ARK FUNDS/MA, 485APOS, 2000-05-22

ARK FUNDS/MA
485APOS, 2000-05-22

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<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 2000.
FILE NO. 33-53690
FILE NO. 811-7310

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

REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT / /
POST-EFFECTIVE AMENDMENT NO. 26 /X/
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/

AMENDMENT NO. 24 /X/

ARK FUNDS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

ONE FREEDOM VALLEY DRIVE
OAKS, PA 19456
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)

REGISTRANT'S TELEPHONE NUMBER
1-610-676-1000

THOMAS R. RUS
SECRETARY
ARK FUNDS
ONE FREEDOM VALLEY DRIVE
OAKS, PA 19456
(NAME AND ADDRESS OF AGENT FOR SERVICE)

COPIES TO:
ALAN C. PORTER, ESQ.
KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20036-1800

IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE:

/ / IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b)
// ON [DATE] PURSUANT TO PARAGRAPH (b)
/ X/ 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a) (1)
/ / 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a) (2)
/ / ON [DATE] PURSUANT TO PARAGRAPH (a) OF RULE 485

IF APPROPRIATE, CHECK THE FOLLOWING BOX:

/ / THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE
FOR A PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT.
<PAGE> 2
ARK FUNDS

PROSPECTUS

JUNE _____, 2000

INCOME PORTFOLIO
SMALL-CAP EQUITY PORTFOLIO
INTERNATIONAL EQUITY SELECTION PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
EMERGING MARKETS EQUITY PORTFOLIO
INVESTMENT ADVISOR:
ALLIED INVESTMENT ADVISORS, INC.

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS.

ANY REPRESENTATION TO THE CONTRARY IS A CRIME OFFENSE.
<PAGE> 3
HOW TO READ THIS PROSPECTUS

ARK Funds is a mutual fund family that offers different classes of shares in
separate investment portfolios (Portfolios). The Portfolios have individual
investment goals and strategies. This prospectus gives you important information
about the Retail Class A and Institutional Class Shares of the Portfolios that
you should know before investing. Please read this prospectus and keep it for
future reference.

This prospectus has been arranged into different sections so that you can easily
review this important information. On the next page, there is some general
information you should know about the Portfolios. For more detailed information
about each Portfolio, please see:

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INCOME PORTFOLIO................................................................... XXX
SMALL-CAP EQUITY PORTFOLIO......................................................... XXX
INTERNATIONAL EQUITY SELECTION PORTFOLIO........................................... XXX
INTERNATIONAL EQUITY PORTFOLIO..................................................... XXX
EMERGING MARKETS EQUITY PORTFOLIO.................................................. XXX
ADDITIONAL INFORMATION ABOUT RISK.................................................. XXX
EACH PORTFOLIO'S OTHER INVESTMENTS................................................. XXX
INVESTMENT ADVISOR................................................................. XXX
PURCHASING, SELLING AND EXCHANGING PORTFOLIO SHARES................................ XXX
DISTRIBUTION OF PORTFOLIO SHARES................................................... XXX
DIVIDENDS AND DISTRIBUTIONS........................................................ XXX
TAXES.............................................................................. XXX
FINANCIAL HIGHLIGHTS............................................................... XXX
HOW TO OBTAIN MORE INFORMATION ABOUT ARK FUNDS..................................... Back Cover
</TABLE>

2 of 42
<PAGE> 4
INTRODUCTION - INFORMATION COMMON TO ALL PORTFOLIOS

Each Portfolio is a mutual fund. A mutual fund pools shareholders' money and,
using professional investment managers, invests it in securities.

Each Portfolio has its own investment goal and strategies for reaching that
goal. The investment advisor invests each Portfolio's assets in a way that it
believes will help a Portfolio achieve its goal. Still, investing in each
Portfolio involves risk, and there is no guarantee that a Portfolio will achieve
its goal. The investment advisor's judgments about the markets, the economy, or
companies may not anticipate actual market movements, economic conditions or
company performance, and these judgments may affect the return on your
investment. In fact, no matter how good a job the investment advisor does, you
could lose money on your investment in a Portfolio, just as you could with other
investments. A Portfolio share is not a bank deposit and it is not insured or
guaranteed by the FDIC or any government agency.

The value of your investment in a Portfolio is based on the market prices of the
securities the Portfolio holds. These prices change daily due to economic and
other events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities a Portfolio owns and the markets in which they trade.
The effect on a Portfolio of a change in the value of a single security will
depend on how widely the Portfolio diversifies its holdings.

3 of 42
<PAGE> 5
ARK INCOME PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL Current income and capital
growth

INVESTMENT FOCUS Investment-grade fixed income
securities

SHARE PRICE VOLATILITY Medium

PRINCIPAL INVESTMENT STRATEGY Investing in U.S. government
and corporate fixed income
securities with varying
maturities

INVESTOR PROFILE Investors seeking
current income and growth of
capital who are willing to
accept the risks of investing
in fixed income securities

PRINCIPAL INVESTMENT STRATEGY OF THE INCOME PORTFOLIO

The Income Portfolio seeks its investment goal by investing primarily in U.S.
investment-grade corporate and government fixed income securities, including
mortgage-backed securities. The Portfolio's Advisor will generally select
investment-grade fixed income securities and unrated securities determined to be
of comparable quality, but also may invest a limited percentage of the
Portfolio's assets in lower rated debt securities (or "junk bonds"). The
dollar-weighted average maturity of the Portfolio's investments will vary
depending on market conditions, but will typically be between five and 20 years.

In selecting securities for the Portfolio, the Advisor considers a security's
current yield, credit quality, capital appreciation potential, maturity and
yield to maturity. The Advisor will monitor changing economic conditions and
trends, including interest rates, and may sell securities in anticipation of an
increase in interest rates or purchase securities in anticipation of a decline
in interest rates.

Due to its investment strategy, the Portfolio may buy and sell securities
frequently. This may result in higher transaction costs and additional capital
gains tax liabilities.

PRINCIPAL RISKS OF INVESTING IN THE INCOME PORTFOLIO

An investment in the Portfolio is not guaranteed; you may lose money by
investing in the Portfolio.

The prices of the Portfolio's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers. Generally, the Portfolio's
fixed income securities will decrease in value if interest rates rise. The
volatility of lower rated securities is even greater than that of higher rated
securities. Also, securities with longer maturities are generally more volatile,
so the average maturity of the Portfolio's securities affects risk.

4 of 42
<PAGE> 6
The mortgages underlying mortgage-backed securities may be paid off early, which
makes it difficult to determine their actual maturity and therefore calculate
how the securities will respond to changes in interest rates. The Portfolio may
have to reinvest prepaid amounts at lower interest rates. This risk of
prepayment is an additional risk of mortgage-backed securities.

The Portfolio's U.S. government securities are not guaranteed against price
movements due to changing interest rates. Obligations issued by some U.S.
government agencies are backed by the U.S. Treasury, while others are backed
solely by the ability of the agency to borrow from the U.S. Treasury or by the
agency's own resources.

Junk bonds involve greater risks of default or downgrade and are more volatile
than investment-grade securities. Junk bonds involve a greater risk of price
declines than investment-grade securities due to actual or perceived changes in
an issuer's creditworthiness. In addition, issuers of junk bonds may be more
susceptible than other issuers to economic downturns. Junk bonds are subject to
the risk that the issuer may not be able to pay interest and ultimately to repay
principal upon maturity. Discontinuation of these payments could substantially
adversely affect the market value of the security.

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Class A
Shares for each year for five calendar years.

The chart does not reflect sales charges. If sales charges had been reflected,
returns would be less than those shown below.

<TABLE>
<CAPTION>
BEST QUARTER WORST QUARTER
------------ -------------
<S> <C>
6.58% -2.24%
6/30/95 3/31/96
</TABLE>

TOTAL RETURN JANUARY 1 TO MARCH 31, 2000 2.11%

This table compares the Portfolio's average annual total returns for the periods
ended December 31, 1999, to those of the Lehman Aggregate Bond Index.

<TABLE>
<CAPTION>
1 YEAR 5 YEAR SINCE INCEPTION
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME PORTFOLIO- CLASS A SHARES -6.42% 5.70% 4.96%*
LEHMAN AGGREGATE-BOND INDEX -0.83% 7.73% 6.68%**
INCOME PORTFOLIO- INSTITUTIONAL CLASS -1.79% 6.86% 5.37%***
</TABLE>

5 of 42
<PAGE> 7
<TABLE>
<S> <C> <C> <C>
LEHMAN AGGREGATE BOND INDEX -0.83% 7.73% 5.83%****
</TABLE>

* Since April 12, 1994.

** Since March 31, 1994.

*** Since July 16, 1993.

**** Since July 31, 1993.

WHAT IS AN INDEX?

An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment advisor
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The Lehman Aggregate Bond Index is a widely
recognized, market value-weighted (higher market value bonds have more influence
than lower market value bonds) index of U.S. government obligations, corporate
debt securities, and AAA-rated mortgage-backed securities. All securities in the
index are rated investment-grade (BBB) or higher, with maturities of at least
one year.

PORTFOLIO FEES AND EXPENSES

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

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

<TABLE>
<CAPTION>
CLASS A SHARES INSTITUTIONAL
CLASS

- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.50%(1) None
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other
Distributions (as a percentage of offering price) None None
Redemption Fee (as a percentage of amount redeemed, if applicable) None None
Exchange Fee None None
</TABLE>

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

<TABLE>
<CAPTION>
CLASS A SHARES INSTITUTIONAL CLASS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Advisory Fees 0.60% 0.60%
Distribution (12b-1) Fees 0.30% None
Other Expenses 0.35% 0.35%
----- -----
TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES 1.25% 0.95%
Fee Waivers and Expense Reimbursements 0.20% 0.09%
----- -----
TOTAL NET OPERATING EXPENSES 1.05%(2) 0.86%(2)
===== =====
</TABLE>

(1) This sales charge varies depending upon how much you invest. See "Purchasing
Portfolio Shares."

(2) The Portfolio's Advisor has agreed contractually to waive
fees and reimburse expenses in order to keep total operating expenses from
exceeding 1.05% for Class A Shares and 0.86% for Institutional Class until April
30, 2001. The Portfolio's total actual annual operating expenses for the most
recent fiscal year were less than the amount shown above because, in addition to
its contractual commitment, the Advisor is voluntarily reimbursing expenses in
order to keep total operating expenses at a specified level. The Advisor may
discontinue all or part of these reimbursements at any time. With the expense
reimbursements, the Portfolio's actual total operating expenses are as follows:

6 of 42
<PAGE> 8
<TABLE>
<S> <C>
Income Portfolio - Class A Shares 0.96%
Income Portfolio - Institutional Class 0.83%
</TABLE>

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Portfolio for the time periods indicated.

The Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Portfolio would
be:

If you sell your shares at the end of the period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
CLASS A SHARES $552 $810 $1,087 $1,876
INSTITUTIONAL CLASS $88 $294 $517 $1,158
</TABLE>

7 of 42
<PAGE> 9
ARK SMALL-CAP EQUITY PORTFOLIO

PORTFOLIO SUMMARY
INVESTMENT GOAL Long-term capital appreciation

INVESTMENT FOCUS Common stock of small-capitalization U.S.
issuers

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT STRATEGY Investing in stocks of smaller companies with
long-term earnings growth potential

INVESTOR PROFILE Investors seeking long-term capital
appreciation who can tolerate the share price
volatility of small-cap equity investing

PRINCIPAL INVESTMENT STRATEGY OF THE SMALL-CAP EQUITY PORTFOLIO

The Small-Cap Equity Portfolio seeks its investment strategy by investing
primarily in common stocks and other equity securities of U.S. issuers. The
Portfolio's Advisor purchases stocks of smaller companies that are in the early
stages of development and which the Advisor believes have the potential to
achieve substantial long-term earnings growth. Generally, the Portfolio invests
in companies with market capitalizations of $2.0 billion or less at the time of
investment. The Portfolio may also invest a limited percentage of its assets in
securities rated below investment-grade ("junk bonds") and in foreign
securities.

In selecting investments for the Portfolio, the Advisor purchases securities of
small-cap U.S. companies with strong earnings growth potential. The Advisor may
also purchase stocks of companies that are experiencing unusual, non-repetitive
"special" situations (such as mergers or spin-offs) or that have valuable fixed
assets whose value is not fully reflected in a stock's price. The Advisor may
also purchase stocks of smaller companies that it believes are undervalued
relative to their assets, earnings or growth potential.

Due to its investment strategy, the Portfolio may buy and sell securities
frequently. This may result in higher transaction costs and additional capital
gains tax liabilities

PRINCIPAL RISKS OF INVESTING IN THE SMALL-CAP EQUITY PORTFOLIO

An investment in the Portfolio is not guaranteed; you may lose money by
investing in the Portfolio.

Since it purchases equity securities, the Portfolio is subject to the risk that
stock prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Portfolio's equity
securities may fluctuate significantly from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Portfolio.

8 of 42
<PAGE> 10
The smaller capitalization companies the Portfolio invests in may be more
vulnerable to adverse business or economic events than larger, more established
companies. In particular, these small companies may have limited product lines,
markets and financial resources, and may depend upon a relatively small
management group. Therefore, small-cap stocks may be more volatile than those of
larger companies. These securities may be traded over-the-counter or listed on
an exchange and may or may not pay dividends.

Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about these
companies, relatively low market liquidity and the potential lack of strict
financial and accounting controls and standards.

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Class A
Shares for each year for three calendar years.

The chart does not reflect sales charges. If sales charges had been reflected,
returns would be less than those shown below.

<TABLE>
<CAPTION>
BEST QUARTER WORST QUARTER
------------ -------------
<S> <C>
82.12% -18.54%
12/31/99 9/30/98
</TABLE>

TOTAL RETURN JANUARY 1 TO MARCH 31, 2000 17.04%

This table compares the Portfolio's average annual total returns for the periods
ended December 31, 1999, to those of the Russell 2000 Growth Index.

1 YEAR SINCE INCEPTION
- ------------------------------------------------------------------------------------
<S> <C> <C>
SMALL-CAP EQUITY PORTFOLIO- CLASS A SHARES 137.89% 29.93%*
</TABLE>

9 of 42
<PAGE> 11
<TABLE>
<S> <C> <C>
RUSSELL 2000 GROWTH INDEX 43.10% 12.41%**
SMALL-CAP EQUITY PORTFOLIO- INSTITUTIONAL CLASS 150.08% 38.35%***
RUSSELL 2000 GROWTH INDEX 43.10% 17.39%****
</TABLE>

* Since May 16, 1996.

