is backed only by the assets and revenues of the subdivision,
such subdivision would be deemed to be the sole issuer. Similarly, in the case
of an industrial development bond, if that bond is backed only by the assets and
revenues of the nongovernmental user, then such nongovernmental user would be
deemed to be the sole issuer. If, however, in either case, the creating
government or some other entity guarantees a security, such a guarantee would be
considered a separate security.

MUNICIPAL LEASE OBLIGATIONS. (California Tax-Free Fund only.) The Fund
may invest in municipal lease obligations including certificates of
participation ("COPs"), which finance a variety of public projects. Because of
the way these instruments are structured, they carry a greater risk than other
types of municipal securities. The Fund may invest in lease obligations only
when they are rated by a rating agency or if unrated are deemed by the Adviser,
under the direction of the Board of Trustees, to be of a quality comparable to
the Fund's quality standards. Prior to purchasing a municipal lease obligation
and on a regular basis thereafter, the Adviser will evaluate the credit quality
and liquidity of the security. In making its evaluation, the Adviser will
consider various credit factors, such as the necessity of the project, the
municipality's credit quality, future borrowing plans, and sources of revenue
pledged for lease repayment, general economic conditions in the region where the
security is issued, and liquidity factors, such as dealer activity. The Adviser
will also assess the likelihood that the lease will not be canceled. A risk
particular to these obligations is that a municipality may not appropriate funds
for lease payments.

INVESTMENT RESTRICTIONS

(1) No Fund may borrow money or pledge or mortgage its assets, except
that a Fund may 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 that Fund's net assets
(but investments may not be purchased by a Fund while any such borrowings
exist).

(2) No Fund may make loans, except loans of portfolio securities 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 this
Prospectus.

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<PAGE>
The foregoing investment restrictions and those described in the SAI as
fundamental are policies of each Fund which may be changed only when permitted
by law and approved by the holders of a majority of the applicable Fund's
outstanding voting securities as described under "OTHER INFORMATION - Voting."

If a percentage restriction on investment policies or the investment or
use of assets set forth in this Prospectus are adhered to at the time a
transaction is effected, later changes in percentage resulting from changing
values will not be considered a violation.

RISKS OF INVESTING IN THE FUNDS

CERTAIN RISK CONSIDERATIONS

GENERAL. The price per share of each of the Funds will fluctuate with
changes in value of the investments held by the Fund. For example, the value of
a Fund's shares will generally fluctuate inversely with the movements in
interest rates. Shareholders of a Fund should expect the value of their shares
to fluctuate with changes in the value of the securities owned by the Fund.
There is, of course, no assurance that a Fund will achieve its investment
objective or be successful in preventing or minimizing the risk of loss that is
inherent in investing in particular types of investment products. In order to
attempt to minimize that risk, the Adviser monitors developments in the economy,
the securities markets, and with each particular issuer. Also, as noted earlier,
each diversified Fund is managed within certain limitations that restrict the
amount of a Fund's investment in any single issuer.

CALIFORNIA MUNICIPAL OBLIGATIONS. (California Tax-Free Fund only) Because
this Fund will concentrate its investments in Obligations, it may be adversely
affected by political, economic or regulatory factors that may impair the
ability of California issuers to pay interest on or to repay the principal of
their debt obligations. As a result of certain amendments to the California
Constitution and the adoption of other statutes that limit the taxing authority
of California governmental entities, and reflecting other economic factors,
California has experienced ongoing economic difficulties during the past several
years which have included budget deficits, the elimination of budget reserves,
and downgrades in the credit ratings assigned to its general obligation bonds by
certain credit rating agencies. It is not presently possible to determine
whether, or the extent to which, these credit rating agencies will change their
ratings in the future. These Obligations may be subject to greater price
volatility than municipal obligations in general as a result of the effect of
supply and demand for these securities, which, in turn could cause greater
volatility in the value of the shares of a Fund.

Obligations of issuers of California Municipal Obligations are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bank Reform Act of 1978. In addition,
the obligations of such issuers may become subject to the laws enacted in the
future by Congress or the California legislatures or by referenda extending the

39
<PAGE>
time for payment or principal and/or interest, or imposing other constraints
upon enforcement of such obligations or upon municipalities to levy taxes. There
is also the possibility that, as a result of legislation or other conditions,
the power or ability of any issuer to pay, when due, the principal of and
interest on its Obligations may be materially affected. Additional
considerations relating to the risks of investing in California Municipal
Obligations are presented in the SAI.

CALIFORNIA STATE RISKS. The following summary as to certain California
risk factors is given to investors in view of the California Tax-Free 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. Changes in California
constitutional and other laws during the last several years have raised
questions about the ability of California state and municipal issuers to obtain
sufficient revenue to pay their bond obligations. In 1978 California voters
approved an amendment to the California Constitution known as Proposition 13.
Proposition 13 limits ad valorem taxes on real property and restricts the
ability of taxing entities to increase real property taxes. Legislation passed
subsequent to Proposition 13, however, provided for the redistribution of
California's General Fund surplus to local agencies, the reallocation of
revenues to local agencies and the assumption of certain local obligations by
the state so as to help California municipal issuers to raise revenue to pay
their bond obligations. It is unknown, however, whether additional revenue
redistribution legislation will be enacted in the future and whether, if
enacted, such legislation would provide sufficient revenue for such California
issuers to pay their obligations. The state is also subject to another
constitutional amendment, Article XIIIB, which may have an adverse impact on
California state and municipal issuers. Article XIIIB restricts the state from
spending certain appropriations in excess of an appropriations limit imposed for
each state and local government entity. If revenues exceed such appropriations
limit, such revenues must be returned either as revisions in the tax rates or
fee schedules. There are risks to investment in the California Tax-Free Fund
posed by pending legal actions against the State of California. Because of the
uncertain impact of the aforementioned statutes and legal actions, 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, legal actions and policies on the long-term ability of
California state and municipal issuers to pay interest or repay principal on
their obligations. Additional considerations relating to California state risks
are presented in the SAI.

SMALL CAPITALIZATION COMPANIES. (Equity Value Fund and Small Company
Value Fund) The Equity Value Fund and Small Company Value Fund may invest in
securities of small capitalization companies, defined as companies with stock
market capitalization of $1 billion or less at the time of initial purchase.
This

40
<PAGE>
investment may involve greater risks since these securities may have limited
marketability and, thus, may be more volatile. Because small capitalization
companies normally have fewer shares outstanding than larger companies, it may
be more difficult for the Funds to buy or sell significant amounts of such
shares without an unfavorable impact on prevailing prices. In addition, small
capitalization companies are typically subject to a greater degree of changes in
earnings and business prospects than are larger, more established companies.
There is typically less publicly available information concerning small
capitalization companies than for larger, more established ones. Therefore, an
investment in these Funds may involve a greater degree of risk than an
investment in other mutual funds that seek capital appreciation by investing in
better-known, larger companies.

FOREIGN SECURITIES. (U.S. Government Fund, Equity Value Fund and Small
Company Value Fund) Investing in the securities of issuers in any foreign
country including ADR's and EDR's involves special risks and considerations not
typically associated with investing in U.S. companies. These include differences
in accounting, auditing and financial reporting standards; generally higher
commission rates on foreign portfolio transactions; the possibility of
nationalization, expropriation or confiscatory taxation; adverse changes in
investment or exchange control regulations (which may include suspension of the
ability to transfer currency from a country); and political instability which
could affect U.S. investments in foreign countries. Additionally, foreign
securities and dividends and interest payable on those securities may be subject
to foreign taxes, including taxes withheld from payments on those securities.
Foreign securities often trade with less frequency and volume than domestic
securities and, therefore, may exhibit greater price volatility. Additional
costs associated with an investment in foreign securities may include higher
custodial fees than apply to domestic custodial arrangements and transaction
costs of foreign currency conversions. Changes in foreign exchange rates also
will affect the value of securities denominated or quoted in currencies other
than the U.S. dollar. The Funds' investments may be affected either unfavorably
or favorably by fluctuations in the relative rates of exchange between the
currencies of different nations, by exchange control regulations and by
indigenous economic and political developments. Through the Funds' flexible
policies, management endeavors to avoid unfavorable consequences and to take
advantage of favorable developments in particular nations where, from time to
time, it places the Funds' investments. See the SAI for further information
about foreign securities.

