ARBOR FUND, 497, 2000-06-01

ARBOR FUND
497, 2000-06-01

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HANCOCK HORIZON FAMILY OF FUNDS

TRUST:
THE ARBOR FUND

FUNDS:
TREASURY SECURITIES MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
STRATEGIC INCOME BOND FUND
GROWTH AND INCOME FUND

INVESTMENT ADVISER:
HANCOCK BANK

STATEMENT OF ADDITIONAL INFORMATION

This STATEMENT OF ADDITIONAL INFORMATION is not a prospectus. It is intended to
provide additional information about the activities and operations of the
Treasury Securities Money Market Fund, Tax Exempt Money Market Fund, Strategic
Income Bond Fund and the Growth and Income Fund (each a "Fund"), separate series
of The Arbor Fund (the "Trust"). This Statement of Additional Information should
be read in conjunction with the Fund's Prospectus dated May 31, 2000. The
Prospectus may be obtained by calling 1-888-346-6300.

TABLE OF CONTENTS

THE FUNDS AND THE TRUST.......................................................1

INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS...............................1

DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS.........................4

INVESTMENT LIMITATIONS.......................................................13

THE ADVISER, TRANSFER AGENT AND CUSTODIAN....................................15

SUB-ADVISER..................................................................16

THE ADMINISTRATOR............................................................17

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

INDEPENDENT PUBLIC ACCOUNTANTS...............................................19

LEGAL COUNSEL................................................................19

TRUSTEES AND OFFICERS OF THE FUND............................................19

PERFORMANCE INFORMATION......................................................22

COMPUTATION OF YIELD.........................................................22

CALCULATION OF TOTAL RETURN..................................................22

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TABLE OF CONTENTS
(CONTINUED)

PAGE

PURCHASING SHARES............................................................23

REDEEMING SHARES.............................................................23

DETERMINATION OF NET ASSET VALUE.............................................23

TAXES........................................................................24

PORTFOLIO TRANSACTIONS.......................................................27

TRADING PRACTICES AND BROKERAGE..............................................27

DESCRIPTION OF SHARES........................................................29

SHAREHOLDER LIABILITY........................................................29

LIMITATION OF TRUSTEES' LIABILITY............................................29

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THE FUNDS AND THE TRUST

This Statement of Additional Information relates to the Hancock Horizon Family
of Funds (the "Funds"), a group of mutual funds. The Funds consist of the
Treasury Securities Money Market Fund, Tax Exempt Money Market Fund, Strategic
Income Bond Fund and the Growth and Income Fund (each a "Fund," and
collectively, the "Funds"). The Funds are a separate series of The Arbor Fund
(the "Trust"), which offers a number of mutual fund series in addition to the
Funds. The Trust is an open-end management investment company established under
Massachusetts law as a "Massachusetts business trust" under an Agreement and
Declaration of Trust dated as of July 24, 1992 (the "Declaration of Trust"). The
Declaration of Trust permits the Trust to offer separate series of units of
beneficial interest ("shares") and different classes of shares of each series.
The Funds are offered in the following classes:

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FUNDS CLASSES

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Treasury Securities Money Market Fund Trust/Institutional Sweep/A

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Tax Exempt Money Market Fund Trust/A

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Strategic Income Bond Fund Trust/A/C

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Growth and Income Fund Trust/A/C

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</TABLE>

Each share of each Fund represents an equal proportionate interest in that Fund.
SEE "Description of Shares."

The Trust pays its expenses, including fees of its service providers, audit and
legal 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.

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.

INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS

TREASURY SECURITIES MONEY MARKET FUND

The Fund's investment objective is to preserve principal value and maintain a
high degree of liquidity while providing current income. This goal is
fundamental and cannot be changed without the consent of shareholders. There can
be no assurance that the Fund will be able to achieve its investment objective.

The Fund invests exclusively in obligations issued by the U.S. Treasury
("Treasury Obligations") and backed by its full faith and credit, and in
repurchase agreements involving such obligations. The Fund complies with
regulations of the Securities and Exchange Commission ("SEC") applicable to
money market funds. These regulations impose certain quality, maturity and
diversification restraints on investments by the Fund. Under these regulations,
the Fund will maintain a dollar-weighted average portfolio maturity of 90 days
or less, and will acquire only obligations maturing in 397 days or less. The
Fund will attempt to maintain a net asset value

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of $1.00 per share, although there can be no assurance that it will be able to
do so. The Fund is not permitted to lend securities or purchase securities on a
when-issued or delayed basis.

For additional information regarding Treasury Obligations and repurchase
agreements, SEE "Description of Permitted Investments and Risk Factors."

TAX EXEMPT MONEY MARKET FUND

The Tax Exempt Money Market Fund seeks to preserve principal value and maintain
a high degree of liquidity while providing current income exempt from federal
income taxes. This goal is fundamental and cannot be changed without the consent
of shareholders. There can be no assurance that the Fund will be able to achieve
its investment objective.

Under normal market conditions, the Fund will invest at least 80% of its net
assets in eligible securities 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 on which is
exempt from Federal income tax (collectively, "Municipal Securities"). The Fund
will invest at least 80% of its assets in Municipal Securities the interest on
which is not treated as a preference item for purposes of the federal
alternative minimum tax. This investment policy is a fundamental policy of the
Fund. The Fund will purchase municipal bonds, municipal notes, municipal lease
obligations, tax exempt money market mutual funds, and tax exempt commercial
paper rated in the two highest short-term rating categories by a nationally
recognized statistical rating organization (an "NRSRO") in accordance with SEC
regulations at the time of investment or, if not rated, determined by the
Adviser to be of comparable quality. Since the Fund often purchases securities
supported by credit enhancements from banks and other financial institutions,
changes in the credit quality of these institutions could cause losses to the
Fund and affect its share price.

The Adviser will not invest more than 25% of the Fund's assets in Municipal
Securities (a) whose issuers are located in the same state (b) the interest on
which is derived from revenues of similar type projects. This restriction does
not apply to Municipal Securities in any of the following categories: public
housing authorities; general obligations of states and localities; state and
local housing finance authorities; or municipal utilities systems.

The Fund may purchase municipal obligations with demand features, including
variable and floating rate obligations. In addition, the Fund may invest in
commitments to purchase securities on a "when issued" basis and purchase
securities subject to a standby commitment.

The Fund may purchase securities on a when issued or delayed basis.

The Tax Exempt Money Market Fund may invest up to 20% of the Fund's net assets
in the aggregate in taxable money market instruments, taxable money market
mutual funds, and securities subject to the alternative minimum tax. Taxable
money market instruments in which the Fund may invest consist of (i) bankers'
acceptances, certificates of deposits, notes and time deposits of highly-rated
U.S. banks and U.S. branches of foreign banks; (ii) U.S. Treasury obligations
and obligations issued or guaranteed by the agencies and instrumentalities of
the U.S. government, including STRIPs; (iii) high quality commercial paper
issued by U.S. and foreign corporations; (iv) debt obligations with a maturity
of 397 days or less issued by corporations with outstanding high quality
commercial paper; (v) receipts; and (vi) repurchase agreements involving any of
the foregoing obligations entered into with highly-rated banks and
broker-dealers.

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The Fund may engage in securities lending and may also borrow money in amounts
up to 33 1/3% of its net assets.

For additional information regarding the permitted investments and investment
practices discussed above and the associated risks, SEE "Description of
Permitted Investments and Risk Factors."

GENERAL INVESTMENT POLICIES OF THE TREASURY SECURITIES MONEY MARKET FUND AND THE
TAX EXEMPT MONEY MARKET FUND - Each Fund complies with regulations of the SEC
applicable to money market funds. These regulations impose certain quality,
maturity and diversification restraints on investments by a Fund. Under these
regulations, each Fund will maintain a dollar-weighted average portfolio
maturity of 90 days or less, and will acquire only obligations with remaining
maturities of 397 days or less. Each Fund will attempt to maintain a net asset
value of $1.00 per share, although there can be no assurance that it will be
able to do so.

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 risk and that are "eligible
securities," which means they are (i) short-term rated, at the time of
investment, by at least two NRSROs (one if it is the only organization rating
such obligation) in the highest rating category or, if unrated, determined to be
of comparable quality (a "first tier security"); or (ii) short-term 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. A
money market fund may invest up to 25% of its assets in "first tier" securities
of a single issuer for a period of up to three business days. The securities
that money market funds may acquire may be supported by credit enhancements,
such as demand features or guarantees. The SEC regulations limit the percentage
of securities that a money market fund may hold for which a single issuer
provides credit enhancements.

STRATEGIC INCOME BOND FUND

The Strategic Income Bond Fund seeks to provide total return through current
income and capital appreciation, consistent with the preservation of capital.
This goal is fundamental and cannot be changed without the consent of
shareholders. There can be no assurance that the Fund will be able to achieve
its investment objective.

The Fund primarily invests (at least 65% of its assets) in fixed income
obligations (i) issued by the U.S. Treasury; (ii) issued by U.S. government
agencies; (iii) in mortgage-backed securities and (iv) investment grade U.S.
corporate debt that are rated investment grade or higher, I.E., rated in one of
the four highest rating categories by an NRSRO, at the time of purchase, or, if
not rated, determined to be of comparable quality by the Adviser. Additional
fixed income securities in which the Fund may invest consist of: (i) privately
issued mortgage-backed securities; (ii) obligations issued by the Canadian
government; (iii) asset-backed securities; (iv) guaranteed investment contracts
("GICs"); (v) bank investment contracts ("BICs"); (vi) zero coupon obligations;
(vii) floating or variable rate instruments; (viii) money market securities;
(ix) convertible securities; (x) restricted securities; (xi) collateralized
mortgage-backed securities ("CMOs"); and (xii) other investment companies. The
Fund may enter into repurchase agreements with respect to any of the foregoing
and purchase securities subject to swaps, caps, floors and collars.