** Since May 31, 1996.

*** Since July 13, 1995.

**** Since June 30, 1995.

WHAT IS AN INDEX?

An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment advisor
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The Russell 2000 Growth Index is a widely
recognized, capitalization-weighted (companies with larger market
capitalizations have more influence than those with smaller market
capitalizations) index of large U.S. companies with high growth rates and
price-to-book ratios.

PORTFOLIO FEES AND EXPENSES

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

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

<TABLE>
<CAPTION>
INSTITUTIONAL
CLASS A SHARES CLASS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.75%(1) None
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other
Distributions (as a percentage of offering price) None None
Redemption Fee (as a percentage of amount redeemed, if applicable) None None
Exchange Fee None None
</TABLE>

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

<TABLE>
<CAPTION>
CLASS A SHARES INSTITUTIONAL CLASS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Advisory Fees 0.80% 0.80%
Distribution (12b-1) Fees 0.40% None
Other Expenses 0.46% 0.46%
----- -----
TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES 1.66% 1.26%(3)
-----
Fee Waivers and Expense Reimbursements 0.22%
-----
TOTAL NET OPERATING EXPENSES 1.44%(2)
-----
</TABLE>

(1) This sales charge varies depending upon how much you invest. See "Purchasing
Portfolio Shares."

(2) The Portfolio's Advisor has agreed contractually to waive fees and reimburse
expenses of the Class A Shares in order to keep total operating expenses from
exceeding 1.44% until April 30, 2001. The Class A Shares' total actual annual
operating expenses for the most recent fiscal year were less than the amount
shown above because, in addition to its contractual commitment, the Advisor is
voluntarily reimbursing expenses in order to keep total operating expenses at a
specified level. The Advisor may discontinue all or part of these reimbursements
at any time. With the expense reimbursements, the Portfolio's actual total
operating expenses are as follows:

Page 10 of 42
<PAGE> 12
Small-Cap Equity Portfolio - Class A Shares 1.35%

(3) The Portfolio's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Advisor is
voluntarily waiving reimbursing expenses in order to keep total operating
expenses at a specified level. The Advisor may discontinue all or part of these
reimbursements at any time. With the expense reimbursements, the Portfolio's
actual total operating expenses are as follows:

Small-Cap Equity Portfolio -- Institutional Class 1.24%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

If you sell your shares at the end of the period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares $615 $953 $1,315 $2,329
Institutional Class $128 $400 $692 $1,523
</TABLE>

Page 11 of 42
<PAGE> 13
ARK INTERNATIONAL EQUITY SELECTION PORTFOLIO

The ARK Funds Board of Trustees has approved a proposed change in the investment
policy of the International Equity Selection Portfolio. Under this proposal, the
Portfolio would seek its investment goal by investing primarily in the
securities of companies located in countries other than the United States,
rather than in shares of mutual funds investing in these companies. The Board
has also approved a related increase in the investment advisory fee payable by
the Portfolio from 0.65% to 1.00% and an investment subadvisory agreement for
the Portfolio with AIB Govett. These changes may not be implemented until they
are approved by shareholders of the Portfolio who will vote on approval of the
changes at a special meeting scheduled to be held on July 12, 2000.

The following information relates to the International Equity Selection
Portfolio as revised pursuant to the proposed changes.

PORTFOLIO SUMMARY

INVESTMENT GOAL Long-term capital appreciation

INVESTMENT FOCUS Equity securities of non-U.S. issuers

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT STRATEGY Investing in equity securities of issuers
located in countries other than the U.S.

INVESTOR PROFILE Investors seeking capital appreciation
who want to diversify their portfolio by
investing overseas and who can tolerate
the risks of international investing

PRINCIPAL INVESTMENT STRATEGY OF THE INTERNATIONAL EQUITY SELECTION PORTFOLIO

The International Equity Selection Portfolio seeks its investment goal by
investing primarily in equity securities of companies located throughout the
world. The Portfolio invests in common stocks and other equity securities of
issuers located in at least three countries other than the U.S. The Portfolio
invests in issuers located in any country other than the U.S. and may invest in
issuers of any size.

The Portfolio's Subadvisor applies a blend of "top-down" and "bottom-up"
decision making in selecting portfolio investments. It first looks at trends in
the global economy and attempts to identify countries and sectors that offer
high growth potential. Then it uses extensive research and analysis to select
stocks in those countries and sectors with attractive valuations and good growth
potential.

Do to its investment strategy, the Portfolio may buy and sell securities
frequently. This may result in higher transaction costs and additional capital
gains tax liabilities.

Page 12 of 42

<PAGE> 14
PRINCIPAL RISKS OF INVESTING IN THE INTERNATIONAL EQUITY SELECTION PORTFOLIO

An investment in the Portfolio is not guaranteed; you may lose money by
investing in the Portfolio.

Investing in foreign countries poses additional risks since political and
economic events unique to a country or region will affect those markets and
their issuers. These events will not necessarily affect the U.S. economy or
similar issuers located in the United States. In addition, investments in
foreign countries are generally denominated in a foreign currency. As a result,
changes in the value of those currencies compared to the U.S. dollar may affect
(positively or negatively) the value of a Portfolio's investments. These
currency movements may happen separately from and in response to events that do
not otherwise affect the value of the security in the issuer's home country.
These various risks will be even greater for investments in emerging market
countries since political turmoil and rapid changes in economic conditions are
more likely to occur in these countries.

PERFORMANCE INFORMATION

The bar chart and the performance table which follow illustrate the risks and
volatility of an investment in the Portfolio. Of course, the Portfolio's past
performance does not necessarily indicate how the Portfolio will perform in the
future. Moreover, the Portfolio's investment policy is proposed to be changed
and the bar chart and performance table reflect performance prior to the
approval and implementation of the proposed change.

This bar chart shows changes in the performance of the Portfolio's Institutional
Class Shares for each year for seven calendar years. The Portfolio's Class A
Shares commenced operations on April 1, 1998. Thus, this bar chart also shows
changes in the performance of the Portfolio's Class A Shares for the most recent
year.

The chart does not reflect sales charges. If sales charges had been reflected,
returns would be less than those shown below.

Page 13 of 42
<PAGE> 15
<TABLE>
<CAPTION>
BEST QUARTER WORST QUARTER
------------ -------------
<S> <C>
28.79% -15.10%
12/31/99 9/30/98
</TABLE>

TOTAL RETURN JANUARY 1 TO MARCH 31, 2000 3.56%

This table compares the Portfolio's average annual total returns for the periods
ended December 31, 1999, to those of the Morgan Stanley Capital International
(MSCI) EAFE Index.

<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE
INCEPTION
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTERNATIONAL EQUITY SELECTION PORTFOLIO- CLASS A SHARES 42.62%* 16.64%* 13.32%*
MSCI EAFE INDEX 26.96% 12.83% 10.45%**
INTERNATIONAL EQUITY SELECTION PORTFOLIO- INSTITUTIONAL SHARES 44.84%*** 17.01%*** 13.53%***
MSCI EAFE INDEX 26.96% 12.83% 10.45%**
</TABLE>

* Class A Shares of the International Equity Selection Portfolio were
offered beginning April 1, 1998. The performance information shown
prior to that date represents performance of the Portfolio's
Institutional Class Shares. For Institutional Class Shares, performance
presented prior to March 29, 1998, reflects the performance of the
Marketvest International Equity Fund shares, which is the successor to
a collective trust fund. The assets of the Marketvest fund were
reorganized into the Portfolio in 1998 following the acquisition by
Allfirst of Dauphin Deposit Bank and Trust Company. The performance
information shown includes performance of the collective trust fund for
the period from May 31, 1991 (the inception date of the collective
trust fund), to March 31, 1997, when the Portfolio's registration
statement became effective. The investment objective and policies of
the collective trust fund were substantially the same as those of the
Marketvest fund. Institutional Class shares are offered by this
prospectus, and since they are invested in the same portfolio of
securities, the annual returns for the two classes would be
substantially similar. The performance of the Institutional Class
Shares has been adjusted for the sales charge applicable to Class A
Shares, but does not reflect the Class A Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that
shown.

** Since May 31, 1991.

*** Institutional Shares of the International Equity Selection Portfolio
were offered beginning March 29, 1998. The performance information
shown prior to that date represents the performance of the Marketvest
International Equity Fund shares, which is the successor to a
collective trust fund. The assets of the Marketvest fund were
reorganized into the Portfolio in 1998 following the acquisition by
Allfirst of Dauphin Deposit Bank and Trust Company. The performance
information shown includes performance of the collective trust for the
period May 31, 1991 (the inception date of the collective trust fund),
to March 31, 1997, when the Fund's registration statement became
effective. The investment objectives and policies of the collective
trust fund were substantially the same as those of the Marketvest fund.

WHAT IS AN INDEX?

An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment advisor
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The Morgan Stanley Capital International EAFE Index
is a widely recognized, capitalization-weighted (companies with larger market
capitalizations have more influence than those with smaller market
capitalizations) index of over 900 securities listed on stock exchanges in
Europe, Australia, New Zealand and the Far East.

PORTFOLIO FEES AND EXPENSES

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

Page 14 of 42
<PAGE> 16
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
INSTITUTIONAL
CLASS A SHARES CLASS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.75%(1) None
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None None

Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other
Distributions (as a percentage of offering price) None None

Redemption Fee (as a percentage of amount redeemed, if applicable) None None
Exchange Fee None None
</TABLE>

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
CLASS A SHARES INSTITUTIONAL CLASS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Advisory Fees 1.00%(2) 1.00%(2)
Distribution (12b-1) Fees 0.40% None
Other Expenses % %
------ ------
TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES % %
Fee Waivers and Expense Reimbursements % %
------ ------
TOTAL NET OPERATING EXPENSES %(3) %(3)
------ ------
</TABLE>

(1) The Board has approved an increase in the sales charge from 1.50% to 4.75%.
Such change has not been approved by the shareholders of the Portfolio or
implemented.

(2) The Board has approved an increase in the investment advisory fee payable
from 0.65% to 1.00%. Such change has not been approved by the shareholders of
the Portfolio or implemented.

(3) If the changes to the Portfolio's investment objectives and policies are
approved by the shareholders and implemented, the Portfolio's Advisor has agreed
contractually to waive fees and reimburse expenses in order to keep total
operating expenses from exceeding _____% for Class A Shares and ________% for
Institutional Class until April 30, 2001. In addition to its contractual waiver,
the Advisor is also voluntarily waiving a portion of the fees in order to keep
total operating expenses at a specified level. The Advisor may discontinue all
or part of these voluntary waivers at any time. With the voluntary fee waivers,
the Portfolio's actual total operating expenses are as follows:

International Equity Selection Portfolio - Class A Shares
(Pro Forma) ______%

International Equity Selection Portfolio - Institutional
Class (Pro Forma) ______ %

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

Page 15 of 42
<PAGE> 17
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares-Pro Forma $ $ $ $
Institutional Class- Pro Forma $ $ $ $
</TABLE>

Page 16 of 42
<PAGE> 18
ARK INTERNATIONAL EQUITY PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL Long-term capital appreciation

INVESTMENT FOCUS Equity securities of non-U.S. issuers

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT
STRATEGY Investing in equity securities of issuers located
in countries other than the U.S.

INVESTOR PROFILE Investors seeking capital appreciation who want to
diversify their portfolio by investing overseas
and who can tolerate the risks of international
investing

PRINCIPAL INVESTMENT STRATEGY OF THE INTERNATIONAL EQUITY PORTFOLIO

The International Equity Portfolio seeks its investment goal by investing
primarily in equity securities of companies located throughout the world. The
Portfolio invests in common stocks and other equity securities of issuers
located in at least three countries other than the U.S. The Portfolio invests in
issuers located in any country other than the U.S. and may invest in issuers of
any size.

Do to its investment strategy, the Portfolio may buy and sell securities
frequently. This may result in higher transaction costs and additional capital
gains tax liabilities.

PRINCIPAL RISKS OF INVESTING IN THE INTERNATIONAL EQUITY PORTFOLIO

An investment in the Portfolio is not guaranteed; you may lose money by
investing in the Portfolio.

Page 17 of 42
<PAGE> 19
Investing in foreign countries poses additional risks since political and
economic events unique to a country or region will affect those markets and
their issuers. These events will not necessarily affect the U.S. economy or
similar issuers located in the United States. In addition, investments in
foreign countries are generally denominated in a foreign currency. As a result,
changes in the value of those currencies compared to the U.S. dollar may affect
(positively or negatively) the value of a Portfolio's investments. These
currency movements may happen separately from and in response to events that do
not otherwise affect the value of the security in the issuer's home country.
These various risks will be even greater for investments in emerging market
countries since political turmoil and rapid changes in economic conditions are
more likely to occur in these countries.

PERFORMANCE INFORMATION

As of the date of this prospectus, the International Equity Portfolio has not
yet commenced operations and does not have a full calendar year of performance.

PORTFOLIO FEES AND EXPENSES

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

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

<TABLE>
<CAPTION>
CLASS A SHARES INSTITUTIONAL CLASS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.75%(1) None
Maximum Deferred Sales Charge (Load) (as a percentage of net asset
value) None None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and
other
Distributions (as a percentage of offering price) None None
Redemption Fee (as a percentage of amount redeemed, if applicable) None None

Exchange Fee None None
</TABLE>

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

<TABLE>
<CAPTION>
CLASS A SHARES INSTITUTIONAL CLASS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Advisory Fees 1.00% 1.00%
Distribution (12b-1) Fees 0.40% None
Other Expenses %(2) %(2)
------ ------
TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES % %
Fee Waivers and Expense Reimbursements % %
------ ------
TOTAL NET OPERATING EXPENSES %(3) %(3)
------ ------
</TABLE>

(1) This sales charge varies depending upon how much you invest. See "Purchasing
Portfolio Shares."

(2) As of the date of this prospectus, the Portfolio has not yet commenced
operations and Other Expenses are based on estimates for the current fiscal
year.

