SEFTON FUNDS, 485BPOS, 1999-04-29

SEFTON FUNDS
485BPOS, 1999-04-29

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<PAGE>

SEFTON FUNDS TRUST

April 29, 1999

VIA EDGAR TRANSMISSION

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

Re: Sefton Funds Trust (the "Trust")
Securities Act of 1933 Registration File No. 33-88568
Rule 485(b) Filing

Dear Sir or Madam:

On behalf of the Trust enclosed herewith for filing by direct transmission is
Post-Effective Amendment No. 8 to the Trust's Registration Statement on Form
N-1A. This filing is made pursuant to Rule 485(b) under the Securities Act of
1933, as amended. Please note that the Prospectus, Owner's Manual and Statement
of Additional Information are marked to show changes from the 485(a) filing on
February 12, 1999.

If you have any questions concerning this filing, please do not hesitate to
contact the undersigned at (614) 470-8656. Thank you.

Sincerely,

Manderley Rush
Assistant Secretary
Sefton Funds Trust
<PAGE>

As Filed with the Securities and Exchange Commission on February 12, 1999

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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

Pre-Effective Amendment No. [_]

Post-Effective Amendment No. 8 [X]

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]

Amendment No. 10 [X]

(Check appropriate box or boxes)

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

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

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

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

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

Ellen Stoutamire, Esq.

BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
(Name and Address of Agent for Service)

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

with a copy to:
Steven R. Howard, Esq.

Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064

It is proposed that this filing will become effective:

X immediately upon filing pursuant to paragraph (b)
-----

on (date) pursuant to paragraph (b)
-----
on (date) pursuant to paragraph (a)(i)
-----

75 days after filing pursuant to paragraph (a)(ii)
-----

on (date) pursuant to paragraph (a)(ii) of rule 485
-----
60 days after filing pursuant to paragraph (a)(i)
-----

If appropriate, check the following box:

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

<PAGE>

SEFTON FUNDS TRUST
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
under the Securities Act of 1933

U.S. GOVERNMENT FUND
CALIFORNIA TAX-FREE FUND

EQUITY VALUE FUND
SMALL COMPANY VALUE FUND

N-1A Item No. Location
- ------------- --------

Part A Prospectus Caption
- ------ ------------------
<S> <C> <C>
Item 1. Front and Back Cover Pages............ Front Cover; Back Cover

Item 2. Risk/Return Summary: Investments,
Risks and Performance................. Risk/Return Summary and Fund Expenses

Item 3. Risk/Return Summary: Fee Table........ Risk/Return Summary and Fund Expenses

Item 4. Investment Objectives, Principal
Investment Strategies, and Related
Risks................................. Investment Objectives, Strategies and Risks

Item 5. Management's Discussion of Fund
Performance........................... Risk/Return Summary and Fund Expenses

Item 6. Management Organization, and
Capital Structure..................... Fund Management

Item 7. Shareholder Information............... Shareholder Information

Item 7f. Separate Disclosure Document.......... Owner's Manual

Item 8. Distribution Arrangements............. None

Item 9. Financial Highlights Information...... Financial Highlights

</TABLE>

<PAGE>

Statement of Additional
-----------------------
Part B Information Caption
- ------ -------------------
<S> <C> <C>
Item 10. Cover Page and Table of Contents...... Cover Page; Table of Contents

Item 11. Fund History.......................... Not Applicable

Item 12. Description of the Fund and its
Investment Risks...................... Investment Policies; Investment
Restrictions

Item 13. Management of the Fund................ Management

Item 14. Control Persons and Principal Holders
of Securities......................... Other Information

Item 15. Investment Advisory and Other
Services.............................. Management; Custodian and
Transfer Agent; Independent
Accountants

Item 16. Brokerage Allocation and Other
Practices............................. Portfolio Transactions

Item 17. Capital Stock and Other Securities.... Other Information

Item 18. Purchase, Redemption and Pricing of
Shares................................ Shareholder Information (Part A);
Owner's Manual (Part A);
Determination of Net Asset Value;
Additional Purchase and Redemption
Information

Item 19. Taxation of the Fund.................. Taxation

Item 20. Underwriters.......................... Management

Item 21. Calculation of Performance Data....... Yield and Performance
Information

Item 22. Financial Statements.................. Financial Statements
</TABLE>

Part C
- ------

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

<PAGE>

Sefton Funds

P R O S P E C T U S

APRIL 30, 1999

U.S. GOVERNMENT FUND

CALIFORNIA TAX-FREE FUND

EQUITY VALUE FUND

SMALL COMPANY VALUE FUND

The Securities And Exchange
Commission Has Not Approved
Or Disapproved These Securities
Or Passed Upon The Adequacy
Of This Prospectus. Any
Representation To The Contrary Is
A Criminal Offense.

No Sales Charges
No Redemption Fees [SEFTON FUNDS LOGO]
No 12b-1 Fees
<PAGE>

Sefton Funds Table of Contents
<TABLE>
<CAPTION>
Risk/Return Summary and Fund
Expenses
- -----------------------------------------------------
<S> <C> <C>
Carefully review 1 Summary of Principal Risks
this
important section, 2-3 U.S. Government Fund
which
summarizes each 4-6 California Tax-Free Fund
Fund's
investments, risks, 7-8 Equity Value Fund
past
performance and 9-10 Small Company Value Fund
fees.
11-12 Fees and Expenses

Investment Objectives, Strategies
and Risks
- -----------------------------------------------------
Review this section 13 U.S. Government Fund
for
specific informa- 14 California Tax-Free Fund
tion on
each Fund's invest- 15-16 Equity Value Fund
ment
objectives, strate- 17-18 Small Company Value Fund
gies
and risks. 18 Other Considerations

Fund Management
- -----------------------------------------------------
Review this section 19 The Investment Adviser
for
details on the peo- 19-20 Portfolio Managers
ple and
organizations who 20 The Administrator and
oversee Distributor
the Funds. 20-21 Year 2000

Shareholder Information
- -----------------------------------------------------
Review this section 22 Pricing of Fund Shares
and
the accompanying 22 Purchasing, Selling and
Owner's Exchanging
Manual for details Your Shares
on how
shares are valued, 23 Service Organizations
how to
purchase, sell and 23 Other Shareholder Services
exchange
shares, related 23-24 Dividends, Distributions
charges and and Taxes
payments of divi-
dends
and distributions.

Other Information About the Funds
- -----------------------------------------------------
25-29 Financial Highlights

Back Cover
- -----------------------------------------------------
Where to learn more about
the
Sefton Funds
</TABLE>
<PAGE>

> Risk/Return Summary and Fund Expenses

The following is a summary of certain key information about the Sefton Funds.
The Risk/Return Summary and Fund Expenses describe each Fund's objectives,
principal investment strategies, principal investment risks and certain
performance information under "Risk/Return Summary" and the Funds' expenses
under "Fund Expenses." Detailed descriptions of the Funds can be found by
referring to pages 13-18 in the Prospectus. Please be sure to read the more
complete descriptions of the Funds following this summary BEFORE you invest.
The Funds are managed by Sefton Capital Management (SCM or the Adviser).

> Summary of Principal Risks

This summary describes certain kinds of risks that apply to two or more of the
Funds. These risks are:

. Market Risk. (All Funds) This is the risk that the value of a Fund's
investments will fluctuate as the stock or bond markets fluctuate and that
prices overall will decline over short or longer-term periods.

. Management Risk. (All Funds) This risk is the possibility that a Fund's
manager(s) may make poor choices in selecting securities and that the Fund
will not perform as well as other Funds.

. Interest Rate Risk. (U.S. Government Fund and California Tax-Free
Fund) This is the risk that the value of a Fund's investments in income-
producing or fixed-income or debt securities will decline as interest
rates rise.

. Non-Diversification Risk. (U.S. Government Fund and California Tax-Free
Fund) The Fund is not "diversified," meaning that it can invest in a
relatively small number of issuers. Factors affecting these issuers could
have an adverse effect on the Fund's net asset value.

. Credit Risk. (U.S. Government Fund and California Tax-Free Fund) This is
the risk that the issuer of a security will be unable or unwilling to make
timely payments of interest or principal, or to otherwise honor its
obligations.

. Foreign Risk. (Equity Value Fund and Small Company Value Fund) This is the
risk of investments in issuers located in foreign countries, which may
have greater price volatility and less liquidity. Investments in foreign
securities also are subject to political, regulatory, and diplomatic
risks. Changes in currency rates are an additional risk of investments in
foreign securities.

Other important things for you to note:

. You may lose money by investing in a Fund.

. An investment in a Fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

1
<PAGE>

> Risk/Return Summary and Fund Expenses

Risk/Return Summary of the U.S.
Government Fund

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

Investment Objective

Principal Investment Strategies

In pursuing its objective, the Fund invests at least
65% of its total assets in securities issued or
guaranteed by the U.S. Government and agency
obligations. The Fund is an intermediate-term bond
fund and expects that its investments in U.S.
Government and agency obligations will have an average
weighted maturity of 5 to 10 years.

The Fund also may invest in:
. certificates of deposit, bankers'
acceptances, and commercial paper
rated in the two highest
categories;
. investment grade corporate debt
securities;
. investment grade mortgage and
asset-backed securities; and
. similar securities of foreign
issuers.

The principal risks of investing in the Fund are:
Principal Investment Risks

. Market Risk

. Management Risk

. Interest Rate Risk

. Non-Diversification Risk

. Credit Risk

. Prepayment Risk. The Fund's
investment in mortgage-related
securities are subject to the risk
that the principal amount of the
underlying mortgage may be repaid
prior to the security's maturity
date. Prepayment exposes the Fund
to the risk of lower return upon
subsequent reinvestment of the
principal.

Who may want to invest?Consider investing in the Fund if you are:
. seeking to add a monthly income
component to your portfolio
. seeking higher potential returns
than provided by money market
funds
. willing to accept the risks of
price and dividend fluctuations
. wanting to add stability and
diversification to a portfolio
invested primarily in stocks

This Fund will not be appropriate for anyone:
. investing emergency reserves
. seeking a stable share price

2
<PAGE>

> Risk/Return Summary and Fund Expenses

Performance Bar Chart and
Table

The bar chart and
table on this page
show how the U.S.
Government Fund has
performed and how its
performance has varied
from year to year. The
bar chart shows
changes in the Fund's
yearly performance
over the last three
years to demonstrate
that the Fund's value
varied at different
times. The table below
the bar chart compares
the Fund's performance
over time to that of
Lehman Brothers
Intermediate
Government/ Corporate
Bond Index, an
unmanaged index
representative of the
performance of
intermediate bond
market as a whole, and
the Morningstar U.S.
Government Bond
General Average, an
average of funds that
pursue income by
investing in a
combination of
mortgage-backed
securities, treasuries
and agency securities.

Performance Bar Chart and Table
Year-by-Year Total Returns as of 12/31

<TABLE>
<S> <C> <C>
Best quarter: Q4 1996 3.01%
Worst quarter: Q1 1996 -2.59%
</TABLE>
---------------------------------------

Past performance does
not indicate how the
Fund will perform in
the future. Both
charts assume
reinvestment of
dividends and
distributions. Fund
performance in both
charts reflects the
impact of fee waivers;
without fee waivers
the Fund's returns
would have been lower.

Average
Annual Total
Returns (for
the periods
ending
December 31,
1998)*
----------------
<TABLE>
<CAPTION>
Fund Inception Past Year Since Inception
-----------------------------------------------
<S> <C> <C> <C>
U.S. Government Fund 4/3/95 7.42% 7.82%
-----------------------------------------------
Lehman Brothers Intermediate 3/30/95 8.42% 8.21%
Government/Corporate Bond Index
-----------------------------------------------
Morningstar U.S. Government 3/30/95 7.36% 7.53%
Bond General Average
</TABLE>
- --------------------------------------------------------------------------------

*For current performance information, including the Fund's 30-day yield,
call 1-800-524-2276.

3
<PAGE>

> Risk/Return Summary and Fund Expenses [Sefton Logo]

Risk/Return Summary of the
California Tax-Free Fund

Investment Objective
The California Tax-Free Fund seeks
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.

Principal Investment Strategies

In pursuing its objective, the Fund
primarily invests in municipal
securities issued by California and
its local governments (California
municipal securities). The Fund
expects that the average weighted
maturity of its investments will be
10 or more years. The Fund invests
in investment grade municipal
securities.

The Fund normally will invest at
least:

. 80% of its net assets in federally
tax-exempt securities paying
interest that is not subject to
the Federal Alternative Minimum
Tax or AMT; and

. 65% of its total assets in
California municipal securities.

Principal Investment Risks

The principal risks of investing in
the Fund are:

. Market Risk

. Management Risk

. Interest Rate Risk

. Non-Diversification Risk

. Credit Risk

. California Specific Risk. Because
the Fund invests primarily in
California municipal securities,
political and economic factors
adversely affecting California
could have a more significant
effect on the issuers of the
Fund's investments' financial
condition, credit rating and
ability to pay.

4
<PAGE>

> Risk/Return Summary and Fund Expenses
[LOGO APPEARS HERE]

Risk/Return Summary of the
California Tax-Free Fund

Who may want to invest? Consider investing in the Fund if
you are an individual:

. seeking to reduce or eliminate
taxes on investment income
received if you are a California
resident
. seeking regular monthly tax-free
dividends
. seeking to balance more aggressive
investments, such as common stocks

This Fund will not be appropriate
for anyone:

. investing through a tax-exempt
retirement plan
. pursuing an aggressive high growth
investment strategy
. seeking a stable share price
. investing emergency reserves

. who is not a California resident

5
<PAGE>

> Risk/Return Summary and Fund Expenses

Performance Bar Chart and
Table

The bar chart and
table on this page
show how the
California Tax-Free
Fund has performed and
how its performance
has varied from year
to year. The bar chart
shows changes in the
Fund's yearly
performance over the
last three years to
demonstrate that the
Fund's value varied at
different times. The
table below the bar
chart compares the
Fund's performance
over time to that of
the Lehman Brothers 10
Year Municipal Bond
Index, an unmanaged
index representative
of performance for the
long-term, investment-
grade tax-exempt bond
market as a whole, and
the Morningstar
California Municipal
Bond Fund Average, an
average of funds
investing at least 80%
of assets in
California municipal
debt over the past
three years.

