ARBOR FUND, 497, 1996-02-23

ARBOR FUND
497, 1996-02-23

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<PAGE>

The Arbor Fund
Golden Oak Intermediate-Term Income Portfolio

Supplement Dated February 23, 1996 to
the Golden Oak Family of Funds Prospectus
Dated May 31, 1995

The Prospectus dated May 31, 1995 relating to the Golden Oak Diversified Growth
Portfolio, Golden Oak Growth and Income Portfolio, Golden Oak Intermediate-Term
Income Portfolio, Golden Oak Michigan Tax Free Bond Portfolio and Golden Oak
Prime Obligation Money Market Portfolio of The Arbor Fund is hereby amended and
supplemented by the following:

The fifth paragraph of "The Adviser" section on page 16 is amended and restated
to read as follows:

Christopher W. Wheeler, Trust Officer of the Adviser, has managed the
Intermediate-Term Income Portfolio since February, 1996. He has managed the
Adviser's fixed income portfolios and trust accounts since 1989.

PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE>

Golden Oak Family of Funds

Investment Adviser:
Citizens Commercial & Savings Bank

. Golden Oak Diversified Growth Portfolio
. Golden Oak Growth and Income Portfolio
. Golden Oak Intermediate-Term Income Portfolio
. Golden Oak Michigan Tax Free Bond Portfolio
. Golden Oak Prime Obligation Money Market Portfolio

The Golden Oak Family of Funds is a group of professionally managed mutual funds
that offers a convenient and economical means of investing in one or more
portfolios of securities. This Prospectus offers Class A and Class B shares of
the Golden Oak Diversified Growth Portfolio, Golden Oak Growth and Income
Portfolio, Golden Oak Intermediate-Term Income Portfolio, Golden Oak Michigan
Tax Free Bond Portfolio and Golden Oak Prime Obligation Money Market Portfolio
(the "Portfolios"), an assortment of equity, fixed income and money market
portfolios.

Each Portfolio offers its Class A shares to institutional investors, including
Citizens Commercial & Savings Bank, its affiliates and correspondents for the
investment of their own funds or funds for which they act in a fiduciary, agency
or custodial capacity. Each Portfolio offers its Class B shares to individuals
and institutional accounts, including accounts for which Citizens Commercial &
Savings Bank, its affiliates and correspondents, act in an agency or custodial
capacity.

AN INVESTMENT IN THE PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE UNITED
STATES GOVERNMENT, AND THERE IS NO ASSURANCE THAT THE GOLDEN OAK PRIME
OBLIGATION MONEY MARKET PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.

================================================================================
Mutual Fund Shares
------------------

. are NOT insured by the FDIC, the Federal Reserve Board or any other
governmental agency
. are NOT deposits or obligations of any bank, including Citizens Commercial &
Savings Bank, any of its affiliates or correspondents, or other financial
institution
. are NOT guaranteed or endorsed by any bank, including Citizens Commercial &
Savings Bank, any of its affiliates or correspondents, or other financial
institution
. involve investment risks, including possible loss of principal
================================================================================

This Prospectus sets forth concisely the information about the Portfolios that a
prospective investor should know before investing. Each Portfolio is a separate
series of The Arbor Fund. Investors are advised to read this Prospectus and
retain it for future reference. A Statement of Additional Information dated May
31, 1995 has been filed with the Securities and Exchange Commission and is
available without charge by calling 1-800-545-6331. The Statement of Additional
Information is incorporated into this Prospectus by reference.

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

May 31, 1995

CIT-F-007-01
<PAGE>

2
SUMMARY

The Golden Oak Family of Funds is a group of open-end management investment
companies providing a convenient way to invest in professionally managed
portfolios of securities. The following summary provides basic information
about the Class A and Class B shares of the Golden Oak Diversified Growth
Portfolio, Golden Oak Growth and Income Portfolio, Golden Oak Intermediate-Term
Income Portfolio, Golden Oak Michigan Tax Free Bond Portfolio and Golden Oak
Prime Obligation Money Market Portfolio (each, a "Portfolio"). This summary is
qualified in its entirety by reference to the more detailed information
included elsewhere in this Prospectus and in the Statement of Additional
Information.

What are the Investment Objectives? The Golden Oak Diversified Growth
Portfolio (the "Diversified Growth Portfolio") seeks total return through
capital growth and income. The Golden Oak Growth and Income Portfolio
(the"Growth and Income Portfolio") seeks long-term growth of capital, current
income and growth of income. The Golden Oak Intermediate-Term Income Portfolio
(the "Intermediate-Term Income Portfolio") seeks current income consistent with
limited price volatility. The Golden Oak Michigan Tax Free Bond Portfolio (the
"Michigan Portfolio") seeks current income exempt from federal and Michigan
income taxes consistent with preservation of capital. The Golden Oak Prime
Obligation Money Market Portfolio (the "Prime Obligation Portfolio") seeks to
preserve principal value and maintain a high degree of liquidity while
providing current income. See "Investment Objectives and Policies."

What are the Permitted Investments? Under normal market conditions, the
Diversified Growth Portfolio will invest at least 75% of its assets in common
stocks traded in United States markets. The Growth and Income Portfolio will
invest primarily in dividend-paying common stocks, preferred stocks and
securities convertible into common stocks of domestic or foreign issuers.
Under normal market conditions, the Intermediate-Term Income Portfolio will
invest at least 80% of its assets in the following United States dollar
denominated obligations: (i) corporate bonds and debentures; (ii) obligations
issued or guaranteed as to principal and interest by the United States
Government, its agencies or instrumentalities; (iii) commercial paper; (iv)
short-term bank obligations; and (v) repurchase agreement involving any of the
above securities. The Michigan Portfolio will invest (i) primarily in
obligations issued by or on behalf of the states, territories and possessions
of the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, the interest of which, in the
opinion of counsel for the issuer, is exempt from federal income tax
(collectively, "Municipal Securities"), (ii) under normal circumstances, at
least 65% of its assets in municipal bonds and (iii) except where acceptable
securities are unavailable as determined by the Adviser, at least 80% of the
Portfolio's assets will be invested in Municipal Securities, the interest of
which, in the opinion of counsel for the issuer, is exempt from Michigan Income
Tax ("Michigan Municipal Securities"). The Prime Obligation Portfolio intends
to invest exclusively in short-term, U.S. dollar denominated money market
instruments that satisfy certain quality, maturity and diversification
criteria, including criteria set by applicable laws and regulations. The
Portfolio may invest in obligations of U.S. issuers, obligations of U.S. and
London branches of foreign banks and obligations of supranational entities.
See "Investment Objectives and Policies," "Risk Factors" and "Description of
Permitted Investments."

What are the Risks? Because securities fluctuate in value, the shares of
the Portfolios, like shares of any mutual fund, will fluctuate in value. The
Diversified Growth and Growth and Income Portfolios may invest in equity
securities that are affected by market and economic factors. The Portfolios
may invest in fixed income securities that tend to vary inversely with interest
rates and
<PAGE>

may be affected by other market and economic factors as well, which may cause
these securities to fluctuate in value. Investing in securities of foreign
issuers involves special risks and considerations not typically associated with
investing in securities of domestic issuers. The Michigan Portfolio is a non-
diversified mutual fund that concentrates in Michigan Municipal Securities,
which subjects the Portfolio to special investment risks. There is no
assurance that the Portfolios will achieve their investment objectives, or that
the Prime Obligation Portfolio will be able to maintain a net asset value of
$1.00 per share on a continuous basis. See "Investment Objectives and
Policies," "Risk Factors," "Special Factors Relating to Michigan Municipal
Securities" and "Description of Permitted Investments."

Who are the Adviser and Sub-Advisers? Citizens Commercial & Savings Bank
serves as the investment adviser to the Portfolios. Wellington Management
Company serves as the investment sub-adviser to the Prime Obligation Portfolio.
Scudder, Stevens & Clark, Inc. serves as the investment sub-adviser to the
Growth and Income Portfolio. See "Expense Summary," "The Adviser" and "The Sub-
Advisers."

Who is the Administrator? SEI Financial Management Corporation serves as
the administrator
and shareholder servicing agent of the Portfolios. See "Expense Summary" and
"The Administrator."

Who is the Transfer Agent? DST Systems, Inc. serves as transfer agent and
dividend disbursing agent for the Portfolios. See "Expense Summary" and "The
Transfer Agent."

Who is the Distributor? SEI Financial Services Company serves as
distributor of the Portfolios' shares. See "The Distributor."

How do I Purchase Shares? You may purchase Class A shares of each Portfolio
through the Transfer Agent on days on which the New York Stock Exchange and the
Federal Reserve wire system are open for business ("Business Days"). The
minimum initial investment in the Class A shares is $1,000,000. Class A shares
of each Portfolio are offered at net asset value per share.

You may purchase Class B shares of each Portfolio through the Transfer Agent
on Business Days. The minimum initial investment in the Class B shares is
$1,000. Class B shares of each Portfolio are offered at net asset value per
share plus a maximum sales charge of 5.75% for both the Diversified Growth and
Growth and Income Portfolios or a maximum sales charge of 4.50% for both the
Intermediate-Term Income and Michigan Portfolios. There is no sales charge
imposed on Class B shares of the Prime Obligation Portfolio. See "How To
Purchase Shares."

How Do I Redeem Class A and Class B Shares? You may redeem shares through
the Transfer Agent on Business Days. Redemptions are made at the net asset
value per share determined as of the end of the Business Day that the order is
effective. See "How To Redeem Shares."

How are Dividends Paid? Substantially all of the net investment income
(exclusive of capital gains) of the Intermediate-Term Income, Michigan and
Prime Obligation Portfolios is distributed in the form of dividends declared
daily and distributed monthly to shareholders of record. The net investment
income (exclusive of capital gains) of the Diversified Growth and Growth and
Income Portfolios is declared monthly and distributed monthly to shareholders
of record. Any realized net capital gain is distributed at least annually.
Distributions are paid in additional shares unless the shareholder elects to
take the payment in cash. See "General Information-Dividends."
<PAGE>

<TABLE>
<CAPTION>
EXPENSE SUMMARY
CLASS A

SHAREHOLDER TRANSACTION FEES Diversified Growth Growth and Intermediate-Term Michigan Prime Obligation
(as a percentage of offering price) (1) Portfolio Income Portfolio Income Portfolio Portfolio Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed on None None None None None
Purchases
====================================================================================================================================

</TABLE>
(1) There is a $10.00 charge if redemption proceeds are wired except that
certain financial institutions may be exempt from this wire charge.

<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES Diversified Growth Growth and Intermediate-Term Michigan Prime Obligation
(As a percentage of average net assets) Portfolio Income Portfolio Income Portfolio Portfolio Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Advisory Fees (after fee waiver) (2) .60% .52% .29% .23% .10%

12b-1 Fees None None None None None

Other Expenses(2)(3) .50% .58% .36% .42% .30%
- ------------------------------------------------------------------------------------------------------------------------------------

Total Operating Expenses (after fee
waiver) (4) 1.10% 1.10% .65% .65% .40%
==================================================================================================================================
</TABLE>

(2) The Adviser has agreed to waive, on a voluntary basis, a portion of its fee
for an indefinite period of time in an amount that operates to limit total
operating expenses (exclusive of distribution expenses) to not more than
1.10%, 1.10%, .65%, .65% and .40% of the average daily net assets of the
Class A shares of the Diversified Growth, Growth and Income, Intermediate-
Term Income, Michigan and Prime Obligation Portfolios, respectively. The
advisory fee shown reflects this voluntary waiver. The Administrator has
agreed to waive a portion of its fee on a prorated basis with the Adviser up
to a maximum waiver of .045% of the average daily net assets of the Class A
shares of the Prime Obligation Portfolio. The Adviser and the Administrator
each reserve the right to terminate its waiver at any time in its sole
discretion. Absent such waivers, the advisory fees for the Diversified
Growth, Growth and Income, Intermediate-Term Income, Michigan and Prime
Obligation Portfolios would be .74%, .74%, .50%, .50% and .30%,
respectively.

(3) For the Growth and Income Portfolio, Other Expenses reflect estimated
amounts for the current fiscal year and assumes the minimum annual
administration fee of $100,000. Administration fees as a percentage of
average daily net assets will decline to .20% at net asset levels of $50
million and above for this portfolio. See "The Administrator."

(4) Absent the voluntary fee waivers described above, Total Operating Expenses
for the Class A shares of the Diversified Growth, Growth and Income,
Intermediate-Term Income, Michigan and Prime Obligation Portfolios would be
1.24%, 1.32%, .86%, 1.92% and .67%, respectively.

Example
- ------------------------------------------------------------------------------------------------------------------------------------

1 yr. 3 yrs. 5 yrs. 10 yrs.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment assuming (1) imposition of the maximum sales load,
(2) 5% annual return and (3) redemption at the end of each time
period:

Diversified Growth Portfolio................................... $11 $35 $61 $134

Growth and Income Portfolio.................................... $11 $35 $61 $134

Intermediate-Term Income Portfolio............................. $ 7 $21 $36 $81

Michigan Portfolio............................................. $ 7 $21 $36 $81

Prime Obligation Portfolio..................................... $ 4 $13 $22 $51
====================================================================================================================================

</TABLE>

The example should not be considered a representation of past or future expenses
and actual expenses may be greater or less than those shown. The purpose of the
expense table and example is to assist the investor in understanding the various
costs and expenses that may be directly or indirectly borne by investors in each
Portfolio. A person who purchases shares through an account with a financial
institution may be charged separate fees by that financial institution.
Additional information may be found under "The Adviser," "The Sub-Advisers" and
"The Administrator."
================================================================================
<PAGE>

<TABLE>
<CAPTION>
EXPENSE SUMMARY
CLASS B

SHAREHOLDER TRANSACTION
FEES (as a percentage of offering Diversified Growth Growth and Intermediate-Term Michigan Prime Obligation
price) (1) Portfolio Income Portfolio Income Portfolio Portfolio Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases 5.75% 5.75% 4.50% 4.50% None
==================================================================================================================================
</TABLE>

(1) There is a $10.00 charge if redemption proceeds are wired except that
certain financial institutions may be exempt from this wire charge.