Page 18 of 42
<PAGE> 20
waiver, the Advisor is also voluntarily waiving a portion of the fees in order
to keep total operating expenses at a specified level. The Advisor may
discontinue all or part of these voluntary waivers at any time. With the
voluntary fee waivers, the Portfolio's actual total operating expenses are as
follows:

International Equity Portfolio- Class A Shares ______%
International Equity Portfolio- Institutional Class ______%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

This Example is intended to help you compare the cost of investing in the
Portfolios with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Portfolios for the time periods indicated and
that you sell your shares at the end of the period.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Class A Shares $ $
Institutional Class $ $
</TABLE>

Page 19 of 42
<PAGE> 21
ARK EMERGING MARKETS EQUITY PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL Long-term capital appreciation

INVESTMENT FOCUS Equity securities located in emerging market
countries

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT STRATEGY Investing in equity securities of issuers
located in emerging or developing market
countries throughout the world

INVESTOR PROFILE Investors seeking long-term capital appreciation
who want to diversify their portfolio by
investing overseas and who can tolerate the
risks of investing in emerging market countries

PRINCIPAL INVESTMENT STRATEGY OF THE EMERGING MARKETS EQUITY PORTFOLIO

The Emerging Markets Equity Portfolio seeks its investment goal by investing
primarily in equity securities of issuers located in emerging market countries.
The Portfolio invests in common stocks and other equity securities of issuers
located in at least three emerging market countries. The Portfolio's Subadvisor
uses the World Bank's classification system to determine the potential universe
of emerging market countries. The classification system used by the World Bank,
a non-governmental organization comprised of representatives from 181 countries
headquartered in Washington, D.C., covers 206 nations and non-sovereign entities
that are recognized by the United Nations. A country is deemed an emerging
market based on a macroeconomic analysis and an assessment of its political
structure. The Portfolio may invest in issuers of any size.

The Subadvisor applies a blend of "top-down" and "bottom-up" decision making in
selecting portfolio investments. It first looks at trends in the global economy
and attempts to identify countries and sectors that offer high growth potential.
Then it uses extensive research and analysis to select stocks in those countries
and sectors with attractive valuations and good growth potential.

Due to its investment strategy, the Portfolio may buy and sell securities
frequently. This may result in higher transaction costs and additional capital
gains tax liabilities.

PRINCIPAL RISKS OF INVESTING IN THE EMERGING MARKETS EQUITY PORTFOLIO

An investment in the Portfolio is not guaranteed; you may lose money by
investing in the Portfolio.

20 of 42
<PAGE> 22
Since it purchases equity securities, the Portfolio is subject to the risk that
stock prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Portfolio's equity
securities may fluctuate significantly from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Portfolio.

Investing in foreign countries poses additional risks since political economic
events unique to a country or region will affect those markets and their
issuers. These events will not necessarily affect the U.S. economy or similar
issuers located in the United States. In addition, investments in foreign
countries are generally denominated in a foreign currency. As a result, changes
in the value of those currencies compared to the U.S. dollar may affect
(positively or negatively) the value of the Portfolio's investments. These
currency movements may happen separately from and in response to events that do
not otherwise affect the value of the security in the issuer's home country.
These various risks will be even greater for investments in emerging market
countries since political turmoil and rapid changes in economic conditions are
more likely to occur in these countries.

PERFORMANCE INFORMATION

As of the date of this prospectus, the Portfolio has not yet commenced
operations and does not have a full calendar year of performance.

PORTFOLIO FEES AND EXPENSES

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

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

<TABLE>
<CAPTION>
CLASS A SHARES INSTITUTIONAL CLASS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.75%(1) None
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)
None None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other
Distributions (as a percentage of offering price)

None None
Redemption Fee (as a percentage of amount redeemed, if applicable)
None None
Exchange Fee None None
</TABLE>

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

<TABLE>
<CAPTION>
CLASS A SHARES INSTITUTIONAL CLASS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Advisory Fees 1.00% 1.00%
Distribution (12b-1) Fees 0.40% None
Other Expenses %(2) %(2)
------ ------
TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES % %
Fee Waivers and Expense Reimbursements % %
------ ------
NET TOTAL OPERATING EXPENSES %(3) %(3)
------ ------
</TABLE>

21 of 42
<PAGE> 23
(1) This sales charge varies depending upon how much you invest. See "Purchasing
Portfolio Shares."

(2) As of the date of this prospectus, the Portfolio has not yet commenced
operations and Other Expenses are based on estimates for the current fiscal
year.

(3) The Portfolio's Advisor has agreed contractually to waive fees and reimburse
expenses in order to keep total operating expenses from exceeding _____% for
Class A Shares and ______% for Institutional Class until April 30, 2001. In
addition to its contractual waiver, the Advisor is also voluntarily waiving a
portion of the fees in order to keep total operating expenses at a specified
level. The Advisor may discontinue all or part of these voluntary waivers at any
time. With the voluntary fee waivers, the Portfolio's actual total operating
expenses are as follows:

Emerging Markets Equity Portfolio - Class A Shares ______%
Emerging Markets Equity Portfolio - Institutional Class ______%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Class A Shares $ $
Institutional Class $ $
</TABLE>

22 of 42
<PAGE> 24
ADDITIONAL INFORMATION ABOUT RISK

<TABLE>
<CAPTION>
RISKS PORTFOLIOS AFFECTED BY THE RISKS
- ----- --------------------------------
<S> <C>
EQUITY RISK -- Equity securities include publicly and privately Small-Cap Equity Portfolio
issued equity securities, common and preferred stocks, warrants, International Equity Selection Portfolio
rights to subscribe to common stock and convertible securities, as International Equity Portfolio
well as instruments that attempt to track the price movement of Emerging Markets Equity Portfolio
equity indices. Investments in equity securities and equity
derivatives in general are subject to market risks that may cause
their prices to fluctuate over time. Equity derivatives may be
more volatile and increase portfolio risk. The value of
securities convertible into equity securities, such as warrants or
convertible debt, is also affected by prevailing interest rates,
the credit quality of the issuer and any call provision.
Fluctuations in the value of equity securities in which a mutual
fund invests will cause its portfolio's net asset value to
fluctuate. An investment in a Portfolio of equity securities may
be more suitable for long-term investors who can bear the risk of
these share price fluctuations.

FIXED INCOME RISK -- The market values of fixed income investments Income Portfolio
change in response to interest rate changes and other factors.
During periods of falling interest rates, the values of
outstanding fixed income securities generally rise. Moreover,
while securities with longer maturities tend to produce higher
yields, the prices of longer maturity securities are also subject
to greater market fluctuations as a result of changes in interest
rates. In addition to these fundamental risks, different types of
fixed income securities may be subject to the following additional
risks:

CALL RISK -- During periods of falling interest rates, certain Income Portfolio
debt obligations with high interest rates may be prepaid
(or "called") by the issuer prior to maturity. This may cause a
Portfolio's average weighted maturity to fluctuate, and may
require a Portfolio to invest the resulting proceeds at lower
interest rates.

CREDIT RISK -- The possibility that an issuer will be unable to Income Portfolio
make timely payments of either principal or interest.
</TABLE>

23 of 42
<PAGE> 25
<TABLE>
<S> <C>
EVENT RISK -- Securities may suffer declines in credit quality and Income Portfolio
market value due to issuer restructurings or other factors. This
risk should be reduced because of a Portfolio's multiple holdings.

MORTGAGE-BACKED SECURITIES RISK -- Mortgage-backed securities are Income Portfolio
fixed income securities representing an interest in a pool of
underlying mortgage loans. They are sensitive to changes in
interest rates, but may respond to these changes differently from
other fixed income securities due to the possibility of prepayment
of the underlying mortgage loans. As a result, it may not be
possible to determine in advance the actual maturity date or
average life of a mortgage-backed security. Rising interest rates
tend to discourage refinancings, with the result that the average
life and volatility of the security will increase, exacerbating
its decrease in market price. When interest rates fall, however,
mortgage-backed securities may not gain as much in market value
because of the expectation of additional mortgage prepayments that
must be reinvested at lower interest rates. Prepayment risk may
make it difficult to calculate the average maturity of a portfolio
of mortgage-backed securities and, therefore, to assess the
volatility risk of that portfolio.
</TABLE>

24 of 42
<PAGE> 26
<TABLE>
<S> <C>
FOREIGN SECURITY RISKS -- Investments in securities of foreign Small-Cap Equity Portfolio
companies or governments can be more volatile than investments in International Equity Selection Portfolio
U.S. companies or governments. Diplomatic, political, or economic International Equity Portfolio
developments, including nationalization or appropriation, could Emerging Markets Equity Portfolio
affect investments in foreign countries. Foreign securities
markets generally have less trading volume and less liquidity than
U.S. markets. In addition, the value of securities denominated in
foreign currencies, and of dividends from such securities, can
change significantly when foreign currencies strengthen or weaken
relative to the U.S. dollar. Foreign companies or governments
generally are not subject to uniform accounting, auditing, and
financial reporting standards comparable to those applicable to
U.S. companies or governments. Transaction costs are generally
higher than those in the U.S. and expenses for custodial
arrangements of foreign securities may be somewhat greater than
typical expenses for custodial arrangements of similar U.S.
securities. Some foreign governments levy withholding taxes
against dividend and interest income. Although in some
countries a portion of these taxes are recoverable, the
non-recovered portion will reduce the income received from the
securities comprising the Portfolio.

In addition to these risks, certain foreign securities may be
subject to the following additional risks factors:

CURRENCY RISK -- Investments in foreign securities denominated in Small-Cap Equity Portfolio
foreign currencies involve additional risks, including: International Equity Selection Portfolio
International Equity Portfolio
Emerging Markets Equity Portfolio

- The value of a Portfolio's assets measured in U.S.
dollars may be affected by changes in currency rates
and in exchange control regulations.

- A Portfolio may incur substantial costs in
connection with conversions between various
currencies.

- A Portfolio may be unable to hedge against possible
variations in foreign exchange rates or to hedge a
specific security transaction or portfolio position.

- Only a limited market currently exists for hedging
transactions relating to currencies in certain
emerging markets.
</TABLE>

25 of 42
<PAGE> 27
EACH PORTFOLIO'S OTHER INVESTMENTS

This prospectus describes the Portfolios' primary strategies, and the Portfolios
will normally invest at least 65% of their total assets in the types of
securities described in this prospectus. However, each Portfolio also may invest
in other securities, use other strategies and engage in other investment
practices. These investments and strategies, as well as those described in this
prospectus, are described in detail in our Statement of Additional Information.
Of course, there is no guarantee that any Portfolio will achieve its investment
goal.

The investments and strategies described in this prospectus are those that we
use under normal conditions. During unusual economic or market conditions, or
for temporary defensive or liquidity purposes, each Portfolio may invest up to
100% of its assets in cash and short-term securities that may not ordinarily be
consistent with a Portfolio's objectives. A Portfolio will do so only if the
Portfolio's advisor believes that the risk of loss outweighs the opportunity for
capital gains or higher income. The Portfolio may not be able to meet its
investment goal when it is employing a temporary defensive strategy.

INVESTMENT ADVISOR

The Portfolio's Investment Advisor makes (or supervises any subadvisor who
makes) investment decisions for the Portfolios and continuously reviews,
supervises and administers the Portfolios' respective investment programs. The
Board of Trustees of ARK Funds supervises the Advisor and any subadvisor and
establishes policies that the Advisor and any subadvisor must follow in its
management activities.

Allied Investment Advisors, Inc. (AIA), a wholly-owned subsidiary of Allfirst
Bank (formerly, First National Bank of Maryland) (Allfirst), serves as the
Advisor to the Portfolios. As of March 31, 2000, AIA had approximately $14.7
billion in assets under management. For the fiscal year ended April 30, 1999,
AIA received advisory fees of:

<TABLE>
<S> <C>
Income Portfolio 0.51%
Small-Cap Equity Portfolio 0.79%
International Equity Selection Portfolio 0.55%*
International Equity Portfolio 1.00%**
Emerging Markets Equity Portfolio 1.00%**
</TABLE>

* The Board has approved an increase in the investment advisory fee payable from
0.65% to 1.00%. Such change has not been approved by the shareholders of the
Portfolio or implemented.

** As of the date of this prospectus, the Portfolios have not yet commenced
operations and have not paid any advisory fees. The Board of Trustees has
approved an investment advisory fee of 1.00% for the International Equity
Portfolio and Emerging Markets Equity Portfolio. The Portfolios' Advisor has
agreed contractually to waive fees and reimburse expenses in order to keep total
operating expenses from exceeding _____% for the International Equity Portfolio
and _____% for the Emerging Markets Equity Portfolio until April 30, 2001. With
these fee waivers, the actual advisory fees received by AIA will be lower than
those shown in the table above.

AIA and Allfirst are indirect wholly owned subsidiaries of Allied Irish Banks,
p.l.c. (AIB). AIB is the largest bank in the Republic of Ireland, with assets of
approximately $___ billion at March 31, 2000.

INVESTMENT SUBADVISOR

26 of 42
<PAGE> 28
AIB Govett, Inc. (AIB Govett), an indirect majority-owned subsidiary of AIB, is
the Subadvisor for the International Equity Selection Portfolio(1),
International Equity Portfolio and the Emerging Markets Equity Portfolio. It
provides day-to-day management services and makes investment decisions on
behalf of these Portfolios in accordance with their respective investment
policies. In accordance with an investment subadvisory agreement, AIA pays AIB
Govett subadvisory fees from the fees it receives from the International Equity
Portfolio and the Emerging Markets Equity Portfolio.

AIB Govett and its affiliates AIB Govett Asset Management Limited, and AIB
Investment Managers Limited are part of the AIB Asset Management Holdings Group
("AIBAMH"), and part of a broad network of offices worldwide, with principal
offices located in London, Dublin, San Francisco, and Singapore. These offices
are supported by a global network of investment/research offices in Baltimore,
Budapest, Rio de Janeiro, and Poznan. AIB Govett serves as investment subadvisor
to two other U.S. mutual fund portfolios. AIBAMH had, as of March 31, 2000,
approximately $16.97 billion under management, primarily in non-U.S. funds.

PORTFOLIO MANAGERS

Steven M. Gradow is a Managing Director of, and Director of Fixed Income
Investments for, AIA and manager of the INCOME PORTFOLIO. Prior to joining
Allfirst in January 1996, Mr. Gradow was responsible for the management of $15
billion of fixed income pension assets for Washington State Investment Board in
Seattle for four years. Mr. Gradow's experience also includes five years fixed
income management for the Public Employees Retirement System of California
(CALPERS).

