[ARK LOGO OMITTED]
ARK FUNDS
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SEMI ANNUAL REPORT OCTOBER 31, 1998
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TABLE OF CONTENTS
LETTER TO SHAREHOLDERS 1
ECONOMIC AND INVESTMENT REVIEW 2
THE ARK FUNDS FAMILY 4
EQUITY PORTFOLIOS MANAGEMENT
DISCUSSION AND ANALYSIS 6
FIXED INCOME PORTFOLIOS MANAGEMENT
DISCUSSION AND ANALYSIS 18
MONEY MARKET PORTFOLIOS MANAGEMENT
DISCUSSION AND ANALYSIS 28
STATEMENTS OF NET ASSETS 33
STATEMENTS OF OPERATIONS 86
STATEMENTS OF CHANGES IN NET ASSETS 90
FINANCIAL HIGHLIGHTS 94
NOTES TO FINANCIAL STATEMENTS 98
ABOUT THE COVER
Allow us to introduce you to the portfolio managers and analysts behind the ARK
Funds Portfolios. Emphasizing diligent research and sound fundamentals in
security selection, Allied Investment Advisors' investment management team is
dedicated to obtaining the best performance possible for our shareholders.
Details on the investment philosophies and strategies used to manage our equity,
fixed income, and money market portfolios can be found in this semi annual
report.
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October 31, 1998
DEAR ARK FUNDS SHAREHOLDER:
This has been an exciting period of growth, change, and important industry
recognition for us. We are pleased to bring you this ARK Funds Semi Annual
Report for the period ending October 31, 1998.
ARK Funds assets continue to grow. During the period from April 30 to October
31, assets grew from $4.5 billion to $5.3 billion, or more than 17%. Along with
this asset growth, we've expanded our portfolio offerings.
In our effort to provide a more competitive and attractive mix of retail class
pricing options, we've created Class B shares for the following portfolios: Blue
Chip Equity, Value Equity, Capital Growth, Balanced, and Income as well as Money
Market for exchange purposes.
These Class B portfolios offer the investor a compelling pricing advantage.
Unlike Class A shares, which have an initial sales charge, Class B shares have a
contingent deferred sales charge. Many investors like the flexibility of this
alternative pricing option, which makes it easier for them to invest for their
future goals.
We've also included information about Class B shares on our ARK Funds Phoneline
(1-800-646-4ARK). This valuable, automated information service gives our retail
shareholders updates on prices, yields and returns for retail classes of the ARK
Funds and is in operation 24 hours a day via touch-tone phone.
In July, the ARK International Equity Portfolio merged with the Govett
International Equity Fund and left the ARK Funds group. This reorganization was
determined by the ARK Funds Board to be in the best interest of all shareholders
and was also voted on by shareholders. The ARK Funds International Equity
Portfolio was too small to manage on a cost-effective basis, and shareholders
will benefit from the larger asset base resulting from the combination of the
two funds. The Govett Funds are owned by Allied Irish Banks, p.l.c., the parent
company of First Maryland Bancorp.
All our hard work and investment diligence has been recognized within the
industry. In the September 1998 issue of Mutual Funds Magazine, ARK Funds was
cited in terms of the overall equity performance of our diversified domestic
stock funds during the period from January 1998 to June 1998. We are proud of
this recognition, but it's also a reminder of our responsibility to maintain
performance, and a challenge to surpass our accomplishments.
Closer to home, ARK Funds became the lead sponsor of what has proven to be one
of the National Aquarium in Baltimore's most popular exhibits, "Venom: Striking
Beauties." Because of this sponsorship, the ARK Funds name now reaches out to a
diverse audience with financial needs. It is a unique opportunity to strengthen
our brand name while supporting a dynamic exhibit at the region's premier
tourist and family destination.
We are pleased that you have chosen the ARK Funds as a vehicle to realize your
investment objectives. Our goals are to continue asset growth, broaden
investment choices for both retail and institutional investors, and build upon
our successes. Speaking for everyone at the ARK Funds, we thank you for your
trust and look forward to helping you meet your financial goals in the years to
come.
Sincerely,
/S/ William H. Cowie, Jr.
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William H. Cowie, Jr.
Chairman of the Board
ARK Funds
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ECONOMIC AND INVESTMENT REVIEW
DEAR ARK FUNDS SHAREHOLDER:
As an avid scuba diver who often suffers from seasickness, I am quite familiar
with the unpleasant sensations that arise with each pitch of the boat when seas
are rough. Although the sage advice to "focus on a fixed object on land" does
ultimately help restore some equilibrium, the whole experience can be quite
uncomfortable.
Indeed, the behavior of global financial markets over the last six months has no
doubt caused bouts of motion sickness for many investors, as alternating
exuberance and fears over worldwide economic conditions caused sharp swings in
both equity and fixed income markets. U.S. markets were not excluded from the
upset that resulted from the Asian economic crisis, the Russian economic
collapse, Brazil's financial problems, and the incredible debacle of Long Term
Capital Management (a troubled U.S. hedge fund). The concept of "risk" was
reintroduced (or perhaps introduced) to investors who had become accustomed to
quarter after quarter of positive results.
Although the S&P 500 finished the six months ended October 31 with a seemingly
ho-hum return of -0.39%, this period included one of the worst months ever for
the stock market (in August, the S&P 500 was down -14.44%) as well as one of the
best in over a decade (in October, the S&P 500 was up +8.13%). Despite the
comeback from August lows for shares of very large companies, stocks of smaller,
mid-cap, and international companies were unable to regain much lost ground.
Small company stock prices suffered the greatest setback during the period, with
the Russell 2000 Index falling more than 20%.
The bond market has had its own battle with seasickness in recent months.
Concerns about the unfolding global economic situation and fears of a potential
credit crunch caused a stampede into liquidity and quality, e.g., into
investments such as U.S. Treasuries. While rates on Treasuries subsequently fell
sharply (and prices rose), the other major sectors of the bond market, corporate
and mortgage securities, suffered. In fact, the first nine months of 1998 marked
the first time since 1981 that U.S. Treasuries outperformed both corporates and
mortgage-backed issues, and yield spreads between corporate issues and
Treasuries widened to the highest level in eight years.
Fortunately, the markets were treated to a dose of seasickness medicine early
this fall by Fed Chairman Alan Greenspan in the form of not one, but two
interest rate cuts. In September, the Federal Open Market Committee met and
lowered the Fed Funds target rate from 5.5%
2
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ARK FUNDS SEMI ANNUAL REPORT OCTOBER 31, 1998
[PHOTO OF JENNIFER LAMBDIN OMITTED]
Jennifer W. Lambdin, CFA, is President and Chief Investment Officer of Allied
Investment Advisors, Inc. She has over 20 years of investment management
experience. Allied Investment Advisors, Inc. advises over $12 billion in assets.
to 5.25%. This was the first time in 18 months that the FOMC took action on
short-term rates, and members attributed the decision to a growing concern about
worldwide economic conditions and little concern over inflation. Then, in an
unusual "between official policy meeting dates" move, the Fed again lowered
rates in October, bringing the Fed Funds rate to 5%. This was the first
intersession move since April 1994.
Since there are reports that the U.S. economy is slowing, current monetary
policy appears to be pre-emptive in nature. Consumer confidence declined in
September from record levels, and retail sales are slowing. Yet a national
retail survey predicts a rosy holiday spending season. Low inflation, low
interest rates, and low unemployment continue to bode well for the economy, and
the early estimate for third quarter GDP growth was a favorable 3.3%.
Notwithstanding these favorable numbers, the Asian contagion continues and is
now being felt in Latin America, Canada, and the U.S. The U.S. trade deficit has
widened to a record $16.8 billion, and a squeeze is being felt on corporate
profits.
Where do we go from here? We can surely expect continued volatility in the
financial markets as the global economy struggles to right itself from the
problems suffered earlier this year, while grappling with the advent of the
E.M.U. and Year 2000 issues. While the U.S. will certainly be affected by
developments taking place throughout the world, we believe that any economic
slowdown that might result would be relatively mild and short-lived.
Within this environment, there will be significant opportunities as well as
challenges. As always, we will make every effort to look across the rough seas
and continue to focus solidly on the long-term in the management of the ARK
Funds portfolios, emphasizing diligent research and sound fundamentals in
security selection.
Sincerely,
/S/ Jennifer W. Lambdin, CFA
- --------------------------------------
Jennifer W. Lambdin, CFA
President and Chief Investment Officer
Allied Investment Advisors, Inc.
3
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THE ARK FUNDS FAMILY
THE ARK FUNDS FAMILY
The ARK Funds Family offers a comprehensive range of money market, fixed income,
and equity portfolios designed to meet both short and long-term needs. Whether
you're looking to enhance short-term income, gain tax advantages, or achieve
long-term growth, ARK Funds offers a variety of mutual fund solutions.
Take a look at the ARK Funds portfolio line-up on the opposite page. Choices
ranging from money market funds, to municipal bond funds, to blue chip and
international equity funds allow you to diversify your investments within one
mutual fund family.
Sixteen Class A and six Class B portfolios are available to individual investors
through First Maryland Brokerage Corporation representatives, located in most
branches of the First National Bank of Maryland and The York Bank & Trust
Company, or by calling 1-800-ARK Fund. Stop by your local branch or call our
1-800 number for details.
Twenty Institutional Class ARK Funds portfolios are available through FMB Trust
Company to clients who establish a trust or custody relationship with FMB Trust.
To contact an FMB Trust officer call 1-800-624-4116.
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ARK FUNDS SEMI ANNUAL REPORT OCTOBER 31, 1998
[GRAPHIC DEPICTING ARK FUNDS OMITTED]
As a rule, investments, such as stocks, with greater perceived risks also have
the potential for greater returns than fixed-income investments. Keep in mind
stocks also have greater price fluctuations ("volatility") and risks than
fixed-income investments, which may not make them appropriate for the short-term
investor or those whose primary concern is preservation of principal amount
invested. If you are investing for the long-term and will not need your
investment for several years in the future, then investing in an equity-based
mutual fund may be appropriate.
5
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EQUITY PORTFOLIOS MANAGEMENT DISCUSSION AND ANALYSIS
[PHOTO OF EQUITY PORTFOLIOS MANAGEMENT TEAM OMITTED]
Simply stated, our investment management philosophy for the Equity
Portfolios is quality for the long-term. We look for superior businesses that
are reasonably priced, because over the long haul, experience has shown the
benefits of buying a quality company, fairly priced, versus a fair business at a
bargain price.
In their research, our portfolio managers look for businesses that
demonstrate faster than average growth, strong cash flows, and returns on
capital in excess of the cost of capital. Equally important is the teaming of
strong financials with enlightened corporate leadership, the combination
necessary to thrive in today's highly competitive, rapidly evolving business
environment.
We look for high-quality companies and use a bottom-up stock selection
strategy with strict criteria. We select the stocks of companies with an
expectation of superior sales, cash flow and earnings growth rates, and market
and industry growth, as well as strong balance sheets and capable,
shareholder-oriented management.
With today's rapid changes in business, we feel history is a less than
accurate predictor of future performance. Thus, we place greater emphasis on
meeting with management to assess each company's future. Our team of
professionals, which includes all portfolio managers, searches for the best
companies based on our specific screening criteria.
Next, we assess future earnings prospects to identify the companies that
can continue to generate superior profit growth. We examine industry dynamics,
the companies' relative positions, cost structures, margin trends, and
management plans. Finally, we assess each company's current stock valuation
relative to future earnings stream against history, competitors, and the S&P
500.
We review a portfolio holding for sale under the following circumstances:
when the price objective is achieved, when fundamentals deteriorate and make the
achievement of objectives unlikely, when the stock underperforms the S&P 500 by
20% or more on a relative basis, and when a more attractive opportunity presents
itself.
6
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ARK FUNDS SEMI ANNUAL REPORT OCTOBER 31, 1998
[PHOTO OF EQUITY PORTFOLIOS MANAGEMENT TEAM OMITTED]
The ARK Funds Equity Portfolios Management team (from left to right): Clyde L.
Randall, CFA; Christopher E. Baggini, CFA; Anna Marie Martinez; Allen J.
Ashcroft, Jr.; Charles E. Knudsen, CFA; Brett A. Hoffacker, CFP; J. Eric Leo;
and H. Giles Knight.
7
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EQUITY PORTFOLIOS MANAGEMENT DISCUSSION AND ANALYSIS
BALANCED PORTFOLIO REVIEW AND OUTLOOK
Charles E. Knudsen, CFA, Portfolio Manager
Charles E. Knudsen, CFA, is a Managing Director of Allied Investment Advisors,
Inc. He is the portfolio manager of the Balanced Portfolio. He has more than 10
years of investment management experience.
Although the performance results for the last six months appear to indicate a
rather "boring" time, anyone involved in the investment markets knows nothing
could be further from the truth. Investor psychology shifted from "irrational
exuberance" to "irrational panic." Russia's near collapse in August was the
straw that broke the camel's back and prompted a rather massive flight to safe
haven investments, including U.S. Treasuries.
It got so bad so quickly that finance leaders from the leading economic
countries met in New York in September to plan a counterattack to the growing
financial and credit crisis. One of the key tenets of their plan was to lower
interest rates. England, Spain, Italy, and Canada have all recently reduced
rates in their respective countries. Our Federal Reserve has been the most
aggressive, cutting interest rates twice in three weeks. This was sweet music to
the over-sold global stock markets, as they rallied almost as impressively as
they corrected, much to the relief of investors.
The ARK Balanced Portfolio, while not completely insulated from the mad
gyrations of the markets, was able to make it through in relatively good shape.
Some of the better-performing stocks were not necessarily from the same
industry. For example, the three best-performing names were EMC Corp. (a
computer data storage company), Philip Morris, and Wal-Mart. Conversely, several
of the poorer-performing equities were what we would consider some of our more
"blue chip" companies, such as Gillette, Disney, and Schlumberger. During the
summer, we reduced our equity allocation in the Portfolio from a high of 68% to
about 60%. As the stock market corrected, we were able to add to names we liked
and initiate new positions in companies that had previously been too expensive
for our liking. For example, some of our newer positions include Citigroup,
Chancellor Media, and Xerox.
Needless to say, the level of uncertainty has increased, as the world's problems
have become more intertwined. However, looking out beyond the next few quarters,
we continue to believe that the U.S. economy is the best positioned of any to
not only withstand headwinds that may develop, but to prosper. It is important
to note that the key variables that generally determine the future direction of
the stock market (earnings growth, inflation trends, and Federal Reserve policy)
are all relatively positive. While some investors may continue to try to figure
out how long the "good times" will last, we will continue to focus on
identifying strong companies in which to invest. Although the valuations for
several of the new "Nifty Fifty" are fairly rich, there continue to be
attractive opportunities in the other 4,950 names. Regardless of what lies
ahead, we will continue to manage the ARK Balanced Portfolio as we always have:
by looking for attractive, high quality investment opportunities in both the
bond and the stock markets that could provide our investors with an attractive,
long-term investment return.
BALANCED PORTFOLIO PERFORMANCE
AS OF 10/31/98
<TABLE>
<CAPTION>
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INST'L RETAIL RETAIL 60/40 BLEND LIPPER S&P 500 LEHMAN
CLASS CLASS A CLASS B* OF THE BALANCED COMPOSITE AGGREGATE
S&P 500 INDEX BOND
& LEHMAN**
<S> <C> <C> <C> <C> <C> <C> <C>
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ONE YEAR
TOTAL RETURN 14.07% 13.72% 13.96% 16.93% 9.13% 22.00% 9.32%
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ONE YEAR
TOTAL RETURN
WITH LOAD N/A 10.31% 8.96% N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN 15.36% 15.04% 15.32% 18.80% 14.78% 25.99% 8.01%
- ------------------------------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN
WITH LOAD N/A 13.87% 14.56% N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN 11.78% N/A 11.76% 15.59% 12.32% 21.30% 7.02%
- ------------------------------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN
WITH LOAD N/A N/A 11.50% N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE 12.16% 11.77% 12.14% N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE
WITH LOAD N/A 11.04% 12.02% N/A N/A N/A N/A
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</TABLE>
Past performance of the Portfolio is not predictive of future performance.
Institutional Class shares were offered beginning July 16, 1993. Retail Class
A shares were offered beginning March 9, 1994. Performance for Retail Class A
shares reflects the deduction of the 3.00% sales charge after waivers. Retail
Class B shares were offered beginning September 14, 1998. Performance for
Retail Class B shares reflects the deduction of the maximum contingent
deferred sales charge of 5.00% applied in year one only.
The performance of the S&P 500 Composite Index and Lehman Aggregate Bond Index
does not include operating expenses which are incurred by the Portfolio.
* Performance shown for the Retail Class B shares is synthetic (not actual) and
represents that of the Institutional Class adjusted for the sales charge.
Actual cumulative performance since inception for Class B shares is 4.69%
without load and -0.31% with load.
**Benchmark is comprised of two unmanaged benchmarks, weighted 60% S&P 500
Composite Index and 40% Lehman Brothers Aggregate Bond Index. Previously the
Portfolio used both the S&P 500 Composite Index and the Lehman Aggregate Bond
Index. Going forward, the Portfolio will also use a blended index as a
comparison index because it is better suited to the Portfolio's objective.
8
<PAGE>
ARK FUNDS SEMI ANNUAL REPORT OCTOBER 31, 1998
EQUITY INCOME PORTFOLIO REVIEW
AND OUTLOOK
Clyde L. Randall, CFA Allen J. Ashcroft, Jr.
Co-Portfolio Managers
Clyde L. Randall, CFA, is a Principal of Allied Investment Advisors, Inc. He is
the co-portfolio manager of the Blue Chip Equity Portfolio and the Equity Income
Portfolio. He has over 12 years of investment management experience.
Allen J. Ashcroft, Jr., is a Principal of Allied Investment Advisors, Inc. He is
the co-portfolio manager of the Blue Chip Equity Portfolio and the Equity Income
Portfolio. He has more than 18 years of investment management experience.
Equity income funds as a class have lagged the broad stock market averages
during 1998, but relative performance has improved since mid-year 1998. During
the first half of its fiscal year, the ARK Equity Income Portfolio had a total
return of -3.5%, but over the trailing three-month and twelve-month periods, the
total return was positive. Equity income funds are naturally investors in the
higher-yielding sectors of the stock market. During this fiscal year, energy,
financial, and real estate stocks have had negative returns, while utilities
have been up about 5%. Financials were the worst sector in the market, as major
banks began to report exposures to Asia, Latin America, Russia, and hedge funds.
The ARK Equity Income Portfolio is roughly market-weighted in financials and
does not own the internationally diversified money center banks and major
securities firms. Energy stocks have been hurt by the falling price of oil,
caused by slow demand growth in Asia. Oil has rebounded slightly, and we expect
its price to be stable over the next year. The Portfolio's best performers
included General Dynamics and Philip Morris, each up over 40%, as well as Abbott
Labs, BellSouth, and Ford. Laggards included Olin, Sonat, and Washington Mutual.
We continue to seek stocks with an attractive combination of current yield and
dividend growth, as well as opportunities with above-average yields, which also
appear undervalued by other financial measures. Recent new positions include
General Mills, Fort James, Union Planters, Rockwell, Armstrong World, Northrop,
and Pennzoil. We have said before that we would maintain our conservative
position, and indeed that position has begun to benefit the relative performance
of the Portfolio. We understand that relative returns are little comfort when
absolute returns are negative. But despite the recent turmoil, we believe that
this conservative investment Portfolio will continue to provide solid long-term
returns.
EQUITY INCOME PORTFOLIO PERFORMANCE
AS OF 10/31/98
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INSTITUTIONAL RETAIL LIPPER S&P 500
CLASS CLASS A EQUITY COMPOSITE
INCOME INDEX
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ONE YEAR
TOTAL RETURN 10.45% 10.24% 9.49% 22.00%
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ONE YEAR
TOTAL RETURN
WITH LOAD N/A 6.92% N/A N/A
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ANNUALIZED
THREE YEAR
TOTAL RETURN N/A N/A N/A N/A
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ANNUALIZED
THREE YEAR
TOTAL RETURN
WITH LOAD N/A N/A N/A N/A
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ANNUALIZED
FIVE YEAR
TOTAL RETURN N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN
WITH LOAD N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE 18.07% 15.62% N/A N/A
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ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE
WITH LOAD N/A 13.27% N/A N/A
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Past performance of the Portfolio is not predictive of future performance.
Institutional Class shares were offered beginning November 15, 1996. Retail
Class A shares were offered beginning May 9, 1997. Performance for Retail
Class A shares reflects the deduction of the 3.00% sales charge after waivers.
The performance of the S&P 500 Composite Index does not include operating
expenses which are incurred by the Portfolio.
9
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EQUITY PORTFOLIOS MANAGEMENT DISCUSSION AND ANALYSIS
VALUE EQUITY PORTFOLIO
REVIEW AND OUTLOOK
J. Eric Leo, Portfolio Manager
J. Eric Leo is a Managing Director of Equity Investments for Allied Investment
Advisors, Inc. He is the portfolio manager of the Value Equity Portfolio and the
Equity Index Portfolio. He has more than 25 years of investment management
experience.
The ARK Value Equity Portfolio is primarily focused on growth of principal. Our
goal is to invest in the stocks of solid businesses capable of growing long-term
earnings and cash flow faster than the market, and at valuations less than the
market.
The financial market's action during the past quarter reflected, in a very
compressed period, the power of the fear-and-greed cycle and the dangers of
audacity. This was exacerbated by a large number of hedge funds and, to a lesser
extent, by mutual fund companies focused almost exclusively on performance with
seemingly little concern for risk levels.
The ARK Value Equity Portfolio performed well during the most recent quarter and
is ahead of its benchmarks for the six months ended October 31, 1998. The strong
relative performance during the quarter can be attributed to two factors. First,
value stocks in general had underperformed the market early in the year, thereby
reducing additional downside risk. Second, the mix of the Portfolio had been
shifted from a concentration on economically sensitive stocks to a better
balance of companies with greater earnings stability and less economic
sensitivity. We also increased the concentration in the top ten holdings from
approximately 15% in the beginning of the fiscal year to over 20% by the end of
October. Major new additions included Monsanto, Northrop, and McCormick.
The sector that performed the worst in the quarter was the financial sector and
specifically the money center banks, which were most exposed to Asia, Russia,
and hedge funds. Our money center holdings consisted of Chase, CitiCorp, and
Bankers Trust, which was sold midway through the quarter. The best-performing
sectors were healthcare and defense.
Looking forward, we expect the market to continue to exhibit relatively high
levels of volatility until it becomes clearer to what extent the U.S. and
European economies will "catch the Asian Flu." We expect the U.S. growth rate to
slow, but a full recession is less likely due to the recent reductions in
interest rates around the world. Corporate profits in the U.S. will remain one
of our largest concerns, as Wall Street expectations remain too high in our
opinion. The bottom line is that while the worst is probably behind us,
uncertainty and volatility will remain with us for at least the next few
quarters. We believe that U.S. industry is in the strongest position to benefit
from the global economic turmoil over the long-term. We will continue to look
for opportunities to upgrade quality where possible, and expect some modest
sector shifting as we approach 1999. We believe that the ARK Value Equity
Portfolio is well balanced and conservatively postured to deal with the current
market environment.
VALUE EQUITY PORTFOLIO PERFORMANCE
AS OF 10/31/98
- --------------------------------------------------------------------------------
INSTITUTIONAL RETAIL RETAIL S&P 500 LIPPER
CLASS CLASS A* CLASS B* COMPOSITE GROWTH
INDEX
- --------------------------------------------------------------------------------
ONE YEAR
TOTAL RETURN 14.42% 14.36% 14.33% 22.00% 9.61%
- --------------------------------------------------------------------------------
ONE YEAR
TOTAL RETURN
WITH LOAD N/A 10.96% 9.33% N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN
WITH LOAD N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN
WITH LOAD N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE 20.65% 20.62% 20.61% N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE
WITH LOAD N/A 19.21% 19.75% N/A N/A
- --------------------------------------------------------------------------------
Past performance of the Portfolio is not predictive of future performance.
Performance presented from inception to March 29, 1998, reflects the
performance of the Marketvest Equity Fund shares which were offered beginning
March 31, 1996. Retail Class A shares were offered beginning April 1, 1998.
Performance for Retail Class A shares reflects the deduction of the 3.00%
sales charge after waivers. Retail Class B shares were offered beginning
September 14, 1998. Performance for Retail Class B shares reflects the
deduction of the maximum contingent deferred sales charge of 5.00% applied in
year one only.
The performance of the S&P 500 Composite Index does not include operating
expenses which are incurred by the Portfolio.
* Performance shown for the Retail Class A and Retail Class B shares is
synthetic (not actual) and represents that of the Institutional Class adjusted
for the sales charge. Actual cumulative performance since inception for Class
A shares is -3.52% without load and -6.41% with load. Actual cumulative
performance since inception for Class B shares is 8.32% without load and 3.32%
with load.
10
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ARK FUNDS SEMI ANNUAL REPORT OCTOBER 31, 1998
EQUITY INDEX PORTFOLIO REVIEW
AND OUTLOOK
J. Eric Leo, Portfolio Manager
J. Eric Leo is a Managing Director of Equity Investments for Allied Investment
Advisors, Inc. He is the portfolio manager of the Value Equity Portfolio and the
Equity Index Portfolio. He has more than 25 years of investment management
experience.
The ARK Equity Index Portfolio is managed to provide investment results that
correspond to the performance of the S&P 500 Composite Stock Index. If one
wishes to get U.S. equity market returns, an S&P 500 Index fund may be an
appropriate place to invest.
The six months ended October 31, 1998, proved to be very rocky for the U.S.
equity markets. In the third quarter, the S&P 500 suffered its first negative
calendar quarter in over three years with the ominous month of October looming.
Many fears were allayed as October turned out to be one of the best-performing
months in history for the equity indices. As a result, S&P 500 performance for
the six-month period was slightly negative, and the ARK Equity Index Portfolio
barely eked out a positive return. The Portfolio has grown in size by nearly 50%
over the past six months, and the cash flows during the mostly negative time
period contributed to the slight outperformance of the S&P 500.
The last six months found the long-neglected utilities sector leading the S&P
500 in performance with a solid 7% return. Consumer staples were also among the
sectors in positive territory. The poorly performing sectors included basic
materials, capital goods, and energy; each sector was down approximately 19%.
The best-performing stocks in the S&P 500 were Dell, Sun Microsystems, and
Philip Morris. The worst were Cendant, Bankers Trust, and Lehman Brothers.
The next six months should continue to be volatile for the U.S. equity markets,
as there is much uncertainty about the health of the global economy and its
possible effects on the U.S. economy. The ARK Equity Index Portfolio has
achieved S&P 500 returns over its first year and will continue to strive to do
the same using the same process we utilized during the past year.
EQUITY INDEX PORTFOLIO PERFORMANCE
AS OF 10/31/98
- --------------------------------------------------------------------------------
INSTITUTIONAL RETAIL S&P 500 LIPPER
CLASS CLASS A COMPOSITE GROWTH
INDEX
- --------------------------------------------------------------------------------
ONE YEAR
TOTAL RETURN 22.77% N/A 22.00% 9.61%
- --------------------------------------------------------------------------------
ONE YEAR
TOTAL RETURN
WITH LOAD N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN
WITH LOAD N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN
WITH LOAD N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE 15.50% 19.28% N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE
WITH LOAD N/A 15.70% N/A N/A
- --------------------------------------------------------------------------------
CUMULATIVE
TOTAL RETURN
INCEPTION
TO DATE 16.87% 19.11% N/A N/A
- --------------------------------------------------------------------------------
CUMULATIVE
TOTAL RETURN
INCEPTION
TO DATE
WITH LOAD N/A 15.57% N/A N/A
- --------------------------------------------------------------------------------
Past performance of the Portfolio is not predictive of future performance.
Institutional Class shares were offered beginning October 1, 1997. Retail
Class A shares were offered beginning November 3, 1997. Performance for Retail
Class A shares reflects the deduction of the 3.00% sales charge after waivers.
The performance of the S&P 500 Composite Index does not include operating
expenses which are incurred by the Portfolio.
11
<PAGE>
EQUITY PORTFOLIOS MANAGEMENT DISCUSSION AND ANALYSIS
BLUE CHIP EQUITY PORTFOLIO
REVIEW AND OUTLOOK
Allen J. Ashcroft, Jr. Clyde L. Randall, CFA
Co-Portfolio Managers
Allen J. Ashcroft, Jr., is a Principal of Allied Investment Advisors, Inc. He is
the co-portfolio manager of the Blue Chip Equity Portfolio and the Equity Income
Portfolio. He has more than 18 years of investment management experience.
Clyde L. Randall, CFA, is a Principal of Allied Investment Advisors, Inc. He is
the co-portfolio manager of the Blue Chip Equity Portfolio and the Equity Income
Portfolio. He has over 12 years of investment management experience.
The ARK Blue Chip Equity Portfolio posted consistent results through the first
six months of our fiscal year. The key word is consistent. We witnessed an
extremely volatile equity environment over this period. The Dow Jones Industrial
Average peaked on July 17, at 9337. Just six weeks later, the Dow was trading
1900 points lower, by definition a bear market. However, accommodative interest
rate moves by our Federal Reserve have once again peaked interest in equities.
Market volatility personified!
Throughout this period the Blue Chip Equity Portfolio has remained focused on
our strategy of looking for large-cap, quality companies that are dominant in
their markets and have franchise characteristics, with solid management teams
and a proven record of delivering above-average equity performance. This
strategy has enabled us to be broadly diversified among the major sectors of the
economy, in 30 to 40 quality companies, with a long-term investment horizon.
As of October 31, the Portfolio's largest contributors have been Cisco, Philip
Morris, MCI, and Amgen. We find that over long periods, our best performers tend
to come from a diverse group of industries. Over this period, however, a
positive trend was observed in both technology and the healthcare sectors. The
Portfolio was negatively impacted by our weighting in financial stocks. Solid
performers such as Chase Manhattan and Morgan Stanley Dean Witter saw their
equity prices fall drastically. Global financial concerns coupled with the
implosion of Long Term Capital Management (a troubled U.S. hedge fund) affected
the performance of even the highest-quality financial stocks.
Looking forward, we remain positive about the equity markets. While our economy
is slowing a bit, it seems quite resilient. With low interest rates and
inflation in check, the environment should be favorable for investing in
equities. We do, however, face difficult decisions in the months ahead;
valuations may once again become extended and our President may face some form
of impeachment hearings, which may affect the equity market. With these
possibilities in mind, we will continue to search for investments in larger
companies, with strong business franchises, that will add value to the
Portfolio.
BLUE CHIP EQUITY PORTFOLIO PERFORMANCE
AS OF 10/31/98
- --------------------------------------------------------------------------------
INSTITUTIONAL RETAIL RETAIL S&P 500 LIPPER
CLASS CLASS A CLASS B* COMPOSITE GROWTH
INDEX
- --------------------------------------------------------------------------------
ONE YEAR
TOTAL RETURN 21.72% 21.51% 21.41% 22.00% 9.61%
- --------------------------------------------------------------------------------
ONE YEAR
TOTAL RETURN
WITH LOAD N/A 17.89% 16.41% N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN
WITH LOAD N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN
WITH LOAD N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE 24.03% 23.51% 23.91% N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE
WITH LOAD N/A 21.99% 23.08% N/A N/A
- --------------------------------------------------------------------------------
Past performance of the Portfolio is not predictive of future performance.
Institutional Class shares were offered beginning April 1, 1996. Retail Class
A shares were offered beginning May 16, 1996. Performance for Retail Class A
shares reflects the deduction of the 3.00% sales charge after waivers. Retail
Class B shares were offered beginning July 31, 1998. Performance for Retail
Class B shares reflects the deduction of the maximum contingent deferred sales
charge of 5.00% applied in year one only.
The performance of the S&P 500 Composite Index does not include operating
expenses which are incurred by the Portfolio.
* Performance shown for the Retail Class B shares is synthetic (not actual) and
represents that of the Institutional Class adjusted for the sales charge.
Actual cumulative performance since inception for Class B shares is -1.32%
without load and -6.25% with load.
12
<PAGE>
ARK FUNDS SEMI ANNUAL REPORT OCTOBER 31, 1998
CAPITAL GROWTH PORTFOLIO
REVIEW AND OUTLOOK
Christopher E. Baggini, CFA, Portfolio Manager
Christopher E. Baggini, CFA, is a Principal of Allied Investment Advisors, Inc.
He is the portfolio manager of the Mid-Cap Equity Portfolio and the Capital
Growth Portfolio. He has over 12 years of investment management experience.
Stock market volatility came back with a vengeance during the last six months,
an incredible display as wild swings in sentiment, emotion, and economic
perception provided investors with a very bumpy ride. Despite a nearly flat
overall return for the period, investors witnessed returns that were excellent
in June, September, and October but fell prey to the market's negative gyrations
in May, July, and August. This six-month period of volatility was anything but
normal.
The market's volatility has provided investors with opportunities while trying
their patience and sleeping patterns. The ARK Capital Growth Portfolio continued
to seek out high-quality companies across market capitalizations, investable at
low relative valuations. For example, recent purchases made in the market's
early October freefall have created value for portfolio holders. Positions in
Dayton Hudson (managers of the Target retail chain), Network Associates, and
Nokia were established. These new positions combined with investments in Intel,
Amgen, EMC, Cisco Systems, and Clorox greatly aided performance in the period.
However, not every stock investment created value. Ciena Corp.'s stock price
dropped sharply, while the financial sector's turmoil created significant
underperformance in Morgan Stanley and Citicorp. Additionally, most holdings in
medium and smaller companies declined in value during the period.
As we enter the end of the calendar year, we expect volatility to continue.
Doubts over the U.S. economic expansion combine with lingering fears over Asia
and the emerging nations, creating a difficult backdrop for earnings growth.
During the next few months, we look to continue to add value in research and
stock selection.
CAPITAL GROWTH PORTFOLIO PERFORMANCE
AS OF 10/31/98
- --------------------------------------------------------------------------------
INSTITUTIONAL RETAIL RETAIL S&P 500 LIPPER
CLASS CLASS A CLASS B* COMPOSITE GROWTH
INDEX
- --------------------------------------------------------------------------------
ONE YEAR
TOTAL RETURN 18.88% 18.64% 18.72% 22.00% 9.61%
- --------------------------------------------------------------------------------
ONE YEAR
TOTAL RETURN
WITH LOAD N/A 15.05% 13.72% N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN 23.58% 23.42% 23.52% 25.99% 17.97%
- --------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN
WITH LOAD N/A 22.15% 22.86% N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN 14.97% N/A 14.94% 21.30% 15.66%
- --------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN
WITH LOAD N/A N/A 14.71% N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE 15.53% 15.24% 15.50% N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE
WITH LOAD N/A 14.48% 15.40% N/A N/A
- --------------------------------------------------------------------------------
Past performance of the Portfolio is not predictive of future performance.
Institutional Class shares were offered beginning July 16, 1993. Retail Class
A shares were offered beginning March 9, 1994. Performance for Retail Class A
shares reflects the deduction of the 3.00% sales charge after waivers. Retail
Class B shares were offered beginning September 14, 1998. Performance for
Retail Class B shares reflects the deduction of the maximum contingent
deferred sales charge of 5.00% applied in year one only.
The performance of the S&P 500 Composite Index does not include operating
expenses which are incurred by the Portfolio.
* Performance shown for the Retail Class B shares is synthetic (not actual) and
represents that of the Institutional Class adjusted for the sales charge.
Actual cumulative performance since inception for Class B shares is 9.39%
without load and 4.39% with load.
13
<PAGE>
EQUITY PORTFOLIOS MANAGEMENT DISCUSSION AND ANALYSIS
MID-CAP EQUITY PORTFOLIO
REVIEW AND OUTLOOK
Christopher E. Baggini, CFA, Portfolio Manager
Christopher E. Baggini, CFA, is a Principal of Allied Investment Advisors, Inc.
He is the portfolio manager of the Mid-Cap Equity Portfolio and the Capital
Growth Portfolio. He has over 12 years of investment management experience.
The six-month period ending October 31, 1998, was a very difficult time for
mid-cap equity securities. While we are pleased to have performed well versus
our peer groups, returns for the period were negative, reflecting investments in
the energy, financial, and consumer cyclical sectors.
During the period, the ARK Mid-Cap Equity Portfolio increased its position in
America Online and Amgen and sold its lagging position in Ciena Corp. We remain
cautious about the overall technology sector, despite the Portfolio's
overweighted position created by several interesting investment opportunities.
Similarly, investments in Paine Webber and Marshall & Ilsley seem appealing
despite a less-than-robust outlook for the financial sector over the next year.
Despite the short-term decline which was exacerbated by the broad market's
decline in earnings growth and the lack of liquidity of mid-cap companies
relative to large-cap companies, we remain positive on the long-term potential
of the ARK Mid-Cap Equity Portfolio. The mid-cap market remains exciting for
investors who are looking for the next franchise company (like America Online),
and the relative valuations of this equity market sector are quite compelling.
MID-CAP EQUITY PORTFOLIO PERFORMANCE
AS OF 10/31/98
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS S&P 400 MID-CAP LIPPER MID-CAP
- --------------------------------------------------------------------------------
ONE YEAR
TOTAL RETURN 7.21% 6.70% -2.89%
- --------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE 16.32% N/A N/A
- --------------------------------------------------------------------------------
Past performance of the Portfolio is not predictive of future performance.
Institutional Class shares were offered beginning November 15, 1996. The
performance of the S&P 400 Mid-Cap Index does not include operating expenses
which are incurred by the Portfolio.
14
<PAGE>
ARK FUNDS SEMI ANNUAL REPORT OCTOBER 31, 1998
SMALL-CAP EQUITY PORTFOLIO
REVIEW AND OUTLOOK
H. Giles Knight, Portfolio Manager
H. Giles Knight is a Principal of Allied Investment Advisors, Inc. He is the
portfolio manager of the Small-Cap Equity Portfolio. He has more than 28 years
of investment management experience.
Led by aggressive Federal Reserve action through a number of interest rate cuts
in October, the S&P 500 recovered over half its 20% decline from its July high.
Small-cap stocks have underperformed for most of the year, but the Russell 2000
began to achieve some outperformance in late October. It is noteworthy that the
Russell 2000 was down over 35% from its high earlier this year.
Two factors helped the ARK Small-Cap Equity Portfolio outperform its benchmarks
over the first half of the year. First, we employed a conservative investment
strategy, entailing reductions in technology, telecommunications, and most
market sensitive issues. Second, we maintained a modestly larger cash reserve.
In addition, we increased positions in banks, insurance, and utility shares.
Looking forward, we believe that there will be a different market environment,
and we will focus on the traditional areas of technology, telecommunications,
retail, and healthcare, in order to participate in a stronger advance for
small-cap stocks. Normally small-cap stocks tend to outperform larger stocks
after a series of interest rate cuts. Also, in terms of valuations, small-cap
stocks are historically cheap in terms of price-to-earnings growth rates and
relative comparison to the S&P 500. Small-cap stock performance tends to run in
five-year cycles and given an easier Federal Reserve policy, we believe these
stocks could perform much better over the next year.
As always, the Portfolio will emphasize higher-growth stocks in such areas as
the internet, telecommunications equipment and services, computer software, and
medical technology. Specific themes going forward will be adult education and
medical care for the elderly, outsourcing of information processing, and growth
of wireless telecommunications.
SMALL-CAP EQUITY PORTFOLIO PERFORMANCE
AS OF 10/31/98
- --------------------------------------------------------------------------------
INSTITUTIONAL RETAIL RUSSELL LIPPER
CLASS CLASS A* 2000 SMALL
GROWTH CAP
- --------------------------------------------------------------------------------
ONE YEAR
TOTAL RETURN 1.21% 0.92% N/A N/A
- --------------------------------------------------------------------------------
ONE YEAR
TOTAL RETURN
WITH LOAD N/A -2.15% -15.85% -13.76%
- --------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN 9.63% 9.45% N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN
WITH LOAD N/A 8.36% 4.93% 9.13%
- --------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN
WITH LOAD N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE 12.29% 12.13% N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE
WITH LOAD N/A 11.10% N/A N/A
- --------------------------------------------------------------------------------
Past performance of the Portfolio is not predictive of future performance.
Institutional Class shares were offered beginning July 13, 1995. Retail Class
A shares were offered beginning May 16, 1996. Performance for Retail Class A
shares reflects the deduction of the 3.00% sales charge after waivers. The
performance of the Frank Russell 2000 Growth Index does not include operating
expenses which are incurred by the Portfolio.
* Performance shown for the Retail Class A shares is synthetic (not actual) and
represents that of the Institutional Class adjusted for the sales charge.
Actual performance since inception for Class A shares is -2.65% without load
and -3.85% with load.
15
<PAGE>
EQUITY PORTFOLIOS MANAGEMENT DISCUSSION AND ANALYSIS
INTERNATIONAL EQUITY SELECTION
PORTFOLIO REVIEW AND OUTLOOK
Brett A. Hoffacker, CFP, Portfolio Manager
Brett A. Hoffacker, CFP, is a Principal of Allied Investment Advisors, Inc. He
is the portfolio manager of the International Equity Selection Portfolio. He has
over 15 years of investment management experience.
Foreign markets remained on the path of volatility, as continued market and
economic difficulties in emerging countries created panic among investors. Due
to technology and the ease of international capital flow, the downturn in
emerging markets was immediately transferred to the developed markets of the
U.S. and Europe, where equity markets also tumbled. The flight from equities
resulted in strong demand for "safe" currencies and the bellwether of all
investments, U.S. Treasury securities. The relationship between emerging and
developed markets has intensified, as shown by the effect on interest rates,
commodity prices, corporate earnings, and consumer and investor sentiment in
developed countries.
Although foreign markets have recovered some of the ground lost in August and
September, our underlying funds' managers must continue to carefully manage not
only the equity selection process but also, in some instances, volatile
currencies and country selection. Geographically, managers must monitor and
evaluate the situation in Southeast Asia, as parts of the region have slipped
into recession. Latin America presents its own set of unique circumstances, as
governments strive to implement austerity measures and avert currency
devaluations. In Europe, the pace of economic growth for the continent and
individual countries must be analyzed as the "Euro" and the European Central
Bank become a reality on January 1, 1999. Also, Russia, Canada, and other
countries dependent on natural resources must be assessed for inherent risks and
rewards.
Throughout the period, the ARK International Equity Selection Portfolio
increased its holdings from six underlying mutual funds to ten funds. Added to
the Portfolio were the BT Institutional International Equity Fund, Putnam
International Growth Fund, Fidelity Diversified International Fund, and American
Century's Twentieth Century International Growth Fund. The addition of these
funds is an expansion of our strategy to provide exposure to non-U.S. equity
markets using mutual funds that incorporate a variety of investment styles and
approaches. These purchases both increased our exposure to growth funds and
provided further diversification.
From a market standpoint, the performance of funds that overweighted emerging
markets, the U.K., and Canada suffered for the period. Country selection in
continental Europe was very important, as individual market tides didn't rise
and fall equally. Likewise, funds with overexposure to the financial industries
were punished. Performance of the ARK International Equity Selection Portfolio
was hampered by the GAM International, Harbor International, Hotchkis and Wiley
International, and Templeton Foreign Funds, which were the four worst performers
for the period. As a point of interest, the GAM and Harbor funds had been two of
the top performers from November 1997 through April 1998. The two
best-performing funds for the period were
16
<PAGE>
ARK FUNDS SEMI ANNUAL REPORT OCTOBER 31, 1998
the Europacific Growth and Fidelity Diversified International Funds.
Looking ahead, many questions remain concerning global securities markets.
Investors must remember that strong corrections are frequently the vehicle for
wringing excesses from markets. Underlying fund managers report that recent
market turmoil has created opportunities in many regions of the world. Two areas
of particular interest will be determining the attractiveness and timing of
investments in the Japanese and emerging markets as well as monitoring Europe's
prospects for growth.
We will continue to manage the Portfolio to provide a complementary array of
mutual funds that cross the spectrums of investment style and risk/return. One
new area being investigated is the addition of a small-cap foreign equity fund.
As always, we will maintain our emphasis on identifying funds with reasonable
fees, attractive track records, and investment approaches that seem appropriate
for the foreign marketplace.
INTERNATIONAL EQUITY SELECTION
PERFORMANCE AS OF 10/31/98
- --------------------------------------------------------------------------------
INSTITUTIONAL RETAIL MORGAN LIPPER
CLASS CLASS A* STANLEY INTERNATIONAL
MSCI EAFE
- --------------------------------------------------------------------------------
ONE YEAR
TOTAL RETURN 1.42% 1.42% 9.64% 4.07%
- --------------------------------------------------------------------------------
ONE YEAR
TOTAL RETURN
WITH LOAD N/A -0.11% N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN 9.67% 9.67% 8.22% 8.09%
- --------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN
WITH LOAD N/A 9.13% N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN 8.62% 8.62% 6.81% 7.02%
- --------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN
WITH LOAD N/A 8.29% N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE 9.14% 9.14% N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE
WITH LOAD N/A 8.93% N/A N/A
- --------------------------------------------------------------------------------
Past performance of the Portfolio is not predictive of future performance.
Performance presented from inception to March 29, 1998, reflects the
performance of the Marketvest International Equity Fund which is the successor
to a collective trust fund. The quoted performance data includes performance
of the collective trust fund for the period from May 31, 1991 (inception date
of the collective trust fund) to March 31, 1997, when the Fund's registration
statement became effective. The collective trust fund was not registered under
the Investment Company Act of 1940 ("1940 Act") and therefore was not subject
to certain investment restrictions imposed by the 1940 Act. If the collective
trust fund had been registered under the 1940 Act, the performance may have
been adversely affected. Retail Class A shares were offered beginning April 1,
1998. Performance for Retail Class A shares reflects the deduction of the
1.50% sales charge. The performance of the MSCI EAFE Index does not include
operating expenses which are incurred by the Portfolio.
* Performance shown for the Retail Class A shares is synthetic (not actual) and
represents that of the Institutional Class adjusted for the sales charge.
Actual cumulative performance since inception is -10.53% without load and
-11.84% with load.
17
<PAGE>
FIXED INCOME PORTFOLIOS MANAGEMENT DISCUSSION AND ANALYSIS
[PHOTO OF FIXED INCOME PORTFOLIO MANAGEMENT TEAM OMITTED]
The ARK Funds Fixed Income Portfolios
Management team (from left to right):
Steven M. Gradow; N. Beth Volk, CFA;
Wilmer C. Stith III; and Susan L. Schnaars, CFA.
18
<PAGE>
ARK FUNDS SEMI ANNUAL REPORT OCTOBER 31, 1998
[PHOTO OF FIXED INCOME PORTFOLIO MANAGEMENT TEAM OMITTED]
Our fixed income investment management philosophy centers on four core beliefs.
We believe that over a full interest rate cycle, a portfolio of fixed income
investments should provide real returns that exceed any loss of purchasing power
due to inflation, exceed the specified portfolio benchmark return such as the
Lipper universe, be competitive versus portfolios of similar risk, and maintain
low-to-moderate principal volatility.
With the understanding of each portfolio's constraints and tolerance for
risk, we employ a value approach to fixed income investing involving over- or
under-weighting market sectors, industries, or yield curve segments deemed to be
relatively undervalued or expensive. We undertake rigorous analysis utilizing
the following components to construct a portfolio: sector selection, duration
management, credit analysis, industry and issue selection, and yield curve
management.
The fixed income process is an actively managed, bottom-up sector selection
approach, wherein risk containment is paramount. Our objective is to position
the portfolios in such a way that our sector, interest rate, yield curve, and
credit analysis can add value without assuming an inordinate risk of
underperform-ance. As part of the construction and management process, we
continually test portfolios to assess and control risk. This disciplined fixed
income philosophy has been in place within our organization for over 15 years,
has been consistently applied, and has generated excellent results.
19
<PAGE>
SHORT-TERM TREASURY PORTFOLIO
REVIEW AND OUTLOOK
James M. Hannan, Portfolio Manager
James M. Hannan is a Principal of Allied Investment Advisors, Inc. He is
portfolio manager of the money market portfolios and the Short-Term Treasury
Portfolio. He has over 10 years of investment management experience.
The short-term interest rate environment was dominated by the Federal Reserve
easing monetary policy twice within 16 days. The first easing occurred on
September 29. The cut in short-term interest rates was in response to growing
fears of a global economic recession and to "cushion the effects of increasing
weakness in foreign economies." The second easing was in response to increasing
financial market turmoil and instability. Currently, the Federal Reserve is
targeting a 5% Federal Funds rate, which is 0.50% less than the rate the Federal
Reserve was targeting prior to the initial easing. The financial markets have
responded favorably to the Federal Reserve's easing of monetary policy, as
market volatility has abated. Short-term interest rates have declined by over
1.75% as the yield on the two-year Treasury note declined from 5.64% in May to
3.82% in October.
Throughout the past six months the ARK Short-Term Treasury Portfolio continued
to provide a rate of return greater than a money market fund while providing
less price volatility than a long-term bond fund. For the six months ended
October 31, 1998, the Institutional Class returned 4.36%, while the Retail Class
A returned 4.27%. To achieve these results, we actively manage the average
maturity of the Portfolio. We also seek to take advantage of short-lived market
inefficiencies.
Currently, our strategy is to maintain the average maturity of the Portfolio at
slightly less than two years. We expect that the Federal Reserve will ease
monetary policy again as the Asian contagion continues to weigh on the U.S.
economy. However, when financial market stability returns, we will look to
shorten the average weighted maturity of the ARK Short-Term Treasury Portfolio
in anticipation of higher short-term interest rates.
SHORT-TERM TREASURY PERFORMANCE
AS OF 10/31/98
- --------------------------------------------------------------------------------
INSTITUTIONAL RETAIL LEHMAN 1-3 YEAR LIPPER
CLASS CLASS A GOVERNMENT SHORT U.S.
BOND TREASURY
- --------------------------------------------------------------------------------
ONE YEAR
TOTAL RETURN 7.12% 7.01% 7.66% 7.63%
- --------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN
WITH LOAD N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN N/A N/A 5.99% 5.68%
- --------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE 6.19% 6.53% N/A N/A
- --------------------------------------------------------------------------------
Past performance of the Portfolio is not predictive of future performance.
Institutional Class shares were offered beginning March 20, 1996. Retail Class
A shares were offered beginning September 9, 1996. The performance of the
Lehman 1-3 Year Government Bond Index does not include operating expenses
which are incurred by the Portfolio.
20
<PAGE>
ARK FUNDS SEMI ANNUAL REPORT OCTOBER 31, 1998
SHORT-TERM BOND PORTFOLIO
REVIEW AND OUTLOOK
Steven M. Gradow Wilmer C. Stith III
Co-Portfolio Managers
Steven M. Gradow is a Managing Director of Fixed Income Investments for Allied
Investment Advisors, Inc. He is the portfolio manager of the Income Portfolio
and co-portfolio manager of the U.S. Government Bond Portfolio and the
Short-Term Bond Portfolio. He has over 15 years of investment management
experience.
Wilmer C. Stith III is a Vice President of Allied Investment Advisors, Inc. He
is co-portfolio manager of the Short-Term Bond Portfolio and oversees Fixed
Income trading. He has over 8 years of investment management experience.
The last six months have been volatile ones for global financial markets, and
the short end of the U.S. bond market was no exception. As the months wore on,
it became increasingly apparent that global economic deterioration would have a
more pronounced effect on the U.S. economy. This caused the Federal Reserve to
change its focus of concern from inflation to domestic economic weakness. In a
pre-emptive move to "cushion the effects of increasing weakness in foreign
economies," the Federal Reserve has recently lowered the Federal Funds rate by
0.50% to 5%. We view this as the first of several gradual eases in monetary
policy that will occur over the next six months.
In this market environment investors have been placing a premium on liquidity,
seeking a safe haven from global uncertainties. This climate has resulted in a
flight into U.S. Treasuries and a dramatic drop in interest rates, with the
two-year U.S. Treasury Note falling from a 5.51% yield in April to 4.12% at the
end of October. All other sectors of the short-term fixed income market, such as
corporate bonds, have underperformed U.S. Treasuries. As investors seek
liquidity in U.S. Treasuries, corporate bonds and even U.S. Government agency
bonds have dramatically widened in spread over U.S. Treasuries. The ARK
Short-Term Bond Portfolio has approximately 20% of its assets in U.S.
Treasuries, while 45% of its assets are in corporate bonds. We have mitigated
the negative effect of the Portfolio's exposure to corporate bonds by actively
maintaining an aggressive interest rate exposure of roughly 110% of the Lehman
Brothers 1-3 Year Government Bond Index over most of the last three months.
We believe that global economic uncertainties will subside and that within the
next six months, broad sponsorship will return to the U.S. gov-ernment agency
and corporate bond markets. During this time of heightened market volatility, we
are actively monitoring our sector and interest rate exposures, looking to take
advantage of any market anomalies and opportunities the market may present.
SHORT-TERM BOND PERFORMANCE
AS OF 10/31/98
- --------------------------------------------------------------------------------
INSTITUTIONAL LEHMAN 1-3 YEAR LIPPER SHORT
CLASS GOVERNMENT BOND INVESTMENT-
GRADE DEBT
- --------------------------------------------------------------------------------
ONE YEAR
TOTAL RETURN 6.15% 7.66% 6.02%
- --------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE 5.89% N/A N/A
- --------------------------------------------------------------------------------
Past performance of the Portfolio is not predictive of future performance.
Performance presented from inception to March 22, 1998, reflects the
performance of the Marketvest Short-Term Bond Fund shares which were offered
beginning March 31, 1996. The performance of the Lehman 1-3 Year Government
Bond Index does not include operating expenses which are incurred by the
Portfolio.
21
<PAGE>
FIXED INCOME PORTFOLIOS MANAGEMENT DISCUSSION AND ANALYSIS
MARYLAND AND PENNSYLVANIA TAX-FREE
PORTFOLIOS REVIEW AND OUTLOOK
Susan L. Schnaars, CFA, Portfolio Manager
Susan L. Schnaars, CFA, is a Principal of Allied Investment Advisors, Inc. She
is the portfolio manager of the Intermediate Fixed Income Portfolio, Maryland
Tax-Free Portfolio, and Pennsylvania Tax-Free Portfolio. She has 10 years of
investment management experience.
The yield on the 30-year U.S. Treasury bond fell 80 basis points over the past
six months, while the yield on the 30-year generic municipal bond declined only
30 basis points. What's wrong with this picture? The tax-exempt advantage is
only beneficial to a certain group of investors, and these investors are
reluctant to buy long municipal securities at yields below 5%. The result has
been an unprecedented 99.8% ratio of municipal yields as a percentage of U.S.
Treasury yields. This begs the question, "Does it make sense for
MARYLAND TAX-FREE PORTFOLIO
PERFORMANCE AS OF 10/31/98
- ------------------------------------------------------------------------------
INSTITUTIONAL RETAIL LEHMAN LEHMAN LEHMAN
CLASS CLASS A 7 YEAR 10 YEAR MUNICIPAL
MUNI BOND MUNI BOND DEBT
- ------------------------------------------------------------------------------
ONE YEAR
TOTAL RETURN 7.12% 6.92% 7.39% 8.28% 7.00%
- ------------------------------------------------------------------------------
ONE YEAR
TOTAL RETURN
WITH LOAD N/A 3.76% N/A N/A N/A
- ------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN
WITH LOAD N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN
WITH LOAD N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE 6.96% 7.15% N/A N/A N/A
- ------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE
WITH LOAD N/A 5.37% N/A N/A N/A
- ------------------------------------------------------------------------------
Past performance of the Portfolio is not predictive of future performance.