ANNUAL OPERATING EXPENSES
(As a percentage of average net Diversified Growth Growth and Intermediate-Term Michigan Prime Obligation
assets) Portfolio Income Portfolio Income Portfolio Portfolio Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Advisory Fees (after fee waiver) (2) .60% .52% .29% .23% .10%

12b-1 Fees .25% .25% .25% .25% .25%

Other Expenses (2)(3) .50% .58% .36% .42% .30%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses
(after fee waiver) (4) 1.35% 1.35% .90% .90% .65%
==================================================================================================================================
</TABLE>

(2) The Adviser has agreed to waive, on a voluntary basis, a portion of its fee
for an indefinite period of time in an amount that operates to limit total
operating expenses (exclusive of distribution expenses) to not more than
1.35%, 1.35%, .90%, .90% and .65% of the average daily net assets of the
Class B shares of the Diversified Growth, Growth and Income, Intermediate-
Term Income, Michigan and Prime Obligation Portfolios, respectively. The
advisory fee shown reflects this voluntary waiver. The Administrator has
agreed to waive a portion of its fee on a prorated basis with the Adviser up
to a maximum waiver of .045% of the average daily net assets of the Class B
shares of the Prime Obligation Portfolio. The Adviser and Administrator each
reserves the right to terminate its waiver at any time in its sole
discretion. Absent such waivers, the advisory and administration fees for
the Diversified Growth, Growth and Income, Intermediate-Term Income,
Michigan and Prime Obligation Portfolios would be .74%, .74%, .50%, .50% and
.30%, respectively.

(4) Absent the voluntary fee waivers described above, Total Operating Expenses
for the Class B shares of the Diversified Growth, Growth and Income,
Intermediate-Term Income, Michigan and Prime Obligation Portfolios would be
1.49%, 1.57%, 1.11%, 1.17% and .92%, respectively.

Example
- ------------------------------------------------------------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

An investor would pay the following expenses on a $1,000
investment assuming (1) imposition of the maximum sales
load, (2) 5% annual return and (3) redemption at the end
of each time period:

Diversified Growth Portfolio.............................. $70 $98 $127 $211

Growth and Income Portfolio............................... $70 $98 $127 $211

Intermediate-Term Income Portfolio........................ $54 $72 $93 $151

Michigan Portfolio........................................ $54 $72 $93 $151

Prime Obligation Portfolio................................ $7 $21 $36 $81
====================================================================================================================================

</TABLE>

The example should not be considered a representation of past or future expenses
and actual expenses may be greater or less than those shown. The purpose of the
expense table and example is to assist the investor in understanding the various
costs and expenses that may be directly or indirectly borne by investors in each
Portfolio. A person ho purchases shares through an account with a financial
institution may be charged separate fees by that financial institution.
Additional information may be found under "The Adviser," "The Sub-Advisers" and
"The Administrator."

Long-term Class B shareholders may eventually pay more than the economic
equivalent of the maximum front-end sales charges otherwise permitted by the
Rules of Fair Practice (the "Rules") of the National Association of Securities
Dealers, Inc. ("NASD").
================================================================================
<PAGE>

FINANCIAL HIGHLIGHTS Golden Oak Family of Funds

The following information has been audited by Price Waterhouse LLP, the
independent accountants for the Arbor Fund (the "Trust"), as indicated in their
report dated March 13, 1995 on the Trust's financial statements as of January
31, 1995 included in the Trust's Statement of Additional Information under
"Financial Statements." Additional performance information is in the 1995
Annual Report to Shareholders which is available upon request and without charge
by calling 1-800-545-6331. This table should be read in conjunction with the
Trust's financial statements and notes thereto.

<TABLE>
<CAPTION>
For a Share Outstanding Throughout the Period Golden Oak Golden Oak Golden Oak Golden Oak
Diversified Diversified Diversified Diversified
Growth Growth Growth Growth
Portfolio Portfolio Portfolio Portfolio
Class A Class B Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------------

02/01/94 02/01/94 02/01/93(1) 06/18/93(2)
to to to to
01/31/95 01/31/95 01/31/94 01/31/94
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............................. $10.82 $10.81 $10.00 $9.54
- ------------------------------------------------------------------------------------------------------------------------------------

Income from Investment Operations:
Net Investment Income........................................... 0.08 0.05 0.08 0.02
Net Realized and Unrealized Gain (Loss) on Investments.......... (0.64) (0.67) 0.82 1.27
- ------------------------------------------------------------------------------------------------------------------------------------

Total from Investment Operations............................. (0.56) (0.62) 0.90 1.29
- ------------------------------------------------------------------------------------------------------------------------------------

Less Distributions:
Dividends from Net Investment Income............................ (0.08) (0.05) (0.08) (0.02)
Distributions from Net Realized Gain............................ (0.18) (0.18) --- ---
- ------------------------------------------------------------------------------------------------------------------------------------

Total Distributions.......................................... (0.26) (0.23) (0.08) (0.02)
- ------------------------------------------------------------------------------------------------------------------------------------

Net Asset Value, End of Period.................................... $10.00 $9.96 $10.82 $10.81
- ------------------------------------------------------------------------------------------------------------------------------------

Total Return(3)................................................... (5.24)% (5.76)% 9.08% 22.00%*
- ------------------------------------------------------------------------------------------------------------------------------------

Ratios and Supplemental Data
Net Assets, End of Period (000)................................... $32,931 $125 $24,955 $173
Ratio of Expenses to Average Net Assets........................... 1.10% 1.35% 1.10% 1.35%*
Ratio of Expenses to Average Net Assets (Excluding Fee
Waivers)......................................................... 1.24% 1.49% 1.21% 1.45%*
Ratio of Net Investment Income to Average Net Assets.............. 0.74% 0.49% 0.77% 0.33%*
Ratio of Net Investment Income to Average Net Assets (Excluding
Fee Waivers)..................................................... 0.60% 0.35% 0.66% 0.23%*
Portfolio Turnover Rate........................................... 84.00% 84.00% 68.91% 68.91%
====================================================================================================================================

</TABLE>
*Annualized
(1) Commenced operations on February 1, 1993.
(2) Commenced operations on June 18, 1993.
(3) Total return does not reflect the sales charge.
<PAGE>

FINANCIAL HIGHLIGHTS (continued) Golden Oak Family of Funds

For a Share Outstanding Throughout the Period Golden Oak Golden Oak Golden Oak Golden Oak
Intermediate-Term Intermediate-Term Intermediate-Term Intermediate-Term
Income Portfolio Income Portfolio Income Portfolio Income Portfolio
Class A Class B Class A Class B
- -----------------------------------------------------------------------------------------------------------------------------------
02/01/94 02/01/94 02/01/93(1) 06/18/93(2)
to to to to
01/31/95 01/31/95 01/31/94 01/31/94
- ------------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................. $10.19 $10.19 $10.00 $10.12
- ------------------------------------------------------------------------------------------------------------------------------------

Income from Investment Operations:
Net Investment Income............................... 0.50 0.48 0.46 0.31
Net Realized and Unrealized Gain (Loss) on
Investments........................................ (0.67) (0.67) 0.23 0.11
- ------------------------------------------------------------------------------------------------------------------------------------

Total from Investment Operations................. (0.17) (0.19) 0.69 0.42
- ------------------------------------------------------------------------------------------------------------------------------------

Less Distributions:
Dividends from Net Investment Income................ (0.50) (0.48) (0.46) (0.31)
Distributions from Net Realized Gain................ ---- ---- (0.04) (0.04)
- ------------------------------------------------------------------------------------------------------------------------------------

Total Distributions.............................. (0.50) (0.48) (0.50) (0.35)
- ------------------------------------------------------------------------------------------------------------------------------------

Net Asset Value, End of Period........................ $9.52 $9.52 $10.19 $10.19
- ------------------------------------------------------------------------------------------------------------------------------------

Total Return(3)....................................... (1.61)% (1.85)% 6.99% 6.72%*
- ------------------------------------------------------------------------------------------------------------------------------------

Ratios and Supplemental Data
Net Assets, End of Period (000)....................... $80,064 $314 $64,329 $365
Ratio of Expenses to Average Net Assets............... 0.65% 0.90% 0.65% 0.90%*
Ratio of Expenses to Average Net Assets
(Excluding Fee Waivers).............................. 0.86% 1.11% 0.83% 1.08%*
Ratio of Net Investment Income to Average
Net Assets........................................... 5.21% 4.96% 4.47% 4.27%*
Ratio of Net Investment Income to Average
Net Assets (Excluding Fee Waivers)................... 5.00% 4.75% 4.29% 4.09%*
Portfolio Turnover Rate............................... 141.51% 141.51% 71.73% 71.73%
====================================================================================================================================
</TABLE>

*Annualized
(1) Commenced operations on February 1, 1993.
(2) Commenced operations on June 18, 1993.
(3) Total return does not reflect the sales charge.
<PAGE>

FINANCIAL HIGHLIGHTS (continued) Golden Oak Family of Funds

For a Share Outstanding Throughout the Period Golden Oak
Prime Golden Oak Golden Oak Golden Oak
Obligation Prime Prime Prime
Money Obligation Obligation Obligation
Market Money Market Money Market Money Market
Portfolio Portfolio Portfolio Portfolio
Class A Class B Class A Class B
- ------------------------------------------------------------------------------------------------------------------------------------

02/01/94 02/01/94 02/01/93(1) 01/20/94(2)
to to to to
01/31/95 01/31/95 01/31/94 01/31/94
- ------------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................................. $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------------------

Income from Investment Operations:
Net Investment Income.............................................. 0.04 0.04 0.03 ---
Net Realized and Unrealized Gain (Loss) on Investments............. --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------

Total from Investment Operations................................ (0.04) (0.04) 0.03 ---
- ------------------------------------------------------------------------------------------------------------------------------------

Less Distributions:
Dividends from Net Investment Income............................... (0.04) (0.04) (0.03) ---
Distributions from Net Realized Gain............................... --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------

Total Distributions............................................. (0.04) (0.04) (0.03) ---
- ------------------------------------------------------------------------------------------------------------------------------------

Net Asset Value, End of Period....................................... $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------------------

Total Return(3)...................................................... 4.21% 3.95% 2.87% 2.90%*
- ------------------------------------------------------------------------------------------------------------------------------------

Ratios and Supplemental Data
Net Assets, End of Period (000)...................................... $109,076 $21,018 $117,188 $104
Ratio of Expenses to Average Net Assets.............................. 0.40% 0.65% 0.40% 0.65%*
Ratio of Expenses to Average Net Assets (Excluding Fee
Waivers)............................................................ 0.68% 0.93% 0.67% 0.93%*
Ratio of Net Investment Income to Average Net Assets................. 4.20% 3.95% 2.83% 2.68%*
Ratio of Net Investment Income to Average Net Assets (Excluding Fee
Waivers)............................................................ 3.92% 3.67% 2.56% 2.40%*
Portfolio Turnover Rate.............................................. N/A N/A N/A N/A
====================================================================================================================================

</TABLE>
*Annualized
(1) Commenced operations on February 1, 1993.
(2) Commenced operations on January 20, 1994.
(3) Total return does not reflect the sales charge.
<PAGE>

THE PORTFOLIO AND THE TRUST

The Golden Oak Family of Funds (the "Golden Oak Family") is a group of open-end
management investment companies (each a "portfolio") that are offered together
in order to provide investors with a number of investment alternatives. Each of
the portfolios is a separate series of shares of The Arbor Fund (the "Trust"),
an open-end management investment company. Shareholders may purchase units of
beneficial interest ("shares") in the portfolios through two separate classes,
Class A and Class B, which provide for variations in distribution costs and
dividends. Except for these differences between classes, each share of each
portfolio represents an undivided, proportionate interest in that portfolio.
This Prospectus offers only the Class A and Class B shares of the Golden Oak
Diversified Growth Portfolio (the "Diversified Growth Portfolio"), Golden Oak
Growth and Income Portfolio (the "Growth and Income Portfolio"), Golden Oak
Intermediate-Term Income Portfolio (the "Intermediate-Term Income Portfolio"),
Golden Oak Michigan Tax Free Bond Portfolio (the "Michigan Portfolio") and
Golden Oak Prime Obligation Money Market Portfolio (the "Prime Obligation
Portfolio") (each, a "Portfolio"; collectively, the "Portfolios"). Each of the
Portfolios is a diversified mutual fund except for the Michigan Portfolio, which
is a non-diversified mutual fund. Information regarding the Trust's other
portfolios is contained in separate prospectuses that may be obtained by calling
1-800-545-6331.

INVESTMENT OBJECTIVES AND POLICIES

The Diversified Growth Portfolio--The investment objective of the Diversified
Growth Portfolio is to provide total return through capital growth and income.
There is no assurance that the Portfolio will achieve its investment objective.

Under normal conditions, the Portfolio expects to be fully invested in common
stocks (and will be at least 75% invested in common stocks) listed on registered
exchanges in the United States or actively traded in the over-the-counter market
as further described below. In addition to investing in common stocks, the
Portfolio may invest in warrants and rights to purchase common stocks, United
States dollar denominated securities of foreign issuers traded in the United
States (including sponsored American Depositary Receipts traded on registered
exchanges or listed on NASDAQ), repurchase agreements, covered call options and
money market instruments of the type described below. The Portfolio may invest
up to 10% of its net assets in American Depositary Receipts, including American
Depositary Shares and New York Shares. The Portfolio may also write covered call
options and engage in related closing purchase transactions provided that the
aggregate value of such options does not exceed 10% of the Portfolio's net
assets as of the time such options are entered into by the Portfolio. The
Adviser will engage in such transactions only as hedging transactions and not
for speculative purposes.

The common stocks and other equity securities purchased by the Portfolio will be
those of companies which, in the Adviser's opinion, are well managed, have an
above average rate of return on equity, above average projected five year
earnings and dividend growth rates, a consistent record of dividend and earnings
increases and below average financial leverage. However, there is no assurance
that the Adviser will be able to predict the stages of a business cycle. In
addition, the Portfolio invests primarily in equity securities that fluctuate in
value; therefore, the Portfolio's shares will fluctuate in value.

For temporary defensive purposes during periods when the Adviser determines that
market conditions warrant, the Portfolio may invest up to 100% of its assets in
money market instruments (consisting of securities issued or guaranteed as to
principal and interest by the United States government, its agencies or
instrumentalities, repurchase agreements collateralized by United States
<PAGE>

Government securities and entered into with financial institutions the Adviser
deems creditworthy, certificates of deposit, time deposits and bankers'
acceptances issued by banks or savings and loan associations having net assets
of at least $1.0 billion as shown on their most recent public financial
statements, and deemed by the Adviser to present minimal credit risk, and
commercial paper rated in the two highest short-term rating categories), and may
hold a portion of its assets in cash. To the extent the Portfolio is engaged in
temporary defensive investment, the Portfolio will not be pursuing its
investment objective.

The Portfolio reserves the right to engage in securities lending but has no
present intention to do so.

The Portfolio's annual turnover rate may exceed 100%. Such a turnover rate may
result in higher transaction costs and may result in additional taxes for
shareholders.

The Growth and Income Portfolio--The investment objective of the Growth and
Income Portfolio is to seek long-term growth of capital, current income and
growth of income. There is no assurance that the Portfolio will achieve its
investment objective.