H. Giles Knight is a Principal of AIA and manager of the SMALL-CAP EQUITY
PORTFOLIO. Prior to joining Allfirst, Mr. Knight was with ASB Capital
Management, a subsidiary of Nations Bank, from 1990 to 1994. He was Director of
Special Equity Investments, Capital Markets Division, where he was responsible
for one mutual fund and six employee benefit and personal trust common stock
funds. Mr. Knight has nearly 30 years of investment experience.

The INTERNATIONAL EQUITY SELECTION PORTFOLIO, INTERNATIONAL EQUITY PORTFOLIO and
the EMERGING MARKETS EQUITY PORTFOLIO are managed by a portfolio management team
under the supervision of John Murray and Eileen Fitzpatrick, Joint Chief
Investment Officers of AIB Govett. The team's investment process is based on
interaction among regional specialist desks. The Global Investment Policy
Committee, consisting of the Chief Investment Officers of the principal offices,
sets overall investment policies and strategy for AIB Govett group and
coordinates implementation in accordance with each Portfolio's investment goals,
policies and regulatory requirements. With this structure, the firm seeks
consistent implementation of process and continuity of investment management
staff for each Portfolio.

Mr. Murray graduated with a BA in finance and business studies from the
University of the South Bank. Prior to joining AIB Govett London as a Director
in 1994, he was a Director at Henderson Administration from 1990, most recently
responsible for managing pension funds in excess of pound sterling 400 million.
He also served as a fund manager at Crown Financial Management and as Head of
Research at Provident Life.

- --------
(1) Under its proposal to change the investment policy of the Portfolio, the
Board of Trustees has approved an investment subadvisory agreement for the
Portfolio with AIB Govett. Such agreement has not been approved by the
Portfolio's shareholders or implemented.

27 of 42
<PAGE> 29
Dr. Fitzpatrick graduated with a Ph.D in Science from University College,
Dublin. After two years with a Dublin-based fund management organization, she
joined AIB Investment Managers Limited in 1988. She has experience in managing
Irish and European equities and has spent five years managing U.K. equities.
Between 1993 and 1996, she joined N.C.B. and Goodbody Stockbrokers where she was
head of the international equity sales division. In September 1996, she rejoined
AIB Investment Managers Limited as Deputy Investment Director with
responsibility for international equities and in January 1997, she was appointed
Investment Director.

PURCHASING, SELLING AND EXCHANGING PORTFOLIO SHARES

This section tells you how to purchase, sell (sometimes called "redeem") or
exchange Class A and Institutional Class Shares of the Portfolios.

The classes have different expenses and other characteristics. Institutional
Class Shares are for individuals, financial institutions, corporations and other
entities that have established trust, custodial, sweep or money management
relationships with Allfirst or its affiliates or correspondent banks. Before you
can buy Institutional Class Shares, you must establish a qualified account. If
you are a shareholder who obtained Institutional Class Shares through a
financial institution that has been purchased by Allfirst, you may have to
follow special procedures to transact in Fund shares. For information on fee
schedules and agreements for opening qualified accounts, call 1-800-624-4116
(inside Maryland 1-800-638-7751) to speak with an investor representative.

There are three ways to invest in Class A Shares of the ARK Funds:

- Through Authorized Brokers or Other Institutions

- Directly with the Fund

- Through the ARK Funds Employee Investment Program

There is one way to invest in the Institutional Class of the ARK Funds:

- Through Allfirst Bank or a Correspondent Bank

GENERAL INFORMATION

You may purchase shares on any day that the New York Stock Exchange (NYSE) and
the Federal Reserve are open for business (a Business Day). Class A Shares
cannot be purchased by Federal Reserve wire on days when either the NYSE or the
Federal Reserve is closed.

A Portfolio or its distributor may reject any purchase order if it is determined
that accepting the order would not be in the best interests of the Portfolio or
its shareholders.

The price per share (the offering price) will be the net asset value per share
(NAV) next determined after a Portfolio receives your purchase order, and in the
case of Class A Shares, plus the applicable front-end sales charge.

The Portfolios each calculate its NAV each Business Day at the close of the NYSE
(normally 4:00 p.m. Eastern time). So, for your order to be effective and for
you to be eligible to receive

28 of 42
<PAGE> 30
dividends declared on the day you submit your purchase order, generally the
Portfolio must receive your order and Federal funds before 4:00 p.m. Eastern
time.

When the NYSE or the Federal Reserve Bank of New York close early, the
Portfolios will advance the time on any such day by which purchase orders must
be received.

HOW WE CALCULATE NAV

NAV for one Portfolio share is the value of that share's portion of all of the
net assets in the Portfolio.

In calculating NAV for the Portfolios, we generally value a Portfolio's
securities at its market price. If market prices are unavailable or the
Portfolios think that they are unreliable, fair value prices may be determined
in good faith using methods approved by the Board of Trustees.

Some Portfolios hold securities that are listed on foreign exchanges. These
securities may trade on weekends or other days when the Portfolios do not
calculate NAV. As a result, the market value of these Portfolios' investments
may change on days when you cannot purchase or sell Portfolio shares.

INFORMATION REGARDING CLASS A SHARES

SALES CHARGES

FRONT-END SALES CHARGES

The offering price of Class A Shares is the NAV next calculated after a
Portfolio receives your request, plus the front-end sales load.

The amount of any front-end sales charge included in your offering price varies,
depending on the amount of your investment:

<TABLE>
<CAPTION>
INCOME PORTFOLIO
YOUR SALES CHARGE AS A YOUR SALES CHARGE AS A
IF YOUR INVESTMENT IS: PERCENTAGE OF OFFERING PRICE PERCENTAGE OF YOUR NET INVESTMENT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LESS THAN $50,000 4.50% 4.71%
$50,000 BUT LESS THAN $100,000 4.00% 4.17%
$100,000 BUT LESS THAN $250,000 3.00% 3.09%
$250,000 BUT LESS THAN $500,000 2.50% 2.56%
$500,000 BUT LESS THAN $1,000,000 2.00% 2.04%
$1,000,000 AND ABOVE 0.00% 0.00%
</TABLE>

No initial sales charge applies to purchases of Class A Shares of $1 million or
more. However, you will pay a redemption fee of 1.00% if you sell your shares
within one year of the date of purchase, or of 0.50% if you sell your shares
between one and two years of the date of purchase.

(1) The Board of Trustees has approved an increase in the sales charge for the
International Equity Selection Portfolio from 1.50% to 4.75%. Such change has
not been approved by the shareholders of the Portfolio or implemented.

29 of 42
<PAGE> 31
SMALL-CAP EQUITY, INTERNATIONAL EQUITY SELECTION(2) , INTERNATIONAL
EQUITY AND EMERGING MARKETS EQUITY PORTFOLIOS

<TABLE>
<CAPTION>
YOUR SALES CHARGE AS A YOUR SALES CHARGE AS A
IF YOUR INVESTMENT IS: PERCENTAGE OF OFFERING PRICE PERCENTAGE OF YOUR NET INVESTMENT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LESS THAN $50,000 4.75% 4.99%
$50,000 BUT LESS THAN $100,000 4.50% 4.71%
$100,000 BUT LESS THAN $250,000 3.50% 3.63%
$250,000 BUT LESS THAN $500,000 2.50% 2.56%
$500,000 BUT LESS THAN $1,000,000 2.00% 2.04%
$1,000,000 AND ABOVE 0.00% 0.00%
</TABLE>

WAIVER OF FRONT-END SALES CHARGE -- CLASS A SHARES

The front-end sales charge will be waived on Class A Shares purchased:

(1) by a bank trust officer, registered representative, or other employee
(or a member of their immediate families) of authorized institutions;

(2) by a charitable organization (as defined in Section 501(c)(3) of the
Internal Revenue Code) investing $100,000 or more;

(3) for a charitable remainder trust or life income pool established for
the benefit of a charitable organization (as defined in Section
501(c)(3) of the Internal Revenue Code);

(4) for an account affiliated with Allfirst, with the proceeds of a
distribution from certain employee benefit plans;

(5) for any state, county or city, or any governmental instrumentality,
department, authority or agency;

(6) with redemption proceeds from other mutual fund complexes on which you
have previously paid an initial or contingent deferred sales charge;

(7) for use in a broker-dealer managed account program, provided the
broker-dealer has executed a participation agreement with the
Portfolios' distributor specifying certain qualifications;

(8) as part of an employee benefit plan having more than 25 eligible
employees or a minimum of $250,000 of plan assets invested in the
Portfolios;

(9) as part of an employee benefit plan through an intermediary that has
signed a participation agreement with the Portfolios' distributor
specifying certain qualifications; and

(10) on a discretionary basis by a registered investment advisor that is not
part of an organization primarily engaged in the brokerage business and
that has executed a participation agreement with the Portfolios'
distributor specifying certain qualifications.

REPURCHASE OF CLASS A SHARES

30 of 42
<PAGE> 32
You may repurchase any amount of Class A Shares of any Portfolio at NAV (without
the normal front-end sales charge), up to the limit of the value of any amount
of Class A Shares (other than those which were purchased with reinvested
dividends and distributions) that you redeemed within the past 30 days. In
effect, this allows you to reacquire shares that you have redeemed, without
paying the front-end sales charge a second time. To exercise this privilege, the
Portfolio must receive your purchase order within 30 days of your redemption. In
addition, you must notify the Portfolio when you send in your purchase order
that you are repurchasing shares.

REDUCED SALES CHARGES -- CLASS A SHARES

RIGHTS OF ACCUMULATION. In calculating the appropriate sales charge rate, this
right allows you to add the value of the Class A Shares you already own to the
amount that you are currently purchasing. The Portfolio will combine the value
of your current purchases with the current value of any Class A Shares you
purchased previously for (i) your account, (ii) your spouse's account, (iii) a
joint account with your spouse, or (iv) your minor children's trust or custodial
accounts. A fiduciary purchasing shares for the same fiduciary account, trust or
estate may also use this right of accumulation. The Portfolio will consider the
value of Class A Shares purchased previously only if they were sold subject to a
sales charge. To be entitled to a reduced sales charge based on shares already
owned, you must ask us for the reduction at the time of purchase. You must
provide the Portfolio with your account number(s) and, if applicable, the
account numbers for your spouse and/or children (and provide the children's
ages). The Portfolio may amend or terminate this right of accumulation at any
time.

LETTER OF INTENT. You may purchase Class A Shares at the sales charge rate
applicable to the total amount of the purchases you intend to make over a
13-month period. In other words, a Letter of Intent allows you to purchase Class
A Shares of a Portfolio over a 13-month period and receive the same sales charge
as if you had purchased all the shares at the same time. The Portfolio will only
consider the value of Class A Shares sold subject to a sales charge. As a
result, Class A Shares purchased with dividends or distributions will not be
included in the calculation. To be entitled to a reduced sales charge based on
shares you intend to purchase over the 13-month period, you must send the
Portfolio a Letter of Intent. In calculating the total amount of purchases, you
may include in your Letter purchases made up to 90 days before the date of the
Letter. The 13-month period begins on the date of the first purchase, including
those purchases made in the 90-day period before the date of the Letter. Please
note that the purchase price of these prior purchases will not be adjusted.

You are not legally bound by the terms of your Letter of Intent to purchase the
amount of your shares stated in the Letter. The Letter does, however, authorize
the Portfolio to hold in escrow 5% of the total amount you intend to purchase.
If you do not complete the total intended purchase at the end of the 13-month
period, the Portfolio's transfer agent will redeem the necessary portion of the
escrowed shares to make up the difference between the reduced rate sales charge
(based on the amount you intended to purchase) and the sales charge that would
normally apply (based on the actual amount you purchased).

COMBINED PURCHASE/QUANTITY DISCOUNT PRIVILEGE. When calculating the appropriate
sales charge rate, the Portfolio will combine same-day purchases of Class A
Shares (that are subject to a sales charge) made by you, your spouse and your
minor children (under age 21). This combination also applies to Class A Shares
you purchase with a Letter of Intent.

31 of 42
<PAGE> 33
GENERAL INFORMATION ABOUT SALES CHARGES

Your securities dealer is paid a commission when you buy your shares and is paid
a servicing fee as long as you hold your shares. Your securities dealer or
servicing agent may receive different levels of compensation depending on which
class of shares you buy.

From time to time, some financial institutions including brokerage firms
affiliated with Allfirst may be reallowed up to the entire sales charge. Firms
that receive a reallowance of the entire sales charge may be considered
underwriters for the purpose of Federal securities law.

THROUGH AUTHORIZED BROKERS OR OTHER INSTITUTIONS

HOW TO PURCHASE PORTFOLIO SHARES

You may buy shares through accounts with brokers and other institutions that are
authorized to place trades in Portfolio shares for their customers. If you
invest through an authorized institution, you will have to follow its
procedures. Your institution may charge a fee for its services, in addition to
the fees charged by the Portfolio. You will also generally have to address your
correspondence or questions regarding a Portfolio to your institution. For more
information, contact the broker or institution directly.

HOW TO SELL YOUR PORTFOLIO SHARES

If you own shares through an account with a broker or other institution, contact
that broker or institution to sell your shares.

HOW TO EXCHANGE YOUR PORTFOLIO SHARES

You may exchange your shares on any Business Day. If you own shares through an
account with a broker or other institution, contact that broker or institution
to exchange your shares. Exchange requests must be for an amount of at least
$500 per Portfolio.

When you exchange shares, you are really selling your shares and buying other
Portfolio shares. So, your sale price and purchase price will be based on the
NAV next calculated after the Portfolios receive your exchange request.

DIRECTLY WITH THE FUND

HOW TO PURCHASE PORTFOLIO SHARES

To purchase shares directly from us, please call 1-888-4ARKFUND, or complete and
send in a Direct Investment Account Application. The minimum investment in a
Portfolio is $500. Unless you arrange to pay by wire, write your check to "ARK
Funds" and include the name of the appropriate Portfolio(s) on the check. A
Portfolio cannot accept third-party checks, credit cards, credit card checks, or
cash.

32 of 42
<PAGE> 34
You can buy shares by sending a completed Account Application along with a check
and investment instructions to:

ARK Funds
P.O. Box 8525
Boston, MA 02266-8525

All purchases made by check should be in U.S. dollars and made payable to ARK
Funds or, for an IRA account, to ARK Funds FBO (account holder's name).
Redemptions of shares purchased through the Automatic Investment Plan will be
delayed until the investment has been in the account for 15 calendar days.