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covered call options on fixed income and equity securities, and may enter into
futures contracts (including index futures contracts), purchase options on
futures contracts, and lend its securities.

Normally, the Fund will maintain a dollar-weighted average portfolio maturity of
five to fifteen years. There are no restrictions on the maturity of any single
instrument.

For additional information regarding the permitted investments and investment
practices discussed above and the associated risks, SEE "Description of
Permitted Investments and Risk Factors."

GROWTH AND INCOME FUND

The Growth and Income Fund seeks to provide long-term capital appreciation with
a secondary goal of current income. This goal is fundamental and cannot be
changed without the consent of shareholders. There can be no assurance that the
Fund will be able to achieve its investment objective.

The Fund will be as fully invested as practicable (at least 65% of its assets)
under normal conditions) in common stocks. The Fund may also purchase warrants,
rights to purchase common stocks, debt securities convertible to common stocks
and preferred stocks (together, "equity securities"). The Fund will invest in
companies with equity market capitalizations in excess of $1 billion that the
Adviser believes have a low current valuation relative to various measures of
intrinsic value and potential for capital appreciation based on the soundness of
the issuer and the company's relative value based on an analysis of various
fundamental financial characteristics, including earnings yield, book value,
cash flow, anticipated future growth of dividends and earnings estimates.
Although capital appreciation is the primary purpose for investing in a
security, the Fund will focus on companies that pay current dividends. The Fund
may invest in equity securities of foreign issuers traded in the United States,
including ADRs. The Fund may also invest in money market securities for
liquidity purposes.

Although not primary strategies employed by the Adviser in managing the Fund,
the Fund may engage in a number of investment practices in order to meet its
investment objectives. In this regard, the Portfolio may invest in variable and
floating rate obligations, enter into forward commitments, purchase securities
on a when-issued basis and sell securities short against the box. The Fund may
also purchase put and call options and write covered call options on fixed
income and equity securities, and may enter into futures contracts (including
index futures contracts), purchase options on futures contracts, and lend its
securities.

For additional information regarding the permitted investments and investment
practices discussed above and the associated risks, SEE "Description of
Permitted Investments and Risk Factors."

DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS

The following are descriptions of the permitted investments and investment
practices discussed in each Fund's respective "Investment Objectives and
Policies" section and the associated risk factors. The Adviser or the
Sub-Adviser will only invest in any of the following instruments or engage in
any of the following investment practices if such investment or activity is
consistent with and permitted by a Fund's stated investment policies.

AMERICAN DEPOSITARY RECEIPTS ("ADRS"), CONTINENTAL DEPOSITARY RECEIPTS ("CDRS"),
EUROPEAN DEPOSITARY RECEIPTS ("EDRS") AND GLOBAL DEPOSITARY RECEIPTS ("GDRS") -
ADRs are securities typically issued by a U.S. financial institution. ADRs
evidence ownership interests in a pool of securities issued by a foreign issuer
and deposited with the depositary. EDRs, which are sometimes referred to as CDRs
are securities, typically issued by a non-U.S. financial institution, that
evidence ownership interests in a security or

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a pool of securities issued by either a U.S. or foreign issuer. GDRs are issued
globally and evidence a similar ownership arrangement. Generally, ADRs are
designed for trading in the U.S. securities market. EDRs are designed for
trading in European Securities Markets and GDRs are designed for trading in
non-U.S. Securities Markets. ADRs, EDRs, CDRs and GDRs may be available for
investment 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 securities 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 purpose of owning such assets and issuing such debt.

Asset-backed securities are not issued or guaranteed by the U.S. 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 cardholder.

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.

BANK OBLIGATIONS - The Funds are not prohibited from investing in obligations of
banks that are clients of SEI Corporations ("SEI"). However, the purchase of
shares of the Funds by such banks or by their customers will not be a
consideration in determining which bank obligations the Funds will purchase. The
Funds will not purchase obligations of the Adviser.

BANKERS' ACCEPTANCES - Bankers' acceptances are bills of exchange or time drafts
drawn on and accepted by a commercial bank. Corporations finance the shipment
and storage of goods and furnish dollar exchange through the use of bankers'
acceptances. Maturities are generally six months or less.

BANK INVESTMENT CONTRACTS ("BICS") - BICs are contracts issued by U.S. banks and
savings and loan institutions. Pursuant to such contracts, a Fund makes cash
contributions to a deposit fund of the general account of the bank or savings
and loan institution. The bank or savings and loan institution then credits to
the Fund on a monthly basis guaranteed interest at either a fixed, variable or
floating rate. A BIC provides that this guaranteed interest will not be less
than a certain minimum rate. A BIC is a general obligation of the issuing bank
or savings and loan institution and not a separate account. The purchase price
paid for a BIC becomes part of the general assets of the issuer, and the
contract is paid at maturity from the general assets of the issuer.

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BICs are generally not assignable or transferable without the permission of the
issuing bank or savings and loan institution. For this reason, an active
secondary market in BICs currently does not exist. Therefore, BICs are
considered to be illiquid investments.

CERTIFICATES OF DEPOSIT - Certificates of deposit are interest-bearing
instruments with a specific short-term 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 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 pre-stated price.
Convertible securities typically have characteristics of both fixed income and
equity securities. Because of the conversion feature, the market value of
convertible securities tends to move together with the market value of the
underlying stock. The value of convertible securities is also affected by
prevailing interest rates, the credit quality of the issuer, and any call
provisions.

DERIVATIVES - Derivatives are securities that derive their value from other
securities. The following are considered derivative securities: options on
futures, futures, options (E.G., puts and calls), swap agreements,
mortgage-backed securities (CMOs, REMICS, IOs and Pos), when-issued securities
and forward commitments, floating and variable rate securities, convertible
securities, "stripped" U.S. Treasury securities (e.g., Receipts and STRIPs),
privately issued stripped securities (E.G., TGRs, TRs and CATS). SEE elsewhere
in this "Description of Permitted Investments" and "General Investment Policies
and Risk Factors" for discussion of these various instruments.

EQUITY SECURITIES - Equity securities include common stocks, preferred stocks,
warrants to acquire common stock, and securities convertible into common stock.
Investments in equity securities are subject to market risks that 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 Fund's net asset value.

FIXED INCOME SECURITIES - Fixed income securities include bonds, notes,
debentures and other interest-bearing securities that represent indebtedness.
The market value of the fixed income investments in which the Funds invest 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 also affect the value of these investments. Changes in
the value of these securities will not necessarily affect cash income derived
from these securities but will affect a Fund's net asset value.

FUTURES AND OPTIONS ON FUTURES - As consistent with a Fund's investment
objectives, a Fund may enter into futures contracts and options on futures
contracts traded on an exchange regulated by the Commodities Futures Trading
Commission ("CFTC") if, to the extent that such futures and options are not for
"bona fide hedging purposes" (as defined by the CFTC), the aggregate initial
margin and premiums on such positions (excluding the amount by which options are
in the money) do not exceed 5% of that Fund's net assets.

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The Funds may buy and sell futures contracts and related options to manage their
exposure to changing interest rates and security prices. Some futures
strategies, including selling futures, buying puts and writing calls, reduce a
Fund's exposure to price fluctuations. Other strategies, including buying
futures, writing puts and buying calls, tend to increase market exposure.
Futures and options may be combined with each other in order to adjust the risk
and return characteristics of the overall portfolio. The Funds may invest in
futures and related options based on any type of security or index traded on
U.S. or foreign exchanges or over-the-counter, as long as the underlying
securities, or securities represented by an index, are permitted investments of
the Funds.

Options and futures can be volatile instruments, and involve certain risks. If
the Adviser applies a hedge at an inappropriate time or judges interest rates
incorrectly, options and futures strategies may lower a Fund's return. A Fund
could also experience losses if the prices of its options and futures positions
were poorly correlated with its other instruments, or if it could not close out
its positions because of an illiquid secondary market.

In order to cover any obligations it may have under options or futures
contracts, the Fund will either own the underlying asset, have a contract to
acquire such an asset without additional cost or set aside, in a segregated
account, high quality liquid assets in an amount at least equal in value to such
obligations.

ILLIQUID SECURITIES - Illiquid securities are securities that cannot be disposed
of within seven business days at approximately the price at which they are being
carried on a Fund's books. An illiquid security includes a demand instrument
with a demand notice period exceeding seven days, if there is no secondary
market for such security and repurchase agreements of over seven days in length.
Each Fund will not invest more than 15% (10% for the Treasury Securities Money
Market Fund and the Tax Exempt Money Market Fund) of its net assets in such
instruments.

TAXABLE MONEY MARKET SECURITIES - Money market securities are high-quality,
dollar-denominated, short-term debt instruments. They consist of: (i) bankers'
acceptances, certificates of deposits, notes and time deposits of highly-rated
U.S. banks and U.S. branches of foreign banks; (ii) U.S. Treasury obligations
and obligations issued or guaranteed by the agencies and instrumentalities of
the U.S. government; (iii) high quality commercial paper issued by U.S. and
foreign corporations; (iv) debt obligations with an original maturity of
one-year or less issued by corporations; and (v) repurchase agreements involving
any of the foregoing obligations entered into with highly-rated banks and
broker-dealers.

With respect to the Funds, money market securities are considered to include
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities; securities issued or guaranteed by non-U.S. governments,
which are rated at time of purchase A-2 or higher by S&P or P2 or higher by
Moody's, or are determined by the advisers to be of comparable quality;
repurchase agreements; certificates of deposit and bankers' acceptances issued
by banks or savings and loan associations having net assets of at least $500
million as of the end of their most recent fiscal year; high-grade commercial
paper; and other long-and short-term debt instruments which are rated at the
time of purchase A-2 or higher by S&P or P2 or higher by Moody's, and which,
with respect to such long-term debt instruments, are within 397 days of their
maturity, and have a long-term rating of BBB\Baa by Standard & Poor's and
Moody's respectively.