The Portfolio attempts to achieve its investment objective by investing
primarily in dividend-paying common stocks, preferred stocks and securities
convertible into common stocks. The Portfolio will be as fully invested as
practicable in common stocks, preferred stocks and convertible securities that,
in the opinion of Scudder, Stevens & Clark, Inc. ("Scudder" or the "Sub-
Adviser"), offer the prospect for growth of earnings while paying current
dividends. Over time, continued growth of earnings tends to lead to higher
dividends and enhancement of capital value. The Portfolio allocates its
investment among different industries and companies (that are generally well-
established), and changes its portfolio securities for investment considerations
and not for trading purposes.

The Portfolio may also purchase such securities that do not pay current
dividends but which offer prospects for growth of capital and future income.
Convertible securities (which may be current coupon or zero coupon debt
securities) are bonds, notes, debentures, preferred stocks and other securities
which may be converted or exchanged at a stated or determinable exchange ratio
into underlying shares of common stock. The Portfolio may also invest in
nonconvertible preferred stocks consistent with the Portfolio's investment
objective.

The Portfolio may invest in foreign dividend-paying common stocks, preferred
stocks and securities convertible into common stocks. While the Portfolio
generally emphasizes investments in companies domiciled in the United States, it
may invest without limit in listed and unlisted foreign securities in which it
is permitted to invest. The Portfolio may invest in foreign securities when the
anticipated performance of the foreign securities is believed by the Sub-Adviser
to offer more return potential than domestic alternatives in keeping with the
investment objective of the Portfolio. The Portfolio may enter into forward
currency exchange contracts in connection with the purchase and sale of
securities denominated in a foreign currency.

The Portfolio may also invest in repurchase agreements, illiquid securities and
Eurodollar instruments, and may engage in strategic transactions for hedging
purposes and to seek to increase gain. In addition, the Portfolio may invest in
restricted securities, but currently does not intend to invest more than 5% of
its total assets in such securities.

The Portfolio may invest up to 15% of its net assets in illiquid securities,
including restricted securities other than Section 4(2) commercial paper. The
Portfolio may invest in Section 4(2) commercial paper. Restricted securities,
including Rule 144A securities and Section 4(2) commercial paper, that meet the
criteria
<PAGE>

established by the Board of Trustees of the Trust will be considered liquid.

For temporary defensive purposes during periods when the Sub-Adviser determines
that market conditions warrant, the Portfolio may invest up to 100% of its
assets in money market instruments (consisting of securities issued or
guaranteed by the United States Government, its agencies or instrumentalities,
repurchase agreements collateralized by United States Government securities and
entered into with financial institutions the Sub-Adviser deems creditworthy,
certificates of deposit, time deposits and bankers' acceptances issued by banks
or savings and loan associations having net assets of at least $1.0 billion as
show on their most recent financial statements, and commercial paper rated in
one of the two highest short-term rating categories), and may hold a portion of
its assets in cash for liquidity purposes. To the extent the Portfolio is
engaged in temporary defensive investing, the Portfolio will not be pursuing its
investment objective.

The Intermediate-Term Income Portfolio-- The investment objective of the
Intermediate-Term Income Portfolio is current income consistent with limited
price volatility. The Portfolio will seek to limit price volatility by
maintaining an average weighted maturity of three to ten years. There is no
assurance that the Portfolio will achieve its investment objective.

Under normal circumstances, at least 80% of the Portfolio's assets will be
invested in the following United States dollar denominated obligations: (i)
corporate bonds and debentures rated A or better by Standard & Poor's
Corporation ("S&P") or A or better by Moody's Investors Service ("Moody's") or
of comparable quality at the time of purchase as determined by the Adviser; (ii)
obligations issued or guaranteed as to principal and interest by the United
States Government, its agencies or instrumentalities; (iii) commercial paper
rated A-1 or better by Moody's or P-1 or better by S&P or of comparable quality
at the time of purchase as determined by the Adviser; (iv) short-term bank
obligations consisting of certificates of deposit, time deposits, and bankers'
acceptances of U.S. commercial banks or savings and loan institutions with
assets of at least $1.0 billion as shown on their most recent public financial
statements, that the Adviser deems to be comparable in quality to corporate
obligations in which the Portfolio may invest; and (v) repurchase agreements
involving any of the above securities.

The remaining 20% of the Portfolio's assets may be invested in (i) debt
securities issued or guaranteed by the government of Canada or its provincial or
local governments; (ii) debt securities issued or guaranteed by foreign
governments, their political subdivisions, agencies or instrumentalities and
debt securities of supranational entities; (iii) mortgage-backed securities and
asset-backed securities rated AAA by S&P or Aaa by Moody's; (iv) receipts
evidencing separately traded interest and principal component parts of United
States Government obligations; and (v) repurchase agreements involving such
securities. The Portfolio may invest in futures and options for hedging
purposes, and will limit the outstanding obligations to purchase securities
under futures contracts to not more than 20% of the Portfolio's total assets.

In the event a security owned by the Portfolio is downgraded below these ratings
categories, the Adviser will review the quality and creditworthiness of such
security and take action, if any, that it deems appropriate.

The Portfolio expects to maintain an average weighted remaining maturity of
three to ten years and does not expect to purchase any single security with a
maturity of more than twenty years.

For temporary defensive purposes when the Adviser determines that market
conditions warrant, the Portfolio may invest up to 100% of its assets in the
money market instruments listed above, may hold a portion of its assets in cash
for liquidity purposes and may shorten
<PAGE>

the average maturity substantially. To the extent the Portfolio is engaged in
temporary defensive investing, the Portfolio will not be pursuing its investment
objective.

The Portfolio may enter into forward commitments or purchase securities on a
when-issued basis where such purchases are for investment and not for
speculative purposes. In addition, the Portfolio may engage in securities
lending.

For the fiscal year ended January 31, 1995, the Portfolio's annual turnover rate
was approximately 142%. Such as turnover rate may result in higher transaction
costs and may result in additional taxes for shareholders.

The Michigan Portfolio--The investment objective of the Michigan Portfolio is
current income exempt from federal and Michigan income taxes consistent with
preservation of capital. There is no assurance that the Portfolio will achieve
its investment objective.

The Portfolio will invest primarily in obligations issued by or on behalf of the
states, territories or possessions of the United States or the District of
Columbia or their political subdivisions, agencies or instrumentalities, the
interest of which, in the opinion of counsel for the issuer, is exempt from
federal income tax (collectively, "Municipal Securities"). It is a fundamental
policy of the Portfolio that at least 80% of its net assets will be invested in
municipal securities the interest on which is exempt from federal income tax and
not subject to taxation as a preference item for purposes of the alternative
minimum tax. Under normal circumstances, at least 65% of the Portfolio will be
invested in municipal bonds and, except where acceptable securities are
unavailable as determined by the Adviser, at least 80% of the Portfolio's assets
will be invested in Municipal Securities, the interest of which, in the opinion
of bond counsel to the issuer, is exempt from Michigan income tax ("Michigan
Municipal Securities"). The Adviser expects to be fully invested in Municipal
Securities. The Portfolio will purchase Municipal Securities which are comprised
of (i) municipal bonds rated in one of the three highest rating categories; (ii)
municipal notes rated in one of the two highest rating categories; (iii)
commercial paper rated in one of the two highest short term rating categories;
or (iv) any of the foregoing that are not rated but are determined by the
Adviser to be of comparable quality at the time of investment. The Portfolio may
also invest up to 5% of its net assets in securities of closed-end investment
companies traded on a national securities exchange.

The Portfolio expects to maintain an average weighted remaining maturity of
three to ten years. The maximum maturity for any individual security is thirty
years.

The Portfolio is a non-diversified investment company which means that more than
5% of its assets may be invested in one or more issuers, although the Adviser
does not intend to invest more than 10% of the Portfolio's assets in any one
issuer. Since a relatively high percentage of assets of the Portfolio may be
invested in the obligations of a limited number of issuers, the value of shares
of the Portfolio may be more susceptible to any single economic, political or
regulatory occurrence than the shares of a diversified investment company would
be. The Portfolio intends to satisfy the diversification requirements necessary
to qualify as a regulated investment company under the Internal Revenue Code of
1986, as amended (the "Code").

For temporary defensive purposes, when the Adviser determines that market
conditions warrant, the Portfolio may invest up to 100% of its assets in taxable
money market instruments (including repurchase agreements) and securities
subject to the alternative minimum tax and it may hold a portion of its assets
in cash for liquidity purposes. To the extent the Portfolio is
<PAGE>

engaged in temporary defensive investing, the Portfolio will not be pursing its
investment objective.

The Prime Obligation Portfolio--The investment objective of the Prime Obligation
Portfolio is to preserve principal value and maintain a high degree of liquidity
while providing current income. It is also a fundamental policy of the
Portfolio to use its best efforts to maintain a constant net asset value of
$1.00 per share. There is no assurance that the Portfolio will achieve its
investment objective or that it will be able to maintain a constant net asset
value of $1.00 per share on a continuous basis.

The Portfolio intends to comply with regulations of the Securities and Exchange
Commission applicable to money market funds using the amortized cost method for
calculating net asset value. These regulations impose certain quality, maturity
and diversification restraints on Portfolio investments. Under these
regulations, the Portfolio will invest in only United States dollar denominated
securities, will maintain an average maturity on a dollar-weighted basis of 90
days or less, and will acquire only "eligible securities" that present minimal
credit risks and have a maturity of 397 days or less. For a further discussion
of these rules, see "Description of Permitted Investments."

The Portfolio intends to invest exclusively in (i) bills, notes, receipts and
bonds issued by the United States Treasury and separately traded interest and
principal component parts ("STRIPs") of such obligations that are transferable
through the Federal Book-Entry System ("U.S. Treasury Obligations"); (ii)
obligations issued or guaranteed as to principal and interest by the agencies or
instrumentalities of the United States Government; (iii) commercial paper of
United States rated in the two highest short-term rating categories at the time
of investment or, if not rated, as determined by the sub-adviser to be of
comparable quality; (iv) obligations (certificates of deposit, bank notes, time
deposits, bankers' acceptances, European certificates of deposit, European time
deposits, Canadian time deposits, Eurodollar obligations and Yankee Bank
obligations) of U.S. commercial banks, U.S. savings and loan institutions and
U.S. and London branches of foreign banks that have total assets of $1 billion
or more as shown on their most recently published financial statements (the
Portfolio may not invest more than 25% of its total assets in obligations issued
by foreign branches of U.S. banks and London branches of foreign banks); (v)
short-term corporate obligations of United States issuers with commercial paper
of comparable quality and security that meet the above ratings or, if not rated,
determined by the sub-adviser to be of comparable quality; (vi) repurchase
agreements involving any of the foregoing obligations; (vii) short-term
obligations issued by state and local governmental issuers, which are rated, at
the time of investment, by at least two NRSROs in one of the two highest
municipal bond rating categories, and carry yields that are competitive with
those of other types of money market instruments of comparable quality and
security that meet the above ratings or, if not rated, determined by the sub-
adviser to be of comparable quality; (viii) obligations of supranational
entities satisfying the credit standards described above or, if not rated,
determined by the sub-adviser to be of comparable quality; and (ix) to the
extent permitted by applicable law, shares of other investment companies. In
addition, under applicable law, the Portfolio may not invest more than 10% of
its total assets in shares of other investment companies, and investment in such
shares may result in layering of expenses.
<PAGE>

The Portfolio may invest up to 10% of its net assets in illiquid securities,
including restricted securities other than Section 4(2) commercial paper. The
Portfolio may invest in Section 4(2) commercial paper. Restricted securities,
including Rule 144A securities and Section 4(2) commercial paper, that meet the
criteria established by the Board of Trustees of the Trust will be considered
liquid.

The Portfolio reserves the right to engage in securities lending but has no
present intention to do so. The Portfolio may also engage in forward
commitments or purchase securities on a when-issued basis.

For additional information regarding the permitted investments of the Portfolios
see "Risk Factors" and "Description of Permitted Investments" in the Prospectus
and "Description of Permitted Investments" in the Statement of Additional
Information.

Risk Factors

The market value of the Intermediate-Term Income and Michigan Portfolios' fixed
income investments will change in response to interest rate changes and other
factors and the impact of such changes will depend, in part, upon the ratings
and maturities of a Portfolio's investments. During periods of falling interest
rates, the values of outstanding fixed income securities generally rise.
Conversely, during periods of rising interest rates, the values of such
securities generally decline. Moreover, while securities with longer maturity
tend to produce higher yields, the price of longer maturity securities are also
subject to greater market fluctuations as a result of changes in interest rates.
Bonds rated A by S&P or Moody's possess many favorable investment attributes and
are to be considered as upper- medium grade obligations. Such debt rated A has
a strong capacity to pay interest and repay principal although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.

Changes by recognized agencies in the rating of any fixed income security and in
the ability of an issuer to make payments of interest and principal also affect
the value of these investments. Changes in the value of portfolio securities
will not affect cash income derived from these securities but will affect a
Portfolio's net asset value. Zero coupon securities may be more subject to price
volatility than securities that pay coupon interest.

In general, mortgage-backed securities are subject to prepayment of the
underlying mortgages. During periods of a decline in interest rates, prepayment
of mortgages underlying these securities can be expected to accelerate. When
the mortgage-backed securities held by a Portfolio are prepaid, the Portfolio
may reinvest the proceeds in securities, the yield of which reflects prevailing
interest rates. Thus, mortgage-backed securities may not be an effective means
of locking in long-term interest rates for a Portfolio.

Investments in securities of foreign issuers may subject a Portfolio to
different risks than those attendant to investments in securities of United
States issuers, such as differences in accounting, auditing and financial
reporting standards, the possibility of expropriation or confiscatory taxation,
and political instability. There may be less publicly available information
with regard to foreign issuers, than domestic issuers.

The Michigan Portfolio currently contemplates that it will not invest more than
25% of its total assets (at market value at the time of purchase) in Municipal
Securities, the interest of which is paid from venues or projects with similar
characteristics. See also "Special Factors Relating to Michigan Municipal
Securities."

Special Factors Relating to Michigan Municipal Securities

Because the Michigan Portfolio invests primarily in Michigan Municipal
Securities, the
<PAGE>

Portfolio is more susceptible to factors adversely affecting issuers of Michigan
Municipal Securities than a mutual fund that does not invest as heavily in such
securities. Investors should consider carefully the special risks inherent in
the Portfolio's investment in Michigan Municipal Securities. The principal
sectors of Michigan's diversified economy are manufacturing of durable goods
(including automobile and office equipment manufacturing), tourism and
agriculture. Michigan's unemployment rate peaked at 15.5 percent for calendar
year 1982 and the average unemployment rate for calendar year 1994 was 5.9
percent. The unemployment rate is projected to average 6.3 percent in 1995,
continuing the recent trend to Michigan's unemployment rate being near the
national average compared to the 15 year history of having higher unemployment.