Performance Bar Chart and Table

Year-by-Year Total Returns as of 12/31

<TABLE>
<S> <C> <C>
Best quarter: Q4 1996 2.69%
Worst quarter: Q1 1996 -1.48%
</TABLE>
---------------------------------------

Past performance does
not indicate how the
Fund will perform in
the future. Both charts
assume reinvestment of
dividends and
distributions. Fund
performance in both
charts reflects the
impact of fee waivers;
without fee waivers the
Fund's returns would
have been lower.

Average
Annual Total
Returns (for
the periods
ending
December 31,
1998)*
----------------
<TABLE>
<CAPTION>
Fund Inception Past Year Since Inception
-------------------------------------------
<S> <C> <C> <C>
California Tax-Free Fund 4/3/95 6.11% 7.30%
-------------------------------------------
Lehman Brothers 10 Year 3/30/95 6.76% 8.03%
Municipal Bond Index
-------------------------------------------
Morningstar California 3/30/95 5.61% 7.20%
Municipal Bond Fund Average
</TABLE>
- --------------------------------------------------------------------------------

*For current performance information, including the Fund's 30-day yield and
tax equivalent yield, call 1-800-524-2276.

6
<PAGE>

> Risk/Return Summary and Fund Expenses [Sefton Logo]

Risk/Return Summary of the
Equity Value Fund

Investment Objective The Equity Value Fund seeks to
provide investors with long-term
capital appreciation.

In pursuing its objective, the Fund
invests primarily in common stocks
of both domestic and foreign
companies with a range of
capitalizations that the Adviser
believes are undervalued by the
market. The Fund expects to focus on
companies in the mid-capitalization
range of $1 to $10 billion. The Fund
may also invest in small
capitalization companies with market
capitalizations of less than $1
billion which the Adviser believes
are undervalued by the market.
Principal Investment Strategies

The principal risks of investing in
the Fund are:
Principal Investment Risks

. Market Risk

. Management Risk

. Foreign Risk

. Capitalization Risk. To the extent
the Fund invests in mid-
capitalization companies, it may
have capitalization risk.

Mid-capitalization companies may
present additional risks because
they have less predictable
earnings, more volatile share
prices and less liquid securities
than large-capitalization
companies. The Fund's returns may
vary, sometimes significantly, from
those of the popular, market
capitalization weighted indexes.

Who may want to invest? Consider investing in the Fund if
you are:
. investing for long-term goals,
such as retirement
. seeking to add a growth component
to your portfolio
. willing to accept the higher risks
associated with investing in
smaller, mid-capitalization stocks
This Fund will not be appropriate
for anyone seeking:
. safety of principal
. a short-term investment or
investing emergency reserves
. regular income

7
<PAGE>

> Risk/Return Summary and Fund Expenses [Sefton Logo]

The bar chart and
table on this page
show how the Equity
Value Fund has
performed and how
its performance has
varied from year to
year. The bar chart
shows changes in the
Fund's yearly
performance over the
last three years to
demonstrate that the
Fund's value varied
at different times.
The table below the
bar chart compares
the Fund's
performance over
time to that of the
Standard and Poor's
500 Index, a widely
recognized,
unmanaged index
based on the market
capitalization
weighted average
performance of 500
widely held common
stocks, and the
Morningstar Growth
Fund Average, an
average of funds
pursuing capital
appreciation by
investing primarily
in equity
securities.

Performance Bar Chart and Table
Year-by-Year Total Returns as of 12/31

1996 1997 1998
---- ---- ----
30.70% 25.26% -9.40%

<TABLE>

<S> <C> <C>
Best quarter: Q2 1997 12.60%
Worst quarter: Q3 1998 -15.73%
</TABLE>
---------------------------------------

Average
Annual Total
Returns (for
the periods
ending
December 31,
1998)

Past performance
does not indicate
how the Fund will
perform in the
future. Both charts
assume reinvestment
of dividends and ----------------
distributions.

<TABLE>
<CAPTION>
Fund Inception Past Year Since Inception
----------------------------------------
<S> <C> <C> <C>
Equity Value Fund 4/3/95 -9.40% 15.60%
----------------------------------------
Standard and Poor's 500 Index 3/30/95 28.58% 29.59%
----------------------------------------
Morningstar Growth Fund Average 3/30/95 18.72% 23.07%
</TABLE>
- --------------------------------------------------------------------------------

8
<PAGE>

> Risk/Return Summary and Fund Expenses
[LOGO APPEARS HERE]
Risk/Return Summary of the
Small Company Value Fund

Investment Objective The Small Company Value Fund seeks
to provide investors with long-term
capital appreciation.

In pursuing its objective, the Fund
invests primarily in equity
securities of both foreign and
domestic small capitalization
companies. When selecting stocks for
inclusion in the Fund, the Adviser
will select exclusively from a
universe of companies with market
capitalizations of $1 billion or
less, that the Adviser considers to
be relatively undervalued. The Fund
normally invests at least 65% of its
total assets in common stocks,
preferred stocks, and convertible
securities of small capitalization
companies.
Principal Investment Strategies

The principal risks of investing in
the Fund are:
Principal Investment Risks

. Market Risk

. Management Risk

. Foreign Risk

. Capitalization Risk. To the extent
the Fund invests in small-
capitalization companies, it may
have capitalization risk. These
investments tend to be more
volatile than investments in
large-capitalization companies. In
addition, small-capitalization
companies may have more risk
because they often have limited
product lines, markets or
financial resources.

Who may want to invest? Consider investing in the Fund if
you are:
. investing for long-term goals,
such as retirement
. seeking to add a growth component
to your portfolio
. willing to accept the higher risks
associated with investing in small
capitalization stocks in return
for higher potential returns

This Fund will not be appropriate
for anyone seeking:
. stability of principal
. a short-term investment or
emergency reserves
. regular income

9
<PAGE>

> Risk/Return Summary and Fund Expenses [Sefton Logo]

The bar chart and
table on this page
show how the Small
Company Value Fund
has performed during
its first full
calendar year. The
table below the bar
chart compares the
Fund's performance
for the year and
since inception to
that of the Russell
2000 Small Company
Index, a widely
recognized,
unmanaged index of
small capitalization
stocks, and the
Morningstar Small
Company Fund
Average, an average
of funds seeking
capital appreciation
by investing
primarily in stocks
of companies with
market
capitalizations of
less than $1
billion.

Performance Bar Chart and Table

Year-by-Year Total Returns as of 12/31

1998
----
- -15.69%

<TABLE>
<S> <C> <C>
Best quarter: Q4 1998 5.15%
Worst quarter: Q3 1998 -21.34%
</TABLE>
---------------------------------------
Past performance
does not indicate
how the Fund will
perform in the
future. Both charts
assume reinvestment
of dividends and
distributions. Fund
performance in both
charts reflects the
impact of fee
waivers; without fee
waivers the Fund's
returns would have
been lower.

Average
Annual Total
Returns' (for
the period
ending
December 31,
1998)
----------------
<TABLE>
<CAPTION>
Fund Inception Past Year Since Inception
----------------------------------------
<S> <C> <C> <C>
Small Company Value Fund 6/30/97 -15.69% -6.75%
----------------------------------------
Russell 2000 Small 6/30/97 -2.55% 5.40%
Company Index
----------------------------------------
Morningstar Small 6/30/97 0.11% 7.36%
Company Fund Average
</TABLE>
- --------------------------------------------------------------------------------

10
<PAGE>

> Risk/Return Summary and Fund Expenses
Fees and Expenses

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

Annual Fund operating expenses are paid out of Fund assets, and are reflected
in the share price. Each Fund's fees and expenses are based upon the Fund's
actual operating expenses for the fiscal year ended December 31, 1998.

The Funds' Adviser has voluntarily agreed to waive a portion of its fee with
respect to certain Funds. The voluntary fee waiver will cause a Fund's return
to be higher than it would otherwise be without the fee waiver. (See the
footnotes to the Fee Table below.)

<TABLE>
<CAPTION>
Fee Table
Small
U.S. California Equity Company
Government Tax-Free Value Value
Fund Fund Fund Fund

Shareholder Fees (fees paid directly from your investment)
<S> <C> <C> <C> <C> <C>
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of offering
price) None None None None
- -------------------------------------------------------------------
Maximum Deferred Sales
Charge
(Load) (as a
percentage
of offering or sale
price, whichever is
less) None None None None
- -------------------------------------------------------------------
Maximum Sales Charge
(Load) Imposed on
Reinvested Dividends
[and other
Distributions] (as a
percentage of Offering
Price) None None None None
- -------------------------------------------------------------------
Redemption Fee
(as a percentage of
amount redeemed,
if applicable) None None None None
- -------------------------------------------------------------------
Exchange Fee None None None None
- -------------------------------------------------------------------
Maximum Account Fee None None None None
- -------------------------------------------------------------------
<CAPTION>
Annual Fund Operating
Expenses (expenses that
are deducted from Fund
assets)
<S> <C> <C> <C> <C> <C>
Management Fees/1/ .60% .60% 1.00% 1.25%
- -------------------------------------------------------------------
Distribution [and/or
Service] (12b-1) Fees None None None None
- -------------------------------------------------------------------
Other Expenses/2/ .44% .44% .39% .50%
- -------------------------------------------------------------------
Total Annual Fund
Operating
Expenses/1/ 1.04% 1.04% 1.39% 1.75%
- -------------------------------------------------------------------
- ------------------------------------------------------------------
</TABLE>

/1/ During the fiscal year, Management Fees were voluntarily
reduced in the amount of .10%, U.S. Government Fund; .15%,
California Tax-Free Fund; .0%, Equity Value Fund; and .20% Small
Company Value Fund. After waivers, the total Fund expenses were
.94%, U.S. Government Fund; .89%, California Tax-Free Fund;
1.39%, Equity Value Fund; and 1.55%, Small Company Value Fund.
These expense limitations may be revised or canceled at any time.

/2/ 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.

11
<PAGE>

> Risk/Return Summary and Fund Expenses

Example

Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay, assuming the
following:
. $10,000 investment
. 5% annual return
. redemption at the end of each period

. a Fund's operating expenses remain the same

. reinvestment of all dividends and distributions

Because this example is hypothetical and for comparison only, your actual costs
will be different.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
U.S. Government Fund $106 $331 $574 $1,271
- ---------------------------------------------------------
California Tax-Free Fund $106 $331 $574 $1,271
- ---------------------------------------------------------
Equity Value Fund $142 $440 $761 $1,669
- ---------------------------------------------------------
Small Company Value Fund $178 $551 $949 $2,062
- ---------------------------------------------------------
</TABLE>

12
<PAGE>

> Investment Objectives, Strategies and Risks

This section of the Prospectus provides a more complete description of the
Funds' principal investment objectives, strategies, and risks. Of course, there
can be no assurance that the Funds will achieve their investment objectives.
Additional descriptions of the Funds' risks, strategies, and investments, as
well as other strategies and investments not described below, may be found in
the Funds' Statement of Additional Information or SAI.

U.S. Government Fund
Ticker Symbol: SGVTX

> Investment Objectives and Principal Investment Strategies

The Fund's investment objective is to provide as high a level of current income
as is consistent with the preservation of capital. The Fund normally invests at
least 65% of its total assets in U.S. Government and agency obligations. The
Fund is an intermediate-term bond fund and expects that its investments in U.S.
Government and agency obligations will have an average weighted maturity of 5
to 10 years.

The Fund's Adviser selects debt securities based on credit and risk tolerances
established for the Fund. The Adviser also considers maturity and sector
objective when selecting debt securities. The Fund may also purchase commercial
paper rated in one of the two highest rating categories, corporate debt
securities and mortgage and asset-backed securities rated in one of the four
highest rating categories, and other debt instruments that the Adviser believes
are equal in quality.

The Fund also may invest in securities of foreign issuers including 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 Adviser will sell a security in the Fund's portfolio normally based upon
the Fund's current strategic outlook.

> Principal Risks

The principal risks of investing in the Fund in addition to market risk and
management risk are interest rate, non-diversification risk and credit risk
through its investments in U.S. Government securities, corporate fixed-income
securities, and mortgage-related securities.

Increases in interest rates may cause the value of the Fund's investments to
decline. Interest rate risk is greater for the Fund's investments in mortgage-
related securities because when interest rates rise, the maturities of these
type of securities tend to lengthen and the value of the securities decreases
more significantly. In addition, these types of securities are subject to
prepayment when interest rates fall, which generally results in lower returns
as the Fund must reinvest its assets in debt securities with lower interest
rates.

Prepayment risk is the risk that the principal amount of the underlying
mortgage of the Fund's mortgage related security may be repaid prior to the
security's maturity date. Such repayments are common when interest rates
decline. When such a repayment occurs, no additional interest will be paid on
the investment. Prepayment exposes the Fund to lower return upon subsequent
reinvestment of the principal.

13
<PAGE>

> Investment Objectives, Strategies and Risks

California Tax-Free Fund
Ticker Symbol: SCALX

> Investment Objectives and Principal Investment Strategies

The Fund's investment objective 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 normally invests at
least 80% of its net assets in tax-exempt securities paying interest that is
not subject to the Federal alternative minimum tax. The Fund invests at least
65% of its total assets in California municipal securities. Normally, the Fund
invests all of its assets in California municipal securities and Federal tax-
exempt securities, but may invest in U.S. Government securities and related
repurchase agreements.

The Fund expects that its investments will have a dollar weighted average
stated maturity of 10 or more years. The Fund invests in municipal securities
that, based upon analysis and research, present acceptable credit risks in the
judgment of the Adviser and that, at the time of purchase, are rated investment
grade or, if unrated, of equivalent quality. The Fund may purchase California
municipal securities 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 unrated,
are of equivalent quality. The Fund also may invest up to 15% of its portfolio
in unrated securities.

For temporary defensive purposes, including times when municipal securities 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. The Fund limits these investments to U.S.
Government or agency obligations, and related repurchase agreements. The Fund's
Adviser may continue to hold securities which have been downgraded to below
investment grade.

The Adviser will sell a security in the Fund's portfolio normally based upon
the Fund's current strategic outlook.