Institutional Class shares were offered beginning November 15, 1996. Retail
Class A shares were offered beginning January 2, 1997. Performance for Retail
Class A reflects the deduction of the 3.00% sales charge after waivers. The
performance of the Lehman 7 Year Municipal Bond Index and the Lehman 10 Year
Municipal Bond Index does not include operating expenses which are incurred by
the Portfolio.
me to buy municipals now?" The answer is yes, even if you pay the lowest
marginal income tax rate and if you are willing to invest out beyond ten years.
Inside of ten years, the advantage is still there, but it is not as great as in
the longer maturity ranges. The best values lie at the long end of the market.
For an individual taxpayer with a combined federal and state tax rate of close
to 45%, a 30-year municipal bond with a 5% yield is effectively earning a 9.1%
taxable equivalent!
Municipal yields are at very high ratios versus U.S. Treasury yields and are at
levels only seen once before in recent history, during the tax reform discussion
of 1986. This time, however, the phenomenon is not being caused by a potential
change in the taxable status of municipal securities; it is the result of strong
demand for Treasury securities and the resulting decline in interest rates
caused by a flight to quality by investors seeking safety and liquidity. So far,
the tax-exempt market has somewhat avoided the liquidity problems that have been
plaguing the taxable market. The spread widening we have seen in the corporate
sector between high-grade and lower-quality credits has not passed into the
municipal sector. Like the federal government, municipalities have found
themselves with balanced budgets and even running surpluses, which have enabled
them to maintain and improve their credit ratings. Triple-B-rated issues are
offering a risk premium approximately 50 basis points greater than
Triple-A-rated issues. In light of this small risk premium, we have continued to
focus on the higher-quality issuers and those backed by insurance.
In response to the general underperformance of the municipal market compared to
the taxable market, we have steadily lengthened the duration of the Tax-Free
Portfolios, maintaining our focus on higher-quality securities. New purchases
have focused on non-callable securities, longer-dated discount coupon securities
with the ability to appreciate before trading to their shorter call date, and
higher coupon callable issues that are out of favor due to the uncertainty
surrounding whether the call will be exercised at some future date. It is our
opinion that municipals cannot get much cheaper than they are now, and we expect
municipals to begin to outperform the taxable markets. We expect one of three
things to
22
<PAGE>
ARK FUNDS SEMI ANNUAL REPORT OCTOBER 31, 1998
PENNSYLVANIA TAX-FREE PORTFOLIO
PERFORMANCE AS OF 10/31/98
- --------------------------------------------------------------------------------
INST`L RETAIL LEHMAN LEHMAN LEHMAN LIPPER PA
CLASS CLASS A* 5 YEAR 7 YEAR 10 YEAR INTERMED.
MUNI MUNI MUNI MUNICIPAL
BOND BOND BOND DEBT
- --------------------------------------------------------------------------------
ONE YEAR
TOTAL RETURN 6.43% 6.17% 6.52% 7.39% 8.28% 6.47%
- --------------------------------------------------------------------------------
ONE YEAR
TOTAL RETURN
WITH LOAD N/A 2.94% N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN N/A N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN
WITH LOAD N/A N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN N/A N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN
WITH LOAD N/A N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE 6.04% 5.93% N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE
WITH LOAD N/A 4.69% N/A N/A N/A N/A
- --------------------------------------------------------------------------------
Past performance of the Portfolio is not predictive of future performance.
Performance presented from inception to March 22, 1998, reflects the
performance of the Marketvest Pennsylvania Intermediate Municipal Bond Fund
shares which were offered beginning March 31, 1996. Retail Class A shares were
offered beginning March 23, 1998. Performance for Retail Class A shares
reflects the deduction of the 3.00% sales charge after waivers. The
performance of the Lehman 5 Year Municipal Bond Index, Lehman 7 Year Municipal
Bond Index, and Lehman 10 Year Municipal Bond Index does not include operating
expenses which are incurred by the Portfolio.
* Performance shown for the Retail Class A shares is synthetic (not actual) and
represents that of the Institutional Class adjusted for the sales charge.
Actual cumulative performance since inception is 3.78% without load and 0.64%
with load.
happen. With the ratio of municipal yields to Treasury yields so high,
municipals can begin to catch up (on a relative basis) to the Treasury market by
attracting an increasing number of cross-over buyers and igniting interest in
the usual municipal investors, resulting in strong relative performance. If
Treasuries stabilize, municipals should have a chance to catch up as investors
adjust to the new lower rates in the municipal market. If the Treasury market
sells off, it is expected that municipals may be the asset sector of choice for
those able to purchase municipals, resulting again in strong relative
performance. Municipals could also begin to profit from any weakness in the
equity market, as investors seek positive returns from other asset classes.
23
<PAGE>
FIXED INCOME PORTFOLIOS MANAGEMENT DISCUSSION AND ANALYSIS
INTERMEDIATE FIXED INCOME PORTFOLIO
REVIEW AND OUTLOOK
Susan L. Schnaars, CFA, Portfolio Manager
Susan L. Schnaars, CFA, is a Principal of Allied Investment Advisors, Inc. She
is the portfolio manager of the Intermediate Fixed Income Portfolio, Maryland
Tax-Free Portfolio, and Pennsylvania Tax-Free Portfolio. She has 10 years of
investment management experience.
With an expected 25-basis point ease in the Fed Funds rate late in the third
quarter and a surprise ease shortly thereafter, the financial markets were
somewhat rejuvenated and reassured, and corrected somewhat for the crisis that
troubled the markets over the summer and early fall. Throughout the past six
months, turmoil in the foreign markets and the domestic equity market drove
investors to the safe haven of the liquid and dollar-denominated U.S. Treasury
market, forcing long-term interest rates below 5%. Investor demand for
liquidity, even amongst bond investors, coupled with the probability for softer
corporate profits in the quarters ahead, caused corporate spreads to widen
significantly, especially in lower-quality credits, while the U.S. Treasury
market continued its rally. Spreads widened further when liquidity in the
markets began to dry up as financial intermediaries became less willing to take
on additional inventory after being hurt by overseas investments and a hedge
fund bailout. The dramatic decline in interest rates also motivated spreads in
the mortgage-backed sector to widen as the prospects for prepayments increased,
reducing the desire to hold these interest-rate-sensitive products. Tax-exempt
municipal securities also underperformed as interest rates fell and new supply
flooded the market, causing the ratio of municipal yields to Treasury yields to
reach levels seen only once before in recent history, during the tax reform
discussion of 1986.
In light of the underperformance of medium- and lower-quality corporate and
mortgage sectors over the past several months, we have maintained our focus on
mid- to high-quality corporate issuers. The performance of the ARK Intermediate
Fixed Income Portfolio has been hampered moderately by the exposure to
lower-quality corporates and REITS. We have been slowly reducing the Portfolio's
exposure to the mortgage-backed and CMO sectors. We have taken a small position
in tax-exempt securities as a longer-term total return opportunity. In many
instances the yields on certain municipal bonds have gradually reached the
yields available for their Treasury counterparts, making them an attractive
alternative to portfolios focused on taxable securities. It is likely that
tax-exempt yields will begin to trade closer to their "normal" levels as
technical factors begin to play in favor of the municipal market. As the flight
to quality to the Treasury sector subsides, it is expected that the municipal
market will outperform.
The ARK Intermediate Fixed Income Portfolio performance was aided by the strong
performance of the Treasury market, the stronger relative performance of the
higher quality corporate issues held in the Portfolio, the stronger relative
performance of municipals late in the period, and lower exposure to less
interest-rate-sensitive mortgage- and asset-backed securities.
In light of the continuing global financial crisis, we expect to continue to
increase our position in the government sector, as other sectors are viewed to
be less attractive. We will focus on investing in asset-backed securities for
incremental yield while maintaining high quality. As we expect persistent
weakness due to a new wave of
24
<PAGE>
ARK FUNDS SEMI ANNUAL REPORT OCTOBER 31, 1998
mortgage refinancings, the Portfolio will continue to be underweighted in the
current and premium coupon mortgage sectors. In the corporate sector, we
continue to focus on fundamental credit analysis, retaining those issuers we
believe will fare best in an economic downturn. We believe that this unique
phenomenon taking place in the bond market over the past several months will
pass, and we will continue to look for opportunities in the spread sectors as
the dust settles. It has been proven over time that risks associated with
investing in the corporate and mortgage sectors are rewarded.
INTERMEDIATE FIXED INCOME PORTFOLIO
PERFORMANCE AS OF 10/31/98
- --------------------------------------------------------------------------------
INSTITUTIONAL LEHMAN INTERMEDIATE LIPPER INTERMEDIATE
CLASS GOVERNMENT BOND INVESTMENT-
GRADE DEBT
- --------------------------------------------------------------------------------
ONE YEAR
TOTAL RETURN 8.54% 9.50% 7.94%
- --------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE 7.56% N/A N/A
- --------------------------------------------------------------------------------
Past performance of the Portfolio is not predictive of future performance.
Institutional Class shares were offered beginning November 15, 1996. The
performance of the Lehman Intermediate Government Bond Index does not include
operating expenses which are incurred by the Portfolio.
U.S. GOVERNMENT BOND PORTFOLIO REVIEW
AND OUTLOOK
Steven M. Gradow N. Beth Volk, CFA
Co-Portfolio Managers
Steven M. Gradow is a Managing Director of Fixed Income Investments for Allied
Investment Advisors, Inc. He is the portfolio manager of the Income Portfolio
and co-portfolio manager of the U.S. Government Bond Portfolio and the
Short-Term Bond Portfolio. He has over 15 years of investment management
experience.
N. Beth Volk, CFA, is a Principal of Allied Investment Advisors, Inc. She is the
co-portfolio manager of the U.S. Government Bond Portfolio and oversees credit
research for the fixed income group. She has over 18 years of investment
research and management experience.
The ARK U.S. Government Bond Portfolio seeks to provide current income by
investing at least 65% of its assets in securities that are issued or guaranteed
as to the payment of principal and interest by the U.S. Treasury or its
agencies. The average life of the Portfolio can range from three to ten years,
but is normally maintained around seven years.
The significant change in sentiment over the summer and investors' rush to the
safety of U.S. Treasuries caused yields across all maturities to fall and the
prices of these highly liquid securities to rise. As this nervousness developed,
we extended the ARK U.S. Government Bond Portfolio's duration slightly, since we
expected lower rather than higher interest rates. In addition, as the rally
caused the duration of the Portfolio's and its benchmarks' mortgage-backed
securities to shorten, we maintained our duration at roughly 4.2 years. Early in
the summer, we tendered several of our less liquid, three-year agency positions
at a market premium, reinvesting the proceeds in U.S. Treasuries. In early
September, we took advantage of the unusually wide yield premiums offered in the
agency sector, reducing our portfolio weighting in the U.S. Treasury sector.
Though we increased our weighting in AAA-rated mortgage-backed securities,
compared to our benchmarks, we still are underweighted in this sector. While we
left our corporate weightings unchanged over the quarter given this sector's
relative weakness, we did swap into some more defensive names. Altogether, these
moves
25
<PAGE>
FIXED INCOME PORTFOLIOS MANAGEMENT DISCUSSION AND ANALYSIS
preserved overall portfolio quality at a strong AA1 and enhanced the Portfolio's
yield.
While we believe the recent underperformance of the higher-yielding
mortgage-backed securities and corporates is likely to last several more months
before correcting, we remind investors that over the long-term they have been
rewarded for bearing the additional risk associated with these sectors.
Nonetheless, until the financial system's underlying tone improves, the
historically wide spreads for these products fail to be compelling relative
values. We remain focused on our fundamental approach to credits, retaining only
those issuers with the ability to fare best in an economic downturn. We will
continue to underweight the mortgage sector given expectations for higher
prepayments. During this period of increased instability, we believe that
agencies offer the best relative value. Given the AAA quality and incremental
yield of asset-backed securities, we will also seek opportunities in that
sector.
U.S. GOVERNMENT BOND PORTFOLIO
PERFORMANCE AS OF 10/31/98
- --------------------------------------------------------------------------------
INSTITUTIONAL RETAIL LEHMAN LIPPER
CLASS CLASS A* INTERMEDIATE INTERMEDIATE
GOV'T/CORP. BOND U.S. GOV'T
- --------------------------------------------------------------------------------
ONE YEAR
TOTAL RETURN 7.34% 7.14% 9.10% 8.54%
- --------------------------------------------------------------------------------
ONE YEAR
TOTAL RETURN
WITH LOAD N/A 3.92% N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN
WITH LOAD N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN
WITH LOAD N/A N/A N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE 6.65% 6.45% N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE
WITH LOAD N/A 5.20% N/A N/A
- --------------------------------------------------------------------------------
Past performance of the Portfolio is not predictive of future performance.
Performance presented from inception to March 22, 1998, reflects the
performance of the Marketvest Intermediate U.S. Government Bond Fund shares
which were offered beginning March 31, 1996. Retail Class A shares were
offered beginning April 1, 1998. Performance for Retail Class A shares
reflects the deduction of the 3.00% sales charge after waivers. The
performance of the Lehman Intermediate Government/Corporate Index does not
include operating expenses which are incurred by the Portfolio.
* Performance shown for the Retail Class A shares is synthetic (not actual) and
represents that of the Institutional Class adjusted for the sales charge.
Actual cumulative performance since inception for Class A shares is 12.61%
without load and 9.18% with load.
26
<PAGE>
ARK FUNDS SEMI ANNUAL REPORT OCTOBER 31, 1998
INCOME PORTFOLIO REVIEW AND OUTLOOK
Steven M. Gradow, Portfolio Manager
Steven M. Gradow is a Managing Director of Fixed Income Investments for Allied
Investment Advisors, Inc. He is the portfolio manager of the Income Portfolio
and co-portfolio manager of the U.S. Government Bond Portfolio and the
Short-Term Bond Portfolio. He has over 15 years of investment management
experience.
Not since the start of the Gulf War (at the beginning of the decade) has the
economy witnessed the kind of dramatic shift in investor sentiment and flight to
U.S. Treasuries that occurred in the summer of 1998. This unusual phenomenon was
exacerbated by the events of a sovereign default (Russia) together with the
threat to major U. S. money center banks and brokerage houses, as the effects of
largely unregulated, leveraged hedge funds threatened to expose our banking
system to significant losses. In response to this threat, and the continuation
of a global economic slowdown, the Federal Reserve moved from a moderately
restrictive stance to one of accommodation, lowering the Federal Funds rate
twice in the past two months.
This has been an extremely unusual period for bond managers. Bond assets within
fixed income sectors corrected severely and widened in spread by very large
margins, as liquidity was only available within the U.S. Treasury markets. In
effect, the issuance of corporate debt was limited as financial institutions and
broker/dealers pulled back financing and distributing securities while
experiencing large losses in the third quarter. Investors basically went out on
strike as their existing corporate and mortgage securities holdings severely
underperformed the Treasury market.
In light of the continuing global volatility, we believe the recent
underperformance of the higher-yielding corporate and mortgage securities will
provide an unusual opportunity to purchase securities at excellent values once
the markets begin to stabilize. We continue to emphasize the investment in
quality companies in industries that will perform well in a slower economic
climate. We are vigilant about maintaining a fundamental approach to securities
selection within our process. We expect the market to stabilize over the coming
months and believe the investor will be rewarded for the risks associated with
these higher-yielding assets. We continue to underweight the mortgage sector as
prepayments have accelerated to substantial levels. We expect to purchase
additional corporate securities and to look for anomalies within sectors to add
additional returns to the Portfolio.
INCOME PORTFOLIO PERFORMANCE
AS OF 10/31/98
- --------------------------------------------------------------------------------
INSTITUTIONAL RETAIL RETAIL LEHMAN LIPPER
CLASS CLASS A CLASS B* AGGREGATE CORPORATE A-
BOND RATED
- --------------------------------------------------------------------------------
ONE YEAR
TOTAL RETURN 6.98% 6.74% 6.89% 9.32% 7.72%
- --------------------------------------------------------------------------------
ONE YEAR
TOTAL RETURN
WITH LOAD N/A 3.53% 1.89% N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN 6.89% 6.64% 6.86% 8.01% 7.06%
- --------------------------------------------------------------------------------
ANNUALIZED
THREE YEAR
TOTAL RETURN
WITH LOAD N/A 5.58% 5.98% N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN 6.56% N/A 6.54% 7.02% 6.15%
- --------------------------------------------------------------------------------
ANNUALIZED
FIVE YEAR
TOTAL RETURN
WITH LOAD N/A N/A 6.23% N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE 6.70% 7.52% 6.68% N/A N/A
- --------------------------------------------------------------------------------
ANNUALIZED
TOTAL RETURN
INCEPTION
TO DATE
WITH LOAD N/A 6.80% 6.54% N/A N/A
- --------------------------------------------------------------------------------
Past performance of the Portfolio is not predictive of future performance.
Institutional Class shares were offered beginning July 16, 1993. Retail Class
A shares were offered beginning April 12, 1994. Performance for Retail Class A
shares reflects the deduction of the 3.00% sales charge after waivers. Retail
Class B shares were offered beginning September 14, 1998. Performance for
Retail Class B shares reflects the deduction of the maximum contingent
deferred sales charge of 5.00% applied in year one only. The performance of
the Lehman Aggregate Bond Index does not include operating expenses which are
incurred by the Portfolio.
* Performance shown for the Retail Class B shares is synthetic (not actual) and
represents that of the Institutional Class adjusted for the sales charge.
Actual cumulative performance since inception is -0.14% without load and
-5.09% with load.
27
<PAGE>
MONEY MARKET PORTFOLIOS MANAGEMENT DISCUSSION AND ANALYSIS
[PHOTO OF MONEY MARKET PORTFOLIOS MANAGEMENT TEAM OMITTED]
28
<PAGE>
ARK FUNDS SEMI ANNUAL REPORT OCTOBER 31, 1998
[PHOTO OF MONEY MARKET PORTFOLIOS MANAGEMENT TEAM OMITTED]
The ARK Funds Money Market Portfolios Management team (from left to right):
James M. Hannan, Wilmer C. Stith III, and Bryan J. Dingle.
Our Money Market investment management philosophy is defined by three
objectives: to provide preservation of principal, to maintain daily liquidity,
and to maximize current income. To achieve these objectives, we actively manage
the money market portfolios utilizing our conservative and highly disciplined
relative value approach, which is constantly monitored and reviewed to ensure
that our shareholders' goals are realized.
To provide preservation of principal, we include on our approved list only
those issuers that pass our stringent credit evaluation process. The goal of the
credit evaluation process is to select high-quality issuers that present minimal
credit risk. The evaluation process is based on both quantitative and
qualitative factors that highlight the issuer's ability to maintain its credit
rating and leading industry position. Issuers are monitored and reviewed by the
ARK Funds Investment Advisory Committee, which is comprised of senior trust
investment personnel.
To provide daily liquidity, we manage our maturities and engage in
overnight repurchase agreements with approved broker/dealers that have obtained
the highest short-term ratings. Each repurchase agreement is collateralized by
U.S. Treasury or U.S. government agency collateral.
To provide high current income, we actively manage the Portfolios. We seek
to take advantage of short-lived trading opportunities and market inefficiencies
by employing a relative value approach that emphasizes security selection.
Each Portfolio's strategy starts with an average maturity decision. This
decision is determined by a number of factors, such as analysis of our
shareholders' liquidity needs, expected Federal Reserve monetary policy and
yield curve, and implied forward interest rate analysis.
Upon determining the Portfolio's average maturity, we analyze each market
sector to determine which sectors are cheap, thus providing value, and which
sectors are expensive. Individual securities are then selected from our approved
list. This in-depth analysis allows us to identify market inefficiencies and
trading opportunities.
29
<PAGE>
MONEY MARKET PORTFOLIOS MANAGEMENT DISCUSSION AND ANALYSIS
MONEY MARKET PORTFOLIOS
REVIEW AND OUTLOOK
James M. Hannan, Portfolio Manager
James M. Hannan is a Principal of Allied Investment Advisors, Inc. He is
portfolio manager of the Money Market Portfolios and the Short-Term Treasury
Portfolio. He has over 10 years of investment management experience.
Throughout the past six months the Money Market Portfolios continued to meet
their objectives of providing preservation of principal, daily liquidity, and
high current income.
The ARK Funds Money Market Portfolios reached another milestone; assets topped
$3.1 billion on October 30, 1998. The money market interest rate environment was
dominated by the Federal Reserve easing monetary policy twice within 16 days.
The cut in short-term interest rates came as a response to growing fears of a
global economic recession and to "cushion the effects of increasing weakness in
foreign economies." The second easing was in response to increasing financial
market turmoil and instability. Currently, the Federal Reserve is targeting a 5%
Federal Funds rate, which is 0.50% less than the rate the Federal Reserve was
targeting prior to the initial easing. The financial markets have responded
favorably to the Federal Reserve's easing of monetary policy, as market
volatility has abated. Short-term interest rates have declined by over 1.50% as
the yield on the one-year Treasury bill declined from 5.46% in May to 3.85% in
October.
The Money Market Portfolios experienced a significant increase in assets over
the past year. Total money market assets increased 35%. For example, the ARK
Money Market Portfolio's assets increased by 70% in the past six months to $842
million at October 30.
We expect the Federal Reserve to ease monetary policy again prior to year end.
Given our outlook, we have extended the average maturity of the Portfolios. For
example, the ARK U.S. Government Money Market Portfolio's average maturity was
lengthened from 24 days in May to 54 days in October. We also expect year-end
financing pressures to provide many opportunities to enhance the yield of the
Portfolios. Our strategy is to extend the average maturity of the Portfolios by
purchasing securities maturing in the first quarter of 1999. Exposure to
floating and variable rate securities will be maintained as we continue to find
value in these securities. Most importantly, we will continue to faithfully
utilize our conservative and disciplined relative value investment process.
30
<PAGE>
ARK FUNDS SEMI ANNUAL REPORT OCTOBER 31, 1998
MONEY MARKET PORTFOLIO PERFORMANCE
AS OF 10/31/98
[GRAPH OMITTED]
THIRTY-DAY YIELD COMPARISON
<TABLE>
<CAPTION>
11/30/97 12/31/97 1/31/98 2/28/98 3/31/98 4/30/98 5/31/98 6/30/98 7/31/98 8/31/98 9/30/98 10/31/98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ARK MONEY MARKET,
INSTITUTIONAL CLASS 5.46% 5.54% 5.39% 5.33% 5.32% 5.31% 5.31% 5.33% 5.30% 5.32% 5.30% 5.10%
IBC/FINANCIAL DATA FIRST
TIER INSTITUTIONS ONLY 5.34 5.38 5.36 5.31 5.29 5.28 5.27 5.28 5.28 5.27 5.25 5.04
ARK MONEY MARKET,
RETAIL CLASS A 5.15 5.23 5.14 5.08 5.07 5.06 5.06 5.07 5.05 5.07 5.05 4.85
IBC/FINANCIAL DATA
FIRST TIER 4.97 5.04 5.01 4.95 4.93 4.92 4.91 4.92 4.92 4.91 4.90 4.70
ARK MONEY MARKET,
INSTITUTIONAL II CLASS 5.36 5.44 5.35 5.29 5.28 5.27 5.27 5.28 5.26 5.28 5.25 5.06
</TABLE>
TAX-FREE MONEY MARKET PORTFOLIO
PERFORMANCE AS OF 10/31/98
[GRAPH OMITTED]
THIRTY-DAY YIELD COMPARISON
<TABLE>
<CAPTION>
11/30/97 12/31/97 1/31/98 2/28/98 3/31/98 4/30/98 5/31/98 6/30/98 7/31/98 8/31/98 9/30/98 10/31/98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ARK TAX-FREE MONEY MARKET,
INSTITUTIONAL CLASS 3.53% 3.51% 3.23% 3.05% 3.06% 3.48$ 3.42% 3.24% 3.02% 3.02% 3.19% 3.01%
IBC/FINANCIAL DATA
TAX-FREE
INSTITUTIONS ONLY 3.46 3.43 3.18 3.00 3.03 3.44 3.45 3.28 3.12 3.06 3.17 3.00
ARK TAX-FREE MONEY
MARKET,
RETAIL CLASS A 3.22 3.20 2.98 2.80 2.81 3.23 3.17 2.99 2.77 2.77 2.94 2.76
IBC/FINANCIAL DATA
TAX-FREE STOCKBROKER &
GENERAL PURPOSE 3.19 3.17 2.94 2.77 2.78 3.16 3.18 3.02 2.86 2.81 2.91 2.75
ARK TAX-FREE MONEY
MARKET,
INSTITUTIONAL II CLASS 3.43 3.41 3.19 3.01 3.02 3.44 3.38 3.20 2.98 2.98 3.15 2.97
</TABLE>
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
PERFORMANCE AS OF 10/31/98
[GRAPH OMITTED]
THIRTY-DAY YIELD COMPARISON
<TABLE>
<CAPTION>
11/30/97 12/31/97 1/31/98 2/28/98 3/31/98 4/30/98 5/31/98 6/30/98 7/31/98 8/31/98 9/30/98 10/31/98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ARK U.S. GOVERNMENT
MONEY MARKET,
INSTITUTIONAL CLASS 5.34% 5.39% 5.30% 5.25% 5.18% 5.15% 5.15% 5.19% 5.20% 5.25% 5.19% 4.87%
IBC/FINANCIAL DATA
GOVERNMENT
ONLY INSTITUTIONS ONLY 5.16 5.19 5.16 5.15 5.15 5.14 5.09 5.10 5.11 5.10 5.07 4.70
ARK U.S. GOVERNMENT
MONEY MARKET,
RETAIL CLASS A 5.03 5.08 5.02 4.97 4.94 4.91 4.90 4.94 4.95 5.00 4.94 4.62
IBC/FINANCIAL DATA
U.S. GOVERNMENT &
AGENCIES 4.92 4.96 4.93 4.91 4.89 4.89 4.88 4.89 4.89 4.89 4.86 4.57
ARK U.S. GOVERNMENT
MONEY MARKET,
INSTITUTIONAL II CLASS 5.24 5.29 5.23 5.18 5.15 5.12 5.11 5.15 5.16 5.21 5.15 4.83
</TABLE>
U.S. TREASURY MONEY MARKET PORTFOLIO
PERFORMANCE AS OF 10/31/98
[GRAPH OMITTED]
THIRTY-DAY YIELD COMPARISON
<TABLE>
<CAPTION>
11/30/97 12/31/97 1/31/98 2/28/98 3/31/98 4/30/98 5/31/98 6/30/98 7/31/98 8/31/98 9/30/98 10/31/98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ARK U.S. TREASURY
MONEY MARKET,
INSTITUTIONAL CLASS 4.98% 4.99% 4.90% 4.88% 4.88% 4.90% 4.82% 4.87% 4.79% 4.76% 4.78% 4.38%
IBC/FINANCIAL DATA 100%
U.S. TREASURY 4.57 4.75 4.75 4.72 4.76 4.73 4.63 4.64 4.62 4.61 4.59 4.24
ARK U.S. TREASURY
MONEY MARKET,
INSTITUTIONAL II CLASS 4.88 4.89 4.82 4.80 4.86 4.87 4.78 4.83 4.75 4.72 4.74 4.34
ARK U.S. TREASURY
MONEY MARKET,
RETAIL CLASS A 4.67 4.68 4.61 4.59 4.65 4.66 4.57 4.62 4.54 4.51 4.53 4.13
</TABLE>
31
<PAGE>
THIS PAGE IS LEFT INTENTIONALLY BLANK.
32
<PAGE>
This report and the financial statements contained herein are submitted for the
general information of the shareholders of the ARK Funds. The report is not
authorized for distribution to prospective investors unless preceded or
accompanied by an effective prospectus for each of the portfolios included.
Shares of the portfolios are not deposits or obligations of, or guaranteed or
endorsed by FMB Trust Company, N.A., any of its affiliates, or any depository
institution, are not insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other government agency. Investing in the shares
involves investment risks including the possible loss of principal amount
invested.
<PAGE>
ARK FUNDS
- --------------------------------------------------------------------------------
[Ark Logo Omitted]
Investment Advisers
Allied Investment Advisors, Inc.
Baltimore, Maryland
Trustees
William H. Cowie, Jr.
David D. Downes
Charlotte R. Kerr
George K. Reynolds III
Thomas Schweizer
Richard B. Siedel
Administrator
SEI Investments Mutual Funds Services
Oaks, Pennsylvania
Distributor
SEI Investments Distribution Co.
Oaks, Pennsylvania
Legal Counsel
Piper & Marbury L.L.P.
Baltimore, Maryland
Independent Auditors
KPMG Peat Marwick LLP
Boston, Massachusetts
Custodian
FMB Trust Company, N.A.
Baltimore, Maryland
This material must be preceded or accompanied by a current prospectus.
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[Pie chart omitted.]
[arrow] ARK FUNDS: MONEY MARKET PORTFOLIO
Repurchase Agreements -- 2%
Asset-Backed Securities -- 3%
Taxable Municipal Bonds -- 6%
Commercial Paper -- 16%
Certificates of Deposit -- 17%
Corporate Obligations -- 56%
% of Total Portfolio Investments
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS -- 55.7%
BANKS -- 7.0%
CHEMICAL BANKING
9.750%, 06/15/99 $ 1,250 $ 1,279
NORWEST, SERIES D, MTN (A)
5.550%, 12/16/98 10,000 10,004
PNC BANK (A)
5.406%, 11/13/98 11,000 10,999
5.050%, 11/21/98 15,000 14,994
5.040%, 12/11/98 5,000 4,998
WELLS FARGO
8.625%, 04/01/99 17,000 17,193
- --------------------------------------------------------------------------------
TOTAL BANKS $59,467
- --------------------------------------------------------------------------------
FINANCIAL SERVICES -- 39.1%
ABBEY NATIONAL TREASURY
SERVICES, MTN, YB
5.500%, 02/05/99 10,000 10,003
ABBEY NATIONAL TREASURY (B)
5.720%, 06/11/99 5,000 4,998
ABBEY NATIONAL TREASURY,
MTN (B)
5.640%, 07/15/99 15,000 14,994
ASSOCIATES
5.160%, 01/20/99 25,000 24,713
BEAR STEARNS (A)
5.150%, 11/01/98 5,000 4,999
BEAR STEARNS, SERIES B, MTN (A)
5.180%, 11/01/98 10,000 10,000
5.758%, 11/26/98 10,000 10,003
CAPITAL ONE FUNDING (A) (B)
5.150%, 11/05/98 4,200 4,200
5.180%, 11/05/98 4,200 4,200
CIESCO
5.150%, 01/15/99 25,000 24,732
CIT GROUP, MTN (A)
5.050%, 11/01/98 25,000 24,988
5.200%, 11/01/98 5,000 5,000
CORPORATE ASSET FUNDING
5.450%, 11/18/98 30,000 29,923
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
GENERAL ELECTRIC CAPITAL
5.400%, 11/06/98 $25,000 $ 24,981
GENERAL ELECTRIC ENGINE
RECEIVABLES (A)
5.211%, 11/01/98 1,430 1,430
GOLDMAN SACHS GROUP (A)
5.606%, 01/15/99 10,000 10,000
GOLDMAN SACHS GROUP (A) (B)
5.619%, 01/26/99 5,000 5,005
GOLDMAN SACHS GROUP,
SERIES A (A) (B)
5.313%, 11/26/98 8,000 8,000
5.728%, 01/31/99 2,500 2,500
LEHMAN BROTHERS HOLDINGS (A)
5.030%, 11/01/98 10,000 10,000
LEHMAN BROTHERS HOLDINGS,
SERIES E (A)
5.220%, 11/01/98 5,000 5,000
LEHMAN BROTHERS HOLDINGS,
SERIES E, MTN
6.900%, 07/15/99 2,000 2,015
LEHMAN BROTHERS HOLDINGS,
SERIES E, MTN (A)
5.573%, 12/13/98 10,000 10,000
MERRILL LYNCH
6.375%, 03/30/99 3,800 3,808
MERRILL LYNCH, SERIES B, MTN (A)
5.250%, 11/01/98 10,000 10,005
MORGAN STANLEY, DEAN WITTER,
DISCOVER, SERIES C, MTN (A)
5.728%, 11/09/98 9,000 9,000
5.759%, 01/30/99 11,400 11,403
SALOMON BROTHERS
7.125%, 08/01/99 15,000 15,144
SALOMON BROTHERS, MTN
7.000%, 05/15/99 1,070 1,077
SALOMON SMITH BARNEY HOLDINGS
5.560%, 01/28/99 1,000 986
SALOMON SMITH BARNEY HOLDINGS,
SERIES D, MTN
7.650%, 05/18/99 12,000 12,135
TRAP ROCK INDUSTRY,
DEMAND RB (A)
5.250%, 11/04/98 2,300 2,300
XEROX CREDIT
6.500%, 06/11/99 12,000 12,039
- --------------------------------------------------------------------------------
TOTAL FINANCIAL SERVICES $329,581
- --------------------------------------------------------------------------------
PERSONAL CREDIT INSTITUTIONS -- 9.6%
CHRYSLER FINANCE
12.750%, 11/01/99 5,000 5,369
CHRYSLER FINANCE, SERIES Q, MTN
6.370%, 06/21/99 5,000 5,019
6.440%, 06/23/99 3,000 3,013
33
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[arrow] MONEY MARKET PORTFOLIO (CONCLUDED)
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
CHRYSLER FINANCE, SERIES Q,
MTN (A)
5.019%, 11/21/98 $10,000 $ 10,001
FIRST DATA
5.340%, 03/02/99 32,500 31,917
FORD MOTOR CREDIT, MTN (A)
5.200%, 11/01/98 5,000 5,000
GENERAL MOTORS ACCEPTANCE
8.625%, 06/15/99 5,305 5,397
GENERAL MOTORS ACCEPTANCE,
MTN
6.450%, 04/15/99 3,000 3,009
7.375%, 06/09/99 10,000 10,103
NORWEST FINANCIAL
6.250%, 03/15/99 2,000 2,004
- --------------------------------------------------------------------------------
TOTAL PERSONAL CREDIT INSTITUTIONS $ 80,832
- --------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS
(Cost $469,880) $469,880
- --------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT -- 16.4%
BANKS -- 4.5%
BANKERS TRUST (A)
5.090%, 11/01/98 10,000 9,996
HUNTINGTON NATIONAL
5.625%, 01/12/99 11,900 11,897
NATIONSBANK (A)
5.080%, 11/03/98 9,000 8,996
SECURITY PACIFIC
9.750%, 05/15/99 7,010 7,175
- --------------------------------------------------------------------------------
TOTAL BANKS $ 38,064
- --------------------------------------------------------------------------------
FOREIGN BANKS -- 11.9%
DEUTSCHE BANK
5.580%, 01/12/99 20,000 19,998
ROYAL BANK OF CANADA (A)
5.055%, 11/01/98 25,000 24,989
SOCIETE GENERALE
5.860%, 11/18/98 10,000 10,001
5.680%, 02/26/99 10,000 9,998
5.690%, 07/16/99 10,000 9,996
TORONTO DOMINION BANK NY (A)
5.040%, 11/18/98 25,000 24,984
- --------------------------------------------------------------------------------
TOTAL FOREIGN BANKS $ 99,966
- --------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $138,030) $138,030
- --------------------------------------------------------------------------------
COMMERCIAL PAPER -- 15.5%
BAYERISCHE VERIENSBANK NY
5.700%, 11/02/98 30,000 29,995
CREDIT SUISSE FIRST BOSTON
5.700%, 11/02/98 30,000 29,995
FORD MOTOR CREDIT
5.150%, 11/04/98 25,000 24,989
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
HOUSEHOLD FINANCE
5.200%, 01/21/99 $30,000 $ 29,649
XEROX CREDIT
5.700%, 11/02/98 16,000 15,997
- --------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(Cost $130,625) $130,625
- --------------------------------------------------------------------------------
TAXABLE MUNICIPAL BONDS -- 6.1%
CALIFORNIA -- 1.6%
OAKLAND-ALAMEDA COUNTY
CP, CIBC
5.390%, 11/20/98 5,350 5,350
RIVERSIDE COUNTY COP,
LOC (A)
5.250%, 11/05/98 8,000 8,000
- --------------------------------------------------------------------------------
TOTAL CALIFORNIA $13,350
- --------------------------------------------------------------------------------
ILLINOIS -- 1.2%
ILLINOIS STATE HEALTH FACILITIES
RB, MBIA (A)
5.250%, 11/04/98 9,800 9,800
- --------------------------------------------------------------------------------
TOTAL ILLINOIS $ 9,800
- --------------------------------------------------------------------------------
MARYLAND -- 0.5%
MARYLAND STATE HEALTH &
HIGHER EDUCATION FACILITIES
RB, SERIES B, LOC
5.350%, 11/05/98 5,000 5,000
- --------------------------------------------------------------------------------
TOTAL MARYLAND $ 5,000
- --------------------------------------------------------------------------------
NEW JERSEY -- 0.5%
NEW JERSEY STATE ECONOMIC
DEVELOPMENT AUTHORITY
RB, LOC (A)
5.300%, 11/04/98 4,600 4,600
- --------------------------------------------------------------------------------
TOTAL NEW JERSEY $ 4,600
- --------------------------------------------------------------------------------
NEW YORK -- 1.4%
NEW YORK CP, FGIC
5.746%, 11/19/98 12,000 12,000
- --------------------------------------------------------------------------------
TOTAL NEW YORK $12,000
- --------------------------------------------------------------------------------
NORTH CAROLINA -- 0.8%
DURHAM COP, SERIES B (A)
5.090%, 11/04/98 1,500 1,500
WINSTON SALEM COP
5.300%, 11/10/98 5,000 5,000
- --------------------------------------------------------------------------------
TOTAL NORTH CAROLINA $ 6,500
- --------------------------------------------------------------------------------
PENNSYLVANIA -- 0.1%
PENNSYLVANIA STATE ECONOMIC
DEVELOPMENT FINANCING
AUTHORITY RB, LOC (A)
5.250%, 11/05/98 600 600
- --------------------------------------------------------------------------------
TOTAL PENNSYLVANIA $ 600
- --------------------------------------------------------------------------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $51,850) $51,850
- --------------------------------------------------------------------------------
34
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES -- 3.2%
ABT 96, SERIES A-5 (A)
5.509%, 11/16/98 $14,000 $ 14,000
STEER SERIES A-39 TRUST ASSET
NOVASTAR MORTGAGE FUNDING
TRUST DEBT UNIT, MBIA (A) (B)
5.520%, 11/25/98 4,794 4,794
STRUCTURED ENHANCED RETURN
TRUST, SERIES A-42, MTN (A)
5.684%, 11/25/98 7,847 7,848
- --------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(Cost $26,642) $ 26,642
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 2.6%
FIRST BOSTON
5.400%, dated 10/30/98, matures
11/02/98, repurchase price
$15,006,750 (collateralized by
U.S. Treasury Bond:
total market value
$15,781,424) 15,000 15,000
GOLDMAN SACHS
4.750%, dated 10/30/98, matures
11/02/98, repurchase price
$6,916,081 (collateralized by
U.S. Treasury Note:
total market value
$7,052,073) 6,913 6,913
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost $21,913) $ 21,913
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.5%
(Cost $838,940) $838,940
================================================================================
OTHER ASSETS AND LIABILITIES, NET -- 0.5% $ 4,447
================================================================================
NET ASSETS:
Portfolio Shares of Institutional Class
(unlimited authorization -- no par value)
based on 420,060,124 outstanding
shares of beneficial interest 420,045
Portfolio Shares of Retail Class A
(unlimited authorization -- no par value)
based on 230,204,901 outstanding
shares of beneficial interest 230,195
Portfolio Shares of Institutional II Class
(unlimited authorization -- no par value)
based on 193,103,631 outstanding
shares of beneficial interest 193,100
Undistributed net investment income 62
Distributions in excess of net realized
gain on investments (15)
================================================================================
TOTAL NET ASSETS -- 100.0% $843,387
================================================================================
MARKET
DESCRIPTION VALUE
- --------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- INSTITUTIONAL CLASS $1.00
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $1.00
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- INSTITUTIONAL II CLASS $1.00
================================================================================
(A) VARIABLE RATE SECURITY. THE RATE REPORTED ON THE STATEMENT OF NET ASSETS IS
THE RATE IN EFFECT ON OCTOBER 31, 1998. THE DATE SHOWN IS THE NEXT SCHEDULED
RESET DATE.
(B) SECURITY EXEMPT FROM REGISTRATION UNDER RULE 144A OF THE SECURITIES ACT OF
1933. THESE SECURITIES MAY BE RESOLD IN TRANSACTIONS EXEMPT FROM
REGISTRATION NORMALLY TO QUALIFIED INSTITUTIONAL INVESTORS.
COP -- CERTIFICATE OF PARTICIPATION
CP -- COMMERCIAL PAPER
LOC -- SECURITIES ARE HELD IN CONNECTION WITH A LETTER OF
CREDIT ISSUED BY A MAJOR COMMERCIAL BANK OR OTHER FINANCIAL INSTITUTION.
MTN -- MEDIUM TERM NOTE
RB -- REVENUE BOND
YB -- YANKEE BOND
THE FOLLOWING ORGANIZATIONS HAVE PROVIDED UNDERLYING CREDIT SUPPORT FOR
SECURITIES LISTED ABOVE, AS INDICATED.
CIBC -- CANADIAN IMPERIAL BANK CORPORATION
FGIC -- FINANCIAL GUARANTY INSURANCE CORPORATION
MBIA -- MUNICIPAL BOND INSURANCE ASSOCIATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
35
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[arrow] ARK FUNDS: TAX-FREE MONEY MARKET PORTFOLIO
[Pie chart omitted.]
Tax-Exempt Commercial Paper -- 4%
Anticipation Notes -- 4%
General Obligations -- 10%
Revenue Bonds -- 82%
% of Total Portfolio Investments
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
MUNICIPAL BONDS & NOTES -- 99.6%
ALASKA -- 0.1%
VALDEZ, INDUSTRIAL DEVELOPMENT
AUTHORITY RB, EXXON PIPELINE
COMPANY PROJECT (A)
3.700%, 11/01/98 $ 200 $ 200
- --------------------------------------------------------------------------------
TOTAL ALASKA $ 200
- --------------------------------------------------------------------------------
ARIZONA -- 3.1%
ARIZONA SCHOOL DISTRICT
COP, SERIES A
4.100%, 07/30/99 4,500 4,521
- --------------------------------------------------------------------------------
TOTAL ARIZONA $ 4,521
- --------------------------------------------------------------------------------
CALIFORNIA -- 8.3%
CALIFORNIA COMMUNITY COLLEGE
FINANCING AUTHORITY RB,
SERIES 1998-A24, LOC (A)
3.600%, 12/09/98 5,000 5,000
LOS ANGELES COUNTY,
METROPOLITAN TRANSIT AUTHORITY
RB, AMBAC (A)
3.400%, 11/04/98 3,000 3,000
OAKLAND, JOINT POWERS
FINANCING AUTHORITY RB,
SERIES A-1, FSA (A)
2.500%, 11/05/98 4,000 4,000
- --------------------------------------------------------------------------------
TOTAL CALIFORNIA $12,000
- --------------------------------------------------------------------------------
COLORADO -- 2.1%
COLORADO STATE EDUCATIONAL
FACILITIES AUTHORITY RB,
PRO RODEO HALL OF FAME
PROJECT, LOC (A)
3.150%, 11/05/98 1,285 1,285
COLORADO STATE STUDENT
OBLIGATIONS BOND AUTHORITY
RB, SLMA (A)
3.050%, 11/04/98 1,775 1,775
- --------------------------------------------------------------------------------
TOTAL COLORADO $ 3,060
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
DISTRICT OF COLUMBIA -- 2.4%
DISTRICT OF COLUMBIA GO,
SERIES 1992 A-1, LOC (A)
3.800%, 11/01/98 $2,300 $ 2,300
DISTRICT OF COLUMBIA GO,
SERIES 1992 A-2, LOC (A)
3.800%, 11/01/98 200 200
DISTRICT OF COLUMBIA GO,
SERIES 1992 A-3, LOC (A)
3.800%, 11/01/98 700 700
DISTRICT OF COLUMBIA GO,
SERIES 1992 A-6, LOC (A)
3.800%, 11/01/98 300 300
- --------------------------------------------------------------------------------
TOTAL DISTRICT OF COLUMBIA $ 3,500
- --------------------------------------------------------------------------------
FLORIDA -- 8.4%
FLORIDA STATE HOUSING FINANCE
AUTHORITY RB, FNMA (A)
3.100%, 11/04/98 5,235 5,235
LEE COUNTY, HOUSING FINANCE
AUTHORITY RB, FNMA (A)
3.100%, 11/04/98 1,985 1,985
SUNSHINE STATE GOVERNMENT
FINANCING TECP, LOC
3.600%, 11/10/98 5,000 5,000
- --------------------------------------------------------------------------------
TOTAL FLORIDA $12,220
- --------------------------------------------------------------------------------
GEORGIA -- 2.3%
DE KALB COUNTY, INDUSTRIAL
DEVELOPMENT AUTHORITY
RB, LOC (A)
3.300%, 11/05/98 600 600
HAPEVILLE, INDUSTRIAL DEVELOPMENT
AUTHORITY RB, HAPEVILLE
HOTEL PROJECT, LOC (A)
3.700%, 11/01/98 2,700 2,700
- --------------------------------------------------------------------------------
TOTAL GEORGIA $ 3,300
- --------------------------------------------------------------------------------
INDIANA -- 3.7%
HAMMOND, POLLUTION CONTROL
RB, AMOCO OIL PROJECT (A)
3.700%, 11/01/98 500 500
INDIANA STATE EDUCATIONAL
FACILITIES AUTHORITY RB,
UNIVERSITY OF NOTRE DAME
DU LAC PROJECT, LOC (A)
3.050%, 11/04/98 4,800 4,800
- --------------------------------------------------------------------------------
TOTAL INDIANA $ 5,300
- --------------------------------------------------------------------------------
IOWA -- 2.4%
IOWA STATE HIGHER EDUCATION
AUTHORITY RB, ST. AMBROSE
UNIVERSITY PROJECT, LOC (A)
3.200%, 11/05/98 500 500
3.200%, 11/07/98 500 500
36
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
WOODBURY COUNTY, SIOUXLAND
REGIONAL CANCER CENTER RB,
SERIES A, LOC (A)
3.100%, 11/04/98 $2,535 $ 2,535
- --------------------------------------------------------------------------------
TOTAL IOWA $ 3,535
- --------------------------------------------------------------------------------
KENTUCKY -- 0.8%
JEFFERSON COUNTY, INDUSTRIAL
DEVELOPMENT AUTHORITY RB,
BEL KNAP PROJECT, LOC (A)
3.550%, 11/01/98 1,226 1,226
- --------------------------------------------------------------------------------
TOTAL KENTUCKY $ 1,226
- --------------------------------------------------------------------------------
LOUISIANA -- 0.7%
EAST BATON ROUGE, POLLUTION
CONTROL RB (A)
3.700%, 11/01/98 1,000 1,000
- --------------------------------------------------------------------------------
TOTAL LOUISIANA $ 1,000
- --------------------------------------------------------------------------------
MARYLAND -- 15.2%
BALTIMORE COUNTY GO
6.000%, 03/01/99 950 957
BALTIMORE COUNTY, GARRISON
FOREST SCHOOL PROJECT
RB, LOC (A)
3.150%, 11/05/98 3,000 3,000
HOWARD COUNTY, PUBLIC
IMPROVEMENTS GO, SERIES A
4.000%, 02/15/99 2,400 2,403
MARYLAND STATE DEPARTMENT
OF TRANSPORTATION RB,
PRE-REFUNDED @ 102 (B)
6.700%, 08/15/99 2,625 2,739
MARYLAND STATE HEALTH & HIGHER
EDUCATION FACILITIES AUTHORITY
RB, HOSPITAL & UNIVERSITY
IMPROVEMENTS, LOC (A)
3.200%, 11/04/98 1,100 1,100
MARYLAND STATE HEALTH & HIGHER
EDUCATION FACILITIES AUTHORITY
RB, POOLED LOAN PROJECT,
SERIES D, LOC (A)
3.100%, 11/05/98 2,595 2,595
MARYLAND STATE HEALTH & HIGHER
EDUCATION FACILITIES AUTHORITY
RB, SERIES 1998-A, LOC (A)
3.250%, 11/04/98 5,000 5,000
NORTH EAST MARYLAND WASTE
DISPOSAL AUTHORITY RB,
AMBAC (A)
2.950%, 11/04/98 3,260 3,260
SUBURBAN WASHINGTON D.C.
SEWER DISPOSAL SERVICE RB,
PRE-REFUNDED @ 102 (B)
6.700%, 07/01/99 1,000 1,040
- --------------------------------------------------------------------------------
TOTAL MARYLAND $22,094
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
MICHIGAN -- 0.9%
MICHIGAN STATE INDUSTRIAL
DEVELOPMENT AUTHORITY RB,
CONSUMER POWER PROJECT, LOC
3.700%, 11/01/98 $1,300 $ 1,300
- --------------------------------------------------------------------------------
TOTAL MICHIGAN $ 1,300
- --------------------------------------------------------------------------------
MINNESOTA -- 8.7%
MINNEAPOLIS GO, LOC (A)
2.950%, 11/07/98 1,600 1,600
MINNEAPOLIS, HOSPITAL RB,
MOUNT SINAI MEDICAL
BUILDING, LOC (A)
3.050%, 11/05/98 1,200 1,200
MINNESOTA STATE SCHOOL DISTRICTS
COP, SERIES A, LOC
3.670%, 08/20/99 1,500 1,500
MINNESOTA STATE SCHOOL DISTRICTS
TAN, LOC
3.900%, 03/04/99 1,375 1,376
UNIVERSITY OF MINNESOTA,
DC TRUST RB, SERIES 1997A,
LOC (A)
3.300%, 11/04/98 7,000 7,000
- --------------------------------------------------------------------------------
TOTAL MINNESOTA $12,676
- --------------------------------------------------------------------------------
MISSISSIPPI -- 0.6%
JACKSON COUNTY RB, CHEVRON
USA PROJECT, SERIES 93 (A)
3.700%, 11/01/98 900 900
- --------------------------------------------------------------------------------
TOTAL MISSISSIPPI $ 900
- --------------------------------------------------------------------------------
MISSOURI -- 5.3%
COLUMBIA RB, SERIES A, LOC (A)
3.100%, 11/04/98 1,000 1,000
MISSOURI STATE DEVELOPMENT
FINANCE AUTHORITY RB, LOC (A)
3.750%, 11/01/98 5,400 5,400
MISSOURI STATE DEVELOPMENT
FINANCE AUTHORITY RB,
SCIENCE CITY UNION STATION,
SERIES C, LOC (A)
3.750%, 11/01/98 1,300 1,300
- --------------------------------------------------------------------------------
TOTAL MISSOURI $ 7,700
- --------------------------------------------------------------------------------
MONTANA -- 0.7%
MONTANA STATE HEALTH FACILITIES
AUTHORITY RB, FGIC (A)
3.100%, 11/05/98 1,000 1,000
- --------------------------------------------------------------------------------
TOTAL MONTANA $ 1,000
- --------------------------------------------------------------------------------
NEVADA -- 0.6%
CLARK COUNTY, AIRPORT
IMPROVEMENT AUTHORITY RB,
SERIES A, MBIA (A)
3.050%, 11/04/98 900 900
- --------------------------------------------------------------------------------
TOTAL NEVADA $ 900
- --------------------------------------------------------------------------------
37
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[arrow] TAX-FREE MONEY MARKET PORTFOLIO (CONCLUDED)
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
NEW YORK -- 3.2%
NEW YORK CITY GO,
SERIES B, FGIC (A)
3.600%, 11/01/98 $1,700 $ 1,700
NEW YORK CITY GO,
SERIES B4, LOC (A)
3.600%, 11/01/98 1,800 1,800
NEW YORK CITY, MUNICIPAL
WATER FINANCE AUTHORITY RB,
SERIES A, FGIC (A)
3.700%, 11/01/98 500 500
NEW YORK CITY, MUNICIPAL
WATER FINANCE AUTHORITY RB,
SERIES C, FGIC (A)
3.700%, 11/01/98 700 700
- --------------------------------------------------------------------------------
TOTAL NEW YORK $ 4,700
- --------------------------------------------------------------------------------
NORTH CAROLINA -- 11.0%
CHARLOTTE, AIRPORT DEVELOPMENT
AUTHORITY RB, SERIES A,
MBIA (A)
3.050%, 11/04/98 6,900 6,900
CITY OF GREENSBORO, PUBLIC
IMPROVEMENT RB,
SERIES 94-B, LOC (A)
3.100%, 11/04/98 1,000 1,000
DURHAM, WATER & SEWER
SYSTEM RB (A)
3.150%, 11/04/98 2,000 2,000
RALEIGH DURHAM, AIRPORT
AUTHORITY RB, AMERICAN
AIRLINES PROJECT, LOC (A)
3.700%, 11/01/98 1600 1600
UNIVERSITY OF NORTH CAROLINA RB,
CHAPEL HILL PROJECT, SPA (A)
3.100%, 11/04/98 1,500 1,500
WINSTON SALEM COP, LOC (A)
3.050%, 11/05/98 3,000 3,000
- --------------------------------------------------------------------------------
TOTAL NORTH CAROLINA $16,000
- --------------------------------------------------------------------------------
PENNSYLVANIA -- 4.6%
BUCKS COUNTY, INDUSTRIAL
DEVELOPMENT AUTHORITY
RB, LOC (A)
3.150%, 11/04/98 2,200 2,200
CUMBERLAND COUNTY, MUNICIPAL
AUTHORITY RB, UNITED
METHODIST HOMES FOR THE
AGING PROJECT, MANDATORY
PUT @ 100, LOC (A) (C)
3.750%, 06/01/99 3,000 3,000
LEHIGH COUNTY, INDUSTRIAL
DEVELOPMENT AUTHORITY RB,
SERIES A, LOC (A)
3.150%, 11/04/98 1,500 1,500
- --------------------------------------------------------------------------------
TOTAL PENNSYLVANIA $ 6,700
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
TEXAS -- 7.5%
GEORGETOWN, HIGHER EDUCATION
FINANCING AUTHORITY RB,
SOUTHWESTERN UNIVERSITY PROJECT,
SERIES 1984, LOC (A)
3.100%, 11/04/98 $3,000 $ 3,000
GULF COAST COUNTY, WASTE
DISPOSAL AUTHORITY RB,
EXXON BAYTOWN PROJECT (A)
3.700%, 11/01/98 900 900
NORTHERN CENTRAL TEXAS,
DALLAS METHODIST HOSPITAL,
MBIA (A)
3.700%, 11/01/98 600 600
TEXAS MUNICIPAL GAS
CORPORATION RB, FSA (A)
3.050%, 11/04/98 4,000 4,000
TEXAS STATE HIGHER EDUCATION
AUTHORITY RB, SERIES B,
FGIC (A)
3.150%, 11/04/98 2,365 2,365
- --------------------------------------------------------------------------------
TOTAL TEXAS $ 10,865
- --------------------------------------------------------------------------------
VERMONT -- 1.5%
VERMONT STATE EDUCATIONAL &
HEALTH BUILDINGS RB, CAPITAL
ASSET FINANCING PROGRAM,
SERIES 1, LOC (A)
3.150%, 11/05/98 2,100 2,100
- --------------------------------------------------------------------------------
TOTAL VERMONT $ 2,100
- --------------------------------------------------------------------------------
WISCONSIN -- 2.5%
WISCONSIN STATE GO, SERIES G,
PRE-REFUNDED @ 101 (B)
6.750%, 05/01/99 3,465 3,557
- --------------------------------------------------------------------------------
TOTAL WISCONSIN $ 3,557
- --------------------------------------------------------------------------------
WYOMING -- 3.0%
LINCOLN COUNTY, POLLUTION
CONTROL RB, EXXON PROJECT (A)
3.700%, 11/01/98 400 400
LINCOLN COUNTY, POLLUTION
CONTROL RB, EXXON PROJECT,
SERIES D (A)
3.700%, 11/01/98 2,500 2,500
SUBLETTE COUNTY, POLLUTION
CONTROL RB, EXXON PROJECT (A)
3.700%, 11/01/98 1,000 1,000
SWEETWATER COUNTY, POLLUTION
CONTROL RB, PACIFICORP
PROJECT, LOC (A)
3.750%, 11/01/98 500 500
- --------------------------------------------------------------------------------
TOTAL WYOMING $ 4,400
- --------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS & NOTES
(Cost $144,754) $144,754
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.6%
(Cost $144,754) $144,754
================================================================================
OTHER ASSETS AND LIABILITIES, NET -- 0.4% $ 581
================================================================================
38
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
MARKET
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares of Institutional Class
(unlimited authorization -- no par value)
based on 80,687,579 outstanding
shares of beneficial interest $ 80,680
Portfolio Shares of Retail Class A
(unlimited authorization -- no par value)
based on 22,973,713 outstanding
shares of beneficial interest 22,972
Portfolio Shares of Institutional II Class
(unlimited authorization -- no par
value) based on 41,672,849 outstanding
shares of beneficial interest 41,671
Undistributed net investment income 12
================================================================================
TOTAL NET ASSETS -- 100.0% $145,335
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- INSTITUTIONAL CLASS $1.00
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $1.00
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- INSTITUTIONAL II CLASS $1.00
================================================================================
(A) VARIABLE RATE SECURITY. THE RATE REPORTED ON THE STATEMENT OF NET ASSETS IS
THE RATE IN EFFECT ON OCTOBER 31, 1998. THE DATE SHOWN IS THE NEXT SCHEDULED
RESET DATE.