PURCHASES BY WIRE

You can buy shares by wiring money to:

State Street Bank and Trust Company
Boston, MA

ABA 011000028
Account Number: 99051609
Attention: [ARK Portfolio Name]
Further Credit to: [Account Name and Number]

You should notify the Fund's transfer agent at 1-888-4ARKFUND by 12:00 noon
Eastern Time if you plan to wire money. This way, an order to purchase shares by
wire will be deemed to have been received on the day of the wire.

You may purchase shares by Automated Clearing House (ACH) funds transfer. In
order to do so, complete the bank information section on the Account
Application. Attach a voided check or deposit slip to the Account Application.
Only domestic member banks may be used. It takes about 15 days to set up an ACH
account. Currently, the Fund does not charge a fee for ACH transfers.

HOW TO SELL YOUR PORTFOLIO SHARES

If you own shares directly, you may sell your shares on any Business Day by
contacting the Fund directly by mail at ARK Funds, P.O. Box 8525, Boston, MA
02266-8525, or by telephone at 1-888-4ARKFUND. There is no minimum amount for
telephone redemptions.

You may not close your account by telephone.

REDEMPTION BY MAIL

Along with your written request, the transfer agent may require a signature
guarantee if: (a) the redemption request is for $25,000 or more; (b) you ask us
to send redemption proceeds to a name and/or address that differs from the name
or address of record; or (c) you request a transfer of registration.

33 of 42
<PAGE> 35
RECEIVING YOUR MONEY

Normally, we send your sale proceeds within three Business Days after we receive
your request. Your proceeds can be wired to your bank account (subject to a $10
fee) or sent to you by check. If you recently purchased your shares by check,
redemption proceeds may not be available until your check has cleared (which may
take up to 15 days from the date of your purchase).

If you established ACH instructions on your account, you can receive your
redemption proceeds by ACH wire. Sale proceeds sent via ACH will not be posted
to your bank account until the second Business Day following the transaction.

AUTOMATIC WITHDRAWAL PLAN (AWP)

The AWP may be used by investors who wish to receive regular distributions from
their accounts. Upon commencement of the AWP, an account must have a current
value of $5,000 or more. Investors may elect to receive automatic payments of
$100 or more via check or direct deposit to a checking account on a monthly,
quarterly or annual basis. Automatic withdrawals are normally processed on the
25th day of the month (or on the next Business Day). To arrange an AWP, you must
complete the appropriate section of an Account Change Form.

HOW TO EXCHANGE YOUR PORTFOLIO SHARES

To exchange your Portfolio shares, contact the Fund directly at 1-888-4ARKFUND.
You may exchange your shares on any Business Day.

Before making an exchange, shareholders should consider the investment
objective, policies and restrictions of the Portfolio into which they are
exchanging, as set forth in the prospectus. Any telephone exchange must satisfy
the requirements relating to the minimum initial investment amounts of the
Portfolio involved. If you recently purchased shares by check, you may not be
able to exchange your shares until your check has cleared (which may take up to
15 days from your date of purchase). The Fund reserves the right to reject any
telephone exchange request and to modify or terminate the telephone exchange
privilege at any time, upon 60 days' written notice.

THROUGH THE ARK FUNDS EMPLOYEE INVESTMENT PROGRAM

HOW TO PURCHASE PORTFOLIO SHARES

Class A Shares of the Portfolios may be purchased without a sales charge in an
ARK Funds Employee Investment Account. Employees are defined as current and
former trustees and officers of the Fund, current and retired officers,
directors and regular employees of Allied Irish Banks, p.l.c., and its direct
and indirect subsidiaries, including Allfirst and its affiliates, and their
spouses and minor children. Employees may open an account directly with the Fund
by making a lump sum investment of $100 or more in Class A Shares of any
Portfolio or $50 per Portfolio

34 of 42
<PAGE> 36
per month if they participate in the Automatic Investment Plan. Call
1-888-4ARKFUND to request an information kit which includes an Account
Application. Regular and IRA accounts are available.

AUTOMATIC INVESTMENT PLAN (AIP)

Employees and investors may arrange on any Business Day for periodic investment
in a Portfolio through automatic deductions from a checking or savings account
by completing the appropriate section of the Account Application.

HOW TO SELL YOUR PORTFOLIO SHARES

You may sell your shares on any Business Day by contacting the Fund directly by
mail at ARK Funds, P.O. Box 8525, Boston, MA 02266-8525, or by telephone at
1-888-4ARKFUND. There is no minimum amount for telephone redemptions.

You may not close your account by telephone.

REDEMPTION BY MAIL

RECEIVING YOUR MONEY

Normally, we send your sale proceeds within three Business Days after we receive
your request. Your proceeds can be wired to your bank account or sent to you by
check. If you recently purchased your shares by check, redemption proceeds may
not be available until your check has cleared (which may take up to 15 days from
the date of your purchase).

AUTOMATIC WITHDRAWAL PLAN (AWP)

HOW TO EXCHANGE YOUR PORTFOLIO SHARES

To exchange your Portfolio shares, contact the Fund directly at 1-888-4ARKFUND.
You may exchange your shares on any Business Day.

35 of 42
<PAGE> 37
If you recently purchased shares by check, you may not be able to exchange your
shares until your check has cleared (which may take up to 15 days from your date
of purchase). This exchange privilege may be changed or canceled at any time
upon 60 day's notice.

Before making an exchange, shareholders should consider the investment
objective, policies and restrictions of the Portfolio into which they are
exchanging, as set forth in the prospectus.

INFORMATION REGARDING INSTITUTIONAL CLASS SHARES

HOW TO PURCHASE PORTFOLIO SHARES

Generally, you must make payment to Allfirst or a correspondent bank, who will
forward your purchase orders. For the Portfolios, payment must be received
within three Business Days (as defined below). A Portfolio cannot accept checks,
third-party checks, credit cards, credit card checks or cash.

You will have to follow the procedures applicable to qualified accounts. Your
qualified account agreement may require you to pay a fee that is in addition to
the fees charged by the Portfolios.

It is expected that Allfirst or a correspondent bank will be the record owner of
Institutional Class Shares held through qualified accounts. Allfirst or a
correspondent bank will supply clients with quarterly statements showing all
account activity.

Shareholders may instruct Allfirst to purchase Institutional Class Shares
automatically at preset intervals. Allfirst or a correspondent bank may charge
additional fees for this and other services, including cash sweeps. For more
information, please call 1-800-624-4116 (inside Maryland 1-800-638-7751) to
speak with an investor representative.

MINIMUM PURCHASES

To purchase shares for the first time, you must invest in any Portfolio at least
$100,000. Within six months, you must achieve and maintain an aggregate balance
of $250,000. Accounts of individual investors or other master accounts may be
aggregated for this purpose. There may be other minimums or restrictions
established by Allfirst or a correspondent bank when you open your account.

Your subsequent investments in any Portfolio may be made in any amount.

HOW TO SELL YOUR PORTFOLIO SHARES

Generally, you must request a redemption through Allfirst or a correspondent
bank, who will forward your redemption request to the Fund.

36 of 42
<PAGE> 38
If you hold Institutional Class Shares directly with the Fund, you may sell
shares by telephone or mail by following procedures established when they opened
their qualified account. If you have questions, call 1-800-624-4116 (inside
Maryland 1-800-638-7751) or your investor representative at Allfirst or your
correspondent bank.

BY MAIL. To redeem by mail, send a written request to Allfirst Bank Trust
Division Banc #101-624, P. O. Box 1596, Baltimore, MD 21201, or to your
correspondent bank.

BY TELEPHONE. To redeem by telephone, call 1-800-624-4116 (inside Maryland
1-800-638-7751) or your investor representative at Allfirst or your
correspondent bank.

RECEIVING YOUR MONEY

Normally, if we receive your redemption request before 4:00 p.m. Eastern time,
we will wire your redemption proceeds via Federal funds wire on the next
Business Day. Currently, Allfirst pays the costs of these wires. Allfirst or a
correspondent bank reserves the right to charge wire fees to investors.

HOW TO EXCHANGE YOUR SHARES

You may exchange your Institutional Class Shares on any Business Day by
contacting us directly by telephone by calling 1-800-624-4116 (inside Maryland
1-800-638-7751) or your investment representative at Allfirst or a correspondent
bank.

Investors who are currently Allfirst Personal Trust customers who will be
receiving a distribution from their Trust account may exchange their
Institutional Class Shares of any Portfolio. ARK Funds has received a private
letter ruling from the Internal Revenue Service which provides that exchanges of
shares of one class of a Portfolio for shares of another class of the same
Portfolio will not be a taxable event.

OTHER POLICIES

SHARES EXCHANGES

Class A Shares

You may exchange Class A Shares of any Portfolio for Class A Shares of any other
Portfolio. If you exchange shares that you purchased without a sales charge, or
with a lower sales charge, into a Portfolio with a sales charge or with a higher
sales charge, the exchange is subject to an incremental sales charge (e.g., the
difference between the lower and higher applicable sales charges.) If you
exchange your shares into a Portfolio with the same, lower or no sales charge,
there is not an incremental sales charge for the exchange.

37 of 42
<PAGE> 39
TELEPHONE TRANSACTIONS

Purchasing, selling and exchanging Portfolio shares over the telephone is
extremely convenient but not without risk. Although the Fund has certain
safeguards and procedures to confirm the identity of the callers and the
authenticity of instructions, the Fund is not responsible for any losses or
costs incurred by following telephone instructions we reasonably believe to be
genuine. If you or your financial institution transact with the Fund over the
telephone, you will generally bear the risk of any loss.

SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES

A Portfolio may suspend your right to sell your shares if the NYSE restricts
trading, the SEC declares an emergency or for other reasons. More information
about this is in our Statement of Additional Information.

INVOLUNTARY SALES OF YOUR SHARES

For direct investors, if your account drops below $500 because of redemptions
you may be required to sell your shares. But, we will always give you at least
30 days, written notice to give you time to add to your account and avoid the
sale of your shares.

REDEMPTION IN KIND

The Portfolios reserve the right to make redemptions "in kind" -- payment of
redemption proceeds in portfolio securities rather than cash-- if the portfolio
deems that it is in the Portfolio's best interest to do so.

DISTRIBUTION OF PORTFOLIO SHARES

For Retail Class A Shares, each Portfolio has adopted a distribution plan that
allows the Portfolios to pay distribution and service fees for the sale and
distribution of its shares, and for services provided to shareholders. Because
these fees are paid out of a Portfolio's assets continuously, over time these
fees will increase the cost of your investment and may cost you more than paying
other types of sales charges. The Distributor receives no compensation for its
distribution of Institutional Class Shares.

Distribution fees, as a percentage of average daily net assets, are as follows:

For Class A Shares

<TABLE>
<S> <C>
Income Portfolio 0.30%
Small-Cap Equity Portfolio 0.40%
International Equity Selection Portfolio 0.40%
International Equity Portfolio 0.40%
Emerging Markets Equity Portfolio 0.40%
</TABLE>

38 of 42
<PAGE> 40
In addition, for Class A, shareholder services fees, as a percentage of average
daily net assets, may be up to 0.25%. For Institutional Class Shares,
shareholder service fees, as a percentage of average daily net assets, may be up
to 0.15%.

For Retail Class A Shares, the Distributor may, from time to time at its sole
discretion, institute one or more promotional incentive programs for dealers,
which will be paid for by the Distributor from any sales charge it receives or
from any other source available to it. Under any such program, the Distributor
may provide cash or non-cash compensation as recognition for past sales or
encouragement for future sales that may include the following: merchandise,
travel expenses, prizes, meals and lodging, and gifts that do not exceed $100
per year, per individual.

DIVIDENDS AND DISTRIBUTIONS

Dividends are declared and paid according to the following schedules:

<TABLE>
<CAPTION>
FREQUENCY OF FREQUENCY OF
DECLARATION OF PAYMENT OF
PORTFOLIO DIVIDENDS DIVIDENDS
- --------- -------------- ------------
<S> <C> <C>
Income Portfolio Daily Monthly
Small-Cap Equity Portfolio Annually Annually
International Equity Selection Portfolio Annually Annually
International Equity Portfolio Annually Annually
Emerging Markets Portfolio Annually Annually
</TABLE>

Each Portfolio makes distributions of capital gains, if any, at least annually.
If you own Portfolio shares on a Portfolio's record date, you will be entitled
to receive the distribution.

You may elect to receive dividends and distributions in the form of additional
Portfolio shares or in cash. You must notify the Portfolio in writing prior to
the date of the distribution. Your election will be effective for dividends and
distributions paid after the Portfolio receives your written notice. To cancel
your election, simply send the Portfolio written notice.

TAXES

PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Portfolios and their shareholders. This summary is based on
current tax laws, which may change.

Each Portfolio will distribute substantially all of its income and capital
gains, if any. The dividends and distributions you receive may be subject to
Federal, state and local taxation, depending upon your tax situation.
Distributions you receive from a Portfolio may be taxable whether or not you
reinvest them. Income distributions are generally taxable at ordinary income tax
rates. Capital gains distributions are generally taxable at the rates applicable
to long-term capital gains. EACH SALE OR EXCHANGE OF SHARES IS A TAXABLE EVENT.

MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.

39 of 42
<PAGE> 41
FINANCIAL HIGHLIGHTS

The table that follows presents performance information about Retail Class A and
Institutional Class Shares of the Portfolios. This information is intended to
help you understand each Portfolio's financial performance for the past five
years, or, if shorter, the period of the Portfolio's operations. Some of this
information reflects financial information for a single Portfolio share. The
total returns in the table represent the rate that you would have earned (or
lost) on an investment in a Portfolio, assuming you reinvested all of your
dividends and distributions. This information has been audited by KPMG LLP,
independent auditors. The information for the six months ended October 31, 1999
(unaudited) appears in the Portfolios' Semi-Annual Report. The Annual Report and
the Semi-Annual Report, along with each Portfolio's financial statements,
accompanies our Statement of Additional Information. You can obtain the
Portfolios' Annual Report and the Semi-Annual Report, which contain more
performance information, at no charge by calling 1-888-4ARK-FUND for the Retail
Class and 1-800-624-4116 (inside Maryland 1-800-638-7751) for the Institutional
Class.