NON-DIVERSIFICATION. To provide somewhat greater investment flexibility,
both the U.S. Government and the California Tax-Free Fund are "non-diversified"
funds under the Investment Company Act of 1940, as amended (the "Act") and, as
such, are not required to meet any diversification requirements under that Act.
However, the Funds must, nevertheless, meet certain diversification tests to
qualify as regulated investment companies under the Code. The Funds may use
their ability as non-diversified funds to concentrate their assets in the
securities of a smaller number of issuers which the Adviser deems to be
attractive investments,

41
<PAGE>
rather than invest in a larger number of securities merely to satisfy non-tax
diversification requirements. Such concentration also involves a risk of loss to
that Fund should the issuer be unable to make interest or principal payments
thereon or should the market value of such securities decline. Investment in a
non-diversified fund could, therefore, entail greater risks than an investment
in a "diversified" fund, including a risk of greater fluctuations in yield and
share price.

OTHER INFORMATION

CAPITALIZATION

Sefton Funds Trust was organized as a Delaware business trust on January
6, 1995 and currently consists of four separately managed portfolios. The Board
of Trustees may establish additional portfolios in the future. The
capitalization of the Funds consists solely of an unlimited number of shares of
beneficial interest with a par value of $0.001 each. When issued, shares of the
Funds are fully paid, non-assessable and freely transferable.

VOTING

Shareholders have the right to vote in the election of Trustees and on any
and all matters on which, by law or under the provisions of the Declaration of
Trust, they may be entitled to vote. The Funds are not required to hold regular
annual meetings of shareholders and do not intend to do so.

The Declaration of Trust provides that the holders of not less than two-
thirds of the outstanding shares of the Funds may remove a person 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 a person 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 and in connection with such meeting to comply with the shareholders'
communications provisions of Section 16(c) of the Act. See "OTHER INFORMATION -
Voting Rights" in the SAI.

Shares entitle their holders to one vote per share (with proportionate
voting for fractional shares). As used in the Prospectus, the phrase "vote of a
majority of the outstanding shares" of a Fund (or the Funds) means the vote of
the lesser of: (1) 67% of the shares of a Fund (or the Funds) present at a
meeting if the holders of more than 50% of the outstanding shares are present in
person or by proxy; or (2) more than 50% of the outstanding shares of a Fund (or
the Funds).

PERFORMANCE INFORMATION

A Fund may, from time to time, include its yield and total return in
advertisements or reports to shareholders or prospective investors. The methods
used to calculate the yield and total return of the Funds is mandated by the
SEC.

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<PAGE>

Quotations of "yield" for a Fund will be based on the investment income
per share during a particular 30-day (or one month) period (including dividends
and interest), less expenses accrued during the period ("net investment
income"), and will be computed by dividing net investment income by the maximum
public offering price per share on the last day of the period. The 30-day yield
for the California Tax-Free Fund and the U.S. Government Fund as of March 31,
1997 were 4.50% and 5.68%, respectively.

Quotations of yield and effective yield reflect only a Fund's performance
during the particular period on which the calculations are based. Yield and
effective yield for a Fund will vary based on changes in market conditions, the
level of interest rates and the level of that Fund's expenses, and no reported
performance figure should be considered an indication of performance which may
be expected in the future.

Quotations of average annual total return for a Fund will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in that Fund over periods of 1, 5 and 10 years (up to the life of
that Fund), reflect the deduction of a proportional share of Fund expenses (on
an annual basis), and assume that all dividends and distributions are reinvested
when paid.

Performance information for a Fund may be compared to various unmanaged
indices, such as those indices prepared by Lipper Analytical Services,
Morningstar, Standard & Poor's 500 Stock Index, the Russell 2000 Index, the Dow
Jones Industrial Average and other entities or organizations which track the
performance of investment companies. Any performance information should be
considered in light of the Fund's investment objectives and policies,
characteristics and quality of the Funds and the market conditions during the
time period indicated, and should not be considered to be representative of what
may be achieved in the future. For a description of the methods used to
determine yield and total return for Funds, see the SAI.

The California Tax-Free Fund may also advertise its "taxable equivalent
yield." Taxable equivalent yield is the yield that an investment, subject to
both Federal and California personal income taxes, would need to earn in order
to equal, on an after-tax basis, the yield on an investment exempt from such
taxes (normally calculated assuming the maximum combined Federal and California
marginal tax rate). A taxable equivalent yield quotation for a Fund will be
higher than the yield or the effective yield quotations for a Fund.

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<PAGE>

The following table shows how to translate the yield of an investment that
is exempt from both Federal and California personal income taxes into a taxable
equivalent yield for the 1996 taxable year. The last four columns of the table
show approximately how much a taxable investment would have to yield in order to
generate an after-tax (Federal and California personal income taxes) yield of
5%, 6%, 7% or 8%. For example, the table shows that a married taxpayer filing a
joint return with taxable income of $50,000 would have to earn a yield of
approximately 10.34% before Federal and California personal income taxes in
order to earn a yield after such taxes of 7%.

1996 TAXABLE YEAR
TAXABLE EQUIVALENT YIELD TABLE - FEDERAL AND CALIFORNIA
PERSONAL INCOME TAXES*

<TABLE>
<CAPTION>
To Equal Hypothetical Tax-Free Yield of 5%,
Taxable Income(1) 6%, 7% or 8% A Taxable Investment Would Have
- ---------------------------------------------------------------- Combined To Yield Approximately
Married Marginal Tax ----------------------------------------------
Single Filing Jointly Rate(2)(3) 5% 6% 7% 8%
- ------------------------------- ------------------------------- --------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$23,264 - $36,714 18.40% 6.13% 7.35% 8.58% 9.80%
$36,715 - $40,100 20.10% 6.26% 7.51% 8.76% 10.01%
$24,001 - $25,484 $40,101 - $50,968 32.32% 7.39% 8.87% 10.34% 11.82%
$25,485 - $32,207 $50,969 - $64,414 33.76% 7.55% 9.06% 10.57% 12.08%
$32,208 - $58,150 $64,415 - $96,900 34.70% 7.66% 9.19% 10.72% 12.25%
$58,151 - $121,300 $96,901 - $147,700 37.42% 7.99% 9.59% 11.19% 12.78%
$121,301 - $263,750 $147,701 - $263,750 41.95% 8.61% 10.34% 12.06% 13.78%
over $263,750 over $263,750 45.22% 9.13% 10.95% 12.78% 14.60%
</TABLE>

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

(1) Assuming the Federal alternative minimum tax is not applicable.

(2) The combined marginal rates were calculated using Federal tax rate tables
for the 1996 taxable year and California tax rate tables for the 1996
taxable year. The Federal and California tax rate tables are indexed each
year to reflect changes in the Consumer Price Index and the California
Price Index, respectively.

(3) The combined Federal and California personal income tax marginal rates
assume that California income taxes are fully deductible for Federal
income tax purposes as an itemized deduction. However, the ability to
deduct itemized deductions (including state income taxes) for Federal
income tax purposes is limited for those taxpayers whose Federal adjusted
gross income for 1996 exceeds $117,950 ($58,975 in the case of a married
individual filing a separate return).

* This chart is prepared for general information purposes only. Tax
equivalent yields are a useful tool in determining the benefits of a
tax-exempt investment; however, tax equivalent yields should not be
regarded as determinative of the desirability of such an investment. In
addition, this chart is based on a number of assumptions which may not
apply in each individual case. An investor should therefore consult a
competent tax adviser regarding tax equivalent yields in individual
circumstances.

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<PAGE>
ACCOUNT SERVICES

All transactions in shares of the Funds will be reflected in a monthly
statement for each shareholder. In those cases where a Service Organization or
its nominee is the shareholder of record of shares purchased for its customer,
the Funds have been advised that the statement may be transmitted to the
customer at the discretion of the Service Organization.

BISYS acts as the Funds' transfer agent. The Funds compensate BISYS,
pursuant to a Services Agreement, for providing personnel and facilities to
perform dividend disbursing and transfer agency-related services for the Funds.
At a meeting on February 13, 1997, the Board of Trustees approved Union Bank of
California as the Funds' custodian to replace State Street Bank and Trust
Company.

SHAREHOLDER INQUIRIES

All shareholder inquiries should be directed to the Funds at 3435 Stelzer
Road, Columbus, Ohio 43219-2444.

General and Account Information: (800) 524-2276.