(B) PRE-REFUNDED SECURITY. THE PRE-REFUNDED DATE IS SHOWN AS THE
MATURITY DATE ON THE STATEMENT OF NET ASSETS.
(C) MANDATORY PUT SECURITY. THE MANDATORY PUT DATE IS SHOWN AS THE MATURITY
DATE ON THE STATEMENT OF NET ASSETS.
COP -- CERTIFICATE OF PARTICIPATION
GO -- GENERAL OBLIGATION
LOC -- SECURITIES ARE HELD IN CONNECTION WITH A LETTER OF CREDIT ISSUED BY A
MAJOR BANK OR OTHER FINANCIAL INSTITUTION.
RB -- REVENUE BOND
SPA -- STANDBY PURCHASE AGREEMENT
TAN -- TAX ANTICIPATION NOTE
TECP -- TAX-EXEMPT COMMERCIAL PAPER
THE FOLLOWING ORGANIZATIONS HAVE PROVIDED UNDERLYING CREDIT SUPPORT FOR
SECURITIES LISTED ABOVE, AS INDICATED.
AMBAC -- AMERICAN MUNICIPAL BOND ASSURANCE CORPORATION
FGIC -- FINANCIAL GUARANTY INSURANCE CORPORATION
FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION
FSA -- FINANCIAL SECURITY ASSURANCE
MBIA -- MUNICIPAL BOND INSURANCE ASSOCIATION
SLMA -- STUDENT LOAN MARKETING ASSOCIATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
[ARROW] ARK FUNDS: U.S. GOVERNMENT MONEY MARKET
PORTFOLIO
[Pie chart omitted.]
Repurchase Agreements -- 28%
U.S. Govenment Agency Obligations -- 72%
% of Total Portfolio Investments
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 71.7%
FEDERAL FARM CREDIT BANK
5.550%, 06/01/99 $ 25,000 $ 24,986
FEDERAL FARM CREDIT BANK (A)
5.010%, 11/10/98 40,000 39,995
FEDERAL HOME LOAN BANK
5.835%, 12/17/98 25,000 24,998
5.723%, 05/05/99 15,000 14,997
5.540%, 07/15/99 25,000 24,989
FEDERAL HOME LOAN BANK (A)
4.381%, 11/03/98 25,000 25,000
4.574%, 11/04/98 25,000 24,996
4.605%, 11/04/98 25,000 24,996
4.810%, 12/22/98 25,000 24,999
FEDERAL HOME LOAN BANK
DISCOUNT NOTES (B)
5.150%, 11/04/98 40,000 39,983
5.160%, 11/04/98 175,000 174,925
5.290%, 06/04/99 15,000 14,544
FEDERAL HOME LOAN MORTGAGE
CORPORATION
5.505%, 03/12/99 10,000 9,996
FEDERAL HOME LOAN MORTGAGE
CORPORATION (A)
4.604%, 11/03/98 25,000 25,000
FEDERAL HOME LOAN MORTGAGE
CORPORATION DISCOUNT
NOTES (B)
5.150%, 11/06/98 40,000 39,972
4.799%, 11/19/98 50,000 49,881
5.120%, 11/20/98 40,000 39,893
4.800%, 12/03/98 15,000 14,936
5.100%, 12/08/98 40,000 39,792
5.320%, 01/08/99 50,000 49,506
5.020%, 02/05/99 100,000 98,681
5.330%, 02/05/99 50,000 49,304
5.320%, 03/08/99 55,000 53,994
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (A)
4.304%, 11/03/98 18,000 17,959
39
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] U.S. GOVERNMENT MONEY MARKET PORTFOLIO (CONCLUDED)
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION DISCOUNT
NOTES (B)
4.900%, 01/27/99 $ 50,000 $ 49,415
5.290%, 03/15/99 50,000 49,042
FEDERAL NATIONAL MORTGAGE
ASSOCIATION, MTN
5.370%, 02/26/99 20,000 19,986
5.560%, 05/21/99 25,000 24,982
STUDENT LOAN MARKETING
ASSOCIATION DISCOUNT NOTE (B)
5.420%, 11/02/98 100,000 99,985
STUDENT LOAN MARKETING
ASSOCIATION (A)
5.240%, 11/01/98 25,000 24,998
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $1,216,730) $1,216,730
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 28.4%
DEUTSCHE BANK
5.400%, dated 10/30/98, matures
11/02/98, repurchase price
$100,045,000 (collateralized by
U.S. Treasury Instruments:
total market value
$103,910,854) 100,000 100,000
FIRST BOSTON
5.400%, dated 10/30/98, matures
11/02/98, repurchase price
$25,011,250 (collateralized by
U.S. Treasury Bond:
total market value
$25,648,473) 25,000 25,000
GOLDMAN SACHS
4.750%, dated 10/30/98, matures
11/02/98, repurchase price
$6,094,867 (collateralized by
U.S. Treasury Instruments:
total market value
$6,216,902) 6,092 6,092
5.400%, dated 10/30/98, matures
11/02/98, repurchase price
$250,112,500 (collateralized by
U.S. Treasury Instruments:
total market value
$254,997,459) 250,000 250,000
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
SMITH BARNEY
5.420%, dated 09/24/98, matures
12/23/98, repurchase price
$101,355,000 (collateralized by
U.S. Government Instruments:
total market value
$102,001,279) $100,000 $ 100,000
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost $481,092) $ 481,092
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.1%
(Cost $1,697,822) $1,697,822
================================================================================
OTHER ASSETS AND LIABILITIES, NET -- (0.1%) $ (1,315)
================================================================================
NET ASSETS:
Portfolio Shares of Institutional Class
(unlimited authorization -- no par value)
based on 1,383,150,930 outstanding
shares of beneficial interest 1,383,055
Portfolio Shares of Retail Class A
(unlimited authorization -- no par value)
based on 83,289,784 outstanding
shares of beneficial interest 83,286
Portfolio Shares of Institutional II Class
(unlimited authorization -- no par
value) based on 230,043,006 outstanding
shares of beneficial interest 230,036
Undistributed net investment income 160
Distributions in excess of net realized
gain on investments (30)
================================================================================
TOTAL NET ASSETS-- 100.0% $1,696,507
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE-- INSTITUTIONAL CLASS $1.00
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $1.00
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE-- INSTITUTIONAL II CLASS $1.00
================================================================================
(A) VARIABLE RATE SECURITY. THE RATE REPORTED ON THE STATEMENT OF NET ASSETS IS
THE RATE IN EFFECT AS OF OCTOBER 31, 1998. THE DATE SHOWN IS THE NEXT
SCHEDULED RESET DATE.
(B) THE ANNUALIZED DISCOUNT YIELD AT TIME OF PURCHASE IS SHOWN AS THE RATE ON
THE STATEMENT OF NET ASSETS.
MTN -- MEDIUM TERM NOTE
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
40
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] ARK FUNDS: U.S. TREASURY MONEY MARKET PORTFOLIO
[Pie Chart Omitted.]
U.S. Treasury Bills -- 11%
U.S. Treasury Notes -- 89%
% of Total Portfolio Investments
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 98.3%
U.S. TREASURY BILLS (A)
5.287%, 11/12/98 $ 5 $ 5
5.167%, 12/10/98 381 379
4.220%, 01/21/99 1,122 1,112
4.240%, 01/28/99 5,797 5,738
4.230%, 02/04/99 280 277
4.350%, 02/04/99 755 746
4.472%, 02/04/99 4,272 4,222
4.491%, 02/04/99 1,331 1,315
4.501%, 02/04/99 3,792 3,748
4.809%, 02/04/99 3,295 3,254
4.144%, 04/01/99 9,138 8,982
4.164%, 04/01/99 258 254
4.190%, 04/01/99 1,482 1,456
4.038%, 04/15/99 2,307 2,265
4.058%, 04/15/99 190 187
4.993%, 04/29/99 1,467 1,432
5.290%, 04/29/99 686 669
5.294%, 04/29/99 859 837
5.301%, 04/29/99 303 295
4.145%, 05/27/99 1,589 1,552
5.315%, 05/27/99 4,435 4,305
U.S. TREASURY NOTES
5.875%, 11/02/98 100,000 100,002
5.455%, 11/16/98 45,726 45,746
8.803%, 11/16/98 75,000 75,129
5.125%, 11/30/98 15,000 15,000
5.000%, 02/01/99 75,000 74,971
7.000%, 04/15/99 35,000 35,255
6.875%, 07/31/99 20,000 20,197
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $409,330) $409,330
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 98.3%
(Cost $409,330) $409,330
================================================================================
OTHER ASSETS AND LIABILITIES, NET-- 1.7% $ 7,238
================================================================================
MARKET
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares of Institutional Class
(unlimited authorization -- no par value)
based on 293,289,191 outstanding
shares of beneficial interest $293,267
Portfolio Shares of Retail Class A
(unlimited authorization -- no par value)
based on 21,301,395 outstanding
shares of beneficial interest 21,300
Portfolio Shares of Institutional II Class
(unlimited authorization -- no par
value) based on 101,964,544 outstanding
shares of beneficial interest 101,956
Undistributed net investment income 44
Accumulated net realized gain on investments 1
================================================================================
TOTAL NET ASSETS-- 100.0% $416,568
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE-- INSTITUTIONAL CLASS $1.00
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $1.00
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE-- INSTITUTIONAL II CLASS $1.00
================================================================================
(A) THE ANNUALIZED DISCOUNT YIELD AT TIME OF PURCHASE IS SHOWN AS THE RATE ON
THE STATEMENT OF NET ASSETS.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
41
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] ARK FUNDS: SHORT-TERM TREASURY PORTFOLIO
[Pie Chart Omitted.]
U.S. Treasury Notes -- 99%
U.S. Treasury Bills -- 1%
% of Total Portfolio Investments
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 98.7%
U.S. TREASURY BILLS (A)
3.770%, 05/27/99 $ 47 $ 46
4.010%, 05/27/99 160 156
4.050%, 05/27/99 18 18
4.080%, 05/27/99 220 215
4.170%, 05/27/99 95 93
U.S. TREASURY NOTES
5.875%, 01/31/99 136 136
6.000%, 08/15/99 3,229 3,268
5.875%, 08/31/99 90 91
5.875%, 11/15/99 4,294 4,357
7.750%, 12/31/99 3,800 3,945
5.500%, 02/29/00 2,000 2,029
6.375%, 05/15/00 4,000 4,122
8.750%, 08/15/00 4,000 4,304
5.750%, 11/15/00 1,000 1,028
5.375%, 02/15/01 8,000 8,185
6.500%, 08/31/01 11,000 11,622
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $42,866) $43,615
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 98.7%
(Cost $42,866) $43,615
================================================================================
OTHER ASSETS AND LIABILITIES, NET-- 1.3% $ 586
================================================================================
MARKET
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares of Institutional Class
(unlimited authorization -- no par value)
based on 2,906,483 outstanding
shares of beneficial interest $29,113
Portfolio Shares of Retail Class A
(unlimited authorization -- no par value)
based on 1,412,964 outstanding
shares of beneficial interest 14,149
Undistributed net investment income 1
Accumulated net realized gain on investments 189
Net unrealized appreciation on investments 749
================================================================================
TOTAL NET ASSETS-- 100.0% $44,201
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE-- INSTITUTIONAL CLASS $10.23
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE-- RETAIL CLASS A $10.23
================================================================================
(A) THE ANNUALIZED DISCOUNT YIELD AT TIME OF PURCHASE IS SHOWN AS THE RATE ON
THE STATEMENT OF NET ASSETS.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
42
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[Pie Chart omitted.]
[ARROW] ARK FUNDS: SHORT-TERM BOND PORTFOLIO
U.S. Government Agency Obligations -- 4%
Repurchase Agreement -- 5%
Non-Agency Mortgage-Backed Obligations -- 10%
Asset-Backed Securities -- 16%
U.S. Treasury Obligations -- 20%
U.S. Government Mortgage-Backed Obligations -- 2%
Corporate Obligations -- 43%
% of Total Portfolio Investments
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 20.0%
U.S. TREASURY NOTES
6.000%, 06/30/99 $6,000 $ 6,060
6.750%, 04/30/00 7,000 7,243
5.125%, 08/31/00 2,000 2,030
7.875%, 08/15/01 1,000 1,091
6.500%, 08/31/01 5,050 5,335
6.250%, 10/31/01 3,000 3,158
5.750%, 08/15/03 2,000 2,119
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $26,740) $27,036
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 3.8%
FEDERAL HOME LOAN BANK
5.500%, 07/14/00 3,000 3,043
FEDERAL NATIONAL MORTGAGE
ASSOCIATION, MTN
6.580%, 10/26/01 2,000 2,036
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $4,994) $ 5,079
- --------------------------------------------------------------------------------
U.S. GOVERNMENT MORTGAGE-BACKED
OBLIGATIONS -- 2.0%
FEDERAL HOME LOAN MORTGAGE
CORPORATION, REMIC
6.500%, 10/15/00 723 724
7.000%, 06/15/20 1,173 1,176
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (A)
7.149%, 09/01/27 4 5
FEDERAL NATIONAL MORTGAGE
ASSOCIATION, REMIC
8.000%, 07/25/18 821 826
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT
MORTGAGE-BACKED OBLIGATIONS
(Cost $2,734) $ 2,731
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS -- 42.5%
BANKS -- 1.5%
WELLS FARGO
8.625%, 04/01/99 2,000 2,030
- --------------------------------------------------------------------------------
TOTAL BANKS $ 2,030
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
ENTERTAINMENT -- 3.4%
TIME WARNER (B)
6.100%, 12/30/01 $2,000 $ 2,038
TIME WARNER, PAT (B)
4.900%, 07/29/99 1,000 997
VIACOM
6.750%, 01/15/03 1,500 1,549
- --------------------------------------------------------------------------------
TOTAL ENTERTAINMENT $ 4,584
- --------------------------------------------------------------------------------
FINANCIAL SERVICES -- 20.3%
ASSOCIATES OF NORTH AMERICA
7.500%, 05/15/99 1,000 1,014
CONSECO
6.400%, 02/10/03 2,000 1,945
6.400%, 06/15/11 2,000 2,050
FORD MOTOR CREDIT
9.500%, 04/15/00 1,500 1,588
7.000%, 09/25/01 2,000 2,080
GENERAL MOTORS ACCEPTANCE, MTN
6.700%, 04/18/01 2,000 2,065
GOLDMAN SACHS (A) (B)
5.650%, 12/22/00 3,000 3,001
GOLDMAN SACHS, MTN (A) (B)
5.788%, 02/23/00 2,000 2,000
LEHMAN BROTHERS HOLDINGS
6.625%, 11/15/00 2,000 1,990
6.500%, 10/01/02 2,000 1,955
LEHMAN BROTHERS HOLDINGS, MTN
6.400%, 12/27/99 1,500 1,492
MELLON FINANCIAL
9.250%, 08/15/01 1,000 1,110
MORGAN STANLEY, DEAN WITTER
5.875%, 04/24/00 3,000 3,026
SMITH BARNEY HOLDINGS
6.625%, 07/01/02 2,000 2,070
- --------------------------------------------------------------------------------
TOTAL FINANCIAL SERVICES $27,386
- --------------------------------------------------------------------------------
INDUSTRIAL -- 16.2%
CABLE & WIRELESS COMMUNICATIONS
6.375%, 03/06/03 3,500 3,566
COCA-COLA, PAT (B)
6.000%, 03/15/01 2,000 2,042
COMDISCO
6.500%, 04/30/99 3,000 3,019
HUSKY OIL, YB
6.875%, 11/15/03 3,000 3,071
NABISCO, PAT (B)
6.300%, 08/26/99 2,000 2,019
ORYX ENERGY
10.000%, 04/01/01 1,000 1,094
SPIEKER PROPERTIES
6.875%, 02/01/05 2,000 1,947
TENET HEALTHCARE
7.875%, 01/15/03 1,000 1,024
WILLIAMS
6.500%, 11/15/02 2,000 2,085
43
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] SHORT-TERM BOND PORTFOLIO (CONCLUDED)
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
WORLDCOM
6.250%, 08/15/03 $2,000 $ 2,073
- --------------------------------------------------------------------------------
TOTAL INDUSTRIAL $21,940
- --------------------------------------------------------------------------------
RETAIL -- 1.1%
FRED MEYER
7.375%, 03/01/05 1,500 1,552
- --------------------------------------------------------------------------------
TOTAL RETAIL $ 1,552
- --------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS
(Cost $56,983) $57,492
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES -- 15.3%
AFG RECEIVABLES TRUST,
SERIES 1996-C, CLASS B
6.950%, 07/15/01 876 893
AFG RECEIVABLES TRUST,
SERIES 1996-D, CLASS B
6.650%, 10/15/01 1,349 1,363
CAPITA EQUIPMENT TRUST,
SERIES 1996-1, CLASS A3S
6.110%, 07/15/99 1,795 1,798
CONTIMORTGAGE HOME EQUITY
LOAN TRUST, SERIES 1997-2,
CLASS A4
6.770%, 01/15/12 2,800 2,884
FIRST PLUS HOME LOAN TRUST,
SERIES 1996-4, CLASS A4
6.450%, 03/10/10 2,500 2,518
IMC HOME EQUITY LOAN TRUST,
SERIES 1997-1, CLASS A3
6.820%, 10/25/11 2,000 2,035
KEY AUTO FINANCE TRUST,
SERIES 1997-1, CLASS B
6.400%, 04/15/04 625 640
PREMIER AUTO TRUST,
SERIES 1998-4, CLASS A3
5.690%, 06/08/02 1,000 1,017
THE MONEY STORE HOME EQUITY
TRUST, SERIES 1996-C, CLASS A4
7.400%, 06/15/21 3,000 3,201
THE MONEY STORE HOME EQUITY
TRUST, SERIES 1997-A, CLASS A3
6.675%, 04/15/12 821 830
THE MONEY STORE HOME EQUITY
TRUST, SERIES 1997-D, CLASS AF3
6.345%, 11/15/21 3,500 3,529
- --------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(Cost $20,358) $20,708
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
NON-AGENCY MORTGAGE-BACKED
OBLIGATIONS -- 10.0%
ADVANTA MORTGAGE LOAN TRUST,
SERIES 1997-1, CLASS A2
7.100%, 04/25/20 $3,000 $ 3,036
AMRESCO RESIDENTIAL SECURITIES
MORTGAGE LOAN TRUST,
SERIES 1997-3, CLASS A3
6.600%, 01/25/18 1,250 1,257
GREEN TREE HOME IMPROVEMENT
LOAN TRUST, SERIES 1995-B,
CLASS A
8.150%, 03/15/15 1,759 1,827
GREEN TREE HOME IMPROVEMENT
LOAN TRUST, SERIES 1995-F,
CLASS B1
6.750%, 01/15/21 2,000 2,009
GREEN TREE HOME IMPROVEMENT
LOAN TRUST, SERIES 1996-F,
CLASS HIB1
7.250%, 11/15/27 2,000 2,088
PRUDENTIAL HOME MORTGAGE
SECURITIES, SERIES 1992-45,
CLASS A4
6.500%, 01/25/00 1,206 1,203
PRUDENTIAL HOME MORTGAGE
SECURITIES, SERIES 1994-5,
CLASS A1
7.000%, 02/25/24 1,520 1,524
SECURITIZED ASSET SALES,
SERIES 1995-7, CLASS A4
7.000%, 01/25/26 567 566
- --------------------------------------------------------------------------------
TOTAL NON-AGENCY MORTGAGE-BACKED
OBLIGATIONS
(Cost $13,378) $ 13,510
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 5.1%
FIRST BOSTON
5.400%, dated 10/30/98, matures
11/02/98, repurchase price
$6,841,993 (collateralized by
U.S. Treasury Bonds:
total market value
$6,979,645) 6,839 6,839
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $6,839) $ 6,839
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 98.7%
(Cost $132,026) $133,395
================================================================================
OTHER ASSETS AND LIABILITIES, NET -- 1.3% $ 1,746
================================================================================
44
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
MARKET
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares of Institutional Class
(unlimited authorization -- no par value)
based on 13,434,626 outstanding
shares of beneficial interest $133,729
Undistributed net investment income 57
Accumulated net realized loss on investments (14)
Net unrealized appreciation on investments 1,369
================================================================================
TOTAL NET ASSETS-- 100.0% $135,141
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE-- INSTITUTIONAL CLASS $10.06
================================================================================
(A) VARIABLE RATE SECURITY. THE RATE REPORTED ON THE STATEMENT OF NET ASSETS IS
THE RATE IN EFFECT ON OCTOBER 31, 1998.
(B) SECURITY EXEMPT FROM REGISTRATION UNDER RULE 144A OF THE SECURITIES ACT OF
1933. THESE SECURITIES MAY BE RESOLD IN TRANSACTIONS EXEMPT FROM
REGISTRATION NORMALLY TO QUALIFIED INSTITUTIONAL INVESTORS.
MTN -- MEDIUM TERM NOTE
PAT -- PUTABLE ASSET TRUST
REMIC -- REAL ESTATE MORTGAGE INVESTMENT CONDUIT
YB -- YANKEE BOND
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
[ARROW] ARK FUNDS: MARYLAND TAX-FREE PORTFOLIO
[Pie Chart Omitted.]
General Obligations -- 45%
Revenue Bonds -- 55%
% of Total Portfolio Investments
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
MUNICIPAL BONDS & NOTES -- 100.8%
MARYLAND -- 94.3%
ALLEGANY COUNTY, PUBLIC
IMPROVEMENTS GO, AMBAC
5.300%, 03/01/12 $1,190 $1,258
ANNE ARUNDEL COUNTY GO
5.000%, 09/01/10 1,500 1,581
ANNE ARUNDEL COUNTY, PUBLIC
IMPROVEMENTS GO
6.000%, 09/01/06 2,560 2,902
BALTIMORE COUNTY, PUBLIC
IMPROVEMENTS GO
5.500%, 06/01/16 2,000 2,115
BALTIMORE GO, SERIES B, MBIA
7.000%, 10/15/03 1,000 1,141
BALTIMORE, CONVENTION CENTER
RB, MBIA
5.000%, 09/01/09 2,000 2,132
BALTIMORE, COP, SERIES A,
ETM, MBIA
5.200%, 04/01/04 335 356
BALTIMORE, COP, SERIES A, MBIA
5.200%, 04/01/04 415 440
BALTIMORE, PORT FACILITIES RB,
DUPONT PROJECT
6.500%, 10/01/11 1,000 1,100
BALTIMORE, WASTEWATER PROJECT
RB, SERIES B, FGIC
5.000%, 07/01/18 1,000 1,010
BALTIMORE, WATER PROJECT RB,
SERIES A, FGIC
5.500%, 07/01/26 1,500 1,592
CALVERT COUNTY, POLLUTION
CONTROL RB, BALTIMORE GAS
& ELECTRIC COMPANY PROJECT
5.550%, 07/15/14 2,500 2,619
CALVERT COUNTY, PUBLIC &
SCHOOL IMPROVEMENTS GO
5.750%, 01/01/11 1,900 2,071
45
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] MARYLAND TAX-FREE PORTFOLIO (CONTINUED)
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
CARROLL COUNTY, PUBLIC
IMPROVEMENTS GO
4.500%, 10/01/14 $2,095 $2,053
CHARLES COUNTY GO
5.700%, 03/01/10 750 813
CUMBERLAND RB,
SERIES A, FGIC
5.125%, 05/01/13 1,000 1,026
FREDERICK COUNTY GO
5.700%, 07/01/09 1,000 1,070
4.875%, 07/01/14 2,000 1,967
FREDERICK COUNTY GO, SERIES B
6.300%, 07/01/07 1,000 1,096
6.300%, 07/01/08 2,000 2,185
FREDERICK COUNTY, RETIREMENT
COMMUNITY RB,
BUCKINGHAMS CHOICE
5.900%, 01/01/17 1,000 999
FREDERICK GO, FGIC
6.125%, 12/01/06 1,000 1,096
6.125%, 12/01/07 500 546
GAITHERSBURG, HOSPITAL &
NURSING HOME IMPROVEMENTS
RB, SHADY GROVE, FSA
6.000%, 09/01/22 1,000 1,095
HOWARD COUNTY GO
5.000%, 02/15/09 2,000 2,130
HOWARD COUNTY, PUBLIC
IMPROVEMENTS GO, SERIES A
5.200%, 02/15/04 1,000 1,062
LAUREL GO, FGIC
5.000%, 10/01/07 1,000 1,066
MARYLAND NATIONAL PARKS &
PLANNING COMMISSION RB
5.375%, 01/15/14 1,950 2,060
MARYLAND STATE & LOCAL
FACILITIES AUTHORITY GO
5.000%, 08/01/09 1,000 1,065
MARYLAND STATE & LOCAL
FACILITIES AUTHORITY GO,
SECOND SERIES AA
5.500%, 06/01/08 1,500 1,620
MARYLAND STATE & LOCAL
FACILITIES AUTHORITY RB
5.000%, 08/01/10 1,200 1,267
MARYLAND STATE COMMUNITY
DEVELOPMENT ADMINISTRATION
RB, HOUSING & COMMUNITY
DEVELOPMENT
5.050%, 04/01/08 1,000 1,036
5.600%, 03/01/17 1,000 1,045
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
MARYLAND STATE DEPARTMENT
OF TRANSPORTATION RB,
PUBLIC IMPROVEMENTS,
PRE-REFUNDED @ 100.75 (A)
6.100%, 09/01/00 $2,000 $2,107
MARYLAND STATE ECONOMIC
DEVELOPMENT CORPORATION RB,
HEALTH CARE FACILITIES, GNMA
4.650%, 12/20/08 905 922
MARYLAND STATE GO
6.100%, 10/15/06 1,500 1,614
MARYLAND STATE HEALTH & HIGHER
EDUCATION FACILITIES AUTHORITY
RB, BROADMEAD
5.500%, 07/01/17 2,250 2,261
MARYLAND STATE HEALTH & HIGHER
EDUCATION FACILITIES AUTHORITY
RB, CALVERT MEMORIAL HOSPITAL
5.000%, 07/01/19 2,000 1,967
MARYLAND STATE HEALTH & HIGHER
EDUCATION FACILITIES AUTHORITY RB,
DOCTORS COMMUNITY HOSPITAL
5.500%, 07/01/24 2,000 2,010
MARYLAND STATE HEALTH & HIGHER
EDUCATION FACILITIES AUTHORITY
RB, HELIX HEALTH ISSUE
5.125%, 07/01/12 1,600 1,682
MARYLAND STATE HEALTH & HIGHER
EDUCATION FACILITIES AUTHORITY
RB, HOWARD COUNTY GENERAL
HOSPITAL PROJECT
5.500%, 07/01/13 1,000 1,084
MARYLAND STATE HEALTH & HIGHER
EDUCATION FACILITIES AUTHORITY RB,
JOHNS HOPKINS HOSPITAL PROJECT
7.375%, 07/01/09 1,000 1,022
MARYLAND STATE HEALTH & HIGHER
EDUCATION FACILITIES AUTHORITY RB,
JOHNS HOPKINS MEDICINE, MBIA
5.000%, 07/01/19 1,500 1,506
MARYLAND STATE HEALTH & HIGHER
EDUCATION FACILITIES AUTHORITY RB,
JOHNS HOPKINS UNIVERSITY
5.250%, 07/01/17 2,000 2,060
MARYLAND STATE HEALTH & HIGHER
EDUCATION FACILITIES AUTHORITY
RB, KENNEDY KRIEGER
5.125%, 07/01/22 2,000 1,985
MARYLAND STATE HEALTH & HIGHER
EDUCATION FACILITIES AUTHORITY
RB, LOYOLA COLLEGE PROJECT,
SERIES A, MBIA
5.375%, 10/01/11 950 1,026
5.375%, 10/01/26 1,500 1,567
46
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
MARYLAND STATE HEALTH & HIGHER
EDUCATION FACILITIES AUTHORITY
RB, MBIA
5.300%, 10/01/18 $ 460 $ 482
MARYLAND STATE HEALTH & HIGHER
EDUCATION FACILITIES AUTHORITY
RB, MERCY MEDICAL CENTER
PROJECT, AMBAC
5.750%, 07/01/15 2,000 2,145
MARYLAND STATE HEALTH & HIGHER
EDUCATION FACILITIES AUTHORITY
RB, NORTH ARUNDEL PROJECT,
MBIA
6.000%, 07/01/12 500 548
MARYLAND STATE HEALTH & HIGHER
EDUCATION FACILITIES AUTHORITY
RB, PENINSULA REGIONAL
MEDICAL CENTER PROJECT
5.000%, 07/01/08 1,000 1,024
MARYLAND STATE HEALTH & HIGHER
EDUCATION FACILITIES AUTHORITY
RB, PICKERSGILL PROJECT, SERIES A
6.000%, 01/01/15 1,500 1,603
MARYLAND STATE HEALTH & HIGHER
EDUCATION FACILITIES AUTHORITY
RB, SINAI HOSPITAL PROJECT,
AMBAC
5.200%, 07/01/04 1,000 1,066
MARYLAND STATE HEALTH & HIGHER
EDUCATION FACILITIES AUTHORITY RB,
UNIVERSITY OF MARYLAND MEDICAL
SYSTEMS PROJECT, FGIC
5.300%, 07/01/05 1,000 1,071
MARYLAND STATE HEALTH & HIGHER
EDUCATION FACILITIES AUTHORITY RB,
UNIVERSITY OF MARYLAND MEDICAL
SYSTEMS PROJECT, SERIES A,
PRE-REFUNDED @ 102, FGIC (A)
7.000%, 07/01/11 1,000 1,104
MARYLAND STATE HEALTH & HIGHER
EDUCATION FACILITIES AUTHORITY RB,
UPPER CHESAPEAKE HEALTH, FSA
5.375%, 01/01/28 1,500 1,545
MARYLAND STATE STADIUM
AUTHORITY RB, AMBAC
5.500%, 03/01/12 1,000 1,086
MARYLAND STATE TRANSPORTATION
AUTHORITY RB
5.750%, 07/01/15 3,000 3,094
MARYLAND STATE TRANSPORTATION
AUTHORITY RB, BALTIMORE/
WASHINGTON INTERNATIONAL
AIRPORT PROJECT, FGIC
6.000%, 07/01/07 1,000 1,119
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
MARYLAND STATE WATER QUALITY
FINANCING ADMINISTRATION RB,
REVOLVING LOAN FUND, SERIES A
5.500%, 09/01/12 $1,250 $1,316
6.550%, 09/01/14 945 1,025
MONTGOMERY COUNTY, PARKING
AUTHORITY RB, SILVER SPRING
PARKING LOT PROJECT,
SERIES A, FGIC
6.250%, 06/01/09 500 548
MONTGOMERY COUNTY, PUBLIC
IMPROVEMENTS GO, SERIES A
5.500%, 10/01/06 1,000 1,073
5.800%, 07/01/07 1,000 1,131
MONTGOMERY COUNTY, PUBLIC
IMPROVEMENTS GO, SERIES A,
PRE-REFUNDED @ 102 (A)
6.000%, 10/01/04 2,000 2,253
MONTGOMERY COUNTY, SINGLE
FAMILY MORTGAGE PROGRAM RB,
SERIES A, FHA, VA
6.350%, 07/01/14 150 163
PRINCE GEORGES COUNTY, PUBLIC
IMPROVEMENTS GO, MBIA
5.500%, 03/15/16 1,000 1,054
PRINCE GEORGES COUNTY, PUBLIC
IMPROVEMENTS GO,
SERIES A, MBIA
6.000%, 03/01/07 1,450 1,561
PRINCE GEORGES COUNTY, SOLID
WASTE MANAGEMENT SYSTEM
RB, FSA
5.000%, 06/15/04 1,000 1,056
PRINCE GEORGES COUNTY, WATER
UTILITY IMPROVEMENTS GO,
STORMWATER MANAGEMENT
PROJECT
5.500%, 03/15/13 2,575 2,726
QUEENS ANNES COUNTY, PUBLIC
FACILITIES GO, FGIC
5.400%, 11/15/11 1,000 1,079
QUEENS ANNES COUNTY, SCHOOL &
RECREATIONAL FACILITIES
IMPROVEMENTS GO, FGIC
6.000%, 11/15/08 1,000 1,138
ST. MARY'S COUNTY, ACADEMIC &
AUXILIARY FACILITIES RB, MBIA
5.250%, 09/01/27 2,000 2,068
WASHINGTON, SUBURBAN
SANITATION DISTRICT GO,
SEWER IMPROVEMENTS
5.300%, 06/01/08 1,000 1,064
5.600%, 06/01/18 1,000 1,053
47
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] MARYLAND TAX-FREE PORTFOLIO (CONCLUDED)
PRINCIPAL AMOUNT MARKET
DESCRIPTION (000)/SHARES VALUE (000)
- --------------------------------------------------------------------------------
UNIVERSITY OF MARYLAND, EQUIPMENT
LOAN PROGRAM RB, SECOND SERIES
6.000%, 06/01/05 $ 500 $ 541
UNIVERSITY OF MARYLAND, MEDICAL
SYSTEMS PROJECT RB, SERIES A
5.500%, 04/01/10 2,000 2,148
UNIVERSITY OF MARYLAND, MEDICAL
SYSTEMS PROJECT RB, SERIES B
6.100%, 04/01/03 500 546
WASHINGTON COUNTY, PUBLIC
IMPROVEMENTS GO, MBIA
5.800%, 01/01/15 1,250 1,347
- --------------------------------------------------------------------------------
TOTAL MARYLAND $110,204
- --------------------------------------------------------------------------------
PUERTO RICO -- 6.0%
COMMONWEALTH OF PUERTO RICO,
ELECTRIC POWER AUTHORITY RB
4.750%, 07/01/18 1,305 1,269
COMMONWEALTH OF PUERTO RICO,
ELECTRIC POWER AUTHORITY
RB, MBIA
5.250%, 07/01/15 1,000 1,041
COMMONWEALTH OF PUERTO RICO,
INFRASTRUCTURE FINANCING
AUTHORITY RB, AMBAC
5.000%, 07/01/28 1,500 1,502
COMMONWEALTH OF PUERTO RICO,
PUBLIC IMPROVEMENTS
GO, MBIA
6.250%, 07/01/12 1,000 1,191
4.875%, 07/01/23 2,000 1,993
- --------------------------------------------------------------------------------
TOTAL PUERTO RICO $ 6,996
- --------------------------------------------------------------------------------
TEXAS -- 0.5%
AUSTIN, UTILITY SYSTEMS RB,
SERIES A
9.100%, 05/15/00 310 336
AUSTIN, UTILITY SYSTEMS RB,
SERIES A, ETM
9.100%, 05/15/00 190 206
- --------------------------------------------------------------------------------
TOTAL TEXAS $ 542
- --------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS & NOTES
(Cost $111,420) $117,742
- --------------------------------------------------------------------------------
CASH EQUIVALENT -- 1.6%
DREYFUS TAX-EXEMPT
CASH MANAGEMENT 1,832 1,832
- --------------------------------------------------------------------------------
TOTAL CASH EQUIVALENT
(Cost $1,832) $ 1,832
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 102.3%
(Cost $113,252) $119,574
================================================================================
OTHER ASSETS AND LIABILITIES, NET-- (2.3%) $ (2,731)
================================================================================
MARKET
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares of Institutional Class
(unlimited authorization -- no par value)
based on 8,559,652 outstanding
shares of beneficial interest $ 82,433
Portfolio Shares of Retail Class A
(unlimited authorization -- no par value)
based on 2,703,149 outstanding
shares of beneficial interest 27,305
Undistributed net investment income 1
Accumulated net realized gain on investments 782
Net unrealized appreciation on investments 6,322
================================================================================
TOTAL NET ASSETS-- 100.0% $116,843
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE-- INSTITUTIONAL CLASS $10.37
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $10.37
================================================================================
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($10.37 / 95.50%) (B) $10.86
================================================================================
(A) PRE-REFUNDED SECURITY. THE PRE-REFUNDED DATE IS SHOWN AS THE MATURITY DATE
ON THE STATEMENT OF NET ASSETS.
(B) EFFECTIVE OCTOBER 1, 1997, A 3% DISCOUNTED SALES LOAD IS CHARGED ON
INVESTMENTS INTO THE RETAIL CLASS A. THIS DISCOUNT MAY BE DISCONTINUED AT
ANY TIME. THE MAXIMUM SALES LOAD IS 4.50%.
COP -- CERTIFICATE OF PARTICIPATION
ETM -- ESCROWED TO MATURITY
GO -- GENERAL OBLIGATION
RB -- REVENUE BOND
THE FOLLOWING ORGANIZATIONS HAVE PROVIDED UNDERLYING CREDIT SUPPORT FOR
SECURITIES LISTED ABOVE, AS INDICATED.
AMBAC -- AMERICAN MUNICIPAL BOND ASSURANCE CORPORATION
FGIC -- FINANCIAL GUARANTY INSURANCE CORPORATION
FHA -- FEDERAL HOUSING ADMINISTRATION
FSA -- FINANCIAL SECURITY ASSURANCE
GNMA -- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
MBIA -- MUNICIPAL BOND INSURANCE ASSOCIATION
VA -- VETERANS ADMINISTRATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
48
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] ARK FUNDS: PENNSYLVANIA TAX-FREE PORTFOLIO
[Pie Chart Omitted.]
General Obligations -- 34%
Revenue Bonds -- 66%
% of Total Portfolio Investments
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
MUNICIPAL BONDS & NOTES -- 97.5%
PENNSYLVANIA -- 97.5%
ALLEGHENY COUNTY GO,
SERIES C-45, FGIC
5.100%, 10/01/07 $5,000 $5,319
ALLEGHENY COUNTY, INDUSTRIAL
DEVELOPMENT AUTHORITY
RB, MBIA
6.800%, 03/01/15 3,500 3,850
ALLEGHENY COUNTY, PITTSBURGH
INTERNATIONAL AIRPORT
RB, MBIA
5.000%, 01/01/19 5,000 4,981
ALLENTOWN, SACRED HEART
HOSPITAL RB, SERIES A
6.500%, 11/15/08 2,665 2,892
BEDFORD, AREA SCHOOL DISTRICT
GO, FSA
4.750%, 04/15/24 5,000 4,794
BENSALEM TOWNSHIP,
RECREATIONAL FACILITIES
IMPROVEMENT RB, FGIC
5.550%, 12/01/10 1,390 1,487
BETHLEHEM AREA SCHOOL
IMPROVEMENTS RB, FGIC
5.500%, 09/01/08 3,000 3,270
BETHLEHEM AREA SCHOOL
IMPROVEMENTS RB,
PRE-REFUNDED @ 100,
MBIA (A)
5.700%, 03/01/06 1,000 1,104
5.750%, 03/01/06 1,000 1,106
5.850%, 03/01/06 1,635 1,819
BUCKS COUNTY, INDUSTRIAL
DEVELOPMENT AUTHORITY
RB, ETM
10.000%, 05/15/19 4,775 7,897
BURRELL, SCHOOL DISTRICT
GO, FGIC
5.250%, 11/15/10 4,000 4,205
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
CAMBRIA COUNTY GO, FGIC
5.000%, 08/15/23 $2,500 $2,469
CHESTER COUNTY, COMMUNITY
HOSPITAL HEALTH & EDUCATION
AUTHORITY RB, MBIA
5.625%, 07/01/10 1,675 1,815
CHESTER COUNTY, HEALTH &
EDUCATION AUTHORITY RB,
CHESTER COUNTY HOSPITAL, MBIA
5.500%, 07/01/07 965 1,054
5.625%, 07/01/09 1,985 2,159
CHESTER COUNTY, HEALTH &
EDUCATION AUTHORITY RB, MAIN
LINE HEALTH SYSTEMS, MBIA
5.300%, 05/15/07 3,045 3,266
CHESTER COUNTY, HEALTH &
EDUCATION FACILITIES AUTHORITY
RB, IMMACULATA COLLEGE
5.600%, 10/15/18 1,000 1,016
5.625%, 10/15/27 1,000 1,014
CUMBERLAND COUNTY, MESSIAH
COLLEGE PROJECT RB, AMBAC
5.125%, 10/01/15 2,800 2,852
DAUPHIN COUNTY, GENERAL
AUTHORITY RB, MANDATORY
PUT @ 100, AMBAC (B)
5.000%, 06/01/01 3,000 3,094
DAUPHIN COUNTY, PINNACLE
HEALTH SYSTEM PROJECT
RB, MBIA
5.100%, 05/15/08 830 879
5.200%, 05/15/09 910 965
DELAWARE COUNTY, CATHOLIC
HEALTH SYSTEMS EAST RB,
SERIES A, AMBAC
4.875%, 11/15/14 3,910 3,905
DELAWARE COUNTY, COMMUNITY
HOSPITAL AUTHORITY
RB, AMBAC
6.000%, 12/15/20 4,000 4,185
DELAWARE COUNTY, DUNWOODY
VILLAGE PROJECT RB
5.550%, 04/01/06 300 311
DELAWARE VALLEY, REGIONAL FINANCE
AUTHORITY RB, SERIES A
5.900%, 04/15/16 2,000 2,142
DOWNINGTOWN, SCHOOL
DISTRICT GO
5.500%, 02/01/10 1,000 1,099
HAZLETON, SCHOOL DISTRICT
AUTHORITY RB, SERIES C, FGIC
5.250%, 03/01/10 3,550 3,825
LANCASTER COUNTY, HOSPITAL
AUTHORITY RB, MASONIC
HOMES PROJECT
4.750%, 11/15/02 1,000 1,026
49
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] PENNSYLVANIA TAX-FREE PORTFOLIO (CONCLUDED)
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
LEHIGH COUNTY, MUHLENBERG
HOSPITAL CENTER PROJECT
RB, ETM, GOH
5.750%, 07/15/10 $3,000 $3,330
LEHIGH COUNTY, PUBLIC
IMPROVEMENTS PROJECT GO,
SERIES A, CNTY GTD
5.500%, 11/15/11 2,000 2,140
5.550%, 11/15/12 2,100 2,239
MONTGOMERY COUNTY, HEALTH
& HIGHER EDUCATION AUTHORITY
RB, BEAVER COLLEGE PROJECT,
CONLEE
5.700%, 04/01/10 500 547
MONTGOMERY COUNTY, HEALTH &
HIGHER EDUCATION AUTHORITY
RB, AMBAC
5.250%, 10/01/04 2,070 2,212
5.500%, 10/01/08 1,275 1,393
NORRISTOWN, SCHOOL DISTRICT
AUTHORITY GO, FGIC
5.500%, 09/01/14 500 529
NORTH HILLS, SCHOOL DISTRICT
AUTHORITY GO,
PRE-REFUNDED @ 100, FGIC (A)
5.625%, 11/15/07 500 555
NORTHAMPTON COUNTY, HIGHER
EDUCATION AUTHORITY RB,
LEHIGH UNIVERSITY, MBIA
5.750%, 08/15/03 2,710 2,940
PARKLAND, SCHOOL DISTRICT
GO, FGIC
5.000%, 09/01/18 5,000 5,006
PENNSYLVANIA INTERGOVERNMENTAL
COOPERATIVE AUTHORITY
RB, FGIC
5.500%, 06/15/11 3,300 3,523
PENNSYLVANIA INTERGOVERNMENTAL
COOPERATIVE AUTHORITY RB,
PHILADELPHIA FUNDING
PROGRAM, FGIC
5.400%, 06/15/09 4,845 5,178
PENNSYLVANIA STATE ECONOMIC
DEVELOPMENT AUTHORITY RB,
AMBAC
6.000%, 07/01/06 3,000 3,364
6.000%, 07/01/07 5,000 5,650
PENNSYLVANIA STATE GEISINGER
HEALTH SYSTEMS RB
5.000%, 08/15/28 4,590 4,424
PENNSYLVANIA STATE HIGHER
EDUCATION FACILITIES
AUTHORITY RB
4.500%, 07/15/17 3,500 3,325
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
PENNSYLVANIA STATE HIGHER
EDUCATION FACILITIES AUTHORITY
RB, AMBAC
5.000%, 06/15/19 $5,000 $4,981
PENNSYLVANIA STATE HIGHER
EDUCATION FACILITIES AUTHORITY
RB, DREXEL UNIVERSITY, MBIA
5.750%, 05/01/03 3,535 3,822
PENNSYLVANIA STATE HIGHER
EDUCATION FACILITIES AUTHORITY
RB, SERIES B
5.350%, 01/01/08 3,750 3,961
PENNSYLVANIA STATE HIGHER
EDUCATION FACILITIES AUTHORITY
RB, TEMPLE UNIVERSITY,
FIRST SERIES, MBIA
5.000%, 04/01/19 4,185 4,169
PENNSYLVANIA STATE HIGHER
EDUCATION FACILITIES AUTHORITY
RB, UNIVERSITY OF PENNSYLVANIA
HEALTH SERVICES PROJECT, SERIES A
5.500%, 01/01/09 3,000 3,199
PENNSYLVANIA STATE HIGHER
EDUCATION FACILITIES AUTHORITY
RB, UNIVERSITY OF PENNSYLVANIA
PROJECT
5.600%, 01/01/10 500 531
PENNSYLVANIA STATE HOUSING
FINANCE AGENCY RB, FNMA
6.400%, 07/01/12 500 534
PENNSYLVANIA STATE HOUSING
FINANCE AGENCY RB, SERIES A
6.000%, 10/01/13 1,500 1,598
PENNSYLVANIA STATE INFRASTRUCTURE
INVESTMENT AUTHORITY RB, WATER
UTILITY IMPROVEMENTS, MBIA
6.000%, 09/01/06 1,000 1,128
5.250%, 09/01/07 2,720 2,941
PENNSYLVANIA STATE PUBLIC
IMPROVEMENTS GO,
FIRST SERIES, FGIC
5.375%, 05/15/04 4,000 4,290
PENNSYLVANIA STATE PUBLIC
IMPROVEMENTS GO,
SECOND SERIES
6.000%, 07/01/09 4,375 5,042
PENNSYLVANIA STATE PUBLIC
IMPROVEMENTS GO,
SECOND SERIES, FGIC
5.375%, 11/15/07 5,000 5,456
PENNSYLVANIA STATE UNIVERSITY
RB, GOI
5.300%, 08/15/03 5,000 5,306
PHILADELPHIA, GAS WORKS
RB, FSA
5.000%, 07/01/28 5,000 4,931
50
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
PHILADELPHIA, HOSPITAL &
HIGHER EDUCATION FACILITIES
AUTHORITY RB, EINSTEIN MEDICAL
CENTER, PRE-REFUNDED @ 102 (A)
7.625%, 04/01/99 $1,350 $1,401
PHILADELPHIA, INDUSTRIAL
DEVELOPMENT AUTHORITY RB
5.250%, 07/01/17 1,000 1,011
PHILADELPHIA, INDUSTRIAL
DEVELOPMENT AUTHORITY RB,
FRANKLIN INSTITUTE PROJECT
5.200%, 06/15/18 1,000 999
5.200%, 06/15/26 3,100 3,054
PHILADELPHIA, INDUSTRIAL
DEVELOPMENT AUTHORITY RB,
GIRARD ESTATE COAL MINING
PROJECT
5.500%, 11/15/16 2,000 2,083
PHILADELPHIA, INDUSTRIAL
DEVELOPMENT AUTHORITY RB,
SERIES A, MBIA
6.000%, 02/15/07 1,365 1,542
PHILADELPHIA, JEFFERSON HEALTH
SYSTEMS RB, MBIA
5.500%, 05/15/05 1,000 1,073
PHILADELPHIA, JUSTICE LEASE
AUTHORITY RB, SERIES A, MBIA
7.100%, 11/15/06 4,095 4,530
PHILADELPHIA, SCHOOL DISTRICT
GO, SERIES A, MBIA
5.350%, 07/01/03 5,000 5,319
5.300%, 07/01/04 3,500 3,745
PHILADELPHIA, TEMPLE UNIVERSITY
HOSPITAL RB, SERIES A
6.625%, 11/15/23 500 539
PHILADELPHIA, WATER & WASTE
RB, MBIA
6.250%, 08/01/07 3,000 3,461
6.250%, 08/01/08 2,150 2,494
RIDLEY PARK, TAYLOR HOSPITAL
AUTHORITY RB, SERIES A
6.000%, 12/01/05 755 818
SCRANTON-LACKAWANNA, HEALTH &
WELFARE AUTHORITY RB,
MOSES TAYLOR HOSPITAL
5.450%, 07/01/03 1,350 1,399
SCRANTON-LACKAWANNA, MERCY
HEALTH HOSPITAL FACILITIES
RB, SERIES B, MBIA
5.625%, 01/01/16 2,000 2,120
UPPER DUBLIN, SCHOOL DISTRICT
GO, AMBAC
5.000%, 11/15/08 3,060 3,228
WEST SHORE, HOLY SPIRIT HOSPITAL
PROJECT RB, MBIA
5.600%, 01/01/13 500 531
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL PENNSYLVANIA $217,391
- --------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS & NOTES
(Cost $208,295) $217,391
- --------------------------------------------------------------------------------
CASH EQUIVALENT -- 0.8%
BLACKROCK PENNSYLVANIA MUNICPAL
MONEY MARKET PORTFOLIO 1,734 1,734
- --------------------------------------------------------------------------------
TOTAL CASH EQUIVALENT
(Cost $1,734) $ 1,734
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 98.3%
(Cost $210,029) $219,125
================================================================================
OTHER ASSETS AND LIABILITIES, NET-- 1.7% $ 3,748
================================================================================
NET ASSETS:
Portfolio Shares of Institutional Class
(unlimited authorization -- no par value)
based on 21,162,235 outstanding
shares of beneficial interest 208,550
Portfolio Shares of Retail Class A
(unlimited authorization -- no par value)
based on 286,925 outstanding
shares of beneficial interest 2,917
Distributions in excess of net investment income (45)
Accumulated net realized gain on investments 2,355
Net unrealized appreciation on investments 9,096
================================================================================
TOTAL NET ASSETS-- 100.0% $222,873
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE-- INSTITUTIONAL CLASS $10.39
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $10.38
================================================================================
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($10.38 / 95.50%) (C) $10.87
================================================================================
(A) PRE-REFUNDED SECURITY. THE PRE-REFUNDED DATE IS SHOWN AS THE MATURITY DATE
ON THE STATEMENT OF NET ASSETS.
(B) MANDATORY PUT SECURITY. THE MANDATORY PUT DATE IS SHOWN AS THE MATURITY
DATE ON THE STATEMENT OF NET ASSETS.
(C) EFFECTIVE MARCH 23, 1998, A 3% DISCOUNTED SALES LOAD IS CHARGED ON
INVESTMENTS INTO THE RETAIL CLASS A. THIS DISCOUNT MAY BE DISCONTINUED AT
ANY TIME. THE MAXIMUM SALES LOAD IS 4.50%.
ETM -- ESCROWED TO MATURITY
GO -- GENERAL OBLIGATION
RB -- REVENUE BOND
THE FOLLOWING ORGANIZATIONS HAVE PROVIDED UNDERLYING CREDIT SUPPORT FOR
SECURITIES LISTED ABOVE, AS INDICATED.
AMBAC -- AMERICAN MUNICIPAL BOND ASSURANCE CORPORATION
CNTY GTD -- COUNTY GUARANTEED
CONLEE -- COLLEGE CONSTRUCTION LOAN INSURANCE ASSOCIATION
FGIC -- FINANCIAL GUARANTY INSURANCE CORPORATION
FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION
FSA -- FINANCIAL SECURITY ASSURANCE
GOH -- GENERAL OBLIGATION OF HOSPITAL
GOI -- GENERAL OBLIGATION OF INSTITUTION
MBIA -- MUNICIPAL BOND INSURANCE ASSOCIATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
51
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] ARK FUNDS: INCOME PORTFOLIO
[Pie Chart Omitted.]