> Principal Risks

The principal risks of investing in the Fund in addition to market risk and
management risk are interest rate risk, non-diversification risk, credit risk
and California economic risk.

Increases in interest rates may cause the value of the Fund's investments to
decline.

In addition, the Fund is not "diversified," meaning that it can invest in a
relatively small number of issuers. Factors affecting these issuers could have
a more significant adverse effect on the Fund's net asset value.

Because the Fund invests in municipal securities, it has the risk that special
factors may adversely affect the value of municipal securities, such as
political or legislative changes or uncertainties related to the tax status of
municipal securities. Since the Fund invests primarily in California municipal
securities, factors affecting that state, such as economic or political
conditions, could have a more significant adverse effect on the Fund's
investments.

14
<PAGE>

> Investment Objectives, Strategies and Risks [Sefton Logo]

Equity Value Fund
Ticker Symbol: SEQVX

> Investment Objective and Principal Investment Strategies

The Fund's primary objective is long-term capital appreciation. The Fund
invests in common stocks of both domestic and foreign companies with a range of
capitalizations that the Adviser believes are undervalued by the market. The
Fund expects to focus on companies in the mid-capitalization range of $1 to
$10 billion. The Fund may also invest in small capitalization companies with
market capitalizations of less than $1 billion which the Adviser believes are
undervalued by the market. Undervalued stocks are those which have below-
average valuation multiples, such as price/earnings, price/book value,
price/sales, and price/cash flow.

Income generation is a secondary consideration of the Fund. The Fund, however,
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.

The Fund normally invests at least 65% of its total assets in common stocks or
convertible securities.

The Fund's Adviser selects companies for investment using both quantitative and
qualitative analysis. Quantitative analysis uses statistical financial data,
such as sales and earnings growth, return on equity, financial condition,
market share and product leadership, and qualitative analysis uses factors that
cannot be precisely measured, such as quality of management. The Adviser uses
this selection analysis to identify those issuers that 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, generally within a year. Catalysts
considered by the Adviser in selecting securities include:

. near-term catalysts, such as product introductions, cost-cutting
initiatives, a cyclical surge in profits or a change in management

. a management team committed to its shareholders' interests

The Adviser will sell a security in the Fund's portfolio if it no longer
appears to be undervalued relative to its peer group or the market, or if the
original catalyst for potential higher prices no longer seems plausible or
imminent. Under normal market conditions, the Adviser will sell any security
that declines 15% or more, relative to its sector, from its cost during a
calendar year.

The Fund also may invest in other equity securities including:
. preferred stocks;
. common stock of real estate investment trusts;
. high grade securities convertible into common stocks; and
. warrants and rights.

> Principal Risks

The principal risks of investing in the Fund in addition to market risk and
management risk are foreign risk and capitalization risk.

15
<PAGE>

> Investment Objectives, Strategies and Risks [Sefton Logo]

The Fund's investments in foreign securities have additional risk. Foreign
securities issuers are usually not subject to the same degree of regulation as
U.S. issuers. Reporting, accounting, and auditing standards of foreign
countries differ, in some cases, significantly from U.S. standards. Foreign
risk includes changes in currency rates, nationalization, political changes,
and diplomatic developments that could adversely affect the Fund's investments.

The Fund's investments in mid-capitalization companies have more risk because
they tend to be more volatile than the overall stock market. These companies
may have limited markets and financial resources, smaller product lines, and
less experienced management. In addition, the securities of these companies may
have more limited marketability and be subject to greater changes in prices
than larger companies. To the extent the Fund invests in small capitalization
companies it may have more risk.

> Other Risks

The Fund's investments in REITs may have additional risks related to the real
estate market. For example, the value of real estate could decline due to a
variety of factors affecting the real estate market generally, such as
overbuilding, increases in interest rates, or decline in rental rates. In
addition, REITs are dependent on the capability of their managers, may have
limited diversification, and could be significantly affected by changes in tax
laws.

16
<PAGE>

> Investment Objectives, Strategies and Risks [Sefton Logo]

Small Company Value Fund
Ticker Symbol: SSVLX

> Investment Objective and Principal Investment Strategies

The Fund's investment objective is long-term capital appreciation. The Fund
invests primarily in equity securities of both foreign and domestic small
capitalization companies. When selecting stocks for inclusion in the Fund, the
Adviser will select exclusively from a universe of companies with market
capitalizations of $1 billion or less, that the Adviser considers to be
relatively undervalued. Undervalued stocks are those which have below-average
valuation multiples, such as price/earnings, price/book value, price/sales and
price/cash flow. Current income is a secondary consideration in selecting
portfolio investments.

The Fund normally invests at least 65% of its total assets in common stocks,
preferred stocks, and convertible securities.

The Adviser seeks to select small capitalization companies for investment using
both quantitative and qualitative analysis. Quantitative analysis uses
statistical financial data, such as sales and earnings growth, return on
equity, financial condition, market share and product leadership, and
qualitative analysis uses factors that cannot be precisely measured, such as
quality of management. The Adviser uses this selection 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, generally within a year. Catalysts
considered by the Adviser in selecting securities include:

. near-term catalysts, such as product introductions, cost-cutting
initiatives, a cyclical surge in profits or a change in management

. a management team committed to its shareholders' interests

The Adviser will sell a security in the Funds portfolio if it no longer appears
to be undervalued relative to its peer group or the market, or if the original
catalyst for potential higher prices no longer seems plausible or imminent.
Under normal market conditions, the Adviser will sell any security that
declines 15% or more, relative to its sector, from its cost during a calendar
year.

The Fund also may invest in:
. preferred stocks;
. common stock of real estate investment trusts;
. warrants and rights; and
. money market securities.

> Principal Risks

The principal risks of investing in the Fund in addition to market risk and
management risk are foreign risk and capitalization risk.

17
<PAGE>

> Investment Objectives, Strategies and Risks

The Fund's investments in small-capitalization companies have more risk because
they tend to be more volatile than the overall stock market. These companies
may have limited markets and financial resources, smaller product lines, and
less experienced management. In addition, the securities of these companies may
have more limited marketability and be subject to greater changes in prices
than larger companies.

> Other Risks

> Other Considerations

Portfolio Turnover. The portfolio turnover rate for each Fund is included in
the Financial Highlights section of this Prospectus. The Funds are actively
managed and, in some cases in response to market conditions, a Fund's portfolio
turnover may exceed 100%. A higher rate of portfolio turnover increases
brokerage and other expenses, which must be borne by the Fund and its
shareholders and may adversely affect the Fund's performance. High portfolio
turnover also may result in the realization of substantial net short-term
capital gains, which are taxable when distributed to shareholders.

Temporary Defensive Positions. In order to meet liquidity needs or for
temporary defensive purposes, each Fund may invest up to 100% of its assets in
fixed income securities, money market securities, certificates of deposit,
bankers' acceptances, commercial paper or in equity securities which in the
Adviser's opinion are more conservative than the types of securities that the
Fund typically invests in. To the extent the Funds are engaged in temporary or
defensive investments, a Fund will not be pursuing its investment objective.

18
<PAGE>

> Fund Management

> The Investment Adviser

Sefton Capital Management, (SCM or the Adviser), 2550 Fifth Avenue, Suite 808,
San Diego, California, 92103 is the adviser for the Funds. SCM, founded in
1994, manages more than $500,000,000 in assets. Through its portfolio
management team, SCM makes the day-to-day investment decisions and continuously
reviews, supervises and administers the Funds' investment programs.

For these advisory services, the Funds paid SCM fees at the rates shown below
during their fiscal year ended December 31, 1998:

<TABLE>
<CAPTION>
Percentage of
average net assets
as of 12/31/98
- --------------------------------------------
<S> <C>
U.S. Government Fund .50%/1/
- --------------------------------------------
California Tax-Free Fund .45%/1/
- --------------------------------------------
Equity Value Fund 1.00%
- --------------------------------------------
Small Company Value Fund 1.05%/1/
- --------------------------------------------
</TABLE>

/1/ SCM waived a portion of its contractual fees with the Funds except the
Equity Value Fund for the most recent fiscal year. Contractual fees (without
waivers) are: U.S. Government Fund, .60%; California Tax-Free Fund, .60%; and
Small Company Value Fund, 1.25%.

> Portfolio Managers

SCM has several portfolio managers committed to the day-to-day management of
the Funds.

Harley K. Sefton, President and CEO of SCM, is responsible for the day-to-day
management of the Funds. Mr. Sefton started SCM in August 1994. Prior to SCM,
he was President of First Interstate Capital Management, Inc. (a wholly-owned
subsidiary of First Interstate Bank of California) and San Diego Financial
Capital Management, Inc. (a wholly-owned subsidiary of San Diego Trust &
Savings Bank). Prior to that, from 1992 until 1994, he was Vice Chairman and
Division Manager for San Diego Trust & Savings Bank.

Ted J. Piorkowski is the 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. Mr. Piorkowski joined SCM
in February 1995. From March 1994 through May 1994 he managed portfolios for
First Interstate Capital Management, Inc. From 1988 through 1994 he managed
portfolios for San Diego Financial Capital Management, Inc.

19
<PAGE>

> Fund Management

Thomas C. Bowden is the 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. Mr. Bowden joined SCM in February 1995. From March 1994
through January 1995 he managed portfolios for First Interstate Capital
Management, Inc. From 1986 through 1994 he managed portfolios for San Diego
Financial Capital Management, Inc.

The Statement of Additional Information or SAI has more detailed information
about the Adviser and other service providers.

> The Administrator and Distributor

BISYS Fund Services Limited Partnership ("BISYS"), whose address is 3435
Stelzer Road, Columbus, Ohio 43219, serves as the Fund's administrator.
Administrative services performed by BISYS include providing office space,
equipment and clerical personnel to the Funds and supervising custodial,
auditing, valuation, bookkeeping, legal and dividend disbursing services.

BISYS also serves as the distributor of the Funds' shares. BISYS may provide
financial assistance in connection with pre-approved seminars, conferences and
advertising to the extent permitted by applicable state or self-regulatory
agencies, such as the National Association of Securities Dealers.

> Year 2000

Like other funds and business organizations around the world, the Funds could
be adversely affected if the computer systems used by the Adviser and its other
service providers do not properly process and calculate date-related
information for the year 2000 and beyond. In addition, Year 2000 issues may
adversely affect companies in which the Funds invest where, for example, such
companies incur substantial costs to address Year 2000 issues or suffer losses
caused by the failure to adequately or timely do so. This risk may be
heightened by the Funds' investment in foreign securities.

The Funds have been assured that the Adviser and other service providers (i.e.,
Administrator, Transfer Agent, Fund Accounting Agent, Custodian and
Distributor) have developed and are implementing clearly defined and documented
plans intended to minimize risks to services critical to the Funds' operations
associated with Year 2000 issues. Internal efforts include a commitment to
dedicate adequate staff and funding to identify and remedy Year 2000 issues,
and specific actions such as inventorying software systems, determining
inventory items that may not function properly after December 31, 1999,
reprogramming or replacing such systems, and retesting for Year 2000 readiness.
The Funds' Adviser and service providers are likewise seeking assurances from
their respective vendors and suppliers that such entities are addressing any
Year 2000 issues, and each provider intends to engage, where appropriate, in
private and industry or "streetwide" interface testing of systems for Year 2000
readiness.

20
<PAGE>

> Fund Management

In the event that any systems upon which the Funds are dependent are not Year
2000 ready by December 31, 1999, administrative errors and account maintenance
failures would likely occur. While the ultimate costs or consequences of
incomplete or untimely resolution of Year 2000 issues by the Adviser or the
Funds' service providers cannot be accurately assessed at this time, the Funds
currently have no reason to believe that the Year 2000 plans of the Adviser and
other service providers will not be completed by December 31, 1999, or that the
anticipated costs associated with full implementation of their plans will have
a material adverse impact on either their business operations or financial
condition or those of the Funds. The Funds and the Adviser will continue to
closely monitor developments relating to this issue, including development by
the Adviser and other service providers of contingency plans for providing
back-up computer services in the event of a systems failure or the inability of
any provider to achieve Year 2000 readiness. Separately, the Adviser will
monitor potential investment risk related to Year 2000 issues.

21
<PAGE>

> Shareholder Information
Pricing of Fund Shares

- ------------------------ Per share NAV for each Fund is
determined and its shares are priced
at the close of regular trading on
the New York Stock Exchange, normally
at 4:00 p.m. Eastern time, on days
the New York Stock Exchange is open
for business.
How Net Asset Value (NAV) is Calculated

The NAV is calculated
by adding the total
value of a Fund's
investments and other
assets, subtracting
its liabilities and
then dividing that
figure by the number
of outstanding shares
of the Fund:

Some of the Funds invest in
securities that are primarily listed
on foreign exchanges and trade on
weekends or other days when the Fund
does not price its shares. As a
NAV = result, the Funds' NAVs may change on
Total Assets- days when shareholders will be unable
Liabilities to purchase or redeem the Funds'
shares.

------------------
Number of Shares
Outstanding Your order for purchase, sale or
exchange of shares is priced at the
next NAV calculated after your order
is received in good order by the Fund
on any day that the New York Stock
Exchange is open for business. This
is what is known as the offering
price.

You can find each
Fund's NAV daily in
The Wall Street
Journal and other
newspapers.

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

The Funds' securities are generally
For example: If you valued at current market prices. If
place a purchase market quotations are not available,
order to buy shares prices will be based on fair value as
of the Equity Value determined in good faith by or at the
Fund, it must be direction of the Funds' Trustees.
received by 4:00 p.m.
Eastern time in order
to receive the NAV
calculated at 4:00
p.m. Eastern time. If
your order is
received after 4:00
p.m. Eastern time,
you will receive the
NAV calculated on the
next day at 4:00 p.m.
Eastern time.

After the pricing of a foreign
security has been established, if an
event occurs which would likely cause
the value to change, the value of the
foreign security may be priced at
fair value as determined in good
faith by or at the direction of the
Funds' Trustees.
----------------------------------------

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

> Purchasing, Selling and Exchanging Your Shares

401(k) plan participants should contact their plan sponsor or
broker for information about purchasing, selling and exchanging
shares of the Funds.