The Financial Statements of the State of Michigan General Fund for the fiscal
years ended September 30, 1992 and 1993 show a positive cash balance. As of
March 1, 1995, Michigan's budget for fiscal year ending 1995 show total revenues
of $8.8 billion and total expenditures of $8.0 billion.

Michigan's economy has been undergoing certain basic changes in its underlying
structure. There changes reflect a diversifying economy which is less reliant
on the automobile industry. As a result, it is anticipated that the State's
economy in the future will be less susceptible to cyclical swings and more
resilient when national downturns occur. The States's economic outlook for 1995
is modest, with growth in the GNP expected to be approximately 2.9 percent,
reflecting an above national outlook. Total wage and salary employment is
projected to grow 2.9 percent in 1995, reflecting the ongoing diversification of
Michigan's economy. See the Statement of Additional Information which more
fully sets forth these and other investment considerations.

INVESTMENT LIMITATIONS AND FUNDAMENTAL POLICIES

The investment objective and the following investment limitations are
fundamental policies of the Portfolios. Fundamental policies cannot be changed
with respect to a Portfolio without the consent of the holders of a majority of
the Portfolio's outstanding shares.

A Portfolio may not:

1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States Government, its agencies or instrumentalities and repurchase
agreements involving such securities) if, as a result, more than 5% of the total
assets of the Portfolio would be invested in the securities of such issuer. This
restriction applies to 75% of a Portfolio's assets. This limitation does not
apply to the Michigan Portfolio. As a money market fund, the Prime Obligation
Portfolio is subject to additional diversification requirements. See
"Description of Permitted Investments-Restraints on Investments by Money Market
Funds."

2. Purchase any securities which would cause more than 25% of the total assets
of the Portfolio to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that this limitation does not apply to (a) investments in the obligations issued
or guaranteed by the United States Government, its agencies or
instrumentalities and repurchase agreements involving such securities, (b)
investments in tax-exempt securities issued by governments or political
subdivisions of governments or (c) obligations issued by domestic branches of
United States banks or United States branches of foreign banks subject to the
same regulations as United States banks. For purposes of this limitation (i)
utility companies will be divided according to their services, for example, gas,
gas transmission, electric and telephone will each be considered a separate
industry; (ii) financial service companies will be classified according to the
end users of their services,
<PAGE>

for example, automobile finance, bank finance and diversified finance will each
be considered a separate industry; (iii) supranational entities will be
considered to be a separate industry; and (v) loan participations are considered
to be issued by both the issuing bank and the underlying corporate borrower.
This limitation does not apply to the Michigan Portfolio.

3. Make loans, except that a Portfolio may (i) purchase or hold debt instruments
in accordance with its investment objective and policies; (ii) enter into
repurchase agreements; and (iii) engage in securities lending as described in
this Prospectus and in the Statement of Additional Information.

The foregoing percentages will apply at the time of the purchase of a security.
Additional investment limitations are set forth in the Statement of Additional
Information.

THE ADVISER

Citizens Commercial & Savings Bank ("Citizens Bank" or the "Adviser") serves as
investment adviser to the Portfolios pursuant to an investment advisory
agreement (the "Advisory Agreement") with the Trust. Under the Advisory
Agreement, the Adviser is responsible for the investment decisions for each
Portfolio, and continuously reviews, supervises and administers each Portfolio's
investment program. The Trust and the Adviser have employed Wellington
Management Company as the investment sub-adviser to manage the Prime Obligation
Portfolio, and Scudder, Stevens & Clark, Inc. as the investment sub-adviser to
the Growth and Income Portfolio, in each case subject to the supervision of the
Adviser and the Trustees, on a day-to-day basis. In conjunction with the
Adviser, each investment sub-adviser makes the investment decisions for the
assets of the Portfolio and continuously reviews, supervises and administers the
Portfolio's investment program. See "The Sub-Advisers."

The Adviser is independent of SEI Financial Management Corporation (the
"Administrator") and discharges its responsibilities subject to the supervision
of, and policies established by, the Trustees of the Trust.

The Adviser, One Citizens Banking Center, Flint, Michigan 48502, was
incorporated in 1871 in the state of Michigan. Citizens Bank is a wholly owned
subsidiary of Citizens Banking Corporation. Citizens Banking Corporation is an
interstate bank holding company with over $3.5 billion in assets and 87 banking
offices in Michigan and Illinois. As of January 31, 1995, the Adviser's total
assets under management were $642 million. The Adviser has managed bank common
funds, pension plan assets and personal trust assets since 1927. The Adviser's
sole experience as an investment adviser to investment companies is as
investment adviser to the Trust.

David C. Finger, Assistant Vice-President and Trust Officer of the Adviser, has
managed the Diversified Growth Portfolio since its inception. He has managed
the Adviser's equity growth common fund and major trust accounts since 1988.

Richard Ranville, Jr., Assistant Vice-President of Citizens Banking Corporation,
has managed the Intermediate-Term Income Portfolio since August 1994 and the
Michigan Portfolio since its inception. He has managed fixed income portfolios
since 1980.

For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate based on the average daily net assets of
each Portfolio as follows: Diversified Growth Portfolio, .74%; Growth and Income
Portfolio, .74%; Intermediate-Term Portfolio, .50%; Michigan Portfolio,.50%; and
Prime Obligation Portfolio, .30%. From this fee, the Adviser pays the fees of
the Sub-Adviser. See "The Sub-Advisers" below. The Adviser has voluntarily
agreed to waive a portion of its
<PAGE>

fees in order to limit the total operating expenses of Class A and Class B
shares of the Diversified Growth, Growth and Income, Intermediate-Term Income,
Michigan and Prime Obligation Portfolios (exclusive of distribution expenses
charged to Class B shares) to not more than 1.10%, 1.10%,.65%, .65% and .40%,
respectively, of each Portfolio's average daily net assets. The Adviser reserves
the right, in its sole discretion, to terminate this voluntary fee waiver at any
time. For the fiscal year ended January 31, 1995, the Diversified Growth,
Intermediate-Term Income and Prime Obligation Portfolios paid the Adviser an
advisory fee of .60%, .29% and .03% respectively, of each Portfolio's average
daily net assets. The Michigan and Growth and Income Portfolios were not in
operation during the fiscal year ended January 31, 1995. The Portfolios may
also execute brokerage or other agency transactions through an affiliate of the
Adviser. See "The Distributor" below regarding such transactions.

The Glass-Steagall Act restricts the securities activities of banks such as the
Adviser, but federal regulatory authorities permit such banks to provide
investment advisory and other services to mutual funds. Should this position be
challenged successfully in court or reversed by legislation, the Trust might
have to make other investment advisory arrangements.

THE SUB-ADVISERS

Wellington Management Company (a "Sub-Adviser" or "WMC") serves as the
investment sub-adviser for the Prime Obligation Portfolio and Scudder, Stevens &
Clark, Inc. (a"Sub-Adviser" or "Scudder") serves as investment sub-adviser for
the Growth and Income Portfolio pursuant to sub-advisory agreements (each, a
"Sub-Advisory Agreement") with the Trust and the Adviser. Under each Sub-
Advisory Agreement, the Sub-Adviser manages the investments of the Portfolio,
selects investments, and places all orders for purchases and sales of the
Portfolio's securities, subject to the general supervision of the Trustees of
the Trust and the Adviser.

WMC is a professional investment counseling firm which provides investment
services to investment companies, employee benefit plans, endowments,
foundations, and other institutions and individuals. As of January 31, 1995,
WMC had discretionary management authority with respect to approximately $83.75
billion of assets. WMC and its predecessor organizations have provided
investment advisory services to investment companies since 1933 and to
investment counseling clients since 1960. Wellington Management Company, 75
State Street, Boston, MA 02109, is a Massachusetts general partnership, of which
the following persons are managing partners: Robert W. Doran, Duncan M.
McFarland and John B. Neff.

For the services provided and expenses incurred pursuant to the Sub-Advisory
Agreement, WMC is entitled to receive from the Portfolio a fee, computed daily
and paid monthly, at the annual rate of .075% of the average daily net assets of
the Portfolio. For the fiscal year ended January 31, 1995, the Portfolio paid
the Sub-Adviser an advisory fee of .075% of its average daily net assets.

Scudder, Two International Place, Boston, Massachusetts, 02110 is incorporated
in the state of Delaware. As of December 31, 1994, Scudder and its affiliates
had assets under their supervision in excess of $90 billion. Scudder is a
professional investment counseling firm which provides investment services to
individuals and institutions.

The Growth and Income Portfolio is managed by a team of Scudder investment
professionals, each of whom plays an important role in the Portfolio's
management process. Team members work closely together to develop investment
strategies and select securities for the Portfolio's investment portfolio. They
are supported by Scudder's large staff of economists, research analysts,
<PAGE>

traders and other investment specialists who work in offices across the United
States and abroad. Scudder believes its team approach benefits Portfolio
investors by bringing together many disciplines and leveraging Scudder's
extensive resources.

Lead Portfolio Manager Robert T. Hoffman has had responsibility for setting the
Growth and Income Portfolio's stock investing strategy and overseeing the
Portfolio's day-to-day operations since its inception. Mr. Hoffman, who joined
Scudder in 1990 as a portfolio manager, has 10 years experience in the
investment industry, including several years of pension fund management
experience. Kathleen T. Millard, Portfolio Manager, has been involved in the
investment industry since 1983 and has worked as a portfolio manager since 1986.
Ms. Millard, who joined Scudder in 1991 and has been with the Portfolio since
its inception, focuses on strategy and stock selection. Benjamin W. Thorndike,
Portfolio Manager, is the Portfolio's chief analyst and strategist for
convertible securities. Mr. Thorndike, who has 15 years of investment
experience, joined Scudder in 1983 as a portfolio manager and has been with the
Portfolio since its inception.

For the services provided and expenses incurred pursuant to the Sub-Advisory
Agreement, Scudder is entitled from the Adviser a fee, computed daily and paid
monthly, at an annual rate of .74% of the Portfolio's average daily net assets
up to $5 million; .50% of the Portfolio's average daily net assets over $5
million and up to $25 million; .35% of the Portfolio's average daily net assets
over $25 million and up to $50 million; and .30 of the Portfolio's average daily
net assets over $50 million. Scudder will receive its entire fee even if the
Adviser waives a portion of its fee.

THE ADMINISTRATOR

SEI Financial Management Corporation, 680 East Swedesford Road, Wayne,
Pennsylvania 19087, a wholly-owned subsidiary of SEI Corporation ("SEI"),
provides the Portfolios with administrative services, other than investment
advisory services, including all regulatory reporting, necessary office space,
equipment, personnel and facilities, pursuant to an administration agreement
(the "Administration Agreement") with the Trust. The Administrator also serves
as the shareholder servicing agent of the Trust under the terms of the
Administration Agreement.

For its services, the Administrator is entitled to a fee, which is calculated
daily and paid monthly, at an annual rate of .20% of the average daily net
assets of the Diversified Growth, Growth and Income, Intermediate-Term Income,
Michigan and Prime Obligation Portfolios. The Growth and Income Portfolio and
the Michigan Portfolio are also subject to a minimum fee of $100,000. In
addition, the Administrator has agreed to waive a portion of its fee on a
prorated basis with the Adviser up to a maximum waiver of .045% of the average
daily net assets of the shares of the Prime Obligation Portfolio. The
Administrator and the Adviser each reserves the right to terminate its waiver at
any time in its sole discretion.

For the fiscal year ended January 31, 1995, the Portfolios paid the
Administrator an administration fee of the following (shown as a percentage of
average daily net assets): Diversified Growth, .20%; Intermediate-Term Income,
.20%; and Prime Obligation, .20%. The Growth and Income and Michigan Portfolios
had not commenced operations as of January 31, 1995.

THE TRANSFER AGENT

DST Systems, Inc., P.O. Box 419947, Kansas City, Missouri 64105 (the "Transfer
Agent"), serves as the transfer agent and dividend disbursing agent for the
Portfolios under a transfer agency agreement with the Trust.

THE DISTRIBUTOR

SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI, serves as the Portfolios' distributor pursuant to a distribution agreement
<PAGE>

("Distribution Agreement") with the Trust which applies to Class A and Class B
shares of the Portfolio.

The Class B shares of the Portfolio have a distribution plan (the "Class B
Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"). As provided in the Distribution Agreement and the
Class B Plan, the Trust will pay an annual fee of .25% of the Class B
Portfolios' average daily net assets to the Distributor as compensation for its
services. From this amount the Distributor may make payments to financial
institutions and intermediaries such as banks (including Citizens Bank), savings
and loan associations, insurance companies, investment counselors, broker-
dealers, and the Distributor's affiliates and subsidiaries as compensation for
services, reimbursement of expenses incurred in connection with distribution
assistance or provision of shareholder services. The Class B Plan is
characterized as a compensation plan since the distribution fee will be paid to
the Distributor without regard to the distribution or shareholder service
expenses incurred by the Distributor or the amount of payments made to financial
institutions and intermediaries. The Trust intends to operate the Class B Plan
in accordance with its terms and with the NASD rules concerning sales charges.
The Portfolio may also execute brokerage or other agency transactions through an
affiliate of the Adviser or through the Distributor for which the affiliate or
the Distributor may receive "usual and customary" compensation. The Adviser
will use its best efforts to obtain the best available price and most favorable
execution with respect to all transactions for the Portfolios.

The Class A shares of each Portfolio are offered without distribution fees to
institutional investors, including Citizens Bank, its affiliates and
correspondent banks, for the investment of funds for which they act in a
fiduciary, agency or custodial capacity. It is possible that an institution may
offer different classes of shares to its customers and thus receive different
compensation with respect to different classes of shares. These financial
institutions may also charge separate fees to their customers.

Certain financial institutions offering shares to their customers may be
required to register as dealers pursuant to state laws.

The Distributor may, from time to time and at its own expense, provide
promotional incentives in the form of cash or other compensation to certain
financial institutions and intermediaries whose registered representatives have
sold or are expected to sell significant amounts of the shares of each
Portfolio. Such other compensation may take the form of payments for travel
expenses, including lodging, incurred in connection with trips taken by
qualifying registered representatives to places within or outside of the United
States.

HOW TO PURCHASE SHARES

Shares of each Portfolio are sold on a continuous basis and may be purchased
directly from the Transfer Agent, by mail or by wire transfer. Shares may also
be purchased through a broker-dealer which has established a dealer agreement
with the Distributor or through a financial institution.

Shares of each Portfolio are offered only to residents of states in which the
shares are eligible for purchase.