Non-Agency Mortgage-Backed Obligations -- 2%
Yankee Bonds -- 2%
Repurchase Agreement -- 4%
U.S. Government Agency Obligations -- 5%
Asset-Backed Securities -- 9%
U.S. Government Mortgage-Backed Obligations -- 16%
Preferred Convertible Stock -- 1%
Corporate Obligations -- 36%
U.S. Treasury Obligations -- 25%
% of Total Portfolio Investments
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 25.7%
U.S. TREASURY BONDS
10.750%, 08/15/05 $15,000 $ 20,271
6.250%, 08/15/23 2,000 2,238
6.125%, 11/15/27 5,000 5,637
U.S. TREASURY NOTES
7.750%, 11/30/99 3,000 3,105
6.375%, 09/30/01 5,000 5,274
7.500%, 11/15/01 5,000 5,437
6.250%, 06/30/02 20,000 21,237
7.875%, 11/15/04 20,000 23,485
U.S. TREASURY STRIPS (A)
5.849%, 05/15/21 5,000 1,424
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $82,824) $88,108
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 5.2%
FEDERAL NATIONAL MORTGAGE
ASSOCIATION
8.625%, 11/10/04 400 416
6.000%, 05/15/08 15,000 15,904
FEDERAL NATIONAL MORTGAGE
ASSOCIATION, MTN
7.840%, 06/09/06 1,500 1,527
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $17,146) $17,847
- --------------------------------------------------------------------------------
U.S. GOVERNMENT MORTGAGE-BACKED
OBLIGATIONS -- 16.8%
FEDERAL HOME LOAN MORTGAGE
CORPORATION
8.500%, 11/01/01 43 45
9.000%, 01/01/02 32 34
8.000%, 01/01/08 98 103
14.750%, 03/01/10 32 39
8.500%, 09/01/26 1,317 1,371
FEDERAL HOME LOAN MORTGAGE
CORPORATION (B)
6.000%, 11/01/13 15,000 15,042
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE
CORPORATION, GTD
9.000%, 09/15/08 $ 28 $ 30
12.450%, 09/15/09 9 10
FEDERAL NATIONAL MORTGAGE
ASSOCIATION
7.000%, 02/01/26 2,462 2,516
FEDERAL NATIONAL MORTGAGE
ASSOCIATION, REMIC
7.250%, 12/18/16 2,500 2,515
9.750%, 09/25/18 443 470
6.000%, 07/18/26 10,731 10,165
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION
7.500%, 05/15/22 868 894
7.500%, 10/15/23 3,197 3,292
7.500%, 12/15/23 1,355 1,395
7.000%, 02/15/24 3,691 3,781
7.000%, 05/15/24 7,332 7,509
7.500%, 05/15/24 3,036 3,127
7.500%, 10/15/24 2,568 2,644
7.000%, 09/20/25 1,555 1,586
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION, REMIC
7.750%, 06/16/20 1,000 1,032
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT
MORTGAGE-BACKED OBLIGATIONS
(Cost $56,724) $57,600
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS -- 36.5%
AUTOMOTIVE -- 0.7%
FEDERAL-MOGUL
7.750%, 07/01/06 2,500 2,528
- --------------------------------------------------------------------------------
TOTAL AUTOMOTIVE $ 2,528
- --------------------------------------------------------------------------------
BANKS -- 6.4%
BANK OF NEW YORK (C)
7.780%, 12/01/26 1,500 1,534
BANKAMERICA, SERIES A (C)
8.070%, 12/31/26 2,500 2,566
BANKERS TRUST (D)
5.100%, 04/30/99 5,000 4,997
COMPASS TRUST I
8.230%, 01/15/27 2,000 2,042
CRESTAR FINANCIAL
8.160%, 12/15/26 3,500 3,736
MELLON CAPITAL I
7.720%, 12/01/26 2,000 1,985
NATIONSBANK (D)
5.080%, 08/03/99 5,000 4,998
- --------------------------------------------------------------------------------
TOTAL BANKS $21,858
- --------------------------------------------------------------------------------
ENTERTAINMENT -- 5.0%
COMCAST CABLEVISION
8.375%, 05/01/07 2,725 3,134
8.875%, 05/01/17 3,650 4,416
52
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
CSC HOLDINGS
7.875%, 02/15/18 $2,500 $ 2,406
TIME WARNER
7.250%, 10/15/17 4,000 4,150
TIME WARNER, PAT (C)
4.900%, 07/29/99 3,000 2,992
- --------------------------------------------------------------------------------
TOTAL ENTERTAINMENT $17,098
- --------------------------------------------------------------------------------
FINANCIAL SERVICES -- 7.9%
AMVESCAP PLC, SERIES REGS
6.375%, 05/15/03 2,000 2,054
ASSOCIATES NA
6.950%, 11/01/18 5,000 5,038
DYNEX CAPITAL
7.875%, 07/15/02 2,500 1,622
GOLDEN STATE ESCROW (C)
7.000%, 08/01/03 2,000 2,078
7.125%, 08/01/05 2,000 1,890
LEHMAN BROTHERS HOLDINGS
6.250%, 04/01/03 3,000 2,910
MORGAN STANLEY, DEAN WITTER,
DISCOVER, EURO MTN,
SERIES D (D)
5.650%, 12/19/01 7,380 7,307
SAFECO CAPITAL I
8.072%, 07/15/37 4,125 4,192
- --------------------------------------------------------------------------------
TOTAL FINANCIAL SERVICES $27,091
- --------------------------------------------------------------------------------
INDUSTRIAL -- 8.8%
B.F. GOODRICH
7.000%, 04/15/38 2,500 2,622
CANADIAN NATIONAL RAILWAY
6.450%, 07/15/06 2,000 2,060
CASE EQUIPMENT
7.250%, 01/15/16 2,000 2,185
ITT
6.750%, 11/15/03 2,000 1,908
7.375%, 11/15/15 1,000 948
LOEWEN GROUP INTERNATIONAL (C)
7.600%, 06/01/08 4,000 3,170
LOEWEN GROUP INTERNATIONAL,
SERIES 4
8.250%, 10/15/03 2,000 1,585
NABISCO, PAT (C)
6.300%, 08/26/99 1,500 1,514
ORYX ENERGY
10.000%, 04/01/01 1,500 1,641
8.375%, 07/15/04 1,000 1,100
SPIEKER PROPERTIES LP
6.750%, 01/15/08 3,000 2,813
STORAGE USA
7.125%, 11/01/03 2,000 2,045
TENET HEALTHCARE
8.625%, 12/01/03 2,000 2,070
8.000%, 01/15/05 2,500 2,556
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
TENNESSEE GAS PIPELINE
7.000%, 10/15/28 $2,000 $ 1,908
- --------------------------------------------------------------------------------
TOTAL INDUSTRIAL $ 30,125
- --------------------------------------------------------------------------------
RETAIL -- 4.3%
DAYTON HUDSON
6.650%, 08/01/28 4,000 3,915
DILLARD'S
5.790%, 11/15/01 2,000 2,000
FRED MEYER
7.375%, 03/01/05 5,000 5,175
GREAT ATLANTIC & PACIFIC TEA
7.750%, 04/15/07 1,500 1,539
KROGER
7.650%, 04/15/07 2,000 2,135
- --------------------------------------------------------------------------------
TOTAL RETAIL $ 14,764
- --------------------------------------------------------------------------------
TELEPHONES & TELECOMMUNICATIONS -- 3.4%
360 COMMUNICATIONS
7.600%, 04/01/09 1,500 1,688
GTE SOUTH
6.125%, 06/15/07 2,000 2,078
NEW YORK TELEPHONE
9.375%, 07/15/31 3,000 3,435
WORLDCOM
7.750%, 04/01/07 4,000 4,470
- --------------------------------------------------------------------------------
TOTAL TELEPHONES & TELECOMMUNICATIONS $ 11,671
- --------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS
(Cost $124,650) $125,135
- --------------------------------------------------------------------------------
YANKEE BONDS -- 2.7%
GULF CANADA RESOURCES
8.250%, 03/15/17 2,000 1,903
HUSKY OIL
7.550%, 11/15/16 3,600 3,186
ROYAL CARIBBEAN CRUISES
7.250%, 08/15/06 3,000 3,150
SAGA PETROLEUM A.S.
9.125%, 07/15/14 1,000 1,150
- --------------------------------------------------------------------------------
TOTAL YANKEE BONDS
(Cost $9,921) $ 9,389
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES -- 9.3%
CONTINENTAL HOME EQUITY TRUST,
SERIES 1998-1, CLASS A6
6.580%, 12/15/18 3,000 3,019
IMC HOME EQUITY LOAN TRUST,
SERIES 1997-1, CLASS A2
6.620%, 10/25/11 738 737
IMC HOME EQUITY LOAN TRUST,
SERIES 1997-2, CLASS A3
6.940%, 11/20/11 4,000 4,042
IMC HOME EQUITY LOAN TRUST,
SERIES 1997-3, CLASS A4
6.840%, 10/20/13 3,000 3,058
53
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] INCOME PORTFOLIO (CONCLUDED)
PRINCIPAL AMOUNT MARKET
DESCRIPTION (000)/SHARES VALUE (000)
- --------------------------------------------------------------------------------
PREMIER AUTO TRUST,
SERIES 1996-2, CLASS A4
6.575%, 10/06/00 $4,600 $ 4,640
PREMIER AUTO TRUST,
SERIES 1998-3, CLASS A3
5.880%, 12/08/01 2,800 2,869
STANDARD CREDIT CARD MASTER
TRUST, SERIES 1995-10, CLASS A
5.900%, 02/07/01 1,875 1,879
THE MONEY STORE HOME EQUITY
TRUST, SERIES 1996-C, CLASS A4
7.400%, 06/15/21 3,000 3,201
THE MONEY STORE HOME EQUITY
TRUST, SERIES 1997-D, CLASS AF3
6.345%, 11/15/21 4,000 4,033
THE MONEY STORE HOME EQUITY
TRUST, SERIES 1997-D, CLASS AF5
6.555%, 12/15/38 4,350 4,457
- --------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(Cost $31,444) $31,935
- --------------------------------------------------------------------------------
NON-AGENCY MORTGAGE-BACKED OBLIGATIONS -- 1.9%
COUNTRYWIDE FUNDING,
SERIES 1994-4, CLASS A12
6.950%, 04/25/24 5,452 5,240
PRUDENTIAL HOME MORTGAGE
SECURITIES, SERIES 1993-36,
CLASS A1
6.850%, 10/25/23 822 819
RESIDENTIAL ASSET SECURITIZATION,
SERIES 1996-A8, CLASS A1
8.000%, 12/25/26 542 545
- --------------------------------------------------------------------------------
TOTAL NON-AGENCY MORTGAGE-BACKED
OBLIGATIONS
(Cost $6,371) $ 6,604
- --------------------------------------------------------------------------------
PREFERRED CONVERTIBLE STOCK -- 1.3%
SPG PROPERTIES 90,000 4,539
- --------------------------------------------------------------------------------
TOTAL PREFERRED CONVERTIBLE STOCK
(Cost $4,573) $ 4,539
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 4.7%
FIRST BOSTON
5.400%, dated 10/30/98, matures
11/02/98, repurchase price
$16,180,441 (collateralized by
U.S. Treasury Bonds:
total market value
$16,564,401) $16,173 16,173
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $16,173) $16,173
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 104.1%
(Cost $349,826) $357,330
================================================================================
OTHER ASSETS AND LIABILITIES, NET-- (4.1%) $(14,170)
================================================================================
NET ASSETS:
Portfolio Shares of Institutional Class
(unlimited authorization -- no par value)
based on 32,557,668 outstanding
shares of beneficial interest 327,332
Portfolio Shares of Retail Class A
(unlimited authorization -- no par value)
based on 781,522 outstanding
shares of beneficial interest 8,023
Portfolio Shares of Retail Class B
(unlimited authorization -- no par value)
based on 5,341 outstanding
shares of beneficial interest 55
Undistributed net investment income 108
Accumulated net realized gain on investments 138
Net unrealized appreciation on investments 7,504
================================================================================
TOTAL NET ASSETS-- 100.0% $343,160
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE-- INSTITUTIONAL CLASS $10.29
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $10.41
================================================================================
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($10.41 / 95.50%) (E) $10.90
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE-- RETAIL CLASS B (F) $10.29
================================================================================
(A) ZERO COUPON SECURITY. THE RATE REPORTED ON THE STATEMENT OF NET ASSETS IS
THE EFFECTIVE YIELD AS OF OCTOBER 31, 1998.
(B) WHEN ISSUED SECURITY (TOTAL COST $15,192,188)
(C) SECURITY EXEMPT FROM REGISTRATION UNDER RULE 144A OF THE SECURITIES ACT OF
1933. THESE SECURITIES MAY BE RESOLD IN TRANSACTIONS EXEMPT FROM
REGISTRATION NORMALLY TO QUALIFIED INSTITUTIONAL INVESTORS.
(D) VARIABLE RATE SECURITY. THE RATE REPORTED ON THE STATEMENT OF NET ASSETS IS
THE RATE IN EFFECT ON OCTOBER 31, 1998.
(E) EFFECTIVE OCTOBER 1, 1997, A 3% DISCOUNTED SALES LOAD IS CHARGED ON
INVESTMENTS INTO THE RETAIL CLASS A. THIS DISCOUNT MAY BE DISCONTINUED AT
ANY TIME. THE MAXIMUM SALES LOAD IS 4.50%.
(F) RETAIL CLASS B HAS A CONTINGENT DEFERRED SALES CHARGE. FOR A DESCRIPTION OF
POSSIBLE REDEMPTION CHARGE, SEE NOTES TO THE FINANCIALS.
GTD -- GUARANTEED MORTGAGE CERTIFICATE
MTN -- MEDIUM TERM NOTE
PAT -- PUTABLE ASSET TRUST
REMIC -- REAL ESTATE MORTGAGE INVESTMENT CONDUIT
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
54
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] ARK FUNDS: INTERMEDIATE FIXED INCOME PORTFOLIO
[Pie Chart Omitted.]
Repurchase Agreement -- 4%
Non-Taxable Municipal Bonds -- 4%
U.S. Government Agency Obligations -- 8%
U.S. Government Mortgage-Backed Obligations -- 9%
Asset-Backed Securities -- 9%
Preferred Stock -- 1%
Yankee Bonds -- 3%
U.S. Treasury Obligations -- 34%
Corporate Obligations -- 28%
% of Total Portfolio Investments
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 33.2%
U.S. TREASURY NOTES
7.500%, 10/31/99 $5,000 $ 5,149
7.750%, 11/30/99 5,000 5,176
7.500%, 11/15/01 3,000 3,262
6.250%, 02/28/02 4,500 4,755
7.875%, 11/15/04 4,000 4,697
6.500%, 05/15/05 2,000 2,225
6.250%, 02/15/07 5,500 6,095
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $29,603) $31,359
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 8.0%
FEDERAL HOME LOAN BANK
6.634%, 02/20/04 1,535 1,546
FEDERAL NATIONAL MORTGAGE
ASSOCIATION
6.270%, 09/20/00 2,500 2,536
6.000%, 05/15/08 3,260 3,457
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $7,364) $ 7,539
- --------------------------------------------------------------------------------
U.S. GOVERNMENT MORTGAGE-BACKED
OBLIGATIONS -- 9.2%
FEDERAL NATIONAL MORTGAGE
ASSOCIATION
6.500%, 05/01/08 710 721
6.500%, 10/01/08 2,691 2,730
5.500%, 04/01/18 1,143 1,102
FEDERAL NATIONAL MORTGAGE
ASSOCIATION, REMIC
6.250%, 07/25/08 1,590 1,621
7.250%, 12/18/16 1,000 1,006
7.000%, 07/18/18 1,500 1,516
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT MORTGAGE-
BACKED OBLIGATIONS
(Cost $8,593) $ 8,696
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS -- 27.5%
BANKS -- 2.8%
BANK OF NEW YORK
6.625%, 06/15/03 $1,220 $ 1,281
STAR BANK NA-CINCINNATI
6.375%, 03/01/04 1,310 1,354
- --------------------------------------------------------------------------------
TOTAL BANKS $ 2,635
- --------------------------------------------------------------------------------
COMMUNICATIONS -- 5.6%
CABLE & WIRELESS COMMUNICATIONS
6.375%, 03/06/03 1,000 1,019
COMCAST CABLEVISION
8.375%, 05/01/07 1,000 1,150
LUCENT TECHNOLOGIES
7.250%, 07/15/06 1,220 1,362
TIME WARNER
8.110%, 08/15/06 600 677
WORLDCOM
7.750%, 04/01/07 1,000 1,118
- --------------------------------------------------------------------------------
TOTAL COMMUNICATIONS $5,326
- --------------------------------------------------------------------------------
FINANCIAL SERVICES -- 10.3%
BEAR STEARNS
6.500%, 07/05/00 850 857
CASE CREDIT
6.125%, 02/15/03 1,090 1,124
CONSECO
6.400%, 02/10/03 1,000 972
FIRST UNION
8.770%, 11/15/04 1,350 1,404
FORD MOTOR CREDIT, MTN
7.350%, 01/23/12 1,200 1,203
ITT
6.750%, 11/15/03 1,000 954
MERRILL LYNCH
7.200%, 10/15/12 1,500 1,611
PROGRESSIVE
6.600%, 01/15/04 550 585
STORAGE USA
7.125%, 11/01/03 1,000 1,023
- --------------------------------------------------------------------------------
TOTAL FINANCIAL SERVICES $9,733
- --------------------------------------------------------------------------------
INDUSTRIAL -- 3.6%
ORYX ENERGY
8.375%, 07/15/04 1,000 1,100
SARA LEE, MTN
6.150%, 06/19/08 1,185 1,241
TENET HEALTHCARE
8.000%, 01/15/05 1,000 1,023
- --------------------------------------------------------------------------------
TOTAL INDUSTRIAL $3,364
- --------------------------------------------------------------------------------
RETAIL -- 2.3%
FEDERATED DEPARTMENT STORES
8.500%, 06/15/03 1,000 1,106
FRED MEYER
7.375%, 03/01/05 1,000 1,035
- --------------------------------------------------------------------------------
TOTAL RETAIL $2,141
- --------------------------------------------------------------------------------
55
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] INTERMEDIATE FIXED INCOME PORTFOLIO
(CONCLUDED)
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
UTILITIES -- 2.9%
COLUMBUS SOUTHERN POWER, MTN
6.510%, 02/01/08 $1,250 $ 1,316
NATIONAL RURAL UTILITIES
7.300%, 09/15/06 1,250 1,398
- --------------------------------------------------------------------------------
TOTAL UTILITIES $ 2,714
- --------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS
(Cost $24,964) $25,913
- --------------------------------------------------------------------------------
YANKEE BONDS -- 3.1%
MERITA BANK
6.500%, 01/15/06 1,350 1,353
ROYAL CARIBBEAN
8.250%, 04/01/05 1,500 1,633
- --------------------------------------------------------------------------------
TOTAL YANKEE BONDS
(Cost $2,861) $ 2,986
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES -- 8.9%
CAPITA EQUIPMENT TRUST,
SERIES 1996-1, CLASS A3
6.110%, 07/15/99 673 674
IMC HOME EQUITY LOAN TRUST,
SERIES 1997-1, CLASS A2
6.620%, 10/25/11 212 213
IMC HOME EQUITY LOAN TRUST,
SERIES 1997-3, CLASS A4
6.840%, 10/20/13 1,000 1,019
PREMIER AUTO TRUST,
SERIES 1996-2, CLASS A4
6.575%, 10/06/00 1,575 1,589
PREMIER AUTO TRUST,
SERIES 1998-4, CLASS A3
5.690%, 06/08/02 605 615
STANDARD CREDIT CARD MASTER
TRUST, SERIES 1995-10, CLASS A
5.900%, 02/07/01 1,000 1,002
THE MONEY STORE HOME EQUITY
TRUST, SERIES 1996-C, CLASS A4
7.400%, 06/15/21 1,513 1,614
THE MONEY STORE HOME EQUITY
TRUST, SERIES 1997-D, CLASS A5
6.555%, 12/15/38 1,620 1,660
- --------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(Cost $8,227) $8,386
- --------------------------------------------------------------------------------
NON-AGENCY MORTGAGE-BACKED OBLIGATION -- 0.3%
PRUDENTIAL HOME MORTGAGE
SECURITIES, SERIES 1993-36,
CLASS A1
6.850%, 10/25/23 265 264
- --------------------------------------------------------------------------------
TOTAL NON-AGENCY MORTGAGE-BACKED OBLIGATION
(Cost $265) $264
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000)/SHARES VALUE (000)
- --------------------------------------------------------------------------------
NON-TAXABLE MUNICIPAL BONDS -- 4.2%
OHIO STATE TURNPIKE COMMISSION
TURNPIKE RB, SERIES A, FGIC
5.500%, 02/15/17 $ 2,000 $ 2,170
SOUTHEASTERN WISCONSIN PROFESSIONAL
BASEBALL PARK DISTRICT SALES
TAX RB, SERIES A, MBIA
5.500%, 12/15/18 1,630 1,760
- --------------------------------------------------------------------------------
TOTAL NON-TAXABLE MUNICIPAL BONDS
(Cost $3,940) $ 3,930
- --------------------------------------------------------------------------------
PREFERRED CONVERTIBLE STOCK -- 1.1%
SPG PROPERTIES 20,000 1,009
- --------------------------------------------------------------------------------
TOTAL PREFERRED CONVERTIBLE STOCK
(Cost $1,012) $ 1,009
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 3.6%
FIRST BOSTON
5.400%, dated 10/30/98, matures
11/02/98, repurchase price
$3,385,211 (collateralized by
U.S. Treasury Bonds:
total market value
$3,465,665) $3,384 3,384
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $3,384) $ 3,384
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.1%
(Cost $90,213) $93,466
================================================================================
OTHER ASSETS AND LIABILITIES, NET-- 0.9% $ 843
================================================================================
NET ASSETS:
Portfolio Shares of Institutional Class
(unlimited authorization -- no par value)
based on 9,213,211 outstanding
shares of beneficial interest 90,732
Undistributed net investment income 6
Accumulated net realized gain on investments 318
Net unrealized appreciation on investments 3,253
================================================================================
TOTAL NET ASSETS-- 100.0% $94,309
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE-- INSTITUTIONAL CLASS $10.24
================================================================================
MTN -- MEDIUM TERM NOTE
RB -- REVENUE BOND
REMIC -- REAL ESTATE MORTGAGE INVESTMENT CONDUIT
THE FOLLOWING ORGANIZATIONS HAVE PROVIDED UNDERLYING CREDIT SUPPORT FOR
SECURITIES LISTED ABOVE, AS INDICATED.
FGIC -- FINANCIAL GUARANTY INSURANCE CORPORATION
MBIA -- MUNICIPAL BOND INSURANCE ASSOCIATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
56
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW]ARK FUNDS: U.S. GOVERNMENT BOND PORTFOLIO
[Pie Chart Omitted.]
Repurchase Agreement -- 3%
Asset-Backed Obligations -- 5%
U.S. Government Agency Obligations -- 22%
U.S. Government Mortgage-Backed Obligations -- 23%
Preferred Stock -- 2%
U.S. Treasury Obligations -- 21%
Corporate Obligations -- 24%
% of Total Portfolio Investments
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 21.0%
U.S. TREASURY BONDS
5.500%, 03/31/03 $18,000 $18,847
7.500%, 11/15/16 10,900 13,583
U.S. TREASURY NOTE
5.375%, 02/15/01 23,000 23,531
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $53,993) $55,961
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 22.2%
FEDERAL HOME LOAN BANK
5.540%, 07/15/99 30,000 30,141
FEDERAL NATIONAL MORTGAGE
ASSOCIATION
6.000%, 05/15/08 10,000 10,603
FEDERAL NATIONAL MORTGAGE
ASSOCIATION, MTN
6.030%, 07/07/99 10,000 10,077
6.470%, 09/25/12 7,500 8,351
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $57,692) $59,172
- --------------------------------------------------------------------------------
U.S. GOVERNMENT MORTGAGE-BACKED
OBLIGATIONS -- 22.7%
FEDERAL HOME LOAN MORTGAGE
CORPORATION
6.000%, 03/01/13 19,761 19,848
6.250%, 01/15/20 3,000 2,984
6.250%, 09/15/23 5,000 5,170
FEDERAL NATIONAL MORTGAGE
ASSOCIATION
6.500%, 10/25/23 8,500 8,517
7.000%, 09/02/27 4,275 4,388
6.500%, 08/01/28 19,678 19,830
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT MORTGAGE-BACKED OBLIGATIONS
(Cost $59,762) $60,737
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS -- 23.9%
ENTERTAINMENT -- 2.4%
ROYAL CARIBBEAN CRUISES, YB
8.250%, 04/01/05 $3,000 $ 3,266
TIME WARNER
6.950%, 01/15/28 3,000 3,007
- --------------------------------------------------------------------------------
TOTAL ENTERTAINMENT $ 6,273
- --------------------------------------------------------------------------------
FINANCIAL SERVICES -- 3.7%
AMVESCAP PLC
6.375%, 05/15/03 2,500 2,567
CONSECO
6.400%, 02/10/03 3,000 2,917
GOLDEN STATE ESCROW (A)
7.000%, 08/01/03 2,000 2,077
GREEN TREE FINANCIAL
10.250%, 06/01/02 2,000 2,280
- --------------------------------------------------------------------------------
TOTAL FINANCIAL SERVICES $ 9,841
- --------------------------------------------------------------------------------
INDUSTRIAL -- 10.0%
B.F. GOODRICH
7.000%, 04/15/38 2,000 2,098
CANADIAN NATIONAL RAILWAY
6.450%, 07/15/06 1,000 1,030
6.900%, 07/15/28 1,500 1,494
COCA-COLA ENTERPRISES
6.750%, 01/15/38 2,500 2,472
CONAGRA
7.375%, 02/01/05 1,000 1,093
FEDERAL-MOGUL
7.750%, 07/01/06 1,500 1,517
HUSKY OIL, YB
7.550%, 11/15/16 4,500 3,983
LOEWEN GROUP INTERNATIONAL (A)
7.200%, 06/01/03 2,000 1,585
SAGA PETROLEUM A.S., YB
9.125%, 07/15/14 4,000 4,600
SPIEKER PROPERTIES LP
6.750%, 01/15/08 3,000 2,813
TENET HEALTHCARE
7.875%, 01/15/03 2,450 2,508
TENNESSEE GAS PIPELINE
7.000%, 10/15/28 1,600 1,526
- --------------------------------------------------------------------------------
TOTAL INDUSTRIAL $26,719
- --------------------------------------------------------------------------------
RETAIL -- 2.9%
DAYTON HUDSON
6.650%, 08/01/28 4,500 4,404
FRED MEYER
7.375%, 03/01/05 3,200 3,312
- --------------------------------------------------------------------------------
TOTAL RETAIL $ 7,716
- --------------------------------------------------------------------------------
57
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] U.S. GOVERNMENT BOND PORTFOLIO (CONCLUDED)
PRINCIPAL AMOUNT MARKET
DESCRIPTION (000)/SHARES VALUE (000)
- --------------------------------------------------------------------------------
TELEPHONES & TELECOMMUNICATIONS -- 4.1%
360 COMMUNICATIONS
7.600%, 04/01/09 3,000 $ 3,375
NEW YORK TELEPHONE
9.375%, 07/15/31 3,850 4,408
WORLDCOM
7.550%, 04/01/04 $3,000 3,263
- --------------------------------------------------------------------------------
TOTAL TELEPHONES & TELECOMMUNICATIONS $ 11,046
- --------------------------------------------------------------------------------
UTILITIES -- 0.8%
UNION ELECTRIC
8.750%, 12/01/21 2,000 2,248
- --------------------------------------------------------------------------------
TOTAL UTILITIES $ 2,248
- --------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS
(Cost $64,966) $ 63,843
- --------------------------------------------------------------------------------
ASSET-BACKED OBLIGATIONS -- 4.5%
AMRESCO RESIDENTIAL SECURITIES,
SERIES 1996-5, CLASS A2
6.275%, 04/25/18 672 691
CONTINENTAL HOME EQUITY TRUST,
SERIES 1998-1, CLASS A6
6.580%, 12/15/18 3,000 3,019
THE MONEY STORE HOME EQUITY
TRUST, SERIES 1996-C, CLASS A4
7.400%, 06/15/21 4,000 4,268
THE MONEY STORE HOME EQUITY
TRUST, SERIES 1997-D, CLASS AF3
6.345%, 11/15/21 4,000 4,033
- --------------------------------------------------------------------------------
TOTAL ASSET-BACKED OBLIGATIONS
(Cost $11,767) $ 12,011
- --------------------------------------------------------------------------------
PREFERRED CONVERTIBLE STOCK -- 1.5%
SPG PROPERTIES 80,000 4,035
- --------------------------------------------------------------------------------
TOTAL PREFERRED CONVERTIBLE STOCK
(Cost $4,032) $ 4,035
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 3.3%
FIRST BOSTON
5.400%, dated 10/30/98, matures
11/02/98, repurchase price
$8,784,805 (collateralized by
U.S. Treasury Bond:
total market value
$9,110,146) $8,781 8,781
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $8,781) $ 8,781
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.1%
(Cost $260,993) $264,540
================================================================================
OTHER ASSETS AND LIABILITIES, NET-- 0.9% $ 2,487
================================================================================
MARKET
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares of Institutional Class
(unlimited authorization -- no par value)
based on 26,626,327 outstanding
shares of beneficial interest $264,463
Portfolio Shares of Retail Class A
(unlimited authorization -- no par value)
based on 55,959 outstanding shares
of beneficial interest 561
Undistributed net investment income 127
Accumulated net realized loss on investments (1,671)
Net unrealized appreciation on investments 3,547
================================================================================
TOTAL NET ASSETS-- 100.0% $267,027
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE-- INSTITUTIONAL CLASS $10.01
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $10.00
================================================================================
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($10.00 / 95.50%) (B) $10.47
================================================================================
(A) SECURITY EXEMPT FROM REGISTRATION UNDER RULE 144A OF THE SECURITIES ACT OF
1933. THESE SECURITIES MAY BE RESOLD IN TRANSACTIONS EXEMPT FROM
REGISTRATION NORMALLY TO QUALIFIED INSTITUTIONAL INVESTORS.
(B) EFFECTIVE APRIL 1, 1998, A 3% DISCOUNTED SALES LOAD IS CHARGED ON
INVESTMENTS INTO THE RETAIL CLASS A. THIS DISCOUNT MAY BE DISCONTINUED AT
ANY TIME. THE MAXIMUM SALES LOAD IS 4.50%.
MTN -- MEDIUM TERM NOTE
YB -- YANKEE BOND
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
58
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] ARK FUNDS: BALANCED PORTFOLIO
[Pie Chart Omitted.]
U.S. Government Agency Obligation -- 1%
Asset-Backed Securities -- 3%
U.S. Government Mortgage-Backed Obligations -- 7%
U.S. Treasury Obligations -- 9%
Corporate Obligations -- 9%
Repurchase Agreement -- 11%
Non-Agency Mortgage-Backed Obligations -- 1%
Common Stocks -- 59%
% of Total Portfolio Investments
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 59.3%
AEROSPACE & DEFENSE -- 1.8%
LOCKHEED MARTIN 12,000 $1,336
NORTHROP GRUMMAN 10,000 797
- --------------------------------------------------------------------------------
TOTAL AEROSPACE & DEFENSE $2,133
- --------------------------------------------------------------------------------
BANKS -- 3.7%
BANK ONE 24,200 1,183
CHASE MANHATTAN 20,000 1,136
NORWEST 29,000 1,078
WASHINGTON MUTUAL 30,000 1,123
- --------------------------------------------------------------------------------
TOTAL BANKS $4,520
- --------------------------------------------------------------------------------
BROADCASTING, NEWSPAPERS & ADVERTISING-- 1.8%
CHANCELLOR MEDIA, CL A* 25,000 959
YOUNG & RUBICAM* 49,375 1,290
- --------------------------------------------------------------------------------
TOTAL BROADCASTING, NEWSPAPERS & ADVERTISING $2,249
- --------------------------------------------------------------------------------
CHEMICALS -- 0.5%
MONSANTO 14,000 569
- --------------------------------------------------------------------------------
TOTAL CHEMICALS $ 569
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 2.0%
ASCEND COMMUNICATIONS* 30,000 1,447
NORTHERN TELECOM 24,000 1,027
- --------------------------------------------------------------------------------
TOTAL COMMUNICATIONS EQUIPMENT $2,474
- --------------------------------------------------------------------------------
COMPUTER SOFTWARE -- 1.0%
MICROSOFT* 11,000 1,165
- --------------------------------------------------------------------------------
TOTAL COMPUTER SOFTWARE $1,165
- --------------------------------------------------------------------------------
COMPUTERS & SERVICES -- 5.2%
COMPAQ COMPUTER 49,000 1,550
COMVERSE TECHNOLOGY* 30,000 1,380
ELECTRONICS FOR IMAGING* 65,000 1,564
EMC* 30,000 1,931
- --------------------------------------------------------------------------------
TOTAL COMPUTERS & SERVICES $6,425
- --------------------------------------------------------------------------------
DRUGS -- 5.2%
ABBOTT LABORATORIES 25,000 1,173
AMERICAN HOME PRODUCTS 18,000 878
AMGEN* 20,000 1,571
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
BRISTOL-MYERS SQUIBB 15,000 $1,658
SCHERING PLOUGH 10,000 1,029
- --------------------------------------------------------------------------------
TOTAL DRUGS $6,309
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 0.9%
GENERAL ELECTRIC 13,000 1,138
- --------------------------------------------------------------------------------
TOTAL ELECTRICAL EQUIPMENT $1,138
- --------------------------------------------------------------------------------
ENTERTAINMENT -- 4.2%
CARNIVAL, CL A 45,000 1,457
MIRAGE RESORTS* 40,000 678
TIME WARNER 15,000 1,392
VIACOM, CL B* 15,000 898
WALT DISNEY 28,000 754
- --------------------------------------------------------------------------------
TOTAL ENTERTAINMENT $5,179
- --------------------------------------------------------------------------------
FINANCIAL SERVICES -- 4.5%
CITIGROUP 35,000 1,647
FREDDIE MAC 30,000 1,725
MORGAN STANLEY, DEAN WITTER,
DISCOVER 20,000 1,295
WADDELL & REED FINANCIAL,
CL A 40,000 838
- --------------------------------------------------------------------------------
TOTAL FINANCIAL SERVICES $5,505
- --------------------------------------------------------------------------------
FOOD, BEVERAGE & TOBACCO -- 3.5%
PEPSICO 30,000 1,013
PHILIP MORRIS 34,000 1,738
RALSTON PURINA GROUP 45,000 1,502
- --------------------------------------------------------------------------------
TOTAL FOOD, BEVERAGE & TOBACCO $4,253
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS & APPLIANCES-- 3.1%
COLGATE-PALMOLIVE 15,000 1,326
DIAL 55,000 1,516
GILLETTE 10,000 449
WINDMERE-DURABLE HOLDINGS 70,000 538
- --------------------------------------------------------------------------------
TOTAL HOUSEHOLD PRODUCTS & APPLIANCES $3,829
- --------------------------------------------------------------------------------
INSURANCE -- 1.2%
AMERICAN BANKERS
INSURANCE GROUP 10,000 447
AMERICAN INTERNATIONAL GROUP 12,375 1,055
- --------------------------------------------------------------------------------
TOTAL INSURANCE $1,502
- --------------------------------------------------------------------------------
LEISURE PRODUCTS -- 0.7%
MATTEL 25,000 897
- --------------------------------------------------------------------------------
TOTAL LEISURE PRODUCTS $ 897
- --------------------------------------------------------------------------------
MEDICAL PRODUCTS & SERVICES -- 2.6%
JOHNSON & JOHNSON 20,000 1,630
SOFAMOR DANEK GROUP* 15,500 1,575
- --------------------------------------------------------------------------------
TOTAL MEDICAL PRODUCTS & SERVICES $3,205
- --------------------------------------------------------------------------------
MISCELLANEOUS BUSINESS SERVICES -- 2.1%
CENDANT* 125,000 1,430
FIRST DATA 30,000 795
USWEB* 20,000 288
- --------------------------------------------------------------------------------
TOTAL MISCELLANEOUS BUSINESS SERVICES $2,513
- --------------------------------------------------------------------------------
59
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] BALANCED PORTFOLIO (CONTINUED)
SHARES/PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
PAPER & PAPER PRODUCTS -- 0.6%
KIMBERLY-CLARK 15,000 $ 724
- --------------------------------------------------------------------------------
TOTAL PAPER & PAPER PRODUCTS $ 724
- --------------------------------------------------------------------------------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES -- 1.6%
XEROX 20,000 1,938
- --------------------------------------------------------------------------------
TOTAL PHOTOGRAPHIC EQUIPMENT & SUPPLIES $ 1,938
- --------------------------------------------------------------------------------
PROFESSIONAL SERVICES -- 1.2%
HALLIBURTON 40,000 1,438
- --------------------------------------------------------------------------------
TOTAL PROFESSIONAL SERVICES $ 1,438
- --------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST-- 0.7%
PACIFIC GULF PROPERTIES* 25,000 495
SPIEKER PROPERTIES 12,000 414
- --------------------------------------------------------------------------------
TOTAL REAL ESTATE INVESTMENT TRUST $ 909
- --------------------------------------------------------------------------------
RETAIL -- 5.4%
BARNES & NOBLE* 40,000 1,305
DAYTON HUDSON 20,000 848
HOME DEPOT 20,000 870
LINENS 'N THINGS* 33,000 1,021
RITE AID 40,000 1,588
WAL-MART STORES 14,000 966
- --------------------------------------------------------------------------------
TOTAL RETAIL $ 6,598
- --------------------------------------------------------------------------------
SEMI-CONDUCTORS/INSTRUMENTS-- 1.8%
INTEL 25,000 2,230
- --------------------------------------------------------------------------------
TOTAL SEMI-CONDUCTORS/INSTRUMENTS $ 2,230
- --------------------------------------------------------------------------------
TECHNOLOGY -- 2.2%
AMERICAN POWER CONVERSION* 30,000 1,273
CISCO SYSTEMS* 22,500 1,418
- --------------------------------------------------------------------------------
TOTAL TECHNOLOGY $ 2,691
- --------------------------------------------------------------------------------
TELEPHONES & TELECOMMUNICATIONS -- 1.8%
MCI WORLDCOM* 28,000 1,547
TELE-COMMUNICATIONS TCI
VENTURES GROUP, CL A* 36,380 678
- --------------------------------------------------------------------------------
TOTAL TELEPHONES & TELECOMMUNICATIONS $ 2,225
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $53,399) $72,618
- --------------------------------------------------------------------------------
PREFERRED CONVERTIBLE STOCK -- 0.3%
SPG PROPERTIES 8,000 404
- --------------------------------------------------------------------------------
TOTAL PREFERRED CONVERTIBLE STOCK
(Cost $408) $ 404
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 8.8%
U.S. TREASURY BOND
8.000%, 11/15/21 $1,250 1,675
U.S. TREASURY NOTES
7.500%, 10/31/99 1,500 1,545
7.750%, 02/15/01 1,100 1,181
7.500%, 11/15/01 1,000 1,087
6.625%, 05/15/07 4,500 5,107
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
U.S. TREASURY STRIPS (A)
5.853%, 05/15/21 $ 600 $ 171
- --------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $10,270) $10,766
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATION -- 1.3%
FEDERAL NATIONAL MORTGAGE ASSOCIATION
6.000%, 05/15/08 1,500 1,590
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATION
(Cost $1,519) $ 1,590
- --------------------------------------------------------------------------------
U.S. GOVERNMENT MORTGAGE-BACKED
OBLIGATIONS -- 7.0%
FEDERAL HOME LOAN MORTGAGE
CORPORATION
8.500%, 11/01/01 22 23
9.000%, 01/01/02 36 38
9.500%, 07/01/02 5 5
6.500%, 04/01/08 844 857
8.500%, 09/01/26 146 152
FEDERAL NATIONAL MORTGAGE
ASSOCIATION
10.500%, 12/01/00 3 4
7.000%, 02/01/07 292 298
7.000%, 12/01/25 973 994
7.000%, 02/01/26 525 537
FEDERAL NATIONAL MORTGAGE
ASSOCIATION, REMIC
9.750%, 09/25/18 147 157
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION
7.500%, 10/15/23 944 972
7.500%, 12/15/23 902 929
7.000%, 02/15/24 1,068 1,094
7.000%, 05/15/24 2,199 2,252
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION, REMIC
7.750%, 06/16/20 300 309
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT MORTGAGE-BACKED OBLIGATIONS
(Cost $8,301) $ 8,621
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS -- 8.5%
BANKS -- 1.1%
BANK OF NEW YORK (B)
7.780%, 12/01/26 500 511
CRESTAR FINANCIAL
8.160%, 12/15/26 800 854
- --------------------------------------------------------------------------------
TOTAL BANKS $ 1,365
- --------------------------------------------------------------------------------
ENTERTAINMENT -- 2.8%
COMCAST CABLEVISION
8.375%, 05/01/07 500 575
CSC HOLDINGS
7.875%, 12/15/07 500 508
7.875%, 02/15/18 250 241
60
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
ROYAL CARIBBEAN CRUISES, YB
7.250%, 08/15/06 $500 $ 525
TIME WARNER
8.110%, 08/15/06 275 310
TIME WARNER, PAT (B)
4.900%, 07/29/99 700 698
VIACOM
6.750%, 01/15/03 500 516
- --------------------------------------------------------------------------------
TOTAL ENTERTAINMENT $ 3,373
- --------------------------------------------------------------------------------
FINANCIAL SERVICES -- 0.6%
DYNEX CAPITAL
7.875%, 07/15/02 500 324
SAFECO CAPITAL I
8.072%, 07/15/37 400 407
- --------------------------------------------------------------------------------
TOTAL FINANCIAL SERVICES $ 731
- --------------------------------------------------------------------------------
GENERAL UTILITIES -- 0.3%
HYDRO-QUEBEC
7.500%, 04/01/16 375 406
- --------------------------------------------------------------------------------
TOTAL GENERAL UTILITIES $ 406
- --------------------------------------------------------------------------------
INDUSTRIAL -- 2.2%
CANADIAN NATIONAL RAILWAY
6.900%, 07/15/28 500 498
CASE EQUIPMENT
7.250%, 01/15/16 200 219
HUSKY OIL, YB
7.550%, 11/15/16 960 850
LOEWEN GROUP INTERNATIONAL,
SERIES 4
8.250%, 10/15/03 500 396
ORYX ENERGY
8.125%, 10/15/05 250 269
TENET HEALTHCARE
8.000%, 01/15/05 500 511
- --------------------------------------------------------------------------------
TOTAL INDUSTRIAL $ 2,743
- --------------------------------------------------------------------------------
RETAIL -- 1.0%
DAYTON HUDSON
6.650%, 08/01/28 500 489
FRED MEYER
7.375%, 03/01/05 500 518
GREAT ATLANTIC & PACIFIC TEA
7.750%, 04/15/07 250 257
- --------------------------------------------------------------------------------
TOTAL RETAIL $ 1,264
- --------------------------------------------------------------------------------
TELEPHONES & TELECOMMUNICATIONS -- 0.4%
WORLDCOM
7.550%, 04/01/04 500 544
- --------------------------------------------------------------------------------
TOTAL TELEPHONES & TELECOMMUNICATIONS $ 544
- --------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS
(Cost $10,514) $10,426
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES -- 2.6%
CONTINENTAL HOME EQUITY TRUST,
SERIES 1998-1, CLASS A4
6.280%, 01/15/13 $ 450 $ 466
IMC HOME EQUITY LOAN TRUST,
SERIES 1997-1, CLASS A2
6.620%, 10/25/11 78 78
IMC HOME EQUITY LOAN TRUST,
SERIES 1997-2, CLASS A3
6.940%, 11/20/11 400 404
IMC HOME EQUITY LOAN TRUST,
SERIES 1997-3, CLASS A4
6.840%, 10/20/13 350 357
PREMIER AUTO TRUST,
SERIES 1996-2, CLASS A4
6.575%, 10/06/00 675 681
STANDARD CREDIT CARD MASTER
TRUST, SERIES 1995-10, CLASS A
5.900%, 02/07/01 450 451
THE MONEY STORE HOME EQUITY
TRUST, SERIES 1996-C, CLASS A4
7.400%, 06/15/21 350 373
THE MONEY STORE HOME EQUITY
TRUST, SERIES 1997-D, CLASS AF3
6.345%, 11/15/21 375 378
- --------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(Cost $3,136) $ 3,188
- --------------------------------------------------------------------------------
NON-AGENCY MORTGAGE-BACKED
OBLIGATIONS -- 0.9%
COUNTRYWIDE FUNDING,
SERIES 1994-4, CLASS A12
6.950%, 04/25/24 968 931
MDC ASSET INVESTORS TRUST,
SERIES XII, CLASS 3
8.940%, 03/01/18 17 18
PRUDENTIAL HOME MORTGAGE
SECURITIES, SERIES 1993-36,
CLASS A1
6.850%, 10/25/23 112 112
- --------------------------------------------------------------------------------
TOTAL NON-AGENCY MORTGAGE-BACKED OBLIGATIONS
(Cost $1,022) $ 1,061
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 11.5%
FIRST BOSTON
5.400%, dated 10/30/98, matures
11/02/98, repurchase price
$14,110,468 (collateralized by
U.S. Treasury Bonds:
total market value
$14,430,730) 14,104 14,104
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $14,104) $ 14,104
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.2%
(Cost $102,673) $122,778
================================================================================
OTHER ASSETS AND LIABILITIES, NET -- (0.2%) $ (249)
================================================================================
61
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] BALANCED PORTFOLIO (CONCLUDED)
MARKET
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares of Institutional Class
(unlimited authorization -- no par
value) based on 7,947,113 outstanding shares
of beneficial interest $ 79,871
Portfolio Shares of Retail Class A
(unlimited authorization -- no par value)
based on 1,398,546 outstanding shares
of beneficial interest 17,000
Portfolio Shares of Retail Class B
(unlimited authorization -- no par value)
based on 14,537 outstanding shares
of beneficial interest 182
Undistributed net investment income 285
Accumulated net realized gain on investments 5,086
Net unrealized appreciation on investments 20,105
================================================================================
TOTAL NET ASSETS-- 100.0% $122,529
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE-- INSTITUTIONAL CLASS $13.10
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $13.05
================================================================================
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($13.05 O 95.25%) (C) $13.70
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE-- RETAIL CLASS B (D) $13.09
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) ZERO COUPON SECURITY. THE RATE REPORTED ON THE STATEMENT OF NET ASSETS IS
THE EFFECTIVE YIELD AS OF OCTOBER 31, 1998.
(B) SECURITY EXEMPT FROM REGISTRATION UNDER RULE 144A OF THE SECURITIES ACT OF
1933. THESE SECURITIES MAY BE RESOLD IN TRANSACTIONS EXEMPT FROM
REGISTRATION NORMALLY TO QUALIFIED INSTITUTIONAL INVESTORS.
(C) EFFECTIVE OCTOBER 1, 1997, A 3% DISCOUNTED SALES LOAD IS CHARGED ON
INVESTMENTS INTO THE RETAIL CLASS A. THIS DISCOUNT MAY BE DISCONTINUED AT
ANY TIME. THE MAXIMUM SALES LOAD IS 4.75%.
(D) RETAIL CLASS B HAS A CONTINGENT DEFERRED SALES CHARGE. FOR A DESCRIPTION OF
POSSIBLE REDEMPTION CHARGE, SEE NOTES TO THE FINANCIALS.
CL -- CLASS
PAT -- PUTABLE ASSET TRUST
REMIC -- REAL ESTATE MORTGAGE INVESTMENT CONDUIT
YB -- YANKEE BOND
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
[ARROW] ARK FUNDS: EQUITY INCOME PORTFOLIO
[Pie Chart Omitted.]
Real Estate Investment Trusts -- 3%
Miscellaneous Business -- 4%
Transportation -- 7%
Chemicals & Drugs -- 10%
Technology -- 11%
Consumer Non-Durable -- 11%
Repurchase Agreement -- 2%
Financial -- 20%
Energy -- 18%
Consumer Cyclicals -- 14%
% of Total Portfolio Investments
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 93.1%
AEROSPACE & DEFENSE -- 6.2%
GENCORP 69,500 $ 1,538
GENERAL DYNAMICS 30,000 1,776
LOCKHEED MARTIN 17,000 1,893
NORTHROP GRUMMAN 15,000 1,196
- --------------------------------------------------------------------------------
TOTAL AEROSPACE & DEFENSE $ 6,403
- --------------------------------------------------------------------------------
AUTOMOTIVE -- 3.4%
FORD MOTOR 30,000 1,627
GENERAL MOTORS 30,000 1,892
- --------------------------------------------------------------------------------
TOTAL AUTOMOTIVE $ 3,519
- --------------------------------------------------------------------------------
BANKS -- 12.0%
BANK ONE 38,400 1,877
FIRST UNION 32,298 1,873
FLEET FINANCIAL GROUP 54,000 2,157
NORWEST 50,000 1,859
PNC 40,000 2,000
UNION PLANTERS 30,000 1,393
WASHINGTON MUTUAL 30,000 1,123
- --------------------------------------------------------------------------------
TOTAL BANKS $12,282
- --------------------------------------------------------------------------------
BEAUTY PRODUCTS -- 4.3%
COLGATE PALMOLIVE 20,000 1,767
JOHNSON & JOHNSON 32,000 2,608
- --------------------------------------------------------------------------------
TOTAL BEAUTY PRODUCTS $ 4,375
- --------------------------------------------------------------------------------
BUILDING & CONSTRUCTION -- 0.9%
ARMSTRONG WORLD INDUSTRIES 15,000 930
- --------------------------------------------------------------------------------
TOTAL BUILDING & CONSTRUCTION $ 930
- --------------------------------------------------------------------------------
CHEMICALS -- 1.1%
OLIN 42,000 1,163
- --------------------------------------------------------------------------------
TOTAL CHEMICALS $ 1,163
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 1.9%
GTE 34,000 1,995
- --------------------------------------------------------------------------------
TOTAL COMMUNICATIONS EQUIPMENT $ 1,995
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING -- 1.6%
BALL 40,000 1,687
- --------------------------------------------------------------------------------
TOTAL CONTAINERS & PACKAGING $ 1,687
- --------------------------------------------------------------------------------
62
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
DRUGS -- 8.8%
ABBOTT LABORATORIES 66,000 $ 3,098
AMERICAN HOME PRODUCTS 60,000 2,925
BRISTOL-MYERS SQUIBB 27,200 3,007
- --------------------------------------------------------------------------------
TOTAL DRUGS $ 9,030
- --------------------------------------------------------------------------------
ELECTRICAL SERVICES -- 1.8%
UNICOM 50,000 1,884
- --------------------------------------------------------------------------------
TOTAL ELECTRICAL SERVICES $ 1,884
- --------------------------------------------------------------------------------
FINANCIAL SERVICES -- 3.0%
BOSTON PROPERTIES 36,000 1,026
WADDELL & REED FINANCIAL,
CL A 100,000 2,094
- --------------------------------------------------------------------------------
TOTAL FINANCIAL SERVICES $ 3,120
- --------------------------------------------------------------------------------
FOOD, BEVERAGE & TOBACCO -- 10.0%
BESTFOODS 36,000 1,962
GENERAL MILLS 20,000 1,470
H.J. HEINZ 44,000 2,557
PHILIP MORRIS 53,000 2,710
UST 45,000 1,530
- --------------------------------------------------------------------------------
TOTAL FOOD, BEVERAGE & TOBACCO $10,229
- --------------------------------------------------------------------------------
GAS/NATURAL GAS -- 2.7%
CONSOLIDATED NATURAL GAS 26,800 1,415
SONAT 45,000 1,364
- --------------------------------------------------------------------------------
TOTAL GAS/NATURAL GAS $ 2,779
- --------------------------------------------------------------------------------
INSURANCE -- 3.4%
HARTFORD FINANCIAL SERVICES
GROUP 30,000 1,594
LINCOLN NATIONAL 25,000 1,897
- --------------------------------------------------------------------------------
TOTAL INSURANCE $ 3,491
- --------------------------------------------------------------------------------
LEASING & RENTING -- 2.2%
PITNEY BOWES 40,000 2,203
- --------------------------------------------------------------------------------
TOTAL LEASING & RENTING $ 2,203
- --------------------------------------------------------------------------------
MARINE TRANSPORTATION -- 0.9%
KNIGHTSBRIDGE TANKERS LIMITED 40,000 870
- --------------------------------------------------------------------------------
TOTAL MARINE TRANSPORTATION $ 870
- --------------------------------------------------------------------------------
PAPER & PAPER PRODUCTS -- 1.2%
FORT JAMES 30,000 1,209
- --------------------------------------------------------------------------------
TOTAL PAPER & PAPER PRODUCTS $ 1,209
- --------------------------------------------------------------------------------
PETROLEUM & FUEL PRODUCTS -- 3.2%
NEW CENTURY ENERGIES 40,293 1,947
SCHLUMBERGER 25,000 1,313
- --------------------------------------------------------------------------------
TOTAL PETROLEUM & FUEL PRODUCTS $ 3,260
- --------------------------------------------------------------------------------
PETROLEUM REFINING -- 9.4%
CHEVRON 26,000 2,119
MOBIL 24,000 1,817
PENNZOIL 50,000 1,794
ROYAL DUTCH PETROLEUM,
NEW YORK SHARES 40,000 1,970
TEXACO 33,600 1,993
- --------------------------------------------------------------------------------
TOTAL PETROLEUM REFINING $ 9,693
- --------------------------------------------------------------------------------
SHARES/PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
PROFESSIONAL SERVICES -- 1.5%
DUN & BRADSTREET 55,000 $ 1,561
- --------------------------------------------------------------------------------
TOTAL PROFESSIONAL SERVICES $ 1,561
- --------------------------------------------------------------------------------
RAILROADS -- 2.2%
NORFOLK SOUTHERN 70,200 2,312
- --------------------------------------------------------------------------------
TOTAL RAILROADS $ 2,312
- --------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS -- 2.8%
BERKSHIRE REALTY 94,100 847
CABOT INDUSTRIAL TRUST 50,000 1,000
KILROY REALTY CORP 45,000 998
- --------------------------------------------------------------------------------
TOTAL REAL ESTATE INVESTMENT TRUSTS $ 2,845
- --------------------------------------------------------------------------------
STEEL & STEEL WORKS -- 1.2%
CARPENTER TECHNOLOGY 35,000 1,227
- --------------------------------------------------------------------------------
TOTAL STEEL & STEEL WORKS $ 1,227
- --------------------------------------------------------------------------------
TECHNOLOGY -- 1.0%
ROCKWELL INTERNATIONAL 25,000 1,027
- --------------------------------------------------------------------------------
TOTAL TECHNOLOGY $ 1,027
- --------------------------------------------------------------------------------
TELEPHONES & TELECOMMUNICATIONS -- 6.4%
BELLSOUTH 27,000 2,155
TELEFONICA DE ESPANA, ADR 17,000 2,328
US WEST 35,900 2,060
- --------------------------------------------------------------------------------
TOTAL TELEPHONES & TELECOMMUNICATIONS $ 6,543
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $71,745) $95,637
- --------------------------------------------------------------------------------
PREFERRED CONVERTIBLE STOCKS -- 3.8%
BANKS -- 1.1%
WBK STRYPES TRUST 40,000 1,148
- --------------------------------------------------------------------------------
TOTAL BANKS $ 1,148
- --------------------------------------------------------------------------------
ELECTRIC UTILITY -- 1.4%
HOUSTON INDUSTRIES 17,500 1,419
- --------------------------------------------------------------------------------
TOTAL ELECTRIC UTILITY $ 1,419
- --------------------------------------------------------------------------------
PETROLEUM & FUEL PRODUCTS -- 1.3%
ENRON 80,000 1,330
- --------------------------------------------------------------------------------
TOTAL PETROLEUM & FUEL PRODUCTS $ 1,330
- --------------------------------------------------------------------------------
TOTAL PREFERRED CONVERTIBLE STOCKS
(Cost $4,054) $ 3,897
- --------------------------------------------------------------------------------
CORPORATE OBLIGATION -- 1.0%
CIT GROUP, MTN (A)
5.050%, 07/21/99 $1,000 999
- --------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATION
(Cost $999) $ 999
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 2.1%
FIRST BOSTON
5.400%, dated 10/30/98, matures
11/02/98, repurchase price
$2,206,404 (collateralized by
U.S. Treasury Bond:
total market value
$2,274,368) 2,205 2,205
63
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] EQUITY INCOME PORTFOLIO (CONCLUDED)
MARKET
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $2,205) $ 2,205
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(Cost $79,003) $102,738
================================================================================
OTHER ASSETS AND LIABILITIES, NET-- 0.0% $ (31)
================================================================================
NET ASSETS:
Portfolio Shares of Institutional Class
(unlimited authorization -- no par
value) based on 8,315,685 outstanding shares
of beneficial interest 70,001
Portfolio Shares of Retail Class A
(unlimited authorization -- no par value)
based on 289,461 outstanding shares
of beneficial interest 3,547
Distribution in excess of net investment income (2)
Accumulated net realized gain on investments 5,426
Net unrealized appreciation on investments 23,735
================================================================================
TOTAL NET ASSETS-- 100.0% $102,707
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE-- INSTITUTIONAL CLASS $11.94
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $11.93
================================================================================
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($11.93 / 95.25%) (B) $12.52
================================================================================
(A) VARIABLE RATE SECURITY. THE RATE REPORTED ON THE STATEMENT OF NET ASSETS IS
THE RATE IN EFFECT ON OCTOBER 31, 1998.