40 of 42
<PAGE> 42
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED OCTOBER 31, 1999 (UNAUDITED)
AND THE PERIODS ENDED APRIL 30,

Net Asset Realized and Distributions Distributions
Value, Net Unrealized from Net from Net Asset Net Assets
Beginning Investment Gains or (Losses) Investment Capital Value, End Total End of
of Period Income on Investments Income Gains of Period Return(A) Period (000)
--------- ------ -------------- ------ ----- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income
Portfolio
Retail
Class A

1999* $10.20 0.27 (0.36) (0.27) -- $ 9.84 (0.84)%+ $ 7,240
1999 10.37 0.58 (0.16) (0.59) -- 10.20 4.08 8,573
1998 9.94 0.58 0.44 (0.59) -- 10.37 10.47 6,889
1997 9.91 0.59 0.01 (0.57) -- 9.94 6.32 4,102
1996 9.72 0.60 0.19 (0.60) -- 9.91 8.14 4,184
1995 (1) 9.62 0.55 0.05 (0.47) (0.03) 9.72 6.45 296

SMALL-CAP
EQUITY
PORTFOLIO
RETAIL
CLASS A

1999* $12.59 (0.06) 6.55 -- -- $19.08 51.55%+ $ 3,609
1999 11.83 (0.07) 1.16 -- (0.33) 12.59 9.66 2,248
1998 8.53 (0.06) 3.98 -- (0.62) 11.83 47.57 1,853
1997 (2) 15.47 (0.01) (3.72) -- (3.21) 8.53 (27.14)+ 1,075

INTERNATIONAL
EQUITY
SELECTION
PORTFOLIO
RETAIL
CLASS A

1999* $11.16 0.01 1.29 -- -- $12.46 11.65%+ $ 1,996
1999 11.51 0.08 (0.17) (0.09) (0.17) 11.16 (0.59) 1,496
1998*(2) 11.40 -- 0.11 -- -- 11.51 0.96+ 13
</TABLE>

<TABLE>
<CAPTION>
Ratio
Ratio of Net of Expenses
Ratio of Investment to Average
Expenses Income (Loss) Net Assets Portfolio
to Average to Average (Excluding Turnover
Net Assets Net Assets Waivers) Rate
---------- ---------- -------- ----
<S> <C> <C> <C> <C>
Income
Portfolio
Retail
Class A

1999* 0.95% 5.49% 1.24% 151.50%
1999 0.95 5.59 1.24 50.41
1998 0.95 5.82 1.16 154.87
1997 0.89 5.96 1.09 271.6
1996 1.02 5.54 1.37 107.33
1995 (1) 1.23 5.66 27.63 73

SMALL-CAP
EQUITY
PORTFOLIO
RETAIL
CLASS A

1999* 1.31% (0.89)% 1.62% 259.35%
1999 1.32 (0.64) 1.63 733.14
1998 1.21 (0.46) 1.36 410.72
1997 (2) 1.11* (0.13)* 1.21* 704.41

INTERNATIONAL
EQUITY
SELECTION
PORTFOLIO
RETAIL
CLASS A

1999* 1.05% 0.22% 1.45% 14.39%
1999 1.05 0.80 1.30 101.86
1998*(2) 0.96* (0.63)* 1.19* 0.98
</TABLE>

+ Returns are for the period indicated and have not been annualized.

* 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 April 12, 1994.

(2) Commenced operations on May 16, 1996.

(3) Commenced operations on April 1, 1998.
<PAGE> 43
<TABLE>
<CAPTION>
Net Asset Realized and Distributions Distributions
Value, Net Unrealized from Net from Net Asset
Beginning Investment Gains or (Losses) Investment Capital Value, End Total
of Period Income on Investments Income Gains of Period Return(A)
--------- ------ -------------- ------ ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME
PORTFOLIO
INSTITUTIONAL
CLASS

1999* $10.08 0.28 (0.36) (0.28) -- $ 9.72 (0.81)%+
1999 10.25 0.59 (0.17) (0.59) -- 10.08 4.22
1998 9.82 0.61 0.43 (0.61) -- 10.25 10.84
1997 9.80 0.59 0.02 (0.59) -- 9.82 6.51
1996 9.60 0.61 0.20 (0.61) -- 9.80 8.46
1995 9.61 0.58 0.02 (0.58) (0.03) 9.60 6.53

SMALL-CAP
EQUITY
PORTFOLIO
INSTITUTIONAL
CLASS

1999* $12.65 (0.06) 6.60 -- -- $19.19 51.70%+
1999 11.86 (0.05) 1.17 -- (0.33) 12.65 9.89
1998 8.53 (0.02) 3.97 -- (0.62) 11.86 47.93
1997 14.72 (0.01) (2.97) -- (3.21) 8.53 (23.43)
1996 (1) 10.00 0.09 4.72 (0.09) -- 14.72 48.34+

INTERNATIONAL
EQUITY
SELECTION
PORTFOLIO
INSTITUTIONAL
CLASS

1999* $11.16 0.02 1.28 -- -- $12.46 11.65%+
1999 11.51 0.10 (0.18) (0.10) (0.17) 11.16 (0.50)
1998 10.85 -- 0.66 -- -- 11.51 6.08+
1998++ (2) 10.00 0.15 1.12 (0.23) (0.19) 10.85 12.95+
</TABLE>

<TABLE>
<CAPTION>
Ratio of Net Ratio of Expenses
Ratio of Investment to Average
Net Assets Expenses Income (Loss) Net Assets Portfolio
End of to Average to Average (Excluding Turnover
Period (000) Net Assets Net Assets Waivers) Rate
------------ ---------- ---------- -------- ----
<S> <C> <C> <C> <C> <C>
INCOME
PORTFOLIO
INSTITUTIONAL
CLASS

1999* $343,268 0.82% 5.63% 0.94% 151.50%
1999 356,482 0.78 5.77 0.94 50.41
1998 322,304 0.73 6.05 0.77 154.87
1997 242,966 0.68 6.19 0.68 271.6
1996 180,962 0.73 6.00 0.73 107.33
1995 66,441 0.74 6.15 0.74 73

SMALL-CAP
EQUITY
PORTFOLIO
INSTITUTIONAL
CLASS

1999* $ 46,509 1.20% (0.78)% 1.22% 259.35%
1999 30,562 1.16 (0.48) 1.23 733.14
1998 27,372 0.98 (0.24) 1.02 410.72
1997 17,746 0.95 (0.12) 0.95 704.41
1996 (1) 33,621 0.91* 0.60* 0.91* 286.8

INTERNATIONAL
EQUITY
SELECTION
PORTFOLIO
INSTITUTIONAL
CLASS

1999* $ 28,029 0.94% 0.30% 1.05% 14.39%
1999 23,686 0.88 1.04 1.04 101.86
1998 41,510 0.78* (0.52)* 1.22* 0.98
1998++ (2) 35,858 0.75* 1.73* 1.20* 43
</TABLE>

+ Returns are for the period indicated and have not been annualized.

++ Period ended February 28.

* 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 July 13, 1995.

(2) Commenced operations on April 1, 1997.
<PAGE> 44
ARK FUNDS

INVESTMENT ADVISOR

Allied Investment Advisors, Inc.
100 E. Pratt Street
Baltimore, MD 21202

INVESTMENT SUBADVISOR

(International Equity Selection Portfolio, International Equity Portfolio and
Emerging Markets Equity Portfolio)

AIB Govett, Inc.
250 Montgomery Street
Suite 1200
San Francisco, CA 94104

DISTRIBUTOR

SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, PA 19456

LEGAL COUNSEL

Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW
Washington, DC 20036

INDEPENDENT AUDITORS

KPMG LLP
99 High Street
Boston, MA 02110

More information about the Portfolios is available without charge through the
following:

STATEMENT OF ADDITIONAL INFORMATION (SAI)

The SAI dated June _____, 2000, includes detailed information about the
following ARK Funds: Income Portfolio, Small-Cap Equity Portfolio, International
Equity Selection Portfolio, International Equity Portfolio, and Emerging Markets
Equity Portfolio. The SAI is on file with the SEC and is incorporated by
reference into this prospectus. This means that the SAI, for legal purposes, is
a part of this prospectus.

ANNUAL AND SEMI-ANNUAL REPORTS

41 of 42
<PAGE> 45
These reports list each Portfolio's holdings and contain information from the
Portfolio's managers about strategies and recent market conditions and trends
and their impact on performance. The reports also contain detailed financial
information about the Portfolios.

TO OBTAIN MORE INFORMATION:

BY TELEPHONE:

RETAIL CLASS A SHARES: Call 1-888-4ARK-FUND

INSTITUTIONAL CLASS: Call 1-800-624-4116 (inside Maryland 1-800-638-7751)

BY MAIL: Write to us

RETAIL CLASS A SHARES:

ARK Funds
P.O. Box 8525
Boston, MA 02266-8525

INSTITUTIONAL CLASS:

ARK Funds
c/o Allfirst Bank Trust Division
Banc #101-624
P.O. Box 1596
Baltimore, MD 21201

FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual Reports,
as well as other information about ARK Funds, from the SEC's website
(http://www.sec.gov). You may review and copy documents at the SEC Public
Reference Room in Washington, DC (for information call (202) 942-8090). You may
request documents by mail from the SEC, upon payment of a duplicating fee, by
(1) writing to: Securities and Exchange Commission, Public Reference Section,
Washington, DC 20549-6009 or (2) sending an electronic request to
[email protected]. ARK Funds' Investment Company Act registration number is
811-7310.

42 of 42
<PAGE> 46

ARK FUNDS
INCOME PORTFOLIO
SMALL-CAP EQUITY PORTFOLIO
INTERNATIONAL EQUITY SELECTION PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
EMERGING MARKETS EQUITY PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
JUNE ___, 2000

This Statement of Additional Information is not a prospectus but should
be read in conjunction with the current prospectus dated June __, 2000, for the
Retail Class A and Institutional Class shares of the Income Portfolio, Small-Cap
Equity Portfolio, International Equity Selection Portfolio, International Equity
Portfolio and the Emerging Markets Equity Portfolio of the ARK Funds (the
"Fund"). Please retain this document for future reference. Capitalized terms
used but not defined herein have the meanings given them in the prospectus. The
Fund's Annual Report (including financial statements for the fiscal year ended
April 30, 1999) and Semi-Annual Report (including financial statements for the
six months ended October 31, 1999) are incorporated herein by reference. To
obtain additional copies of the prospectus, Annual Report, Semi-Annual Report or
this Statement of Additional Information, please call 1-800-624-4116 (inside
Maryland 1-800-638-7751).
<TABLE>
<CAPTION>

TABLE OF CONTENTS PAGE
- ----------------- ----

<S> <C>
INVESTMENT GOALS AND STRATEGIES 2

INVESTMENT POLICIES AND LIMITATIONS 4

INVESTMENT PRACTICES 7

PORTFOLIO TRANSACTIONS 27

VALUATION OF PORTFOLIO SECURITIES 30

PORTFOLIO PERFORMANCE 31

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION 32

TAXES 35

TRUSTEES AND OFFICERS 38

INVESTMENT ADVISOR 41

ADMINISTRATOR AND DISTRIBUTOR 43

TRANSFER AGENT 46

DESCRIPTION OF THE FUND 47

CUSTODIAN 49

INDEPENDENT AUDITORS 49

FINANCIAL STATEMENTS 49

</TABLE>

<PAGE> 47
INVESTMENT GOALS AND STRATEGIES

The Fund consists of separate investment portfolios with a variety of
investment objectives and policies. A Portfolio's investment advisor is
responsible for providing a continuous investment program in accordance with its
investment objective and policies. Except for its investment objective and those
policies identified as fundamental, the investment policies of the Portfolios
are not fundamental and may be changed by the Board of Trustees of the Fund
without shareholder approval. The investment objectives and policies of the
Portfolios are set forth below. Additional information regarding the types of
securities in which the Portfolios may invest and certain investment
transactions is provided in the Fund's prospectus and elsewhere in this
Statement of Additional Information. See "Investment Policies and Limitations."

INCOME PORTFOLIO

The investment goal of the INCOME PORTFOLIO is to provide current
income and capital growth.

Under normal circumstances, at least 65% of the value of the
Portfolio's total assets will be invested in fixed-income securities. The
Portfolio may invest in income-producing securities of all types, including
bonds, notes, mortgage securities, government and government agency obligations,
zero coupon securities, convertible securities, foreign securities, indexed
securities and asset-backed securities. The Portfolio normally will invest in
investment-grade debt securities (including convertible securities) and unrated
securities determined by the advisor to be of comparable quality. The Portfolio
may also invest up to 15% of its total assets in securities rated below
investment grade ("junk bonds"). Common stocks acquired through exercise of
conversion rights or warrants or acceptance of exchange or similar offers
ordinarily will not be retained by the Portfolio. An orderly disposition of
these stocks will be effected consistent with the advisor's judgment as to the
best price available.

SMALL-CAP EQUITY PORTFOLIO

The investment goal of the SMALL-CAP EQUITY PORTFOLIO is long-term
capital appreciation.

Under normal circumstances, at least 65% of the value of the
Portfolio's total assets will be invested in equity securities of companies with
a market capitalization of $2 billion or less at the time of investment. The
advisor will seek to identify companies with above-average growth potential or
companies experiencing an unusual or possibly non-repetitive development taking
place in the company, i.e., a "special situation". See "Investment Practices -
Special Situations" below for more information.

2
<PAGE> 48
The advisor intends to invest primarily in common stocks and securities
that are convertible into common stocks; however, the Portfolio may also invest
up to 35% of its total assets in debt securities of all types and quality if the
advisor believes that investing in these securities will result in capital
appreciation. The Portfolio may invest up to 35% of its total assets in
securities rated below investment grade ("junk bonds"). The Portfolio may invest
up to 35% of its total assets in foreign securities of all types and may enter
into forward currency contracts for the purpose of managing exchange rate risks
and to facilitate transactions in foreign securities. The Portfolio may purchase
or engage in indexed securities, illiquid instruments, loans and other direct
debt instruments, options and futures contracts, repurchase agreements,
securities loans, restricted securities, swap agreements, warrants, real
estate-related instruments and zero coupon bonds.

The Portfolio spreads investment risk by limiting its holdings in any
one company or industry. The advisor may use various investment techniques to
hedge the Portfolio's risks, but there is no guarantee that these strategies
will work as intended.