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<PAGE>
APPENDIX

DESCRIPTION OF MOODY'S BOND RATINGS:

Excerpts from Moody's description of its four highest bond ratings are
listed as follows: Aaa - judged to be the best quality and they carry the
smallest degree of investment risk; Aa - judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally know as
high grade bonds; A - possess many favorable investment attributes and are to be
considered as "upper medium grade obligations"; Baa - considered to be medium
grade obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. This group is the lowest which
qualifies for investment grade. Other Moody's bond descriptions include: Ba -
judged to have speculative elements, their future cannot be considered as well
assured; B - generally lack characteristics of the desirable investment; Caa -
are of poor standing. Such issues may be in default or there may be present
elements of danger with respect to principal or interest; Ca - speculative in a
high degree, often in default; C - lowest rated class of bonds, regarded as
having extremely poor prospects.

Moody's also supplies numerical indicators 1, 2 and 3 to rating
categories. The modifier 1 indicates that the security is in the higher end of
its rating category; the modifier 2 indicates a mid-range ranking; and modifier
3 indicates a ranking toward the lower end of the category.

DESCRIPTION OF S&P'S BOND RATINGS:

Excerpts from S&P's description of its four highest bond ratings are
listed as follows: AAA - highest grade obligations, in which capacity to pay
interest and repay principal is extremely strong; AA - also qualify as high
grade obligations, having a very strong capacity to pay interest and repay
principal, and differs from AAA issues only in a small degree; A - regarded as
upper medium grade, having a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories; BBB - regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories. This group is the lowest which
qualifies for investment grade. BB, B, CCC, CC - predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with terms
of the obligations; BB indicates the highest grade and CC the lowest within the
speculative rating categories.

S&P applies indicators "+," no character, and "-" to its rating
categories. The indicators show relative standing within the major rating
categories.

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<PAGE>
DESCRIPTION OF MOODY'S RATINGS OF NOTES AND VARIABLE RATE DEMAND INSTRUMENTS:

Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or MIG. Such ratings recognize the
differences between short-term credit and long-term risk. Short-term ratings on
issues with demand features (variable rate demand obligations) are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payments
relying on external liquidity.

MIG 1/VMIG 1: This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.

MIG 2/VMG 2: This denotes high quality. Margins of protection are ample
although not as large as in the preceding group.

DESCRIPTION OF MOODY'S TAX-EXEMPT COMMERCIAL PAPER RATINGS:

Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations which have an original maturity not
exceeding nine months. Moody's makes no representation that such obligations are
exempt from registration under the Securities Act of 1933, nor does it represent
that any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law. The following designations, all judged to be
investment grade, indicate the relative repayment ability of rated issuers of
securities in which the Trust may invest.

PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term promissory obligations.

PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term promissory obligations.

DESCRIPTION OF S&P'S RATINGS FOR MUNICIPAL BONDS:

INVESTMENT GRADE

AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.

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

A: Debt rated "A" has strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection

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parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

SPECULATIVE GRADE

BB, B, CCC, CC: Debt rated in these categories is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.

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

D: Debt rated "D" is in default, and payment of interest and/or repayment
of principal is in arrears.

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

DESCRIPTION OF S&P'S RATINGS FOR INVESTMENT GRADE MUNICIPAL NOTES AND SHORT-TERM
DEMAND OBLIGATIONS:

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

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

DESCRIPTION OF S&P'S RATINGS FOR DEMAND OBLIGATIONS AND TAX-EXEMPT COMMERCIAL
PAPER:

An S&P commercial paper rating is a current assessment of the likelihood
of timely repayment of debt having an original maturity of no more than 365
days. The two rating categories for securities in which the Trust may invest are
as follows:

A-1: This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics will be denoted with a plus (+) designation.

A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."

48
<PAGE>
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SEFTON FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
RETURN COMPLETED FORM TO:
Sefton Funds, P.O. Box 182494, Columbus, OH 43218-2494
ACCOUNT APPLICATION FOR ASSISTANCE, CALL: 1-800-524-2276

1 FUND SELECTION ------------------------------------------------------------------------------------------------------------------

THE MINIMUM INITIAL INVESTMENT IS $2000 PER FUND ($500 FOR MONEY MARKET FUNDS); THE MINIMUM ADDITIONAL INVESTMENT IS $50
(LOWER LIMITS MAY APPLY). I am investing in the following fund(s). The payment method I have chosen is: / / check: My check, made
payable to Sefton Funds, is enclosed. / / Wire: Call 1-800-524-2276 for instructions.

THE SEFTON U.S. GOVERNMENT FUND $ _____________________________________________________
THE SEFTON CALIFORNIA TAX-FREE FUND $ _____________________________________________________
THE SEFTON EQUITY VALUE FUND $ _____________________________________________________
THE SEFTON SMALL COMPANY VALUE FUND $ _____________________________________________________
THE PACIFIC HORIZON PRIME MONEY MARKET FUND $ _____________________________________________________
THE PACIFIC HORIZON CALIFORNIA TAX-EXEMPT MONEY MARKET FUND $ _____________________________________________________

2 ACCOUNT REGISTRATION ------------------------------------------------------------------------------------------------------------

Do not use this form for an IRA or to establish a retirement plan. Please call for assistance 800-524-2276.

A. TYPE OF REGISTRATION (check one)

/ / COMMUNITY PROPERTY / / NONPROFIT* / / CHARITABLE ORGANIZATION*
/ / INDIVIDUAL / / TENANTS IN COMMON / / CORPORATION* / / CUSTODIAN FOR MINOR ("UGTMA")
/ / JOINT TENANTS WITH RIGHT OF SURVIVORSHIP / / PARTNERSHIP* / / TRUST / / OTHER (SPECIFY)* _________________

*Please attach a copy of the appropriate bylaws, resolutions or trust documents establishing authority to open this account.
If any such agreements or resolutions are not in existence, please contact Sefton Funds at 1-800-524-2276 to request the
appropriate form.

B. ACCOUNT NAME

----------------------------------------------------------------- ---------------------------- ------------------------------
INDIVIDUAL (First Name/Initial/Last Name) Date of Birth Social Security Number

----------------------------------------------------------------- ---------------------------- ------------------------------
JOINT OWNER--IF ANY (First Name/Initial/Last Name) Date of Birth Social Security Number

-----------------------------------------------------------------
IF UGTMA, NAME OF CUSTODIAN (only one) as custodian for

----------------------------------------------------------------- ---------------------------- ------------------------------
Name of Minor (only one) Minor's State Minor's Date of Birth Minor's Social Security Number
of Residence

---------------------------------------------------------------------------------------------------------------------------------
NAME OF ORGANIZATION/TRUST/PLAN Date of Trust Tax ID Number

----------------------------------------------------------------- ---------------------------- ------------------------------
Name of Trustee Date of Trust Tax ID Number

C. OTHER ACCOUNT INFORMATION

---------------------------------------------------------------------------------------------------------------------------------
ADDRESS Number and Street Apt. # City State Zip

( ) ( )
---------------------------------------------------------------------------------------------------------------------------------
Daytime Telephone Number Evening Telephone Number

CITIZENSHIP / / U.S. Citizen / / Non-Resident Alien (Attach a W-8 form. Dividends are subject to tax withholding.)
/ / Resident Alien

EMPLOYMENT REQUIRED BY NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.

---------------------------------------------------------------------------------------------------------------------------------
Employer's Name Occupation

---------------------------------------------------------------------------------------------------------------------------------
Employer's Address City State Zip
Are you or an immediate family member affiliated with or working for a member firm of a stock exchange or the National
Association of Securities Dealers, Inc.?

/ / No / / Yes Name of institution______________________________________________ Please complete section 6B.

EMPLOYMENT FOR JOINT ACCOUNT OWNER Required by National Association of Securities Dealers, Inc.

---------------------------------------------------------------------------------------------------------------------------------
Employer's Name Occupation

/ / No / / Yes Name of institution______________________________________________ Please complete section 6B.

</TABLE>
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<TABLE>
<S><C>

3 TELEPHONE REDEMPTION AND EXCHANGE -----------------------------------------------------------------------------------------------

If left blank, you will automatically receive telephone privileges.
I elect the telephone privileges as described in the prospectus. / / Yes / / No

4 DISTRIBUTION SELECTION ----------------------------------------------------------------------------------------------------------

Your dividends and capital gains will be automatically reinvested into your account unless you indicate otherwise.
I would like my:
/ / Dividends and capital gains reinvested for fund(s) _________________________________________________________________________
/ / Dividends paid by check and capital gains reinvested for fund(s) ___________________________________________________________
/ / Dividends and capital gains sent to me by check to the address indicated in Section 2 for fund(s) __________________________
/ / Dividends and capital gains automatically deposited to my bank account as indicated in Section 5 for fund(s) _______________

5 ELECTRONIC FUNDS TRANSFER INSTRUCTIONS ------------------------------------------------------------------------------------------

For your convenience, you may authorize Sefton Funds to transfer money between your bank account and your Sefton account.
I have attached a voided check or deposit slip for my account: / / checking / / savings* / / money market*

I understand this service is available for purchases or redemptions, for the Automatic Investment and Withdrawal Plans and
for receiving dividends and capital gains in cash, unless I indicated otherwise in section 4.