(B) EFFECTIVE OCTOBER 1, 1997, A 3% DISCOUNTED SALES LOAD IS CHARGED ON
INVESTMENTS INTO THE RETAIL CLASS A. THIS DISCOUNT MAY BE DISCONTINUED
AT ANY TIME. THE MAXIMUM SALES LOAD IS 4.75%.
ADR -- AMERICAN DEPOSITORY RECEIPT
CL -- CLASS
MTN -- MEDIUM TERM NOTE
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
[ARROW] ARK FUNDS: VALUE EQUITY PORTFOLIO
[Pie Chart Omitted.]
Repurchase Agreement -- 3%
Miscellaneous Business -- 6%
Retail -- 7%
Consumer Products -- 9%
Chemicals & Drugs -- 10%
Oil-Energy -- 10%
Technology -- 17%
Miscellaneous -- 14%
Financial -- 13%
Durable Goods -- 11%
% of Total Portfolio Investments
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 96.9%
AEROSPACE & DEFENSE -- 3.8%
LOCKHEED MARTIN 75,537 $ 8,413
NORTHROP GRUMMAN 100,000 7,975
RAYTHEON COMPANY, CL B 100,000 5,806
- --------------------------------------------------------------------------------
TOTAL AEROSPACE & DEFENSE $22,194
- --------------------------------------------------------------------------------
APPAREL/TEXTILES -- 0.9%
VF 123,600 5,168
- --------------------------------------------------------------------------------
TOTAL APPAREL/TEXTILES $ 5,168
- --------------------------------------------------------------------------------
AUTOMOTIVE -- 3.0%
CHRYSLER 149,500 7,195
DANA 87,632 3,664
TRW 108,600 6,183
- --------------------------------------------------------------------------------
TOTAL AUTOMOTIVE $17,042
- --------------------------------------------------------------------------------
BANKS -- 3.9%
BANK ONE 152,020 7,430
CHASE MANHATTAN 100,000 5,681
CRESTAR FINANCIAL 20,000 1,317
NORWEST 220,000 8,181
- --------------------------------------------------------------------------------
TOTAL BANKS $22,609
- --------------------------------------------------------------------------------
CHEMICALS -- 1.8%
MONSANTO 100,000 4,062
PPG INDUSTRIES 107,800 6,165
- --------------------------------------------------------------------------------
TOTAL CHEMICALS $10,227
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 1.2%
GTE 117,500 6,896
- --------------------------------------------------------------------------------
TOTAL COMMUNICATIONS EQUIPMENT $ 6,896
- --------------------------------------------------------------------------------
COMPUTERS & SERVICES -- 5.5%
CISCO SYSTEMS* 10,000 630
COMPAQ COMPUTER 349,100 11,040
DELL COMPUTER* 118,400 7,755
HEWLETT PACKARD 85,000 5,116
IBM 50,000 7,422
- --------------------------------------------------------------------------------
TOTAL COMPUTERS & SERVICES $31,963
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING -- 1.0%
NEWELL 135,000 5,940
- --------------------------------------------------------------------------------
TOTAL CONTAINERS & PACKAGING $ 5,940
- --------------------------------------------------------------------------------
64
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
DRUGS -- 8.0%
ABBOTT LABORATORIES 176,800 $ 8,299
AMERICAN HOME PRODUCTS 175,000 8,531
AMGEN* 178,300 14,008
BRISTOL-MYERS SQUIBB 9,000 995
ELI LILLY 22,056 1,785
MERCK 15,000 2,029
MYLAN LABORATORIES 300,000 10,331
- --------------------------------------------------------------------------------
TOTAL DRUGS $45,978
- --------------------------------------------------------------------------------
ELECTRICAL SERVICES -- 2.2%
DUKE ENERGY 75,000 4,852
GENERAL ELECTRIC 89,800 7,857
- --------------------------------------------------------------------------------
TOTAL ELECTRICAL SERVICES $12,709
- --------------------------------------------------------------------------------
ENTERTAINMENT -- 0.3%
CARNIVAL, CL A 20,000 647
WALT DISNEY 28,500 768
- --------------------------------------------------------------------------------
TOTAL ENTERTAINMENT $ 1,415
- --------------------------------------------------------------------------------
FINANCIAL SERVICES -- 6.7%
CIT GROUP, CL A 200,000 5,462
CITIGROUP 215,400 10,137
FANNIE MAE 134,800 9,546
J.P. MORGAN 40,000 3,770
MORGAN STANLEY, DEAN WITTER,
DISCOVER 25,000 1,619
WADDELL & REED
FINANCIAL, CL A 400,000 8,375
- --------------------------------------------------------------------------------
TOTAL FINANCIAL SERVICES $38,909
- --------------------------------------------------------------------------------
FOOD, BEVERAGE & TOBACCO -- 6.3%
ANHEUSER BUSCH 200,000 11,887
H.J. HEINZ 62,600 3,639
MCCORMICK 125,000 3,883
PEPSICO 200,000 6,750
SARA LEE 67,600 4,035
UNILEVER NV 83,800 6,306
- --------------------------------------------------------------------------------
TOTAL FOOD, BEVERAGE & TOBACCO $36,500
- --------------------------------------------------------------------------------
GAS/NATURAL GAS -- 2.1%
AGL RESOURCES 75,600 1,583
EL PASO ENERGY 105,212 3,728
QUESTAR 337,800 6,650
- --------------------------------------------------------------------------------
TOTAL GAS/NATURAL GAS $11,961
- --------------------------------------------------------------------------------
GLASS PRODUCTS -- 0.6%
CORNING 100,000 3,631
- --------------------------------------------------------------------------------
TOTAL GLASS PRODUCTS $ 3,631
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 1.7%
COLGATE-PALMOLIVE 93,800 8,290
PROCTER & GAMBLE 14,000 1,244
- --------------------------------------------------------------------------------
TOTAL HOUSEHOLD PRODUCTS $ 9,534
- --------------------------------------------------------------------------------
INSURANCE -- 2.1%
ALLSTATE 85,000 3,660
AMERICAN INTERNATIONAL GROUP 21,000 1,790
CIGNA 94,500 6,893
- --------------------------------------------------------------------------------
TOTAL INSURANCE $12,343
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
LUMBER & WOOD PRODUCTS -- 0.8%
WEYERHAEUSER 101,500 $ 4,751
- --------------------------------------------------------------------------------
TOTAL LUMBER & WOOD PRODUCTS $ 4,751
- --------------------------------------------------------------------------------
MACHINERY -- 3.6%
APPLIED MATERIALS* 100,000 3,469
EMERSON ELECTRIC 74,100 4,891
INGERSOLL RAND 180,600 9,120
PARKER-HANNIFIN 100,000 3,575
- --------------------------------------------------------------------------------
TOTAL MACHINERY $21,055
- --------------------------------------------------------------------------------
MEASURING DEVICES -- 2.0%
HONEYWELL 85,600 6,837
MALLINCKRODT 175,000 4,987
- --------------------------------------------------------------------------------
TOTAL MEASURING DEVICES $11,824
- --------------------------------------------------------------------------------
MEDICAL PRODUCTS & SERVICES-- 6.1%
BAXTER INTERNATIONAL 108,600 6,509
BECTON DICKINSON 296,000 12,469
JOHNSON & JOHNSON 126,000 10,269
MEDTRONIC 91,400 5,941
- --------------------------------------------------------------------------------
TOTAL MEDICAL PRODUCTS & SERVICES $35,188
- --------------------------------------------------------------------------------
MISCELLANEOUS BUSINESS SERVICES -- 2.1%
COMPUTER ASSOCIATES
INTERNATIONAL 100,000 3,937
FIRST DATA 200,000 5,300
STERLING SOFTWARE* 105,000 2,750
- --------------------------------------------------------------------------------
TOTAL MISCELLANEOUS BUSINESS SERVICES $11,987
- --------------------------------------------------------------------------------
OFFICE PRODUCTS & SUPPLIES -- 0.9%
JOHNSON CONTROLS 92,600 5,209
- --------------------------------------------------------------------------------
TOTAL OFFICE PRODUCTS & SUPPLIES $ 5,209
- --------------------------------------------------------------------------------
PAPER & PAPER PRODUCTS -- 0.8%
KIMBERLY-CLARK 100,000 4,825
- --------------------------------------------------------------------------------
TOTAL PAPER & PAPER PRODUCTS $ 4,825
- --------------------------------------------------------------------------------
PETROLEUM & FUEL PRODUCTS -- 2.3%
ATLANTIC RICHFIELD 100,000 6,888
PHILLIPS PETROLEUM 152,100 6,578
- --------------------------------------------------------------------------------
TOTAL PETROLEUM & FUEL PRODUCTS $13,466
- --------------------------------------------------------------------------------
PETROLEUM REFINING -- 5.8%
AMOCO 161,800 9,081
CHEVRON 84,400 6,879
MOBIL 104,900 7,940
SUN 140,000 4,804
UNOCAL 144,000 4,887
- --------------------------------------------------------------------------------
TOTAL PETROLEUM REFINING $33,591
- --------------------------------------------------------------------------------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES -- 1.9%
XEROX 115,000 11,141
- --------------------------------------------------------------------------------
TOTAL PHOTOGRAPHIC EQUIPMENT & SUPPLIES $11,141
- --------------------------------------------------------------------------------
PROFESSIONAL SERVICES -- 0.9%
HALLIBURTON 150,400 5,405
- --------------------------------------------------------------------------------
TOTAL PROFESSIONAL SERVICES $ 5,405
- --------------------------------------------------------------------------------
65
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] VALUE EQUITY PORTFOLIO (CONCLUDED)
SHARES/PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
RAILROADS -- 0.7%
BURLINGTON NORTHERN SANTA FE 127,500 $ 3,937
- --------------------------------------------------------------------------------
TOTAL RAILROADS $ 3,937
- --------------------------------------------------------------------------------
RETAIL -- 6.5%
ALBERTSON'S 100,000 5,556
J.C. PENNEY 107,900 5,125
LOWE'S 200,000 6,738
MAY DEPARTMENT STORES 58,600 3,575
MCDONALD'S 95,600 6,393
RITE AID 255,000 10,120
- --------------------------------------------------------------------------------
TOTAL RETAIL $ 37,507
- --------------------------------------------------------------------------------
RUBBER & PLASTIC -- 0.9%
GOODYEAR TIRE & RUBBER 100,000 5,388
- --------------------------------------------------------------------------------
TOTAL RUBBER & PLASTIC $ 5,388
- --------------------------------------------------------------------------------
SEMI-CONDUCTORS/INSTRUMENTS-- 3.5%
INTEL 160,000 14,270
ROCKWELL INTERNATIONAL 150,000 6,159
- --------------------------------------------------------------------------------
TOTAL SEMI-CONDUCTORS/INSTRUMENTS $ 20,429
- --------------------------------------------------------------------------------
TELEPHONES & TELECOMMUNICATIONS-- 5.5%
BELLSOUTH 127,000 10,136
SBC COMMUNICATIONS 234,400 10,856
SPRINT 80,700 6,194
US WEST 84,700 4,860
- --------------------------------------------------------------------------------
TOTAL TELEPHONES & TELECOMMUNICATIONS $ 32,046
- --------------------------------------------------------------------------------
WHOLESALE -- 1.5%
MOTOROLA 161,000 8,372
- --------------------------------------------------------------------------------
TOTAL WHOLESALE $ 8,372
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $380,680) $561,140
- --------------------------------------------------------------------------------
CERTIFICATE OF DEPOSIT -- 0.3%
ROYAL BANK OF CANADA, YB (A)
5.055%, 07/13/99 $2,000 1,999
- --------------------------------------------------------------------------------
TOTAL CERTIFICATE OF DEPOSIT
(Cost $1,998) $ 1,999
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 2.8%
FIRST BOSTON
5.400%, dated 10/30/98, matures
11/02/98, repurchase price
$16,123,111 (collateralized by
U.S. Treasury Bond:
total market value
$16,535,038) 16,116 16,116
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $16,116) $ 16,116
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(Cost $398,794) $579,255
================================================================================
OTHER ASSETS AND LIABILITIES, NET-- 0.0% $ 43
================================================================================
MARKET
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares of Institutional Class
(unlimited authorization -- no par
value) based on 41,263,660 outstanding shares
of beneficial interest $362,725
Portfolio Shares of Retail Class A
(unlimited authorization -- no par value)
based on 132,743 outstanding shares
of beneficial interest 1,929
Portfolio Shares of Retail Class B
(unlimited authorization -- no par value)
based on 592 outstanding shares
of beneficial interest 8
Undistributed net investment income 98
Accumulated net realized gain on investments 34,077
Net unrealized appreciation on investments 180,461
================================================================================
TOTAL NET ASSETS-- 100.0% $579,298
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE-- INSTITUTIONAL CLASS $13.99
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $13.98
================================================================================
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($13.98 O 95.25%) (B) $14.68
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE-- RETAIL CLASS B (C) $13.98
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) VARIABLE RATE SECURITY. THE RATE REPORTED ON THE STATEMENT OF NET ASSETS IS
THE RATE IN EFFECT ON OCTOBER 31, 1998.
(B) EFFECTIVE APRIL 1, 1998, A 3% DISCOUNTED SALES LOAD IS CHARGED ON
INVESTMENTS INTO THE RETAIL CLASS A. THIS DISCOUNT MAY BE DISCONTINUED AT
ANY TIME. THE MAXIMUM SALES LOAD IS 4.75%.
(C) RETAIL CLASS B HAS A CONTINGENT DEFERRED SALES CHARGE. FOR A DESCRIPTION OF
POSSIBLE REDEMPTION CHARGE, SEE NOTES TO THE FINANCIALS.
CL -- CLASS
YB -- YANKEE BOND
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
66
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] ARK FUNDS: EQUITY INDEX PORTFOLIO
[Pie Chart Omitted.]
Cash Equivalent -- 3%
Durable Goods -- 4%
Retail -- 6%
Miscellaneous -- 8%
Oil-Energy -- 8%
Chemicals & Drugs -- 11%
Healthcare -- 3%
Technology -- 22%
Consumer Products -- 19%
Financial -- 16%
% of Total Portfolio Investments
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 96.7%
AEROSPACE & DEFENSE -- 0.5%
LOCKHEED MARTIN 1,395 $155
NORTHROP GRUMMAN 420 34
RAYTHEON COMPANY, CL B 2,430 141
- --------------------------------------------------------------------------------
TOTAL AEROSPACE & DEFENSE $330
- --------------------------------------------------------------------------------
AGRICULTURE -- 0.1%
PIONEER HI BRED INTERNATIONAL 1,795 50
- --------------------------------------------------------------------------------
TOTAL AGRICULTURE $ 50
- --------------------------------------------------------------------------------
AIR TRANSPORTATION -- 0.5%
AMR* 1,370 92
DELTA AIR LINES 455 48
FDX* 1,096 58
SOUTHWEST AIRLINES 2,432 52
US AIR GROUP* 635 36
- --------------------------------------------------------------------------------
TOTAL AIR TRANSPORTATION $286
- --------------------------------------------------------------------------------
AIRCRAFT -- 1.0%
ALLIEDSIGNAL 4,035 157
BOEING 7,130 267
GENERAL DYNAMICS 960 57
UNITED TECHNOLOGIES 1,680 160
- --------------------------------------------------------------------------------
TOTAL AIRCRAFT $641
- --------------------------------------------------------------------------------
APPAREL/TEXTILES -- 0.1%
FRUIT OF THE LOOM* 220 3
LIZ CLAIBORNE 320 9
RUSSELL 110 3
SPRINGS INDUSTRIES, CL A 60 2
VF 590 25
- --------------------------------------------------------------------------------
TOTAL APPAREL/TEXTILES $ 42
- --------------------------------------------------------------------------------
AUTOMOTIVE -- 1.4%
CHRYSLER 4,530 218
DANA 1,031 43
EATON 370 25
FORD MOTOR 8,865 481
GENUINE PARTS 1,310 41
NAVISTAR INTERNATIONAL* 220 5
PACCAR 370 16
TRW 895 51
- --------------------------------------------------------------------------------
TOTAL AUTOMOTIVE $880
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
BANKS -- 7.1%
BANK OF NEW YORK 5,360 $ 169
BANK ONE 8,313 406
BANKAMERICA 12,510 719
BANKBOSTON 2,105 77
BANKERS TRUST NEW YORK 565 35
BB&T 1,710 61
CHASE MANHATTAN 5,990 340
COMERICA 932 60
FIFTH THIRD BANCORP 1,945 129
FIRST UNION 6,839 397
FLEET FINANCIAL GROUP 3,990 159
GOLDEN WEST FINANCIAL 275 25
HUNTINGTON BANCSHARES 1,556 45
KEYCORP 3,195 97
MELLON BANK 1,855 112
MERCANTILE BANCORPORATION 930 42
NATIONAL CITY 2,360 152
NORTHERN TRUST 860 63
NORWEST 5,345 199
PNC 2,215 111
PROVIDIAN FINANCIAL 705 56
REGIONS FINANCIAL 1,520 56
REPUBLIC NEW YORK 730 31
STATE STREET 970 61
SUMMIT BANCORP 1,080 41
SUNTRUST BANKS 1,550 108
SYNOVUS FINANCIAL 1,942 45
U.S. BANCORP 5,235 191
UNION PLANTERS 1,000 46
WACHOVIA 1,490 135
WASHINGTON MUTUAL 4,256 159
WELLS FARGO 665 246
- --------------------------------------------------------------------------------
TOTAL BANKS $4,573
- --------------------------------------------------------------------------------
BEAUTY PRODUCTS -- 0.1%
ALBERTO-CULVER, CL B 170 5
AVON PRODUCTS 1,560 62
INTERNATIONAL FLAVORS &
FRAGRANCES 585 22
- --------------------------------------------------------------------------------
TOTAL BEAUTY PRODUCTS $ 89
- --------------------------------------------------------------------------------
BROADCASTING, NEWSPAPERS & ADVERTISING-- 1.0%
CBS 5,150 144
CLEAR CHANNEL COMMUNICATIONS* 1,810 82
COMCAST, CL A SPECIAL 2,650 131
INTERPUBLIC GROUP 800 47
MEDIAONE GROUP* 4,270 181
OMNICOM GROUP 1,025 51
- --------------------------------------------------------------------------------
TOTAL BROADCASTING, NEWSPAPERS & ADVERTISING $ 636
- --------------------------------------------------------------------------------
BUILDING & CONSTRUCTION -- 0.0%
CENTEX 180 6
FLUOR 405 16
FOSTER WHEELER 120 2
- --------------------------------------------------------------------------------
TOTAL BUILDING & CONSTRUCTION $ 24
- --------------------------------------------------------------------------------
67
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] EQUITY INDEX PORTFOLIO (CONTINUED)
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
BUILDING & CONSTRUCTION SUPPLIES -- 0.0%
ARMSTRONG WORLD INDUSTRIES 195 $ 12
MCDERMOTT INTERNATIONAL 160 5
OWENS CORNING 160 6
- --------------------------------------------------------------------------------
TOTAL BUILDING & CONSTRUCTION SUPPLIES $ 23
- --------------------------------------------------------------------------------
CHEMICALS -- 1.6%
AIR PRODUCTS & CHEMICALS 1,700 64
AVERY DENNISON 690 29
B.F. GOODRICH 260 9
E.I. DU PONT DE NEMOURS 8,315 478
EASTMAN CHEMICAL 380 22
FMC* 110 6
GREAT LAKES CHEMICAL 290 12
HERCULES 375 13
MONSANTO 4,240 172
MORTON INTERNATIONAL 530 13
NALCO CHEMICAL 200 6
PPG INDUSTRIES 1,290 74
PRAXAIR 1,155 47
ROHM & HAAS 1,185 40
UNION CARBIDE 795 31
W.R. GRACE & COMPANY* 360 6
- --------------------------------------------------------------------------------
TOTAL CHEMICALS $1,022
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 1.4%
3COM* 2,585 93
ANDREW* 270 4
ASCEND COMMUNICATIONS* 1,400 68
GENERAL INSTRUMENT* 710 18
GTE 6,785 398
HARRIS 385 14
ITT INDUSTRIES 570 20
NORTHERN TELECOM 4,496 193
SCIENTIFIC-ATLANTA 230 3
TELLABS* 1,430 79
- --------------------------------------------------------------------------------
TOTAL COMMUNICATIONS EQUIPMENT $ 890
- --------------------------------------------------------------------------------
COMPUTER SOFTWARE -- 3.0%
MICROSOFT* 18,055 1,912
- --------------------------------------------------------------------------------
TOTAL COMPUTER SOFTWARE $1,912
- --------------------------------------------------------------------------------
COMPUTERS & SERVICES -- 6.2%
APPLE COMPUTER* 670 25
CERIDIAN* 370 21
CISCO SYSTEMS* 11,385 717
COMPAQ COMPUTER 12,221 387
DATA GENERAL* 140 2
DELL COMPUTER* 9,270 607
EMC* 3,525 227
GATEWAY 2000* 1,150 64
HEWLETT PACKARD 7,570 456
IBM 6,810 1,011
MINNESOTA MINING &
MANUFACTURING 2,885 231
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
SEAGATE TECHNOLOGY* 1,780 $ 47
SILICON GRAPHICS* 900 10
SUN MICROSYSTEMS* 2,720 158
UNISYS* 1,870 50
- --------------------------------------------------------------------------------
TOTAL COMPUTERS & SERVICES $4,013
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING -- 0.2%
BALL 90 4
CROWN CORK & SEAL 620 20
NEWELL 1,170 51
OWENS-ILLINOIS* 925 28
- --------------------------------------------------------------------------------
TOTAL CONTAINERS & PACKAGING $ 103
- --------------------------------------------------------------------------------
DRUGS -- 9.4%
ABBOTT LABORATORIES 11,340 532
ALLERGAN 390 24
ALZA* 410 20
AMERICAN HOME PRODUCTS 9,640 470
AMGEN* 1,835 144
BRISTOL-MYERS SQUIBB 7,300 807
ELI LILLY 8,035 650
MERCK 8,685 1,175
MILLIPORE 130 3
PFIZER 9,575 1,028
PHARMACIA & UPJOHN 3,750 199
SCHERING PLOUGH 5,385 554
SIGMA ALDRICH 485 15
WARNER LAMBERT 5,820 456
- --------------------------------------------------------------------------------
TOTAL DRUGS $6,077
- --------------------------------------------------------------------------------
ELECTRICAL SERVICES -- 5.7%
AES* 1,300 53
AMEREN 1,010 40
AMERICAN ELECTRIC POWER 1,415 69
BALTIMORE GAS & ELECTRIC 705 22
CAROLINA POWER & LIGHT 1,125 52
CENTRAL & SOUTH WEST 1,570 44
CINERGY 1,160 40
CONSOLIDATED EDISON 1,735 87
DOMINION RESOURCES 1,145 53
DTE ENERGY 1,045 45
DUKE ENERGY 2,575 167
EDISON INTERNATIONAL 2,245 59
ENTERGY 1,815 52
FIRSTENERGY 1,660 50
FPL GROUP 1,360 85
GENERAL ELECTRIC 23,840 2,086
GPU 975 42
HOUSTON INDUSTRIES 1,760 55
NORTHERN STATES POWER 710 19
PP&L RESOURCES 790 21
PACIFICORP 2,165 41
PG&E 2,730 83
PUBLIC SERVICE ENTERPRISE
GROUP 1,410 54
SEMPRA ENERGY 1,401 36
SOUTHERN 5,010 141
68
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
TEXAS UTILITIES 2,015 $ 88
UNICOM 1,595 60
- --------------------------------------------------------------------------------
TOTAL ELECTRICAL SERVICES $3,644
- --------------------------------------------------------------------------------
ENTERTAINMENT -- 1.5%
KING WORLD PRODUCTIONS* 220 6
MIRAGE RESORTS* 855 14
TIME WARNER 4,420 410
VIACOM, CL B* 2,545 152
WALT DISNEY 15,180 409
- --------------------------------------------------------------------------------
TOTAL ENTERTAINMENT $ 991
- --------------------------------------------------------------------------------
ENVIRONMENTAL SERVICES -- 0.4%
BROWNING-FERRIS INDUSTRIES 945 34
LAIDLAW 1,585 15
WASTE MANAGEMENT 3,976 179
- --------------------------------------------------------------------------------
TOTAL ENVIRONMENTAL SERVICES $ 228
- --------------------------------------------------------------------------------
FINANCIAL SERVICES -- 5.0%
AMERICAN EXPRESS 3,285 290
ASSOCIATES FIRST CAPITAL 2,460 173
BEAR STEARNS 685 24
CAPITAL ONE FINANCIAL 380 39
CHARLES SCHWAB 1,965 94
CITIGROUP 16,424 773
COUNTRYWIDE CREDIT INDUSTRIES 515 22
EQUIFAX 725 28
FANNIE MAE 7,615 539
FREDDIE MAC 4,785 275
FRANKLIN RESOURCES 1,500 57
HOUSEHOLD INTERNATIONAL 3,508 128
J.P. MORGAN 1,290 122
LEHMAN BROTHERS HOLDINGS 605 23
MBNA 5,430 124
MERRILL LYNCH 2,460 146
MORGAN STANLEY, DEAN WITTER,
DISCOVER 4,250 275
SLM HOLDING 985 39
TEXTRON 985 73
- --------------------------------------------------------------------------------
TOTAL FINANCIAL SERVICES $3,244
- --------------------------------------------------------------------------------
FOOD, BEVERAGE & TOBACCO -- 7.2%
ADOLPH COORS, CL B 110 6
ANHEUSER BUSCH 3,490 207
ARCHER-DANIELS-MIDLAND 4,386 73
BESTFOODS 2,085 114
BROWN-FORMAN, CL B 330 22
CAMPBELL SOUP 3,290 175
COCA-COLA 18,090 1,223
COCA-COLA ENTERPRISES 3,000 108
CONAGRA 3,430 104
FORTUNE BRANDS 825 27
GENERAL MILLS 950 70
H.J. HEINZ 2,610 152
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
HERSHEY FOODS 1,085 $ 74
KELLOGG 2,975 98
PEPSICO 10,470 353
PHILIP MORRIS 17,555 898
QUAKER OATS 1,010 60
RALSTON PURINA GROUP 2,325 78
RJR NABISCO HOLDINGS 2,000 57
SARA LEE 3,335 199
SEAGRAM 2,480 82
UNILEVER NV 4,530 341
UST 1,365 46
WM. WRIGLEY, JR. 705 57
- --------------------------------------------------------------------------------
TOTAL FOOD, BEVERAGE & TOBACCO $4,624
- --------------------------------------------------------------------------------
GAS/NATURAL GAS -- 0.5%
COLUMBIA GAS SYSTEMS 397 23
CONSOLIDATED NATURAL GAS 460 24
EASTERN ENTERPRISES 60 2
ENRON 2,385 126
NICOR 140 6
ONEOK 80 3
PEOPLES ENERGY 100 4
SONAT 530 16
WILLIAMS 3,075 84
- --------------------------------------------------------------------------------
TOTAL GAS/NATURAL GAS $ 288
- --------------------------------------------------------------------------------
GENERAL UTILITIES -- 0.1%
NIAGARA MOHAWK POWER* 1,130 17
ORYX ENERGY* 310 4
PECO ENERGY 1,640 63
- --------------------------------------------------------------------------------
TOTAL GENERAL UTILITIES $ 84
- --------------------------------------------------------------------------------
GLASS PRODUCTS -- 0.1%
CORNING 1,365 50
- --------------------------------------------------------------------------------
TOTAL GLASS PRODUCTS $ 50
- --------------------------------------------------------------------------------
HOME APPLIANCES -- 0.0%
NATIONAL SERVICE INDUSTRIES 130 5
SHERWIN-WILLIAMS 835 21
- --------------------------------------------------------------------------------
TOTAL HOME APPLIANCES $ 26
- --------------------------------------------------------------------------------
HOME BUILDERS -- 0.0%
PULTE 120 3
- --------------------------------------------------------------------------------
TOTAL HOME BUILDERS $ 3
- --------------------------------------------------------------------------------
HOTELS & LODGING -- 0.1%
HARRAH'S ENTERTAINMENT* 300 4
HILTON HOTELS 1,195 24
MARRIOTT INTERNATIONAL, CL A* 1,855 50
- --------------------------------------------------------------------------------
TOTAL HOTELS & LODGING $ 78
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 2.6%
CLOROX 620 68
COLGATE-PALMOLIVE 2,090 185
GILLETTE 7,910 355
ILLINOIS TOOL WORKS 1,780 114
MAYTAG 460 23
PROCTER & GAMBLE 9,680 860
69
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] EQUITY INDEX PORTFOLIO (CONTINUED)
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
RAYCHEM 415 $ 13
SNAP-ON TOOLS 180 6
STANLEY WORKS 425 13
WHIRLPOOL 360 18
- --------------------------------------------------------------------------------
TOTAL HOUSEHOLD PRODUCTS $1,655
- --------------------------------------------------------------------------------
INSURANCE -- 4.0%
AETNA 1,060 79
ALLSTATE 5,910 255
AMERICAN GENERAL 1,815 124
AMERICAN INTERNATIONAL GROUP 7,710 657
AON 1,220 76
CHUBB 1,205 74
CIGNA 1,600 117
CINCINNATI FINANCIAL 1,095 41
CONSECO 2,260 78
GENERAL RE 575 126
HARTFORD FINANCIAL SERVICES
GROUP 1,720 91
HUMANA* 790 15
JEFFERSON-PILOT 817 50
LINCOLN NATIONAL 640 49
LOEWS 850 80
MARSH & MCLENNAN 1,857 103
MBIA 580 35
MGIC INVESTMENT 545 21
PROGRESSIVE 445 66
PROVIDENT 1,000 29
SAFECO 1,025 44
ST. PAUL 1,354 45
SUNAMERICA 1,405 99
TORCHMARK 1,025 45
TRANSAMERICA 405 42
UNITED HEALTHCARE 1,425 62
UNUM 1,015 45
- --------------------------------------------------------------------------------
TOTAL INSURANCE $2,548
- --------------------------------------------------------------------------------
LEASING & RENTING -- 0.2%
PITNEY BOWES 1,970 108
- --------------------------------------------------------------------------------
TOTAL LEASING & RENTING $ 108
- --------------------------------------------------------------------------------
LEISURE PRODUCTS -- 0.1%
HASBRO 605 21
JOSTENS 120 3
MATTEL 1,790 64
- --------------------------------------------------------------------------------
TOTAL LEISURE PRODUCTS $ 88
- --------------------------------------------------------------------------------
LUMBER & WOOD PRODUCTS -- 0.1%
GEORGIA-PACIFIC 445 23
LOUISIANA-PACIFIC 320 6
WEYERHAEUSER 1,180 55
- --------------------------------------------------------------------------------
TOTAL LUMBER & WOOD PRODUCTS $ 84
- --------------------------------------------------------------------------------
MACHINERY -- 1.6%
AEROQUIP-VICKERS 80 3
APPLIED MATERIALS* 2,610 91
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
BAKER HUGHES 2,320 $ 51
BLACK & DECKER 455 24
BRIGGS & STRATTON 80 4
BRUNSWICK 480 9
CASE 365 8
CATERPILLAR 2,660 120
CRANE 210 6
CUMMINS ENGINE 110 4
DEERE 1,480 52
DOVER 1,610 51
EMERSON ELECTRIC 3,110 205
HARNISCHFEGER INDUSTRIES 150 1
INGERSOLL RAND 1,200 61
MILACRON 120 2
NACCO INDUSTRIES, CL A 50 5
PALL 380 10
PARKER-HANNIFIN 540 19
TENNECO 1,265 38
TIMKEN 190 3
TYCO INTERNATIONAL LIMITED 4,477 277
- --------------------------------------------------------------------------------
TOTAL MACHINERY $1,044
- --------------------------------------------------------------------------------
MEASURING DEVICES -- 0.2%
HONEYWELL 760 61
KLA-TENCOR* 410 15
MALLINCKRODT 220 6
PERKIN ELMER 235 20
TEKTRONIX 150 3
THERMO ELECTRON* 730 15
- --------------------------------------------------------------------------------
TOTAL MEASURING DEVICES $ 120
- --------------------------------------------------------------------------------
MEDICAL PRODUCTS & SERVICES -- 2.5%
BAUSCH & LOMB 160 7
BAXTER INTERNATIONAL 2,045 123
BECTON DICKINSON 1,805 76
BIOMET 535 18
BOSTON SCIENTIFIC* 1,405 76
C.R. BARD 170 7
COLUMBIA/HCA HEALTHCARE 4,610 97
GUIDANT 1,110 85
HCR MANOR CARE* 790 26
HEALTHSOUTH REHABILITATION* 3,110 38
JOHNSON & JOHNSON 9,720 792
MEDTRONIC 3,320 216
ST. JUDE MEDICAL 440 12
TENET HEALTHCARE* 2,265 63
- --------------------------------------------------------------------------------
TOTAL MEDICAL PRODUCTS & SERVICES $1,636
- --------------------------------------------------------------------------------
METALS & MINING -- 0.1%
CYPRUS AMAX MINERALS 280 3
FREEPORT-MCMORAN COPPER
& GOLD, CL B 930 11
PHELPS DODGE 285 16
REYNOLDS METALS 355 21
- --------------------------------------------------------------------------------
TOTAL METALS & MINING $ 51
- --------------------------------------------------------------------------------
70
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
MISCELLANEOUS BUSINESS SERVICES -- 1.9%
ADOBE SYSTEMS 350 $ 13
AUTODESK 140 4
AUTOMATIC DATA PROCESSING 2,160 168
BMC SOFTWARE* 1,600 77
CABLETRON SYSTEMS* 470 5
CENDANT* 6,116 70
COMPUTER ASSOCIATES
INTERNATIONAL 3,917 154
COMPUTER SCIENCES* 1,170 62
DELUXE 240 8
ECOLAB 620 19
ELECTRONIC DATA SYSTEMS 3,525 143
FIRST DATA 3,295 87
HBO 3,140 82
NOVELL* 2,605 39
ORACLE SYSTEMS* 6,965 206
PARAMETRIC TECHNOLOGY* 1,520 25
PEOPLESOFT* 2,000 42
SHARED MEDICAL SYSTEMS 70 4
- --------------------------------------------------------------------------------
TOTAL MISCELLANEOUS BUSINESS SERVICES $1,208
- --------------------------------------------------------------------------------
MISCELLANEOUS CONSUMER SERVICES-- 0.1%
H&R BLOCK 500 22
SERVICE INTERNATIONAL 1,880 67
- --------------------------------------------------------------------------------
TOTAL MISCELLANEOUS CONSUMER SERVICES $ 89
- --------------------------------------------------------------------------------
MISCELLANEOUS TRANSPORTATION-- 0.0%
FLEETWOOD ENTERPRISES 110 4
- --------------------------------------------------------------------------------
TOTAL MISCELLANEOUS TRANSPORTATION $ 4
- --------------------------------------------------------------------------------
OFFICE PRODUCTS & SUPPLIES -- 0.1%
IKON OFFICE SOLUTIONS 640 6
JOHNSON CONTROLS 400 23
- --------------------------------------------------------------------------------
TOTAL OFFICE PRODUCTS & SUPPLIES $ 29
- --------------------------------------------------------------------------------
PAPER & PAPER PRODUCTS -- 0.7%
BEMIS 160 6
BOISE CASCADE 160 4
CHAMPION INTERNATIONAL 465 15
FORT JAMES 1,230 50
INTERNATIONAL PAPER 2,245 104
KIMBERLY-CLARK 3,980 192
MEAD 505 16
POTLATCH 90 3
STONE CONTAINER 290 3
TEMPLE-INLAND 275 13
UNION CAMP 335 14
WESTVACO 490 12
WILLAMETTE INDUSTRIES 535 17
- --------------------------------------------------------------------------------
TOTAL PAPER & PAPER PRODUCTS $ 449
- --------------------------------------------------------------------------------
PETROLEUM & FUEL PRODUCTS -- 1.1%
ANADARKO PETROLEUM 580 20
APACHE 460 13
ATLANTIC RICHFIELD 2,295 158
BURLINGTON RESOURCES 1,292 53
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
HELMERICH & PAYNE 140 $ 3
KERR-MCGEE 230 9
OCCIDENTAL PETROLEUM 2,655 53
PHILLIPS PETROLEUM 1,910 83
ROWAN* 260 4
SCHLUMBERGER 3,940 207
UNION PACIFIC RESOURCES GROUP 1,225 16
USX-MARATHON GROUP 2,130 70
- --------------------------------------------------------------------------------
TOTAL PETROLEUM & FUEL PRODUCTS $ 689
- --------------------------------------------------------------------------------
PETROLEUM REFINING -- 5.7%
AMERADA HESS 445 25
AMOCO 7,030 395
ASHLAND 360 17
CHEVRON 4,790 390
COASTAL 1,560 55
EXXON 17,880 1,274
MOBIL 5,765 436
PENNZOIL 230 8
ROYAL DUTCH PETROLEUM,
NEW YORK SHARES 15,665 772
SUN 345 12
TEXACO 3,820 227
UNOCAL 1,455 49
- --------------------------------------------------------------------------------
TOTAL PETROLEUM REFINING $3,660
- --------------------------------------------------------------------------------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES-- 0.6%
EASTMAN KODAK 2,310 179
POLAROID 140 4
XEROX 2,340 227
- --------------------------------------------------------------------------------
TOTAL PHOTOGRAPHIC EQUIPMENT & SUPPLIES $ 410
- --------------------------------------------------------------------------------
PRECIOUS METALS -- 0.2%
BARRICK GOLD 2,780 59
BATTLE MOUNTAIN GOLD 680 4
HOMESTAKE MINING 1,540 18
NEWMONT MINING 840 18
PLACER DOME GROUP 1,155 18
- --------------------------------------------------------------------------------
TOTAL PRECIOUS METALS $ 117
- --------------------------------------------------------------------------------
PRINTING & PUBLISHING -- 0.6%
AMERICAN GREETINGS, CL A 355 14
DOW JONES 465 21
GANNETT 2,040 126
KNIGHT-RIDDER 405 21
MCGRAW-HILL 625 56
MEREDITH 160 6
MOORE 260 3
NEW YORK TIMES, CL A 1,420 40
R.R. DONNELLEY & SONS 705 30
TIMES MIRROR, CL A 525 29
TRIBUNE 940 54
- --------------------------------------------------------------------------------
TOTAL PRINTING & PUBLISHING $ 400
- --------------------------------------------------------------------------------
PROFESSIONAL SERVICES -- 0.4%
DUN & BRADSTREET* 815 23
EG & G 140 4
71
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] EQUITY INDEX PORTFOLIO (CONCLUDED)
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
HALLIBURTON 3,190 $ 115
IMS HEALTH* 1,225 81
PAYCHEX 1,100 55
- --------------------------------------------------------------------------------
TOTAL PROFESSIONAL SERVICES $ 278
- --------------------------------------------------------------------------------
RAILROADS -- 0.5%
BURLINGTON NORTHERN SANTA FE 3,470 107
CSX 1,295 51
NORFOLK SOUTHERN 2,775 91
UNION PACIFIC 1,820 87
- --------------------------------------------------------------------------------
TOTAL RAILROADS $ 336
- --------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST-- 0.0%
KAUFMAN & BROAD HOME 120 3
- --------------------------------------------------------------------------------
TOTAL REAL ESTATE INVESTMENT TRUST $ 3
- --------------------------------------------------------------------------------
REPAIR SERVICES -- 0.0%
RYDER SYSTEM 370 9
- --------------------------------------------------------------------------------
TOTAL REPAIR SERVICES $ 9
- --------------------------------------------------------------------------------
RETAIL -- 6.2%
ALBERTSON'S 1,810 101
AMERICAN STORES 1,655 54
AUTOZONE* 720 19
CIRCUIT CITY STORES 475 17
CONSOLIDATED STORES* 540 9
COSTCO* 1,565 89
CVS 2,760 126
DARDEN RESTAURANTS 450 7
DAYTON HUDSON 3,135 133
DILLARD'S, CL A 530 16
DOLLAR GENERAL 1,068 26
FEDERATED DEPARTMENT STORES* 1,550 60
FRED MEYER* 1,000 53
GAP 2,787 168
GREAT ATLANTIC & PACIFIC TEA 110 3
HARCOURT GENERAL 340 17
HOME DEPOT 10,770 469
J.C. PENNEY 1,830 87
KMART* 2,880 41
KOHL'S* 1,175 56
KROGER* 1,870 104
LIMITED 1,300 33
LONGS DRUG STORES 120 5
LOWE'S 2,520 85
MAY DEPARTMENT STORES 1,665 102
MCDONALD'S 4,855 325
NORDSTROM 750 20
PEP BOYS - MANNY MOE & JACK 190 3
RITE AID 1,890 75
SEARS ROEBUCK 2,805 126
STAPLES* 2,000 65
TANDY 650 32
TJX 2,320 44
TOYS "R" US* 1,365 27
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
TRICON GLOBAL RESTAURANTS* 1,132 $ 49
VENATOR GROUP* 650 5
WAL-MART STORES 16,180 1,116
WALGREEN 3,575 174
WENDY'S INTERNATIONAL 635 13
WINN DIXIE STORES 1,120 38
- --------------------------------------------------------------------------------
TOTAL RETAIL $3,992
- --------------------------------------------------------------------------------
RUBBER & PLASTIC -- 0.6%
COOPER TIRE & RUBBER 230 4
DOW CHEMICAL 1,625 152
GOODYEAR TIRE & RUBBER 1,145 62
NIKE 2,115 92
REEBOK INTERNATIONAL 170 3
RUBBERMAID 715 24
SEALED AIR* 632 22
TUPPERWARE 180 3
- --------------------------------------------------------------------------------
TOTAL RUBBER & PLASTIC $ 362
- --------------------------------------------------------------------------------
SEMI-CONDUCTORS/INSTRUMENTS-- 2.3%
ADVANCED MICRO DEVICES* 750 17
AMP 1,300 53
INTEL 12,275 1,095
LSI LOGIC* 680 10
MICRON TECHNOLOGY 1,570 60
NATIONAL SEMICONDUCTOR* 585 7
ROCKWELL INTERNATIONAL 1,190 49
TEXAS INSTRUMENTS 2,795 179
THOMAS & BETTS 265 12
- --------------------------------------------------------------------------------
TOTAL SEMI-CONDUCTORS/INSTRUMENTS $1,482
- --------------------------------------------------------------------------------
SPECIALTY CONSTRUCTION -- 0.1%
MASCO 1,980 56
- --------------------------------------------------------------------------------
TOTAL SPECIALTY CONSTRUCTION $ 56
- --------------------------------------------------------------------------------
SPECIALTY MACHINERY -- 0.0%
COOPER INDUSTRIES 585 26
- --------------------------------------------------------------------------------
TOTAL SPECIALTY MACHINERY $ 26
- --------------------------------------------------------------------------------
STEEL & STEEL WORKS -- 0.3%
ALCAN ALUMINUM 1,095 28
ALLEGHENY TELEDYNE 830 17
ALUMINUM COMPANY OF AMERICA 1,375 109
ARMCO* 320 2
ASARCO 120 3
BETHLEHEM STEEL* 330 3
ENGELHARD 430 9
INCO 805 9
NUCOR 420 19
USX-U.S. STEEL GROUP 415 10
WORTHINGTON INDUSTRIES 290 4
- --------------------------------------------------------------------------------
TOTAL STEEL & STEEL WORKS $ 213
- --------------------------------------------------------------------------------
TELEPHONES & TELECOMMUNICATIONS-- 8.6%
AIRTOUCH COMMUNICATIONS* 4,020 225
ALLTEL 1,985 93
AMERITECH 8,065 435
72
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
SHARES/PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
AT&T 13,080 $ 814
BELL ATLANTIC 11,390 605
BELLSOUTH 7,285 581
FRONTIER 785 24
LUCENT TECHNOLOGIES 9,630 772
MCI WORLDCOM* 12,982 717
NEXTEL COMMUNICATIONS, CL A* 1,620 29
SBC COMMUNICATIONS 14,250 660
SPRINT 3,035 233
TELE-COMMUNICATIONS, CL A* 3,620 153
US WEST 3,532 203
- --------------------------------------------------------------------------------
TOTAL TELEPHONES & TELECOMMUNICATIONS $ 5,544
- --------------------------------------------------------------------------------
WHOLESALE -- 1.1%
CARDINAL HEALTH 850 80
GENERAL MOTORS 4,720 298
MOTOROLA 4,215 219
SUPERVALU 580 14
SYSCO 2,440 66
W.W. GRAINGER 480 22
- --------------------------------------------------------------------------------
TOTAL WHOLESALE $ 699
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $57,030) $62,240
- --------------------------------------------------------------------------------
CASH EQUIVALENT -- 2.7%
S&P 500 DEPOSITORY RECEIPT 15 1,702
- --------------------------------------------------------------------------------
TOTAL CASH EQUIVALENT
(Cost $1,534) $ 1,702
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 0.4%
FIRST BOSTON
5.400%, dated 10/30/98, matures
11/02/98, repurchase price
$281,900 (collateralized by
U.S. Treasury Bond:
total market value
$287,587) $282 $ 282
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $282) $ 282
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.8%
(Cost $58,846) $64,224
================================================================================
OTHER ASSETS AND LIABILITIES, NET-- 0.2% $ 139
================================================================================
MARKET
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares of Institutional Class
(unlimited authorization -- no par
value) based on 5,394,606 outstanding shares
of beneficial interest $56,357
Portfolio Shares of Retail Class A
(unlimited authorization -- no par value)
based on 188,200 outstanding shares
of beneficial interest 2,066
Undistributed net investment income 42
Accumulated net realized gain on investments 520
Net unrealized appreciation on investments 5,378
================================================================================
TOTAL NET ASSETS-- 100.0% $64,363
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE-- INSTITUTIONAL CLASS $11.53
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $11.51
================================================================================
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($11.51 / 95.25%) (A) $12.08
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) EFFECTIVE OCTOBER 1, 1997, A 3% DISCOUNTED SALES LOAD IS CHARGED ON
INVESTMENTS INTO THE RETAIL CLASS A. THIS DISCOUNT MAY BE DISCONTINUED AT
ANY TIME. THE MAXIMUM SALES LOAD IS 4.75%.
CL -- CLASS
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
73
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] ARK FUNDS: BLUE CHIP EQUITY PORTFOLIO
[Pie Chart Omitted.]
Retail -- 4%
Repurchase Agreement -- 4%
Miscellaneous -- 5%
Consumer Non-Durables -- 9%
Oil-Energy -- 10%
Chemicals & Drugs -- 12%
Transportation -- 5%
Consumer Products -- 20%
Financial -- 16%
Technology -- 15%
% of Total Portfolio Investments
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 95.1%
AEROSPACE & DEFENSE -- 2.9%
LOCKHEED MARTIN 35,000 $ 3,898
- --------------------------------------------------------------------------------
TOTAL AEROSPACE & DEFENSE $ 3,898
- --------------------------------------------------------------------------------
AUTOMOTIVE -- 2.9%
FORD MOTOR 70,000 3,797
- --------------------------------------------------------------------------------
TOTAL AUTOMOTIVE $ 3,797
- --------------------------------------------------------------------------------
BANKS -- 5.2%
CHASE MANHATTAN 65,000 3,693
NORWEST 87,000 3,235
- --------------------------------------------------------------------------------
TOTAL BANKS $ 6,928
- --------------------------------------------------------------------------------
CHEMICALS -- 2.2%
E.I. DU PONT DE NEMOURS 50,000 2,875
- --------------------------------------------------------------------------------
TOTAL CHEMICALS $ 2,875
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 1.9%
PHILIPS ELECTRONICS, ADR 45,000 2,469
- --------------------------------------------------------------------------------
TOTAL COMMUNICATIONS EQUIPMENT $ 2,469
- --------------------------------------------------------------------------------
COMPUTER SOFTWARE -- 1.4%
MICROSOFT* 17,000 1,800
- --------------------------------------------------------------------------------
TOTAL COMPUTER SOFTWARE $ 1,800
- --------------------------------------------------------------------------------
COMPUTERS & SERVICES -- 2.2%
COMPAQ COMPUTER 92,000 2,909
- --------------------------------------------------------------------------------
TOTAL COMPUTERS & SERVICES $ 2,909
- --------------------------------------------------------------------------------
DRUGS -- 10.2%
ABBOTT LABORATORIES 80,000 3,755
AMGEN* 50,000 3,928
MERCK 27,000 3,652
PFIZER 20,000 2,146
- --------------------------------------------------------------------------------
TOTAL DRUGS $13,481
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 3.0%
GENERAL ELECTRIC 45,000 3,937
- --------------------------------------------------------------------------------
TOTAL ELECTRICAL EQUIPMENT $ 3,937
- --------------------------------------------------------------------------------
ENERGY -- 2.0%
HALLIBURTON 75,000 2,695
- --------------------------------------------------------------------------------
TOTAL ENERGY $ 2,695
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
ENTERTAINMENT -- 2.0%
WALT DISNEY 100,000 $ 2,694
- --------------------------------------------------------------------------------
TOTAL ENTERTAINMENT $ 2,694
- --------------------------------------------------------------------------------
FINANCIAL SERVICES -- 7.9%
ASSOCIATES FIRST CAPITAL 55,000 3,877
CIT GROUP, CL A 120,000 3,277
MORGAN STANLEY, DEAN WITTER,
DISCOVER 50,000 3,238
- --------------------------------------------------------------------------------
TOTAL FINANCIAL SERVICES $10,392
- --------------------------------------------------------------------------------
FOOD, BEVERAGE & TOBACCO -- 12.4%
BESTFOODS 55,000 2,998
COCA-COLA 32,000 2,164
PEPSICO 95,000 3,206
PHILIP MORRIS 85,000 4,346
RALSTON PURINA GROUP 110,000 3,671
- --------------------------------------------------------------------------------
TOTAL FOOD, BEVERAGE & TOBACCO $16,385
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 2.7%
PROCTER & GAMBLE 40,000 3,555
- --------------------------------------------------------------------------------
TOTAL HOUSEHOLD PRODUCTS $ 3,555
- --------------------------------------------------------------------------------
INSURANCE -- 2.6%
AMERICAN INTERNATIONAL GROUP 40,000 3,410
- --------------------------------------------------------------------------------
TOTAL INSURANCE $ 3,410
- --------------------------------------------------------------------------------
MACHINERY -- 2.9%
INGERSOLL RAND 77,000 3,889
- --------------------------------------------------------------------------------
TOTAL MACHINERY $ 3,889
- --------------------------------------------------------------------------------
MEDICAL PRODUCTS & SERVICES-- 2.8%
JOHNSON & JOHNSON 46,000 3,749
- --------------------------------------------------------------------------------
TOTAL MEDICAL PRODUCTS & SERVICES $ 3,749
- --------------------------------------------------------------------------------
PETROLEUM REFINING -- 7.5%
CHEVRON 40,000 3,260
EXXON 45,000 3,206
ROYAL DUTCH PETROLEUM,
NEW YORK SHARES 70,000 3,448
- --------------------------------------------------------------------------------
TOTAL PETROLEUM REFINING $ 9,914
- --------------------------------------------------------------------------------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES -- 1.8%
XEROX 25,000 2,422
- --------------------------------------------------------------------------------
TOTAL PHOTOGRAPHIC EQUIPMENT & SUPPLIES $ 2,422
- --------------------------------------------------------------------------------
RAILROADS -- 2.1%
NORFOLK SOUTHERN 85,000 2,800
- --------------------------------------------------------------------------------
TOTAL RAILROADS $ 2,800
- --------------------------------------------------------------------------------
RETAIL -- 4.1%
DAYTON HUDSON 50,000 2,119
HOME DEPOT 75,000 3,263
- --------------------------------------------------------------------------------
TOTAL RETAIL $ 5,382
- --------------------------------------------------------------------------------
SEMI-CONDUCTORS/INSTRUMENTS-- 2.3%
INTEL 35,000 3,122
- --------------------------------------------------------------------------------
TOTAL SEMI-CONDUCTORS/INSTRUMENTS $ 3,122
- --------------------------------------------------------------------------------
74
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
SHARES/PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
STEEL & STEEL WORKS -- 2.7%
ALUMINUM COMPANY
OF AMERICA 45,000 $ 3,566
- --------------------------------------------------------------------------------
TOTAL STEEL & STEEL WORKS $ 3,566
- --------------------------------------------------------------------------------
TECHNOLOGY -- 2.3%
CISCO SYSTEMS* 48,000 3,024
- --------------------------------------------------------------------------------
TOTAL TECHNOLOGY $ 3,024
- --------------------------------------------------------------------------------
TELEPHONES & TELECOMMUNICATIONS-- 5.1%
MCI WORLDCOM* 48,000 2,652
SBC COMMUNICATIONS 88,000 4,076
- --------------------------------------------------------------------------------
TOTAL TELEPHONES & TELECOMMUNICATIONS $ 6,728
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $99,736) $125,821
- --------------------------------------------------------------------------------
CORPORATE OBLIGATION -- 0.8%
CIT GROUP, MTN (A)
5.050%, 07/21/99 $1,000 999
- --------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATION
(Cost $1,000) $ 999
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 3.9%
FIRST BOSTON
5.400%, dated 10/30/98, matures
11/02/98, repurchase price
$5,200,009 (collateralized by
U.S. Treasury Bonds:
total market value
$5,395,839) 5,198 5,198
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $5,198) $ 5,198
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.8%
(Cost $105,934) $132,018
================================================================================
OTHER ASSETS AND LIABILITIES, NET-- 0.2% $ 231
================================================================================
MARKET
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares of Institutional Class
(unlimited authorization -- no par
value) based on 5,166,959 outstanding shares
of beneficial interest $ 67,602
Portfolio Shares of Retail Class A
(unlimited authorization -- no par value)
based on 2,657,855 outstanding shares
of beneficial interest 35,664
Portfolio Shares of Retail Class B
(unlimited authorization -- no par value)
based on 27,028 outstanding shares
of beneficial interest 426
Undistributed net investment income 56
Accumulated net realized gain on investments 2,417
Net unrealized appreciation on investments 26,084
================================================================================
TOTAL NET ASSETS-- 100.0% $132,249
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE-- INSTITUTIONAL CLASS $16.85
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $16.83
================================================================================
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($16.83 / 95.25%) (B) $17.67
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE-- RETAIL CLASS B (C) $16.82
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) VARIABLE RATE SECURITY. THE RATE REPORTED ON THE STATEMENT OF NET ASSETS IS
THE RATE IN EFFECT ON OCTOBER 31, 1998.