Purchases of shares of a Portfolio may be made on days on which the New York
Stock Exchange and the Federal Reserve wire system are open for business
("Business Days"). However, shares of the Portfolios cannot be purchased by
Federal Reserve wire on federal holidays restricting wire transfers. The
minimum initial investment in the Class A shares is $1,000,000 and the minimum
initial investment in the Class B Shares is $1,000; however, the minimum
investment may be waived at the Distributor's discretion. All
<PAGE>

subsequent purchases of Class B shares must be at least $50.

A purchase order for Class A or Class B shares will be effective as of the
Business Day received by the Transfer Agent if the Transfer Agent receives an
order and payment for the shares (by wire transfer or check) prior to 4:00 p.m.,
Eastern time, or at the close of business of the New York Stock Exchange, except
that for the Prime Obligation Portfolio an order and payment for the shares must
be received by the Transfer Agent prior to 12:00 noon, Eastern time. However,
an order for Class A shares may be canceled if the Custodian does not receive
federal funds before 4:00 p.m., Eastern time (on the next Business Day), 12:00
noon, Eastern time for the Prime Obligation Portfolio (on the same Business
Day).

The Trust reserves the right to reject a purchase order when the Distributor or
Transfer Agent determines that it is not in the best interest of the Trust
and/or its shareholders to accept such order.

By Mail (Class B Only)

Investors in the Class B shares may purchase shares of a Portfolio by completing
and signing an Account Application form and mailing it, along with a check (or
other negotiable bank instrument or money order) payable to "The Arbor Fund-
Golden Oak (Name of Portfolio)," to the Transfer Agent. Subsequent purchases of
shares may be made at any time by mailing a check (or other negotiable bank
draft or money order) to the Transfer Agent. An investor in Class A shares of a
Portfolio may not purchase shares by check. If a check received does not clear,
the purchase will be cancelled and the investor could be liable for any losses
or fees incurred.

Account Application forms can be obtained by calling 1-800-545-6331.

By Wire Transfer

Shareholders having an account with a commercial bank that is a member of the
Federal Reserve System may purchase shares of the Portfolio by requesting their
bank to transmit funds by wire to: United Missouri Bank of Kansas, N.A.;
ABA #10-10-00695; for Account Number 98-7052-398-1; Further Credit: Golden Oak
(Name of Portfolio). The Shareholder's name and account number must be specified
in the wire.

Initial Purchases: Before making an initial investment by wire, an investor must
first telephone 1-800-808-4920 to be assigned an account number. The investor's
name, account number, taxpayer identification number or Social Security number,
and address must be specified in the wire. In addition, an Account Application
should be promptly forwarded to: DST Systems, Inc., P.O. Box 419947, Kansas
City, Missouri 64141-6947.

Subsequent Purchases: Additional investments may be made at any time through the
wire procedures described above, which must include a shareholders name and
account number. The investor's bank may impose a fee for investments by wire.

Systematic Investment Plan ("SIP")(Class B Only)

A Class B Shareholder may also arrange for periodic additional investments in
any Portfolio through automatic deductions by Automated Clearing House ("ACH")
from a checking account by completing the appropriate section of the Account
Application form. The SIP is subject to account minimum initial purchase amounts
and minimum maintained balance requirements. The minimum pre-authorized
investment amount is $50 per month. An Account Application form may be obtained
by calling 1-800-545-6331.

Other Information Regarding Purchases

Class A and Class B Shares may also be purchased through financial institutions,
including Citizens Bank or its affiliates, that provide distribution assistance
or shareholder services to a Portfolio. Shares purchased by
<PAGE>

persons ("Customers") through financial institutions may be held of record by
the financial institution. Financial institutions may impose an earlier cut-off
time for receipt of purchase orders directed through them to allow for
processing and transmittal of these orders to the Transfer Agent for
effectiveness the same day. Customers should contact their financial institution
for information as to the institution's procedures for transmitting purchase,
exchange or redemption orders to the Trust.

Customers who desire to transfer the registration of shares beneficially owned
by them but held of record by a financial institution should contact the
institution to accomplish such change. Other shareholders who desire to transfer
the registration of their shares should contact the Transfer Agent to accomplish
such change.

Purchases may be made by direct deposit or ACH transactions.

Depending upon the terms of a particular Customer account, a financial
institution may charge Customer account fees, that is, fees in addition to the
fees described herein. Information concerning these services and any charges
will be provided to the Customer by the financial institution.

A purchase order for shares will be executed at a per share price equal to the
net asset value next determined after the purchase order is effective plus any
applicable sales charge (the "offering price"). Net asset value per share of
each Portfolio is determined as of the close of business of the New York Stock
Exchange (currently 4:00 p.m., Eastern time) other than the Prime Obligation
Portfolio. The Prime Obligation Portfolio determines its net asset value as of
12:00 noon, Eastern time. No certificates representing shares will be issued.
For each Portfolio except the Prime Obligation Portfolio, the net asset value
per share is determined by dividing the total market value of the Portfolio's
investments and other assets, less any liabilities, by the total number of
outstanding shares of the Portfolio. For the Prime Obligation Portfolio the net
asset value per share is determined using amortized cost method described in the
Statement of Additional Information. Pursuant to guidelines adopted and
monitored by the Trustees, a Portfolio may use a pricing service to provide
market quotations or fair market valuations. A pricing service may derive such
valuations through the use of a matrix system to value fixed income securities
which considers factors such as securities prices, yield features, ratings, and
developments related to a specific security. Purchases will be made in full and
fractional shares of a Portfolio calculated to three decimal places. Although
the methodology and procedures are identical, the net asset value per share of
classes within a Portfolio may differ because of the distribution expenses paid
by Class B shares.

The following table shows the regular sales charge on Class B shares of the
Diversified Growth and Growth and Income Portfolios to a "single purchaser"
(defined below) together with the sales load reallowed to certain financial
institutions (the "commission"):

<TABLE>
<CAPTION>
Dealer
and
Sales Brokerage
Sales Charge Commission
Charge As a As a
As a Percentage Percentage
Percentage of Net of
Amount of of Offering Amount Offering
Purchase Price Invested Price
- --------- ----------- ---------- ----------
<S> <C> <C> <C>
Less than $50,000..... 5.75% 6.10% 5.15%
$50,000-$99,000....... 4.50% 4.71% 4.00%
$100,000-$249,999..... 3.50% 3.63% 3.10%
$250,000-$499,999..... 2.60% 2.67% 2.30%
$500,000-$999,999..... 2.00% 2.04% 1.80%
$1,000,000 and above.. NAV 0 0
</TABLE>

The following table shows the regular sales charge on Class B shares of the
Intermediate-Term Income and Michigan Portfolios to a "single purchaser"
together with the commission:

<TABLE>
<CAPTION>
Dealer
and
Sales Brokerage
Sales Charge Commission
Charge As a As a
As a Percentage Percentage
Percentage of Net of
Amount of of Offering Amount Offering
<S> <C> <C> <C>

</TABLE>
<PAGE>

Purchase Price Invested Price
- --------- ----------- ---------- ----------
<S> <C> <C> <C>
Less than $100,000.... 4.50% 4.71% 4.00%
$100,000-$249,999..... 3.50% 3.63% 3.10%
$250,000-$499,999..... 2.60% 2.67% 2.30%
$500,000-$999,999..... 2.00% 2.04% 1.80%
$1,000,000 and above.. NAV 0 0
</TABLE>

There is no sales charge imposed on Class B shares of the Prime Obligation
Portfolio.

The commissions shown in the tables apply to sales made through financial
institutions. Under certain circumstances, commissions up to the amount of the
entire sales charge may be reallowed to certain financial institutions, who
might then be deemed to be "underwriters" under the Securities Act of 1933.

Right of Accumulation

In calculating the sales charge rates applicable to current purchases of Class B
shares of the Portfolio, a "single purchaser" is entitled to cumulate current
purchases with the current market value of previously purchased Class B shares
of (i) the Diversified Growth and Growth and Income Portfolios, and (ii) the
Intermediate-Term Income and Michigan Portfolios (the "Eligible Portfolios")
which were purchased subject to a comparable sales charge.

The term "single purchaser" refers to (i) an individual, (ii) an individual and
spouse purchasing shares of a Portfolio for their own account or for trust or
custodial accounts for their minor children, or (iii) a fiduciary purchasing for
any one trust, estate or fiduciary account, including employee benefit plans
created under Sections 401 or 457 of the Internal Revenue Code of 1986, as
amended (the "Code"), including related plans of the same employer. To be
entitled to a reduced sales charge based upon shares already owned, the investor
must ask the Transfer Agent for such reduction at the time of purchase and
provide the account number(s) of the investor, the investor and spouse, and
their minor children. A Portfolio may amend or terminate this right of
accumulation at any time as to subsequent purchases.

Letter of Intent

By submitting a Letter of Intent (the "Letter") to the Transfer Agent, a single
purchaser may purchase shares of a Portfolio and the other Eligible Portfolios
during a 13-month period at the reduced sales charge rates applying to the
aggregate amount of the intended purchases stated in the Letter. The Letter may
apply retroactively to purchases made up to 90 days before the date of the
Letter. It is the responsibility of the shareholder to notify the Transfer Agent
at the time the Letter is submitted that there are prior purchases that may
apply.

Other Circumstances

No sales charge is imposed on shares of a Portfolio: (i) issued in plans of
reorganization, such as mergers, asset acquisitions and exchange offers, to
which the Trust is a party; (ii) sold to dealers or brokers that have a sales
agreement with the Distributor, for their own account or for retirement plans
for their employees or sold to employees (and their spouses) of dealers or
brokers that certify to the Distributor at the time of purchase that such
purchase is for their own account (or for the benefit of such employees' minor
children); (iii) purchased in aggregate amounts of $1 million or more by tax
exempt organizations enumerated in Section 501(c) of the Code or employee
benefit plans created under Sections 401 or 457 of the Code; (iv) sold to
Trustees and officers of the Trust and employees of the Adviser and its
affiliates; or (v) sold to agency, custody and fiduciary accounts of the Adviser
and its affiliates.

A description of the above and other plans and privileges by which a sales
charge may be reduced is set forth in the "Purchase and Redemption of Shares"
section of the Statement of Additional Information.

HOW TO EXCHANGE SHARES

Some or all of the shares of a Portfolio for which payment has been received
(i.e., an established account) may be exchanged for shares, at their net asset
value, of other
<PAGE>

Eligible Portfolios with similar or lower sales loads or for shares of the Prime
Obligation Portfolio which does not have a sales load. Exchanges will be made
only after instructions in writing or by telephone (an "Exchange Request") are
received for an established account by the Transfer Agent.

In the case of shares held of record by Citizens Bank or another financial
institution but beneficially owned by a Customer, to exchange such shares the
Customer should contact Citizens Bank or the financial institution who will
contact the Transfer Agent and effect the exchange on behalf of the Customer. If
an exchange request in good order is received by the Transfer Agent by 4:00
p.m., Eastern time, on any Business Day, the exchange usually will occur on that
day. Any shareholder or Customer who wishes to make an exchange must have
received a current prospectus of the Portfolio in which he or she wishes to
invest before the exchange will be effected.

An exchange from the Class A shares to the Class B shares of a Portfolio will
occur automatically when a Class A shareholder's account falls below the
$1,000,000 minimum balance. The Trust will provide thirty days' notice of any
such exchange. The exchange will take place at net asset value, without the
imposition of a sales load, fee or other charge. After the exchange, the
exchanged shares will be subject to all fees applicable to Class B shares. In
the event that a shareholder declines to accept an automatic exchange, and if
the shareholder does not meet the requirements for investing in Class A shares,
the Trust reserves the right to redeem the shares upon expiration of the thirty-
day period. Each Portfolio reserves the right to require shareholders to
complete an application or other documentation in connection with the exchange.

HOW TO REDEEM SHARES

Shareholders may redeem their shares without charge on any Business Day and
shares may ordinarily be redeemed by mail, by telephone or by wire transfer. A
wire redemption fee of $10.00 is charged for wire redemptions except that
certain financial institutions may be exempt from this wire charge.

By Mail

A written request for redemption must be received by the Transfer Agent in good
form in order to constitute a valid request for redemption. Valid written
redemption requests will be effective on receipt. All shareholders of record
must sign the redemption request. The Transfer Agent may require that the
signature on the written request be guaranteed. The signature guarantee
requirement will be waived if all of the following conditions apply: (1) the
redemption is for $5,000 worth of shares or less, (2) the redemption check is
payable to the shareholder(s) of record, and (3) the redemption check is mailed
to the shareholder(s) at the address of record. The Trust and the Transfer
Agent reserve the right to amend these requirements without notice. For
information about the proper form of redemption requests, call 1-800-808-4920.
The shareholder may also have the proceeds mailed to a commercial bank account
previously designated on the Account Application or by written instruction to
the Transfer Agent. There is no charge for having redemption requests mailed to
a designated bank account.

By Telephone

Shares may be redeemed by telephone if the shareholder elects that option on the
Account Application. Telephone redemption orders may be made by the shareholder
by calling the Transfer Agent at 1-800-808-4920. Wire redemption requests may
be made to the Transfer Agent, who will add a wire redemption charge (presently
$10.00, except that certain financial institutions may be exempt from this wire
charge) to the amount of the redemption. Telephone redemption orders must be
placed with the Transfer Agent prior to 4:00 p.m., Eastern time for each
Portfolio except the Prime Obligation
<PAGE>

Portfolio and as of 12:00 noon, Eastern time for the Prime Obligation Portfolio
on any Business Day in order to be effective on such day. The shareholder may
have the proceeds mailed to his or her address or mailed or wired to a
commercial bank account previously designated on the Account Application. Under
most circumstances, payments will be transmitted on the next Business Day
following receipt of a valid request for redemption. Shareholders may not close
their accounts by telephone.

Neither the Trust nor the Transfer Agent will be responsible for any loss,
liability, cost or expense for acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine. The Trust and the
Transfer Agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, including requiring a form
of personal identification prior to acting upon instructions received by
telephone and recording telephone instructions. If market conditions are
extraordinarily active, or other extraordinary circumstances exist, and a
shareholder experiences difficulties placing redemption orders by telephone, the
shareholder may wish to consider placing the order by other means, such as mail
or overnight delivery.

Check Writing Service

Class B shareholders of the Prime Obligation Portfolio may redeem shares by
writing checks on his or her account for $500 or more. Once a shareholder has
signed and returned a signature card, he or she will receive a supply of checks.
The check may be made payable to any person, and the shareholder's account will
continue to earn dividends until the check clears.

Because of the difficulty of determining in advance the exact value of a
Portfolio account, a shareholder may not use a check to close his or her
account. These checks are free, but the shareholder's account will be charged a
fee for stopping payment of a check upon the shareholder's request, or if the
check cannot be honored because of insufficient funds or other valid reasons.

Other Information Regarding Redemptions

The redemption price for the Class A and Class B shares is the net asset value
per share next determined after the request for redemption is effective. Payment
to shareholders for shares redeemed will be made within seven days after receipt
by the Transfer Agent of the redemption request in good order.