I would like to use this service:
/ / for the Automatic Plan(s) I signed up for in Section 6 / / to establish bank wire instructions / / to receive dividends
and capital gains

---------------------------------------------------------------------------------------------------------------------------------
Bank Name

---------------------------------------------------------------------------------------------------------------------------------
Bank Address (do not use P.O. Box) City State Zip

---------------------------------------------------------------------------------------------------------------------------------
Account Number Bank Routing Number or ABA Number (if unknown, call your bank)

---------------------------------------------------------------------------------------------------------------------------------
Name(s) on Bank Account (must be the same as the Sefton Account)
X
---------------------------------------------------------------------------------------------------------------------------------
Signature of Co-Owner of Bank Account

* Debits to this account count toward the maximum number of withdrawals allowed by regulations for this type of account.
Please check with your bank to ensure that they accept "ACH transactions" for the account you are using.

6 ACCOUNT OPTIONS -----------------------------------------------------------------------------------------------------------------

A. AUTOMATIC INVESTMENT AND WITHDRAWAL PLANS Minimum $50 per transaction for automatic investment; minimum $50 per
transaction for Withdrawal Plan, with an account value of $100,000 see prospectus for details.
/ / AUTOMATIC INVESTMENT PLAN. I would like the plan to begin the month of ____________ 19___. Please have the amount(s)
indicated below withdrawn from my bank account noted in Section 5 and invested in the fund(s) listed below.

Fund ___________________________ Amount $______________ Fund ___________________________ Amount $________________
/ / Each month on the 5th / / Each month on the 20th / / Each month on the 5th / / Each month on the 20th
/ / Each month on the / / Quarterly on the 5th / / Each month on the / / Quarterly on the 5th
5th and the 20th (Mar., June, Sept., Dec.) 5th and the 20th (Mar., June, Sept., Dec.)

/ / AUTOMATIC WITHDRAWAL PLAN. I would like the plan to begin the month of __________________ 19___. Please have the amount(s)
indicated below
/ / deposited into my bank account noted in Section 5 / / mailed to me by check at the address indicated in Section 2

B. DUPLICATE STATEMENTS AND CONFIRMATIONS
Please send duplicate statements and confirmations to:

--------------------------------------------------------------------------------------------------------------------------------
Name Company (if part of address)

--------------------------------------------------------------------------------------------------------------------------------
Address City State Zip

</TABLE>
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7 CLIENT AGREEMENT ----------------------------------------------------------------------------------------------------------------
After reading this section, please sign in Section 8.

I (We) have full right, power, authority and legal capacity; and am (are) of legal age in my (our) state of residence to
purchase shares of the Fund(s). I (we) affirm that I (we) have received and read the current prospectus(es) of the Fund(s)
selected and agree to be bound by its terms.

a. THE MEANING OF WORDS IN THIS AGREEMENT. The words "I," "me" and "my" refer to the person(s) who signed this Agreement. The
words "you" and "your" refer to the Bank and BISYS Fund Services, Inc.

b. REPRESENTATIONS. I understand that you provide no investment, tax or legal advice, and I have relied on my independent
judgment with respect to the suitability or potential value of any security or order.

c. DEBIT AUTHORIZATION AND SETTLEMENT. If I authorize, and if BISYS Fund Services, Inc. and the Bank approve, the use of my
bank account designated in Section 5 of this Account Registration Form (the "designated account") as the settlement account
in connection with this account, I understand and agree that the Bank or BISYS Fund Services, Inc. may debit the designated
account for payment of securities purchased by me either by way of this Account Registration Form and order, by signing up
for the Automatic Investment Plan, or for subsequent purchase in any Sefton Funds as I may direct. If I have instructed
that a purchase be settled through a debit of my account, I certify that I have the power and authority to debit the
account. I agree to have sufficient collected funds available in the designated account to cover the amounts due on
purchase of securities at the time of placing my order. If I have designated another method of payment, I agree to deliver
to the custodian Bank sufficient collected funds to cover the amount due by 9:00 a.m. (Pacific Time) on the settlement
date. I understand that if sufficient collected funds are not available, my purchase will be rejected and I will be liable
for any resulting loss.

If BISYS Fund Services, Inc. executes a transaction but fails to receive sufficient payment for such shares, BISYS Fund
Services, Inc. may, without prior notice, redeem any Sefton shares. I agree to reimburse the Fund or BISYS Fund Services, Inc.
on demand for any costs, losses or liabilities incurred by such party in collection of the debit balance.

Further, I understand and agree that the Sefton Funds or BISYS Fund Services, Inc. as appropriate, may credit the designated
account with dividend redemption, Automatic Withdrawal Plan, or distribution payments received by the Bank or BISYS Fund
Services, Inc. from Sefton for the proceeds of any sales ordered by me.

I further understand that the Automatic Withdrawal Plan and the Automatic Investment Plan may be terminated or modified at any
time without notice.

d. FORCE MAJEURE. You shall not be liable for loss or delay caused directly or indirectly by war, natural disaster, government
restrictions, exchange or market rulings or other conditions beyond the control of BISYS Fund Services, Inc.

e. RECORDING CONVERSATIONS. I understand and agree that, for our mutual protection, telephone conversations may be recorded
without further notice.

f. APPLICABLE LAWS AND REGULATIONS. All transactions shall be subject to rules, regulations, customs and usages of the
exchange, market or clearinghouse where executed, all applicable federal and state laws and regulations, and the policies
and procedures as determined by the Sefton mutual funds set forth in their then current prospectus.

g. GOVERNING LAWS. The Agreement shall be governed by the laws of the State of Ohio as applicable.

h. RELIANCE ON REPRESENTATIONS. I understand that BISYS Fund Services, Inc. shall rely on the information that I have set
forth in this Agreement. I agree that all changes to this information shall be promptly provided to BISYS Fund Services, Inc.
in writing. BISYS Fund Services, Inc. is entitled to rely on this information until I change it by subsequent written notice.

i. DELIVERY AND RECEIPT. Any orders for transactions in the Sefton Funds under this Agreement will NOT be effective until
received and approved by BISYS Fund Services, Inc. at their offices in Columbus, Ohio. BISYS Fund Services, Inc. shall not be
responsible for any losses or lost profit opportunity I may experience due to any delays in the execution of purchase and
redemption orders as a result of delayed receipt of such orders.

j. INSTRUCTIONS. Neither BISYS Fund Services, Inc. nor the Funds will be liable for any loss, damages, expense or cost
arising out of any telephone redemption effected in accordance with the Fund's telephone redemption procedures, upon
instructions reasonably believed to be genuine. The Funds will employ procedures designed to provide reasonable assurance that
instructions by telephone are genuine; if these procedures are not followed, the Fund or its service contractors may be liable
for any losses due to unauthorized or fraudulent instructions. These procedures include recording all phone conversations,
sending confirmation to shareholders within 72 hours of the telephone transaction, verification of account name and account
number or tax identification number and sending redemption proceeds only to the address of record or to a previously authorized
bank account.

k. ARBITRATION. This paragraph contains what is sometimes referred to as a predispute arbitration clause. In this regard, I am
aware of the following:
(i) Arbitration is final and binding on the parties.
(ii) The parties are waiving their right to seek remedies in court, including the right to jury trial.
(iii) Pre-arbitration discovery is generally more limited than and different from court proceedings.
(iv) The arbitrators' award is not required to include factual findings or legal reasoning and any party's right to appeal or
seek modification of rulings by the arbitrators is strictly limited.
(v) The panel of arbitrators will typically include a minority of arbitrators who were or are affiliated with the securities
industry.
(vi) All agreements shall include a statement that "No person shall bring a putative or certified class action to arbitration,
nor seek to enforce any predispute arbitration agreement against any person who has initiated in court a putative class
action; or who is a member of a putative class who has not opted out of the class with respect to any claims encompassed by
the putative class action until: (i) the class certification is denied, or (ii) the class is decertified; or (iii) the person
against whom the arbitration agreement would be enforced is excluded from the class by the court. Such forbearance to enforce
an agreement to arbitrate shall not constitute a waiver of any rights under this agreement except to the extent stated herein."
It is agreed that any controversy between me and all or any of the Funds and its service providers (including SEFTON CAPITAL
MANAGEMENT), arising out of this Agreement or my business with you, shall be settled by arbitration conducted in accordance
with the rules of the National Association of Securities Dealers, Inc. or the American Arbitration Association, as I may
elect. Failure to notify you of such election in writing within five (5) days after receipt from you of a request for
arbitration shall be deemed to be authorization to make such election on my behalf. Judgment upon the award of the arbitrators
may be entered by any court having jurisdiction.