For all other investors, information about purchasing, selling
and exchanging shares of the Funds is contained in a separate
document called the Owner's Manual. If you have not received it,
please contact the Sefton Funds at the number listed on the back
page. The Owner's Manual is incorporated by reference and is
considered an integral part of this prospectus.
- ------------------------------------------------------------------

22
<PAGE>

> Shareholder Information

> Service Organizations

Various banks, trust companies, broker-dealers (other than the Distributor) and
other financial organizations ("Service Organization(s)") may provide certain
administrative services for its customers who invest in the Funds through
accounts maintained at that Service Organization. Under servicing agreements
with the Service Organization, the Funds will pay the Service Organization an
annual rate up to .25% of the Fund's average daily net assets for these
services, which include:

. receiving and processing shareholder orders
. performing the accounting for customers' sub-accounts
. maintaining retirement plan accounts
. answering questions and handling correspondence for customer accounts
. acting as the sole shareholder of record for customer accounts
. issuing shareholder reports and transaction confirmations
. performing daily "sweep" functions

Investors who purchase, sell or exchange shares of the Funds through a customer
account maintained at a Service Organization may be charged extra for other
services which are not specified in the servicing agreement with the Fund but
are covered under separate fee schedules provided by the Service Organization
to their customers. Customers with accounts at Service Organizations should
consult their Service Organization for information concerning their sub-
accounts. The Adviser or Administrator also may pay Service Organizations for
rendering services to customers' sub-accounts.

> Other Shareholder Services

As a shareholder of the Funds, you can take advantage of other service
privileges which are described in the Owner's Manual:

. Exchange privilege, including Telephone Exchange and Automatic Exchange
. Automatic Investment Plan
. Systematic Withdrawal Plan
. Distribution Selection

. Individual Retirement Accounts ("IRA's")

> Dividends, Distributions And Taxes

Any income a Fund receives in the form of interest or dividends is paid out,
less expenses, to its shareholders as dividends. Income dividends on the Equity
Value Fund and Small Company Value Fund are paid quarterly. Dividends on the
U.S. Government Fund and California Tax-Free Fund are paid monthly. Capital
gains, if any, for all Funds are distributed at least annually.

An exchange of shares is considered a sale, and any related gains may subject
to applicable taxes.

23
<PAGE>

> Shareholder Information

Dividends are taxable as ordinary income, as are dividends paid by the
California Tax-Free Fund that are derived from taxable investments. Taxes on
capital gains by the Funds will vary with the length of time the Fund has held
the security--not how long you have invested in the Fund.

During normal market conditions, the California Tax-Free Fund expects that
substantially all of its dividends will be excluded from gross income for
Federal income tax purposes. The Fund may invest in certain securities with
interest that may be a preference item for the purposes of the alternative
minimum tax or a factor in determining whether Social Security benefits are
taxable. In such event, a portion of the Fund's dividends would not be exempt
from Federal income taxes.

Dividends are taxable in the year in which they are paid, even if they appear
on your account statement the following year. Dividends and distributions are
treated in the same manner for Federal income tax purposes whether you receive
them in cash or in additional shares.

You will be notified in January each year about the Federal tax status of
distributions made by a Fund. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.

Foreign shareholders may be subject to special withholding requirements. There
is a penalty on certain pre-retirement distributions from retirement accounts.
Consult your tax adviser about the Federal, state and local tax consequences in
your particular circumstances.

24
<PAGE>

> Other Information About the Funds

The financial highlights table is intended to help you understand the Funds'
financial performance. Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that an
investor would have earned [or lost] on an investment in the Fund (assuming
reinvestment of all dividends and distributions). The Financial Highlights for
the fiscal year ended December 31, 1998, period ended December 31, 1997, fiscal
year ended March 31, 1997 and the period from commencement of investment
operations (April 3, 1995) to March 31, 1996 have been audited by
PricewaterhouseCoopers 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"). In May 1997, each Fund changed
its fiscal year-end from March 31 to December 31. This information should be
read in conjunction with the financial statements and notes thereto which are
incorporated by reference in the SAI.

25
<PAGE>

> Other Information About the Funds

FINANCIAL HIGHLIGHTS U.S. Government Fund

Selected data for a share of beneficial interest outstanding throughout the
periods indicated:

<TABLE>
<CAPTION>
For the For the For the For the
Year Ended Period Ended Year Ended Period Ended
December 31, December 31, March 31, March 31,
1998 1997(4) 1997 1996(1)
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
Net asset value--beginning
of period $ 12.62 $ 12.01 $ 12.35 $ 12.00
- ---------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.69 0.52 0.69 0.71
Net realized and
unrealized gain (loss) on
investment transactions 0.23 0.61 (0.29) 0.37
- ---------------------------------------------------------------------------------
Total income from
investment operations 0.92 1.13 0.40 1.08
- ---------------------------------------------------------------------------------
Dividends and distributions
to shareholders:
Dividends from net
investment income (0.69) (0.52) (0.69) (0.71)
Distributions from net
realized gains from
investment transactions (0.02) - (0.05) (0.02)
- ---------------------------------------------------------------------------------
Total dividends and
distributions (0.71) (0.52) (0.74) (0.73)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Net asset value--end of
period $ 12.83 $ 12.62 $ 12.01 $ 12.35
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Total return 7.42% 9.59%(2) 3.31% 9.06%(2)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period
(000's) $36,626 $35,278 $30,062 $19,096
- ---------------------------------------------------------------------------------
Ratio of net expenses to
average net assets 0.94% 1.02%(3) 1.09% 1.02%(3)
- ---------------------------------------------------------------------------------
Ratio of net investment
income to average net
assets 5.40% 5.60%(3) 5.64% 5.68%(3)
- ---------------------------------------------------------------------------------
Ratio of expenses to
average net assets without
fee waivers 1.04% 1.17%(3) 1.39% 1.39%(3)
- ---------------------------------------------------------------------------------
Portfolio turnover rate(5) 12.94% 5.49% 11.94% 45.41%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>

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

(2) Total return is not annualized.

(3) Annualized.

(4) For the period from April 1, 1997 through December 31, 1997. The Fund
changed its fiscal year end from March 31 to December 31.

(5) A portfolio turnover rate is 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.

26
<PAGE>

> Other Information About the Funds

FINANCIAL HIGHLIGHTS California Tax-Free Fund

Selected data for a share of beneficial interest

outstanding throughout the period indicated:
<TABLE>
<CAPTION>
For the For the For the For the
Year Ended Period Ended Year Ended Period Ended
December 31, December 31, March 31, March 31,
1998 1997(4) 1997 1996(1)
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
Net asset value--beginning
of period $ 12.84 $ 12.26 $ 12.19 $ 12.00
- --------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.55 0.43 0.59 0.58
Net realized and
unrealized gain on
investment transactions 0.21 0.65 0.09 0.20
- --------------------------------------------------------------------------------
Total income from
investment operations 0.76 1.08 0.68 0.78
- --------------------------------------------------------------------------------
Dividends and
distributions to
shareholders:
Dividends from net
investment income (0.55) (0.43) (0.59) (0.58)
Distributions from net
realized gains from
investment transactions (0.06) (0.07) (0.02) (0.01)
- --------------------------------------------------------------------------------
Total dividends and
distributions (0.61) (0.50) (0.61) (0.59)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net asset value--end of
period $ 12.99 $ 12.84 $ 12.26 $ 12.19
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total return 6.11% 8.93%(2) 5.69% 6.60%(2)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period
(000's) $40,564 $40,303 $35,504 $42,593
- --------------------------------------------------------------------------------
Ratio of net expenses to
average net assets 0.89% 0.94%(3) 0.88% 0.83%(3)
- --------------------------------------------------------------------------------
Ratio of net investment
income to average net
assets 4.28% 4.54%(3) 4.83% 4.83%(3)
- --------------------------------------------------------------------------------
Ratio of expenses to
average net assets
without fee waivers 1.04% 1.12%(3) 1.17% 1.16%(3)
- --------------------------------------------------------------------------------
Portfolio turnover rate(5) 36.44% 12.97% 14.52% 93.90%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>

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

(2) Total return is not annualized.

(3) Annualized.

(4) For the period from April 1, 1997 through December 31, 1997. The Fund
changed its fiscal year end from March 31 to December 31.

(5) A portfolio turnover rate is 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 pe-
riod and dividing it by the monthly average of the market value of such se-
curities during the period.

27
<PAGE>

> Other Information About the Funds

FINANCIAL HIGHLIGHTS
Equity Value Fund
Selected data for a share of beneficial interest outstanding throughout the
periods indicated:

<TABLE>
<CAPTION>
For the For the For the For the
Year Ended Period Ended Year Ended Period Ended
December 31, December 31, March 31, March 31,
1998 1997(4) 1997 1996(1)
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
Net asset value--
beginning of period $ 17.45 $ 16.42 $ 14.92 $ 12.00
- -------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.22 0.14 0.17 0.21
Net realized and
unrealized gain (loss)
on investment
transactions (1.87) 3.45 3.14 2.92
- -------------------------------------------------------------------------------
Total income from
investment operations (1.65) 3.59 3.31 3.13
- -------------------------------------------------------------------------------
Dividends and
distributions to
shareholders:
Dividends from net
investment income (0.21) (0.14) (0.17) (0.21)
Distributions from net
realized gains from
investment transactions (0.26) (2.42) (1.64) -
- -------------------------------------------------------------------------------
Total dividends and
distributions (0.47) (2.56) (1.81) (0.21)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Net asset value--end of
period $ 15.33 $ 17.45 $ 16.42 $ 14.92
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Total return (9.40)% 22.13%(2) 23.15% 26.31%(2)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period
(000's) $75,153 $85,278 $86,316 $36,326
- -------------------------------------------------------------------------------
Ratio of net expenses to
average net assets 1.39% 1.41%(3) 1.52% 1.55%(3)
- -------------------------------------------------------------------------------
Ratio of net investment
income to average net
assets 1.35% 1.02%(3) 1.13% 1.68%(3)
- -------------------------------------------------------------------------------
Ratio of expenses to
average net assets
without fee waivers 1.39% 1.43%(3) 1.56% 1.66%(3)
- -------------------------------------------------------------------------------
Portfolio turnover
rate(5) 82.44% 42.10% 77.65% 62.76%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>

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

(2) Total return is not annualized.

(3) Annualized.

(4) For the period from April 1, 1997 through December 31, 1997. The Fund
changed its fiscal year end from March 31 to December 31.

28
<PAGE>

> Other Information About the Funds

FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest Small Company Value Fund

outstanding throughout the period indicated:
<TABLE>
<CAPTION>
For the For the
Year Ended Period Ended
December 31, December 31,
1998 1997 (1)
------------ ------------
<S> <C> <C>
Net asset value-beginning of period $ 12.74 $ 12.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.11 0.07
Net realized and unrealized gain (loss) on
investment transactions (2.10) 0.74
- --------------------------------------------------------------------------------
Total income from investment operations (1.99) 0.81
- --------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (0.09) (0.07)
- --------------------------------------------------------------------------------
Total dividends and distributions (0.09) (0.07)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net asset value--end of period $ 10.66 $ 12.74
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total return (15.69)% 6.76%(2)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (000's) $35,336 $29,680
- --------------------------------------------------------------------------------
Ratio of net expenses to average net assets 1.55% 1.59%(3)
- --------------------------------------------------------------------------------
Ratio of net investment income to average net assets 0.95% 1.15%(3)
- --------------------------------------------------------------------------------
Ratio of expenses to average net assets without fee
waivers 1.75% 1.81%(3)
- --------------------------------------------------------------------------------
Portfolio turnover rate(4) 59.24% 14.81%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>

(1) For the period from June 30, 1997 (commencement of operations) through De-
cember 31, 1997.

(2) Total return is not annualized.

(3) Annualized.

(4) A portfolio turnover rate is 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 pe-
riod and dividing it by the monthly average of the market value of such se-
curities during the period.

29
<PAGE>

Information about purchasing, selling, and exchanging shares of the
Funds are included in a separate document entitled "Owner's Manual."
The Owner's Manual is an integral part of this Prospectus. If you have
not received it, please contact the Fund at the number listed below.

For more information about the Funds, the following documents are available
free upon request:

Annual/Semi-Annual Reports:

The Fund's annual and semi-annual reports to shareholders contain detailed
information on the Funds' investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.

Statement of Additional Information (SAI):

The SAI provides more detailed information about the Funds, including their
operations and investment policies. It is incorporated by reference, and is
legally considered a part of this prospectus.

You can get free copies of Reports and the SAI, or request other information and
discuss your questions about the Funds by contacting a broker or bank that sells
the Funds, or you can contact the Funds directly at:

Sefton Funds
3435 Stelzer Road
Columbus, Ohio 43219
Telephone: 1-800-524-2276

[SEFTON FUNDS LOGO]

You can review the Funds' reports and SAIs at the Public Reference Room of the
Securities and Exchange Commission. You can get text-only copies:

. For a fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009 or calling 1-800-SEC-0330.

. Free from the Commission's Website at http://www.sec.gov.

Investment Company Act file no. 811-8948

SFT-0026
<PAGE>

Sefton Funds

O W N E R ' S M A N U A L

APRIL 30, 1999

U.S. GOVERNMENT FUND

CALIFORNIA TAX-FREE FUND

EQUITY VALUE FUND

SMALL COMPANY VALUE FUND

The Information Contained In
The Owner's Manual Is
Incorporated By Reference
Into, And Is Legally
Considered Part Of, The
Prospectus For Each Sefton
Fund. The Owner's Manual
Must Be Preceeded Or
Accompanied By A Sefton
Funds Prospectus.