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, but are not limited to, 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 that underlie
securities purchased at a premium often results in capital losses, while
prepayment of mortgages purchased at a discount often results in capital gains.

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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 would be a security's actual average
life. 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 the Government National Mortgage Association ("GNMA"), Fannie Mae
and the Federal Home Loan Mortgage Corporation ("FHLMC"). Fannie Mae and FHLMC
obligations are not backed by the full faith and credit of the U.S. government
as are GNMA certificates, but Fannie Mae and FHLMC securities are supported by
the instrumentalities' right to borrow from the United States Treasury. Each of
GNMA, Fannie Mae and FHLMC guarantees timely distributions of interest to
certificate holders. Each of GNMA and Fannie Mae also 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 guarantees
timely payment of monthly principal reduction. 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, which securities include
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs"), that are rated in one of the top three 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.

COLLATERIALIZED 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 annually 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
Fannie Mae or FHLMC represent beneficial ownership interests in a REMIC trust
consisting principally of mortgage loans or Fannie Mae, 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. Fannie Mae REMIC Certificates are issued and
guaranteed as to timely distribution of principal and interest by Fannie Mae.
GNMA REMIC Certificates are backed by the full faith and credit of the U.S.
Treasury.

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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 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.

MUNICIPAL LEASES - Municipal leases are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities and may be considered to be illiquid. They may take the form of a
lease, an installment purchase contract, a conditional sales contract, or a
participation certificate in any of the above.

Municipal lease obligations typically are not backed by the municipality's
credit, and their interest may become taxable if the lease is assigned. If funds
are not appropriated for the following year's lease payments, a lease may
terminate, with a possibility of default on the lease obligation and significant
loss to the Fund. Under guidelines established by the Board of Trustees, the
credit quality of municipal leases will be determined on an ongoing basis,
including an assessment of the likelihood that a lease will be canceled.

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 toll 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 the facility's user to meet its financial obligations
and the pledge, if any, of real and personal property so financed as security
for such payment.

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

PARTICIPATION INTERESTS - Participation interests are interests in Municipal
Securities from financial institutions such as commercial and investment banks,
savings and loan associations and insurance companies. These interests may take
the form of participations, beneficial interests in a trust, partnership
interests or any other form of indirect ownership that allows a Fund to treat
the income from the investment as exempt from federal income tax. The Tax Exempt
Money Market Fund may invest in participation interests in order to obtain
credit enhancement or demand features that would not be available through direct
ownership of the underlying Municipal Securities.

S-9
<PAGE>

OPTIONS - Put and call options for various securities and indices are traded on
national securities exchanges. As consistent with a Fund's investment
objectives, options may be used by a Fund from time to time as the Adviser deems
to be appropriate. Options will generally be used for hedging purposes.

A put option gives the purchaser of the option the right to sell, and the writer
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 Fund may enter into a "closing
transaction" - the sale (purchase) of an option contract on the same security
with the same exercise price and expiration date as the option contract
originally opened.

Although a Fund may engage in option transactions as hedging transactions, there
are risks associated with such investments including the following: (i) the
success of a hedging strategy may depend on the ability of the Adviser to
predict movements in the prices of the individual securities, fluctuations in
markets and movements in interest rates; (ii) there may be an imperfect or no
correlation between the changes in market value of the securities held by a Fund
and the prices of options; (iii) there may not be a liquid secondary market for
options; and (iv) while a Fund 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. Each Fund is permitted to engage in option transactions
with respect to securities that are permitted investments and related indices.
Any Fund that writes call options will write only covered call options.

The aggregate value of option positions may not exceed 10% of a Fund's net
assets as of the time such options are entered into by a Fund.

REPURCHASE AGREEMENTS - Repurchase agreements are agreements by which a Fund
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. Repurchase agreements must be fully collateralized at
all times. A Fund will have actual or constructive possession of the security as
collateral for the repurchase agreement. A Fund bears a risk of loss in the
event the other party defaults on its obligations and the Fund is delayed or
prevented from its right to dispose of the collateral securities or if the Fund
realizes a loss on the sale of the collateral securities. A Fund will enter into
repurchase agreements 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.

RESTRICTED SECURITIES - Restricted securities are securities that may not be
sold freely to the public absent registration under the Securities Act of 1933
or an exemption from registration. As consistent with a Fund's investment
objectives, the Fund may invest in Section 4(2) commercial paper. Section 4(2)
commercial paper is issued in reliance on an exemption from registration under
Section 4(2) of the Act and is generally sold to institutional investors who
purchase for investment. Any resale of such commercial paper must be in an
exempt transaction, usually to an institutional investor through the issuer or
investment dealers who make a market in such commercial paper. The Trust
believes that Section 4(2) commercial paper is liquid to the extent it meets the
criteria established by the Board of Trustees of the Trust. The Trust intends to
treat such commercial paper as liquid and not subject to the investment
limitations applicable to illiquid securities or restricted securities.

SECURITIES LENDING - As consistent with a Fund's investment objectives, a Fund
may engage in securities lending, under which securities are loaned pursuant to
agreements requiring that the loan be continuously secured by collateral
consisting of cash or securities of the U.S. government equal to at least 100%
of the market value of the securities lent. A Fund will continue to receive
interest on the securities lent while

S-10
<PAGE>

simultaneously earning interest on the investment of cash collateral. Collateral
is marked to market daily to provide a level of collateral at least equal to the
value of the securities lent. 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.

SHORT SALES - As consistent with a Fund's investment objectives, a Fund may
engage in short sales that are either "uncovered" or "against the box." A short
sale is "against the box" if at all times during which the short position is
open, a Fund owns at least an equal amount of the securities or securities
convertible into, or exchangeable without further consideration for, securities
of the same issue as the securities that are sold short.

Uncovered short sales are transactions under which the Fund sells a security it
does not own. To complete such a transaction, the Fund must borrow the security
to make delivery to the buyer. The Fund then is obligated to replace the
security borrowed by purchasing the security at the market price at the time of
the replacement. The price at such time may be more or less than the price at
which the security was sold by the Fund. Until the security is replaced, the
Fund is required to pay the lender amounts equal to any dividends or interest
that accrue during the period of the loan. To borrow the security, the Fund also
may be required to pay a premium, which would increase the cost of the security
sold. The proceeds of the short sale will be retained by the broker, to the
extent necessary to meet margin requirements, until the short position is closed
out.

Until the Fund closes its short position or replaces the borrowed security, the
Fund will: (a) maintain a segregated account containing cash or liquid
securities at such a level that (i) the amount deposited in the account plus the
amount deposited with the broker as collateral will equal the current value of
the security sold short; and (ii) the amount deposited in the segregated account
plus the amount deposited with the broker as collateral will not be less than
the market value of the security at the time the security was sold short, or (b)
otherwise cover the Fund's short position.

SEPARATELY TRADED INTEREST AND PRINCIPAL SECURITIES ("STRIPS") - STRIPs are
component parts of U.S. Treasury Securities traded through the Federal
Book-Entry System. The Adviser or the Sub-Adviser will purchase only STRIPS that
it determines are liquid or, if illiquid, do not violate the Portfolio's
investment policy concerning investments in illiquid securities. Consistent with
Rule 2a-7, the Adviser or the Sub-Adviser will only purchase STRIPS for the
Treasury Securities Money Market Fund and Tax Exempt Money Market Fund,
respectively, that have a remaining maturity of 397 days or less. While there is
no limitation on the percentage of a Fund's assets that may be comprised of
STRIPS, the Adviser or the Sub-Adviser will monitor the level of such holdings
to avoid the risk of impairing shareholders' redemption rights and of deviations
in the value of shares of the Money Market Funds.

SHORT-TERM OBLIGATIONS OF STATE AND LOCAL GOVERNMENT ISSUERS - The Funds may,
when deemed appropriate by the Adviser or the Sub-Adviser, respectively, in
light of the Fund's investment objective, invest in high quality, short-term
obligations issued by state and local governmental issuers which, as a result of
the Tax Reform Act of 1986, carry yields that are competitive with those of
other types of money market instruments of comparable quality.

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 Fund 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
payments equal to a fixed rate times the same amount for a specific period of
time. Swaps may also depend on other prices or rates such as the value of an
index or mortgage prepayment rates.

S-11
<PAGE>

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.

Swap agreements will tend to shift a Fund's investment exposure from one type of
investment to another. Depending on how they are used, swap agreements may
increase or decrease the overall volatility of a Fund's investment and its share
price and yield.

STANDBY COMMITMENTS - Some securities dealers are willing to sell Municipal
Securities to a Fund accompanied by their commitments to repurchase the
Municipal Securities prior to maturity, at the Fund's option, for the amortized
cost of the Municipal Securities at the time of repurchase. These arrangements
are not used to protect against changes in the market value of Municipal
Securities. They permit a Fund, however, to remain fully invested and still
provide liquidity to satisfy redemptions. The cost of Municipal Securities
accompanied by these "standby" commitments could be greater than the cost of
Municipal Securities without such commitments. Standby commitments are not
marketable or otherwise assignable and have value only to a Fund. The default or
bankruptcy of a securities dealer giving such a commitment would not affect the
quality of the Municipal Securities purchased. However, without a standby
commitment, these securities could be more difficult to sell. The Funds may
enter into standby commitments only with those dealers whose credit the
investment adviser believes to be of high quality.

TIME DEPOSITS - Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits with a withdrawal penalty or that
mature in more than seven days are considered to be illiquid securities.

U.S. GOVERNMENT AGENCY OBLIGATIONS - Obligations issued or guaranteed by
agencies of the U.S. government, including, but not limited to, 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, FHLMC, the Federal Land Banks and the
United States Postal Service. Some of these securities are supported by the full
faith and credit of the United States Treasury, others are supported by the
right of the issuer to borrow from the Treasury, while still others are
supported only by the credit of the instrumentality. 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 the a Fund's shares.