(B) EFFECTIVE OCTOBER 1, 1997, A 3% DISCOUNTED SALES LOAD IS CHARGED ON
INVESTMENTS INTO THE RETAIL CLASS A. THIS DISCOUNT MAY BE DISCONTINUED AT
ANY TIME. THE MAXIMUM SALES LOAD IS 4.75%.
(C) RETAIL CLASS B HAS A CONTINGENT DEFERRED SALES CHARGE. FOR A DESCRIPTION OF
POSSIBLE REDEMPTION CHARGE, SEE NOTES TO THE FINANCIALS.
ADR -- AMERICAN DEPOSITORY RECEIPT
CL -- CLASS
MTN -- MEDIUM TERM NOTE
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
75
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] ARK FUNDS: CAPITAL GROWTH PORTFOLIO
[Pie Chart Omitted.]
Consumer Non-Durables -- 3%
Repurchase Agreement -- 4%
Miscellaneous -- 5%
Retail -- 11%
Consumer Products -- 11%
Chemicals & Drugs -- 16%
Transportation -- 1%
Technology -- 31%
Financial -- 18%
% of Total Portfolio Investments
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 97.1%
AEROSPACE & DEFENSE -- 1.9%
LOCKHEED MARTIN 13,000 $1,448
- --------------------------------------------------------------------------------
TOTAL AEROSPACE & DEFENSE $1,448
- --------------------------------------------------------------------------------
BANKS -- 7.7%
BANK ONE 20,000 977
CHASE MANHATTAN 31,000 1,761
NORWEST 50,000 1,859
STATE STREET 20,000 1,247
- --------------------------------------------------------------------------------
TOTAL BANKS $5,844
- --------------------------------------------------------------------------------
BROADCASTING, NEWSPAPERS & ADVERTISING-- 3.2%
CHANCELLOR MEDIA, CL A* 30,000 1,151
YOUNG & RUBICAM* 50,000 1,306
- --------------------------------------------------------------------------------
TOTAL BROADCASTING, NEWSPAPERS & ADVERTISING $2,457
- --------------------------------------------------------------------------------
CHEMICALS -- 1.1%
MONSANTO 20,000 812
- --------------------------------------------------------------------------------
TOTAL CHEMICALS $ 812
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 5.9%
3COM* 40,000 1,443
ASCEND COMMUNICATIONS* 40,000 1,930
NOKIA "A", ADR 12,000 1,117
- --------------------------------------------------------------------------------
TOTAL COMMUNICATIONS EQUIPMENT $4,490
- --------------------------------------------------------------------------------
COMPUTER SOFTWARE -- 2.8%
MICROSOFT* 8,000 847
NETWORKS ASSOCIATES* 30,000 1,275
- --------------------------------------------------------------------------------
TOTAL COMPUTER SOFTWARE $2,122
- --------------------------------------------------------------------------------
COMPUTERS & SERVICES -- 12.5%
CISCO SYSTEMS* 40,000 2,520
COMPAQ COMPUTER 70,000 2,214
COMVERSE TECHNOLOGY* 30,000 1,380
ELECTRONICS FOR IMAGING* 60,000 1,444
EMC* 30,000 1,931
- --------------------------------------------------------------------------------
TOTAL COMPUTERS & SERVICES $9,489
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
DRUGS -- 14.9%
AMGEN* 40,000 $ 3,142
BRISTOL-MYERS SQUIBB 20,000 2,211
MERCK 10,000 1,353
SCHERING PLOUGH 10,000 1,029
WARNER LAMBERT 28,000 2,195
WATSON PHARMACEUTICALS* 25,000 1,391
- --------------------------------------------------------------------------------
TOTAL DRUGS $11,321
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 1.8%
GENERAL ELECTRIC 16,000 1,400
- --------------------------------------------------------------------------------
TOTAL ELECTRICAL EQUIPMENT $ 1,400
- --------------------------------------------------------------------------------
ENTERTAINMENT -- 1.9%
CARNIVAL, CL A 25,000 809
MIRAGE RESORTS* 40,000 678
- --------------------------------------------------------------------------------
TOTAL ENTERTAINMENT $ 1,487
- --------------------------------------------------------------------------------
FINANCIAL SERVICES -- 9.2%
ASSOCIATES FIRST CAPITAL 10,000 705
CITIGROUP 21,000 988
CIT GROUP, CL A 20,000 546
FREDDIE MAC 33,000 1,898
MERRILL LYNCH 15,000 889
MORGAN STANLEY, DEAN WITTER,
DISCOVER 15,000 971
PAINE WEBBER GROUP 30,000 1,003
- --------------------------------------------------------------------------------
TOTAL FINANCIAL SERVICES $ 7,000
- --------------------------------------------------------------------------------
FOOD, BEVERAGE & TOBACCO -- 3.8%
PEPSICO 50,000 1,688
PHILIP MORRIS 24,000 1,227
- --------------------------------------------------------------------------------
TOTAL FOOD, BEVERAGE & TOBACCO $ 2,915
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 3.7%
CLOROX 10,000 1,093
COLGATE-PALMOLIVE 7,000 619
DIAL 40,000 1,102
- --------------------------------------------------------------------------------
TOTAL HOUSEHOLD PRODUCTS $ 2,814
- --------------------------------------------------------------------------------
INSURANCE -- 1.1%
AMERICAN INTERNATIONAL GROUP 10,000 853
- --------------------------------------------------------------------------------
TOTAL INSURANCE $ 853
- --------------------------------------------------------------------------------
MACHINERY -- 1.1%
APPLIED MATERIALS* 25,000 867
- --------------------------------------------------------------------------------
TOTAL MACHINERY $ 867
- --------------------------------------------------------------------------------
MEDICAL PRODUCTS & SERVICES-- 4.0%
BECTON DICKINSON 10,000 421
JOHNSON & JOHNSON 14,000 1,141
SOFAMOR DANEK GROUP* 15,000 1,524
- --------------------------------------------------------------------------------
TOTAL MEDICAL PRODUCTS & SERVICES $ 3,086
- --------------------------------------------------------------------------------
76
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
SHARES/PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
MISCELLANEOUS BUSINESS SERVICES-- 0.7%
USWEB* 35,000 $ 503
- --------------------------------------------------------------------------------
TOTAL MISCELLANEOUS BUSINESS SERVICES $ 503
- --------------------------------------------------------------------------------
PETROLEUM & FUEL PRODUCTS -- 0.8%
BURLINGTON RESOURCES 15,000 618
- --------------------------------------------------------------------------------
TOTAL PETROLEUM & FUEL PRODUCTS $ 618
- --------------------------------------------------------------------------------
RETAIL -- 11.4%
BARNES & NOBLE* 50,000 1,631
DAYTON HUDSON 50,000 2,119
HOME DEPOT 25,000 1,088
LINENS 'N THINGS* 35,000 1,083
RITE AID 70,000 2,778
- --------------------------------------------------------------------------------
TOTAL RETAIL $ 8,699
- --------------------------------------------------------------------------------
SEMI-CONDUCTORS/INSTRUMENTS-- 4.7%
INTEL 30,000 2,676
XILINX* 20,000 893
- --------------------------------------------------------------------------------
TOTAL SEMI-CONDUCTORS/INSTRUMENTS $ 3,569
- --------------------------------------------------------------------------------
TELEPHONES & TELECOMMUNICATIONS-- 2.9%
BELL ATLANTIC 15,000 797
MCI WORLDCOM* 25,000 1,381
- --------------------------------------------------------------------------------
TOTAL TELEPHONES & TELECOMMUNICATIONS $ 2,178
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $56,455) $73,972
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 4.1%
FIRST BOSTON
5.400%, dated 10/30/98, matures
11/02/98, repurchase price
$3,126,709 (collateralized by
U.S. Treasury Bond:
total market value
$3,196,323) $3,125 3,125
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $3,125) $ 3,125
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 101.2%
(Cost $59,580) $77,097
================================================================================
OTHER ASSETS AND LIABILITIES, NET -- (1.2%) $ (908)
================================================================================
MARKET
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares of Institutional Class
(unlimited authorization -- no par
value) based on 4,070,055 outstanding shares
of beneficial interest $44,416
Portfolio Shares of Retail Class A
(unlimited authorization -- no par value)
based on 1,066,349 outstanding shares
of beneficial interest 13,715
Portfolio Shares of Retail Class B
(unlimited authorization -- no par value)
based on 10,418 outstanding shares
of beneficial interest 141
Distributions in excess of net investment income (7)
Accumulated net realized gain on investments 407
Net unrealized appreciation on investments 17,517
================================================================================
TOTAL NET ASSETS -- 100.0% $76,189
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- INSTITUTIONAL CLASS $14.82
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $14.73
================================================================================
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($14.73 / 95.25%) (A) $15.46
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE-- RETAIL CLASS B (B) $14.80
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) EFFECTIVE OCTOBER 1, 1997, A 3% DISCOUNTED SALES LOAD IS CHARGED ON
INVESTMENTS INTO THE RETAIL CLASS A. THIS DISCOUNT MAY BE DISCONTINUED AT
ANY TIME. THE MAXIMUM SALES LOAD IS 4.75%.
(B) RETAIL CLASS B HAS A CONTINGENT DEFERRED SALES CHARGE. FOR A DESCRIPTION OF
POSSIBLE REDEMPTION CHARGE, SEE NOTES TO THE FINANCIALS.
ADR -- AMERICAN DEPOSITORY RECEIPT
CL -- CLASS
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
77
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] ARK FUNDS: MID-CAP EQUITY PORTFOLIO
[Pie Chart Omitted.]
Transportation -- 4%
Oil-Energy -- 5%
Utilities -- 8%
Consumer Products-- 8%
Chemicals & Drugs -- 9%
Retail -- 10%
Building & Construction -- 2%
Technology -- 22%
Financial -- 16%
Miscellaneous -- 16%
% of Total Portfolio Investments
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 99.6%
AEROSPACE & DEFENSE -- 0.6%
CORDANT TECHNOLOGIES 2,800 $114
GENCORP 2,400 53
HUBBELL, CL B 3,816 152
- --------------------------------------------------------------------------------
TOTAL AEROSPACE & DEFENSE $319
- --------------------------------------------------------------------------------
AIR TRANSPORTATION -- 0.3%
AIRBORNE FREIGHT 2,900 68
ALASKA AIRGROUP* 1,000 36
ASA HOLDINGS 1,300 47
- --------------------------------------------------------------------------------
TOTAL AIR TRANSPORTATION $151
- --------------------------------------------------------------------------------
AIRCRAFT -- 0.3%
SUNDSTRAND 3,780 177
- --------------------------------------------------------------------------------
TOTAL AIRCRAFT $177
- --------------------------------------------------------------------------------
APPAREL/TEXTILES -- 0.8%
ALBANY INTERNATIONAL 1,160 21
BURLINGTON INDUSTRIES* 2,600 24
JONES APPAREL GROUP* 5,400 93
SHAW INDUSTRIES 7,100 123
UNIFI 3,100 52
WESTPOINT STEVENS* 3,200 91
- --------------------------------------------------------------------------------
TOTAL APPAREL/TEXTILES $404
- --------------------------------------------------------------------------------
AUTOMOTIVE -- 1.0%
BORG-WARNER AUTOMOTIVE 600 28
FEDERAL MOGUL 2,350 127
FEDERAL SIGNAL 2,882 69
KAYDON 2,200 77
MERITOR AUTOMOTIVE 3,600 67
MODINE MANUFACTURING 1,250 41
SUPERIOR INDUSTRIES
INTERNATIONAL 1,155 30
TELEFLEX 1,700 66
- --------------------------------------------------------------------------------
TOTAL AUTOMOTIVE $505
- --------------------------------------------------------------------------------
BANKS -- 9.6%
ASSOCIATED BANC 3,375 119
CCB FINANCIAL 2,200 116
CHARTER ONE FINANCIAL 7,350 202
CITY NATIONAL 2,700 92
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
CRESTAR FINANCIAL 6,450 $ 425
DIME BANCORP 6,500 155
FIRST SECURITY 9,693 198
FIRST TENNESSEE NATIONAL 7,700 244
FIRST VIRGINIA BANKS 2,950 135
FIRSTAR 8,400 477
HIBERNIA, CL A 8,300 139
MARSHALL & ILSLEY 6,700 327
MERCANTILE BANCORP 7,650 350
MERCANTILE BANKSHARES 3,675 120
NORTH FORK BANCORPORATION 8,500 169
OLD KENT FINANCIAL 5,670 238
PACIFIC CENTURY FINANCIAL 4,000 81
PROVIDENT FINANCIAL GROUP 2,000 77
REGIONS FINANCIAL CORPORATION 10,300 381
SOUTHTRUST 9,275 339
SOVEREIGN BANCORP 7,600 100
TCF FINANCIAL 5,000 118
WILMINGTON TRUST 1,900 105
ZIONS BANCORP 4,200 223
- --------------------------------------------------------------------------------
TOTAL BANKS $4,930
- --------------------------------------------------------------------------------
BROADCASTING, NEWSPAPERS
& ADVERTISING -- 0.3%
CHRIS-CRAFT INDUSTRIES* 1,346 60
TCA CABLE TV 2,500 69
- --------------------------------------------------------------------------------
TOTAL BROADCASTING, NEWSPAPERS & ADVERTISING $ 129
- --------------------------------------------------------------------------------
BUILDING & CONSTRUCTION -- 0.3%
JACOBS ENGINEERING GROUP* 1,175 38
MARTIN MARIETTA MATERIALS 1,800 88
- --------------------------------------------------------------------------------
TOTAL BUILDING & CONSTRUCTION $ 126
- --------------------------------------------------------------------------------
CHEMICALS -- 1.9%
A. SCHULMAN 1,600 32
AIRGAS* 3,000 34
CABOT 3,000 84
CROMPTON & KNOWLES 4,200 67
CYTEC INDUSTRIES* 2,300 55
DEXTER 1,000 29
ETHYL 4,850 27
FULLER (H.B.) 590 24
GEORGIA GULF 1,400 24
IMC GLOBAL 6,000 156
LAWTER INTERNATIONAL 1,800 14
LUBRIZOL 2,900 81
OLIN 2,550 71
RPM 3,890 65
SOLUTIA 6,500 143
WELLMAN 1,500 19
WITCO CHEMICAL 2,875 54
- --------------------------------------------------------------------------------
TOTAL CHEMICALS $ 979
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 4.1%
3COM* 15,000 541
ADC TELECOMMUNICATIONS* 7,400 170
78
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
ASCEND COMMUNICATIONS* 15,000 $ 724
FORE SYSTEMS* 5,000 78
MOLEX 9,452 337
QUALCOMM* 4,200 234
- --------------------------------------------------------------------------------
TOTAL COMMUNICATIONS EQUIPMENT $2,084
- --------------------------------------------------------------------------------
COMPUTER SOFTWARE -- 2.8%
BMC SOFTWARE* 8,296 399
CITRIX SYSTEMS* 2,500 177
COMPUWARE* 10,200 553
INFORMIX* 8,000 41
SIEBEL SYSTEMS* 3,000 61
STERLING SOFTWARE* 5,200 136
SYMANTEC* 3,640 58
- --------------------------------------------------------------------------------
TOTAL COMPUTER SOFTWARE $1,425
- --------------------------------------------------------------------------------
COMPUTERS & SERVICES -- 6.2%
AVNET 3,675 183
COMVERSE TECHNOLOGY* 12,000 552
DIEBOLD 3,854 120
KEANE* 4,800 160
LEXMARK INTERNATIONAL
GROUP, CL A* 3,500 245
NETWORKS ASSOCIATES* 8,500 361
QUANTUM* 9,400 164
SCI SYSTEMS* 3,200 126
SOLECTRON* 7,100 406
STERLING COMMERCE* 5,000 176
STORAGE TECHNOLOGY* 9,522 318
SUNGARD DATA SYSTEMS* 6,600 223
SYMBOL TECHNOLOGIES 3,318 148
- --------------------------------------------------------------------------------
TOTAL COMPUTERS & SERVICES $3,182
- --------------------------------------------------------------------------------
CONCRETE & MINERAL PRODUCTS-- 0.1%
FERRO 1,575 40
- --------------------------------------------------------------------------------
TOTAL CONCRETE & MINERAL PRODUCTS $ 40
- --------------------------------------------------------------------------------
CONSUMER PRODUCTS -- 0.2%
FIRST BRANDS 2,200 83
- --------------------------------------------------------------------------------
TOTAL CONSUMER PRODUCTS $ 83
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING -- 0.1%
LONGVIEW FIBRE 2,200 26
- --------------------------------------------------------------------------------
TOTAL CONTAINERS & PACKAGING $ 26
- --------------------------------------------------------------------------------
DRUGS -- 7.2%
AGOURON PHARMACEUTICAL* 2,000 77
ALLEGIANCE 6,400 238
AMGEN* 18,500 1,453
BIOGEN* 5,300 368
CARTER-WALLACE 2,400 43
CENTOCOR* 3,800 169
CHIRON* 9,564 215
FOREST LABORATORIES* 4,368 183
GENZYME* 6,024 253
ICN PHARMACEUTICALS 4,000 93
MYLAN LABORATORIES 7,087 244
PERRIGO* 3,050 24
WATSON PHARMACEUTICALS* 6,300 350
- --------------------------------------------------------------------------------
TOTAL DRUGS $3,710
- --------------------------------------------------------------------------------
ELECTRICAL SERVICES -- 7.9%
ALLEGHENY ENERGY 6,729 $ 207
AMETEK 1,350 29
CMS ENERGY 5,800 256
CONECTIV 6,687 153
ENERGY EAST 3,650 178
FLORIDA PROGRESS 6,100 256
HAWAIIAN ELECTRIC INDUSTRIES 1,475 58
IDACORP 1,650 52
ILLINOVA 3,100 78
IPALCO ENTERPRISES 2,371 109
KANSAS CITY POWER & LIGHT 3,250 94
LG&E 7,150 189
MIDAMERICAN ENERGY HOLDINGS 4,964 129
MINNESOTA POWER & LIGHT 1,825 77
MONTANA POWER 3,650 158
NEVADA POWER 2,000 50
NEW CENTURY ENERGIES 6,486 313
NEW ENGLAND ELECTRIC SYSTEM 3,300 134
NIPSCO INDUSTRIES 7,500 225
NORTHEAST UTILITIES 6,200 97
OGE ENERGY 4,106 109
PG&E 997 30
PINNACLE WEST CAPITAL 5,000 219
POTOMAC ELECTRIC POWER 6,150 161
PUBLIC SERVICE COMPANY OF
NEW MEXICO 1,200 26
PUGET SOUND ENERGY 4,200 113
SCANA 5,550 188
TECO ENERGY 7,372 204
WISCONSIN ENERGY 6,500 199
- --------------------------------------------------------------------------------
TOTAL ELECTRICAL SERVICES $4,091
- --------------------------------------------------------------------------------
ENERGY & POWER -- 0.2%
CALENERGY* 4,350 119
- --------------------------------------------------------------------------------
TOTAL ENERGY & POWER $ 119
- --------------------------------------------------------------------------------
ENTERTAINMENT -- 0.3%
INTERNATIONAL GAME TECHNOLOGY 6,600 149
- --------------------------------------------------------------------------------
TOTAL ENTERTAINMENT $ 149
- --------------------------------------------------------------------------------
ENVIRONMENTAL SERVICES -- 0.3%
ALLIED WASTE INDUSTRIES* 7,500 162
- --------------------------------------------------------------------------------
TOTAL ENVIRONMENTAL SERVICES $ 162
- --------------------------------------------------------------------------------
FINANCIAL SERVICES -- 2.4%
A.G. EDWARDS & SONS 5,318 184
BEAR STEARNS 5,089 182
FINOVA GROUP 2,750 134
GREENPOINT FINANCIAL 4,000 131
PAINE WEBBER GROUP 10,450 349
T. ROWE PRICE 7,400 263
- --------------------------------------------------------------------------------
TOTAL FINANCIAL SERVICES $1,243
- --------------------------------------------------------------------------------
FOOD, BEVERAGE & TOBACCO -- 4.6%
COCA-COLA 23,150 835
DEAN FOODS 2,075 97
DOLE FOOD 3,550 107
79
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] MID-CAP EQUITY PORTFOLIO (CONTINUED)
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
DREYER'S GRAND ICE CREAM 1,300 $ 17
FLOWERS INDUSTRIES 5,656 116
HORMEL FOODS 3,800 124
IBP 4,650 126
INTERSTATE BAKERIES 3,700 93
LANCASTER COLONY 1,848 55
LANCE 1,250 24
MCCORMICK 4,250 132
TYSON FOODS 13,010 299
UNIVERSAL FOODS 2,400 52
US FOODSERVICE* 2,750 131
VLASIC FOODS INTERNATIONAL* 2,500 47
WHITMAN 5,300 114
- --------------------------------------------------------------------------------
TOTAL FOOD, BEVERAGE & TOBACCO $2,369
- --------------------------------------------------------------------------------
FORESTRY -- 0.1%
RAYONIER 1,100 43
- --------------------------------------------------------------------------------
TOTAL FORESTRY $ 43
- --------------------------------------------------------------------------------
GAS/NATURAL GAS -- 1.8%
AGL RESOURCES 2,150 45
EL PASO ENERGY 6,518 231
INDIANA ENERGY 2,000 45
KEYSPAN ENERGY 8,000 239
MCN 4,100 79
NATIONAL FUEL & GAS 1,425 67
QUESTAR 4,300 85
UTILICORP UNITED 2,950 106
WASHINGTON GAS LIGHT 2,000 53
- --------------------------------------------------------------------------------
TOTAL GAS/NATURAL GAS $ 950
- --------------------------------------------------------------------------------
HOME BUILDERS -- 0.2%
CLAYTON HOMES 6,961 107
- --------------------------------------------------------------------------------
TOTAL HOME BUILDERS $ 107
- --------------------------------------------------------------------------------
HOUSEHOLD FURNITURE & FIXTURES -- 0.5%
LEGGETT & PLATT 11,700 273
- --------------------------------------------------------------------------------
TOTAL HOUSEHOLD FURNITURE & FIXTURES $ 273
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 1.1%
DANAHER 7,500 300
DIAL 10,200 281
- --------------------------------------------------------------------------------
TOTAL HOUSEHOLD PRODUCTS $ 581
- --------------------------------------------------------------------------------
INSURANCE -- 4.0%
AFLAC 15,760 601
AMBAC 3,950 230
AMERICAN FINANCIAL GROUP 3,000 105
FIRST HEALTH GROUP, CL A* 2,800 65
HSB GROUP 1,350 55
OLD REPUBLIC INTERNATIONAL 7,350 140
PACIFICARE HEALTH SYSTEMS,
CL B* 2,153 170
PMI GROUP 1,700 86
POLICY MANAGEMENT SYSTEMS* 1,700 77
PROVIDENT 7,300 212
RELIASTAR FINANCIAL 5,000 219
TOTAL RENAL CARE HOLDINGS* 4,500 110
- --------------------------------------------------------------------------------
TOTAL INSURANCE $2,070
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
INTERNET SERVICE PROVIDERS -- 3.2%
AMERICA ONLINE* 12,850 $1,633
- --------------------------------------------------------------------------------
TOTAL INTERNET SERVICE PROVIDERS $1,633
- --------------------------------------------------------------------------------
LEASING & RENTING -- 0.2%
COMDISCO 7,500 116
- --------------------------------------------------------------------------------
TOTAL LEASING & RENTING $ 116
- --------------------------------------------------------------------------------
LEISURE PRODUCTS -- 0.3%
ELECTRONIC ARTS* 3,750 154
- --------------------------------------------------------------------------------
TOTAL LEISURE PRODUCTS $ 154
- --------------------------------------------------------------------------------
LUMBER & WOOD PRODUCTS -- 0.2%
TIMBER GROUP 5,000 111
- --------------------------------------------------------------------------------
TOTAL LUMBER & WOOD PRODUCTS $ 111
- --------------------------------------------------------------------------------
MACHINERY -- 1.1%
DONALDSON 2,200 40
FLOWSERVE 2,137 38
KENNAMETAL 1,600 33
MARK IV INDUSTRIES 2,615 40
PENTAIR 1,574 59
SMITH INTERNATIONAL* 6,350 228
SPX 1,500 82
STEWART & STEVENSON SERVICES 1,400 19
VARCO INTERNATIONAL* 2,650 29
WATTS INDUSTRIES, CL A 1,350 25
- --------------------------------------------------------------------------------
TOTAL MACHINERY $ 593
- --------------------------------------------------------------------------------
MANUFACTURING -- 0.1%
TRINITY INDUSTRIES 2,000 74
- --------------------------------------------------------------------------------
TOTAL MANUFACTURING $ 74
- --------------------------------------------------------------------------------
MARINE TRANSPORTATION -- 0.1%
ALEXANDER & BALDWIN 1,900 39
OVERSEAS SHIPHOLDING GROUP 1,575 28
- --------------------------------------------------------------------------------
TOTAL MARINE TRANSPORTATION $ 67
- --------------------------------------------------------------------------------
MEASURING DEVICES -- 0.1%
BECKMAN COULTER 1,250 59
- --------------------------------------------------------------------------------
TOTAL MEASURING DEVICES $ 59
- --------------------------------------------------------------------------------
MEDICAL PRODUCTS & SERVICES -- 4.2%
BERGEN BRUNSWIG, CL A 2,556 125
COVANCE* 2,950 82
DENTSPLY INTERNATIONAL 3,900 100
HEALTH MANAGEMENT
ASSOCIATES, CL A* 16,125 287
LINCARE HOLDINGS* 3,200 128
MCKESSON 6,500 501
NOVACARE* 2,000 8
OMNICARE 5,000 173
PSS WORLD MEDICAL* 2,500 55
QUORUM HEALTH GROUP* 3,200 46
STERIS* 3,800 87
STRYKER 6,200 260
TRIGON HEALTHCARE* 1,500 56
SYBRON INTERNATIONAL* 7,800 193
VARIAN ASSOCIATES 1,300 51
- --------------------------------------------------------------------------------
TOTAL MEDICAL PRODUCTS & SERVICES $2,152
- --------------------------------------------------------------------------------
80
<PAGE>
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
METALS & MINING -- 0.5%
MINERALS TECHNOLOGIES 900 $ 41
VULCAN MATERIALS 1,975 234
- --------------------------------------------------------------------------------
TOTAL METALS & MINING $ 275
- --------------------------------------------------------------------------------
MISCELLANEOUS BUSINESS SERVICES -- 3.8%
AC NIELSEN* 3,000 80
CAMBRIDGE TECHNOLOGY
PARTNERS* 3,000 66
CINTAS 6,300 337
FISERV* 5,012 233
KELLY SERVICES, CL A 2,000 63
OGDEN 2,000 54
PAYCHEX 10,099 502
REYNOLDS & REYNOLDS, CL A 4,100 74
ROBERT HALF INTERNATIONAL* 5,100 205
SOTHEBY'S HOLDINGS, CL A 3,300 71
STEWART ENTERPRISES, CL A 5,000 115
VIAD 4,900 134
- --------------------------------------------------------------------------------
TOTAL MISCELLANEOUS BUSINESS SERVICES $1,934
- --------------------------------------------------------------------------------
MISCELLANEOUS MANUFACTURING-- 0.5%
GTECH* 1,000 24
HILLENBRAND INDUSTRIES 3,850 228
- --------------------------------------------------------------------------------
TOTAL MISCELLANEOUS MANUFACTURING $ 252
- --------------------------------------------------------------------------------
MISCELLANEOUS TRANSPORTATION-- 0.2%
HARSCO 2,500 82
- --------------------------------------------------------------------------------
TOTAL MISCELLANEOUS TRANSPORTATION $ 82
- --------------------------------------------------------------------------------
MOTORCYCLES, BICYCLES & PARTS -- 0.7%
HARLEY-DAVIDSON 9,360 363
- --------------------------------------------------------------------------------
TOTAL MOTORCYCLES, BICYCLES & PARTS $ 363
- --------------------------------------------------------------------------------
OFFICE FURNITURE & FIXTURES-- 0.6%
HERMAN MILLER 5,900 130
HON INDUSTRIES 2,400 51
LEAR* 4,100 132
- --------------------------------------------------------------------------------
TOTAL OFFICE FURNITURE & FIXTURES $ 313
- --------------------------------------------------------------------------------
PAPER & PAPER PRODUCTS -- 0.6%
BOWATER 2,650 108
CHESAPEAKE 1,050 37
CONSOLIDATED PAPERS 4,500 108
PH GLATFELTER 1,800 22
UNISOURCE WORLDWIDE 3,000 28
WAUSAU-MOSINEE PAPER 1,520 27
- --------------------------------------------------------------------------------
TOTAL PAPER & PAPER PRODUCTS $ 330
- --------------------------------------------------------------------------------
PETROLEUM & FUEL PRODUCTS -- 2.1%
BJ SERVICES* 5,200 106
ENSCO INTERNATIONAL 2,000 27
GLOBAL MARINE* 9,575 118
KN ENERGY 2,300 114
NABORS INDUSTRIES* 5,350 99
NOBLE AFFILIATES 2,900 95
OCEAN ENERGY* 6,300 79
PARKER DRILLING* 2,800 14
SEAGULL ENERGY* 3,200 38
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
TIDEWATER 3,355 $ 95
TRANSOCEAN OFFSHORE 5,600 207
VALERO ENERGY 3,300 83
- --------------------------------------------------------------------------------
TOTAL PETROLEUM & FUEL PRODUCTS $1,075
- --------------------------------------------------------------------------------
PETROLEUM REFINING -- 1.1%
LYONDELL PETROCHEMICAL 4,000 68
MURPHY OIL 2,400 99
TOSCO 9,300 261
ULTRAMAR DIAMOND SHAMROCK 4,800 129
- --------------------------------------------------------------------------------
TOTAL PETROLEUM REFINING $ 557
- --------------------------------------------------------------------------------
PRINTING & PUBLISHING -- 1.4%
A.H. BELO, CL A 7,200 131
BANTA 1,200 30
HOUGHTON MIFFLIN 1,380 54
LEE ENTERPRISES 1,850 50
MEDIA GENERAL 1,100 49
SCHOLASTIC* 600 24
STANDARD REGISTER 1,200 34
WALLACE COMPUTER SERVICES 1,900 42
WASHINGTON POST, CL B 550 292
- --------------------------------------------------------------------------------
TOTAL PRINTING & PUBLISHING $ 706
- --------------------------------------------------------------------------------
RAILROADS -- 0.6%
KANSAS CITY SOUTHERN INDUSTRIES 6,600 255
WISCONSIN CENTRAL
TRANSPORTATION* 2,700 41
- --------------------------------------------------------------------------------
TOTAL RAILROADS $ 296
- --------------------------------------------------------------------------------
RETAIL -- 10.3%
ABERCROMBIE & FITCH, CL A* 3,400 135
BARNES & NOBLE* 6,800 222
BED BATH & BEYOND* 7,000 193
BEST BUY* 5,800 278
BJ'S WHOLESALE CLUB* 2,000 72
BRINKER INTERNATIONAL* 3,649 88
CLAIRE'S STORES 2,487 42
COMPUSA* 4,825 67
CRACKER BARREL OLD
COUNTRY STORES 3,500 91
DOLLAR TREE STORES* 3,500 135
FAMILY DOLLAR STORES 8,900 161
FASTENAL 1,650 60
HANNAFORD BROTHERS 2,450 107
HEILIG-MEYERS 2,050 16
KOHL'S* 9,200 440
LANDS' END* 1,350 23
LINENS 'N THINGS* 5,000 155
LONE STAR STEAKHOUSE & SALOON* 2,650 21
MICRO WAREHOUSE* 1,400 31
OFFICE DEPOT* 13,923 348
OFFICEMAX* 7,000 64
OUTBACK STEAKHOUSE* 2,800 97
PREMARK INTERNATIONAL 3,000 95
RITE AID 25,000 992
ROSS STORES 2,550 83
SAKS* 8,280 188
81
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] MID-CAP EQUITY PORTFOLIO (CONCLUDED)
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
SBARRO 850 $ 20
STAPLES* 18,000 587
STARBUCKS* 5,500 239
TECH DATA* 2,700 106
TIFFANY & COMPANY 1,850 60
WARNACO GROUP 3,350 86
- --------------------------------------------------------------------------------
TOTAL RETAIL $5,302
- --------------------------------------------------------------------------------
RUBBER & PLASTIC -- 0.8%
CARLISLE 1,200 46
HANNA 2,124 31
SONOCO PRODUCTS 6,050 172
WEATHERFORD INTERNATIONAL* 5,596 152
- --------------------------------------------------------------------------------
TOTAL RUBBER & PLASTIC $ 401
- --------------------------------------------------------------------------------
SEMI-CONDUCTORS/INSTRUMENTS-- 4.3%
ALTERA* 5,500 229
AMERICAN POWER CONVERSION* 5,550 236
ANALOG DEVICES* 10,000 199
CADENCE DESIGN SYSTEMS* 12,000 257
CYPRESS SEMICONDUCTOR* 6,250 70
LINEAR TECHNOLOGY 5,200 310
MAXIM INTEGRATED PRODUCTS* 7,000 250
SYNOPSYS* 6,000 272
TERADYNE* 5,250 171
XILINX* 4,725 211
- --------------------------------------------------------------------------------
TOTAL SEMI-CONDUCTORS/INSTRUMENTS $2,205
- --------------------------------------------------------------------------------
SPECIALTY MACHINERY -- 0.2%
TECUMSEH PRODUCTS, CL A 950 49
YORK INTERNATIONAL 2,100 79
- --------------------------------------------------------------------------------
TOTAL SPECIALTY MACHINERY $ 128
- --------------------------------------------------------------------------------
STEEL & STEEL WORKS -- 0.3%
AK STEEL HOLDING 3,500 61
CARPENTER TECHNOLOGY 1,100 39
OREGON STEEL MILLS 1,600 20
PRECISION CASTPARTS 1,050 46
- --------------------------------------------------------------------------------
TOTAL STEEL & STEEL WORKS $ 166
- --------------------------------------------------------------------------------
TELEPHONES & TELECOMMUNICATIONS-- 1.7%
ALIANT COMMUNICATIONS 1,450 41
CENTURY TELEPHONE ENTERPRISES 7,575 430
CINCINNATI BELL 7,200 187
COMSAT 2,050 81
TELEPHONE & DATA SYSTEMS 3,100 124
- --------------------------------------------------------------------------------
TOTAL TELEPHONES & TELECOMMUNICATIONS $ 863
- --------------------------------------------------------------------------------
TESTING LABORATORIES -- 0.4%
QUINTILES TRANSNATIONAL* 4,800 217
- --------------------------------------------------------------------------------
TOTAL TESTING LABORATORIES $ 217
- --------------------------------------------------------------------------------
TRANSPORTATION SERVICES -- 0.2%
GATX 2,550 88
- --------------------------------------------------------------------------------
TOTAL TRANSPORTATION SERVICES $ 88
- --------------------------------------------------------------------------------
SHARES/PRINCIPAL MARKET
DESCRIPTION AMOUNT(000) VALUE (000)
- --------------------------------------------------------------------------------
TRUCKING -- 0.3%
CNF TRANSPORTATION 2,400 $ 73
JB HUNT TRANSPORT SERVICES 2,100 35
PITTSTON SERVICES 1,600 48
- --------------------------------------------------------------------------------
TOTAL TRUCKING $ 156
- --------------------------------------------------------------------------------
WATER UTILITIES -- 0.3%
AMERICAN WATER WORKS 5,600 179
- --------------------------------------------------------------------------------
TOTAL WATER UTILITIES $ 179
- --------------------------------------------------------------------------------
WHOLESALE -- 0.0%
ENESCO GROUP 1,000 25
- --------------------------------------------------------------------------------
TOTAL WHOLESALE $ 25
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $38,951) $51,299
- --------------------------------------------------------------------------------
RIGHTS -- 0.3%
TALBERT MEDICAL MANAGEMENT* 2,350 153
- --------------------------------------------------------------------------------
TOTAL RIGHTS
(Cost $93) $ 153
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 0.8%
FIRST BOSTON
5.400%, dated 10/30/98, matures
11/02/98, repurchase price
$393,170 (collateralized by
U.S. Treasury Bond:
total market value
$401,885) $393 393
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $393) $ 393
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.7%
(Cost $39,437) $51,845
================================================================================
OTHER ASSETS AND LIABILITIES, NET-- (0.7%) $ (352)
================================================================================
NET ASSETS:
Portfolio Shares of Institutional Class
(unlimited authorization -- no par
value) based on 4,067,416 outstanding shares
of beneficial interest 38,074
Undistributed net investment income 11
Accumulated net realized gain on investments 1,000
Net unrealized appreciation on investments 12,408
================================================================================
TOTAL NET ASSETS-- 100.0% $51,493
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE-- INSTITUTIONAL CLASS $12.66
================================================================================
* NON-INCOME PRODUCING SECURITY
CL -- CLASS
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
82
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] ARK FUNDS: SMALL-CAP EQUITY PORTFOLIO
[Pie Chart Omitted.]
Transportation -- 3%
Repurchase Agreement -- 3%
Retail -- 4%
Computers & Services -- 7%
Consumer Cyclicals -- 8%
Chemicals & Drugs -- 8%
Financial -- 17%
Technology -- 2%
Miscellaneous Business -- 29%
Miscellaneous -- 19%
% of Total Portfolio Investments
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 97.2%
AIR TRANSPORTATION -- 2.8%
ALASKA AIRGROUP* 11,000 $ 395
RYANAIR HOLDINGS, ADR* 10,000 294
- --------------------------------------------------------------------------------
TOTAL AIR TRANSPORTATION $ 689
- --------------------------------------------------------------------------------
BANKS -- 9.1%
COMPASS BANCSHARES 10,000 368
PEOPLES HERITAGE FINANCIAL
GROUP 32,000 576
SOVEREIGN BANCORP 50,600 664
STERLING BANCORP 30,000 645
- --------------------------------------------------------------------------------
TOTAL BANKS $2,253
- --------------------------------------------------------------------------------
BROADCASTING, NEWSPAPERS & ADVERTISING-- 8.3%
BROADCAST.COM* 10,000 499
CHANCELLOR MEDIA, CL A* 25,000 959
NTL* 10,000 479
TMP WORLDWIDE * 4,000 120
- --------------------------------------------------------------------------------
TOTAL BROADCASTING, NEWSPAPERS & ADVERTISING $2,057
- --------------------------------------------------------------------------------
BUILDING & CONSTRUCTION -- 1.5%
STOLT COMEX SEAWAY S.A.* 30,000 382
- --------------------------------------------------------------------------------
TOTAL BUILDING & CONSTRUCTION $ 382
- --------------------------------------------------------------------------------
COMPUTERS & SERVICES -- 6.9%
AT HOME, CL A* 6,000 266
BEA SYSTEMS* 15,000 294
COMVERSE TECHNOLOGY* 10,000 460
DOCUMENTUM* 8,000 272
NETWORKS ASSOCIATES* 10,000 425
- --------------------------------------------------------------------------------
TOTAL COMPUTERS & SERVICES $1,717
- --------------------------------------------------------------------------------
CONSUMER PRODUCTS -- 1.3%
STRIDE RITE 35,000 319
- --------------------------------------------------------------------------------
TOTAL CONSUMER PRODUCTS $ 319
- --------------------------------------------------------------------------------
DRUGS -- 7.9%
DURA PHARMACEUTICALS* 40,000 482
ELAN, ADR* 6,000 420
MEDAREX* 29,000 116
TEVA PHARMACEUTICALS, ADR 10,000 394
WATSON PHARMACEUTICALS* 10,000 556
- --------------------------------------------------------------------------------
TOTAL DRUGS $1,968
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
ENVIRONMENTAL SERVICES -- 2.9%
ALLIED WASTE INDUSTRIES* 20,000 $ 432
EASTERN ENVIRONMENTAL
SERVICES* 10,000 277
- --------------------------------------------------------------------------------
TOTAL ENVIRONMENTAL SERVICES $ 709
- --------------------------------------------------------------------------------
FINANCIAL SERVICES -- 7.7%
CONNING* 23,000 339
LEHMAN BROTHERS HOLDINGS 15,000 569
PAINE WEBBER GROUP 30,000 1,003
- --------------------------------------------------------------------------------
TOTAL FINANCIAL SERVICES $1,911
- --------------------------------------------------------------------------------
FOOD, BEVERAGE & TOBACCO -- 2.8%
AMERICAN ITALIAN PASTA* 30,000 690
- --------------------------------------------------------------------------------
TOTAL FOOD, BEVERAGE & TOBACCO $ 690
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS & APPLIANCES -- 2.2%
WINDMERE-DURABLE HOLDINGS 70,000 538
- --------------------------------------------------------------------------------
TOTAL HOUSEHOLD PRODUCTS & APPLIANCES $ 538
- --------------------------------------------------------------------------------
LEISURE PRODUCTS -- 1.6%
TIFFANY & COMPANY 12,000 388
- --------------------------------------------------------------------------------
TOTAL LEISURE PRODUCTS $ 388
- --------------------------------------------------------------------------------
MACHINERY -- 3.2%
SECOM GENERAL* 108,800 85
SMITH INTERNATIONAL* 20,000 719
- --------------------------------------------------------------------------------
TOTAL MACHINERY $ 804
- --------------------------------------------------------------------------------
MEASURING DEVICES -- 0.6%
UNIPHASE* 3,000 149
- --------------------------------------------------------------------------------
TOTAL MEASURING DEVICES $ 149
- --------------------------------------------------------------------------------
MEDICAL PRODUCTS & SERVICES-- 4.7%
ARTERIAL VASCULAR* 5,000 154
COVANCE* 20,000 558
ECLIPSYS* 20,300 458
- --------------------------------------------------------------------------------
TOTAL MEDICAL PRODUCTS & SERVICES $1,170
- --------------------------------------------------------------------------------
MISCELLANEOUS BUSINESS SERVICES-- 16.8%
CONVERGYS* 30,100 420
EQUANT* 3,000 131
FORE SYSTEMS* 10,000 156
HBO 17,000 446
IDT* 5,000 83
INFOSEEK* 14,300 424
INTERNATIONAL INTERGRATION * 5,500 83
LEGATO SYSTEMS* 7,000 274
NIELSON MEDIA RESEARCH* 58,533 830
SAPIENT* 3,000 135
TERADYNE* 10,000 325
USWEB* 35,000 503
VERISIGN* 12,000 368
- --------------------------------------------------------------------------------
TOTAL MISCELLANEOUS BUSINESS SERVICES $4,178
- --------------------------------------------------------------------------------
PRINTING & PUBLISHING -- 0.5%
ANALYTICAL SURVEYS* 5,000 124
- --------------------------------------------------------------------------------
TOTAL PRINTING & PUBLISHING $ 124
- --------------------------------------------------------------------------------
83
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] ARK FUNDS: SMALL-CAP EQUITY PORTFOLIO
(CONCLUDED)
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
PROFESSIONAL SERVICES -- 3.4%
MEDAPHIS* 50,000 $ 163
PROFESSIONAL DETAILING * 12,500 292
SYLVAN LEARNING SYSTEMS* 12,500 386
- --------------------------------------------------------------------------------
TOTAL PROFESSIONAL SERVICES $ 841
- --------------------------------------------------------------------------------
RETAIL -- 4.3%
BARNES & NOBLE* 12,500 408
DOLLAR GENERAL 12,000 287
GENERAL NUTRITION* 15,000 218
LINENS 'N THINGS* 5,000 155
- --------------------------------------------------------------------------------
TOTAL RETAIL $ 1,068
- --------------------------------------------------------------------------------
RUBBER & PLASTIC -- 1.6%
WEATHERFORD INTERNATIONAL* 15,000 408
- --------------------------------------------------------------------------------
TOTAL RUBBER & PLASTIC $ 408
- --------------------------------------------------------------------------------
SEMI-CONDUCTORS/INSTRUMENTS-- 0.0%
PHOTRONICS LABS* 500 11
- --------------------------------------------------------------------------------
TOTAL SEMI-CONDUCTORS/INSTRUMENTS $ 11
- --------------------------------------------------------------------------------
TELEPHONES & TELECOMMUNICATIONS-- 1.2%
CLEARNET, CL A* 15,000 110
DYCOM INDUSTRY* 2,000 70
ESAT TELECOM GROUP, ADR* 3,000 91
TELIGENT* 1,000 31
- --------------------------------------------------------------------------------
TOTAL TELEPHONES & TELECOMMUNICATIONS $ 302
- --------------------------------------------------------------------------------
TESTING LABORATORIES -- 2.3%
CHIRON* 25,000 563
- --------------------------------------------------------------------------------
TOTAL TESTING LABORATORIES $ 563
- --------------------------------------------------------------------------------
WHOLESALE -- 3.6%
OWENS & MINOR HOLDING 30,000 476
PSS WORLD MEDICAL* 18,800 416
- --------------------------------------------------------------------------------
TOTAL WHOLESALE $ 892
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $23,737) $24,131
- --------------------------------------------------------------------------------
FOREIGN PREFERRED STOCKS -- 0.0%
SPARTA PHARMACEUTICALS (A)* 10,000 9
- --------------------------------------------------------------------------------
TOTAL FOREIGN PREFERRED STOCKS
(Cost $95) $ 9
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 2.8%
FIRST BOSTON
5.400%, dated 10/30/98, matures
11/02/98, repurchase price
$697,255 (collateralized by
U.S. Treasury Bond:
total market value
$715,281) $697 $ 697
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $697) $ 697
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(Cost $24,529) $24,837
================================================================================
OTHER ASSETS AND LIABILITIES, NET-- 0.0% $ (10)
================================================================================
NET ASSETS:
Portfolio Shares of Institutional Class
(unlimited authorization -- no par
value) based on 2,227,193 outstanding shares
of beneficial interest 22,433
Portfolio Shares of Retail Class A
(unlimited authorization -- no par value)
based on 173,311 outstanding shares
of beneficial interest 2,145
Distributions in excess of net investment income (40)
Accumulated net realized loss on investments (19)
Net unrealized appreciation on investments 308
================================================================================
TOTAL NET ASSETS-- 100.0% $24,827
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE-- INSTITUTIONAL CLASS $10.35
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $10.30
================================================================================
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($10.30 / 95.25%) (B) $10.81
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) SECURITY VALUED IN GOOD FAITH BASED ON GUIDELINES ESTABLISHED BY THE BOARD
OF TRUSTEES.
(B) EFFECTIVE OCTOBER 1, 1997, A 3% DISCOUNTED SALES LOAD IS CHARGED ON
INVESTMENTS INTO THE RETAIL CLASS A. THIS DISCOUNT MAY BE DISCONTINUED AT
ANY TIME. THE MAXIMUM SALES LOAD IS 4.75%.
ADR -- AMERICAN DEPOSITORY RECEIPT
CL --- CLASS
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
84
<PAGE>
STATEMENTS OF NET ASSETS (UNAUDITED)
October 31, 1998
[ARROW] ARK FUNDS: INTERNATIONAL EQUITY SELECTION PORTFOLIO
[Pie Chart Omitted.]
Repurchase Agreement -- 5%
Mutual Funds -- 95%
% of Total Portfolio Investments
SHARES/PRINCIPAL MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
MUTUAL FUNDS -- 95.3%
AMERICAN AADVANTAGE
INTERNATIONAL EQUITY FUND 311,364 $ 5,271
AMERICAN CENTURY 20TH
INTERNATIONAL GROWTH FUND 58,685 516
AMERICAN FUNDS
EUROPACIFIC GROWTH FUND 183,821 5,002
BT INSTITUTIONAL
INTERNATIONAL EQUITY FUND 400,625 5,072
FIDELITY DIVERSIFIED
INTERNATIONAL FUND 289,470 4,979
GAM INTERNATIONAL FUND 62 1,772
HARBOR INTERNATIONAL FUND 128,680 4,757
HOTCHKIS & WILEY
INTERNATIONAL FUND 174,661 3,949
PUTNAM INTERNATIONAL
GROWTH FUND 102,511 1,842
TEMPLETON FOREIGN FUND,
CLASS I 99,106 821
- --------------------------------------------------------------------------------
TOTAL MUTUAL FUNDS
(Cost $34,334) $33,981
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 4.7%
FIRST BOSTON
5.400%, dated 10/30/98, matures
11/02/98, repurchase price
$1,678,451 (collateralized by
U.S. Treasury Bond:
total market value
$9,110,146) $1,678 $ 1,678
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $1,678) $ 1,678
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(Cost $36,012) $35,659
================================================================================
OTHER ASSETS AND LIABILITIES, NET-- 0.0% $ (6)
================================================================================
MARKET
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares of Institutional Class
(unlimited authorization -- no par
value) based on 3,379,484 outstanding shares
of beneficial interest $34,428
Portfolio Shares of Retail Class A
(unlimited authorization -- no par value)
based on 115,000 outstanding shares
of beneficial interest 1,312
Undistributed net investment income 74
Accumulated net realized gain on investments 192
Net unrealized depreciation on investments (353)
================================================================================
TOTAL NET ASSETS-- 100.0% $35,653
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE ---INSTITUTIONAL CLASS $10.20
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE -- RETAIL CLASS A $10.20
================================================================================
MAXIMUM OFFERING PRICE PER SHARE --
RETAIL CLASS A ($10.20 / 98.50%) $10.36
================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
85
<PAGE>
STATEMENTS OF OPERATIONS (000) (UNAUDITED)
For the Period Ended October 31, 1998
<TABLE>
<S> <C> <C> <C> <C> <C>
TAX-FREE U.S. GOVERNMENT U.S. TREASURY SHORT-TERM
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET TREASURY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ --------------- ------------- ----------
INVESTMENT INCOME:
Dividends $ -- $ -- $ -- $ -- $ --
Interest 19,984 2,687 40,993 10,517 1,175
------- ------ ------- ------- ------
Total Investment Income 19,984 2,687 40,993 10,517 1,175
------- ------ ------- ------- ------
EXPENSES:
Administrator Fees 461 99 963 265 27
Less: Waiver of Administrator Fees -- -- -- --
Investment Advisory Fees 887 191 1,852 509 74
Less: Waiver of Investment
Advisory Fees (496) (122) (815) (122) --
Custodian Fees 43 19 110 36 3
Transfer Agency Fees 35 8 74 20 2
Professional Fees 34 7 81 17 1
Registration Fees 70 17 59 8 6
Distribution Fees--Retail Class A 262 30 102 43 29
Less: Waiver of Distribution Fees-
Retail Class A -- -- -- -- (11)
Distribution Fees--Retail Class B -- -- -- -- --
Distribution Fees--
Institutional II Class 80 22 53 48 --
Printing Fees 44 9 100 26 1
Trustee Fees 3 1 8 2 --
Amortization of Deferred
Organization Costs 1 1 1 1 2
Miscellaneous Fees 15 4 55 7 1
Shareholder Servicing Fees--
Institutional Class 255 63 971 207 21
Less: Waiver of Shareholder
Servicing Fees--
Institutional Class (153) (38) (582) (124) (12)
Shareholder Servicing Fees--
Retail Class A 157 18 61 26 11
Less: Waiver of Shareholder
Servicing Fees--Retail Class A (94) (11) (37) (16) (11)
Shareholder Servicing Fees--
Retail Class B -- -- -- -- --
------- ------ ------- ------- ------
Total Expenses 1,604 318 3,056 953 144
------- ------ ------- ------- ------
Net Investment Income 18,380 2,369 37,937 9,564 1,031
------- ------ ------- ------- ------
Net Realized Gain on Investments 2 -- 1 51 183
Net Change in Unrealized
Appreciation on Investments -- -- -- -- 591
------- ------ ------- ------- ------
Net Realized and Unrealized
Gain on Investments 2 -- 1 51 774
------- ------ ------- ------- ------
Net Increase in Net Assets
Resulting from Operations $18,382 $2,369 $37,938 $ 9,615 $1,805
======= ====== ======= ======= ======
</TABLE>
[dagger] Includes income from securities lending program. See Notes to
the Financial Statements for additional information.
The accompanying notes are an integral part of the financial statements.