l. INDEMNIFICATION. As additional consideration for the services of BISYS Fund Services, Inc. and SEFTON CAPITAL MANAGEMENT,
with regard to this Account, I agree to indemnify and hold BISYS Fund Services, Inc. and SEFTON CAPITAL MANAGEMENT, its
officers, directors, employees and agents harmless from and against any and all losses, liabilities, demands, claims, actions,
expenses, and attorney's fees arising out of or in connection with this Agreement, which are not caused by the negligence or
willful misconduct of BISYS Fund Services, Inc. or SEFTON CAPITAL MANAGEMENT. The provisions of this Section shall survive
termination of this Agreement; the provisions of this Section shall be binding on my successors and assigns.

m. I understand that, if disbursements out of this account are to anyone other than applicant or applicant's joint tenant, a
signature guarantee will be required.

n. With respect to Section 6, I understand that if the 5th or 20th should fail on a non-business day, the transaction will be
effective on the next business day.

o. I understand that mutual fund shares are not deposits of SEFTON CAPITAL MANAGEMENT or any other affiliated institution, are
not insured by the FDIC, are not obligations of any bank or the U.S. Government and are not endorsed or guaranteed in any way
by any bank.

p. Pacific Horizon Money Market Fund and Pacific Horizon California Tax-Exempt Money Market Fund (the "Money Market Funds")
are managed by The Bank of America. If I invest in the Fund, I understand that I am authorizing BISYS to effect purchase and
redemption orders on my behalf and to act as the record owner of my shares of that Fund, and that my ownership of those shares
will be evidenced on books and records maintained by BISYS. This application must be accompanied or preceded by a Pacific
Horizon Prospectus.

</TABLE>
<PAGE>
<TABLE>
<S><C>

8 INVESTOR SIGNATURE AND CERTIFICATION FOR THE IRS --------------------------------------------------------------------------------

Each of the undersigned has the authority and legal capacity to purchase mutual fund shares, is of legal age in their state
and believes each investment is suitable for themselves. Each of the undersigned has received and read the prospectus and
agrees to its terms.

CERTIFICATION - Under penalty of perjury the undersigned certifies that:

(1) The number shown on this Agreement is my correct taxpayer number, and
(2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by
the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or
dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding.
Note: (You must cross out item (2) if you are subject to backup withholding.)
* If joint acccount, all tenants must sign. ** If corporate account or other legal entity, authorized person must sign in
capacity.

X
---------------------------------------------------------------------------------------------------------------------------------
Signature of Individual Registrant Date
X
---------------------------------------------------------------------------------------------------------------------------------
Signature of Joint Registrant (if applicable) Date
X
---------------------------------------------------------------------------------------------------------------------------------
Signature of Trust, Corporation, Partnership or Other Entity Date

---------------------------------------------------------------------------------------------------------------------------------
Title Date

9 CORPORATE RESOLUTION ------------------------------------------------------------------------------------------------------------
This section is to be completed by corporations only. Please be sure to fill out the resolution fully, as incomplete
documentation will cause delays in investing and redeeming.

-------------------------------------------------------------- --------------------------------------------------------------
Name of Organization Name (Please print) Title
X
-------------------------------------------------------------- --------------------------------------------------------------
Address Signature

-------------------------------------------------------------- --------------------------------------------------------------
City State Zip Name (Please print) Title
X
-------------------------------------------------------------- --------------------------------------------------------------
Telephone Signature

I,______________________________of ___________________________ --------------------------------------------------------------
certify that the following is a true copy of a resolution now Name (Please print) Title
in full force and effect, duly adopted by the Board of X
Trustees or by those with authority to act on behalf of said --------------------------------------------------------------
Organization on _______________ 19____: Resolved, that any Signature
/ / one / /two / /three / /four of the persons whose names and Be it further resolved, that the parties named above are
signatures appear below are hereby authorized and directed hereby authorized and directed to sign such documents, to make
to execute and deliver any written instruments including, such filings, and to take such further actions as may be
without limitation, the Customer Agreement, which is attached necessary or desirable to implement this resolution.
hereto and made a part hereof by this reference, necessary to X
establish and maintain accounts with any fund within Sefton --------------------------------------------------------------
Funds, and to effect purchases and redemptions of such shares. Signature of certifying person or officer Date
(Other than those listed above) All persons authorized to act
-------------------------------------------------------------- on the account must also sign under Section 8 of this
Name (Please print) Title application.
X
--------------------------------------------------------------
Signature

10 PERSON(S) AUTHORIZED TO CONDUCT TRANSACTIONS ------------------------------------------------------------------------------------
The following persons are authorized agents of the shareholder. Any ___* of the Authorized Person(s) is, by lawful and
appropriate action of the shareholder, a person entitled to give instructions regarding purchases and redemptions or to make
inquiries, regarding your Account.
X
----------------------------------------- ----------------------------------------- -----------------------------------------
Name/Title Signature Date Organization
X
----------------------------------------- ----------------------------------------- -----------------------------------------
Name/Title Signature Date Organization

BISYS Fund Services, Inc. (BISYS) may, without inquiry, act upon the instructions (whether verbal, written, or provided by wire,
telecommunication, or any other process) of any person claiming to be an Authorized Person. Neither BISYS nor any entity on
behalf of which BISYS is acting shall be liable for any claims or expenses (including legal fees) or for any losses, resulting
from actions taken upon any instructions believed to be genuine. BISYS may continue to rely on the instructions made by any
person claiming to be an Authorized Person until informed through amended instructions to the Application that the person is no
longer an Authorized Person. BISYS has a reasonable period (not to exceed one week) to process the amended instructions.
Provisions of this Application shall be equally applicable to any successor of BISYS.

*If this space is left blank, any one Authorized Person is authorized to give instructions and make inquiries. Verbal
instructions will be accepted from any one Authorized Person. Written instructions will require signatures of the number of
Authorized Persons indicated in this space.

- ------------------------------------------------------------------------------------------------------------------------------------
BANK, BROKER-DEALER USE ONLY

Rep. # _________________________________________________ Office # _________________________________________________
Broker/Dealer # _________________________________________________ Office Name _________________________________________________
Principal _________________________________________________ Signature ________________________________Date_____________
Lead Source _________________________________________________ Fund Source ___________________Campaign Code_________________
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

INVESTMENT ADVISER
Sefton Capital Management
2550 Fifth Avenue, Suite 808
San Diego, California 92103

ADMINISTRATOR, DISTRIBUTOR AND TRANSFER AGENT
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035

CUSTODIAN
Union Bank of California
475 Sansome Street
San Francisco, California 94111

LEGAL COUNSEL
Baker & McKenzie
805 Third Avenue, 30th Floor
New York, New York 10022

INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
950 Seventeenth Street, Suite 2500
Denver, Colorado 80202

FOR MORE INFORMATION CALL
SEFTON FUNDS (800) 524-2276
- --------------------------------------------------------------------------------

THESE FUNDS ARE NOT INSURED BY SEFTON CAPITAL
MANAGEMENT, THE FDIC OR ANY OTHER INSURER.

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

Sefton Funds Trust
3435 Stelzer Road
Columbus, Ohio 43219
General and Account Information: (800) 524-2276

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

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 (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
<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. . . . . . . . . . . . . . . . . . . . . . 3
Foreign Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Real Estate Securities . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Company Securities. . . . . . . . . . . . . . . . . . . . . 4
Interest Rate Futures Contracts. . . . . . . . . . . . . . . . . . . . 4
Stock Index Futures Contracts. . . . . . . . . . . . . . . . . . . . . 5
Put Options on Stock Index Futures Contracts . . . . . . . . . . . . . 5
California Municipal Obligations . . . . . . . . . . . . . . . . . . . 6

INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 14

MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Trustees and Officers. . . . . . . . . . . . . . . . . . . . . . . . . 15
Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Distribution of Fund Shares. . . . . . . . . . . . . . . . . . . . . . 18
Administrators, Bookkeeping and Pricing Agent. . . . . . . . . . . . . 18
Service Organizations. . . . . . . . . . . . . . . . . . . . . . . . . 19

DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . 20

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . 20

PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . 22

TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Control Persons and Principal Holders of Securities. . . . . . . . . . 28
Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Custodian and Transfer Agent . . . . . . . . . . . . . . . . . . . . . 30
Yield and Performance Information. . . . . . . . . . . . . . . . . . . 30
Independent Accountants. . . . . . . . . . . . . . . . . . . . . . . . 32
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . 32

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

<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

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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.