At various times, a Portfolio may be requested to redeem shares for which it has
not yet received good payment. In such circumstances, proceeds will be forwarded
as soon as payment has been collected for the purchase of such shares, which
could take 10 days or more. A Portfolio intends to pay cash for all shares
redeemed, but under abnormal conditions that make payment in cash unwise,
payment may be made wholly or partly in portfolio securities with a market value
equal to the redemption price. In such cases, an investor may incur brokerage
costs in converting such securities to cash.

Due to the relatively high costs of handling small investments, a Portfolio
reserves the right to redeem, at net asset value, the shares of any shareholder
if, because of redemptions of shares by or on behalf of the shareholder, the
account of such shareholder decreases in value below the minimum initial
purchase amount for the applicable class of shares. Accordingly, an investor
purchasing shares of a Portfolio in only the minimum investment amount may be
subject to such involuntary redemption if he or she thereafter redeems any of
these shares. Before the Portfolio exercises its right to redeem such shares and
to send the proceeds to the shareholder, the shareholder will be given notice
that the value of the shares in his or her account is less than the minimum
amount and will be allowed 60 days to make an additional investment in the
Portfolio in an amount that will increase the
<PAGE>

value of the account to at least the minimum initial purchase amount.

See "Purchase and Redemption of Shares" in the Statement of Additional
Information for examples of when the right of redemption may be suspended.

Systematic Withdrawal Plan (SWP)(Class B shares only)

The Portfolios offer a Systematic Withdrawal Plan which may be utilized by Class
B shareholders who wish to receive regular distributions from their account.
Upon commencement of the SWP, the account must have a current value of $10,000
or more. Class B shareholders may elect to receive automatic payments via check
or ACH of $50 or more on a monthly, quarterly, semi-annual or annual basis. An
Account Application Form may be obtained by calling 1-800-545-6331.

Shareholders should realize that if withdrawals exceed income dividends, their
invested principal in the account will be depleted. Thus, depending on the
frequency and amounts of the withdrawal payments and/or any fluctuations in the
net asset value per share, their original investment could be exhausted
entirely. To participate in the SWP, Shareholders must have their dividends
automatically reinvested. Shareholders may change or cancel the SWP at any time,
upon written notice to the Transfer Agent. It is generally not in the best
interest of shareholders in the SWP to acquire additional shares if they would
have to pay a sales load in connection with such purchases.

PERFORMANCE

From time to time the Prime Obligation Portfolio may advertise its "current
yield" and "effective compound yield". Both yield figures are based on
historical earnings and are not intended to indicate future performance. No
representation can be made concerning actual future yields. The "current yield"
of the Portfolio refers to the income generated by an investment in a Portfolio
over a stated seven-day period (which period will be stated in the
advertisement). This income is then "annualized". That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" (also called "effective compound yield") is calculated
similarly but, when annualized, the income earned by an investment in a
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "current yield" because of the compounding effect of this
assumed reinvestment.

From time to time, the Diversified Growth, Intermediate-Term Income, Michigan
and Growth and Income Portfolios may also advertise yield and total return.
These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made concerning actual
future yields or returns. The yield of a Portfolio refers to the income
generated by a hypothetical investment, net of any sales charge in the case of
some of the Class B shares, in a Portfolio over a specified thirty day period.
This income is then "annualized", i.e., the income over thirty days is assumed
to be generated over one year and is shown as a percentage of the investment.

The total return of a Portfolio refers to the average compounded rate of return
on a hypothetical investment, net of any sales charge, for designated time
periods, assuming that the entire investment is redeemed at the end of each
period and assuming the reinvestment of all dividend and capital gain
distributions.

The performance on Class A shares will normally be higher than that on Class B
shares because of the distribution expenses charged to the Class B shares.

A Portfolio may periodically compare its performance to other mutual funds
tracked by mutual fund rating services (such as Lipper Analytical) or financial
and business
<PAGE>

publications and periodicals, broad groups of comparable mutual funds, unmanaged
indices which may assume investment of dividends but generally do not reflect
deductions for administrative and management costs or other investment
alternatives. A Portfolio may quote Morningstar, Inc., a service that ranks
mutual funds on the basis of risk-adjusted performance. A Portfolio may quote
Ibbotson Associates of Chicago, Illinois, which provides historical returns of
the capital markets in the U.S. A Portfolio may use long term performance of
these capital markets to demonstrate general long-term risk versus reward
scenarios and could include the value of a hypothetical investment in any of the
capital markets. A Portfolio may also quote financial and business publications
and periodicals as they relate to portfolio management, investment philosophy
and investment techniques.

A Portfolio may quote various measures of volatility and benchmark correlation
in advertising and may compare these measures to those of other funds. Measures
of volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.

TAXES

The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state, or local income tax treatment of a Portfolio
or its shareholders. Accordingly, shareholders are urged to consult their tax
advisers regarding specific questions as to federal, state and local income
taxes.

Tax Status of the Portfolio

Each Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Trust's other Portfolios. Each Portfolio intends to
qualify for the special tax treatment afforded regulated investment companies as
defined under Subchapter M of the Code so as to be relieved of federal income
tax on that part of its net investment income and net capital gain (the excess
of net long-term capital gain over net short-term capital loss) that it
distributes to shareholders.

Tax Status of Distributions

Each Portfolio will distribute all of its net investment income (including, for
this purpose, net short-term capital gain) to shareholders. Dividends from net
investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares. Any net capital gain will be
distributed at least annually and will be taxed to shareholders as long-term
capital gain, regardless of how long the shareholders have held their shares.
Corporate shareholders should note that distributions of the Intermediate-Term,
Michigan Tax Free and Prime Obligation Portfolios are not expected to qualify
for the dividends-received deduction that is generally available to corporate
taxpayers. Dividends paid by the Diversified Growth and Growth and Income
Portfolios to corporate shareholders are expected to qualify for this deduction
to the extent these Portfolios' dividends derive from dividends the Portfolios
received from domestic corporations. The full amount of these dividends,
however, may be subject to the federal alternative minimum tax. Distributions
of net capital gain will not qualify for this deduction. Each Portfolio will
make annual reports to shareholders of the federal income tax status of all
distributions.

Interest received on U.S. Treasury obligations is exempt from income tax at the
state level when received directly and may be exempt, depending on the state,
when received be a shareholder from a Portfolio provided certain conditions are
satisfied. Interest received on
<PAGE>

repurchase agreements collateralized by U.S. Treasury obligations normally is
not exempt from state taxation. Each Portfolio will inform shareholders
annually of the percentage of income and distributions derived from U.S.
Treasury obligations. Shareholders should consult their tax advisers to
determine whether any portion of the income dividends received from a Portfolio
is considered tax exempt in their particular states.

Certain securities each Portfolio may purchase (such as STRIPS, TRs, TIGRs and
CATs, defined under "Description of Permitted Investments") are sold with
original issue discount and do not make periodic cash interest payments. A
Portfolio will be required to include as part of its current income the accrued
discount on such obligations even though the Portfolio has not received any
interest payments on such obligation during that period. Because each Portfolio
distributes all of its net investment income to its shareholders, a Portfolio
may have to sell portfolio securities to distribute such accrued income, which
may occur at a time when the Adviser would not have chosen to sell such
securities and which may result in a taxable gain or loss.

Dividends declared by a Portfolio in October, November or December of any year
and payable to shareholders of record on a date in that month will be deemed to
have been paid by the Portfolio and received by the shareholders on December 31
of that year, if paid by the Portfolio at any time during the following January.

Each Portfolio intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for federal excise tax.

Sale, exchange or redemption of Portfolio shares is a taxable event to the
shareholder.

Income derived by a Portfolio from obligations of foreign issuers may be subject
to foreign withholding taxes. No Portfolio will be able to elect to treat
shareholders as having paid their proportionate share of such foreign taxes.

Additional Considerations for the Michigan Tax-Free Bond Portfolio

The Michigan Tax-Free Bond Portfolio will distribute all of its net investment
income (including net short-term capital gain) to its shareholders. If, at the
close of each quarter of its taxable year, at least 50% of the value of the
Portfolio's assets consist of obligations the interest on which is excludable
from gross income, the Portfolio may pay "exempt-interest dividends" to its
shareholders. Those dividends constitute the portion of the aggregate dividends
as designated by the Portfolio, equal to the excess of the excludable interest
over certain amounts disallowed as deductions. Exempt-interest dividends are
excludable from a shareholder's gross income for federal income tax purposes,
but may have alternative minimum tax consequences. See the Statement of
Additional Information.

Current Federal law limits the types and volume of bonds qualifying for the
federal income tax exemption of interest, which may have an effect on the
ability of the Portfolio to purchase sufficient amounts of tax-exempt securities
to satisfy the Code's requirements for the payment of "exempt-interest
dividends."

Interest on indebtedness incurred or continued by a shareholder in order to
purchase or carry shares of the Michigan Tax-Free Bond Portfolio is not
deductible for federal income tax purposes. Furthermore, the Portfolio may not
be an appropriate investment for persons (including corporations and other
business entities) who are "substantial users" (or persons related to
"substantial users") of facilities financed by industrial development private
activity bonds. Such persons should consult their tax advisers before
purchasing shares. A "substantial user" is defined generally to include
"certain persons" who regularly use in
<PAGE>

their trade or business a part of a facility financed from the proceeds of such
bonds.

Michigan Tax Considerations

Under the laws of the State of Michigan, dividends paid by the Michigan
Portfolio representing interest payments on municipal obligations issued by the
State of Michigan or a political subdivision thereof (or interest on obligations
of United States territories or possessions to the extent exempt from taxation
by the states pursuant to federal law) will be exempt from Michigan income tax
(as will be the case with respect to such dividends from the Portfolio). Also,
that portion of a shareholder's shares in the Portfolio representing Municipal
Obligations issued by the State of Michigan or a political subdivision thereof
(or obligations of the United States territories or possessions to the extent
exempt from taxation by the states pursuant to federal law) and dividends paid
by the Portfolio representing interest payments on such obligations will be
exempt from Michigan intangibles tax. Accordingly, shareholders of the Portfolio
who are residents of the State of Michigan will not be subject to Michigan
income tax or intangibles tax on dividends paid by the Portfolio to the extent
such dividends are derived from interest on municipal obligations which would be
tax-exempt if directly received by such shareholder, whether such dividends are
taken in cash or reinvested in additional shares of the Portfolio. Also,
shareholders of the Portfolio who are residents of the State of Michigan will
not be subject to Michigan intangibles tax on that portion of their shares in
the Portfolio attributable to municipal obligations which would be tax-exempt if
directly owned by such shareholder. Under the laws of the State of Michigan,
corporations, partnerships and other entities doing business in Michigan pay the
Single Business Tax. All dividend and interest income, other than interest from
municipal obligations issued other than by the State of Michigan or its
political subdivisions, is excluded from the Single Business Tax base. Thus,
dividends from the Portfolio derived from interest on municipal obligations
issued by the State of Michigan or a political subdivision thereof (or
obligations of the United States territories or possessions to the extent exempt
from taxation by the states pursuant to federal law) will be exempt from the
Michigan Single Business Tax.

Certain municipalities in Michigan also impose an income tax on individuals and
corporations. However, to the extent that the dividends from the Portfolio are
exempt from federal income taxes or relate to certain U.S. obligations, such
dividends also will be exempt from Michigan municipal income taxes.

Other State and Local Taxes

Income from the Michigan Portfolio is not necessarily free from state income
taxes in states other than Michigan or from personal property taxes. State laws
differ on this issue, and shareholders are urged to consult their own tax
advisers regarding the status of their accounts under state and local tax laws.

Additional information concerning taxes is set forth in the Statement of
Additional Information.

GENERAL INFORMATION

The Trust

The Trust is an open-end management investment company that has diversified and
non-diversified portfolios. The Trust is organized as a Massachusetts business
trust under a Declaration of Trust dated July 24, 1992. The Declaration of Trust
permits the Trust to offer separate portfolios of shares and different classes
of shares within each portfolio.

All consideration received by the Trust for shares of a Portfolio and all assets
of such Portfolio belong to the Portfolio and are subject to liabilities related
thereto.

The Trust pays its expenses, including fees of its service providers, audit and
legal
<PAGE>

expenses, expenses of preparing prospectuses, proxy solicitation material and
reports to shareholders, costs of custodial services and registering the shares
under federal and state securities laws, pricing, insurance expenses, litigation
and other extraordinary expenses, brokerage costs, interest charges, taxes and
organization expenses.

Please refer to "Financial Highlights" in this Prospectus for more information
regarding the Trust's expenses.

Trustees of the Trust

The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Trust.

Voting Rights

Each share held entitles the shareholder of record to one vote. Each portfolio
or class will vote separately on matters relating solely to that portfolio or
class. As a Massachusetts business trust, the Trust is not required to hold
annual meetings of shareholders but approval will be sought for certain changes
in the operation of the Trust and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by the remaining Trustees
or by shareholders at a special meeting called upon written request of
shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested, the Trust will provide appropriate
assistance and information to the shareholders requesting the meeting.

Reporting

The Trust issues unaudited financial information semiannually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to shareholders of record.

Shareholder Inquiries

Shareholder inquiries should be directed to The Golden Oak Family of Funds, P.O.
Box 419947, Kansas City, Missouri 64141-6947 or by calling 1-800-545-6331.
Purchase, redemption and exchange transactions should be made through the
Transfer Agent by calling 1-800-808-4920.

Dividends

Substantially all of the net investment income (exclusive of capital gains) of
the Intermediate-Term Income, Michigan and Prime Obligation Portfolios is
declared daily and distributed monthly to shareholders in the form of periodic
dividends on the first Business Day of each month to shareholders of record for
such dividend. The net investment income (exclusive of capital gains) of the
Diversified Growth and Growth and Income Portfolios is declared monthly and
distributed monthly to shareholders in the form of periodic dividends on the
first Business Day of each month to shareholders of record for such dividend.
Currently, capital gains of a Portfolio, if any, will be distributed at least
annually. Shareholders are eligible to begin earning dividends that are
declared on the day after the purchase order is effective and continue to be
eligible for dividends through and including the day before the redemption order
is effective.

Shareholders automatically receive all income dividends and capital gain
distributions in additional shares at the net asset value next determined
following the record date, unless the shareholder has elected to take such
payment in cash. Shareholders may change their election by providing written
notice to the Transfer Agent at least 15 days prior to the distribution.

Dividends and distributions of the Diversified Growth, Intermediate-Term Income,
Michigan and Growth and Income Portfolios are paid on a per-share basis. The
value of each share will be reduced by the amount of the payment. If shares are
purchased shortly before the record date for a dividend or the distribution
<PAGE>

of capital gains, a shareholder will pay the full price for the shares and
receive some portion of the price back as a taxable dividend or distribution.
The amount of dividends payable on Class A shares will be more than the
dividends payable on the Class B shares because of the distribution expenses
charged to Class B shares.