Although the Portfolio will normally invest in open-end, management
investment companies, or "mutual funds," it also may invest in closed-end
management investment companies and/or unit investment trusts. Unlike open-end
funds that offer and sell their shares at net asset value plus any applicable
sales charge, the shares of closed-end funds and unit investment trusts may
trade at a market value that represents a premium, discount or spread to net
asset value.

INTERNATIONAL EQUITY SELECTION PORTFOLIO* AND INTERNATIONAL EQUITY PORTFOLIO

The investment goal of the INTERNATIONAL EQUITY SELECTION PORTFOLIO AND
THE INTERNATIONAL EQUITY PORTFOLIO is long-term capital appreciation. The
Portfolios invest primarily in equity securities of non-U.S. issuers.

The Portfolios invest primarily in equity securities of companies
located in some or all of the following countries: Argentina, Austria,
Australia, Belgium, Brazil, Canada, Croatia (indirect investment only), Czech
Republic, Denmark, Finland, France, Germany, Hong Kong, India, Indonesia,
Israel, Italy, Japan, Luxembourg, Malaysia, Mexico, Netherlands, New Zealand,
Norway, Poland, Portugal, Russia, Singapore, Slovakia, South Africa, South
Korea, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey and the United
Kingdom. This list of countries may change from time to time.

Under normal market conditions, the Portfolios will invest at least 65%
of its total assets in issuers located in not less than three different
countries (other than the U.S.). In addition, the Portfolios will normally
invest at least 65% of its total assets in common and

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

*The Board of Trustees has approved a proposed change in the investment
policy of the International Equity Selection Portfolio. Such change has not been
approved by the shareholders of the Portfolio or implemented. The information
presented reflects the proposed investment goals and strategies of the
International Equity Selection Portfolio.

3
<PAGE> 49
preferred stocks, and warrants to acquire such stocks. The Portfolios typically
invest in equity securities listed on recognized foreign securities exchanges,
but it may hold securities which are not so listed. The Portfolios may invest in
debt obligations convertible into equity securities, and in non-convertible debt
securities when its advisor believes these non-convertible securities present
favorable opportunities for capital appreciation.

EMERGING MARKETS EQUITY PORTFOLIO

The investment goal of the EMERGING MARKETS EQUITY PORTFOLIO is
long-term capital appreciation. The Portfolio invests primarily in equity
securities of issuers located in emerging markets.

The Portfolio seeks its investment goal by providing investors with
broadly diversified, direct access to equity markets in those developing nations
anticipated to rank among the world's top-performing economies in the future. An
emerging or developing market is broadly defined as one with low-to-middle range
per capita income. A country is considered to have an "emerging market" if it
has a relatively low gross national product per capita compared to the world's
major economies, and the potential for rapid economic growth. The Portfolio's
advisor uses the classification system developed by the World Bank to determine
the potential universe of emerging markets for investments, but limits Portfolio
investments to those countries it believes have potential for significant growth
and development. The Portfolio typically invests in securities listed on
recognized securities exchanges, but it may hold securities that are listed on
other exchanges or that are not listed. The Portfolio currently expects to
invest in issues located in some or all of the following emerging or developing
market countries: Argentina, Brazil, Chile, Colombia, Croatia (indirect
investment only), Czech Republic, Greece, Hong Kong, Hungary, India, Indonesia,
Israel, Jordan, Lebanon, Malaysia, Mexico, Morocco, Pakistan, Peru, the
Philippines, Poland, Russia, Singapore, Slovakia, South Africa, South Korea, Sri
Lanka, Taiwan, Thailand, Turkey, Venezuela and Zimbabwe. The list of countries
in which the Portfolio invests may change from time to time.

The Portfolio typically invests in equity securities listed on
recognized foreign securities exchanges, but the Portfolio may also hold
securities that are not so listed. The Portfolio may invest in debt obligations
convertible into equity securities, and in non-convertible debt securities when
its advisor believes these non-convertible securities present favorable
opportunities for capital appreciation. Under normal market conditions, at least
65% of the Portfolio's total assets will be invested in securities of issuers
located in at least three different countries (other than the U.S.).
Additionally, at least 65% of the Portfolio's total assets will normally be
invested in common and preferred stocks, and warrants to acquire such stocks.

INVESTMENT POLICIES AND LIMITATIONS

The following policies and limitations supplement those set forth in
the prospectus. Unless otherwise expressly noted, whenever an investment policy
or limitation states a

4
<PAGE> 50
maximum percentage of a Portfolio's assets that may be invested in any security
or other asset, or sets forth a policy regarding quality standards, such
percentage or standard will be determined immediately after and as a result of
the Portfolio's acquisition of such security or other asset. Accordingly, any
subsequent change in value, net assets, or other circumstances will not be
considered when determining whether the investment complies with the Portfolio's
investment policies and limitations.

The Portfolios' investment limitations are listed in the following
tables. Fundamental investment policies and limitations cannot be changed
without approval by a "majority of the outstanding voting securities" (as
defined in the 1940 Act) of a Portfolio.

FUNDAMENTAL POLICIES: PORTFOLIOS TO WHICH THE POLICY
APPLIES:

<S> <C>
The Portfolio may not issue senior securities, except as permitted under
the 1940 Act. All Portfolios

The Portfolio may not borrow money, except that the Portfolio may (i) borrow All Portfolios
money from a bank for temporary or emergency purposes (not for leveraging
or investment) and (ii) engage in reverse repurchase agreements for any
purpose; provided that (i) and (ii) in combination do not exceed 33 1/3% of
the value of the Portfolio's total assets (including the amount borrowed)
less liabilities (other than borrowings). Any borrowings that come to
exceed this amount will be reduced within three business days to the extent
necessary to comply with the 33 1/3% limitation.

The Portfolio may not with respect to 75% of its total assets, purchase the All Portfolios
securities of any issuer (other than securities issued or guaranteed by
the U.S. government or any of its agencies or instrumentalities) if, a result,
(a) more than 5% of the Portfolio's total assets would be invested in the
securities of that issuer, or (b) the Portfolio would hold more than 10% of
the outstanding voting securities of that issuer.

The Portfolio may not underwrite securities issued by others, except to the Income Portfolio
extent that the Portfolio may be considered an underwriter within the International Equity
meaning of the Securities Act of 1933 in the disposition of portfolio Selection Portfolio,
securities. International Equity
Portfolio and Emerging
Markets Equity Portfolio

FUNDAMENTAL POLICIES: PORTFOLIOS TO WHICH THE POLICY
APPLIES:

</TABLE>

5
<PAGE> 51

The Portfolios may not purchase the securities of any issuer (other than All Portfolios
securities issued or guaranteed by the U.S. government or any of its agencies
or instrumentalities) if, as a result, more than 25% of the Portfolio's total
assets would be invested in the securities of companies whose principal
business activities are in the same industry.

The Portfolios may not purchase or sell real estate unless acquired as a result All Portfolios
of ownership of securities or other instruments (but this shall not prevent the
Portfolios from investing in securities or other instruments backed by real
estate or securities of companies engaged in the real estate business).

The Portfolios may not purchase or sell commodities unless acquired as a result Income Portfolio and Small-Cap Equity
of ownership of securities or other instruments (but this shall not prevent the Portfolio
Portfolio from purchasing or selling futures contracts or options on such
contracts for the purpose of managing its exposure to changing interest rates,
security prices, and currency exchange rates).

The Portfolio may engage in transactions involving financial and stock index International Equity Selection
futures contracts or options on such futures contracts, and the International Portfolio, International Equity
Equity Selection Portfolio, International Equity Portfolio and Emerging Markets Portfolio and Emerging Markets Equity
Equity Portfolio may engage in foreign currency transactions, invest in options Portfolio
and futures on foreign currencies, and purchase or sell forward contracts with
respect to foreign currencies and related options.

FUNDAMENTAL POLICIES: PORTFOLIOS TO WHICH THE POLICY
APPLIES:

<S> <C>
The Portfolio may not lend any security or make any other loan if, as a result, All Portfolios
more than 33 1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
</TABLE>

6
<PAGE> 52
The Following Investment Limitations Are Not Fundamental and May be Changed
Without Shareholder Approval:

NON - FUNDAMENTAL POLICIES: PORTFOLIOS TO WHICH THE POLICY
APPLIES:
<S> <C>
The Portfolio does not currently intend to sell securities short, unless it owns All Portfolios
or has the right to obtain securities equivalent in kind and amount to the
securities sold short, and provided that transactions in futures contracts and
options are not deemed to constitute selling securities short.

The Portfolio will not purchase any security while borrowings (including reverse All Portfolios
repurchase agreements) representing more than 5% of its total assets are
outstanding.

NON-FUNDAMENTAL POLICIES: PORTFOLIOS TO WHICH THE POLICY
APPLIES:
<S> <C>
The Portfolio does not currently intend to purchase securities on margin, except All Portfolios
that the Portfolio may obtain such short-term credits as are necessary for the
clearance of transactions, and provided that margin payments in connection with
futures contracts and options shall not constitute purchasing securities on
margin.

The Portfolio does not currently intend to purchase securities of other All Portfolios
investment companies, except to the extent permitted by the 1940 Act.

The Portfolio does not currently intend to purchase any security if, as a All Portfolios
result, more than 15% of its net assets would be invested in securities that are
deemed to be illiquid because they are subject to legal or contractual
restrictions on resale or because they cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are valued.
</TABLE>

INVESTMENT PRACTICES

The Portfolios may engage in the following investment practices
consistent with their investment objectives, policies and restrictions. Please
refer to the current prospectus and the section "Investment Policies and
Limitations" contained in this Statement of Additional Information for a further
description of each Portfolio's investment objectives, policies and
restrictions.

7
<PAGE> 53
DEPOSITORY RECEIPTS

American Depositary Receipts and European Depositary Receipts ("ADRs"
and "EDRs") are certificates evidencing ownership of shares of a foreign-based
issuer held in trust by a bank or similar financial institution. Designed for
use in the United States and European securities markets, respectively, ADRs and
EDRs are alternatives to the purchase of the underlying securities in their
national markets and currencies.

DELAYED DELIVERY TRANSACTIONS

Buying securities on a delayed-delivery or when-issued basis and
selling securities on a delayed-delivery basis involve a commitment by the
Portfolio to purchase or sell specific securities at a predetermined price
and/or yield, with payment and delivery taking place after the customary
settlement period for that type of security (and more than seven days in the
future). Typically, no interest accrues to the purchaser until the security is
delivered. The Portfolio may receive fees for entering into delayed-delivery
transactions.

When purchasing securities on a delayed-delivery or when-issued basis,
the Portfolio assumes the rights and risks of ownership, including the risk of
price and yield fluctuations. Because the Portfolio is not required to pay for
securities until the delivery date, these risks are in addition to the risks
associated with the Portfolio's other investments. If the Portfolio remains
substantially fully invested at a time when delayed-delivery or when-issued
purchases are outstanding, such purchases may result in a form of leverage. When
delayed-delivery or when-issued purchases are outstanding, the Portfolio will
set aside appropriate liquid assets in a segregated custodial account to cover
its purchase obligations. When the Portfolio has sold a security on a
delayed-delivery basis, the Portfolio does not participate in further gains or
losses with respect to the security. If the other party to a delayed-delivery
transaction fails to deliver or pay for the securities, the Portfolio could miss
a favorable price or yield opportunity, or could suffer a loss.

The Portfolio may renegotiate delayed-delivery or when-issued
transactions after they are entered into, and may sell underlying securities
before they are delivered, which may result in capital gains or losses.

EMERGING MARKETS CONSIDERATIONS

The risks of investing in foreign securities are increased if the
Portfolio's investments are in emerging markets. An emerging market is broadly
defined as a market with low- to middle-range per capita income. The advisor
uses the World Bank's classification system to identify the potential universe
of emerging markets. However, the advisor limits the Portfolio's investments to
those countries it believes have potential for significant growth and
development.

Investments in emerging markets involve special risks not present in
the U.S. or in mature foreign markets, such as Germany and the United Kingdom.
For example, settlement

8
<PAGE> 54
of securities trades may be subject to extended delays so that the Portfolio may
not receive securities purchased or the proceeds of sales of securities on a
timely basis. Emerging markets generally have smaller, less developed trading
markets and exchanges, and the Portfolio may not be able to dispose of those
securities quickly and at reasonable price affecting the Portfolio's liquidity.
These markets may also experience greater volatility, which can materially
affect the value of the Portfolio and its net asset value. Emerging market
countries may have relatively unstable governments. In such environments, the
risk of nationalization of business or of prohibitions on repatriations of
assets is greater than in more stable, developed political and economic
circumstances. The economy of an emerging market country may be predominately
based on only a few industries, and it may be highly vulnerable to changes in
local or global trade conditions. The legal and accounting systems, and
mechanisms for protecting property rights, may not be as well developed as those
in more mature economies. In addition, some emerging markets countries have
restrictions on foreign ownership that may limit or eliminated the Portfolio's
opportunity to acquire desirable securities.

EMERGING MARKETS SOVEREIGN DEBT

Investments in sovereign debt securities of emerging market governments
involve special risks. The issuer of the debt or the governmental authorities
that control the repayment of the debt may be unable or unwilling to repay
principal or interest when due in accordance with the terms of the debt
especially if such debt is denominated in a currency other than that
government's home currency. Periods of economic uncertainty may result in the
volatility of market prices of sovereign debt, and in turn the Portfolio's net
asset value, to a greater extent than the volatility inherent in domestic debt
securities.

A sovereign debtor's willingness or ability to repay principal,
especially if such debt is denominated in a currency other than that
government's home currency, and pay interest in a timely manner may be affected
by, among other factors, its cash flow situation, the extent of its foreign
reserves, the availability of sufficient foreign exchange on the date a payment
is due, the relative size of the debt service burden to the economy as a whole,
the sovereign debtor's policy toward international lenders and the political
constraints to which a sovereign debtor may be subject. Governments of emerging
markets could default on their sovereign debt. Such sovereign debtors also may
be dependent on expected disbursements from foreign governments, multilateral
agencies and other entities abroad to reduce principal and interest arrearages
on their debt. The commitment on the part of these governments, agencies and
others to make such disbursements may be conditioned on a sovereign debtor's
implementation of economic reforms and/or economic performance and the timely
service of such debtor's obligations. Failure to implement such reforms, achieve
such levels of economic performance or repay principal or interest when due,
could result in the cancellation of such third parties' commitments to lend
funds to the sovereign debtor, which may further impair such debtor's ability or
willingness timely to service its debt.