[SEFTON FUNDS LOGO]

No Sales Charges
No Redemption Fees
No 12b-1 Fees

<PAGE>

Sefton Funds Table of Contents
<TABLE>
<S> <C>
[Sefton Logo] Pricing of Fund Shares
- ----------------------------------------------------------------------------
1 Calculation of Net Asset Value (NAV)
[Sefton Logo] Purchasing and Adding to Your Shares
- ----------------------------------------------------------------------------
2 Minimum Investments
3-4 Instructions for Opening or Adding to an Account
3 By Regular Mail
3 By Overnight Service
3 Electronic Purchases
4 By Wire Transfer
5 Automatic Investment Plan
5 Distribution Selection
5 Individual Retirement Accounts
5 Dividends and Distributions
[Sefton Logo] Selling Your Shares
- ----------------------------------------------------------------------------
6-7 Instructions for Selling Shares
6 By Telephone
6 By Regular Mail
6 By Overnight Service
7 By Wire Transfer
7 Electronic Redemptions
7 Systematic Withdrawal Plan
[Sefton Logo] General Policies on Selling Shares
- ----------------------------------------------------------------------------
8 Redemptions Required In Writing
8 Verifying Telephone Redemptions
8 Redemptions Within 15 Days of Initial Investment
8 Refusal of Redemption Request
9 Redemptions In Kind
9 Closing of Small Accounts
9 Undeliverable Redemption Checks
[Sefton Logo] Exchanging Your Shares
- ----------------------------------------------------------------------------
10 Instructions for Exchanging Shares
</TABLE>
<PAGE>

> Pricing of Fund Shares [Sefton Logo]

Calculation of Net Asset Value (NAV)

-----------------------
How NAV is Calculated Per share NAV for each Fund is
determined and its shares are priced
at the close of regular trading on
the New York Stock Exchange, normally
at 4:00 p.m. Eastern time, on days
the New York Stock Exchange is open.

The NAV is calculated
by adding the total
value of a Fund's
investments and other
assets, subtracting
its liabilities and
then dividing that
figure by the number
of outstanding shares
of the Fund:

Some of the Funds invest in
securities that are primarily listed
on foreign exchanges and trade on
weekends or other days when the Fund
NAV = does not price its shares. As a
Total Assets- result the Funds' NAVs may change on
Liabilities days when shareholders will be unable
------------------ to purchase or redeem the Funds'
shares.

Number of Shares
Outstanding
Your order for purchase, sale or
exchange of shares is priced at the
next NAV calculated after your order
is received in good order by the Fund
on any day that the New York Stock
Exchange is open for business. This
is what is known as the offering
price.

You can find each
Fund's NAV daily in
The Wall Street
Journal and other
newspapers.
-----------------------

For example: If you The Funds' securities are generally
place a purchase valued at current market prices. If
order to buy shares market quotations are not available,
of the Equity Value prices will be based on fair value as
Fund, it must be determined in good faith by or at the
received by 4:00 p.m. direction of the Funds' Trustees.
Eastern time in order
to receive the NAV
calculated at 4:00
p.m. Eastern time. If
your order is
received after 4:00
p.m. Eastern time,
you will receive the
NAV calculated on the
next day at 4:00 p.m.
Eastern time.

1
<PAGE>

> Purchasing and Adding to Your Shares [Sefton Logo]

Minimum Investments

You may purchase
Funds through the
Sefton Funds'
Distributor or
through banks,
brokers and other
investment
representatives,
which may charge
additional fees and
may require higher
minimum investments
or impose other
limitations on buying
and selling shares.
If you purchase
shares through an
investment
representative, that
party is responsible
for transmitting
orders by close of
business and may have
an earlier cut-off
time for purchase and
sale requests.
Consult your
investment
representative or
institution for
specific information.
<TABLE>
<CAPTION>
Account type Initial Investment Subsequent
<S> <C> <C>
Regular
(non-retirement) $2,000 $50
----------------------------------
Retirement
(IRA*) $2,000 $50
----------------------------------
Automatic
Investment Plan $ 50 $50
-----------------------------------
</TABLE>

* The California Tax-Free Fund is not
recommended for IRA's.

All purchases must be in U.S.
dollars. A fee will be charged for
any checks that do not clear. Third-
party checks are not accepted.

A Fund may waive its minimum purchase
requirement and the Distributor or
Trust may reject a purchase order if
it considers it in the best interest
of the Fund and its shareholders.

- --------------------------------------------------------------------------------
Avoid 31% Tax Withholding

The Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number in compliance with IRS
rules. To avoid this, make sure you provide your correct Tax Identification
Number (Social Security Number for most investors) on your account application.
- --------------------------------------------------------------------------------

Questions?

Call 1-800-524-2276 or
your investment
representative.
- ------------------------

2
<PAGE>

> Purchasing and Adding to Your Shares
[Sefton Logo]

Instructions for
Opening or Adding
to an Account

If purchasing through your financial adviser or brokerage account, simply tell
your adviser or broker that you wish to purchase shares of the Funds and he or
she will take care of the necessary documentation. For all other purchases,
follow the instructions below.

By Regular Mail
[Sefton Logo]
Initial Investment:

1. Carefully read and complete an account application. Establishing your
account privileges now saves you the inconvenience of having to add them
later.

2. Make check, bank draft or money order payable to "Sefton Funds," and include
the name of the appropriate Fund(s) on the check.

3. Mail to: Sefton Funds, PO Box 182494, Columbus, OH 43218.

Subsequent Investments:

1. Use the investment slip attached to your account statement, or, if
unavailable, include the following information in writing:
.Fund name
.Amount invested
.Account name
.Account number
(Include your account number on your check.)

2. Make check, bank draft or money order payable to "Sefton Funds."

3. Mail to: Sefton Funds, PO Box 182494, Columbus, OH 43218.

By Overnight Service
[Sefton Logo]

1. See instructions 1-2 above.
2. Mail to: Sefton Funds, c/o BISYS Fund Services,
Attn: T.A. Operations, 3435 Stelzer Road, Columbus, OH 43219.

Electronic Purchases
[Sefton Logo]

You may establish an electronic purchase option by checking the appropriate box
on your account application or by calling 1-800-524-2276. Your account can
generally be set up for electronic purchases within 15 days.

Your bank must participate in the Automated Clearing House (ACH) and must be a
U.S. bank. Your bank or broker may charge for this service.

Call 1-800-524-2276 to arrange a transfer from your bank account.

3
<PAGE>

> Purchasing and Adding to Your Shares [Sefton Logo]

Instructions for
Opening or Adding
to an Account

Electronic vs. Wire Transfer

Wire transfers allow financial
institutions to send funds to each
other, almost instantaneously.
With an electronic purchase or
sale, the transaction is made
through the Automated Clearing
House (ACH) and may take up to
eight days to clear. There is
generally no fee for ACH
transactions.
-----------------------------------------------------

By Wire Transfer

Initial Investment:

1. Call 1-800-524-2276 to obtain the fax number and fax the completed
application, along with a request for a confirmation number. Follow the
instructions below after receiving your confirmation number.

Initial and Subsequent Investments:

1. Call 1-800-524-2276 to obtain the necessary information to instruct your
bank to wire transfer your investment.

After instructing your bank to wire the funds, call 1-800-524-2276 to
advise the Funds of the amount being transferred and the name of your
bank.

Note: Your bank may charge a wire transfer fee.

4
<PAGE>

> Purchasing and Adding to Your Shares [Sefton Logo]

You can add to your account by using the convenient options
described below. The Fund reserves the right to change or
eliminate these privileges at any time with 60 days notice.

Automatic Investment Plan

Distribution Selection

You can make automatic investments By selecting the
in the Funds from your bank account. appropriate box on
Automatic investments can be as the account
little as $50, and can occur on the application, you can
fifth or twentieth day of each elect to receive your
month. distributions in cash
(check) or receive
dividends paid by
check and capital
gains reinvested or
have distributions
directly deposited to
your bank account.
You can change or
terminate your
participation in the
reinvestment option
at any time.

To invest regularly from your bank
account:

.Complete the Automatic Investment
Plan portion on your account
application, including the
following information:
. Your bank name, address, and
account number
. The amount you wish to invest
automatically (minimum $50)
. How often you want to invest
(monthly, twice a month or
quarterly) and on which days of
the month

Individual Retirement Accounts

.Attach a voided personal check
By completing a
separate application,
the Funds, (except
the California Tax-
Free Fund) may be
used as a funding
medium for IRA's.
Additionally, an IRA
may be established
through a custodial
account with Fifth
Third Bank.
Contributions to
IRA's are subject to
prevailing amount
limits set by the
IRS.

For an application
and IRA information,
call 1-800-524-2276.
---------------------------------------

- --------------------------------------------------------------------------------
Dividends and Distributions

All dividends and distributions will be automatically reinvested unless you
request otherwise. Dividends on the U.S. Government Fund and California Tax-
Free Fund are paid monthly. Income dividends on the Equity Value Fund and Small
Company Value Fund are paid quarterly. Capital gains, if any, are distributed
at least annually.

Distributions are made on a per share basis regardless of how long you have
owned your shares. Therefore, if you invest shortly before the distribution
date, some of your investment will be returned to you in the form of a
distribution.
- --------------------------------------------------------------------------------

5
<PAGE>

> Selling Your Shares [Sefton Logo]

Instructions for Selling Shares

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

Withdrawing Money from Your Fund Account
As a mutual fund shareholder, you are
technically selling shares when you
request a withdrawal in cash. This is
also known as redeeming shares or a
redemption of shares.

You may sell your
shares on any day
the New York Stock -------------------------------------------------------
Exchange is open for
business. Your sales
price will be the
next NAV after your
sell order is
received in good
order by the Sefton
Funds, the Funds'
transfer agent, or
your investment
representative.
Normally you will
receive your
proceeds within a
week after your
request is received.
See section on
"General Policies on
Selling Shares
below."

If selling your shares through your financial adviser
or broker, ask him or her for redemption procedures.
Your adviser or broker may have transaction minimums
and/or transaction times which will affect your
redemption. For all other sales transactions, follow
the instructions below.

By Telephone
(unless you have declined telephone sales privileges)

1. Call 1-800-524-2276 with instructions as to how you wish to receive
your funds (mail, wire, electronic transfer). (See "General Policies
on Selling Shares--Verifying Telephone Redemptions" on page 10)

By Regular Mail
(See "General Policies on Selling Shares--Redemptions in Writing Required"
below)

1. Call 1-800-524-2276 to request redemption forms or write a letter of
instruction indicating:
.your Fund and your account number
.amount you wish to redeem
.address where your check should be sent
.account owner signature

2. Mail to: Sefton Funds, P.O. Box 182494, Columbus, OH 43218

By Overnight Service
1. See instruction 1 above.
2. Send to:
Sefton Funds, c/o BISYS Fund Services,
Attn: T.A. Operations, 3435 Stelzer Road, Columbus, OH 43219

6
<PAGE>

> Selling Your Shares [Sefton Logo]

Instructions for Selling Shares
continued
By Wire Transfer
You must indicate this option on your application.

The Funds may charge a wire transfer fee. Note: Your financial institution
may also charge a separate fee.

Call 1-800-524-2276 to request a wire transfer.

If you call by 4 p.m. Eastern time, your payment will normally be wired
to your bank on the next business day.

Electronic Redemptions

Your bank must participate in the Automated Clearing House (ACH) and must
be a U.S. bank.

Your bank may charge for this service.

Call 1-800-524-2276 to request an electronic redemption.

If you call by 4 p.m. Eastern time, the NAV of your shares will normally
be determined on the same day and the proceeds credited within 8 days.

Systematic Withdrawal Plan

You can receive automatic payments from your account on a monthly, quarterly,
semi-annual or annual basis. The minimum withdrawal is $50. A sufficient number
of shares to make the automatic payment will normally be redeemed on the fifth
or twentieth day of the selected month(s). To activate this feature:

. Make sure you've checked the appropriate box on the account application or
call 1-800-524-2276.

. Include a voided personal check.

. Your account must have a value of $100,000 or more to start systematic
withdrawals.

Questions?

Call 1-800-524-2276 or
your investment
representative.
-------------------------

7
<PAGE>

> General Policies on Selling Shares [Sefton Logo]

Redemptions Required
In Writing

You must request redemptions in writing in the following situations:

1.Redemptions from Individual Retirement Accounts ("IRA's")
2. Redemption requests requiring a signature guarantee, which include each of
the following:
. Redemptions over $10,000
. Your account registration or the name(s) in your account has changed
within the last 15 days
. The check is not being mailed to the address on your account
. The check is not being made payable to the owner of the account
. The redemption proceeds are being transferred to another fund account with
a different registration

A signature guarantee can be obtained from a financial institution, such as a
bank, broker-dealer, or credit union, or from members of the STAMP (Securities
Transfer Agents Medallion Program), MSP (New York Stock Exchange Medallion
Signature Program) or SEMP (Stock Exchanges Medallion Program). Members are
subject to dollar limitations which must be considered when requesting their
guarantee. The Transfer Agent may reject any signature guarantee if it believes
the transaction would otherwise be improper.

Verifying Telephone Redemptions

The Fund makes every effort to insure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your
protection and you will be asked for information to verify your identity. Given
these precautions, unless you have specifically indicated on your application
that you do not want the telephone redemption feature, you may be responsible
for any fraudulent telephone orders. If appropriate precautions have not been
taken, the Transfer Agent may be liable for losses due to unauthorized
transactions.

Redemptions Within 15 Days of
Initial
Investment

When you have made your initial investment by check, you cannot redeem any
portion of it until the Transfer Agent is satisfied that the check has cleared
(which may require up to 15 business days). You can avoid this delay by
purchasing shares with a certified check.

Refusal of
Redemption Request

Payment for shares may be delayed under extraordinary circumstances or as
permitted by the SEC in order to protect remaining shareholders.

8
<PAGE>

> General Policies on Selling Shares [Sefton Logo]

Redemptions In Kind

The Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund
operations (for example, more than 5% of the Fund's net assets). If the Fund
deems it advisable for the benefit of all shareholders, redemption in kind will
consist of securities equal in market value to your shares. When you convert
these securities to cash, you will pay brokerage charges.

Closing of Small Accounts

If your account falls below $2,000, the Fund reserves the right to ask you to
increase your balance or close your account and send you the proceeds at the
current NAV. (This does not apply to investors utilizing the Automatic
Investment Plan.)

Undeliverable
Redemption Checks

If distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that
remain uncashed for six months will be canceled and the money reinvested in the
Fund.

9
<PAGE>

> Exchanging Your Shares [Sefton Logo]

You can exchange your Instructions for Exchanging Shares
shares in one Fund
for shares of another
Sefton Fund.
(See "Notes on
Exchanges" below).
No transaction fees
are charged for
exchanges.