Counsel and Independent Accountants

Morgan, Lewis & Bockius serves as counsel to the Trust. Dykema-Gossett serves as
counsel to the Trust with respect to Michigan state issues. Price Waterhouse
LLP serves as the independent accountants of the Trust.

Custodian

CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101 (the "Custodian"), acts as custodian of the Trust. The
Custodian holds cash, securities and other assets of the Trust as required by
the 1940 Act.

DESCRIPTION OF PERMITTED INVESTMENTS

The following is a description of certain of the permitted investments for the
Portfolios:

AMERICAN DEPOSITARY RECEIPTS ("ADRs")--ADRs are securities, typically issued by
a U.S. financial institution (a "depositary"), that evidence ownership interests
in a security or a pool of securities issued by a foreign issuer and deposited
with the depositary. ADRs may be available through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
security underlying the receipt and a depositary, whereas an unsponsored
facility may be established by a depositary without participation by the issuer
of the underlying security. Holders of unsponsored depositary receipts generally
bear all the costs of the unsponsored facility. The depositary of an unsponsored
facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or to pass
through, to the holders of the receipts, voting rights with respect to the
deposited securities.

ASSET-BACKED SECURITIES--Asset-backed securities are secured by non-mortgage
assets such as company receivables, truck and auto loans, leases and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also known
as collateralized obligations and are generally issued as the debt of a special
purpose entity, such as a trust, organized solely for the purpose of owning such
assets and issuing such debt.

Asset-backed securities are not issued or guaranteed by the United States
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain period by a letter of credit issued by a financial
institution (such as a bank or insurance company) unaffiliated with the issuers
of such securities. The purchase of asset-backed securities raises risk
considerations peculiar to the financing of the instruments underlying such
securities. For example, there is a risk that another party could acquire an
interest in the obligations superior to that of the holders of the asset-backed
securities. There also is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on those
securities. Asset-backed securities entail prepayment risk, which may vary
depending on the type of asset, but is generally less than the prepayment risk
associated with mortgage-backed securities. In addition, credit card
receivables are unsecured obligations of the card holder.

The market for asset-backed securities is at a relatively early stage of
development. Accordingly, there may be a limited secondary market for such
securities.
<PAGE>

BANKERS' ACCEPTANCES -- Bankers' acceptances are bills of exchange or time
drafts drawn on and accepted by a commercial bank. Bankers' acceptances are
used by corporations to finance the shipment and storage of goods. Maturities
are generally six months or less.

CERTIFICATES OF DEPOSIT -- Certificates of deposit are interest bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit with
penalties for early withdrawal will be considered illiquid.

COMMERCIAL PAPER -- Commercial paper is a term used to describe unsecured short-
term promissory notes issued by banks, municipalities, corporations and other
entities. Maturities on these issues vary from a few to 270 days.

CONVERTIBLE SECURITIES -- Convertible securities are corporate securities that
are exchangeable for a set number of another security at a prestated price.
Convertible securities typically have characteristics similar to both fixed
income and equity securities. Because of the conversion feature, the market
value of a convertible security tends to move with the market value of the
underlying stock. The value of a convertible security is also affected by
prevailing interest rates, the credit quality of the issuer, and any call
provisions.

EQUITY SECURITIES -- Investments in common stocks are subject to market risks
which may cause their prices to fluctuate over time. Changes in the value of
portfolio securities will not necessarily affect cash income derived from these
securities but will affect a Portfolio's net asset value.

EURODOLLAR INSTRUMENTS-- Eurodollar instruments are U.S. dollar-denominated
futures contracts or options thereon which are linked to the London Interbank
Offered Rate ("LIBOR"), although foreign currency-denominated instruments are
available from time to time. Eurodollar futures contracts enable purchasers to
obtain a fixed rate for the lending of funds and sellers to obtain a fixed rate
for borrowings. A Portfolio might use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR, to which many interest rate swaps and
fixed income securities are linked.

FIXED INCOME SECURITIES -- Fixed income securities are debt obligations issued
by corporations, municipalities and other borrowers. The market value of fixed
income investments will change in response to interest rate changes and other
factors. During periods of falling interest rates, the values of outstanding
fixed income securities generally rise. Conversely, during periods of rising
interest rates, the values of such securities generally decline. Moreover,
while securities with longer maturities tend to produce higher yields, the
prices of longer maturity securities are also subject to greater market
fluctuations as a result of changes in interest rates. Changes by recognized
agencies in the rating of any fixed income security and in the ability of an
issuer to make payments of interest and principal will also affect the value of
these investments. Changes in the value of portfolio securities will not affect
cash income derived from these securities but will affect a Portfolio's net
asset value.

FORWARD FOREIGN CURRENCY CONTRACTS-- A forward contract involves an obligation
to purchase or sell a specific currency amount at a future date, agreed upon by
the parties, at a price set at the time of the contract. A Portfolio may also
enter into a contract to sell, for a fixed amount of U.S. dollars or other
appropriate currency, the amount of foreign currency approximating the value of
some or all of a Portfolio's securities denominated in such foreign currency.

At the maturity of a forward contract, a Portfolio may either sell a portfolio
security
<PAGE>

and make delivery of the foreign currency, or it may retain the security and
terminate its contractual obligation to deliver the foreign currency by
purchasing an "offsetting" contract with the same currency trader, obligating it
to purchase, on the same maturity date, the same amount of the foreign currency.
A Portfolio may realize a gain or loss from currency transactions.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS-- Futures contracts provide
for the future sale by one party and purchase by another party of a specified
amount of a specific security at a specified future time and at a specified
price. An option on a futures contract gives the purchaser the right, in
exchange for a premium, to assume a position in a futures contract at a
specified exercise price during the term of the option. A Portfolio may use
futures contracts and related options for bona fide hedging purposes, to offset
---- ----
unfavorable changes in the value of securities held or expected to be acquired
or be disposed of, to minimize fluctuations in foreign currencies, or to gain
exposure to a particular market or instrument. A Portfolio will minimize the
risk that it will be unable to close out a futures contract by only entering
into futures contracts which are traded on national futures exchanges.

Stock index futures are futures contracts for various stock indices that are
traded on registered securities exchanges. A stock index futures contract
obligates the seller to deliver (and the purchaser to take) 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.

There are risks associated with these activities, including the following: (1)
the success of a hedging strategy may depend on an ability to predict movements
in the prices of individual securities, fluctuations in markets and movements in
interest rates, (2) there may be an imperfect or no correlation between the
changes in market value of the securities held by a Portfolio and the prices of
futures and options on futures, (3) there may not be a liquid secondary market
for a futures contract or option, (4) trading restrictions or limitations may be
imposed by an exchange, and (5) government regulations may restrict trading in
futures contracts and futures options.

ILLIQUID SECURITIES -- Illiquid securities are securities that cannot be
disposed of within seven business days at approximately the value at which they
are being carried on a Portfolio's books. An illiquid security includes a
demand instrument with a demand notice period exceeding seven days, where there
is no secondary market for such security, and repurchase agreements with
durations over seven days in length.

MORTGAGE-BACKED SECURITIES --Mortgage-backed securities are instruments that
entitle the holder to a share of all interest and principal payments from
mortgages underlying the security. The mortgages backing these securities
include conventional thirty-year fixed-rate mortgages, graduated payment
mortgages, and adjustable rate mortgages. During periods of declining interest
rates, prepayment of mortgages underlying mortgage-backed securities can be
expected to accelerate. Prepayment of mortgages which underlie securities
purchased at a premium often results in capital losses, while prepayment of
mortgages purchased at a discount often results in capital gains. Because of
these unpredictable prepayment characteristics, it is often not possible to
predict accurately the average life or realized yield of a particular issue.

Government Pass-Through Securities: These are securities that are issued or
- ----------------------------------
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are GNMA, FNMA and FHLMC. FNMA and FHLMC obligations
<PAGE>

are not backed by the full faith and credit of the U.S. Government as GNMA
certificates are, but FNMA and FHLMC securities are supported by the
instrumentalities' right to borrow from the U.S. Treasury. GNMA, FNMA and FHLMC
each guarantees timely distributions of interest to certificate holders. GNMA
and FNMA also each guarantees timely distributions of scheduled principal.
FHLMC has in the past guaranteed only the ultimate collection of principal of
the underlying mortgage loan; however, FHLMC now issues mortgage-backed
securities (FHLMC Gold PCs) which also guarantee timely payment of monthly
principal reductions. Government and private guarantees do not extend to the
securities' value, which is likely to vary inversely with fluctuations in
interest rates.

Private Pass-Through Securities: These are mortgage-backed securities issued by
- -------------------------------
a non-governmental entity, such as a trust. These securities include
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs") that are rated in one of the top two rating categories.
While they are generally structured with one or more types of credit
enhancement, private pass-through securities typically lack a guarantee by an
entity having the credit status of a governmental agency or instrumentality.

Collateralized Mortgage Obligations ("CMOs"): CMOs are debt obligations or
- --------------------------------------------
multiclass pass-through certificates issued by agencies or instrumentalities of
the U.S. Government or by private originators or investors in mortgage loans.
In a CMO, series of bonds or certificates are usually issued in multiple
classes. Principal and interest paid on the underlying mortgage assets may be
allocated among the several classes of a series of a CMO in a variety of ways.
Each class of a CMO, often referred to as a "tranche," is issued with a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal payments on the underlying mortgage assets may cause CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of any premium paid.

REMICs: A REMIC is a CMO that qualifies for special tax treatment under the
- ------
Internal Revenue Code and invests in certain mortgages principally secured by
interests in real property. Investors may purchase beneficial interests in
REMICs, which are known as "regular" interests, or "residual" interests.
Guaranteed REMIC pass-through certificates ("REMIC Certificates") issued by FNMA
or FHLMC represent beneficial ownership interests in a REMIC trust consisting
principally of mortgage loans or FNMA, FHLMC or GNMA-guaranteed mortgage pass-
through certificates. For FHLMC REMIC Certificates, FHLMC guarantees the timely
payment of interest, and also guarantees the payment of principal as payments
are required to be made on the underlying mortgage participation certificates.
FNMA REMIC Certificates are issued and guaranteed as to timely distribution of
principal and interest by FNMA.

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

REITs: REITs are trusts that invest primarily in commercial real estate or real
- -----
estate-related loans. The value of interests in REITs may be affected by the
value of the property owned
<PAGE>

or the quality of the mortgages held by the trust.

Stripped Mortgage-Backed Securities ("SMBs"): SMBs are usually structured with
- --------------------------------------------
two classes that receive specified proportions of the monthly interest and
principal payments from a pool of mortgage securities. One class may receive
all of the interest payments and is thus termed an interest-only class ("IO"),
while the other class may receive all of the principal payments and is thus
termed the principal-only class ("PO"). The value of IOs tends to increase as
rates rise and decrease as rates fall; the opposite is true of POs. SMBs are
extremely sensitive to changes in interest rates because of the impact thereon
of prepayment of principal on the underlying mortgage securities. The market
for SMBs is not as fully developed as other markets; SMBs therefore may be
illiquid.

Risk Factors: Due to the possibility of prepayments of the underlying mortgage
- ------------
instruments, mortgage-backed securities generally do not have a known maturity.
In the absence of a known maturity, market participants generally refer to an
estimated average life. An average life estimate is a function of an assumption
regarding anticipated prepayment patterns, based upon current interest rates,
current conditions in the relevant housing markets and other factors. The
assumption is necessarily subjective, and thus different market participants can
produce different average life estimates with regard to the same security.
There can be no assurance that estimated average life will be a security's
actual average life.

MUNICIPAL SECURITIES-- Municipal securities consist of (i) debt obligations
issued by or on behalf of public authorities to obtain funds to be used for
various public facilities, for refunding outstanding obligations, for general
operating expenses and for lending such funds to other public institutions and
facilities, and (ii) certain private activity and industrial development bonds
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated facilities.

General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or facility
(tolls from a bridge, for example). Certificates of participation represent an
interest in an underlying obligation or commitment, such as an obligation issued
in connection with a leasing arrangement. The payment of principal and interest
on private activity and industrial development bonds generally is dependent
solely on the ability of a facility's user to meet its financial obligations and
the pledge, if any, of real and personal property as security for such payment.

Municipal securities include both municipal notes and municipal bonds.
Municipal notes include general obligation notes, tax anticipation notes,
revenue anticipation notes, bond anticipation notes, certificates of
indebtedness, demand notes and construction loan notes and participation
interests in municipal notes. Municipal bonds include general obligation bonds,
revenue or special obligation bonds, private activity and industrial development
bonds and participation interests in municipal bonds.

OPTIONS -- A put option gives the purchaser of the option the right to sell,
and the writer of the option the obligation to buy, the underlying security at
any time during the option period. A call option gives the purchaser of the
option the right to buy, and the writer of the option the obligation to sell,
the underlying security at any time during the option period. The premium paid
to the writer is the consideration for undertaking the obligations under the
option contract. The initial purchase (sale) of an option contract is an
"opening transaction." In order to close out an option position, a Portfolio
may enter into a "closing transaction," which is simply the sale (purchase) of
an option contract on
<PAGE>

the same security with the same exercise price and expiration date as the option
contract originally opened.

A Portfolio may purchase put and call options to protect against a decline in
the market value of the securities in its portfolio or to protect against an
anticipated increase in the cost of securities that a Portfolio may seek to
purchase in the future. A Portfolio purchasing put and call options pays a
premium therefor. If price movements in the underlying securities are such that
exercise of the options would not be profitable for a Portfolio, loss of the
premium paid may be offset by an increase in the value of a Portfolio's
securities or by a decrease in the cost of acquisition of securities by a
Portfolio.

A Portfolio may write covered call options as a means of increasing the yield on
its portfolio and as a means of providing limited protection against decreases
in its market value. When a Portfolio sells an option, if the underlying
securities do not increase or decrease to a price level that would make the
exercise of the option profitable to the holder thereof, the option generally
will expire without being exercised and a Portfolio will realize as profit the
premium received for such option. When a call option of which a Portfolio is
the writer is exercised, a Portfolio will be required to sell the underlying
securities to the option holder at the strike price, and will not participate in
any increase in the price of such securities above the strike price. When a put
option of which a Portfolio is the writer is exercised, a Portfolio will be
required to purchase the underlying securities at the strike price, which may be
in excess of the market value of such securities.

A Portfolio may purchase and write options on an exchange or over-the-counter.
Over-the-counter options ("OTC options") differ from exchange-traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and therefore entail the risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise prices than are available for
exchange-traded options. Because OTC options are not traded on an exchange,
pricing is done normally by reference to information from a market maker. It is
the position of the Securities and Exchange Commission that OTC options are
illiquid.