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.

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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 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

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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 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

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<PAGE>

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
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

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<PAGE>

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 capital 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 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.

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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
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

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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 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

8
<PAGE>

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;
- 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

9
<PAGE>

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 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:

10
<PAGE>

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.

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

11
<PAGE>

(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.

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

12
<PAGE>

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.

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<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

14
<PAGE>

(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) 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.

Harley K. Sefton, Chairman of the Board of Trustees and President, 43 years old*
- - 2550 Fifth Avenue, Suite 808, San Diego, CA 92103. President and CEO, Sefton
Capital Management; President, First Interstate Capital Management, Inc., March
1994 through August 1994; President, San 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;
Chief Operating Officer, San Diego Financial Capital Management, Inc., July 1986
through December 1991.

Grace Evans Cherashore, Trustee, 41 years old - 988 West Mission Bay Drive, San
Diego, CA 92109. Chief Executive Officer, Bahia and Catamaran Hotels since 1992;
Chief Financial Officer, Bahia and Catamaran Hotels, 1990-1992.

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

15
<PAGE>

John J. Pileggi, Trustee, 38 years old. Director of Furman Selz LLC since
1994; Senior Managing Director of Furman Selz LLC (1992-1994); Managing Director
of Furman Selz LLC (1984-1992).

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

Alan A. Lordi, Vice President, 34 years old - 2550 Fifth Avenue, Suite 808,
San Diego, CA 92103. Managing Director of Mutual Funds, Furman Selz LLC,
April 1995 to July 1996. Vice President and Investment Marketing Director of
First Interstate Capital Management, Inc. March 1994 to April 1995. Vice
President and Investment Marketing Director of San Diego Financial Capital
Management, Inc. August 1991 to March 1994.

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

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

Lani Capossere, Vice President and Secretary, 35 years old - 2550 Fifth
Avenue, Suite 808, San Diego, CA 92103. Vice President and Chief Operating
Officer, Sefton Capital Management, October 1994 to present; Assistant Vice
President and Operations Manager, First Interstate Capital Management, Inc.,
March 1994 through May 1994; Assistant Vice President and Operations Manager,
San Diego Financial Capital Management, Inc., April 1992 through March 1994;
Trust Officer, San Diego Trust & Savings Bank, July 1980 through April 1992.

Thomas Line, Vice President and Treasurer, 30 years old - Treasurer, BISYS Fund
Services, January 1997 to present; employee of KPMG Peat Marwick, September
1989 through December 1996.

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

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

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

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

*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

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<PAGE>

- --------------------------------------------------------------------------------
Pension Or
Retirement
Aggregate Benefits Estimated
Compensation Accrued As Annual
From The Part Of Fund Benefits
Trust Expenses Upon Retirement
- --------------------------------------------------------------------------------

Grace Evans Cherashore
Trustee $4,500 $0 $0
- --------------------------------------------------------------------------------
Gordon T. Frost, Jr.
Trustee $4,500 $0 $0
- --------------------------------------------------------------------------------
John J. Pileggi $1,250* $0 $0
- --------------------------------------------------------------------------------

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

* 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 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 do not receive
compensation from the Funds.

INVESTMENT ADVISER

Sefton Capital Management, 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.

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.

17
<PAGE>

- --------------------------------------------------------------------------------
April 3, 1995 (Commencement of Investment Operations) to March 31, 1996
- --------------------------------------------------------------------------------
Advisory Fees Advisory
Fund Name (before waivers) Waiver Fees Paid
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
Advisory Fees Advisory
Fund Name (before waivers) Waiver Fees Paid
- --------------------------------------------------------------------------------
U.S. Government Fund $113,578 $64,584 $50,106
- --------------------------------------------------------------------------------
California Tax-Free Fund $257,339 $98,461 $156,276
- --------------------------------------------------------------------------------
Equity Value Fund $482,659 $0 $439,946
- --------------------------------------------------------------------------------

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, 3435 Stelzer Road, Columbus, Ohio 43219, replaced 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 counsel and others. In
addition, BISYS furnishes office space and facilities required for conducting

18
<PAGE>

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 year ended March 31, 1997.

- --------------------------------------------------------------------------------
For the year ended March 31, 1997
- --------------------------------------------------------------------------------
Administration Fees Waiver Fees
Fund Name (before waivers) of Fees Paid
- --------------------------------------------------------------------------------
U.S. Government Fund $44,168 $9,975 $38,746
- --------------------------------------------------------------------------------
California Tax-Free Fund $85,431 $27,036 $71,129
- --------------------------------------------------------------------------------
Equity Value Fund $95,828 $21,831 $81,535
- --------------------------------------------------------------------------------

19
<PAGE>

The following table summarizes the administration fees paid by the Funds to
ALPS and Furman Selz 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 Waiver Fees
Fund Name (before waivers) of Fees Paid
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------

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

20
<PAGE>

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 (i) 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 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.

21
<PAGE>

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.

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.

22
<PAGE>

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
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

23
<PAGE>

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.

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 shareholders' 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.

24
<PAGE>

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.

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,

25
<PAGE>

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 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

26
<PAGE>

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 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

27
<PAGE>

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.

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.

28
<PAGE>

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 June 4, 1997, the Officers and Directors of the Trust, as a group,
owned 0.13% of the U.S. Government Fund, 0.13% of the California Tax-Free
Fund and 1.20% of the Equity Value Fund of the outstanding voting securities
of each Fund. As of such date, the Small Company Value Fund has not
commenced investment operations:

As of June 4, 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 5.04%
P.O. Box 8469
La Jolla, CA 92038-8469

J.P. Morgan and William T. Stephens, Jr. 21.32%
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. 14.17%
TRST Thomas & Donna Sefton
CRUT DTD 08/26/94
333 S. Hope St. 35th Floor
Los Angeles, CA 90071-1406

CORELINK Financial, Inc. 25.75%
1855 Gateway Blvd.
P.O. Box 4054
Concord, CA 94524

SBT & CO 30.89%
Reinvest Account
P.O. Box 8469
La Jolla, CA 92038-8469

California Tax-Free Fund

SBT & CO 8.57%
P.O. Box 8469
La Jolla, CA 92038-8469

CORELINK Financial, Inc. 58.99%
1855 Gateway Blvd.
P.O. Box 4054
Concord, CA 94524

SBT & CO 25.90%
Reinvest Account
P.O. Box 8469
La Jolla, CA 92038-8469

Equity Value Fund

CORELINK Financial, Inc. 56.87%
1855 Gateway Blvd.
P.O. Box 4054
Concord, CA 94524

SBT & CO 33.92%
Reinvest Account
P.O. Box 8469
La Jolla, CA 92038-8469

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

29
<PAGE>

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:

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

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,
and d = the maximum offering price per share on the last day of the period.

30
<PAGE>

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, and 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.

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 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

31
<PAGE>

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 financial statements appearing in the most current fiscal year Annual
Report to shareholders and the report thereon of the independent accountants
appearing therein, namely Price Waterhouse LLP, are incorporated by reference in
this Statement of Additional Information and are included in reliance upon such
report and on the authority of such firm as experts in auditing and accounting.
The Annual Report to shareholders which contains the referenced statements, is
available upon request and without charge.

32
<PAGE>

PART C. OTHER INFORMATION

Item 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) (1) Financial Statements included in Part A of this Registration
Statement: Financial Highlights for the Year ended March 31,
1997 and the period from April 3, 1995 (commencement of
investment operations) to March 31, 1996.

(2) 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:
Statement of Assets and Liabilities and Statement of
Investments as of March 31, 1997; Statement of Operations
for the year ended March 31, 1997; Statement of Changes in
Net Assets and Financial Highlights for the year ended
March 31, 1997 and the period from April 3, 1995
(commencement of investment operations) to March 31, 1996.

(b) EXHIBITS

* (1) Charter of Registrant.

* (2) (a) Bylaws of Registrant.

(3) None.

(4) None.

* (5)(a) Form of Master Investment Advisory Contract and Supplements
between Registrant and Sefton Capital Management

(5)(b) Form of Master Administration Agreement and Supplements
between Registrant and BISYS Fund Services, Inc.