Exchanges may be made by sending a
written request to Sefton Funds,
P.O. Box 182494, Columbus OH 43218,
or by calling 1-800-524-2276. Please
provide the following information:

. Your name and your telephone number

. The exact name on your account
You must meet the and your account number
minimum investment . Taxpayer identification number
requirements for the (usually your Social Security
Fund into which you number)
are exchanging. . Dollar value or number of
Exchanges from one shares to be exchanged
Fund to another are . The name of the Fund from which
taxable. the exchange is to be made
. The name of the Fund into which
the exchange is being made

See "Selling your Shares" for important information
about telephone transactions.
-------------------------------------------------------
- --------------------------------------------------------------------------------

Notes on Exchanges
The registration and tax identification numbers of the two accounts must
be identical.
The Exchange Privilege (including automatic exchanges) may be changed or
eliminated at any time upon a 60-day written notice to shareholders.
Be sure to read the Prospectus carefully of any Fund into which you wish to
exchange shares.
- --------------------------------------------------------------------------------

10
<PAGE>

Sefton Funds
3435 Stelzer Road
Columbus, Ohio 43219
1-800-524-2276

[SEFTON FUNDS LOGO]

SFT-0026
<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")

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
April 30, 1999 (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 Financial Statements included in the Annual
Report dated December 31, 1998, are incorporated by reference to this SAI. The
Prospectus, Owner's Manual and Annual Report may be obtained without charge by
writing or calling the Funds at the address and information number printed
above.

April 30, 1999

<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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
Forward Commitments and When-Issued Securities .......................... 3
Loans of Portfolio Securities............................................ 3
U.S. Government Securities .............................................. 3
Mortgage-Related Securities.............................................. 3
Other Asset-Backed Securities ........................................... 5
Tax-Exempt Asset Backed Securities ...................................... 5
Foreign Securities....................................................... 5
Foreign Currency Transactions ........................................... 6
Common Stocks ........................................................... 6
Preferred Stocks ........................................................ 6
Small Capitalization Companies .......................................... 7
Real Estate Securities................................................... 7
Investment Company Securities............................................ 8
Interest Rate Futures Contracts.......................................... 8
Options on Common Stocks and Stock Indices............................... 8
Stock Index Futures Contracts............................................ 9
Put Options on Stock Index Futures Contracts............................. 9
Risks of Hedging Transactions............................................ 9
Illiquid Investments..................................................... 10
California Municipal Obligations......................................... 10
California State Risks................................................... 11

INVESTMENT RESTRICTIONS.................................................... 18

MANAGEMENT................................................................. 20
Trustees and Officers.................................................... 20
Investment Adviser....................................................... 23
Distributor.............................................................. 24
Administrator............................................................ 24
Service Organizations.................................................... 25

DETERMINATION OF NET ASSET VALUE........................................... 25

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................. 25

PORTFOLIO TRANSACTIONS..................................................... 26
Portfolio Turnover....................................................... 27

TAXATION................................................................... 27
The California Tax-Free Fund............................................. 31

OTHER INFORMATION.......................................................... 32
Capitalization........................................................... 32
Control Persons and Principal Holders of Securities...................... 34
Voting Rights............................................................ 35
</TABLE>

<PAGE>

Custodian and Transfer Agent............................................. 36
Yield and Performance Information........................................ 36
Independent Accountants.................................................. 38
Counsel.................................................................. 39
Registration Statement................................................... 39

FINANCIAL STATEMENTS....................................................... 39

APPENDIX................................................................... 40

<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 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. 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 (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 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. The
rate of return or return of principal 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.

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. These agreements will be fully collateralized
and the collateral will be marked-to-market daily. The Funds will enter into
repurchase

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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. The Adviser will monitor the value
of the underlying security at the time the transaction is entered into and at
all times during the term of the repurchase agreement to ensure that the value
of the security always equals or exceeds the repurchase price. In the event of
default by the seller under the repurchase agreement, the Funds may have
problems in exercising their rights to the underlying securities and may incur
costs and experience time delays in connection with the disposition of such
securities.

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, 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 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. 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.

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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.

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

Loans Of Portfolio Securities (All Funds). All of 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 Large Company Value Fund may make
loans or lend its portfolio securities if, as a result, the aggregate of such
laws does not exceed 33-1/3% of the value of a Fund's total assets.

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.

U.S. Government Securities (All Funds). 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 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
(see "Mortgage-Related Securities" below).

Mortgage-Related Securities (All Funds). 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

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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.

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 Ginnie Mae ("GNMA") (formerly the Government National Mortgage Association)
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.

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.

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."

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

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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 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 Tax-Free 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.

Foreign Securities (U.S. Government Fund, Equity Value Fund and Small
Company Value Fund). As described in the Prospectus, 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.

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.

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.

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

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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.

Foreign Currency Transactions (U.S. Government Fund, Equity Value Fund
and Small Company Value Fund). Changes in foreign exchange rates will affect the
value of securities denominated or quoted in currencies other than the U.S.
dollar. 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. 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.

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.

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

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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.

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 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.

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

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.

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Investment Company Securities (All Funds). The Funds may invest in
securities issued by other investment companies, including securities issued by
private 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. The purchase of securities issued by private investment companies are
subject to the illiquid investment restrictions of the Funds.

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 provided that not more than 5% of the
Fund's net assets are committed to such transactions. A futures contract is an
agreement between two parties to buy and sell a security for a set price on a
future date. Future contracts are traded on designated "contracts markets"
which, through their clearing corporations, guarantee performance of the
contracts. Currently, there are futures contracts based on securities such as
long-term U.S. Treasury bonds, U.S. Treasury notes, GNMA Certificates and
three-month U.S. Treasury bills.

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

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.

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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. 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 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.

Risks of Hedging Transactions. 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

9
<PAGE>

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.

Illiquid Investments. (All Funds). 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 have a readily available market
are not deemed illiquid for purposes of this limitation.

California Municipal Obligations (California Tax-Free Fund). 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. 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 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.

The Fund may also 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, 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.

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<PAGE>

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 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.

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. 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. California is the most populous state in the nation with
total population estimated at 32.9 million. The State now comprises 12% of the
nation's population and 12.5% of its total personal income.

Due in part to its rapidly growing population, the California economy
has proven to be more cyclical than that of the nation. California's economy is
broad and diversified with major concentrations in high technology research and
manufacturing, aerospace and defense-related manufacturing, trade,
entertainment, real estate, and financial services. After

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<PAGE>

experiencing strong growth throughout much of the 1980's, from 1990-1993 the
State suffered through a severe recession, the worst since 1930's, heavily
influenced by large cutbacks in defense/aerospace industries, military base
closures and a major drop in real estate construction. California's economy has
been recovering and growing steadily stronger since the start of 1994, to the
point where the State's economic growth is outpacing the rest of the nation.

The State's financial condition improved markedly during the 1995-96,
1996-97 and 1997-98 fiscal years, with a combination of better than expected
revenues, slowdown in growth of social welfare programs, and continued spending
restraint based on the actions taken in earlier years. The State's cash position
also improved, and no external deficit borrowing has occurred over the end of
these three fiscal years.

The economy grew strongly during these fiscal years, and as a result, the
General Fund took in substantially greater tax revenues (around $2.2 billion in
1995-96, $1.6 billion in 1996-97 and $2.2 billion in 1997-98) than were
initially planned when the budgets were enacted. These additional funds were
largely directed to school spending as mandated by Proposition 98, and to make
up shortfalls from reduced federal health and welfare aid in 1995-96 and
1996-97. The accumulated budget deficit from the recession years was finally
eliminated. The Department of Finance estimates that the State's budget reserve
(the SFEU) totaled $639.8 million as of June 30, 1997 and $1.782 billion at June
30, 1998.

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

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

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

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

In 1979 California voters approved another constitutional amendment,
Article XIII B, which may have an adverse impact on California state and
municipal issuers. Article XIII B prohibits the State from spending
"appropriations subject to limitation" in excess of an annual appropriations
limit (the "Appropriations Limit"). "Appropriations subject to limitation," with
respect to the State, are authorizations to spend "proceeds of taxes," which
consist of tax revenues, and

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<PAGE>

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 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

13
<PAGE>

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 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;

14
<PAGE>

. 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 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.

On August 18, 1997, the Governor signed the 1997-98 Budget Act which
provides for General Fund and Special Fund expenditures of approximately $67.2
billion and projects a 1997-98 fiscal year and reserve of $112 million. For the
second year in a row, the State budget contains a large increase in funding for
K-14 education, reflecting strong revenues which have exceeded initial budgeted
amounts. The Budget Act reflects a $1.235 billion pension case judgment payment,
and returns funding of the State's pension contribution to the quarterly basis
existing prior to the deferral actions invalidated by the courts. Because of the
effect of the pension payment, most other State programs were continued at
1996-97 levels. Health and welfare costs combined, continuing generally the
grant levels from prior years, as part of the initial implementation of the new
CalWORKs welfare reform program. Unlike prior years, this Budget Act does not
depend on uncertain federal budget actions. About $300 million in federal funds,
already included in the federal FY 1997 and 1998 budgets, are included in the
Budget Act to offset incarceration costs for illegal immigrants. The Budget Act
contains no tax increases and no tax reductions. The Renters Tax Credit was
suspended for another year, saving approximately $500 million. After enactment
of the Budget Act, and prior to the end of the Legislative Session, The
Legislature and the Governor reached certain agreements related to State
expenditures and taxes. Legislation signed by the Governor includes a variety of
phased-in tax cuts, conformity with certain provisions of the federal tax reform
law passed earlier in the year, and reform of funding for county trial courts,
with the State to assume greater financial responsibility.

The 1998-99 Budget Act is based on projected General Fund revenues and
transfers of $57.0 billion (after giving effect to various tax reductions
enacted in 1997 and 1998), a 4.2% increase from the revised 1997-98 figures.
Special Fund revenues were estimated at $14.3 billion. The revenue projections
were based on the May Revision. Economic problems overseas since that time may
affect the May Revision projections. See "Economic Assumptions" below.

After giving effect to the Governor's vetoes, the Budget Act provides
authority for expenditures of $57.3 billion from the General Fund (a 7.3%
increase from 1997-98), $14.7 billion from Special Funds, and $3.4 billion from
bond funds. The Budget Act projects a balance in the SFEU at June 30, 1999 (but
without including the "set aside" veto amount) of $1.255 billion, a little more
than 2% of General Fund revenues. The Budget Act assumes the State will carry
out its normal intra-year cash flow borrowing in the amount of $1.7 billion of
revenue anticipation notes, which were issued on October 1, 1998.

The most significant feature of the 1998-99 budget was agreement on a total
of $1.4 billion of tax cuts. The central element is a bill which provides for a
phased-in reduction of the VLF. Since the VLF is currently transferred to cities
and counties, the bill provides for the General Fund to replace the lost
revenues. Starting on January 1, 1999, the VLF will be reduced by 25%, at a
cost to the General Fund of approximately $500 million in the 1998-99 Fiscal
Year and about $1 billion annually thereafter. See "STATE FINANCES - Sources of
Tax Revenue - Special Fund Revenues" above.

In addition to the cut in VLF, the 1998-99 budget includes both temporary
and permanent increase in the personal income tax dependent credit ($612 million
General Fund cost in 1998-99, but less in future years), a nonrefundable renters
tax credit ($133 million), and various targeted business tax credits ($106
million).

15
<PAGE>

16
<PAGE>

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. Likewise, in February 1992, Moody's
lowered its California general obligation bond rating from Aaa to Aa1. Moody's
subsequently lowered the State's general obligation rating in July 1992 from Aa1
to Aa. Because of California's continuing budget problems, the State's General
Obligation bonds were downgraded in July 1994 from Aa to A1 by Moody's and from
A+ to A by S&P and from AA to A by Fitch Investment Service, Inc. ("Fitch"). All
three ratings companies expressed uncertainty in the State's ability to balance
its budget by 1996. However, in 1996,

17
<PAGE>

citing California's improving economy and budget situation, both Fitch and S&P
raised their ratings from A to A+. In October 1997, Fitch raised its rating from
A+ to AA- referring to the State's fundamental strengths, the extent of its
economic recovery and the return of financial stability. The current bond
ratings are A+ by S&P, A1 by Moody's and A+ by Fitch.

INVESTMENT RESTRICTIONS

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

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;

18
<PAGE>

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

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

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

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

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

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

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

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

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

(13) 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.

19
<PAGE>

The foregoing investment restrictions and the investment objectives
described in the Prospectus are fundamental 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 Rights."

If a percentage restriction on investment policies or the investment or
use of assets set forth in the Prospectus or this SAI are adhered to at the time
a transaction is effected, later changes in percentage resulting from changing
values will not be considered 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. It is the intention of
the Funds, unless otherwise indicated, that with respect to the Funds' policies,
that are a result of application of law, the Funds will take advantage of the
flexibility provided by rules or interpretation of the SEC currently in
existence or promulgated in the future or changes to such laws.

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.

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, 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.

MANAGEMENT

Trustees And Officers

The business and affairs of each Fund are managed under the direction
of the Board of Trustees. The principal occupations of the Trustees and
executive officers of the Funds for the past five years are listed below.
Trustees deemed to be "interested persons" of the Funds for purposes of the 1940
Act are indicated by an asterisk.

<TABLE>
<CAPTION>
Positions(s) Held
Name and Address Age with Registrant Occupation(s) During Past 5 Years
- ---------------- --- --------------- ---------------------------------
<S> <C> <C> <C>
Harley K. Sefton * 45 Trustee, Chairman President and Chief Executive Officer, Sefton Capital
Sefton Capital Management, Inc. of the Board and Management, August 1994 to present; President, First
2550 Fifth Avenue, Suite 808 President Interstate Capital Management, Inc., a registered investment adviser
San Diego, CA 92103 and wholly-owned subsidiary of First Interstate Bank of California,
March 1994 through August 1994; President, San Diego Financial Capital
Management, Inc., a registered investment adviser and wholly-owned
subsidiary of San Diego Trust & Savings Bank, January 1994 through
March 1994; Executive Vice President/Division Manager, San Diego Trust
& Savings Bank, January 1992 through January 1994.
</TABLE>

20
<PAGE>

<TABLE>
<S> <C> <C> <C>
Grace Evans Cherashore 43 Trustee Chief Executive Officer, Bahia and Catamaran Hotels since 1992.
988 West Mission Bay Drive
San Diego, CA 92109

Gordon T. Frost, Jr. 53 Trustee President/General Manager, Frost Hardwood Lumber Company since 1990.
P.O. Box 15
San Diego, CA 92122

John J. Pileggi 40 Trustee President and Chief Executive Officer, ING Mutual Funds
18 Campus Boulevard, Suite 200 Management Co., LLC, a registered investment adviser and wholly-owned
New Town Square, PA 19073 subsidiary of ING North America, an integrated financial services
company, 1998 to present; Director of Furman Selz LLC, an
institutional brokerage firm, 1994 through 1998; Senior Managing
Director of Furman Selz LLC, 1992 through 1994.