U.S. TREASURY AND U.S. GOVERNMENT AGENCY SECURITIES - Any guarantee by the U.S.
government of the securities in which any Fund invests guarantees only the
payment of principal and interest on the guaranteed security and does not
guarantee the yield or value of that security or the yield or value of shares of
that Fund.

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 system known as Separately Traded Registered Interest and
Principal Securities ("STRIPs").

VARIABLE AND FLOATING RATE INSTRUMENTS - Certain of the obligations purchased by
the Funds may carry variable or floating rates of interest, may involve a
conditional or unconditional demand feature and may include variable amount
master demand notes. Such instruments bear interest at rates that are not fixed,
but

S-12
<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 securities.

WARRANTS - Warrants are instruments giving holders the right, but not the
obligation, to buy shares 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.
To the extent required by the 1940 Act, a Fund 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 the Fund
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 Fund generally purchases
securities on a when-issued or forward commitment basis with the intention of
actually acquiring securities for its portfolio, a Fund may dispose of a
when-issued security or forward commitment prior to settlement if deems it
appropriate.

ZERO COUPON SECURITIES - STRIPS and Receipts are sold as zero coupon securities,
that is, fixed income securities that have been stripped of their unmatured
interest coupons. Receipts include "Treasury Receipts" ("TRs"), "Treasury
Investment Growth Receipts" ("TIGRs"), and "Certificates of Accrual on Treasury
Securities" ("CATS"). Zero coupon securities are sold at a (unusually
substantial) discount and redeemed at face value at their maturity date without
interim cash payments of interest or principal. The amount of this discount is
accredited over the life of the security, and the accretion constitutes the
income earned on the security for both accounting and tax purposes. Because of
these features, these market prices of zero coupon securities are generally more
volatile than the market prices of securities that have similar maturity but
that pay interest periodically. Zero coupon securities are likely to respond to
a greater degree to interest rate changes than are non-zero coupon securities
with similar maturity and credit qualities. SEE ALSO "Taxes."

INVESTMENT LIMITATIONS

FUNDAMENTAL POLICIES

The following investment limitations are fundamental policies of the Funds.
Fundamental policies cannot be changed without the consent of the holders of a
majority of a Fund's outstanding shares. The term "majority of the outstanding
shares" means the vote of (i) 67% or more of a Fund's shares present at a
meeting, if more than 50% of the outstanding shares of that Fund are present or
represented by proxy, or (ii) more than 50% of that Fund's outstanding shares,
whichever is less.

No Fund may:

1. Purchase securities of any issuer (except securities issued or
guaranteed by the United States, its agencies or instrumentalities and
repurchase agreements involving such securities) if, as a result, more
than 5% of the total assets of the Fund would be invested in the
securities of such issuer or more than 10% of the outstanding voting
securities of such issuer would be owned by the Fund on the last day of
each fiscal quarter. This restriction applies to 75% of the Fund's
assets.

S-13

<PAGE>

2. Purchase any securities that would cause more than 25% of the total
assets of the Fund to be invested in the securities of one or more
issuers conducting their principal business activities in the same
industry. This limitation does not apply to (i) investments in the
obligations issued or guaranteed by the U.S. government or its
agencies and instrumentalities, and (ii) repurchase agreements
involving such securities. In addition, for the Treasury Securities
Money Market Fund and the Tax Exempt Money Market Fund only, this
limitation does not apply to obligations issued by domestic branches
of U.S. banks or U.S. branches of foreign banks subject to the same
regulation as U.S. banks or to investments in tax exempt securities
issued by governments or political subdivisions of governments.

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, 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 (iv) asset-backed securities secured by distinct
types of assets, such as truck and auto loan leases, credit card
receivables and home equity loans, will each be considered a separate
industry.

3. Borrow money in an amount exceeding 33 1/3% of the value of its total
assets, provided that, for purposes of this limitation, investment
strategies that either obligate a Fund to purchase securities or
require a Fund to segregate assets are not considered to be borrowing.
Asset coverage of at least 300% is required for all borrowing, except
where the Fund has borrowed money for temporary purposes in an amount
not exceeding 5% of its total assets.

4. Make loans if, as a result, more than 33 1/3% of its total assets would
be lent to other parties, except that a Fund may (i) purchase or hold
debt instruments in accordance with its investment objectives and
policies; (ii) enter into repurchase agreements; and (iii) lend its
securities.

5. Act as an underwriter of securities of other issuers except as it may
be deemed an underwriter in selling a portfolio security.

6. Issue senior securities (as defined in the 1940 Act) except as
permitted by rule, regulation or order of the SEC.

NON-FUNDAMENTAL POLICIES

The following investment policies are non-fundamental policies of the Funds and
may be changed with respect to any Fund by the Board of Trustees.

No Fund may:

1. Invest in illiquid securities in an amount exceeding, in the aggregate,
15% (10% for the Treasury Securities Money Market Fund and the Tax
Exempt Money Market Fund) of that Fund's net assets.

2. Purchase securities on margin or effect short sales, except that a Fund
may (i) obtain short-term credits as necessary for the clearance of
security transactions; (ii) provide initial and variation margin
payments in connection with transactions involving futures contracts
and options on such contracts; and (iii) make short sales "against the
box" or in compliance with the SEC's position regarding the asset
segregation requirements imposed by Section 18 of the 1940 Act.

S-14

<PAGE>

3. Purchase securities of other investment companies except as permitted
by the 1940 Act, the rules and regulations thereunder or pursuant to an
exemption therefrom.

4. The Fund will not purchase securities while its borrowing exceeds 5%
of its total assets.

5. Purchase or sell real estate, real estate limited partnership
interests, physical commodities or commodities contracts except that a
Fund may purchase commodities contracts relating to financial
instruments, such as financial futures contracts and options on such
contracts.

The foregoing percentages are: (i) based on total assets (except for the
limitation on illiquid securities which is based on net assets); (ii) will apply
at the time of purchase of a security; and (iii) shall not be considered
violated unless an excess or deficiency occurs or exists immediately after as a
result of a purchase of a security.

THE ADVISER, TRANSFER AGENT AND CUSTODIAN

ADVISORY SERVICES - The Trust and Hancock Bank (the "Adviser") have entered into
an advisory agreement (the "Advisory Agreement") dated as of May 31, 2000 with
respect to the Funds. The Advisory Agreement provides that the Adviser shall not
be protected against any liability to the Trust or its shareholders by reason of
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard of its obligations or
duties thereunder.

The continuance of the Advisory Agreement, after the first two years, must be
specifically approved at least annually (i) by the vote of the Trustees, and
(ii) by the vote of a majority of the Trustees who are not parties to the
Agreement or "interested persons" of any party thereto, cast in person at a
meeting called for the purpose of voting on such approval. An Advisory Agreement
will terminate automatically in the event of its assignment, and is terminable
at any time without penalty by the Trustees of the Trust or, with respect to the
Funds by a majority of the outstanding shares of the appropriate Funds, on not
less than 30 days' nor more than 60 days' written notice to the Adviser, or by
the Adviser on 90 days' written notice to the Trust.

Hancock Bank is a wholly owned subsidiary of Hancock Bank Holding Company, a
bank holding company headquartered in Gulfport, Mississippi. Hancock Bank's
banking activities date to 1899 when Hancock Bank opened its doors in Bay St.
Louis with a capitalization of $10,000. As of February 1, 2000, Hancock Bank had
total consolidated assets of approximately $3 billion and operates 97 banking
offices in the States of Mississippi and Louisiana. It offers commercial,
consumer and mortgage loans, deposit services, as well as trust and fiduciary
services, to individuals and middle market businesses in its respective market
areas.

The Bank's Trust & Financial Services Group provides investment management
services, personal trust, employee benefit, corporate trust and wealth
management services. The Trust and Financial Services Group employs
approximately 80 people and have approximately $2.5 billion in assets.

TRANSFER AGENCY SERVICES - Hancock Bank also serves as the Funds' transfer agent
under a Transfer Agency and Service Agreement dated May 31, 2000. Hancock Bank
receives an annual fee of $5,000 per class of each Fund under the Transfer
Agency and Service Agreement.

CUSTODIAN SERVICES - Hancock Bank acts as custodian (the "Custodian") of the
Trust. The Custodian holds cash, securities and other assets of the Trust as
required by the 1940 Act. Under the Custody Agreement dated May 31, 2000, the
Trust shall pay Hancock Bank at an annual rate, based on each Fund's average
daily net assets, of 0.03%, subject to a minimum of $250 per month per Fund.

S-15
<PAGE>

SHAREHOLDER SERVICES - The Funds and Hancock Bank have also entered into a
shareholder servicing agreement pursuant to which Hancock Bank provides certain
shareholder services to Class A, Class C, and Institutional Sweep shareholders
(the "Service Plan"). Under the Service Plan, Hancock Bank may perform, or may
compensate other service providers, including Hancock Investment Services, Inc.,
for performing, the following shareholder services: maintaining client accounts;
arranging for bank wires; responding to client inquiries concerning services
provided on investments; assisting clients in changing dividend options, account
designations and addresses; sub-accounting; providing information on share
positions to client; forwarding shareholder communications to clients;
processing purchase, exchange and redemption orders; and processing dividend
payments. Under the Service Plan, the Funds may pay Hancock Bank a fee at a rate
of up to 0.25% annually of the average daily net assets of the Funds
attributable to Class A, Class C and Institutional Sweep Shares, respectively,
subject to the arrangement for provision of shareholder and administrative
services. Hancock Bank may retain as a profit any difference between the fee it
receives and the amount it pays to third parties.