** (6) Form of Master Distribution Agreement and Supplements
between Registrant and BISYS Fund Services, Inc.

(7) None.

<PAGE>

** (8) Form of Custodian Contract between Registrant and State
Street Bank and Trust Company

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

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

(10) Opinion & Consent of Baker & McKenzie, counsel to
Registrant.

(11) Consent of Independent Accountants.

(12) None.

*** (13) Subscription Agreement.

(14) None.

(15) None.

(16) Schedule of Computation of Performance Calculation.

(a) U.S. Government Fund
(b) California Tax-Free Fund
(c) Equity Value Fund

(17) Financial Data Schedule.

(a) U.S. Government Fund
(b) California Tax-Free Fund
(c) Equity Value Fund

(18) None.

Other Exhibits

** (a) Power of Attorney
___________________
* Filed with Initial Registration Statement on January 13, 1995 and
incorporated by reference.
** Filed with Post-Effective Amendment No. 3 to Registration Statement on
April 16, 1997 and incorporated by reference.

-2-
<PAGE>

*** Filed with Pre-Effective Amendment No. 1 to Registrant's Registration
Statement on March 20, 1995 and incorporated by reference.

-3-
<PAGE>

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

None.

Item 26. NUMBER OF HOLDERS OF SECURITIES.

As of June 4, 1997

U.S. Government Fund 20
California Tax-Free Fund 18
Equity Value Fund 90
Small Company Value Fund 0

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.

-4-
<PAGE>

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.

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

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

-5-

<PAGE>

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

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

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

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

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

Item 29. PRINCIPAL UNDERWRITER

(a) BISYS Fund Services acts as Distributor/Underwriter for
various other unrelated registered investment companies.

(b) Officers and Directors

Positions and
Name and Principal Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ----------------------------- -------------------- ------------------------
Lynn J. Mangum None Chairman/CEO
150 Clove Road
Little Falls, New Jersey
07424

J. David Huber None President
3435 Stelzer Road
Columbus, Ohio 43219

Robert J. McMullan None Executive Vice
150 Clove Road President/CFO/Treasurer
Little Falls, New Jersey
07424

-6-

<PAGE>

Positions and
Name and Principal Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ----------------------------- -------------------- ------------------------
Kevin J. Dell None Vice President/General
150 Clove Road Counsel/Secretary
Little Falls, New Jersey
07424

Mark J. Rybarezyk None Senior Vice President
150 Clove Road
Little Falls, New Jersey
07424

Dennis Sheehan None Senior Vice President
150 Clove Road
Little Falls, New Jersey
07424

George Martinez Secretary Senior Vice President
3435 Stelzer Road
Columbus, Ohio 43219

Michael Burns None Vice President
3435 Stelzer Road
Columbus, Ohio 43219

Annemaria Porcaro None Assistant Secretary
150 Clove Road
Little Falls, New Jersey
07424

Robert Tuch None Assistant Secretary
3435 Stelzer Road
Columbus, Ohio 43219

_________________________

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 and the rules thereunder are
maintained at the offices of BISYS Fund Services, 3435 Stelzer Road,
Columbus, Ohio 43219.

Item 31. MANAGEMENT SERVICES

Not applicable.

-7-

<PAGE>

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.

(d) Registrant hereby undertakes to file a Post-Effective
Amendment, using financial statements which need not be
certified, within four to six months from the effective date
of the Registrant's 1933 Act Registration Statement relating
to shares of the Small Company Value Fund (the "Shares") or
the initial public offering of the Shares, whichever is later.

-8-

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant hereby certifies that it meets
all of the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Post-Effective Amendment No. 4 to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Columbus, and State of Ohio, on June 30, 1997.

SEFTON FUNDS TRUST (Registrant)

By:/s/ THOMAS LINE
-----------------------------------
Thomas Line
Vice President and Treasurer

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

SIGNATURE TITLE DATE
---------- ----- ----

HARLEY K. SEFTON*
- -----------------
Harley K. Sefton Chairman and President June 30, 1997

GRACE EVANS CHERASHORE*
- -----------------------
Grace Evans Cherashore Trustee June 30, 1997

GORDON T. FROST, JR.*
- ------------------------
Gordon T. Frost, Jr. Trustee June 30, 1997

-9-
<PAGE>

JOHN J. PILEGGI* Trustee June 30, 1997
- ------------------
John J. Pileggi

/s/THOMAS LINE Vice President and Treasurer June 30, 1997
- ---------------
Thomas Line (Principal Financial Officer)

/s/THOMAS LINE
- ---------------
Thomas Line
Attorney-in-Fact

_________________________
*Pursuant to Power of Attorney filed with this Post-Effective Amendment No. 3
dated April 16, 1997.

-10-

<PAGE>

AMENDMENT TO
SCHEDULE A TO THE
ADMINISTRATION AGREEMENT
DATED AS OF JANUARY 1, 1997
BETWEEN SEFTON FUNDS TRUST AND
BISYS FUND SERVICES LIMITED PARTNERSHIP

This Amendment is made as of May 1, 1997, between the Sefton Funds Trust
(the "Trust") and BISYS Fund Services Limited Partnership d/b/a BISYS Fund
Services (the "Administrator"). The parties hereby amend Schedule A to the
Administration Agreement (the "Agreement") between the Trust and the
Administrator dated as of January 1, 1997, as set forth below.

WHEREAS, the parties hereto wish to amend the portion of Schedule A to the
Agreement, entitled "Fees," by modifying the fee amount set forth therein.

NOW THEREFORE, in consideration of the foregoing and the mutual premises
and covenants herein set forth, the parties agree as follows:

1. Schedule A to the Agreement shall be amended by replacing the entire
section entitled "Fees" with the following:

Pursuant to Article 4, in consideration of services
rendered and expenses assumed pursuant to this Agreement,
the Trust will pay the Administrator on the first business
day of each month, or at such time(s) as the Administrator
shall request and the parties hereto shall agree, a fee
computed daily at the annual rate of:

Fifteen one-hundredths of one percent
(.15%) of the Trust's average daily net
assets.

The fee for the period from the day of the month this
Agreement is entered into until the end of that month shall
be prorated according to the proportion which such period
bears to the full monthly period. Upon any termination of
this Agreement before the end of any month, the fee for such
part of a month shall be prorated according to the
proportion which such period bears to the full monthly
period and shall be payable upon the date of termination of
this Agreement.

<PAGE>

For purposes of determining the fees payable to the
Administrator, the value of the net assets of a particular
Portfolio shall be computed in the manner described in the
Trust's Declaration of Trust or in the Prospectus or
Statement of Additional Information respecting that
Portfolio as from time to time is in effect for the
computation of the value of such net assets in connection
with the determination of the liquidating value of the
shares of such Portfolio.

The parties hereby confirm that the fees payable
hereunder shall be applied to each Portfolio as a whole, and
not to separate classes of shares within the Portfolios.

2. This Amendment may be executed in one or more counterparts, each of
which will be deemed an original, but all of which together shall constitute
one and the same instrument.

3. Except as specifically set forth herein, all other provisions of the
Agreement shall remain in full force and effect.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.

SEFTON FUNDS TRUST

By:
----------------------------------

BISYS FUND SERVICES
LIMITED PARTNERSHIP

By: BISYS Fund Services, Inc.,
General Partner

By:
------------------------------------

<PAGE>

[LETTERHEAD OF BAKER & McKENZIE]

EXHIBIT 10

June 30, 1997

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

RE: SEFTON FUNDS TRUST (REGISTRATION NO. 33-88568
---------------------------------------------

Dear Sir/Madam:

As counsel to the Sefton Funds Trust (the "Trust"), we have reviewed
Post-Effective Amendment No. 4 to the Trust's Registration Statement on Form
N-1A (the "Amendment"). The Amendment is being filed pursuant to Rule 485 of the
1933 Act and it is proposed that it will become effective immediately upon
filing pursuant to paragraph (b). Based on our review, it is our view that the
Amendment does not include disclosure which we believe would render it
ineligible to become effective under paragraph (b) of Rule 485.

In addition, it is our opinion that the securities being registered
hereunder will, when sold, be legally issued, fully paid and non-assessable, and
we hereby consent to the reference to our firm as Counsel in this Amendment.

If you have any questions or comments concerning the enclosed, please
telephone the undersigned at (212) 891-3946.

Sincerely,

BAKER & McKENZIE

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Propsectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 4 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 heading "Financial Highlights" in the Prospectus and under the
headings "Independent Accountants" and "Financial Statements" in the Statement
of Additional Information.