Thomas C. Bowden 40 Vice President Vice President and Fund Manager, Sefton Capital Management,
Sefton Capital Management February 1995 to present; Vice President and Portfolio
2550 Fifth Avenue, Suite 808 Manager, First Interstate Capital Management, Inc.,
San Diego, California 92103 a registered investment adviser and wholly-owned subsidiary of
First Interstate Bank of California, March 1994 through January 1995;
Vice President and Portfolio Manager, San Diego Financial Capital
Management, Inc., a registered investment adviser and wholly-owned
subsidiary of San Diego Trust & Savings Bank, June 1986 through March
1994.

Alan A. Lordi 36 Vice President Vice President and Portfolio Manager, Sefton Capital Management,
Sefton Capital Management July 1996 to present; Managing Director of Mutual Funds, Furman Selz
2550 Fifth Avenue, Suite 808 LLC, an institutional brokerage firm, April 1995 through July 1996;
San Diego, California 92103 Vice President and Investment Marketing Director of First
Interstate Capital Management, Inc., a registered investment adviser
and wholly-owned subsidiary of First Interstate Bank of California,
March 1994 through April 1995; Vice President and Investment Marketing
Director of San Diego Financial Capital Management, Inc., a registered
investment adviser and wholly-owned subsidiary of San Diego Trust &
Savings Bank, August 1991 through March 1994.

Ted J. Piorkowski 40 Vice President Vice President and Fund Manager, Sefton Capital Management, May 1994
to present; Vice President and Portfolio Manager, First Interstate
Sefton Capital Management Capital Management Inc., a registered investment adviser and
2550 Fifth Avenue, Suite 808 wholly-owned subsidiary of First Interstate Bank of California,
San Diego, California 92103 March 1994 through May 1994; Vice President and Portfolio Manager,
San Diego Financial Capital Management, Inc., a registered
investment adviser and wholly-owned subsidiary of San Diego Trust &
Savings Bank, 1989 through March 1994.

Lani Capossere 37 Vice President Vice President and Chief Operating Officer, Sefton Capital
Sefton Capital Management and Secretary Management, October 1994 to present; Assistant Vice
2550 Fifth Avenue, Suite 808 President and Operations Manager, First Interstate Capital
San Diego, California 92103 Management, Inc., a registered investment adviser and subsidiary of
First Interstate Bank of California, March 1994 through May 1994;
Assistant Vice President and Operations Manager, San Diego Financial
Capital Management, Inc., a registered investment adviser and
wholly-owned subsidiary of San Diego Trust & Saving Bank, April
1992 through March 1994.

Frank M. Deutchki 45 Assistant Treasurer Vice President, Financial Services, BISYS Fund Services,
BISYS Fund Services and Principal November 1997 to present; Registration and Compliance Officer, BISYS
3435 Stelzer Road Accounting Officer Fund Services, April 1996 through November 1997; Vice President
Columbus, OH 43219 and Audit Director, Chase Global Fund Services, September 1995 through
April 1996; Vice President and Audit Director, Mutual Fund Service
Company, a subsidiary of U.S. Trust Company of New York, 1989 through
September 1995.
</TABLE>

21
<PAGE>

22
<PAGE>

Compensation Table
For Calendar Year Ended December 31, 1998

<TABLE>
<CAPTION>
Total Compensation
Aggregate Pension or Retirement Estimated from Trust and
Compensation Benefits Accrued as Annual Benefits Fund Complex
Name of Trustee From the Trust Part of Fund Expenses Upon Retirement Paid to Trustees
--------------- -------------- --------------------- --------------- ----------------
<S> <C> <C> <C> <C>
Harley K. Sefton $0 $0 $0 $0

Grace Evans Cherashore $4,000 $0 $0 $4,000

Gordon T. Frost, Jr. $4,000 $0 $0 $4,000

John J. Pileggi $4,000 $0 $0 $4,000
</TABLE>

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

Investment Adviser

Sefton Capital Management, Inc., 2550 Fifth Avenue, Suite 808, San
Diego, CA 92103, acts as the investment adviser to the Funds ("SCM" or the
"Adviser"). Mr. Harley K. Sefton owns 100% of the capital stock of SCM and is
thereby deemed to be in control 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.

For the fiscal year ended December 31, 1998, the Adviser earned fees of
$225,370 and waived fees of $37,561 for the U.S. Government Securities Fund,
earned fees of $253,518 and waived fees of $63,379 for the California Tax-Free
Fund, earned fees of $813,278 for the Equity Value Fund, and earned fees of
$417,794 and waived fees of $66,847 for the Small Company Value Fund. For the
period ended December 31, 1997, the Adviser earned fees of $148,520 and waived
fees of $32,467 for the U.S. Government Securities Fund, earned fees of $172,233
and waived fees of $47,617 for the California Tax-Free Fund, earned fees of
$624,902 for the Equity Value Fund, and earned fee of $177,923 and waived fees
of $31,826 for the Small Company Value Fund. For the fiscal year ended March 31,
1997, the Adviser earned fees of $133,578 and waived fees of $54,584 for the
U.S. Government Securities Fund, earned fees of $257,339 and waived fees of
$98,461 for the California Tax-Free Fund, and earned fees of $482,659 for the
Equity Value Fund. For the period ended March 31, 1996, the Adviser earned fees
of $112,654 and waived fees of $52,605 for the U.S. Government Securities Fund,
earned fees of $228,931 and waived fees of $91,958 for the California Tax-Free
Fund, and earned fees of $255,969 and waived fees of $6,226 for the Equity Value
Fund.

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 provides that it 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 Trustees who are not parties to the Advisory Agreement 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 Advisory Agreement provide that the 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

23
<PAGE>

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.

Distributor

Effective January 1, 1997, BISYS Fund Services Limited Partnership
d/b/a BISYS Fund Services ("BISYS"), 3435 Stelzer Road, Columbus, Ohio 43219, is
the Distributor of the Funds.

Administrator

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
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. 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 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
Fund Services, Inc. in the performance of its duties under the Agreement

For the fiscal year ended December 31, 1998, BISYS was entitled to
administration fees of $56,342 for the U.S. Government Fund, $63,379 for the
California Tax-Free Fund, $121,991 for the Equity Value Fund, and $50,135 for
the Small Company Value Fund. Of such fees, BISYS waived fees of $0 for the U.S.
Government Fund, $0 for the California Tax-Free Fund, and $0 for the Equity
Value Fund. For the period ended December 31, 1997, BISYS was entitled to
administration fees of $40,987 for the U.S. Government Securities Fund, $47,617
for the California Tax-Free Fund, $104,421 for the Equity Value Fund, and
$21,351 for the Small Company Value Fund. Of such fees, BISYS waived fees of
$3,857 for the U.S. Government Fund, $4,559 for the California Tax-Free Fund,
and $10,686 for the Equity Value Fund. For the fiscal year ended March 31, 1997,
BISYS and ALPS were entitled to administration fees of $44,158 for the U.S.
Government Securities Fund, $85,431 for the California Tax-Free Fund, and
$95,828 for the Equity Value

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<PAGE>

Fund. Of such fees, BISYS and ALPS waived fees of $9,975 for the U.S. Government
Fund, $27,036 for the California Tax-Free Fund, and $21,831 for the Equity Value
Fund. For the fiscal year ended March 31, 1996, ALPS and Furman Selz LLC were
entitled to administration fees of $37,324 for the U.S. Government Securities
Fund, $76,311 for the California Tax-Free Fund, and $51,142 for the Equity Value
Fund. Of such fees, ALPS and Furman Selz LLP waived fees of $16,798 for the U.S.
Government Fund, $32,529 for the California Tax-Free Fund, and $21,668 for the
Equity Value Fund.

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

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<PAGE>

valued on the day of purchase in accordance with the pricing methods used by the
Fund and that the Fund receive satisfactory assurances that (1) it will have
good and marketable title to the securities received by it; (2) the securities
are in proper form for transfer to the Fund; and (3) adequate information will
be provided concerning the basis and other matters relating to the securities.

Under the 1940 Act, a Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange is closed (other than customary weekend and holiday
closings), or during which trading on said Exchange is restricted, or during
which (as determined by the SEC by rule or regulation) an emergency exists as a
result of which disposal or valuation of portfolio securities is not reasonably
practicable, or for such other periods as the SEC may permit. (A Fund may also
suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.)

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

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

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

PORTFOLIO TRANSACTIONS

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

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

Purchases and sales of securities will often be principal transactions
in the case of debt securities and equity securities traded otherwise than on an
exchange. The purchase or sale of equity securities will frequently involve the
payment of a commission to a broker-dealer who effects the transaction on behalf
of a Fund. Debt securities normally will

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<PAGE>

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 fiscal year ended December 31,1998, the Equity Value Fund paid
$233,932 and Small Company Value Fund paid $87,488 in brokerage commissions.
The U.S. Government Fund and the California Tax-Free Fund did not pay any
brokerage commissions. For the period ended December 31,1997, the Equity Value
Fund paid $125,790 and Small Company Value Fund paid $60,034 in brokerage
commissions. The U.S. Government Fund and California Tax-Free Fund did not pay
any brokerage commissions. For the year ended March 31,1997, the Equity Value
Fund paid $162,097 in brokerage commissions. The U.S. Government Fund and
California Tax-Free Fund did not pay any brokerage commissions. For the period
April 3, 1995 (commencement of investment operations) to March 31, 1996, the
Equity Value Fund paid $84,000 in brokerage commissions. The U.S. Government
Fund and California Tax-Free Fund did not pay any brokerage commissions.

Portfolio Turnover

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

For the fiscal year ended December 31, 1998, the Funds' annual
portfolio turnover rates were: U.S. Government Fund 12.94%; California Tax-Free
Fund 36.44%; Equity Value Fund 82.44%; and Small Company Value Fund 59.24%. For
the period ended December 31, 1997 the Funds' annual portfolio turnover
rates were: U.S. Government Fund 5.49%; California Tax-Free Fund 12.97%; Equity
Value Fund 42.10%; and Small Company Value Fund 14.81%. For the fiscal year
ended March 31, 1997, the Funds' annual portfolio turnover rates were: U.S.
Government Fund 11.94%; California Tax-Free Fund 14.52%; 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

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<PAGE>

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

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

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

A Fund may be able to elect alternative tax treatment with respect to
PFIC stock. Under an election that currently may be available, a Fund generally
would be required to include in its gross income its share of the earnings of a
PFIC on a current basis, regardless of whether any distributions are received
from the PFIC. If this election is made, the special rules, discussed above,
relating to the taxation of excess distributions, would not apply. In addition,
a Fund may make a mark-to-market election with respect to certain PFIC stocks.
If it does so, the special rules relating to the taxation of excess
distributions will not apply. The result of such an election would be to
accelerate the Fund's recognition of gains or losses due to changes in the
prices of such stocks. 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

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<PAGE>

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.

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. Capital gains derived from a disposition of assets
held for more than one year are generally taxed at a maximum rate of 20 percent.
All distributions are taxable to the shareholder in the same manner whether
reinvested in additional shares or received in cash. Shareholders will be
notified annually as to the Federal tax status of distributions.

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

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

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

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

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<PAGE>

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.

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

Income received by a Fund from sources within foreign countries may be
subject to withholding and other similar income taxes imposed by the foreign
country. If more than 50% of the value of a Fund's total assets at the close of
its taxable year consists of securities of foreign corporations, the Fund will
be eligible and intends to elect to "pass-through" to its shareholders the
amount of such foreign taxes paid by the Fund. Pursuant to this election, a
shareholder would be required to include in gross income (in addition to taxable
dividends actually received) his pro rata share of the foreign taxes paid by a
Fund and would be entitled either to deduct his pro rata share of foreign taxes
in computing his taxable income or, to the extent the Fund satisfies certain
holding period and other requirements with respect to securities which have
given rise to such foreign taxes, to use his pro rate share of the foreign taxes
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

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<PAGE>

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 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 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

31
<PAGE>

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 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.

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

32
<PAGE>

have preemptive rights or subscription rights. In any liquidation of a Fund,
each shareholder is entitled to receive his pro rata share of the net assets of
that Fund.

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

33
<PAGE>

Control Persons And Principal Holders Of Securities

As of April 19, 1999, to the knowledge of the Administrator, the
Officers and Trustees of the Trust, as a group, own less than 1% of the
outstanding voting securities of each Fund. As of April 19, 1999, the
following persons were known by the Fund to own of record 5% or more of the
outstanding voting securities of each Fund.