86
<PAGE>
STATEMENTS OF OPERATIONS (000) (UNAUDITED)
For the Period Ended October 31, 1998
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM MARYLAND PENNSYLVANIA INTERMEDIATE U.S. GOVERNMENT
BOND TAX-FREE TAX-FREE INCOME FIXED INCOME BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- --------- ------------ --------- ------------ ---------------
INVESTMENT INCOME:
Dividends $ -- $ -- $ -- $ 177 $ 39 $ 168
Interest 4,272[dagger] 2,921 5,461 11,366[dagger] 2,880[dagger] 8,666[dagger]
------ ------ ------ ------- ------ -------
Total Investment Income 4,272 2,921 5,461 11,543 2,919 8,834
------ ------ ------ ------- ------ -------
EXPENSES:
Administrator Fees 88 74 145 223 59 175
Less: Waiver of
Administrator Fees -- -- -- -- -- --
Investment Advisory Fees 506 368 724 1,031 272 1,010
Less: Waiver of Investment
Advisory Fees (34) (91) -- (155) (50) (121)
Custodian Fees 14 7 11 29 9 25
Transfer Agency Fees 7 6 11 17 5 13
Professional Fees 6 3 8 18 3 12
Registration Fees 8 3 3 19 7 7
Distribution Fees--Retail
Class A -- 41 4 11 -- --
Less: Waiver of
Distribution Fees--
Retail Class A -- (7) (1) (2) -- --
Distribution Fees--Retail Class B -- -- -- -- -- --
Distribution Fees--
Institutional II Class -- -- -- -- --
Printing Fees 7 8 6 21 5 14
Trustee Fees 1 1 1 2 1 1
Amortization of Deferred
Organization Costs 3 1 4 1 1 4
Miscellaneous Fees 2 3 4 8 3 3
Shareholder Servicing Fees--
Institutional Class 101 65 165 252 68 202
Less: Waiver of
Shareholder Servicing
Fees--Institutional Class (61) (39) (99) (151) (41) (121)
Shareholder Servicing Fees--
Retail Class A -- 20 2 6 -- --
Less: Waiver of Shareholder
Servicing
Fees--Retail Class A -- (20) (2) (6) -- --
Shareholder Servicing Fees--
Retail Class B ------ ------ ------ ------- ------ -------
Total Expenses 648 443 986 1,324 342 1,224
------ ------ ------ ------- ------ -------
Net Investment Income 3,624 2,478 4,475 10,219 2,577 7,610
------ ------ ------ ------- ------ -------
Net Realized Gain on Investments 305 359 965 808 249 114
Net Change in Unrealized
Appreciation on Investments 1,108 2,137 4,379 569 1,831 4,139
------ ------ ------ ------- ------ -------
Net Realized and Unrealized
Gain on Investments 1,413 2,496 5,344 1,377 2,080 4,253
------ ------ ------ ------- ------ -------
Net Increase in Net Assets
Resulting from Operations $5,037 $4,974 $9,819 $11,596 $4,657 $11,863
====== ====== ====== ======= ====== =======
</TABLE>
87
<PAGE>
STATEMENTS OF OPERATIONS (000) (UNAUDITED)
For the Period Ended October 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
EQUITY VALUE EQUITY BLUE CHIP
BALANCED INCOME EQUITY INDEX EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ---------
INVESTMENT INCOME:
Dividends $ 362 $ 1,503 $ 4,944 $405 $ 830
Interest 1,517 133 686 28 189
------ ------- -------- ---- ------
Total Investment Income 1,879 1,636 5,630 433 1,019
------ ------- -------- ---- ------
EXPENSES:
Administrator Fees 76 68 391 36 79
Less: Waiver of Administrator Fees -- -- -- (30) --
Investment Advisory Fees 379 364 3,004 55 427
Less: Waiver of Investment
Advisory Fees (52) (31) (391) (39) (61)
Custodian Fees 17 7 57 13 8
Transfer Agency Fees 6 5 30 3 6
Professional Fees 5 6 27 2 5
Registration Fees 6 5 4 12 16
Distribution Fees--Retail Class A 34 7 3 4 121
Less: Waiver of Distribution Fees--
Retail Class A (13) (3) (1) (1) (66)
Distribution Fees--Retail Class B -- -- -- -- --
Distribution Fees--
Institutional II Class -- -- -- -- --
Printing Fees 7 7 32 2 6
Trustee Fees -- 1 3 -- 1
Amortization of Deferred
Organization Costs 2 1 4 1 2
Miscellaneous Fees 4 2 10 2 2
Shareholder Servicing Fees--
Institutional Class 75 76 449 40 58
Less: Waiver of Shareholder Servicing
Fees--Institutional Class (45) (45) (270) (40) (35)
Shareholder Servicing Fees--
Retail Class A 13 3 1 1 33
Less: Waiver of Shareholder Servicing
Fees--Retail Class A (13) (3) (1) (1) (33)
Shareholder Servicing Fees--
Retail Class B -- -- -- -- --
------ ------- -------- ---- ------
Total Expenses 501 470 3,352 60 569
------ ------- -------- ---- ------
Net Investment Income (Loss) 1,378 1,166 2,278 373 450
------ ------- -------- ---- ------
Net Realized Gain (Loss)
on Investments 355 (504) (3,455) 100 (781)
Net Change in Unrealized Appreciation
(Depreciation) on Investments (1,335) (4,732) 23,825) (27) (268)
------ ------- -------- ---- ------
Net Realized and Unrealized
Gain (Loss) on Investments (980) (5,236) (27,280) 73 (1,049)
------ ------- -------- ---- ------
Net Increase (Decrease) in Net Assets
Resulting from Operations $ 398 $(4,070) $(25,002) $446 (599)
====== ======= ======== ==== ======
</TABLE>
[dagger] Includes income from securities lending program. See Notes to the
Financial Statements for additional information.
The accompanying notes are an integral part of the financial statements.
88
<PAGE>
STATEMENTS OF OPERATIONS (000) (UNAUDITED)
For the Period Ended October 31, 1998
<TABLE>
<CAPTION>
BLUE CHIP CAPITAL MID-CAP SMALL-CAP INTERNATIONAL
EQUITY GROWTH EQUITY EQUITY EQUITY SELECTION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ----------------
INVESTMENT INCOME:
<S> <C> <C> <C> <C> <C>
Dividends $ 830 $ 251 $ 286 $ 26 $ 199
Interest 189 69 15 84 46
------ ------- ------- ------- -------
Total Investment Income 1,019 320 301 110 245
------ ------- ------- ------- -------
EXPENSES:
Administrator Fees 79 47 34 17 26
Less: Waiver of Administrator Fees -- -- -- -- --
Investment Advisory Fees 427 251 211 107 132
Less: Waiver of Investment
Advisory Fees (61) (18) (16) (1) (20)
Custodian Fees 8 (1) 13 9 5
Transfer Agency Fees 6 4 3 1 2
Professional Fees 5 3 3 1 2
Registration Fees 16 4 6 3 8
Distribution Fees--Retail Class A 121 30 -- 3 2
Less: Waiver of Distribution Fees--
Retail Class A (66) (11) -- (1) (1)
Distribution Fees--Retail Class B -- -- -- -- --
Distribution Fees--
Institutional II Class -- -- -- -- --
Printing Fees 6 4 4 2 2
Trustee Fees 1 -- -- -- --
Amortization of Deferred
Organization Costs 2 2 1 -- 1
Miscellaneous Fees 2 1 3 1 --
Shareholder Servicing Fees--
Institutional Class 58 42 40 19 30
Less: Waiver of Shareholder Servicing
Fees--Institutional Class (35) (25) (24) (11) (18)
Shareholder Servicing Fees--
Retail Class A 33 11 -- 1 1
Less: Waiver of Shareholder Servicing
Fees--Retail Class A (33) (11) -- (1) (1)
Shareholder Servicing Fees--
Retail Class B -- -- -- -- --
------ ------- ------- ------- -------
Total Expenses 569 333 278 150 171
------ ------- ------- ------- -------
Net Investment Income (Loss) 450 (13) 23 (40) 74
------ ------- ------- ------- -------
Net Realized Gain (Loss)
on Investments (781) (2,239) (1,263) (732) (92)
Net Change in Unrealized Appreciation
(Depreciation) on Investments (268) 1,950 (4,895) (3,146) (5,232)
------ ------- ------- ------- -------
Net Realized and Unrealized
Gain (Loss) on Investments (1,049) (289) (6,158) (3,878) (5,324)
------ ------- ------- ------- -------
Net Increase (Decrease) in Net Assets
Resulting from Operations (599) $ (302) $(6,135) $(3,918) $(5,250)
====== ======= ======= ======= =======
</TABLE>
89
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (000) (UNAUDITED)
For the Period Indicated
<TABLE>
<CAPTION>
MONEY MARKET TAX-FREE MONEY U.S. GOVERNMENT MONEY U.S. TREASURY MONEY
PORTFOLIO MARKET PORTFOLIO MARKET PORTFOLIO MARKET PORTFOLIO
------------------- ------------------- ---------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5/1/98 5/1/97 5/1/98 5/1/97 5/1/98 5/1/97 5/1/98 5/1/97
to to to to to to to to
10/31/98 4/30/98 10/31/98 4/30/98 10/31/98 4/30/98 10/31/98 4/30/98
------------------- ------------------- ---------------------- -------------------
OPERATIONS:
Net Investment Income $ 18,380 $ 28,442 $ 2,369 $ 4,841 $ 37,937 $ 72,156 $ 9,564 $ 18,700
Net Realized Gain (Loss) on Investments 2 (12) -- -- 1 (2) 51 (45)
Net Change in Unrealized Appreciation
(Depreciation) on Investments -- -- -- -- -- -- -- --
-------- -------- -------- -------- ---------- ---------- -------- --------
Net Increase (Decrease)
in Net Assets from Operations 18,382 28,430 2,369 4,841 37,938 72,154 9,615 18,655
-------- -------- -------- -------- ---------- ---------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income
Institutional Class (8,922) (14,677) (1,337) (3,344) (33,240) (66,224) (6,515) (13,110)
Retail Class A (5,259) (9,312) (351) (808) (2,000) (1,590) (783) (1,281)
Retail Class B -- -- -- -- -- -- -- --
Institutional II Class (4,200) (4,453) (681) (688) (2,687) (4,316) (2,266) (4,309)
Net Capital Gains
Institutional Class -- -- -- -- -- -- -- --
Retail Class A -- -- -- -- -- -- -- --
Retail Class B -- -- -- -- -- -- -- --
-------- -------- -------- -------- ---------- ---------- -------- --------
Total Distributions (18,381) (28,442) (2,369) (4,840) (37,927) (72,130) (9,564) (18,700)
-------- -------- -------- -------- ---------- ---------- -------- --------
CAPITAL SHARE TRANSACTIONS:
Institutional Class:
Shares Issued 481,624 678,729 47,890 129,030 877,477 $2,467,089 184,822 483,164
Shares Issued in Conjunction with
Acquisition of the ARK Pennsylvania
Tax-Free Portfolio -- -- -- -- -- -- -- --
Shares Issued in Lieu of Cash
Distributions -- -- -- -- 5 21 3 6
Shares Redeemed (287,986) (771,203) (57,648) (107,675) (780,158) (2,432,072) (154,243) (446,375)
-------- -------- -------- -------- ---------- ---------- -------- --------
Total Institutional Class Share
Transactions 193,638 (92,474) (9,758) 21,355 97,324 35,038 30,582 36,795
-------- -------- -------- -------- ---------- ---------- -------- --------
Retail Class A:
Shares Issued 87,121 436,117 34,496 84,889 180,586 160,166 20,531 69,512
Shares Issued in Conjunction with
Acquisition of the ARK Pennsylvania
Tax-Free Portfolio -- -- -- -- -- -- -- --
Shares Issued in Lieu of Cash
Distributions 5,200 8,342 348 806 -- -- 480 852
Shares Redeemed (50,161) (385,100) (37,014) (77,046) (175,561) (81,900) (35,014) (48,733)
-------- -------- -------- -------- ---------- ---------- -------- --------
Total Retail Class A Share Transactions 42,160 59,359 (2,170) 8,649 5,025 78,266 (14,003) 21,631
-------- -------- -------- -------- ---------- ---------- -------- --------
Retail Class B:
Shares Issued -- -- -- -- -- -- -- --
Shares Issued in Lieu of Cash
Distributions -- -- -- -- -- -- -- --
Shares Redeemed -- -- -- -- -- -- -- --
-------- -------- -------- -------- ---------- ---------- -------- --------
Total Retail Class B Share Transactions -- -- -- -- -- -- -- --
-------- -------- -------- -------- ---------- ---------- -------- --------
Institutional II Class:
Shares Issued 276,699 248,051 99,117 80,395 341,064 470,456 115,646 247,477
Shares Issued in Lieu of Cash
Distributions -- -- -- -- -- -- -- --
Shares Redeemed (165,891) (228,716) 86,918) (67,649) (202,651) (416,112) (108,541) (216,118)
-------- -------- -------- -------- ---------- ---------- -------- --------
Total Institutional II Class
Share Transactions 110,808 19,335 12,199 12,746 138,413 54,344 7,105 31,359
-------- -------- -------- -------- ---------- ---------- -------- --------
Increase (Decrease) in Net Assets from
Shareholder Transactions 346,606 (13,780) 271 42,750 240,762 167,648 23,684 89,785
-------- -------- -------- -------- ---------- ---------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS 346,607 (13,792) 271 42,751 240,773 167,672 23,735 89,740
NET ASSETS:
Beginning of period 496,780 510,572 145,064 102,313 1,455,734 1,288,062 392,833 303,093
-------- -------- -------- -------- ---------- ---------- -------- --------
End of period $843,387 $496,780 $145,335 $145,064 $1,696,507 $1,455,734 $416,568 $392,833
======== ======== ======== ======== ========== ========== ======== ========
SHARES ISSUED AND REDEEMED:
Institutional Class:
Shares Issued 481,624 678,729 47,890 129,030 877,477 2,467,089 184,822 483,164
Shares Issued in Conjunction
with Acquisition of the
ARK Pennsylvania Tax-Free Portfolio -- -- -- -- -- -- -- --
Shares Issued in Lieu of Cash
Distributions -- -- -- -- 5 21 3 6
Shares Redeemed (287,986) (771,203) (57,648) (107,675) (780,158) (2,432,072) (154,243) (446,375)
-------- -------- -------- -------- ---------- ---------- -------- --------
Total Institutional Class Share
Transactions 193,638 (92,474) (9,758) 21,355 97,324 35,038 30,582 36,795
-------- -------- -------- -------- ---------- ---------- -------- ---------
Retail Class A:
Shares Issued 87,121 436,117 34,496 84,889 180,586 160,166 20,531 69,512
Shares Issued in Conjunction with
Acquisition of the ARK Pennsylvania
Tax-Free Portfolio -- -- -- -- -- -- -- --
Shares Issued in Lieu of Cash
Distributions 5,200 8,342 348 806 -- -- 480 852
Shares Redeemed (50,161) (385,100) (37,014) (77,046) (175,561) (81,900) (35,014) (48,733)
-------- -------- -------- -------- ---------- ---------- -------- ---------
Total Retail Class A Share Transactions 42,160 59,359 (2,170) 8,649 5,025 78,266 (14,003) 21,631
-------- -------- -------- -------- ----------- ---------- -------- ---------
Retail Class B:
Shares Issued -- -- -- -- -- -- -- --
Shares Issued in Lieu of Cash
Distributions -- -- -- -- -- -- -- --
Shares Redeemed -- -- -- -- -- -- -- --
-------- -------- -------- -------- ---------- ---------- -------- --------
Total Retail Class B Share Transactions -- -- -- -- -- -- -- --
-------- -------- -------- -------- ---------- ---------- -------- ---------
Institutional II Class:
Shares Issued 276,699 248,051 99,117 80,395 341,064 470,456 115,646 247,477
Shares Issued in Lieu of Cash
Distributions -- -- -- -- -- -- -- --
Shares Redeemed (165,891) (228,716) (86,918) (67,649) (202,651) (416,112) (108,541) (216,118)
-------- -------- -------- -------- ---------- ---------- -------- ---------
Total Institutional II Class Share
Transactions 110,808 19,335 12,199 12,746 138,413 54,344 7,105 31,359
-------- -------- -------- -------- ---------- ---------- -------- ---------
Net Increase (Decrease) in Share
Transactions 346,606 (13,780) 271 42,750 240,762 167,648 23,684 89,785
======== ======== ======== ======== ========== ========== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
90
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (000) (UNAUDITED)
For the Period Indicated
<TABLE>
<CAPTION>
SHORT-TERM SHORT-TERM MARYLAND
TREASURY PORTFOLIO BOND PORTFOLIO TAX-FREE PORTFOLIO
------------------- ------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
5/1/98 5/1/97 5/1/98 3/1/98 3/1/97 5/1/98 5/1/97
to to to to to to to
10/31/98 4/30/98 10/31/98 4/30/98 2/28/98 10/31/98 4/30/98
------------------- ------------------------------- ----------------------
OPERATIONS:
Net Investment Income $ 1,031 $ 2,103 $ 3,624 $ 1,200 $ 8,182 $ 2,478 $ 4,673
Net Realized Gain (Loss) on Investments 183 62 305 1 (317) 359 541
Net Change in Unrealized Appreciation
(Depreciation) on Investments 591 357 1,108 (172) 584 2,137 2,461
-------- -------- -------- -------- ---------- -------- --------
Net Increase (Decrease)
in Net Assets from Operations 1,805 2,522 5,037 1,029 8,449 4,974 7,675
-------- -------- -------- -------- ---------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income
Institutional Class (687) (1,221) (3,611) (1,203) (8,140) (1,904) (3,834)
Retail Class A (344) (882) -- -- -- (574) (838)
Retail Class B -- -- -- -- -- -- --
Institutional II Class -- -- -- -- -- -- --
Net Capital Gains
Institutional Class -- (25) -- -- -- -- (466)
Retail Class A -- (18) -- -- -- -- (121)
Retail Class B -- -- -- -- -- -- --
-------- -------- -------- -------- ---------- -------- --------
Total Distributions (1,031) (2,146) (3,611) (1,203) (8,140) (2,478) (5,259)
-------- -------- -------- -------- ---------- -------- --------
CAPITAL SHARE TRANSACTIONS:
Institutional Class:
Shares Issued 5,213 4,390 15,711 3,424 25,180 9,303 11,869
Shares Issued in Conjunction with
Acquisition of the ARK Pennsylvania
Tax-Free Portfolio -- -- -- -- -- -- --
Shares Issued in Lieu of Cash
Distributions 61 30 2,095 690 4,387 18 502
Shares Redeemed (977) (1,242) (15,760) (5,815) (42,510) (5,628) (10,974)
-------- -------- -------- -------- ---------- -------- --------
Total Institutional Class Share
Transactions 4,297 3,178 2,046 (1,701) (12,943) 3,693 1,397
-------- -------- -------- -------- ---------- -------- --------
Retail Class A:
Shares Issued 1,422 2,600 -- -- -- 5,653 22,144
Shares Issued in Conjunction with
Acquisition of the ARK Pennsylvania
Tax-Free Portfolio -- -- -- -- -- -- --
Shares Issued in Lieu of Cash
Distributions 344 900 -- -- -- 574 959
Shares Redeemed (1,975) (12,215) -- -- -- (4,071) (6,023)
-------- -------- -------- -------- ---------- -------- --------
Total Retail Class A Share Transactions (209) 8,715 -- -- -- 2,156 17,080
-------- -------- -------- -------- ---------- -------- --------
Retail Class B:
Shares Issued -- -- -- -- -- -- --
Shares Issued in Lieu of Cash
Distributions -- -- -- -- -- -- --
Shares Redeemed -- -- -- -- -- -- --
-------- -------- -------- -------- ---------- -------- --------
Total Retail Class B Share Transactions -- -- -- -- -- -- --
-------- -------- -------- -------- ---------- -------- --------
Institutional II Class:
Shares Issued -- -- -- -- -- -- --
Shares Issued in Lieu of Cash
Distributions -- -- -- -- -- -- --
Shares Redeemed -- -- -- -- -- -- --
-------- -------- -------- -------- ---------- -------- --------
Total Institutional II Class
Share Transactions -- -- -- -- -- -- --
-------- -------- -------- -------- ---------- -------- --------
Increase (Decrease) in Net Assets from
Shareholder Transactions 4,088 (5,537) 2,046 (1,701) (12,943) 5,849 18,477
-------- -------- -------- -------- ---------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS 4,862 (5,161) 3,472 (1,875) (12,634) 8,345 20,893
NET ASSETS:
Beginning of period 39,339 44,500 131,669 133,544 146,178 108,498 87,605
-------- -------- -------- -------- ---------- -------- --------
End of period $ 44,201 $ 39,339 $135,141 $131,669 $ 133,544 $116,843 $108,498
======== ======== ======== ======== ========== ======== ========
SHARES ISSUED AND REDEEMED:
Institutional Class:
Shares Issued 516 436 1,574 349 2,528 905 1,168
Shares Issued in Conjunction
with Acquisition of the
ARK Pennsylvania Tax-Free Portfolio -- -- -- -- -- -- --
Shares Issued in Lieu of Cash
Distributions 6 3 209 69 441 2 49
Shares Redeemed (96) (123) (1,577) (594) (4,263) (551) (1,081)
-------- -------- -------- -------- ---------- -------- --------
Total Institutional Class Share
Transactions 426 316 206 (176) (1,294) 356 136
-------- -------- -------- -------- ---------- -------- --------
Retail Class A:
Shares Issued 140 259 -- -- -- 550 2,179
Shares Issued in Conjunction with
Acquisition of the ARK Pennsylvania
Tax-Free Portfolio -- -- -- -- -- -- --
Shares Issued in Lieu of Cash
Distributions 34 90 -- -- -- 56 94
Shares Redeemed (195) (1,217) -- -- -- (396) (591)
-------- -------- -------- -------- ---------- -------- ---------
Total Retail Class A Share Transactions (21) (868) -- -- -- 210 1,682
-------- -------- -------- -------- ----------- -------- --------
Retail Class B:
Shares Issued -- -- -- -- -- -- --
Shares Issued in Lieu of Cash
Distributions -- -- -- -- -- -- --
Shares Redeemed -- -- -- -- -- -- --
-------- -------- -------- -------- ---------- -------- --------
Total Retail Class B Share Transactions -- -- -- -- -- -- --
-------- -------- -------- -------- ---------- -------- --------
Institutional II Class:
Shares Issued -- -- -- -- -- -- --
Shares Issued in Lieu of Cash
Distributions -- -- -- -- -- -- --
Shares Redeemed -- -- -- -- -- -- --
-------- -------- -------- -------- ---------- -------- --------
Total Institutional II Class Share
Transactions -- -- -- -- -- -- --
-------- -------- -------- -------- ---------- -------- --------
Net Increase (Decrease) in Share
Transactions 405 (552) 206 (176) (1,294) 566 1,818
======== ======== ======== ======== ========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
PENNSYLVANIA INCOME INTERMEDIATE FIXED
TAX-FREE PORTFOLIO PORTFOLIO INCOME PORTFOLIO
------------------------------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
5/1/98 3/1/98 3/1/97 5/1/98 5/1/97 5/1/98 5/1/97
to to to to to to to
10/31/98 4/30/98 2/28/98 10/31/98 4/30/98 10/31/98 4/30/98
------------------------------- ------------------- ----------------------
OPERATIONS:
Net Investment Income $ 4,475 $ 1,346 $ 9,075 $ 10,219 $ 16,979 $ 2,577 $ 4,721
Net Realized Gain (Loss) on Investments 965 384 1,985 808 3,238 249 356
Net Change in Unrealized Appreciation
(Depreciation) on Investments 4,379 (3,114) 2,425 569 7,153 1,831 1,393
-------- -------- ---------- -------- -------- -------- --------
Net Increase (Decrease)
in Net Assets from Operations 9,819 (1,384) 13,485 11,596 27,370 4,657 6,470
-------- -------- ---------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income
Institutional Class (4,395) (1,421) (9,058) (9,926) (16,640) (2,569) (4,723)
Retail Class A (56) (11) (530) (210) (324) -- --
Retail Class B -- -- -- -- -- -- --
Institutional II Class -- -- -- -- -- -- --
Net Capital Gains
Institutional Class -- (85) -- -- -- -- (206)
Retail Class A -- -- -- -- -- -- --
Retail Class B -- -- -- -- -- -- --
-------- -------- ---------- -------- -------- -------- --------
Total Distributions (4,451) (1,517) (9,588) (10,136) (16,964) (2,569) (4,929)
-------- -------- ---------- -------- -------- -------- --------
CAPITAL SHARE TRANSACTIONS:
Institutional Class:
Shares Issued 8,564 1,992 23,203 30,935 95,431 13,150 17,828
Shares Issued in Conjunction with
Acquisition of the ARK Pennsylvania
Tax-Free Portfolio -- 24,789 -- -- -- -- --
Shares Issued in Lieu of Cash
Distributions 35 5 17 6,723 10,893 185 303
Shares Redeemed (9,189) (4,056) (53,188) (26,434) (37,186) (5,442) (11,670)
-------- -------- ---------- -------- -------- -------- --------
Total Institutional Class Share
Transactions (590) (22,730) (29,968) 11,224 69,138 7,893 6,461
-------- -------- ---------- -------- -------- -------- --------
Retail Class A:
Shares Issued 681 216 -- 1,622 3,976 -- --
Shares Issued in Conjunction with
Acquisition of the ARK Pennsylvania
Tax-Free Portfolio -- 2,600 -- -- -- -- --
Shares Issued in Lieu of Cash
Distributions 53 10 -- 193 324 -- --
Shares Redeemed (398) (218) -- (587) (1,719) -- --
-------- -------- ---------- -------- -------- -------- --------
Total Retail Class A Share Transactions 336 2,608 -- 1,228 2,581 -- --
-------- -------- ---------- -------- -------- -------- --------
Retail Class B: 66
Shares Issued -- -- -- -- -- -- --
Shares Issued in Lieu of Cash
Distributions -- -- -- -- -- -- --
Shares Redeemed -- -- -- (11) -- -- --
-------- -------- ---------- -------- -------- -------- --------
Total Retail Class B Share Transactions -- -- -- 55 -- -- --
-------- -------- ---------- -------- -------- -------- --------
Institutional II Class:
Shares Issued -- -- -- -- -- -- --
Shares Issued in Lieu of Cash
Distributions -- -- -- -- -- -- --
Shares Redeemed -- -- -- -- -- -- --
-------- -------- ---------- -------- -------- -------- --------
Total Institutional II Class
Share Transactions -- -- -- -- -- -- --
-------- -------- ---------- -------- -------- -------- --------
Increase (Decrease) in Net Assets from
Shareholder Transactions (254) 25,338 (29,968) 12,507 71,719 7,893 6,461
-------- -------- ---------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS 5,114 22,437 (26,071) 13,967 82,125 9,981 8,002
NET ASSETS:
Beginning of period 217,759 195,332 221,393 329,193 247,068 84,328 76,326
-------- -------- ---------- -------- -------- -------- --------
End of period $222,873 $217,759 $ 195,322 $343,160 $329,193 $ 94,309 $ 84,328
======== ======== ========== ======== ======== ======== ========
SHARES ISSUED AND REDEEMED:
Institutional Class:
Shares Issued 831 207 2,308 2,996 9,322 1,303 1,782
Shares Issued in Conjunction
with Acquisition of the
ARK Pennsylvania Tax-Free Portfolio -- 2,427 -- -- -- -- --
Shares Issued in Lieu of Cash
Distributions 3 1 2 650 1,072 18 30
Shares Redeemed (890) (409) (5,265) (2,542) (3,679) (539) (1,168)
-------- -------- ---------- -------- -------- -------- --------
Total Institutional Class Share
Transactions (56) 2,226 (2,955) 1,104 6,715 782 644
-------- -------- ---------- -------- -------- -------- --------
Retail Class A:
Shares Issued 66 21 -- 155 387 -- --
Shares Issued in Conjunction with
Acquisition of the ARK Pennsylvania
Tax-Free Portfolio -- 253 -- -- -- -- --
Shares Issued in Lieu of Cash
Distributions 5 1 -- 18 32 -- --
Shares Redeemed (39) (21) -- (56) (167) -- --
-------- -------- ---------- -------- -------- -------- ---------
Total Retail Class A Share Transactions 32 254 -- (117) (252) -- --
-------- -------- ----------- -------- -------- -------- --------
Retail Class B:
Shares Issued -- -- -- 6 -- -- --
Shares Issued in Lieu of Cash
Distributions -- -- -- -- -- -- --
Shares Redeemed -- -- -- (1) -- -- --
-------- -------- ---------- -------- -------- -------- --------
Total Retail Class B Share Transactions -- -- -- 5 -- -- --
-------- -------- ---------- -------- -------- -------- --------
Institutional II Class:
Shares Issued -- -- -- -- -- -- --
Shares Issued in Lieu of Cash
Distributions -- -- -- -- -- -- --
Shares Redeemed -- -- -- -- -- -- --
-------- -------- ---------- -------- -------- -------- --------
Total Institutional II Class Share
Transactions -- -- -- -- -- -- --
-------- -------- ---------- -------- -------- -------- --------
Net Increase (Decrease) in Share
Transactions (24) 2,480 (2,955) 1,226 (6,967) 782 644
======== ======== ========== ======== ======== ======== ========
</TABLE>
91
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (000) (UNAUDITED)
For the Period Indicated
<TABLE>
<CAPTION>
EQUITY
U.S. GOVERNMENT BALANCED INCOME
BOND PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------- ----------------------- ------------------------
5/1/98 3/1/98 3/1/97 5/1/98 5/1/97 5/1/98 5/1/97
to 10/31/98 to 4/30/98 to 2/28/98 to 10/31/98 to 4/30/98 to 10/31/98 to 4/30/98
----------- ---------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net Investment Income (Loss) $ 7,610 $ 2,684 $ 18,555 $ 1,378 $ 2,314 $ 1,166 $ 2,547
Net Realized Gain (Loss)
on Investments 114 86 (923) 355 10,217 (504) 9,065
Net Change in Unrealized Appreciation
(Depreciation) on Investments 4,139 (325) 2,239 (1,335) 13,045 (4,732) 15,858
-------- -------- -------- -------- -------- -------- --------
Net Increase (Decrease) in Net Assets
from Operations 11,863 2,445 19,871 398 25,576 (4,070) 27,470
-------- -------- -------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income
Institutional Class (7,491) (2,684) (18,542) (1,136) (2,071) (1,131) (2,505)
Retail Class A (6) -- -- (179) (233) (36) (43)
Retail Class B -- -- -- -- -- -- --
Institutional II Class -- -- -- -- -- -- --
Net Capital Gains
Institutional Class -- -- -- -- (8,182) -- (9,335)
Retail Class A -- -- -- -- (1,083) -- (225)
Retail Class B -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total Distributions (7,497) (2,684) (18,542) (1,315) (11,569) (1,167) (12,108)
-------- -------- -------- -------- -------- -------- --------
CAPITAL SHARE TRANSACTIONS:
Institutional Class:
Shares Issued 10,895 6,075 69,240 17,270 15,826 2,896 9,302
Shares Issued in Conjunction with
Acquisition of the ARK
Stock Portfolio -- -- -- -- -- -- --
Shares Issued in Lieu of
Cash Distributions 2,166 758 5,185 1,115 10,175 25 9,363
240
Shares Redeemed (16,577) (5,543) (70,231) (10,458) (18,845) (5,248) (11,250)
-------- -------- -------- -------- -------- -------- --------
Total Institutional Class
Share Transactions (3,516) 1,290 4,194 7,927 7,156 (2,327) 7,415
-------- -------- -------- -------- -------- -------- --------
Retail Class A:
Shares Issued 653 30 -- 5,313 9,134 511 3,410
Shares Issued in Lieu of
Cash Distributions 4 -- -- 176 1,316 36 267
Shares Redeemed (126) -- -- (2,084) (2,832) (347) (330)
-------- -------- -------- -------- -------- -------- --------
Total Retail Class A
Share Transactions 531 30 -- 3,405 7,618 200 3,347
-------- -------- -------- -------- -------- -------- --------
Retail Class B:
Shares Issued -- -- -- 181 -- -- --
Shares Issued in Lieu of
Cash Distributions -- -- -- 1 -- -- --
Shares Redeemed -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total Retail Class B Share Transactions -- -- -- 182 -- -- --
-------- -------- -------- -------- -------- -------- --------
Institutional II Class:
Shares Issued -- -- -- -- -- -- --
Shares Issued in Lieu of |
Cash Distributions -- -- -- -- -- -- --
Shares Redeemed -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total Institutional II Class
Share Transactions -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Increase (Decrease) in Net Assets
from Shareholder Transactions (2,985) 1,320 4,194 11,514 14,774 (2,127) 10,762
-------- -------- -------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS 1,381 1,081 5,523 10,597 28,781 (7,364) 26,124
NET ASSETS:
Beginning of period 265,646 264,565 259,042 111,932 83,151 110,071 83,947
-------- -------- -------- -------- -------- -------- --------
End of period $267,027 $265,646 $264,565 $122,529 $111,932 $102,707 $110,071
======== ======== ======== ======== ======== ======== ========
SHARES ISSUED AND REDEEMED:
Institutional Class:
Shares Issued 1,097 618 7,072 1,322 1,229 243 767
Shares Issued in Conjunction with
Acquisition of the ARK
Stock Portfolio -- -- -- -- -- -- --
Shares Issued in Lieu of
Cash Distributions 217 77 529 86 848 2 810
Shares Redeemed (1,666) (564) (7,146) (776) (1,497) (444) (930)
-------- -------- -------- -------- -------- -------- --------
Total Institutional Class
Share Transactions (352) 131 455 632 580 (199) 647
-------- -------- -------- -------- -------- -------- --------
Retail Class A:
Shares Issued 65 3 -- 405 716 43 278
Shares Issued in Lieu of
Cash Distributions 1 -- -- 14 110 3 23
Shares Redeemed (13) -- -- (162) (224) (30) (27)
-------- -------- -------- -------- -------- -------- --------
Total Retail Class A
Share Transactions 53 3 -- 257 602 16 274
-------- -------- -------- -------- -------- -------- --------
Retail Class B:
Shares Issued -- -- -- 15 -- -- --
Shares Issued in Lieu of
Cash Distributions -- -- -- -- -- -- --
Shares Redeemed -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total Retail Class B
Share Transactions -- -- -- 15 -- -- --
-------- -------- -------- -------- -------- -------- --------
Institutional II Class:
Shares Issued -- -- -- -- -- -- --
Shares Issued in Lieu of
Cash Distributions -- -- -- -- -- -- --
Shares Redeemed -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total Institutional II Class
Share Transactions -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Increase (Decrease) in
Share Transactions (299) 134 455 904 1,182 (183) 921
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
VALUE EQUITY
EQUITY INDEX
PORTFOLIO PORTFOLIO
----------------------------------- -----------------------
5/1/98 3/1/98 3/1/97 5/1/98 5/1/97
to 10/31/98 to 4/30/98 to 2/28/98 to 10/31/98 to 4/30/98
----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net Investment Income (Loss) $ 2,278 $ 652 $ 6,834 $ 373 $ 283
Net Realized Gain (Loss)
on Investments (3,455) 5,752 80,123 100 420
Net Change in Unrealized Appreciation
(Depreciation) on Investments (23,825) 19,421 71,490 (27) 5,405
-------- -------- -------- -------- --------
Net Increase (Decrease) in Net Assets
from Operations (25,002) 25,825 158,447 446 6,108
-------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income
Institutional Class (2,313) (512) (6,768) (359) (242)
Retail Class A (7) -- -- (10) (3)
Retail Class B -- -- -- -- --
Institutional II Class -- -- -- -- --
Net Capital Gains
Institutional Class -- (1,196) (59,362) -- --
Retail Class A -- -- -- -- --
Retail Class B -- -- -- -- --
-------- -------- -------- -------- --------
Total Distributions (2,320) (1,708) (66,130) (369) (245)
-------- -------- -------- -------- --------
CAPITAL SHARE TRANSACTIONS:
Institutional Class:
Shares Issued 10,436 6,964 81,207 18,591 40,712
Shares Issued in Conjunction with
Acquisition of the ARK
Stock Portfolio -- 44,621 -- -- --
Shares Issued in Lieu of
Cash Distributions 961 765 32,139 320 240
Shares Redeemed (51,915) (8,420) (169,398) (2,322) (1,184)
-------- -------- -------- -------- --------
Total Institutional Class
Share Transactions (40,518) 43,930 (56,052) 16,589 39,768
-------- -------- -------- -------- --------
Retail Class A:
Shares Issued 2,413 228 -- 833 1,420
Shares Issued in Lieu of
Cash Distributions 3 -- -- 10 4
Shares Redeemed (715) -- -- (94) (107)
-------- -------- -------- -------- --------
Total Retail Class A
Share Transactions 1,701 228 -- 749 1,317
-------- -------- -------- -------- --------
Retail Class B:
Shares Issued 8 -- -- -- --
Shares Issued in Lieu of
Cash Distributions -- -- -- -- --
Shares Redeemed -- -- -- -- --
-------- -------- -------- -------- --------
Total Retail Class B Share Transactions 8 -- -- -- --
-------- -------- -------- -------- --------
Institutional II Class:
Shares Issued -- -- -- -- --
Shares Issued in Lieu of |
Cash Distributions -- -- -- -- --
Shares Redeemed -- -- -- -- --
-------- -------- -------- -------- --------
Total Institutional II Class
Share Transactions -- -- -- -- --
-------- -------- -------- -------- --------
Increase (Decrease) in Net Assets
from Shareholder Transactions (38,809) 44,158 (56,052) 17,338 41,085
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS (66,131) 68,275 36,265 17,415 46,948
NET ASSETS:
Beginning of period 645,429 577,154 540,889 46,948 --
-------- -------- -------- -------- --------
End of period $579,298 $645,429 $577,154 $ 64,363 $ 46,948
======== ======== ======== ======== ========
SHARES ISSUED AND REDEEMED:
Institutional Class:
Shares Issued 744 470 6,184 1,639 4,019
Shares Issued in Conjunction with
Acquisition of the ARK
Stock Portfolio -- 3,061 -- -- --
Shares Issued in Lieu of
Cash Distributions 70 53 2,486 28 22
Shares Redeemed (3,775) (586) (12,877) (202) (111)
-------- -------- -------- -------- --------
Total Institutional Class
Share Transactions (2,961) 2,998 (4,207) 1,465 3,930
-------- -------- -------- -------- --------
Retail Class A:
Shares Issued 169 16 -- 73 132
Shares Issued in Lieu of
Cash Distributions -- -- -- 1 --
Shares Redeemed (52) -- -- (8) (10)
-------- -------- -------- -------- --------
Total Retail Class A
Share Transactions 117 16 -- 66 122
-------- -------- -------- -------- --------
Retail Class B:
Shares Issued 1 -- -- -- --
Shares Issued in Lieu of
Cash Distributions -- -- -- -- --
Shares Redeemed -- -- -- -- --
-------- -------- -------- -------- --------
Total Retail Class B
Share Transactions 1 -- -- -- --
-------- -------- -------- -------- --------
Institutional II Class:
Shares Issued -- -- -- -- --
Shares Issued in Lieu of
Cash Distributions -- -- -- -- --
Shares Redeemed -- -- -- -- --
-------- -------- -------- -------- --------
Total Institutional II Class
Share Transactions -- -- -- -- --
-------- -------- -------- -------- --------
Net Increase (Decrease) in
Share Transactions (2,843) 3,014 (4,207) 1,531 4,052
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
92
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (000) (UNAUDITED)
For the Period Indicated
<TABLE>
BLUE CHIP CAPITAL MID-CAP
EQUITY GROWTH EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------ ------------------------ ------------------------
5/1/98 5/1/97 5/1/98 5/1/97 5/1/98 5/1/97
to 10/31/98 to 4/30/98 to 10/31/98 to 4/30/98 to 10/31/98 to 4/30/98
----------- ---------- ----------- ---------- ----------- ----------
OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income (Loss) $ 450 $ 671 $ (13) $ 41 $ 23 $ 123
Net Realized Gain (Loss) (781) 3,473 (2,239) 6,670 (1,263) 4,248
on Investments
Net Change in Unrealized Appreciation
(Depreciation) on Investments (268) 21,036 1,950 11,791 (4,895) 10,632
--------- -------- -------- -------- -------- --------
Net Increase (Decrease) in Net Assets
from Operations (599) 25,180 (302) 18,502 (6,135) 15,003
--------- -------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income
Institutional Class (301) (448) -- (113) (12) (129)
Retail Class A (124) (202) -- (14) -- --
Retail Class B -- -- -- -- -- --
Institutional II Class -- -- -- -- -- --
Net Capital Gains
Institutional Class -- (302) -- (5,271) -- (2,376)
Retail Class A -- -- -- -- -- --
Retail Class B -- (186) -- (1,458) -- --
--------- -------- -------- -------- -------- --------
Total Distributions (425) (1,138) -- (6,856) (12) (2,505)
--------- -------- -------- -------- -------- --------
CAPITAL SHARE TRANSACTIONS:
Institutional Class:
Shares Issued 24,029 19,277 15,076 14,093 7,044 19,182
Shares Issued in Conjunction
with Acquisition of the
ARK Stock Portfolio -- -- -- -- -- --
--------- -------- -------- -------- -------- --------
Shares Issued in Lieu of
Cash Distributions 163 541 -- 5,377 5 2,415
Shares Redeemed (3,618) (3,952) (5,157) (4,689) (5,874) (2,310)
--------- -------- -------- -------- -------- --------
Total Institutional Class Share
Transactions 20,574 15,866 9,919 6,725 2,360 15,723
--------- -------- -------- -------- -------- --------
Retail Class A:
Shares Issued 6,483 25,471 2,687 7,125 -- --
Shares Issued in Lieu of
Cash Distributions 122 388 1,472 -- -- --
Shares Redeemed (4,692) (4,308) (1,272) (1,717) -- --
--------- -------- -------- -------- -------- --------
Total Retail Class A
Share Transactions 1,913 21,551 1,415 6,880 -- --
--------- -------- -------- -------- -------- --------
Retail Class B:
Shares Issued 426 -- 141 -- -- --
Shares Issued in Lieu of
Cash Distributions -- -- -- -- -- --
Shares Redeemed -- -- -- -- -- --
--------- -------- -------- -------- -------- --------
Total Retail Class B
Share Transactions 426 -- 141 -- -- --
--------- -------- -------- -------- -------- --------
Institutional II Class:
Shares Issued -- -- -- -- -- --
Shares Issued in Lieu of
Cash Distributions -- -- -- -- -- --
Shares Redeemed -- -- -- -- -- --
--------- -------- -------- -------- -------- --------
Total Institutional II Class
Share Transactions -- -- -- -- -- --
--------- -------- -------- -------- -------- --------
Increase (Decrease) in Net Assets from
Shareholder Transactions 22,913 37,417 11,475 13,605 2,360 15,723
--------- -------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS 21,889 61,459 11,173 25,251 (3,787) 28,221
NET ASSETS:
Beginning of period 110,360 48,901 65,016 39,765 55,280 27,059
--------- -------- -------- -------- -------- --------
End of period $ 132,249 $110,360 $ 76,189 $ 65,016 $ 51,493 $ 55,280
========= ======== ======== ======== ======== ========
SHARES ISSUED AND REDEEMED:
Institutional Class:
Shares Issued 1,437 1,297 1,024 1,020 530 1,536
Shares Issued in Conjunction with
Acquisition of the ARK Stock
Portfolio -- -- -- -- -- --
Shares Issued in Lieu of
Cash Distribution 10 36 -- 433 1 200
Shares Redeemed (223) (270) (351) (923) (380) (480)
--------- -------- -------- -------- -------- --------
Total Institutional Class
Share Transactions 1,224 1,063 673 530 151 1,256
--------- -------- -------- -------- -------- --------
Retail Class A:
Shares Issued 387 1,746 183 504 -- --
Shares Issued in Lieu of
Cash Distributions 8 26 -- 119 -- --
Shares Redeemed (287) (289) (88) (123) -- --
--------- -------- -------- -------- -------- --------
Total Retail Class B
Share Transactions 108 1,483 95 500 -- --
--------- -------- -------- -------- -------- --------
Retail Class B:
Shares Issued 27 -- 10 -- -- --
Shares Issued in Lieu of
Cash Distributions -- -- -- -- -- --
Shares Redeemed -- -- -- -- -- --
--------- -------- -------- -------- -------- --------
Total Retail Class B
Share Transactions 27 -- 10 -- -- --
--------- -------- -------- -------- -------- --------
Institutional II Class:
Shares Issued -- -- -- -- -- --
Shares Issued in Lieu of
Cash Distributions -- -- -- -- -- --
Shares Redeemed -- -- -- -- -- --
--------- -------- -------- -------- -------- --------
Total Institutional II Class
Share Transactions -- -- -- -- -- --
--------- -------- -------- -------- -------- --------
Net Increase (Decrease) in
Share Transactions 1,359 2,546 778 1,030 151 1,256
========= ======== ======== ======== ======== ========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS (000) (UNAUDITED)
For the Period Indicated
<TABLE>
SMALL-CAP INTERNATIONAL
EQUITY EQUITY SELECTION
PORTFOLIO PORTFOLIO
------------------------ ------------------------
5/1/98 5/1/97 5/1/98 3/1/98
to 10/31/98 to 4/30/98 to 10/31/98 to 4/30/98
----------- ---------- ----------- ----------
OPERATIONS:
<S> <C> <C> <C> <C>
Net Investment Income (Loss) $ (40) $ (64) $ 74 $ (34)
Net Realized Gain (Loss) (732) 4,416 (92) 48
on Investments
Net Change in Unrealized Appreciation
(Depreciation) on Investments (3,146) 4,818 (5,232) 2,204
-------- -------- -------- --------
Net Increase (Decrease) in Net Assets
from Operations (3,918) 9,170 (5,250) 2,218
-------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income
Institutional Class -- -- -- --
Retail Class A -- -- -- --
Retail Class B -- -- -- --
Institutional II Class -- -- -- --
Net Capital Gains
Institutional Class -- (1,266) -- --
Retail Class A -- -- -- --
Retail Class B -- (93) -- --
-------- -------- -------- --------
Total Distributions -- (1,359) -- --
-------- -------- -------- --------
CAPITAL SHARE TRANSACTIONS:
Institutional Class:
Shares Issued 1,648 4,789 3,252 3,794
Shares Issued in Conjunction
with Acquisition of the
ARK Stock Portfolio -- -- -- --
Shares Issued in Lieu of
Cash Distributions -- 1,198 -- --
Shares Redeemed (2,310) (3,721) (5,171) (360)
-------- -------- -------- --------
Total Institutional Class Share
Transactions (662) 2,266 (1,919) 3,434
-------- -------- -------- --------
Retail Class A:
Shares Issued 372 541 1,300 13
Shares Issued in Lieu of
Cash Distributions 93 93 --
Shares Redeemed (190) (307) (1) --
-------- -------- -------- --------
Total Retail Class A
Share Transactions 182 327 1,299 13
-------- -------- -------- --------
Retail Class B:
Shares Issued -- -- -- --
Shares Issued in Lieu of
Cash Distributions -- -- -- --
Shares Redeemed -- -- -- --
-------- -------- -------- --------
Total Retail Class B
Share Transactions -- -- -- --
-------- -------- -------- --------
Institutional II Class:
Shares Issued -- -- -- --
Shares Issued in Lieu of
Cash Distributions -- -- -- --
Shares Redeemed -- -- -- --
-------- -------- -------- --------
Total Institutional II Class
Share Transactions -- -- -- --
-------- -------- -------- --------
Increase (Decrease) in Net Assets from
Shareholder Transactions (480) 2,593 (620) 3,447
-------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS (4,398) 10,404 (5,870) 5,665
NET ASSETS:
Beginning of period 29,225 18,821 41,523 35,858
-------- -------- -------- --------
End of period $ 24,827 $ 29,225 $ 35,653 $ 41,523
======== ======== ======== ========
SHARES ISSUED AND REDEEMED:
Institutional Class:
Shares Issued 154 449 295 333
Shares Issued in Conjunction with
Acquisition of the ARK Stock
Portfolio -- -- -- --
Shares Issued in Lieu of
Cash Distribution -- 124 -- --
Shares Redeemed (235) (345) (523) (32)
-------- -------- -------- --------
Total Institutional Class
Share Transactions (81) 228 (228) 301
-------- -------- -------- --------
Retail Class A:
Shares Issued 35 50 114 1
Shares Issued in Lieu of
Cash Distributions -- 10 -- --
Shares Redeemed (18) (29) -- --
-------- -------- -------- --------
Total Retail Class B
Share Transactions 17 31 114 1
-------- -------- -------- --------
Retail Class B:
Shares Issued -- -- -- --
Shares Issued in Lieu of
Cash Distributions -- -- -- --
Shares Redeemed -- -- -- --
-------- -------- -------- --------
Total Retail Class B
Share Transactions -- -- -- --
-------- -------- -------- --------
Institutional II Class:
Shares Issued -- -- -- --
Shares Issued in Lieu of
Cash Distributions -- -- -- --
Shares Redeemed -- -- -- --
-------- -------- -------- --------
Total Institutional II Class
Share Transactions -- -- -- --
-------- -------- -------- --------
Net Increase (Decrease) in
Share Transactions (64) 259 (114) 302
======== ======== ======== ========
</TABLE>
93
<PAGE>
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Period Ended October 31, 1998
(Unaudited) and the Periods Ended April 30,
<TABLE>
REALIZED
AND
NET ASSET UNREALIZED DISTRIBUTIONS DISTRIBUTIONS RATIO OF
VALUE, NET GAINS OR FROM NET FROM NET ASSET NET ASSETS EXPENSES
BEGINNING INVESTMENT (LOSSES) INVESTMENT CAPITAL VALUE, END TOTAL END OF TO AVERAGE
OF PERIOD INCOME AN INVESTMENTS INCOME GAINS OF PERIOD RETURN(A) PERIOD (000) NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------
MONEY MARKET PORTFOLIO
- ----------------------
INSTITUTIONAL CLASS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998* $1.00 0.03 -- (0.03) -- $1.00 5.40% $ 420,115 0.37%
1998 1.00 0.05 -- (0.05) -- 1.00 5.55 226,439 0.33
1997 1.00 0.05 -- (0.05) -- 1.00 5.36 318,919 0.28
1996 1.00 0.06 -- (0.06) -- 1.00 5.78 348,343 0.25
1995 1.00 0.05 -- (0.05) -- 1.00 5.13 277,859 0.20
1994 (1) 1.00 0.03 -- (0.03) -- 1.00 2.80+ 197,162 0.26*
RETAIL CLASS A
1998* $1.00 0.03 -- (0.03) -- $1.00 5.14% $ 230,209 0.62%
1998 1.00 0.05 -- (0.05) -- 1.00 5.25 188,048 0.62
1997 1.00 0.05 -- (0.05) -- 1.00 5.03 128,693 0.59
1996 1.00 0.05 -- (0.05) -- 1.00 5.44 104,703 0.58
1995 1.00 0.05 -- (0.05) -- 1.00 4.69 51,081 0.45
1994 (2) 1.00 -- -- -- -- 1.00 0.42+ 12 1.16*
INSTITUTIONAL II CLASS
1998* $1.00 0.03 -- (0.03) -- $1.00 5.36% $ 193,063 0.41%
1998 1.00 0.05 -- (0.05) -- 1.00 5.47 82,293 0.41
1997 1.00 0.05 -- (0.05) -- 1.00 5.25 62,960 0.38
1996 (3) 1.00 0.04 -- (0.04) -- 1.00 4.33+ 28,790 0.36*
- -------------------------------
TAX-FREE MONEY MARKET PORTFOLIO
- -------------------------------
INSTITUTIONAL CLASS
1998* $1.00 0.02 -- (0.02) -- $1.00 3.20% $ 80,689 0.37%
1998 1.00 0.03 -- (0.03) -- 1.00 3.45 90,446 0.32
1997 1.00 0.03 -- (0.03) -- 1.00 3.29 69,091 0.28
1996 1.00 0.04 -- (0.04) -- 1.00 3.61 74,739 0.22
1995 1.00 0.03 -- (0.03) -- 1.00 3.24 64,112 0.22
1994 (1) 1.00 0.02 -- (0.02) -- 1.00 1.87+ 66,692 0.35*
RETAIL CLASS A
1998* $1.00 0.01 -- (0.01) -- $1.00 2.94% $ 22,973 0.62%
1998 1.00 0.03 -- (0.03) -- 1.00 3.16 25,144 0.61
1997 1.00 0.03 -- (0.03) -- 1.00 3.01 16,495 0.55
1996 1.00 0.03 -- (0.03) -- 1.00 3.53 16,179 0.34
1995 1.00 0.03 -- (0.03) -- 1.00 2.74 2,491 0.75
1994 (4) 1.00 -- -- -- -- 1.00 0.20+ 50 1.25*
INSTITUTIONAL II CLASS
1998* $1.00 0.02 -- (0.02) -- $1.00 3.15% $ 41,673 0.40%
1998 1.00 0.03 -- (0.03) -- 1.00 3.37 29,474 0.40
1997 1.00 0.03 -- (0.03) -- 1.00 3.19 16,727 0.38
1996 (5) 1.00 0.02 -- (0.02) -- 1.00 2.62+ 9,387 0.33*
- --------------------------------------
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
- --------------------------------------
INSTITUTIONAL CLASS
1998* $1.00 0.03 -- (0.03) -- $1.00 5.26% $1,383,174 0.40%
1998 1.00 0.05 -- (0.05) -- 1.00 5.42 1,285,840 0.35
1997 1.00 0.05 -- (0.05) -- 1.00 5.22 1,250,778 0.32
1996 1.00 0.05 -- (0.05) -- 1.00 5.64 1,043,758 0.31
1995 1.00 0.05 -- (0.05) -- 1.00 5.00 651,113 0.25
1994 (1) 1.00 0.03 -- (0.03) -- 1.00 2.70+ 271,437 0.35*
RETAIL CLASS A
1998* $1.00 0.02 -- (0.02) -- $1.00 5.00% $ 83,290 0.64%
1998 (21) 1.00 0.04 -- (0.04) -- 1.00 5.19 78,265 0.67*
INSTITUTIONAL II CLASS
1998* $1.00 0.03 -- (0.03) -- $1.00 5.22% $ 230,043 0.44%
1998 1.00 0.05 -- (0.05) -- 1.00 5.33 91,629 0.44
1997 1.00 0.05 -- (0.05) -- 1.00 5.12 37,284 0.42
1996 (5) 1.00 0.04 -- (0.04) -- 1.00 4.11+ 17,027 0.41*
</TABLE>
RATIO
RATIO OF NET OF EXPENSES
INVESTMENT TO AVERAGE
INCOME NET ASSETS
TO AVERAGE (EXCLUDING
NET ASSETS WAIVERS)
- ---------------------------------------
- ----------------------
MONEY MARKET PORTFOLIO
- ----------------------
INSTITUTIONAL CLASS
1998* 5.27% 0.60%
1998 5.41 0.50
1997 5.23 0.43
1996 5.62 0.44
1995 5.13 0.46
1994 (1) 3.16* 0.52*
RETAIL CLASS A
1998* 5.02% 0.85%
1998 5.13 0.85
1997 4.92 0.83
1996 5.25 0.77
1995 4.88 0.97
1994 (2) 2.26* 592.55*
INSTITUTIONAL II CLASS
1998* 5.22% 0.55%
1998 5.33 0.55
1997 5.14 0.53
1996 (3) 5.37* 0.55*
- -------------------------------
TAX-FREE MONEY MARKET PORTFOLIO
- -------------------------------
INSTITUTIONAL CLASS
1998* 3.15% 0.62%
1998 3.39 0.51
1997 3.23 0.44
1996 3.54 0.45
1995 3.21 0.47
1994 (1) 2.10* 0.53*
RETAIL CLASS
1998* 2.90% 0.87%
1998 3.11 0.86
1997 2.97 0.84
1996 3.33 0.90
1995 2.68 2.94
1994 (4) 1.20* 32.17*
INSTITUTIONAL II CLASS
1998* 3.10% 0.56%
1998 3.31 0.56
1997 3.14 0.54
1996 (5) 3.35* 0.58*
- --------------------------------------
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
- --------------------------------------
INSTITUTIONAL CLASS
1998* 5.14% 0.60%
1998 5.29 0.49
1997 5.10 0.43
1996 5.45 0.44
1995 5.09 0.47
1994 (1) 3.03* 0.62*
RETAIL CLASS A
1998* 4.89% 0.84%
1998 (21) 4.98* 0.87*
INSTITUTIONAL II CLASS
1998* 5.09% 0.55%
1998 5.21 0.55
1997 5.01 0.53
1996 (5) 5.25* 0.56*
94
<PAGE>
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Period Ended October 31, 1998
(Unaudited) and the Periods Ended April 30,
<TABLE>
REALIZED
AND
NET ASSET UNREALIZED DISTRIBUTIONS DISTRIBUTIONS RATIO OF
VALUE, NET GAINS OR FROM NET FROM NET ASSET NET ASSETS EXPENSES
BEGINNING INVESTMENT (LOSSES) INVESTMENT CAPITAL VALUE, END TOTAL END OF TO AVERAGE
OF PERIOD INCOME AN INVESTMENTS INCOME GAINS OF PERIOD RETURN(A) PERIOD (000) NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------
U.S. TREASURY MONEY MARKET PORTFOLIO
- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL CLASS
1998* $1.00 0.02 -- (0.02) -- $ 1.00 4.84% $ 293,303 0.44%
1998 1.00 0.05 -- (0.05) -- 1.00 5.08 262,687 0.40
1997 1.00 0.05 -- (0.05) -- 1.00 5.00 225,924 0.37
1996 1.00 0.05 -- (0.05) -- 1.00 5.32 275,259 0.36
1995 1.00 0.05 -- (0.05) -- 1.00 4.60 221,069 0.38
1994 (1) 1.00 0.03 -- (0.03) -- 1.00 2.48+ 137,826 0.43*
RETAIL CLASS A
1998* $1.00 0.02 -- (0.02) -- $ 1.00 4.58% $ 21,303 0.69%
1998 1.00 0.05 -- (0.05) -- 1.00 4.77 35,302 0.70
1997 1.00 0.05 -- (0.05) -- 1.00 4.71 13,673 0.64
1996 (6) 1.00 0.02 -- (0.02) -- 1.00 1.82+ 8,758 0.55*
INSTITUTIONAL II CLASS
1998* $1.00 0.02 -- (0.02) -- $ 1.00 4.80% $ 101,962 0.48%
1998 1.00 0.05 -- (0.05) -- 1.00 4.99 94,844 0.48
1997 1.00 0.05 -- (0.05) -- 1.00 4.89 63,496 0.47
1996 (5) 1.00 0.04 -- (0.04) -- 1.00 3.87+ 47,220 0.47*
- -----------------------------
SHORT-TERM TREASURY PORTFOLIO
- -----------------------------
INSTITUTIONAL CLASS
1998* $10.05 0.25 0.18 (0.25) -- $10.23 4.36%+ $ 29,745 0.62%
1998 9.96 0.53 0.10 (0.53) (0.01) 10.05 6.48 24,929 0.55
1997 9.96 0.50 -- (0.49) (0.01) 9.96 5.13 21,563 0.55
1996 (7) 10.00 0.06 (0.04) (0.06) -- 9.96 0.16 18,823 0.55*
RETAIL CLASS A
1998* $10.05 0.24 0.18 (0.24) -- $10.23 4.27%+ $ 14,456 0.81%
1998 9.96 0.52 0.09 (0.51) (0.01) 10.05 6.23 14,410 0.78
1997 (8) 9.95 0.27 0.03 (0.28) (0.01) 9.96 3.39+ 22,937 0.67*
- -------------------------
SHORT-TERM BOND PORTFOLIO
- -------------------------
INSTITUTIONAL CLASS
1998* $ 9.95 0.27 0.11 (0.27) -- $10.06 3.86%+ $ 135,141 0.96%
1998 9.96 0.09 (0.01) (0.09) -- 9.95 0.82 131,669 0.97*
1998++ 9.95 0.57 0.01 (0.57) -- 9.96 5.98 133,544 0.82
1997++(22) 10.00 0.49 (0.05) (0.49) -- 9.95 4.49 146,178 0.90*
- ---------------------------
MARYLAND TAX-FREE PORTFOLIO
- ---------------------------
INSTITUTIONAL CLASS
1998* $10.14 0.23 0.23 (0.23) -- $10.37 4.56%+ $ 88,804 0.74%
1998 9.87 0.47 0.33 (0.47) (0.06) 10.14 8.15 83,215 0.68
1997 (9) 10.00 0.22 (0.13) (0.22) -- 9.87 0.89+ 79,608 0.67*
RETAIL CLASS A
1998* $10.14 0.22 0.23 (0.22) -- $10.37 4.47%+ $ 28,039 0.93%
1998 9.87 0.44 0.34 (0.45) (0.06) 10.14 7.91 25,283 0.90
1997(10) 9.96 0.13 (0.07) (0.15) -- 9.87 0.63+ 7,997 0.91*
- -------------------------------
PENNSYLVANIA TAX-FREE PORTFOLIO
- -------------------------------
INSTITUTIONAL CLASS
1998* $10.14 0.21 0.25 (0.21) -- $10.39 4.54%+ $ 219,893 0.88%
1998 10.28 0.07 (0.14) (0.07) -- 10.14 (0.66)+ 215,182 0.84*
1998++ 10.09 0.40 0.19 (0.40) -- 10.28 6.68 195,322 0.80
1997++(22) 10.00 0.40 0.09 (0.40) -- 10.09 5.03+ 221,393 0.83*
RETAIL CLASS A
1998* $10.13 0.20 0.25 (0.20) -- $10.38 4.46%+ $ 2,980 1.07%
1998 (24) 10.26 0.04 (0.13) (0.04) -- 10.13 (0.94)+ 2,577 1.01*
</TABLE>
RATIO
RATIO OF NET OF EXPENSES
INVESTMENT TO AVERAGE
INCOME (LOSS) NET ASSETS PORTFOLIO
TO AVERAGE (EXCLUDING TURNOVER
NET ASSETS WAIVERS) RATE
- ---------------------------------------------------------
- ------------------------------------
U.S. TREASURY MONEY MARKET PORTFOLIO
- ------------------------------------
INSTITUTIONAL CLASS
1998* 4.73% 0.59% --
1998 4.96 0.48 --
1997 4.88 0.43 --
1996 5.18 0.45 --
1995 4.59 0.47 --
1994 (1 2.80* 0.51* --
RETAIL CLASS A
1998* 4.50% 0.84% --
1998 4.66 0.85 --
1997 4.62 0.83 --
1996 (6) 4.71* 0.86* --
INSTITUTIONAL II CLASS
1998* 4.69% 0.54% --
1998 4.88 0.54 --
1997 4.79 0.53 --
1996 (5) 4.98* 0.55* --
- -----------------------------
SHORT-TERM TREASURY PORTFOLIO
- -----------------------------
INSTITUTIONAL CLASS
1998* 4.97% 0.71% 51.92%
1998 5.26 0.60 124.24
1997 5.11 0.60 147.86
1996 (7) (0.55)* 0.60* --
RETAIL CLASS A
1998* 4.78% 1.11% 51.92%
1998 5.02 1.07 124.24
1997 (8) 5.07* 0.91* 147.86
- -------------------------
SHORT-TERM BOND PORTFOLIO
- -------------------------
INSTITUTIONAL CLASS
1998* 5.37% 1.10% 40.51%
1998 5.14* 1.16* 108.18
1998 5.78 1.01 135.00
1997 (22) 5.47* 1.08 112.00
- ---------------------------
MARYLAND TAX-FREE PORTFOLIO
- ---------------------------
INSTITUTIONAL CLASS
1998* 4.42% 0.99% 15.95%
1998 4.62 0.77 22.40
1997 (9) 4.95* 0.72* 11.13
RETAIL CLASS A
1998* 4.23% 1.29% 15.95%
1998 4.39 1.15 22.40
1997(10) 4.70* 1.10* 11.13
- -------------------------------
PENNSYLVANIA TAX-FREE PORTFOLIO
- -------------------------------
INSTITUTIONAL CLASS
1998* 4.02% 0.97% 26.05%
1998 3.84* 0.91* 3.50
1998 4.43 1.00 57.00
1997 (22) 4.41* 1.02* 86.00
RETAIL CLASS A
1998* 3.83% 1.27% 26.05%
1998 (24) 3.72* 1.24* 3.50
[dagger] Returns are for the period indicated and have not been
annualized.