/s/ Price Waterhouse LLP

PRICE WATERHOUSE LLP

Denver, Colorado
June 30, 1997

<PAGE>

THE SEFTON FUNDS
EXHIBIT 16
TOTAL RETURN

EQUITY VALUE 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: ( 04/03/95 TO 03/31/97 ):
( 1,555.53 /1,000^(1/( 728 /365))-1) = 24.80%
ONE YEAR: ( 04/01/96 TO 03/31/97 ):
( 1,231.50 /1,000) - 1 = 23.15%

- -----------------------------------
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: ( 01/01/97 TO 03/31/97 ):
1,025.60 /1,000) - 1 = 2.56%
QUARTERLY: ( 01/01/97 TO 03/31/97 ):
1,025.60 /1,000) - 1 = 2.56%
MONTHLY: ( 03/01/97 TO 03/31/97 ):
972.90 /1,000) - 1 = -2.71%
SIX MONTH: ( 10/01/96 TO 03/31/97 ):
1,145.50 /1,000) - 1 = 14.55%
SINCE INCEPTION: ( 01/01/95 TO 03/31/97 ):
1555.53 /1,000) - 1 = 55.55%

<PAGE>

THE SEFTON FUNDS
EXHIBIT 16
TOTAL RETURN

U.S. GOVERNMENT 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: ( 04/03/95 TO 03/31/97 ):
( 1,126.63 /1,000^(1/( 728 /365))-1) = 6.16%
ONE YEAR: ( 04/01/96 TO 03/31/97 ):
( 1,033.10 /1,000) - 1 = 3.31%

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: ( 01/01/97 TO 03/31/97 ):
989.20 /1,000) - 1 = -1.08%
QUARTERLY: ( 01/01/97 TO 03/31/97 ):
989.20 /1,000) - 1 = -1.08%
MONTHLY: ( 03/01/97 TO 03/31/97 ):
989.10 /1,000) - 1 = -1.09%
SIX MONTH: ( 10/01/96 TO 03/31/97 ):
1,019.00 /1,000) - 1 = 1.90%
SINCE INCEPTION: ( 04/03/95 TO 03/31/97 ):
1,126.63 /1,000) - 1 = 12.66%

<PAGE>

THE SEFTON FUNDS
EXHIBIT 16
TOTAL RETURN

CALIFORNIA TAX FREE 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: ( 04/03/95 TO 03/31/97 ):
( 1,126.78 /1,000^(1/( 728 /365))-1) = 6.17%
ONE YEAR: ( 04/01/96 TO 03/31/97 ):
( 1,056.90 /1,000) - 1 = 5.69%

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: ( 01/01/97 TO 03/31/97 ):
995.60 /1,000) - 1 = -0.44%
QUARTERLY: ( 01/01/97 TO 03/31/97 ):
995.60 /1,000) - 1 = -0.44%
MONTHLY: ( 03/01/97 TO 03/31/97 ):
988.70 /1,000) - 1 = -1.13%
SIX MONTH: ( 10/01/96 TO 03/31/97 ):
1,022.30 /1,000) - 1 = 2.23%
SINCE INCEPTION: ( 04/03/95 TO 03/31/97 ):
1,126.78 /1,000) - 1 = 12.68%

<PAGE>

SEFTON FUNDS
EXHIBIT 16
30-DAY S.E.C. YIELD CALCULATIONS
GOVERNMENT 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:

( 150,678.54 - 22,683.97 )
------------------------------
2 *{[( +1)^6]-1} = 5.68%
( 2,278,680.682 * 12.01 )

The performance was computed based on the thirty day period ending March 31,
1997

<PAGE>

SEFTON FUNDS
EXHIBIT 16
30-DAY S.E.C. YIELD CALCULATIONS
CALIFORNIA TAX FREE 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:

( 174,691.22 - 29,621.79 )
------------------------------
2 *{[( +1)^6]-1} = 4.50%
( 3,185,500.118 * 12.26 )

The performance was computed based on the thirty day period ending March 31,
1997

<PAGE>

SEFTON TAX EQUIVALENT SEC YIELDS
- ---------------------------------------
Thirty day period ending March 31, 1997

CALIFORNIA TAX FREE FUND
- ------------------------
TAX EQUIV.
YIELD
SEC Yield (w/o load) 7.45%
SEC Yield ( w/o load, w/o waiving mgmt fee) 7.03%

All calculations performed using the following equation:

TAX EQUIV. = SEC YIELD
---------
YIELD (1 - .396)

<PAGE>

SEFTON FUNDS
EXHIBIT 16
30-DAY S.E.C. YIELD CALCULATIONS
EQUITY 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:

( 184,519.18 - 105,569.58 )
-------------------------------
2 *{[( +1)^6]-1} = 1.14%
( 5,059,287.689 * 16.42 )

The performance was computed based on the thirty day period ending March 31,
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 12 month period
(income and capital gain distributions)
P = Share price at end of 12 month period

EXAMPLES ( 04/01/96 TO 03/31/97 )
U.S. GOVERNMENT FUND 0.7404 / 12.01 = 6.16%
CALIFORNIA TAX FREE FUND 0.6116 / 12.26 = 4.99%
EQUITY VALUE FUND 1.8039 / 16.42 = 10.99%

DISTRIBUTION RATE (EXCLUDING CAPITAL GAINS)(NO LOAD)
- ----------------------------------------------------
DISTRIBUTION RATE = D/P
WHERE: D = Distributions per share over a 12 month period
(income distributions only)
P = Share price at end of 12 month period

EXAMPLES ( 04/01/96 TO 03/31/97 )
U.S. GOVERNMENT FUND 0.6859 / 12.01 = 5.71%
CALIFORNIA TAX FREE FUND 0.5909 / 12.26 = 4.82%
EQUITY VALUE FUND 0.1653 / 16.42 = 1.01%

<PAGE>
<ARTICLE> 6
<CIK> 0000935742
<NAME> SEFTON FUND TRUST
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<NUMBER> 011
<NAME> SEFTON US GOVERNMENT FUND

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<PAGE>
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<NAME> SEFTON FUND TRUST
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<NUMBER> 021
<NAME> SEFTON CALIFORNIA TAX-FREE FUND

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<INVESTMENTS-AT-VALUE> 34982770
<RECEIVABLES> 596091
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<OTHER-ITEMS-ASSETS> 115568
<TOTAL-ASSETS> 35694429
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<OTHER-ITEMS-LIABILITIES> 190050
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<SHARES-COMMON-PRIOR> 3492752
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<ACCUMULATED-NET-GAINS> 208193
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<ACCUM-APPREC-OR-DEPREC> 572418
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<INTEREST-INCOME> 2434026
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<EXPENSES-NET> 375077
<NET-INVESTMENT-INCOME> 2058949
<REALIZED-GAINS-CURRENT> 277205
<APPREC-INCREASE-CURRENT> 66683
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<DISTRIBUTIONS-OF-INCOME> 2058315
<DISTRIBUTIONS-OF-GAINS> 69012
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 624399
<NUMBER-OF-SHARES-REDEEMED> 1242645
<SHARES-REINVESTED> 646226
<NET-CHANGE-IN-ASSETS> (7088242)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 139
<GROSS-ADVISORY-FEES> 257339
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 500574
<AVERAGE-NET-ASSETS> 42613049
<PER-SHARE-NAV-BEGIN> 12.19
<PER-SHARE-NII> .59
<PER-SHARE-GAIN-APPREC> .09
<PER-SHARE-DIVIDEND> .59
<PER-SHARE-DISTRIBUTIONS> .02
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.26
<EXPENSE-RATIO> 0.88
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</TABLE>

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

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<PERIOD-TYPE> 12-MOS
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<INVESTMENTS-AT-VALUE> 78308213
<RECEIVABLES> 741404
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<OTHER-ITEMS-ASSETS> 11825840
<TOTAL-ASSETS> 90875457
<PAYABLE-FOR-SECURITIES> 4447404
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<OTHER-ITEMS-LIABILITIES> 112384
<TOTAL-LIABILITIES> 4559788
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<PAID-IN-CAPITAL-COMMON> 76980658
<SHARES-COMMON-STOCK> 5257244
<SHARES-COMMON-PRIOR> 2434083
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 1021
<ACCUMULATED-NET-GAINS> 2886330
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6449702
<NET-ASSETS> 86315669
<DIVIDEND-INCOME> 1069915
<INTEREST-INCOME> 219653
<OTHER-INCOME> (5424)
<EXPENSES-NET> 734807
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