SUB-ADVISER

The Adviser has entered into a sub-advisory agreement (the "Sub-Advisory
Agreement") with Weiss, Peck & Greer, L.L.C. (WPG) dated May 31, 2000 relating
to the Tax Exempt Money Market Fund. Under the Sub-Advisory Agreement, WPG
invests the assets of the Fund on a daily basis, and continuously administers
the investment program of the Fund.

WPG is located at One New York Plaza, New York, NY 10004, serves as the
Sub-Adviser and manages the Tax Exempt Money Market Fund on a day-to-day basis.
WPG is a limited liability company founded as a limited partnership in 1970, and
engages in investment management, venture capital management and management
buyouts. Since its founding, WPG has been active in managing portfolios of Tax
Exempt securities. As of January 31, 2000, WPG manages over $18 billion in
assets, $2.7 billion of which is invested in Tax Exempt money market funds. WPG
selects, buys and sells securities for the Fund under the supervision of the
Adviser and the Board of Trustees.

WPG is entitled to a fee which is paid by the Adviser and which is calculated
daily and paid monthly, at an annual rate of: .085% on the first $50 million of
the Fund's average daily net assets; .075% on the next $100 million of the
Fund's average daily net assets; .05% on the next $350 million of the Fund's
average daily net assets; .04% on the next $500 million of the Fund's average
daily net assets; and .03% of the Fund's average daily net assets over $1
billion. This fee will be computed daily and paid to the Sub-Adviser monthly.

The continuance of the Sub-Advisory Agreement, after the first two years, must
be specifically approved at least annually (i) by the vote of the Trustees, and
(ii) by the vote of a majority of the Trustees who are not parties to the
Agreement or "interested persons" of any party thereto, cast in person at a
meeting called for the purpose of voting on such approval. The Sub-Advisory
Agreement may be terminated by the Adviser, the Trust's Board of Trustees or by
a vote of the majority of the outstanding voting securities of the Fund at any
time, without the payment or any penalty, on sixty (60) days' written notice to
WPG and may be terminated at any time by ninety (90) days' written notice to the
Adviser of the Fund. This Agreement will immediately terminate in the event of
its assignment or upon termination of the Sub-Advisory Agreement between the
Adviser and the Trust with regard to the Fund (As used in this Agreement, the
terms "majority of the outstanding voting securities," "interested persons" and
"assignment" have the same meaning of such terms in the 1940 Act).

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<PAGE>

THE ADMINISTRATOR

SEI Investments Mutual Funds Services (the "Administrator") serves as the
administrator of the Trust. The Administrator provides the Trust with
administrative services, including regulatory reporting and all necessary office
space, equipment, personnel and facilities. For these administrative services,
the Administrator is entitled to a fee, which is detailed below in the following
schedule:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
Fee (as a percentage of aggregate
average annual assets) Aggregate Trust Assets
-----------------------------------------------------------------------------------------------
<S> <C>
0.15% first $100 million
-----------------------------------------------------------------------------------------------
0.125% next $250 million
-----------------------------------------------------------------------------------------------
0.10% next $400 million
-----------------------------------------------------------------------------------------------
0.08% over $750 million
-----------------------------------------------------------------------------------------------
</TABLE>

The foregoing fee is subject to an annual minimum as follows:

The Trust's cumulative minimum annual fee for the initial four Portfolios:

$250,000 in the first year, broken down as follows:
*$200,000 in the first six months (calculated on an annualized basis)
$300,000 in the next six months (calculated on an annualized basis)
$300,000 in the second year
$400,000 in years three, four and five

*Minimums during the first six months of this Agreement will accrue each month,
and, if not paid monthly, the total amount due for the six months will be paid
in full in the seventh month.

A maximum of five new Portfolios (in addition to the original four as noted
above) may be opened and applied to the cumulative pricing model during the
original five-year term. The following sets forth the cumulative minimum annual
fee for the Trust for the specified number of Portfolios:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Year 1 Year 2 Year 3 and After
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5 Portfolios $ 350,000 $ 400,000 $ 500,000
--------------------------------------------------------------------------------------------------------
6 Portfolios $ 475,000 $ 525,000 $ 625,000
--------------------------------------------------------------------------------------------------------
7 Portfolios $ 625,000 $ 675,000 $ 775,000
--------------------------------------------------------------------------------------------------------
8 Portfolios $ 800,000 $ 850,000 $ 950,000
--------------------------------------------------------------------------------------------------------
9 Portfolios $1,000,000 $1,050.000 $1,150,000
--------------------------------------------------------------------------------------------------------
</TABLE>

For the tenth Portfolio and each Portfolio opened thereafter, the Trust will pay
a minimum fee of $75,000 per Portfolio in addition to the cumulative minimum set
forth above.

The minimum annual fee for each additional class of Shares of a Portfolio
established after the initial three (3) classes of Shares per Portfolio is
$10,000.

The Trust will be separately charged $6 per call for each incoming and outgoing
investor service call. Further, if the Trust opens a Portfolio or a class
directed toward retail investors, the Trust will use the Administrator's Voice
Response Unit at the then-prevailing fee.

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<PAGE>

The Administration Agreement provides that the Administrator shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Trust in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Administrator in the performance of its duties or
from reckless disregard by it of its duties and obligations thereunder. The
Administration Agreement shall remain in effect with respect to the Funds until
May 31, 2005 and shall continue in effect for successive periods of three years
unless terminated by either party on not less than 90 days' written notice to
the other party.

The Administrator, a Delaware business trust, has its principal business offices
at Oaks, Pennsylvania 19456. SEI Investments Management Corporation ("SIMC"), a
wholly owned subsidiary of SEI Investments Company ("SEI Investments"), is the
owner of all beneficial interest in the Administrator. SEI Investments and its
subsidiaries and affiliates, including the Administrator, are leading providers
of funds evaluation services, trust accounting systems, and brokerage and
information services to financial institutions, institutional investors, and
money managers. The Administrator and its affiliates also serve as administrator
or sub-administrator to the following other mutual funds: The Achievement Funds
Trust, Alpha Select Funds, Amerindo Funds, Inc., The Arbor Fund, ARK Funds,
Armada Funds, Bishop Street Funds, Boston 1784 Funds, CNI Charter Funds, CUFUND,
The Expedition Funds, First American Funds, Inc., First American Investment
Funds, Inc., First American Strategy Funds, Inc., Friends Ivory Funds, HighMark
Funds, Huntington Funds, Huntington VA Fund, The Nevis Fund, Inc., Oak
Associates Funds, The Parkstone Group of Funds, The PBHG Funds, Inc., PBHG
Insurance Series Fund, Inc., The Pillar Funds, SEI Asset Allocation Trust, SEI
Daily Income Trust, SEI Index Funds, SEI Institutional International Trust, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI Insurance
Products Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic Funds,
STI Classic Variable Trust, TIP Funds, UAM Funds Trust, UAM Funds, Inc. and UAM
Funds, Inc. II

THE DISTRIBUTOR

SEI Investments Distribution Co. (the "Distributor"), a wholly owned subsidiary
of SEI, and the Trust are parties to a distribution agreement dated May 31, 2000
("Distribution Agreement"). The Distribution Agreement is renewable annually.
The Distribution Agreement may be terminated by the Distributor, by a majority
vote of the Trustees who are not interested persons and have no financial
interest in the Distribution Agreement or by a majority of the outstanding
shares of the Trust upon not more than 60 days' written notice by either party
or upon assignment by the Distributor.

THE DISTRIBUTION PLAN

The Distribution Plan (the "Plan") provides that Class A Shares of the Treasury
Securities Money Market Fund will pay the Distributor a fee of .25% and Class C
Shares of the Strategic Income Bond Fund and the Growth and Income Fund will
each pay the Distributor a fee of .75% of the average daily net assets of the
shares. Under the Plan, the Distributor may make payments pursuant to written
agreements to financial institutions and intermediaries such as banks, savings
and loan associations, insurance companies including, without limit, investment
counselors, broker-dealers and the Distributor's affiliates and subsidiaries
(collectively, "Agents") as compensation for services, reimbursement of expenses
incurred in connection with distribution assistance. The Plan is characterized
as a compensation plan since the distribution fee will be paid to the
Distributor without regard to the distribution expenses incurred by the
Distributor or the amount of payments made to other financial institutions and
intermediaries. The Trust intends to operate the Plan in accordance with its
terms and with the NASD rules concerning sales charges.

The Trust has adopted the Plan in accordance with the provisions of Rule 12b-1
under the 1940 Act, which regulates circumstances under which an investment
company may directly or indirectly bear expenses relating

S-18

<PAGE>

to the distribution of its shares. Continuance of the Plan must be approved
annually by a majority of the Trustees of the Trust and by a majority of the
Trustees who are not parties to the Distribution Agreement or interested persons
(as defined by the 1940 Act) of any party to the Distribution Agreement
("Qualified Trustees"). The Plan requires that quarterly written reports of
amounts spent under the Plan and the purposes of such expenditures be furnished
to and reviewed by the Trustees. The Plan may not be amended to increase
materially the amount that may be spent thereunder without approval by a
majority of the outstanding shares of the Fund. All material amendments of the
Plan will require approval by a majority of the Trustees of the Trust and of the
Qualified Trustees.

INDEPENDENT PUBLIC ACCOUNTANTS

PricewaterhouseCoopers LLP serves as independent public accountants for the
Trust.

LEGAL COUNSEL

Morgan, Lewis & Bockius LLP serves as legal counsel to the Trust.