[double dagger] Period ended February 28. See Note 9 of Notes to Financial
Statements regarding fund mergers.
* All ratios for the period have been annualized, except where
otherwise noted.
(A) Total return for the retail class does not include the one time
sales charge.
(1) Commenced operations on June 14, 1993.
(2) Commenced operations on March 2, 1994.
(3) Commenced operations on July 21, 1995.
(4) Commenced operations on March 15, 1994.
(5) Commenced operations on July 28, 1995.
(6) Commenced operations on December 15, 1995.
(7) Commenced operations on March 20, 1996.
(8) Commenced operations on September 9, 1996.
(9) Commenced operations on November 18, 1996.
(10) Commenced operations on January 2, 1997.
(11) Commenced operations on July 16, 1993.
(12) Commenced operations on April 12, 1994.
(13) Commenced operations on March 9, 1994.
(14) Commenced operations on May 9, 1997.
(15) Commenced operations on October 1, 1997.
(16) Commenced operations on April 1, 1996.
(17) Commenced operations on May 16, 1996.
(18) Commenced operations on July 13, 1995.
(19) Commenced operations on December 30, 1994.
(20) Commenced operations on November 1, 1996.
(21) Commenced operations on July 7, 1997.
(22) Commenced operations on April 1, 1996.
(23) Commenced operations on April 1, 1997.
(24) Commenced operations on March 23, 1998.
(25) Commenced operations on April 1, 1998.
(26) Commenced operations on November 3, 1997.
(27) Commenced operations on July 31, 1998.
(28) Commenced operations on September 14, 1998.
The accompanying notes are an integral part of the financial statements.
95
<PAGE>
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Period Ended October 31, 1998
(Unaudited) and the Periods Ended April 30,
<TABLE>
REALIZED
AND
NET ASSET UNREALIZED DISTRIBUTIONS DISTRIBUTIONS RATIO OF
VALUE, NET GAINS OR FROM NET FROM NET ASSET NET ASSETS EXPENSES O
BEGINNING INVESTMENT (LOSSES) INVESTMENT CAPITAL VALUE, END TOTAL END OF TO AVERAGE
OF PERIOD INCOME AN INVESTMENTS INCOME GAINS OF PERIOD RETURN(A) PERIOD (000) NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------
INCOME PORTFOLIO
- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL CLASS
1998* $10.25 0.31 0.04 (0.31) -- $10.29 3.41%+ $334,969 0.77%
1998 9.82 0.61 0.43 (0.61) -- 10.25 10.84 322,304 0.73
1997 9.80 0.59 0.02 (0.59) -- 9.82 6.51 242,966 0.68
1996 9.60 0.61 0.20 (0.61) -- 9.80 8.46 180,962 0.73
1995 9.61 0.58 0.02 (0.58) (0.03) 9.60 6.53 66,441 0.74
1994 (11) 10.00 0.38 (0.38) (0.38) (0.01) 9.61 (0.08)+ 54,289 0.77*
RETAIL CLASS A
1998* $10.37 0.30 0.04 (0.30) -- $10.41 3.32%+ $ 8,136 0.96%
1998 9.94 0.58 0.44 (0.59) -- 10.37 10.47 6,889 0.95
1997 9.91 0.59 0.01 (0.57) -- 9.94 6.32 4,102 0.89
1996 9.72 0.60 0.19 (0.60) -- 9.91 8.14 4,184 1.02
1995 9.62 0.55 0.05 (0.47) (0.03) 9.72 6.45 296 1.23
1994 (12) 9.69 0.02 (0.06) (0.03) -- 9.62 (0.41)+ 30 1.72*
RETAIL CLASS B
1998 (28)* $10.40 0.10 (0.11) (0.10) -- $10.29 (0.14)%+ $ 55 1.72%
- -----------------------------------
INTERMEDIATE FIXED INCOME PORTFOLIO
- -----------------------------------
INSTITUTIONAL CLASS
1998* $10.00 0.29 0.24 (0.29) -- $10.24 5.35%+ $ 94,309 0.75%
1998 9.80 0.60 0.23 (0.60) (0.03) 10.00 8.65 84,328 0.69
1997 (9) 10.00 0.28 (0.20) (0.28) -- 9.80 0.78+ 76,326 0.68*
- ------------------------------
U.S. GOVERNMENT BOND PORTFOLIO
- ------------------------------
INSTITUTIONAL CLASS
1998* $ 9.85 0.28 0.16 (0.28) -- $10.01 4.50%+ $266,467 0.91%
1998 9.85 0.10 -- (0.10) -- 9.85 1.02+ 265,616 0.88*
1998 9.82 0.67 0.03 (0.67) -- 9.85 7.40 264,565 0.79
1997 (22) 10.00 0.59 (0.18) (0.59) -- 9.82 4.18+ 259,042 0.85*
RETAIL CLASS A
1998* $ 9.85 0.28 0.15 (0.28) -- $10.00 4.40%+ $ 560 1.11%
1998 (25) 9.88 0.81 (0.03) (0.81) -- 9.85 7.86+ 30 1.05*
- ------------------
BALANCED PORTFOLIO
- ------------------
INSTITUTIONAL CLASS
1998* $13.24 0.16 (0.15) (0.15) -- $13.10 0.07%+ $104,083 0.83%
1998 11.43 0.30 3.04 (0.30) (1.23) 13.24 30.95 96,858 0.79
1997 11.38 0.33 0.53 (0.30) (0.51) 11.43 7.85 76,987 0.74
1996 10.04 0.34 1.71 (0.34) (0.37) 11.38 20.90 102,233 0.75
1995 10.16 0.33 0.03 (0.29) (0.19) 10.04 3.75 91,039 0.77
1994 (11) 10.00 0.19 0.17 (0.19) (0.01) 10.16 3.56+ 88,208 0.81*
RETAIL CLASS A
1998* $13.20 0.14 (0.15) (0.14) -- $13.05 (0.10)%+ $ 18,256 1.02%
1998 11.40 0.27 3.04 (0.28) (1.23) 13.20 30.67 15,074 1.02
1997 11.35 0.28 0.56 (0.28) (0.51) 11.40 7.66 6,164 0.96
1996 10.04 0.31 1.68 (0.31) (0.37) 11.35 20.23 3,323 1.09
1995 10.15 0.27 0.05 (0.24) (0.19) 10.04 3.33 549 1.26
1994 (13) 10.62 0.01 (0.43) (0.05) -- 10.15 (3.95) 166 1.86*
RETAIL CLASS B
1998 (28)* $12.58 0.07 0.52 (0.08) -- $13.09 4.69%+ $ 190 1.80%
- -----------------------
EQUITY INCOME PORTFOLIO
- -----------------------
INSTITUTIONAL CLASS
1998* $12.52 0.13 (0.58) (0.13) -- $11.94 (3.53)%+ $ 99,255 0.89%
1998 10.67 0.31 3.06 (0.31) (1.21) 12.52 33.04 106,643 0.84
1997 (9) 10.00 0.12 0.67 (0.12) -- 10.67 7.88+ 83,947 0.83*
RETAIL CLASS A
1998* $12.52 0.12 (0.59) (0.12) -- $11.93 (3.71)%+ $ 3,452 1.08%
1998 (14) 11.01 0.28 2.73 (0.29) (1.21) 12.52 28.73+ 3,428 1.07*
- -----------------------
VALUE EQUITY PORTFOLIO
- -----------------------
INSTITUTIONAL CLASS
1998* $14.59 0.05 (0.60) (0.05) -- $13.99 (3.73)%+ $577,434 1.12%
1998 14.00 0.01 0.62 (0.01) (0.03) 14.59 4.51+ 645,202 1.08*
1998 11.91 0.15 3.45 (0.15) (1.36) 14.00 31.64 577,154 1.00
1997 (22) 10.00 0.14 2.10 (0.14) (0.19) 11.91 22.77+ 540,889 1.05*
RETAIL CLASS A
1998* $14.60 0.03 (0.60) (0.05) -- $13.98 (3.85)%+ $ 1,856 1.31%
1998 (25) 14.55 -- 0.05 -- -- 14.60 0.34+ 227 1.26*
RETAIL CLASS B
1998 (28)* $12.93 0.01 1.06 (0.02) -- $13.98 8.32%+ $ 8 2.10%
</TABLE>
RATIO
RATIO OF NET OF EXPENSES
INVESTMENT TO AVERAGE
INCOME NET ASSETS PORTFOLIO
TO AVERAGE (EXCLUDING TURNOVER
NET ASSETS WAIVERS) RATE
- -----------------------------------------------------------
- ----------------
INCOME PORTFOLIO
- ----------------
INSTITUTIONAL CLASS
1998* 5.95% 0.95% 71.14%
1998 6.05 0.77 154.87
1997 6.19 0.68 271.60
1996 6.00 0.73 107.33
1995 6.15 0.74 73.00
1994 (11) 4.90* 0.77* 20.00
RETAIL CLASS A
1998* 5.76% 1.25% 71.14%
1998 5.82 1.16 154.87
1997 5.96 1.09 271.60
1996 5.54 1.37 107.33
1995 5.66 27.63 73.00
1994 (12) 3.95* 55.35* 20.00
RETAIL CLASS B
1998 (28)* 5.19% 1.82% 71.14%
- ----------------------------
INTERMEDIATE FIXED INCOME PO
- ----------------------------
INSTITUTIONAL CLASS
1998* 5.68% 0.95% 17.52%
1998 6.02 0.87 41.63
1997 (9) 5.55* 0.83* 17.18
- ----------------------------
U.S. GOVERNMENT BOND PORTFOL
- ----------------------------
INSTITUTIONAL CLASS
1998* 5.65% 1.09% 78.13%
1998 6.04* 1.06* 13.77
1998 6.88 0.98 431.00
1997 (22) 6.54* 1.03* 255.00
RETAIL CLASS A
1998* 5.23% 1.40% 78.13%
1998 (25) 6.02* 1.33* 13.77
- ------------------
BALANCED PORTFOLIO
- ------------------
INSTITUTIONAL CLASS
1998* 2.39% 1.01% 32.82%
1998 2.44 0.83 71.58
1997 2.79 0.74 124.22
1996 3.19 0.75 107.56
1995 3.32 0.77 81.00
1994 (11) 2.41* 0.81* 37.00
RETAIL CLASS A
1998* 2.21% 1.41% 32.82%
1998 2.20 1.33 71.58
1997 2.56 1.19 124.22
1996 2.51 1.55 107.56
1995 2.83 5.80 81.00
1994 (13) 1.36* 15.08* 37.00
RETAIL CLASS B
1998 (28)* 1.69% 1.90% 32.82%
- -----------------------
EQUITY INCOME PORTFOLIO
- -----------------------
INSTITUTIONAL CLASS
1998* 2.25% 1.04% 22.17%
1998 2.58 0.97 39.88
1997 (9) 2.47* 0.93* 34.38
RETAIL CLASS A
1998* 2.05% 1.44% 22.17%
1998 (14) 2.39* 1.45* 39.88
- -----------------------
VALUE EQUITY PORTFOLIO
- -----------------------
INSTITUTIONAL CLASS
1998* 0.76% 1.34% 17.66%
1998 0.65* 1.20* 4.34
1998 1.17 1.20 30.00
1997 (22) 1.48* 1.26* 37.00
RETAIL CLASS A
1998* 0.45% 1.74% 17.66%
1998 (25) 0.62* 1.67* 4.34
RETAIL CLASS B
1998 (28)* (0.52)% 2.20% 17.66%
96
<PAGE>
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout the Period Ended October 31, 1998
(Unaudited) and the Periods Ended April 30,
<TABLE>
REALIZED
AND
NET ASSET UNREALIZED DISTRIBUTIONS DISTRIBUTIONS RATIO OF
VALUE, NET GAINS OR FROM NET FROM NET ASSET NET ASSETS EXPENSES
BEGINNING INVESTMENT (LOSSES) INVESTMENT CAPITAL VALUE, END TOTAL END OF TO AVERAGE
OF PERIOD INCOME AN INVESTMENTS INCOME GAINS OF PERIOD RETURN(A) PERIOD (000) NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------------
EQUITY INDEX PORTFOLIO
- ----------------------
INSTITUTIONAL CLASS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998* $11.59 0.07 (0.06) (0.07) -- $11.53 0.14%+ $ 62,196 0.21%
1998 (15) 10.00 0.08 1.58 (0.07) -- 11.59 16.71+ 45,531 0.20
RETAIL CLASS A
1998* $11.57 0.06 (0.06) (0.06) -- $11.51 0.02%+ $ 2,167 0.46%
1998 (26) 9.78 0.06 1.80 (0.07) -- 11.57 19.08+ 1,417 0.45*
- --------------------------
BLUE CHIP EQUITY PORTFOLIO
- --------------------------
INSTITUTIONAL CLASS
1998* $17.01 0.06 (0.16) (0.06) -- $16.85 (0.56)%+ $ 87,064 0.87%
1998 12.39 0.14 4.70 (0.13) (0.09) 17.01 39.34 67,060 0.81
1997 10.12 0.17 2.28 (0.17) (0.01) 12.39 24.41 35,690 0.70
1996 (16) 10.00 -- 0.12 -- -- 10.12 1.20+ 11,456 0.65*
RETAIL CLASS A
1998* $16.98 0.05 (0.15) (0.05) -- $16.83 (0.60)%+ $ 44,731 1.05%
1998 12.38 0.10 4.69 (0.10) (0.09) 16.98 38.93 43,300 1.04
1997 (17) 10.33 0.16 2.06 (0.16) (0.01) 12.38 21.74+ 13,211 0.86*
RETAIL CLASS B
1998 (27)* $17.07 0.01 (0.24) (0.02) -- $16.82 (1.32)%+ $ 454 1.85%
- --------------------------
CAPITAL GROWTH PORTFOLIO
- --------------------------
INSTITUTIONAL CLASS
1998* $14.90 -- (0.08) -- -- $14.82 (0.54)%+ $ 60,328 0.89%
1998 11.92 0.02 4.96 (0.04) (1.96) 14.90 45.19 50,615 0.84
1997 11.60 0.11 1.41 (0.14) (1.06) 11.92 13.46 34,170 0.39
1996 10.20 0.16 2.17 (0.16) (0.77) 11.60 23.62 39,560 0.24
1995 10.19 0.14 0.16 (0.11) (0.18) 10.20 3.15 41,170 0.74
1994 (11) 10.00 0.06 0.21 (0.03) (0.05) 10.19 2.66+ 52,233 0.87*
RETAIL CLASS A
1998* $14.82 (0.01) (0.08) -- -- $14.73 (0.61)%+ $ 15,707 1.08%
1998 11.87 -- 4.93 (0.02) (1.96) 14.82 44.90 14,401 1.06
1997 11.56 0.09 1.41 (0.13) (1.06) 11.87 13.39 5,595 0.56
1996 10.18 0.12 2.15 (0.12) (0.77) 11.56 23.24 2,111 0.50
1995 10.18 0.08 0.18 (0.08) (0.18) 10.18 2.74 404 1.23
1994 (13) 10.89 -- (0.71) -- -- 10.18 (6.52)+ 87 1.92*
RETAIL CLASS B
1998 (28)* $13.53 (0.01) 1.28 -- -- $14.80 9.39%+ $ 154 1.88%
- ------------------------
MID-CAP EQUITY PORTFOLIO
- ------------------------
INSTITUTIONAL CLASS
1998* $14.11 -- (1.45) -- -- $12.66 (10.25)%+ $ 51,493 1.05%
1998 10.17 0.04 4.61 (0.04) (0.67) 14.11 46.92 55,280 0.97
1997 (9) 10.00 0.03 0.17 (0.03) -- 10.17 1.98+ 27,059 0.90*
- --------------------------
SMALL-CAP EQUITY PORTFOLIO
- --------------------------
INSTITUTIONAL CLASS
1998* $11.86 (0.02) (1.49) -- -- $10.35 (12.73)%+ $ 23,041 1.11%
1998 8.53 (0.02) 3.97 -- (0.62) 11.86 47.93 27,372 0.98
1997 14.72 (0.01) (2.97) -- (3.21) 8.53 (23.43) 17,746 0.95
1996 (18) 10.00 0.09 4.72 (0.09) -- 14.72 48.34+ 33,621 0.91*
RETAIL CLASS A
1998* $11.83 (0.02) (1.51) -- -- $10.30 (12.93)%+ $ 1,786 1.30%
1998 8.53 (0.06) 3.98 -- (0.62) 11.83 47.57 1,853 1.21
1997 (17) 15.47 (0.01) (3.72) -- (3.21) 8.53 (27.14)+ 1,075 1.11*
- ----------------------------------------
INTERNATIONAL EQUITY SELECTION PORTFOLIO
- ----------------------------------------
INSTITUTIONAL CLASS
1998* $11.51 0.02 (1.33) -- -- $10.20 (11.38)%+ $ 34,479 0.84%
1998 10.85 -- 0.66 -- -- 11.51 6.08+ 41,510 0.78*
1998 (23) 10.00 0.15 1.12 (0.23) (0.19) 10.85 12.95+ 35,858 0.75*
RETAIL CLASS A
1998* $11.51 0.01 (1.32) -- -- $10.20 (11.38)%+ $ 1,174 1.04%
1998 (25) 11.40 -- 0.11 -- -- 11.51 0.96+ 13 0.96*
</TABLE>
RATIO
RATIO OF NET OF EXPENSES
INVESTMENT TO AVERAGE
INCOME (LOSS) NET ASSETS PORTFOLIO
TO AVERAGE (EXCLUDING TURNOVER
NET ASSETS WAIVERS) RATE
- --------------------------------------------------------
- ----------------------
EQUITY INDEX PORTFOLIO
- ----------------------
INSTITUTIONAL CLASS
1998* 1.37% 0.60% 24.73%
1998 (15) 1.43 0.62 49.56
RETAIL CLASS A
1998* 1.12% 0.97% 24.73%
1998 (26) 1.02* 1.08* 49.56
- --------------------------
BLUE CHIP EQUITY PORTFOLIO
- --------------------------
INSTITUTIONAL CLASS
1998* 0.81% 1.06% 17.75%
1998 0.96 0.89 26.32
1997 1.55 0.90 46.91
1996 (16) 1.52* 1.38* 0.97
RETAIL CLASS A
1998* 0.62% 1.60% 17.75%
1998 0.71 1.50 26.32
1997 (17) 1.29* 1.25* 46.91
RETAIL CLASS B
1998 (27)* (0.20)% 1.95% 17.75%
- --------------------------
CAPITAL GROWTH PORTFOLIO
- --------------------------
INSTITUTIONAL CLASS
1998* 0.00% 1.03% 72.07%
1998 0.13 0.88 174.55
1997 0.92 0.85 246.14
1996 1.26 0.84 578.57
1995 1.35 0.85 182.00
1994 (11) 0.78* 0.87* 41.00
RETAIL CLASS A
1998* (0.19)% 1.43% 72.07%
1998 (0.10) 1.37 174.55
1997 0.74 1.30 246.14
1996 1.05 1.65 578.57
1995 0.86 9.73 182.00
1994 (13) (0.27)* 30.78* 41.00
RETAIL CLASS B
1998 (28)* (0.98)% 1.93% 72.07%
- ------------------------
MID-CAP EQUITY PORTFOLIO
- ------------------------
INSTITUTIONAL CLASS
1998* 0.09% 1.20% 20.37%
1998 0.31 1.06 38.30
1997 (9) 0.65* 0.95* 14.74
- --------------------------
SMALL-CAP EQUITY PORTFOLIO
- --------------------------
INSTITUTIONAL CLASS
1998* (0.29)% 1.21% 286.15%
1998 (0.24) 1.02 410.72
1997 (0.12) 0.95 704.41
1996 (18) 0.60* 0.91* 286.80
RETAIL CLASS A
1998* (0.47)% 1.61% 286.15%
1998 (0.46) 1.36 410.72
1997 (17) (0.13)* 1.21* 704.41
- ----------------------------------------
INTERNATIONAL EQUITY SELECTION PORTFOLIO
- ----------------------------------------
INSTITUTIONAL CLASS
1998* 0.37% 1.03% 44.47%
1998 (0.52)* 1.22* 0.98
1998 (23) 1.73* 1.20* 43.00
RETAIL CLASS A
1998* 0.24% 1.44% 44.47%
1998 (25) (0.63)* 1.19* 0.98
[dagger] Returns are for the period indicated and have not
been annualized.
[double dagger] Period ended February 28. See Note 8 of Notes to
Financial Statements regarding fund mergers.
* All ratios for the period have been annualized, except where otherwise
noted. (A) Total return for the retail class does not include the one time
sales charge.
(1) Commenced operations on June 14, 1993.
(2) Commenced operations on March 2, 1994.
(3) Commenced operations on July 21, 1995.
(4) Commenced operations on March 15, 1994.
(5) Commenced operations on July 28, 1995.
(6) Commenced operations on December 15, 1995.
(7) Commenced operations on March 20, 1996.
(8) Commenced operations on September 9, 1996.
(9) Commenced operations on November 18, 1996.
(10) Commenced operations on January 2, 1997.
(11) Commenced operations on July 16, 1993.
(12) Commenced operations on April 12, 1994.
(13) Commenced operations on March 9, 1994.
(14) Commenced operations on May 9, 1997.
(15) Commenced operations on October 1, 1997.
(16) Commenced operations on April 1, 1996.
(17) Commenced operations on May 16, 1996.
(18) Commenced operations on July 13, 1995.
(19) Commenced operations on December 30, 1994.
(20) Commenced operations on November 1, 1996.
(21) Commenced operations on July 7, 1997.
(22) Commenced operations on April 1, 1996.
(23) Commenced operations on April 1, 1997.
(24) Commenced operations on March 23, 1998.
(25) Commenced operations on April 1, 1998.
(26) Commenced operations on November 3, 1997.
(27) Commenced operations on July 31, 1998.
(28) Commenced operations on September 14, 1998.
The accompanying notes are an integral part of the financial statements.
97
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
ARK Funds (the "Fund") is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment
company organized as a Massachusetts business trust pursuant to a
Declaration of Trust dated October 22, 1992, and amended and restated on
March 19, 1993. The Fund consists of twenty Portfolios: Money Market
Portfolio, Tax-Free Money Market Portfolio, U.S. Government Money Market
Portfolio, U.S. Treasury Money Market Portfolio, Short-Term Treasury
Portfolio, Short-Term Bond Portfolio, Maryland Tax-Free Portfolio,
Pennsylvania Tax-Free Portfolio, Income Portfolio, Intermediate Fixed
Income Portfolio, U.S. Government Bond Portfolio, Balanced Portfolio,
Equity Income Portfolio, Value Equity Portfolio, Equity Index Portfolio,
Blue Chip Equity Portfolio, Capital Growth Portfolio, Mid-Cap Equity
Portfolio, Small-Cap Equity Portfolio and International Equity Selection
Portfolio (individually, a "Portfolio" and collectively, the "Portfolios").
The Fund may issue an unlimited number of shares of each of its Portfolios.
Each Portfolio (with the exception of the Intermediate Fixed Income
Portfolio, Mid-Cap Equity Portfolio, and Short-Term Bond Portfolio) offers
both Institutional and Retail Class A shares. The following Funds also
offer Retail Class B shares: Income Portfolio, Balanced Portfolio, Blue
Chip Equity Portfolio, Capital Growth Portfolio, the Value Equity Portfolio
and Money Market Portfolio for exchange purposes only. In addition, each
Money Market Portfolio offers Institutional II Class shares. Institutional
Class shares were originally offered with the commencement of each
Portfolio's operations. Retail Class A shares commenced in April 1994 for
the Income Portfolio; in March 1994 for the Tax-Free Money Market
Portfolio, Money Market Portfolio, Balanced Portfolio, and Capital Growth
Portfolio; in December 1995 for the U.S. Treasury Money Market Portfolio;
in May 1996 for the Blue Chip Equity Portfolio and Small-Cap Equity
Portfolio; in September 1996 for the Short-Term Treasury Portfolio; in
January 1997 for the Maryland Tax-Free Portfolio; in May 1997 for the
Equity Income Portfolio; in July 1997 for the U.S. Government Money Market
Portfolio; in November 1997 for the Equity Index Portfolio; in March 1998
for the Pennsylvania Tax-Free Portfolio; and in April 1998 for the U.S.
Government Bond Portfolio, Value Equity Portfolio, and International Equity
Selection Portfolio. Retail Class B shares commenced in August 1998 for the
Blue Chip Equity Portfolio and in September 1998 for the Income Portfolio,
Balanced Portfolio, and Capital Growth Portfolio. Institutional II Class
shares commenced in July 1995 for the U.S. Treasury Money Market Portfolio,
U.S. Government Money Market Portfolio, Money Market Portfolio, and
Tax-Free Money Market Portfolio. Each class of shares has equal rights as
to earnings, assets, and voting privileges, except that each class bears
different distribution and shareholder service expenses. Each class of
shares has exclusive voting rights with respect to matters that affect just
that class.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Although actual results
could differ from these estimates, any such differences are expected to be
immaterial to the net assets of the Portfolios. The following is a summary
of significant accounting policies followed by the Portfolios.
SECURITY VALUATION -- Securities of the Portfolios are generally valued by
independent pricing services. Securities listed on a securities exchange
for which market quotations are readily available are valued at the last
reported sale price on the principal exchange on which they are traded on
the valuation date or, if there is no such reported sale on the valuation
date, at the most recently quoted bid price. Unlisted securities for which
market quotations are readily available are valued at the most recently
quoted bid price. Debt obligations exceeding sixty days to maturity for
which market quotations are readily available are valued at the most
recently quoted bid price. Debt obligations with sixty days or less to
maturity may be valued at their amortized cost.
When market quotations are not readily available, securities are valued at
fair value as determined under procedures established and approved by the
Board of Trustees. As of October 31, 1998, the only Portfolio containing
securities valued using these procedures was the Small-Cap Equity
Portfolio. Securities valued in good faith amounted to $9,168 (0.04% of
net assets) and have been noted in the Statement of Net Assets.
98
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Investment securities held by the Money Market Portfolios are stated at
their amortized cost, which approximates market value. Under the amortized
cost method, any discount or premium is amortized ratably to the maturity
of the security and is included in interest income.
INCOME TAXES -- It is the intention of each Portfolio to qualify as a
regulated investment company and to distribute all of its taxable income.
Accordingly, no provision for federal income taxes is considered necessary.
NET ASSET VALUE PER SHARE -- The net asset value per share of each class
of each Portfolio is calculated every business day. It is computed by
dividing the total assets of each class of the Portfolio, less the
class-related liabilities, by the number of outstanding shares of each
class of the Portfolio.
CLASSES -- Class-specific expenses are borne by the applicable class. Other
expenses, income, and realized and unrealized gains/losses are allocated to
the respective classes on the basis of relative daily net assets.
ORGANIZATIONAL COSTS -- All organizational costs associated with the
start-up of the Portfolios are being amortized on a straight-line basis
over a period of sixty months. If any or all of the shares representing
initial capital of a Portfolio are redeemed by any holder thereof prior to
the end of the amortization period, the proceeds will be reduced by the
unamortized organizational cost balance in the same proportion as the
number of shares redeemed bears to the initial shares outstanding
immediately preceding the redemption.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by the custodian bank until maturity of the repurchase
agreements. Provisions of the repurchase agreements and procedures adopted
by the Board of Trustees require that the market value of the collateral,
including accrued interest thereon, is sufficient in the event of default
by the counterparty. If the counterparty defaults and the value of the
collateral declines or if the counterparty enters an insolvency proceeding,
realization of the collateral by the Portfolio may be delayed or limited.
SHORT SALES -- The Portfolios may sell a security that they own "short
against the box" in anticipation of a decline in the market value of that
security. As collateral for this transaction, the Portfolio must deposit
liquid securities with the broker/dealer through which it made the short
sale. A gain, limited to the price at which the Portfolio sold the security
short, or a loss, the difference between the proceeds received and the
market value of the security, will be recognized upon termination of
the short sale.
DOLLAR ROLL TRANSACTIONS -- The Income Portfolio engages in dollar roll
transactions with respect to mortgage-related securities issued by GNMA,
Fannie Mae and FHLMC. In a dollar roll transaction, a portfolio sells a
mortgage-related security to a financial institution, such as a bank or
broker/dealer, and simultaneously agrees to repurchase a substantially
similar (i.e., same type, coupon, and maturity) security from the
institution at a later date at an agreed upon price. The mortgage-related
securities that are repurchased will bear the same interest rate as those
sold, but generally will be collateralized by different pools of mortgages
with different prepayment histories.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS -- Each Portfolio may
purchase securities on a "when-issued" basis and may purchase or sell
securities on a "forward commitment" basis. These transactions, which
involve a commitment by a Portfolio to purchase or sell particular
securities with payment and delivery taking place at a future date
(perhaps one or two months later), permit the Portfolio to lock
in a price or yield on a security it owns or intends to purchase,
regardless of future changes in interest rates. When-issued and forward
commitment transactions involve the risk, however, that the yield obtained
in a transaction (and therefore the value of the security) may be less
favorable than the yield available in the market when the securities
delivery takes place. The Portfolios maintain cash, U.S. Government
securities, or liquid, high-grade debt obligations in an amount sufficient
to meet the purchase price in a segregated account until the settlement
date. No Portfolio intends to engage in when-issued purchases and forward
commitments for speculative purposes.
DISTRIBUTIONS -- Dividends from net investment income are declared daily
and paid monthly for each Money Market Portfolio, the Short-Term Treasury
Portfolio, Short-Term Bond Portfolio, Maryland Tax-Free Portfolio,
Pennsylvania Tax-Free Portfolio, Income Portfolio, Intermediate Fixed
Income Portfolio, and U.S. Government Bond Portfolio. The Equity Income
Portfolio declares and pays dividends monthly; the Balanced
99
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Portfolio, Value Equity Portfolio, Equity Index Portfolio, Blue Chip Equity
Portfolio, and Mid-Cap Equity Portfolio declare and pay dividends
quarterly; and the Capital Growth Portfolio, Small-Cap Equity Portfolio,
and International Equity Selection Portfolio declare and pay dividends
annually from net investment income. Distributions from net capital gains,
if any, are declared and paid at least annually by each Portfolio.
Distributions from net investment income and net realized capital gains are
determined in accordance with U.S. federal income tax regulations, which
may differ from those amounts determined under generally accepted
accounting principles. These book/tax differences are either temporary or
permanent in nature. To the extent these differences are permanent, they
are charged or credited to paid-in capital in the period that the
difference arises.
OTHER -- Security transactions are accounted for on the date the security
is purchased or sold (trade date). Net realized capital gains and losses
on the sale of investment securities are determined using the identified
cost method with the exception of the Money Market Portfolios, for which
original issue discounts and purchase premiums on securities held by the
Portfolios are accreted and amortized ratably to maturity using the
effective interest method. Dividend income is recognized on the ex-dividend
date, and interest income is recognized using the accrual method.
3. INVESTMENT ADVISORY AND ADMINISTRATIVE FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
Allied Investment Advisors, Inc. is the investment adviser to each of the
Portfolios. Allied Investment Advisors, Inc. is an affiliate of FMB Trust
Company, N.A., the Custodian of each of the Portfolios. Pursuant to an
investment advisory contract on behalf of each Portfolio, Allied Investment
Advisors, Inc. is entitled to receive fees for their advisory services at
the annual rates shown in the following table based on the average net
assets of the Portfolio.
PORTFOLIO ANNUAL RATE
- --------------------------------------------------------------
Money Market .25%
- --------------------------------------------------------------
Tax-Free Money Market .25%
- --------------------------------------------------------------
U.S. Government Money Market .25%
- --------------------------------------------------------------
U.S. Treasury Money Market .25%
- --------------------------------------------------------------
Short-Term Treasury .35%
- --------------------------------------------------------------
Short-Term Bond .75%
- --------------------------------------------------------------
Maryland Tax-Free .65%
- --------------------------------------------------------------
Pennsylvania Tax-Free .65%
- --------------------------------------------------------------
Income .60%
- --------------------------------------------------------------
Intermediate Fixed Income .60%
- --------------------------------------------------------------
U.S. Government Bond .75%
- --------------------------------------------------------------
Balanced .65%
- --------------------------------------------------------------
Equity Income .70%
- --------------------------------------------------------------
Value Equity 1.00%
- --------------------------------------------------------------
Equity Index .20%
- --------------------------------------------------------------
Blue Chip Equity .70%
- --------------------------------------------------------------
Capital Growth .70%
- --------------------------------------------------------------
Mid-Cap Equity .80%
- --------------------------------------------------------------
Small-Cap Equity .80%
- --------------------------------------------------------------
Prior to February 12, 1998, the Portfolios were subject to an investment
advisory agreement providing for a different fee schedule. The Advisor
began collecting the Advisory fees shown in the table as of April 1, 1998.
Allied Investment Advisors, Inc. has agreed to waive a portion of their
fees or reimburse expenses on certain Portfolios in order to limit total
operating expenses of such Portfolios. The waivers are voluntary and may be
discontinued at anytime.
SEI Investments Mutual Funds Services serves as administrator and transfer
agent for the Fund under an Administration Agreement and Transfer Agency
Agreement. SEI Fund Resources is entitled to receive an annual fee of .13%
of each Portfolio's average net assets, paid monthly, for services
performed under the administration agreement. SEI Fund Resources has
voluntarily agreed to waive a portion of its administrative fees on
certain Portfolios in order to limit total operating expenses of such
Portfolios. The waiver is voluntary and may be discontinued at any time.
100
<PAGE>
NOTES TO FINANCIAL STATEMENTS
4. DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLAN
The Fund's Board of Trustees has adopted a Distribution Plan on behalf of
Retail Class A of each Portfolio; a Distribution Plan on behalf of Retail
Class B of the Money Market, Income, Balanced, Value Equity, Blue Chip
Equity, and Capital Growth Portfolios; and a Distribution and Service Plan
on behalf of the Institutional II Class of each Money Market Portfolio
pursuant to Rule 12b-1 under the 1940 Act (the "Plans"). Under the Plans,
SEI Investments Distribution Co. ("SIDCO") acts as Distributor for the Fund
pursuant to a Distribution Agreement on behalf of each Portfolio. SIDCO is
entitled to a fee of .75% of the average net assets of the Retail Class A,
Retail Class B, and Institutional II Class shares of each Portfolio.
However, the Trustees have authorized payment of a fee to SIDCO of: .25% of
the average net assets of the Retail Class A of each Money Market
Portfolio; .30% of average net assets of the Retail Class A of the Maryland
Tax-Free Portfolio, Pennsylvania Tax-Free Portfolio, Income Portfolio,
Intermediate Fixed Income Portfolio, Short-Term Bond Portfolio, and U.S.
Government Bond Portfolio; .40% of average net assets of the Retail Class A
of the Short-Term Treasury Portfolio, Balanced Portfolio, Equity Income
Portfolio, Value Equity Portfolio, Capital Growth Portfolio, Small-Cap
Equity Portfolio, International Equity Selection Portfolio, and Equity
Index Portfolio; .55% of average net assets of the Retail Class A of the
Blue Chip Equity Portfolio; .75% of the average net assets of the Retail
Class B of the Money Market Portfolio, Income Portfolio, Balanced
Portfolio, Value Equity Portfolio, Blue Chip Equity Portfolio, and Capital
Growth Portfolio; and .10% of average net assets of the Institutional II
Class of each Money Market Portfolio. SIDCO has voluntarily agreed to waive
a portion of its fee on certain Portfolios in order to limit total
operating expenses of such Portfolios. The waiver is voluntary and may be
discontinued at any time. In addition, the Board of Trustees has adopted a
Shareholder Services Plan on behalf of the Retail Class A, Retail Class B
and Institutional Class of the Portfolios to compensate qualified
recipients for shareholder services and account maintenance. Under the
respective Shareholder Services Plans, the Retail Class A and Retail Class
B of a Portfolio may pay an annual fee of up to .25% of the average net
assets of the Retail Class A and Retail Class B shares attributable to
their customers and the Institutional Class of a Portfolio may pay an
annual fee of up to .15% of the average net assets of the Institutional
Class Shares attributable to their customers. Currently, the Trustees have
approved a fee for the Retail Class A of .15%, a fee for the Retail Class B
of .25%, and a fee of .06% for the Institutional Class. In addition, a
portion of the fee is being waived for the Retail Class A and Institutional
Class of each Portfolio.
A contingent deferred sales charge (CDSC) is imposed on certain
redemptions of Retail Class B shares. The CDSC varies depending on the
number of years from the time of payment for the purchase of Retail
Class B shares until the redemption of such shares.
YEARS CONTINGENT DEFERRED
PURCHASES MADE SALES CHARGE
- ---------------------------------------------------------
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and Following None
5. INVESTMENT TRANSACTIONS
The cost of securities purchased and the proceeds from the sale of
securities, other than short-term investments, during the period ended
October 31, 1998, were as follows:
PURCHASES SALES
PORTFOLIO (000) (000)
- -------------------------------------------------------------------------
Short-Term Treasury $ 24,581 $ 20,935
- -------------------------------------------------------------------------
Short-Term Bond 46,777 40,405
- -------------------------------------------------------------------------
Maryland Tax-Free 22,517 17,376
- -------------------------------------------------------------------------
Pennsylvania Tax-Free 56,179 57,863
- -------------------------------------------------------------------------
Income 223,435 224,073
- -------------------------------------------------------------------------
Intermediate Fixed Income 22,197 13,806
- -------------------------------------------------------------------------
U.S. Government Bond 186,688 215,026
- -------------------------------------------------------------------------
Balanced 39,684 33,666
- -------------------------------------------------------------------------
Equity Income 23,028 21,769
- -------------------------------------------------------------------------
Value Equity 99,993 107,790
- -------------------------------------------------------------------------
Equity Index 31,088 13,206
- -------------------------------------------------------------------------
Blue Chip Equity 42,668 20,140
- -------------------------------------------------------------------------
Capital Growth 58,970 48,975
- -------------------------------------------------------------------------
Mid-Cap Equity 13,008 10,557
- -------------------------------------------------------------------------
Small-Cap Equity 67,317 66,412
- -------------------------------------------------------------------------
International Equity Selection 18,173 17,549
- -------------------------------------------------------------------------
101
<PAGE>
NOTES TO FINANCIAL STATEMENTS
For federal income tax purposes, securities owned at October 31, 1998, were
not materially different from the amounts reported for financial reporting
purposes. The aggregate gross unrealized appreciation and depreciation of
securities at October 31, 1998, for each Portfolio is as follows:
NET
UNREALIZED
APPRECIATED DEPRECIATED APPRECIATION/
SECURITIES SECURITIES (DEPRECIATION)
PORTFOLIO (000) (000) (000)
- -------------------------------------------------------------------------------
Short-Term Treasury $ 774 $ (25) $ 749
- -------------------------------------------------------------------------------
Short-Term Bond 1,758 (389) 1,369
- -------------------------------------------------------------------------------
Maryland Tax-Free 6,450 (128) 6,322
- -------------------------------------------------------------------------------
Pennsylvania Tax-Free 9,305 (209) 9,096
- -------------------------------------------------------------------------------
Income 11,499 (3,995) 7,504
- -------------------------------------------------------------------------------
Intermediate Fixed Income 3,476 (223) 3,253
- -------------------------------------------------------------------------------
U.S. Government Bond 5,766 (2,219) 3,547
- -------------------------------------------------------------------------------
Balanced 22,129 (2,024) 20,105
- -------------------------------------------------------------------------------
Equity Income 27,728 (3,993) 23,735
- -------------------------------------------------------------------------------
Value Equity 186,618 (6,157) 180,461
- -------------------------------------------------------------------------------
Equity Index 8,606 (3,228) 5,378
- -------------------------------------------------------------------------------
Blue Chip Equity 27,884 (1,800) 26,084
- -------------------------------------------------------------------------------
Capital Growth 18,052 (535) 17,517
- -------------------------------------------------------------------------------
Mid-Cap Equity 15,311 (2,903) 12,408
- -------------------------------------------------------------------------------
Small-Cap Equity 2,290 (1,982) 308
- -------------------------------------------------------------------------------
International Equity
Selection 973 (1,326) (353)
- -------------------------------------------------------------------------------
At October 31, 1998, the following Portfolios had capital loss
carryforwards and post-October losses:
CAPITAL LOSS POST
CARRYFORWARD OCTOBER 31, 1998
AMOUNT EXPIRATION DEFERRED LOSSES
PORTFOLIO (000) DATE (000)
- -------------------------------------------------------------
Money Market $ 14 2006 $ 1
- -------------------------------------------------------------
U.S. Government
Money Market 25 2006 7
- -------------------------------------------------------------
U.S. Treasury
Money Market 4 2005 --
- -------------------------------------------------------------
15 2006 29
Short-Term Bond 316 2006 --
- -------------------------------------------------------------
Income 621 2005 --
- -------------------------------------------------------------
U.S. Government 837 2005 --
Bond 919 2006 --
6. SECURITIES LENDING TRANSACTIONS
In order to generate additional income, certain portfolios may lend
portfolio securities representing up to one-third of the value of total
assets (which includes collateral received for securities on loan) to
broker/ dealers, banks, or other institutional borrowers of securities. As
with other extensions of credit, there may be risks of delay in recovery of
the securities or even loss of rights in the collateral should the borrower
of the security fail financially. The market value of the securities on
loan at October 31, 1998, income generated from the program during the
six-month period ended October 31, 1998, the collateral purchased with cash
received and held at October 31, 1998, with respect to such loans were as
follows (000):
INCOME RECEIVED
MARKET VALUE OF FROM SECURITIES
PORTFOLIO LOANED SECURITIES LENDING
- ---------------------------------------------------------
Income $68,588 $73
- ---------------------------------------------------------
Intermediate Fixed
Income 14,404 9
- ---------------------------------------------------------
U.S. Government
Bond 47,455 22
- ---------------------------------------------------------
Short-Term Bond 18,461 8
- ---------------------------------------------------------
MONEY OTHER FIXED
COLLATERAL REPURCHASE MARKET INCOME
PORTFOLIO AGREEMENTS INSTRUMENTS SECURITIES CASH TOTAL
- ------------------------------------------------------------------------
Income $32,988 $84 $36,799 -- $69,871
- ------------------------------------------------------------------------
Intermediate
Fixed
Income 8,000 34 7,000 17 15,051
- ------------------------------------------------------------------------
U.S. Government
Bond 22,500 3 26,371 102 48,976
- ------------------------------------------------------------------------
Short-Term
Bond 10,200 -- 12,000 -- 22,200
- ------------------------------------------------------------------------
7. CONCENTRATION OF CREDIT RISK
The Maryland Tax-Free Portfolio and Pennsylvania
Tax-Free Portfolio invest in debt instruments of
municipal issuers. Although these Portfolios monitor investment
concentration, the issuers' ability to meet their obligations may be
affected by economic developments in a specific state or region.
The Maryland Tax-Free Portfolio and Pennsylvania
Tax-Free Portfolio invest in securities which include revenue bonds and
general obligation bonds. At October 31, 1998, the percentage of portfolio
investments by each revenue source was as follows:
102
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MARYLAND PENNSYLVANIA
TAX-FREE PORTFOLIO TAX-FREE PORTFOLIO
- ----------------------------------------------------------------------------
REVENUE BONDS:
- ----------------------------------------------------------------------------
Education 13% 21%
- ----------------------------------------------------------------------------
Health Care 18 19
- ----------------------------------------------------------------------------
Transportation 6 --
- ----------------------------------------------------------------------------
Utility 9 7
- ----------------------------------------------------------------------------
Housing 2 3
- ----------------------------------------------------------------------------
Public Facility 6 6
- ----------------------------------------------------------------------------
Industrial 2 12
- ----------------------------------------------------------------------------
Other 1 5
- ----------------------------------------------------------------------------
GENERAL OBLIGATIONS 43 27
100% 100%
- ----------------------------------------------------------------------------
8. FUND MERGERS
On July 24, 1998, the assets of the ARK International Equity Portfolio were
reorganized into the Govett International Equity Fund, a portfolio of
The Govett Funds, Inc. Under the Agreement and Plan of Reorganization,
518,552 Institutional Class shares of the ARK International Equity
Portfolio were exchanged for 464,675 Institutional Class shares of the
Govett International Equity Fund in a tax-free exchange. The activity of
the ARK International Equity Portfolio for the period May 1, 1998 to
July 24, 1998, has not been reflected in these financial statements.
The following ARK Portfolios were established in 1998 for the purpose of
acquiring the net assets of Marketvest Funds, and on March 20, 1998, and
March 27, 1998, the following Marketvest Funds were reorganized into the
ARK Funds pursuant to such Agreement and Plan of Reorganization
approved by the Marketvest shareholders.
ARK ACQUIRING PORTFOLIO MARKETVEST ACQUIRED FUND
- --------------------------------------------------------------------------------
Short-Term Bond Short-Term Bond
U.S. Government Intermediate U.S. Government
Bond Bond
Value Equity Equity
International Equity Selection International Equity
- --------------------------------------------------------------------------------
Under the Agreement and Plan of Reorganization, the Marketvest Funds shares
were exchanged for Institutional shares of the ARK Funds in a tax-free
exchange. The value of net assets acquired, number of shares issued, and
unrealized appreciation acquired were as follows:
VALUE OF NET NUMBER OF UNREALIZED
PORTFOLIOS ASSETS ACQUIRED SHARES ISSUED APPRECIATION
- --------------------------------------------------------------------------------
Short-Term
Bond $134,474,724 13,484,762 $ 483,752
U.S. Government
Bond 265,737,020 26,918,180 170,754
Value Equity 596,269,138 41,299,581 186,298,370
International Equity
Selection 38,578,490 3,365,077 4,755,196
<PAGE>
NOTES TO FINANCIAL STATEMENTS
In addition, on March 20, 1998, the assets of the Marketvest Pennsylvania
Intermediate Municipal Bond Fund were reorganized into the ARK Pennsylvania
Tax-Free Portfolio. Under the Agreement and Plan of Reorganization,
18,933,932 shares of the Marketvest Pennsylvania Intermediate Municipal
Bond Fund were exchanged for 18,933,932 Institutional shares of the ARK
Pennsylvania Tax-Free Portfolio in a tax-free exchange. The value of the
Marketvest Pennsylvania Tax-Exempt Fund's net assets combined on March 20,
1998, prior to the merger was $194,492,162. The net assets of the Portfolio
immediately after the acquisition were $221,880,784.
In each of the acquisitions of the net assets of the Marketvest Funds
described above, the surviving entity for accounting and performance
purposes was the applicable Marketvest Fund. On April 24, 1998, the net
assets of the ARK Stock Portfolio were reorganized into the ARK Value
Equity Portfolio. Under the Agreement and Plan of Reorganization, 4,114,786
Institutional Class shares of the ARK Stock Portfolio were exchanged for
3,061,378 Institutional Class shares of the ARK Value Equity Portfolio in a
tax-free exchange. The value of the ARK Stock Portfolio's net assets
combined with those of the ARK Value Equity Portfolio on April 24, 1998,
was $44,621,448. The net assets of the Portfolio immediately after the
acquisition was $644,230,476. The surviving entity for accounting and
performance purposes was the ARK Value Equity Portfolio.
9. SHAREHOLDER VOTING RESULTS (UNAUDITED)
At a shareholder meeting held on July 24, 1998, the shareholders of the ARK
International Equity Portfolio voted to approve an Agreement and Plan of
Reorganization between the ARK International Equity Portfolio and the
Govett International Equity Fund. The results of the voting were as
follows:
INTERNATIONAL EQUITY PORTFOLIO
-----------------------------------------------------------
% of Shares % of Shares
Shares Voted Voted Outstanding
------------ ----------- -----------
FOR 474,354 99.96% 88.35%
AGAINST 173 0.04% 0.03%
ABSTAIN 0 0.00% 0.00%
103
<PAGE>
NOTES