<TABLE>
<CAPTION>
U.S. Government Fund Shares Owned Percentage Owned
- -------------------- ------------ ----------------
<S> <C> <C>
SBT & CO 269,824.761 7.98% (2)
P.O. Box 8469
La Jolla, CA 92038

Thomas & Donna Sefton CRUT 409,037.924 12.09%
333 S. Hope Street
Los Angeles, CA 90071

Sefton CRUT 515,035.791 15.23%
333 S. Hope Street
Los Angeles, CA 90071

SBT & CO 1,313,280.799 38.82% (1)(2)
FBO SCM/MGD
P.O. Box 8469
La Jolla, CA 92038

BISYS Brokerage Service 662,478.044 19.58% (2)
1855 Gateway Blvd.
P.O. Box 4054
Concord, CA 94524

<CAPTION>
California Tax-Free Fund Shares Owned Percentage Owned
- ------------------------ ------------ ----------------
<S> <C> <C>

SBT & CO 345,984.726 10.79% (2)
Reinvest Account
P.O. Box 8469
La Jolla, CA 92038

SBT & CO 838,749.815 26.16% (1)(2)
FBO SCM/MGD
Reinvest Account
P.O. Box 8469
La Jolla, CA 92038

BISYS Brokerage Service 1,802,118.192 56.21% (1)(2)
1855 Gateway Blvd.
P.O. Box 4054
Concord, CA 94524
</TABLE>

34
<PAGE>

<TABLE>
<CAPTION>
Equity Value Fund Shares Owned Percentage Owned
- ----------------- ------------ ----------------
<S> <C> <C>

SBT & CO 369,980.837 8.27% (2)
P.O. Box 8469
La Jolla, CA 92038

SBT & CO 1,299,700.050 29.07% (1)(2)
FBO SCM/MGD
Reinvest Account
P.O. Box 8469
La Jolla, CA 92038

BISYS Brokerage Service 2,357,146.572 52.72% (1)(2)
1855 Gateway Blvd.
P.O. Box 4054
Concord, CA 94524

<CAPTION>
Small Company Value Fund Shares Owned Percentage Owned
- ------------------------ ------------ ----------------
<S> <C> <C>

SBT & CO 242,359.811 13.78% (2)
P.O. Box 8469
La Jolla, CA 92038

SBT & CO 188,969.039 10.74% (2)
P.O. Box 8469
La Jolla, CA 92038

SBT & CO 195,921.808 11.14% (2)
FBO SCM/MGD
P.O. Box 8469
La Jolla, CA 92038

BISYS Brokerage Service 1,024,598.244 58.24% (1)(2)
1855 Gateway Blvd.
P.O. Box 4054
Concord, CA 94524
</TABLE>
- ---------------
(1) Accountholder may be deemed to have "control" as that term is defined under
the 1940 Act.
(2) Accountholder disclaims beneficial ownership.

Voting Rights

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

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

Shareholders of all of the Funds, as well as those of any other
investment portfolio now or hereafter offered by the Fund, will vote together in
the aggregate and not separately on a Fund-by-Fund basis, except as otherwise
required by law or when permitted by the Board of Trustees. Rule 18f-2 under the
1940 Act provides that any matter required to be submitted to the holders of the
outstanding voting securities of an investment company such as the Funds shall
not be deemed to have been effectively acted upon unless approved by the holders
of a majority of the outstanding shares of each Fund affected by the matter. A
Fund is affected by a matter unless it is clear that the interests of each Fund
in the matter are substantially identical or that the matter does not affect any
interest of the Fund. Under the Rule, the approval of an

35
<PAGE>

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.

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).

Custodian And Transfer Agent

Union Bank of California, ("UBC") is the Funds' custodian. Pursuant to
a Custodian Agreement, UBC is responsible for holding the Funds' cash and
portfolio securities.

BISYS Fund Services, Inc. serves as Transfer Agent for the Funds.

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:

YIELD = 2 [ ( a - b + 1 )/6/ - 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.
d = the maximum offering price per share on the last
day of the period.

For the period ended December 31, 1998, the 30-day yield for the U.S.
Government Fund was 4.91%.

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 30-day yield and
tax-equivalent yield of the California Tax-Free Fund for the period ended
December 31, 1998 were 3.49% and 6.37%. Tax-equivalent yield is based
upon the combined state and federal tax rate assumptions of 45.2%.

36
<PAGE>

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.

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 1998 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%.

1998 Taxable Year
Taxable Equivalent Yield Table - Federal and California
Personal Income Taxes*
<TABLE>
<CAPTION>

To Equal Hypothetical Tax-Free Yield of 5%, 6%,
7% or 8% A Taxable Investment Would Have To
Taxable Income(1) Yield Approximately
Combined
Married Marginal Tax
Single Filing Jointly Rate(2)(3) 5% 6% 7% 8%
------ -------------- ---------- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$24,322 - $38,386 18.40% 6.13% 7.35% 8.58% 9.80%
$19,193 - $26,644 $38,386 - $53,288 32.32% 7.39% 8.87% 10.34% 11.82%
$26,644 - $33,673 $53,288 - $67,346 33.76% 7.55% 9.06% 10.57% 12.08%
$33,673 - $61,400 $67,346 - $102,300 34.70% 7.66% 9.19% 10.72% 12.25%
$61,400 - $128,100 $102,300 - $155,950 37.42% 7.99% 9.59% 11.19% 12.78%
$128,100 - $278,450 $155,950 - $278,450 41.95% 8.61% 10.34% 12.06% 13.78%
over $278,450 over $278,450 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 1998 taxable year and California tax rate tables for the
1998 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 1998 exceeds $124,500 ($62,250 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.

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:

37
<PAGE>

P ( l + T )/n/ = ERV

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

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

The following table sets forth the average annual total returns for the
U.S. Government Fund, California Tax-Free Fund, Equity Value Fund and Small
Company Value Fund for the fiscal year ended December 31, 1998.

<TABLE>
<CAPTION>
Since Inception One Year
--------------- --------
<S> <C> <C>
U.S. Government Fund - (inception April 3, 1995)................... 7.82% 7.42%
California Tax-Free Fund - (inception April 3, 1995)............... 7.30% 6.11%
Equity Value Fund - (inception April 3, 1995)...................... 15.60% -9.40%
Small Company Value Fund - (inception June 30, 1997)............... -6.75% -15.69%
</TABLE>

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

PricewaterhouseCoopers LLP serves as the independent accountants for the Funds.
PricewaterhouseCoopers LLP provides audit services, tax return preparation and
assistance and consultation in connection with review of SEC filings.
PricewaterhouseCoopers LLP's address is 203 N. LaSalle Street, Chicago, IL
60601.

38
<PAGE>

Counsel

Paul, Weiss, Rifkind, Wharton & Garrison serves as counsel to the Funds
and also from time to time provides advice to the Adviser in its capacity as
investment adviser to the Funds.

Registration Statement

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

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

FINANCIAL STATEMENTS

The audited financial statements for the Trust and the notes thereto
appearing in the most current fiscal year Annual Report to shareholders are
incorporated in this Statement of Additional Information by reference. No other
parts of the Annual Report are incorporated by reference herein. The financial
statements included in the Annual Report have been audited by the Trust's
independent accountants, PricewaterhouseCoopers LLP, whose report thereon dated
February 18, 1999, is also incorporated herein by reference. Such financial
statements have been incorporated herein in reliance upon such report given upon
their authority as experts in accounting and auditing. Additional copies of the
Annual Report may be obtained at no charge by telephoning the Trust at the
telephone number appearing on the front page of this Statement of Additional
Information.

39
<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.

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/VMIG 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

40
<PAGE>

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
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.

41
<PAGE>

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."

42
<PAGE>

PART C.

OTHER INFORMATION

Item 23. Exhibits.

Exhibit
Number Description of Exhibit
------ ----------------------
<S> <C>
(a)(1) -- Trust Instrument./(1)(3)/
(a)(2) -- Amendment to Trust Instrument./(3)/
(b) -- Bylaws of Registrant./(1)/
(c) -- None.
(d)(1) -- Form of Master Investment Advisory Contract and Supplements between Registrant and Sefton Capital
Management, Inc./(1)(6)(7)/
(d)(2) -- Form of Master Administration Agreement and Supplements between Registrant and BISYS Fund
Services Limited Partnership./(4)(5)/
(e) -- Form of Master Distribution Agreement and Supplements between Registrant and BISYS Fund Services
Limited Partnership./(4)/
(f) -- None.
(g) -- Form of Custodian Contract between Registrant and Union Bank of California, N.A./(6)/
(h)(1) -- Form of Transfer Agency Agreement between Registrant and BISYS Fund Services, Inc./(4)/
(h)(2) -- Form of Fund Accounting Agreement between Registrant and BISYS Fund Services, Inc./(4)/
(i) -- Consent of Paul, Weiss, Rifkind, Wharton & Garrison./(8)/
(j) -- Consent of PricewaterhouseCoopers LLP./(8)/
(k) -- None.
(l) -- Subscription Agreement./(2)/
(m) -- None.
</TABLE>

C-1
<PAGE>

Exhibit
Number Description of Exhibit
------ ----------------------
<S> <C>
(n) -- Financial Data Schedule./(8)/
(o) -- None.

Other Exhibits
A -- Power of Attorney./(4)/
</TABLE>

* Incorporated by reference to the Registrant's Annual Report filed with the
Securities and Exchange Commission on May 30, 1997.
(1) Filed as an Exhibit to Registrant's Initial Registration Statement on Form
N-1A on January 13, 1995 and incorporated herein by reference.
(2) Filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1 to the
Registration Statement on March 20, 1995 and incorporated herein by
reference.
(3) Filed as an Exhibit to Registrant's Post-Effective Amendment No. 2 to the
Registration Statement on July 12, 1996 and incorporated herein by
reference.
(4) Filed as an Exhibit to Registrant's Post-Effective Amendment No. 3 to the
Registration Statement on April 16, 1997 and incorporated herein by
reference.
(5) Filed as an Exhibit to Registrant's Post-Effective Amendment No. 4 to the
Registration Statement on June 30, 1997 and incorporated herein by
reference.

(6) Filed as an Exhibit to Registrant's Post-Effective Amendment No. 5 to the
Registration Statement on November 20, 1997 and incorporated herein by
reference.
(7) Filed as an Exhibit to Registrant's Post-Effective Amendment No. 6 on April
29,1998 and incorporated herein by reference.
(8) To be filed by Post-Effective Amendment.

Item 24. Persons Controlled by or Under Common Control with the Fund.

None.

Item 25. 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

C-2
<PAGE>

been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

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

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

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 26. Business and Other Connections of the Investment Adviser.

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

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

Name and Position Other Businesses
----------------- ----------------
<S> <C>
Harley Knox Sefton, President, First Interstate Capital Management, Inc.
President and Chief Executive Officer and San Diego Financial Capital Management, Inc.

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

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

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

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

Alan Ashwell Lordi, Managing Director, Furman Selz LLC
Vice President and Portfolio Manager
</TABLE>

Item 27. Principal Underwriters.

(a) Other investment companies for which Registrant's principal underwriter
(exclusive distributor) acts as principal underwriter or exclusive
distributor:

C-3
<PAGE>

Alpine Equity Trust
American Performance Funds
AmSouth Mutual Funds
The BB&T Mutual Funds Group
The Coventry Group
ESC Strategic Funds, Inc.
The Eureka Funds
Governor Funds
Fifth Third Funds
Hirtle Callaghan Trust
HSBC Funds Trust and HSBC Mutual Funds Trust
INTRUST Funds Trust
The Infinity Mutual Funds, Inc.
The Kent Funds
Magna Funds
Mercantile Mutual Funds
Meyers Investment Trust
MMA Praxis Mutual Funds
M.S.D.&T. Funds
Pacific Capital Funds
The Parkstone Advantage Funds
Puget Sound Alternative Investment Series Trust
Republic Advisor Funds Trust
Republic Funds Trust
Sefton Funds Trust
SSgA Liquidity Fund
Summit Investment Trust
Variable Insurance Funds
The Victory Portfolios
The Victory Variable Insurance Funds
Vintage Mutual Funds, Inc.

(b)

Name and Principal Business Address Positions and Offices with Underwriter Positions and Offices with Fund
- ------------------------------------- -------------------------------------- -------------------------------
<S> <C> <C>
WC Subsidiary Corporation Sole Limited Partner None
150 Clove Road
Little Falls, NJ 07424

BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, OH 43219
</TABLE>

C-4
<PAGE>

Item 28. Location of Accounts and Records.

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

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

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

(2) Records relating to administration and distribution functions:

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

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

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

(4) Records relating to custodial functions:

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

Item 29. Management Services.

Not applicable.

Item 30. Undertakings.

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

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

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

C-5
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(a) under the Securities Act of 1933 and has duly caused
this Post-Effective Amendment No. 8 to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of San
Diego and State of California, on April 29, 1999.

SEFTON FUNDS TRUST
(Registrant)

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

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 8 to Registration Statement has been signed below
by the following persons in the capacities indicated and on the dates indicated.

Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Harley K. Sefton Chairman, President and Trustee April 29, 1999
- --------------------------
Harley K. Sefton

Grace Evans Cherashore* Trustee April 29, 1999
- --------------------------
Grace Evans Cherashore

Gordon T. Frost, Jr.* Trustee April 29, 1999
- --------------------------
Gordon T. Frost, Jr.

John J. Pileggi* Trustee April 29, 1999
- --------------------------
John J. Pileggi

/s/ Frank M. Deutchki Assistant Treasurer and April 29, 1999
- -------------------------- Principal Accounting Officer
Frank M. Deutchki

/s/ Harley K. Sefton
- -------------------------
Harley K. Sefton
Attorney-in-fact
</TABLE>

C-6
<PAGE>

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

C-7
<PAGE>

EXHIBIT INDEX
-------------

Exhibit (i) Consent of Paul, Weiss, Rifkind, Wharton & Garrison

Exhibit (j) Consent of PricewaterhouseCoopers LLP

<PAGE>

Exhibit (i)

April 29, 1999

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

Sefton Funds Trust (File Nos. 33-88568 and 811-8948)

Dear Sir/Madam:

As counsel to Sefton Funds Trust (the "Trust"), we have reviewed
Post-Effective Amendment No. 8 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 upon our review, we advise you that the Amendment does not include
disclosure which we believe would render it ineligible under paragraph (b) of
Rule 485.

Very truly yours,

PAUL, WEISS, RIFKIND, WHARTON & GARRISON

<PAGE>

Exhibit (j)

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in this Post-Effective Amendment
No. 8 to the Registration Statement on Form N-1A of Sefton Funds Trust (the
"Trust") of our report on the U.S. Government Fund, the California Tax-Free
Fund, the Equity Value Fund and the Small Company Value Fund (constituting
Sefton Funds Trust) dated February 18, 1999 on our audits of the financial
statements and financial highlights of the Trust, which report is included in
the Annual Report to Shareholders for the year ended December 31, 1998. We also
consent to the reference to our Firm under the captions "Other Information About
the Funds" in the Prospectus and "Independent Accountants" and "Financial
Statements" in the Statement of Additional Information relating to the Trust in
this Post-Effective Amendment No. 8 to the Registration Statement on Form N-1A
of the Trust.

PricewaterhouseCoopers LLP

Chicago, Illinois
April 29, 1999