A Portfolio may purchase and write put and call options on foreign currencies
(traded on U.S. and foreign exchanges or over-the-counter markets) to manage its
exposure to exchange rates. Call options on foreign currency written by a
Portfolio will be "covered," which means that a Portfolio will own an equal
amount of the underlying foreign currency. With respect to put options on
foreign currency written by a Portfolio, a Portfolio will establish a segregated
account with its custodian bank consisting of cash or liquid, high grade debt
securities in an amount equal to the amount a Portfolio would be required to pay
upon exercise of the put.

A Portfolio may purchase and write put and call options on indices and enter
into related closing transactions. Put and call options on indices are similar
to options on securities except that options on an index give the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of the underlying index is greater than (or less than, in the case of
puts) the exercise price of the option. This amount of cash is equal to the
difference between the closing price of the index and the exercise price of the
option, expressed in dollars multiplied by a specified number. Thus, unlike
options on individual securities, all settlements are in cash, and gain or loss
depends on price movements in the particular market represented by the index
generally, rather than the price movements in individual securities. A
Portfolio may choose to terminate an option position by entering into a closing
transaction. The ability of a Portfolio to enter into closing transactions
depends
<PAGE>

upon the existence of a liquid secondary market for such transactions.

All options written on indices must be covered. When a Portfolio writes an
option on an index, it will establish a segregated account containing cash or
liquid high grade debt securities with its custodian in an amount at least equal
to the market value of the option and will maintain the account while the option
is open or will otherwise cover the transaction.

Risk Factors. Risks associated with options transactions include: (1) the
- ------------
success of a hedging strategy may depend on an ability to predict movements in
the prices of individual securities, fluctuations in markets and movements in
interest rates; (2) there may be an imperfect correlation between the movement
in prices of options and the securities underlying them; (3) there may not be a
liquid secondary market for options; and (4) while a Portfolio will receive a
premium when it writes covered call options, it may not participate fully in a
rise in the market value of the underlying security.

RECEIPTS--Receipts are sold as zero coupon securities which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, such securities may be subject to greater interest rate
volatility than interest paying investments.

REPURCHASE AGREEMENTS -- Repurchase agreements are arrangements by which a
Portfolio obtains a security and simultaneously commits to return the security
to the seller at an agreed upon price on an agreed upon date within a number of
days from the date of purchase. The Custodian will hold the security as
collateral for the repurchase agreement. Collateral must be maintained at a
value at least equal to 102% of the purchase price. A Portfolio bears a risk of
loss in the event the other party defaults on its obligations and a Portfolio is
delayed or prevented from exercising its right to dispose of the collateral
securities or if a Portfolio realizes a loss on the sale of the collateral. A
Portfolio will enter into repurchase agreements on behalf of a Portfolio only
with financial institutions deemed to present minimal risk of bankruptcy during
the term of the agreement based on established guidelines. Repurchase agreements
are considered loans under the 1940 Act.

RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS -- Investments by a money market
fund are subject to limitations imposed under regulations adopted by the SEC.
Under these regulations, money market funds may only acquire obligations that
present minimal credit risks and that are "eligible securities," which means
they are (i) rated, at the time of investment, by at least two nationally
recognized security rating organizations (one if it is the only organization
rating such obligation) in the highest short-term rating category or, if
unrated, determined to be of comparable quality (a "first tier security"), or
(ii) rated according to the foregoing criteria in the second highest rating
category or, if unrated, determined to be of comparable quality ("second tier
security"). A security is not considered to be unrated if its issuer has
outstanding obligations of comparable priority and security that have a short-
term rating. In the case of taxable money market funds, investments in second
tier securities are subject to the further constraints in that (i) no more than
5% of a Portfolio's assets may be invested in second tier securities and (ii)
any investment in securities of any one such issuer is limited to the greater of
1% of the Portfolio's total assets or $1 million. A taxable money market
portfolio may also hold more than 5% of its assets in first tier securities of a
single issuer for three Business Days.
<PAGE>

RESTRICTED SECURITIES-- Restricted securities are securities that may not be
sold freely to the public absent registration under the Securities Act of 1933,
as amended, or an exemption from registration.

SECURITIES LENDING -- In order to generate additional income, a Portfolio may
lend securities which it owns pursuant to agreements requiring that the loan be
continuously secured by collateral consisting of cash, securities of the U.S.
Government or its agencies equal to at least 102% of the market value of the
securities lent. A Portfolio continues to receive interest on the securities
lent while simultaneously earning interest on the investment of cash collateral.
Collateral is marked to market daily. There may be risks of delay in recovery
of the securities or even loss of rights in the collateral should the borrower
of the securities fail financially or become insolvent.

SECURITIES OF FOREIGN ISSUERS -- There are certain risks connected with
investing in foreign securities. These include risks of adverse political and
economic developments (including possible governmental seizure or
nationalization of assets), the possible imposition of exchange controls or
other governmental restrictions, less uniformity in accounting and reporting
requirements, the possibility that there will be less information on such
securities and their issuers available to the public, the difficulty of
obtaining or enforcing court judgments abroad, restrictions on foreign
investments in other jurisdictions, difficulties in effecting repatriation of
capital invested abroad, and difficulties in transaction settlements and the
effect of delay on shareholder equity. Foreign securities may be subject to
foreign taxes, and may be less marketable than comparable U.S. securities. The
value of a Portfolio's investments denominated in foreign currencies will depend
on the relative strengths of those currencies and the U.S. dollars, and a
Portfolio may be affected favorably or unfavorably by changes in the exchange
rates or exchange control regulations between foreign currencies and the U.S.
dollar. Changes in foreign currency exchange rates also may 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 a Portfolio.

STRATEGIC TRANSACTIONS-- A Portfolio may, but is not required to, utilize
various other investment strategies as described below to hedge various market
risks (such as interest rates, currency exchange rates and broad or specific
equity or fixed income market movements), to manage the effective maturity or
duration of fixed-income securities in a Portfolio's investment portfolio or to
enhance potential gain. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.

In the course of pursuing these investment strategies, a Portfolio may purchase
and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used to attempt (i) to protect against possible
changes in the market value of securities held in or to be purchased for a
Portfolio's investment portfolio resulting from securities markets or currency
exchange rate fluctuations, (ii) to protect a Portfolio's unrealized gains in
the value of its portfolio securities, (iii) to facilitate the sale of such
securities for investment purposes, (iv) to manage the effective maturity or
duration of fixed-income securities in a Portfolio's investment portfolio, or
(v) to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling
<PAGE>

particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of a Portfolio's assets will be
committed to Strategic Transactions entered into for non-hedging purposes. Any
or all of these investment techniques may be used at any time and there is no
particular strategy that dictates the use of one technique rather than another,
as use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of a Portfolio to utilize these
Strategic Transactions successfully will depend on the Sub-Adviser's ability to
predict pertinent market movements, which cannot be assured. A Portfolio will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
primarily for bona fide hedging, risk management or portfolio management
purposes and not for speculative purposes.

Risk Factors: Strategic Transactions have risks associated with them including
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possible default by the other party to the transaction, illiquidity and, to the
extent the Sub-Adviser's view as to certain market movements is incorrect, the
risk that the use of such Strategic Transactions could result in losses greater
than if they had not been used. Use of put and call options my result in losses
to a Portfolio, force the sale or purchase of portfolio securities at
inopportune times or for prices higher than (in the case of put options) or
lower than (in the case of call options) current market values, limit the amount
o appreciation a Portfolio can realize on its investments or cause a Portfolio
to hold a security it might otherwise sell.

The use of currency transactions can result in a Portfolio incurring losses as a
result of a number of factors including the imposition of exchange controls,
suspension of settlements or the inability to deliver or receive a specified
currency.

The use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of a
Portfolio creates the possibility that losses on the hedging instrument may be
greater than gains in the value of a Portfolio's position. In addition, futures
and options markets may not be liquid in all circumstances and certain over-the-
counter options may have no markets. As a result, in certain markets, a
Portfolio might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures contracts and
options transactions for hedging should tend to minimize the risk of loss due to
a decline in the value of the hedged position, at the same time they tend to
limit any potential gain which might result from an increase in value of such
position.

Finally, the daily variation margin requirements for futures contracts would
create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possible income, and such losses can be greater than if the Strategic
Transactions had not been utilized. The Strategic Transactions that a Portfolio
may use and some of their risks are described more fully in the Statement of
Additional Information.

SWAPS, CAPS, FLOORS AND COLLARS --Interest rate swaps, mortgage swaps, currency
swaps and other types of swap agreements such as caps, floors and collars are
designed to permit the purchaser to preserve a return or spread on a particular
investment or portion of its portfolio, and to protect against any increase in
the price of securities a Portfolio anticipates purchasing at a later date. In
a typical interest rate swap, one party agrees to make regular payments equal to
a floating interest rate times a "notional principal amount," in return for
<PAGE>

payments equal to a fixed rate times the same amount, for a specific period of
time. If a swap agreement provides for payment in different currencies, the
parties might agree to exchange the notional principal amount as well. Swaps
may also depend on other prices or rates, such as the value of an index or
mortgage prepayment rates.

In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right
to receive payments to the extent that a specific interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap
and selling a floor.

Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risk assumed. As a
result, swaps can be highly volatile and have a considerable impact on a
Portfolio's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. A Portfolio may also suffer
losses if it is unable to terminate outstanding swap agreements or reduce its
exposure through offsetting transactions. Any obligation a Portfolio may have
under these types of arrangements will be covered by setting aside liquid high
grade securities in a segregated account. A Portfolio will enter into swaps
only with counterparties believed to be creditworthy.

TIME DEPOSITS -- Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, they earn a
specified rate of interest over a definite period of time; however, they cannot
be traded in the secondary market. Time deposits are considered to be illiquid
securities.

U.S. GOVERNMENT AGENCIES--Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, the
Federal Housing Administration and the Small Business Administration, and
obligations issued or guaranteed by instrumentalities of the U.S. Government,
including, among others, the Federal Home Loan Mortgage Corporation, the Federal
Land Banks and the U.S. Postal Service. Some of these securities are supported
by the full faith and credit of the U.S. Treasury (e.g., Government National
Mortgage Association), others are supported by the right of the issuer to borrow
from the Treasury (e.g., Federal Farm Credit Bank), while still others are
supported only by the credit of the instrumentality (e.g., Federal National
Mortgage Association). Guarantees of principal by agencies or instrumentalities
of the U.S. Government may be a guarantee of payment at the maturity of the
obligation so that in the event of a default prior to maturity there might not
be a market and thus no means of realizing on the obligation prior to maturity.
Guarantees as to the timely payment of principal and interest do not extend to
the value or yield of these securities nor to the value of a Portfolio's shares.

U.S. TREASURY OBLIGATIONS -- U.S. Treasury obligations consist of bills, notes
and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through the
Federal book-entry Principal Securities ("STRIPS"). The Prime Obligation
Portfolio may not actively trade STRIPs and may not invest more than 20% of its
assets in STRIPs.

VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed,
but
<PAGE>

which vary with changes in specified market rates or indices. The interest
rates on these securities may be reset daily, weekly, quarterly or some other
reset period, and may have a floor or ceiling on interest rate changes. There
is a risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand
notice exceeding seven days may be considered illiquid if there is no secondary
market for such security.

WARRANTS -- Warrants are instruments giving holders the right, but not the
obligation, to buy equity or fixed income securities of a company at a given
price during a specified period.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES--When-issued or delayed delivery
basis transactions involve the purchase of an instrument with payment and
delivery taking place in the future. Delivery of and payment for these
securities may occur a month or more after the date of the purchase commitment.
A Portfolio will maintain with the Custodian a separate account with liquid high
grade debt securities or cash in an amount at least equal to these commitments.
The interest rate realized on these securities is fixed as of the purchase date
and no interest accrues to a Portfolio before settlement. These securities are
subject to market fluctuation due to changes in market interest rates and it is
possible that the market value at the time of settlement could be higher or
lower than the purchase price if the general level of interest rates has
changed. Although a Portfolio generally purchases securities on a when-issued
or forward commitment basis with the intention of actually acquiring securities
for its portfolio, a Portfolio may dispose of a when-issued security or forward
commitment prior to settlement if it deems appropriate.

ZERO COUPON, PAY-IN-KIND AND DEFERRED PAYMENT SECURITIES -- Zero coupon
securities are securities that are sold at a discount to par value and
securities on which interest payments are not made during the life of the
security. Upon maturity, the holder is entitled to receive the par value of the
security. While interest payments are not made on such securities, holders of
such securities are deemed to have received "phantom income" annually. Because a
Portfolio will distribute its "phantom income" to shareholders, to the extent
that shareholders elect to receive dividends in cash rather than reinvesting
such dividends in additional shares, a Portfolio will have fewer assets with
which to purchase income producing securities. Alternatively, shareholders may
have to redeem shares to pay tax on this "phantom income." In either case, a
Portfolio may have to dispose of its fund securities under disadvantageous
circumstances to generate cash, or may have to leverage itself by borrowing cash
to satisfy distribution requirements. A Portfolio accrues income with respect to
the securities prior to the receipt of cash payments. Pay-in-kind securities are
securities that have interest payable by delivery of additional securities. Upon
maturity, the holder is entitled to receive the aggregate par value of the
securities. Deferred payment securities are securities that remain zero coupon
securities until a predetermined date, at which time the stated coupon rate
becomes effective and interest becomes payable at regular intervals. Zero
coupon, pay-in-kind and deferred payment securities may be subject to greater
fluctuation in value and lesser liquidity in the event of adverse market
conditions than comparably rated securities paying cash interest at regular
interest payment periods.
<PAGE>

TABLE OF CONTENTS
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SUMMARY................................................................. 2

EXPENSE SUMMARY......................................................... 4

FINANCIAL HIGHLIGHTS.................................................... 6

THE PORTFOLIO AND THE TRUST............................................. 9

INVESTMENT OBJECTIVES AND POLICIES...................................... 9

INVESTMENT LIMITATIONS AND FUNDAMENTAL
POLICIES................................................................ 15

THE ADVISER............................................................. 16

THE SUB-ADVISERS........................................................ 17

THE ADMINISTRATOR....................................................... 18

THE TRANSFER AGENT...................................................... 18

THE DISTRIBUTOR......................................................... 18

HOW TO PURCHASE SHARES.................................................. 19

HOW TO EXCHANGE SHARES.................................................. 23

HOW TO REDEEM SHARES.................................................... 23

PERFORMANCE............................................................. 25

TAXES................................................................... 25

GENERAL INFORMATION..................................................... 28

DESCRIPTION OF PERMITTED INVESTMENTS.................................... 30