TRUSTEES AND OFFICERS OF THE FUND

The Trustees and Executive Officers of the Trust, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with the named companies during that
period. Unless otherwise noted, the business address of each Trustee and each
Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456. Certain
officers of the Trust also serve as officers of some or all of the following:
The Achievement Funds Trust, The Advisors' Inner Circle Fund, Alpha Select
Funds, The Arbor Fund, ARK Funds, Armada Funds, Armada Advantage Fund, Bishop
Street Funds, Boston 1784 Funds , CNI Charter Funds, CUFUND, The Expedition
Funds, First American Funds, Inc., First American Investment Funds, Inc., First
American Strategy Funds, Inc., Friends Ivory Funds, HighMark Funds, Huntington
Funds, Huntington VA Fund, The Nevis Fund, Inc., Oak Associates Funds, The
Parkstone Group of Funds, The PBHG Funds, Inc., PBHG Insurance Series Fund,
Inc., The Pillar Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI
Index Funds, SEI Institutional International Trust, SEI Institutional
Investments Trust, SEI Institutional Managed Trust, SEI Insurance Products
Trust, SEI Insurance Products Trust, SEI Liquid Asset Trust, SEI Tax Exempt
Trust, STI Classic Funds, STI Classic Variable Trust, TIP Funds, UAM Funds
Trust, UAM Funds, Inc. and UAM Funds, Inc. II, each of which is an open-end
management investment company managed by SEI Investments Mutual Funds Services
or its affiliates and distributed by SEI Investments Distribution Co.

ROBERT A. NESHER (DOB 08/17/46) -- Chairman of the Board of Trustees* --
Currently performs various services on behalf of SEI Investments for which Mr.
Nesher is compensated. Executive Vice President of SEI Investments, 1986-1994.
Director and Executive Vice President of the Administrator and the Distributor,
1981-1994. Trustee of The Advisors' Inner Circle Fund, The Arbor Fund, Bishop
Street Funds, Boston 1784 Funds(R), The Expedition Funds, Oak Associates Funds,
Pillar Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional International Trust, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI Insurance Products Trust, SEI Liquid
Asset Trust and SEI Tax Exempt Trust.

S-19

<PAGE>

JOHN T. COONEY (DOB 01/20/27) -- Trustee** -- Vice Chairman of Ameritrust Texas
N.A., 1989-1992, and MTrust Corp., 1985-1989. Trustee of The Advisors' Inner
Circle Fund, The Arbor Fund, The Expedition Funds and Oak Associates Funds.

WILLIAM M. DORAN (DOB 05/26/40) -- Trustee* -- 1701 Market Street, Philadelphia,
PA 19103. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the Trust,
SEI Investments, the Administrator and the Distributor. Director of SEI
Investments since 1974; Secretary of SEI Investments since 1978. Trustee of The
Advisors' Inner Circle Fund, The Arbor Fund, The Expedition Funds, Oak
Associates Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional International Trust, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI Insurance Products Trust, SEI Liquid
Asset Trust and SEI Tax Exempt Trust.

ROBERT A. PATTERSON (DOB 11/05/27) -- Trustee** -- Pennsylvania State
University, Senior Vice President, Treasurer (Emeritus); Financial and
Investment Consultant, Professor of Transportation since 1984; Vice
President-Investments, Treasurer, Senior Vice President (Emeritus), 1982-1984.
Director, Pennsylvania Research Corp.; Member and Treasurer, Board of Trustees
of Grove City College. Trustee of The Advisors' Inner Circle Fund, The Arbor
Fund, The Expedition Funds and Oak Associates Funds.

EUGENE B. PETERS (DOB 06/03/29) -- Trustee** -- Private investor from 1987 to
present. Vice President and Chief Financial Officer, Western Company of North
America (petroleum service company), 1980-1986. President of Gene Peters and
Associates (import company), 1978-1980. President and Chief Executive Officer of
Jos. Schlitz Brewing Company before 1978. Trustee of The Advisors' Inner Circle
Fund, The Arbor Fund, The Expedition Funds and Oak Associates Funds.

JAMES M. STOREY (DOB 04/12/31) -- Trustee** -- Partner, Dechert Price & Rhoads,
September 1987 - December 1993; Trustee of The Advisors' Inner Circle Fund, The
Arbor Fund, The Expedition Funds, Oak Associates Funds, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional International
Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Insurance Products Trust, SEI Liquid Asset Trust and SEI Tax Exempt Trust.

GEORGE J. SULLIVAN, JR. (DOB 11/13/42) -- Trustee**-- Chief Executive Officer,
Newfound Consultants Inc. since April 1997. General Partner, Teton Partners,
L.P., June 1991- December 1996; Chief Financial Officer, Noble Partners, L.P.,
March 1991-December 1996; Treasurer and Clerk, Peak Asset Management, Inc.,
since 1991; Trustee, Navigator Securities Lending Trust, since 1995. Trustee of
The Advisors' Inner Circle Fund, The Arbor Fund, The Expedition Funds, Oak
Associates Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional International Trust, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI Insurance Products Trust, SEI Liquid
Asset Trust and SEI Tax Exempt Trust.

MARK E. NAGLE (DOB 10/20/59) -- President, Controller and Chief Financial
Officer -- President of the Administrator and Senior Vice President of SEI
Investments Mutual Funds Services Operations Group since 1998. Vice President of
the Administrator and Vice President of Fund Accounting and Administration of
SEI Investments Mutual Funds Services, 1996-1998. Vice President of the
Distributor since December 1997. Senior Vice President, Fund Administration,
BISYS Fund Services, September 1995 - November 1996. Senior Vice President and
Site Manager, Fidelity Investments 1981- September 1995.

TIMOTHY D. BARTO (DOB 03/28/68) -- Vice President and Assistant Secretary
--Employed by SEI Investments since October 1999. Vice President and Assistant
Secretary of the Administrator and Distributor

S-20

<PAGE>

since December 1999. Associate at Dechert Price & Rhoads, 1997-1999. Associate,
at Richter, Miller & Finn, 1994-1997.

TODD B. CIPPERMAN (DOB 02/14/66) -- Vice President and Assistant Secretary --
Senior Vice President and General Counsel of SEI Investments; Senior Vice
President, General Counsel and Secretary of the Administrator and the
Distributor since 2000. Vice President and Assistant Secretary of SEI
Investments, the Administrator and the Distributor, 1995-2000. Associate, Dewey
Ballantine (law firm), 1994-1995. Associate, Winston & Strawn (law firm),
1991-1994.

JAMES R. FOGGO (DOB 06/30/64) -- Vice President and Assistant Secretary -- Vice
President and Assistant Secretary of SEI Investments since 1998. Vice President
and Assistant Secretary of the Administrator and the Distributor since May 1999.
Associate, Paul Weiss, Rifkind, Wharton & Garrison (law firm), 1998. Associate,
Baker & McKenzie (law firm), 1995-1998. Associate, Battle Fowler L.L.P. (law
firm), 1993-1995. Operations Manager, The Shareholder Services Group, Inc.,
1986-1990.

LYDIA A. GAVALIS (DOB 06/05/64) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of SEI Investments, t he Administrator
and the Distributor since 1998. Assistant General Counsel and Director of
Arbitration, Philadelphia Stock Exchange, 1989-1998.

KATHY HEILIG (DOB 12/21/58) -- Vice President and Assistant Secretary --
Treasurer of SEI Investments since 1997; Vice President of SEI Investments since
1991. Vice President and Treasurer of the Administrator since 1997. Assistant
Controller of SEI Investments and Vice President of the Distributor since 1995;
Director of Taxes of SEI Investments, 1987 to 1991. Tax Manager, Arthur Andersen
LLP prior to 1987.

CHRISTINE M. MCCULLOUGH (DOB 12/02/60) -- Vice President and Assistant Secretary
-- Employed by SEI Investments since November 1, 1999. Vice President and
Assistant Secretary of the Administrator and the Distributor since December
1999. Associate at White and Williams LLP, 1991-1999. Associate at Montgomery,
McCracken, Walker & Rhoads, 1990-1991.

JOHN H. GRADY, JR. (DOB 06/01/61) -- Secretary -- 1701 Market Street,
Philadelphia, PA 19103, Partner since 1995, Morgan, Lewis & Bockius LLP (law
firm), counsel to the Trust, SEI Investments, the Administrator and the
Distributor.

*Messrs. Nesher and Doran are Trustees who may be deemed to be "interested"
persons of the Fund as that term is defined in the 1940 Act.

**Messrs. Cooney, Patterson, Peters and Storey serve as members of the Audit
Committee of the Fund.

The Trustees and officers of the Trust own less than 1% of the outstanding
shares of the Trust. The Trust pays the fees for unaffiliated Trustees.

S-21
<PAGE>

The following table exhibits Trustee compensation for the fiscal period ended
January 31, 2000.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
Aggregate
Compensation Total Compensation From
From Registrant Pension or Retirement Estimated Registrant and Fund Complex
for the Fiscal Year Benefits Accrued as Annual Benefits Paid to Trustees for the Fiscal
Name of Person Ended 1/31/00 Part of Fund Expenses Upon Retirement Year Ended 1/31/00*
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Cooney $6,079 N/A N/A $6,079 for service on 1 board
---------------------------------------------------------------------------------------------------------------------------------
Robert Patterson $7,443 N/A N/A $7,443 for service on 1 board
---------------------------------------------------------------------------------------------------------------------------------
Eugene B. Peters $6,079 N/A N/A $6,079 for service on 1 board
---------------------------------------------------------------------------------------------------------------------------------
James M. Storey $6,079 N/A N/A $6,079 for service on 1 board
---------------------------------------------------------------------------------------------------------------------------------
George J. Sullivan $6,079 N/A N/A $6,079 for service on 1 board
---------------------------------------------------------------------------------------------------------------------------------
William M. Doran $0 N/A N/A $0 for service on 1 board
---------------------------------------------------------------------------------------------------------------------------------
Robert A. Nesher $0 N/A N/A $0 for service on 1 board
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

* For the purposes of this table, the Trust is the only investment company in
the Fund Complex.

PERFORMANCE INFORMATION

From time to time, the Trust may advertise yield, effective yield and total
return of the Funds. 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 Funds may periodically compare their performance to other mutual funds
tracked by mutual fund rating services, to broad groups of comparable mutual
funds, or to unmanaged indices. These comparisons may assume reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs.

COMPUTATION OF YIELD

No representation can be made concerning actual future yields or returns. The
yield of the Funds refers to the annualized income generated by an investment in
that Fund over a specified 30-day period. The yield is calculated by assuming
that the income generated by the investment during that 30-day period is
generated in each period over one year and is shown as a percentage of the
investment. In particular, yield will be calculated according to the following
formula:

Yield = 2[((a-b)/cd+1)TO THE POWER OF 6-1], where a = dividends and interest
earned during the period; b = expenses accrued for the period (net of
reimbursement); c = the average daily number of shares outstanding during the
period that were entitled to receive dividends; and d = the maximum offering
price per share on the last day of the period.

CALCULATION OF TOTAL RETURN

The total return of the Funds refer to the average compounded rate of return to
a hypothetical investment for designated time periods (including, but not
limited to, the period from which that Fund commenced operations

S-22

<PAGE>

through the specified date), assuming that the entire investment is redeemed at
the end of each period. In particular, total return will be calculated according
to the following formula: P (1 + T)TO THE POWER OF n = ERV, where P = a
hypothetical initial payment of $1,000; T = average annual total return; n =
number of years; and ERV = ending redeemable value, as of the end of the
designated time period, of a hypothetical $1,000 payment made at the beginning
of the designated time period.

PURCHASING SHARES

Purchases and redemptions may be made through the Distributor on a day on which
the New York Stock Exchange and Hancock Bank are open for business (a "Business
Day"). Shares of the Portfolios are offered on a continuous basis. Currently,
the Funds are closed for business when the following holidays are observed: New
Year's Day, Martin Luther King Jr. Day, President's Day, the Tuesday before Ash
Wednesday ("Mardi Gras"), Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving, and Christmas.

REDEEMING SHARES

It is currently the Trust's policy to pay all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by a Fund in lieu
of cash. Shareholders may incur brokerage charges on the sale of any such
securities so received in payment of redemptions. The Trust has obtained an
exemptive order from the SEC that permits the Trust to make in-kind redemptions
to those shareholders of the Trust that are affiliated with the Trust solely by
their ownership of a certain percentage of the Trust's investment portfolios.

A Shareholder will at all times be entitled to aggregate cash redemptions from
all Funds of the Trust during any 90-day period of up to the lesser of $250,000
or 1% of the Trust's net assets.

The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
the disposal or valuation of a Funds' securities is not reasonably practicable,
or for such other periods as the SEC has by order permitted. The Trust also
reserves the right to suspend sales of shares of any Fund for any period during
which the New York Stock Exchange, the Adviser, the Administrator, the Transfer
Agent and/or the Custodian are not open for business.

Trading takes place in various markets on days that are not Business Days and
the Funds' net asset values are not calculated. As a result, events affecting
the values of the Funds' securities that occur between the time their prices are
determined and the close of the NYSE will not be reflected in a Funds'
calculation of net asset values unless the Adviser determines that the
particular event may materially affect net asset value, in which case an
adjustment will be made.

DETERMINATION OF NET ASSET VALUE

TREASURY SECURITIES MONEY MARKET FUND AND TAX EXEMPT MONEY MARKET FUND -- The
net asset value per share of the Money Market Funds is calculated by adding the
value of securities and other assets, subtracting liabilities and dividing by
the number of outstanding shares. Securities will be valued by the amortized
cost method which involves valuing a security at its cost on the date of
purchase and thereafter (absent unusual circumstances) assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuations in general market rates of interest on the value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which a security's value, as determined by this

S-23

<PAGE>

method, is higher or lower than the price each Fund would receive if it sold the
instrument. During periods of declining interest rates, the daily yield of each
Fund may tend to be higher than a like computation made by a company with
identical investments utilizing a method of valuation based upon market prices
and estimates of market prices for all of its portfolio securities. Thus, if the
use of amortized cost by each Fund resulted in a lower aggregate portfolio value
on a particular day, a prospective investor in each Fund would be able to obtain
a somewhat higher yield than would result from investment in a company utilizing
solely market values, and existing investors in each Fund would experience a
lower yield. The converse would apply in a period of rising interest rates.

The Money Market Funds' use of amortized cost and the maintenance of each Funds
net asset value at $1.00 are permitted by regulations promulgated by Rule 2a-7
under the 1940 Act, provided that certain conditions are met. The regulations
also require the Trustees to establish procedures that are reasonably designed
to stabilize the net asset value per share at $1.00 for each Fund. Such
procedures include the determination of the extent of deviation, if any, of each
Fund's current net asset value per share calculated using available market
quotations from each Fund's amortized cost price per share at such intervals as
the Trustees deem appropriate and reasonable in light of market conditions and
periodic reviews of the amount of the deviation and the methods used to
calculate such deviation. In the event that such deviation exceeds 1/2 of 1%,
the Trustees are required to consider promptly what action, if any, should be
initiated, and, if the Trustees believe that the extent of any deviation may
result in material dilution or other unfair results to shareholders, the
Trustees are required to take such corrective action as they deem appropriate to
eliminate or reduce such dilution or unfair results to the extent reasonably
practicable. Such actions may include: the sale of portfolio instruments prior
to maturity to realize capital gains or losses or to shorten average portfolio
maturity; withholding dividends; redeeming shares in kind; or establishing a net
asset value per share by using available market quotations. In addition, if each
Fund incurs a significant loss or liability, the Trustees have the authority to
reduce pro rata the number of shares of each Fund in each shareholder's account
and to offset each shareholder's pro rata portion of such loss or liability from
the shareholder's accrued but unpaid dividends or from future dividends while
each other Fund must annually distribute at least 90% of its investment company
taxable income.

STRATEGIC INCOME BOND FUND AND INCOME AND GROWTH FUND -- The securities of the
Fixed Income Funds and the Equity Funds are valued by the Administrator pursuant
to valuations provided by an independent pricing service. The pricing service
relies primarily on prices of actual market transactions as well as trader
quotations. However, the service may also use a matrix system to determine
valuations of fixed income securities, which system considers such factors as
security prices, yields, maturities, call features, ratings and developments
relating to specific securities in arriving at valuations. The procedures of the
pricing service and its valuations are reviewed by the officers of the Trust
under the general supervision of the Trustees.

TAXES

The following is only a summary of certain additional federal income tax
considerations generally affecting the Funds and their shareholders that are not
described in the Portfolios prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Funds or their shareholders, and the
discussion here and in the Funds' prospectuses is not intended as a substitute
for careful tax planning. Shareholders are urged to consult their tax advisors
with specific reference to their own tax situations, including their state and
local tax liabilities.

FEDERAL INCOME TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS

The following general discussion of certain federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, as well as administrative changes or
court decisions,

S-24
<PAGE>

may significantly change the conclusions expressed herein, and may have a
retroactive effect with respect to the transactions contemplated herein.

QUALIFICATION AS REGULATED INVESTMENT COMPANY

Each Fund intends to qualify and elect to be treated as a "regulated investment
company" ("RIC") as defined under Subchapter M of the Code. By following such a
policy, the Funds expect to eliminate or reduce to a nominal amount the federal
taxes to which it may be subject.

In order to qualify as a RIC, a Fund must distribute at least 90% of its net
investment income (which includes dividends, taxable interest, and the excess of
net short-term capital gains over net long-term capital losses less operating
expenses) and at least 90% of its net Tax Exempt interest income, for each tax
year, if any, to its shareholders and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of a
Fund's gross income each taxable year must be derived from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of stock or securities, or certain other income; (ii) at the close
of each quarter of the Fund's taxable year, at least 50% of the value of its
total assets must be represented by cash and cash items, U.S. government
securities, securities of other RICs and other securities, with such other
securities limited, in respect to any one issuer, to an amount that does not
exceed 5% of the value of the Fund's assets and that does not represent more
than 10% of the outstanding voting securities of such issuer; and (iii) at the
close of each quarter of the Fund's taxable year, not more than 25% of the value
of its assets may be invested in securities (other than U.S. government
securities or the securities of other RICs) of any one issuer or of two or more
issuers that the Fund controls and that are engaged in the same, similar or
related trades or business.

Although the Funds intend to distribute substantially all of its net investment
income and may distribute its capital gains for any taxable year, each Fund will
be subject to federal income taxation to the extent any such income or gains are
not distributed.

If a Fund fails to qualify for any taxable year as a RIC, all of its taxable
income will be subject to tax at regular corporate income tax rates without any
deduction for distributions to shareholders, and such distributions generally
will be taxable to shareholders as ordinary dividends to the extent of a Fund's
current and accumulated earnings and profits. In this event, distributions
generally will be eligible for the dividends-received deduction for corporate
shareholders.

PORTFOLIO DISTRIBUTIONS

Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in additional shares, to the extent of a Fund's
earnings and profits. The Funds anticipate that they will distribute
substantially all of their investment company taxable income for each taxable
year.

A Fund may either retain or distribute to shareholders its excess of net
long-term capital gains over net short-term capital losses (net capital gains).
If such gains are distributed as a capital gains distribution, they are taxable
to shareholders who are individuals at a maximum rate of 20%, regardless of the
length of time the shareholder has held shares. If any such gains are retained,
a Fund will pay federal income tax thereon.

In the case of corporate shareholders, distributions (other than capital gains
distributions) from a RIC, generally qualify for the dividends-received
deduction only to the extent of the gross amount of qualifying dividends
received by a portfolio for the year. Generally, and subject to certain
limitations, a dividend will be treated as a

S-25
<PAGE>

qualifying dividend if it has been received from a domestic corporation.
Accordingly, such distributions will generally qualify for the corporate
dividends-received deduction.

Ordinarily, investors should include all dividends as income in the year of
payment. However, dividends declared payable to shareholders of record in
October, November or December of one year, but paid in January of the following
year, will be deemed for tax purposes to have been received by the shareholder
and paid by a Fund in the year in which the dividends were declared.

A Fund will provide a statement annually to shareholders as to the federal tax
status of distributions paid (or deemed to be paid) by a Fund during the year,
including the amount of dividends eligible for the corporate dividends-received
deduction.

SALE OR EXCHANGE OF PORTFOLIO SHARES

Generally, gain or loss on the sale or exchange of a share will be capital gain
or loss that will be long-term if the share has been held for more than twelve
months and otherwise will be short-term. For individuals, long-term capital
gains are currently taxed at a maximum rate of 20% and short-term capital gains
are currently taxed at ordinary income tax rates. However, if a shareholder
realizes a loss on the sale, exchange or redemption of a share held for six
months or less and has previously received a capital gains distribution with
respect to the share (or any undistributed net capital gains of a Fund with
respect to such share are included in determining the shareholder's long-term
capital gains), the shareholder must treat the loss as a long-term capital loss
to the extent of the amount of the prior capital gains distribution (or any
undistributed net capital gains of a Fund that have been included in determining
such shareholder's long-term capital gains). In addition, any loss realized on a
sale or other disposition of shares will be disallowed to the extent an investor
repurchases (or enters into a contract or option to repurchase) shares within a
period of 61 days (beginning 30 days before and ending 30 days after the
disposition of the shares). This loss disallowance rule will apply to shares
received through the reinvestment of dividends during the 61-day period.

In certain cases, a Fund will be required to withhold, and remit to the United
States Treasury, 31% of any distributions paid to a shareholder who (1) has
failed to provide a correct taxpayer identification number, (2) is subject to
backup withholding by the Internal Revenue Service, or (3) has failed to certify
to a Fund that such shareholder is not subject to backup withholding.

FEDERAL EXCISE TAX

If a Fund fails to distribute in a calendar year at least 98% of its ordinary
income for the year and 98% of its capital gain net income (the excess of short
and long term capital gains over short and long term capital losses) for the
one-year period ending October 31 of that year (and any retained amount from the
prior calendar year), a Fund will be subject to a nondeductible 4% Federal
excise tax on the undistributed amounts. A Fund intends to make sufficient
distributions to avoid imposition of this tax, or to retain, at most its net
capital gains and pay tax thereon.

STATE AND LOCAL TAXES

A Fund is not liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by a Fund to
shareholders and the ownership of shares may be subject to state and local
taxes.

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PORTFOLIO TRANSACTIONS

A Fund has no obligation to deal with any broker-dealer or group of
broker-dealers in the execution of transactions in portfolio securities. Subject
to policies established by the Trustees of the Trust, the Adviser is responsible
for placing the orders to execute transactions for the Fund. In placing orders,
it is the policy of the Trust to seek to obtain the best net results taking into
account such factors as price (including the applicable dealer spread), the
size, type and difficulty of the transaction involved, the firm's general
execution and operational facilities and the firm's risk in positioning the
securities involved. While the Adviser generally seeks reasonably competitive
spreads or commissions, a Fund will not necessarily be paying the lowest spread
or commission available.

The money market instruments in which a Fund invests are traded primarily in the
over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, the Adviser
will deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Money market
instruments are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of executing portfolio
securities transactions of a Fund will primarily consist of dealer spreads and
underwriting commissions.

TRADING PRACTICES AND BROKERAGE

The Trust selects brokers or dealers to execute transactions for the purchase or
sale of Fund securities on the basis of its judgment of their professional
capability to provide the service. The primary consideration is to have brokers
or dealers provide transactions at best price and execution for the Trust. Best
price and execution includes many factors, including the price paid or received
for a security, the commission charged, the promptness and reliability of
execution, the confidentiality and placement accorded the order and other
factors affecting the overall benefit obtained by the account on the
transaction. The Trust's determination of what are reasonably competitive rates
is based upon the professional knowledge of its trading department as to rates
paid and charged for similar transactions throughout the securities industry. In
some instances, the Trust pays a minimal share transaction cost when the
transaction presents no difficulty. Some trades are made on a net basis where
the Trust either buys securities directly from the dealer or sells them to the
dealer. In these instances, there is no direct commission charged but there is a
spread (the difference between the buy and sell price) which is the equivalent
of a commission.

The Trust may allocate some or all commission brokerage business generated by
the Trust and accounts under management by the Adviser, to brokers or dealers
who provide brokerage and research services. These research services include
advice, either directly or through publications or writings, as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or purchasers or sellers of securities;
furnishing of analyses and reports concerning issuers, securities or industries;
providing information on economic factors and trends, assisting in determining
portfolio strategy, providing computer software used in security analyses, and
providing portfolio performance evaluation and technical market analyses. Such
services are used by the Adviser in connection with its investment
decision-making process with respect to one or more funds and accounts managed
by it, and may not be used exclusively with respect to the fund or account
generating the brokerage.

As provided in the Securities Exchange Act of 1934 (the "1934 Act"), higher
commissions may be paid to broker-dealers who provide brokerage and research
services than to broker-dealers who do not provide such services if such higher
commissions are deemed reasonable in relation to the value of the brokerage and

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research services provided. Although transactions are directed to broker-dealers
who provide such brokerage and research services, the Trust believes that the
commissions paid to such broker-dealers are not, in general, higher than
commissions that would be paid to broker-dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In addition, Fund transactions that generate
commissions or their equivalent are directed to broker-dealers who provide daily
portfolio pricing services to the Trust. Subject to best price and execution,
commissions used for pricing may or may not be generated by the funds receiving
the pricing service.

The Adviser may place a combined order for two or more accounts or funds engaged
in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in a
manner deemed equitable to each account or fund. It is believed that the ability
of the accounts to participate in volume transactions will generally be
beneficial to the accounts and funds. Although it is recognized that, in some
cases, the joint execution of orders could adversely affect the price or volume
of the security that a particular account or the Portfolio may obtain, it is the
opinion of the Adviser and the Trust's Board of Trustees that the advantages of
combined orders outweigh the possible disadvantages of separate transactions.

Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, a Trust, at the
request of the Distributor, gives consideration to sales of shares of the Trust
as a factor in the selection of brokers and dealers to execute Trust portfolio
transactions.

The Adviser may, consistent with the interest of the Funds, select brokers on
the basis of the research services they provide to the Adviser. Such services
may include analyses of the business or prospects of a company, industry or
economic sector, or statistical and pricing services. Information so received by
the Adviser will be in addition to and not in lieu of the services required to
be performed by the Adviser under the Advisory Agreement. If, in the judgment of
the Adviser, a Fund or other accounts managed by the Adviser will be benefitted
by supplemental research services, the Adviser is authorized to pay brokerage
commissions to a broker furnishing such services which are in excess of
commissions which another broker may have charged for effecting the same
transaction. These research services include advice, either directly or through
publications or writings, as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; furnishing of analyses and
reports concerning issuers, securities or industries; providing information on
economic factors and trends; assisting in determining portfolio strategy;
providing computer software used in security analyses; and providing portfolio
performance evaluation and technical market analyses. The expenses of the
Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information, such services may not be used exclusively, or at all,
with respect to a Fund or account generating the brokerage, and there can be no
guarantee that the Adviser will find all of such services of value in advising
the Fund.

It is expected that a Fund may execute brokerage or other agency transactions
through the Distributor, which is a registered broker-dealer, for a commission
in conformity with the 1940 Act, the 1934 Act and rules promulgated by the SEC.
Under these provisions, the Distributor is permitted to receive and retain
compensation for effecting portfolio transactions for the Portfolio on an
exchange if a written contract is in effect between the Distributor and the
Trust expressly permitting the Distributor to receive and retain such
compensation. These rules further require that commissions paid to the
Distributor by the Fund for exchange transactions not exceed "usual and
customary" brokerage commissions. The rules define "usual and customary"
commissions to include amounts which are "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time." The Trustees, including those who are not "interested persons" of the
Trust, have adopted procedures for

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evaluating the reasonableness of commissions paid to the Distributor and will
review these procedures periodically.

The Adviser may place portfolio orders with qualified broker-dealers who
recommend a Funds' shares to clients, and may, when a number of brokers and
dealers can provide best net results on a particular transaction, consider such
recommendations by a broker or dealer in selecting among broker-dealers.

DESCRIPTION OF SHARES

The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and shares of each Fund, each of which represents an equal
proportionate interest in the portfolio with each other share. Shares are
entitled upon liquidation to a pro rata share in the net assets of the
portfolio. Shareholders have no preemptive rights. The Declaration of Trust
provides that the Trustees of the Trust may create additional series of shares.
All consideration received by the Fund for shares of any additional series and
all assets in which such consideration is invested would belong to that series
and would be subject to the liabilities related thereto. Share certificates
representing shares will not be issued.

SHAREHOLDER LIABILITY

The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Trust were held to be a partnership, the
possibility of the shareholders incurring financial loss for that reason appears
remote because the Trust's Declaration of Trust contains an express disclaimer
of shareholder liability for obligations of the Trust and requires that notice
of such disclaimer be given in each agreement, obligation or instrument entered
into or executed by or on behalf of the Trust or the Trustees, and because the
Declaration of Trust provides for indemnification out of the Fund property for
any shareholder held personally liable for the obligations of the Trust.

LIMITATION OF TRUSTEES' LIABILITY

The Declaration of Trust provides that a Trustee shall be liable only for his or
her own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, shall not be
liable for any neglect or wrongdoing of any such person. The Declaration of
Trust also provides that the Fund will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with actual or
threatened litigation in which they may be involved because of their offices
with the Trust unless it is determined in the manner provided in the Declaration
of Trust that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Trust. However, nothing in the
Declaration of Trust shall protect or indemnify a Trustee against any liability
for his or her willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.

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