If reliable market quotations are not available, the Portfolio values
such securities in accordance with procedures established by the Board of
Trustees. The advisor's judgment

9
<PAGE> 55
and credit analysis plays a greater role in valuing sovereign debt obligations
than for securities where external sources for quotations and last sale
information are available.

EUROPEAN MONETARY UNION AND THE EURO

On January 1, 1999, the European Monetary Union ("EMU") introduced a
new single currency, the euro, which replaces the national currencies of the
participating member nations. Until 2002, the national currencies will continue
to exist, but exchange rates will be pegged to the euro. In addition, the 11
participating countries will share a single official interest rate and will
adhere to agreed upon guidelines on government borrowing. Although budgetary
decisions remain in the hands of each participating country, the European
Central Bank is responsible for setting the official interest rate to maintain
price stability within the euro group.

FOREIGN CURRENCY EXCHANGE TRANSACTIONS

The International Equity Selection Portfolio, International Equity
Portfolio and Emerging Markets Equity Portfolio may conduct foreign currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or by entering into forward contracts
to purchase or sell foreign currencies at a future date and price (i.e., a
"forward foreign currency contract" or "forward contract"). The Portfolio will
convert currency on a spot basis from time to time, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based on the
difference between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Portfolio
at one rate, while offering a lesser rate of exchange should the Portfolio
desire to resell that currency to the dealer. Forward contracts are traded in
the interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. The parties to a forward contract may
agree to offset or terminate the contract before maturity, or may hold the
contract to maturity and complete the contemplated currency exchange.

The International Equity Selection Portfolio, International Equity
Portfolio and Emerging Markets Equity Portfolio may use currency forward
contracts for any purpose consistent with its respective investment objectives.
The Small-Cap Equity Portfolio may invest in currency forward contracts to
manage exchange rate risks and to facilitate transactions in foreign securities.
The following discussion summarizes some, but not all, of the possible currency
management strategies involving forward contracts that could be used by the
Portfolios. The Portfolios may also use options and futures contracts relating
to foreign currencies for the same purposes.

When the Portfolio agrees to buy or sell a security denominated in a
foreign currency, it may desire to "lock in" the U.S. dollar price of the
security. By entering into a forward contract for the purchase or sale, for a
fixed amount of U.S. dollars, of the amount of foreign currency involved in the
underlying security transaction, the Portfolio will be able to protect itself
against an adverse change in foreign currency values between the date the
security is

10
<PAGE> 56
purchased or sold and the date on which payment on the underlying security is
made or received. The Portfolio may also enter into forward contracts to
purchase or sell a foreign currency in anticipation of future purchases or sales
of securities denominated in foreign currency, even if the specific investments
have not yet been selected by the advisor.

The Portfolio may also use forward contracts to hedge against a decline
in the value of existing investments denominated in foreign currency. For
example, if the Portfolio owned securities denominated in French francs, it
could enter into a forward contract to sell francs in return for U.S. dollars to
hedge against possible declines in the value of the French franc. Such a hedge
(sometimes referred to as a "position hedge") will tend to offset both positive
and negative currency fluctuations, but will not offset changes in security
values caused by other factors. The Portfolio could also hedge the position by
selling another currency expected to perform similarly to the franc, for
example, by entering into a forward contract to sell Deutsche marks in exchange
for U.S. dollars. This type of strategy, sometimes known as a "proxy hedge", may
offer advantages in terms of cost, yield or efficiency, but generally will not
hedge currency exposure as effectively as a simple hedge into U.S. dollars.
Proxy hedges may result in losses to the Portfolio if the currency used to hedge
does not perform similarly to the currency in which the hedged securities are
denominated.

The Portfolio may enter into forward contracts to shift their
investment exposure from one currency into another currency that is expected to
perform better relative to the U.S. dollar. For example, if the Portfolio held
investments denominated in Deutsche marks, it could enter into forward contracts
to sell Deutsche marks and purchase Swiss francs. This type of strategy,
sometimes known as a "cross-hedge", will tend to reduce or eliminate exposure to
the currency that is sold, and increase exposure to the currency that is
purchased, much as if the Portfolio had sold a security denominated in one
currency and purchased an equivalent security denominated in another.
Cross-hedges protect against losses resulting from a decline in the hedged
currency, but will cause the Portfolio to assume the risk of fluctuations in the
value of the currency it purchases.

Under certain conditions, SEC guidelines require mutual funds to set
aside appropriate liquid assets in a segregated custodial account to cover
forward contracts. As required by SEC guidelines, the Portfolio will segregate
assets to cover forward contracts, if any, whose purpose is essentially
speculative. The Portfolio will not segregate assets to cover forward contracts
entered into for hedging purposes, including settlement hedges, position hedges,
and proxy hedges.

Successful use of forward contracts will depend on the advisor's skill
in analyzing and predicting currency values. Forward contracts may substantially
change the Portfolio's investment exposure to changes in currency exchange
rates, and could result in losses to the Portfolio if currencies do not perform
as the advisor anticipates. For example, if a currency's value rose at a time
when the advisor had hedged a Portfolio by selling that currency in exchange for
dollars, the Portfolio would be unable to participate in the currency's
appreciation. If the advisor hedges currency exposure through proxy hedges, the
Portfolio could realize currency losses from the hedge and the security position
at the same time if the

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two currencies do not move in tandem. Similarly, if the advisor increases a
Portfolio's exposure to a foreign currency, and that currency's value declines,
the Portfolio will realize a loss. There is no assurance that the advisor's use
of forward contracts will be advantageous to the Portfolio or that they will
hedge at an appropriate time.

FOREIGN INVESTMENTS

Foreign investments can involve significant risks in addition to the
risks inherent in U.S. investments. The Small-Cap Equity Portfolio,
International Equity Selection Portfolio, International Equity Portfolio and
Emerging Markets Equity Portfolio may invest in foreign investments. The
Small-Cap Equity Portfolio may invest up to 35% of its total assets in foreign
securities of all types. The International Equity Selection Portfolio and
International Equity Portfolio primarily invest in equity securities of issuers
located in any country other than the U.S. The Emerging Markets Equity Selection
Portfolio and International Equity Portfolio primarily invest in equity
securities of issuers located in emerging markets. The value of securities
denominated in or indexed to foreign currencies, and of dividends and interest
from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets, and
prices on some foreign markets can be highly volatile. Many foreign countries
lack uniform accounting and disclosure standards comparable to those applicable
to U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the costs
of foreign investing, including withholding taxes, brokerage commissions, and
custodial costs, are generally higher than for U.S. investments.

Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers, brokers and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.

Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic or social instability, military action or unrest, or adverse diplomatic
developments. There is no assurance that the Portfolios' advisor will be able to
anticipate these potential events or counter their effects.

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The considerations noted above generally are intensified for
investments in developing countries. Developing countries may have relatively
unstable governments, economies based on only a few industries, and securities
markets that trade a small number of securities.

The Portfolios may invest in foreign securities that impose
restrictions on transfer within the United States or to U.S. persons. Although
securities subject to transfer restrictions may be marketable abroad, they may
be less liquid than foreign securities of the same class that are not subject to
such restrictions.

ILLIQUID INVESTMENTS

Illiquid investments cannot be sold or disposed of in the ordinary
course of business at approximately the prices at which they are valued. Under
the supervision of the Board of Trustees, the Portfolios' advisor determines the
liquidity of the Portfolio's investments and, through reports from the advisor,
the Board monitors investment in illiquid instruments. In determining the
liquidity of the Portfolios' investments, the advisor may consider various
factors including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer undertakings
to make a market, (4) the nature of the security (including any demand or tender
features), (5) the nature of the marketplace for trades (including the ability
to assign or offset the Portfolio's rights and obligations relating to the
investment), and (6) general credit quality. Investments currently considered by
the Portfolios to be illiquid include repurchase agreements not entitling the
holder to payment of principal and interest within seven days, non-government
stripped fixed-rate mortgage-backed securities and government stripped
fixed-rate mortgage-backed securities, loans and other direct debt instruments,
over-the-counter options and swap agreements. Although restricted securities and
municipal lease obligations are sometimes considered illiquid, the Portfolios'
advisor may determine certain restricted securities and municipal lease
obligations to be liquid. In the absence of market quotations, illiquid
investments are priced at fair value as determined in good faith by a committee
appointed by the Board of Trustees. If, as a result of a change in values, net
assets or other circumstances, the Portfolios were in a position where more than
15% of its assets were invested in illiquid securities, it would seek to take
appropriate steps to protect liquidity.

RESTRICTED SECURITIES

Restricted securities are securities that generally can only be sold in
privately negotiated transactions, pursuant to an exemption from registration
under the Securities Act of 1933, or in a registered public offering. Where
registration is required, the Portfolio may be obligated to pay all or part of
the registration expense and a considerable period may elapse between the time
it decides to seek registration and the time it may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Portfolio might obtain a less
favorable price than prevailed when it decided to seek registration of the
security.

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INDEXED SECURITIES

The Portfolios may purchase securities whose prices are indexed to the
prices of other securities, securities indices, currencies, precious metals or
other commodities, or other financial indicators. Indexed securities typically,
but not always, are debt securities or deposits whose value at maturity or
coupon rate is determined by reference to a specific instrument or statistic.
Gold-indexed securities, for example, typically provide for a maturity value
that depends on the price of gold, resulting in a security whose price tends to
rise and fall together with gold prices. Currency-indexed securities typically
are short-term to intermediate-term debt securities whose maturity values or
interest rates are determined by reference to the values of one or more
specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed securities
may be positively or negatively indexed; that is, their maturity value may
increase when the specified currency value increases, resulting in a security
that performs similarly to a foreign-denominated instrument, or their maturity
value may decline when foreign currencies increase, resulting in a security
whose price characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.

The performance of indexed securities depends to a great extent on the
performance of the security, currency or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the United
States and abroad. At the same time, indexed securities are subject to the
credit risks associated with the issuer of the security, and their values may
decline substantially if the issuer's creditworthiness deteriorates. Recent
issuers of indexed securities have included banks, corporations and certain U.S.
government agencies. Indexed securities may be more volatile than the underlying
instruments.

LOANS AND OTHER DIRECT DEBT INSTRUMENTS

Direct debt instruments are interests in amounts owed by a corporate,
governmental or other borrower to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments are subject to the
Portfolio's policies regarding the quality of debt securities.

Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the borrower for payment of principal and
interest. Direct debt instruments may not be rated by any NRSRO. If the
Portfolio does not receive scheduled interest or principal payments on such
indebtedness, its share price and yield could be adversely affected. Loans that
are fully secured offer the Portfolio more protections than an unsecured loan in
the event of non-payment of scheduled interest or principal. However, there is
no assurance that the liquidation of collateral from a secured loan would
satisfy the borrower's obligation, or that the collateral can be liquidated.
Indebtedness of borrowers whose creditworthiness is poor involves substantially
greater risks, and may be highly speculative. Borrowers that are in bankruptcy
or restructuring may never pay off their indebtedness, or may pay only a small
fraction of the amount owed. Direct indebtedness of

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developing countries also will involve a risk that the governmental entities
responsible for the repayment of the debt may be unable, or unwilling, to pay
interest and repay principal when due.

Investments in loans through direct assignment of a financial
institution's interests with respect to a loan may involve additional risks to
the Portfolio. For example, if a loan is foreclosed, the Portfolio could become
part owner of any collateral, and would bear the costs and liabilities
associated with owning and disposing of the collateral. In addition, it is
conceivable that under emerging legal theories of lender liability, the
Portfolio could be held liable as a co-lender. Direct debt instruments also may
involve a risk of insolvency of the lending bank or other intermediary. Direct
debt instruments that are not in the form of securities may offer less legal
protection to the Portfolio in the event of fraud or misrepresentation. In the
absence of definitive regulatory guidance, the Portfolio's advisor will conduct
research and analysis in an attempt to avoid situations where fraud or
misrepresentation could adversely affect the Portfolio.

A loan is often administered by a bank or other financial institution
which acts as agent for all holders. The agent administers the terms of the
loan, as specified in the loan agreement. Unless, under the terms of the loan or
other indebtedness, the Portfolio has direct recourse against the borrower, it
may have to rely on the agent to apply appropriate credit remedies against the
borrower. If assets held by the agent for the benefit of the Portfolio were
determined to be subject to the claims of the agent's general creditors, the
Portfolio might incur certain costs and delays in realizing payment on the loan
or loan participation and could suffer a loss of principal or interest.

The Portfolios limit the amount of total assets that they will invest
in any one issuer or in issuers within the same industry (see fundamental
limitations for the Portfolios). For purposes of these limitations, the
Portfolio generally will treat the borrower as the "issuer" of indebtedness held
by the Portfolio. In the case of loan participations where a bank or other
lending institution serves as financial intermediary between the Portfolio and
the borrower, if the participation does not shift to the Portfolio the direct
debtor-creditor relationship with the borrower, SEC interpretations require the
Portfolio, in appropriate circumstances, to treat both the lending bank or other
lending institution and the borrower as "issuers" for the purposes of
determining whether the Portfolio has invested more than 5% of its total assets
in a single issuer. Treating a financial intermediary as an issuer of
indebtedness may restrict the Portfolio's ability to invest in indebtedness
related to a single financial intermediary, or a group of intermediaries engaged
in the same industry, even if the underlying borrowers represent many different
companies and industries.

LOWER-RATED DEBT SECURITIES

Lower-rated debt securities (i.e., securities rated Ba1 or lower by
Moody's or BB+ or lower by S&P, or having comparable ratings by other NRSROs)
may have poor protection with respect to the payment of interest and repayment
of principal. These securities are often considered to be speculative and
involve greater risk of loss or price changes due to changes in

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the issuer's capacity to pay. The market prices of lower-rated debt securities
may fluctuate more than those of higher-rated debt securities and may decline
significantly in periods of general economic difficulty, which may follow
periods of rising interest rates.

While the market for lower-rated, high-yield corporate debt securities
has been in existence for many years and has weathered previous economic
downturns, the 1980s brought a dramatic increase in the use of such securities
to fund highly leveraged corporate acquisitions and restructurings. Past
experience may not provide an accurate indication of the future performance of
the high-yield bond market, especially during periods of economic recession. In
fact, from 1989 to 1991, the percentage of lower-rated securities that defaulted
rose significantly above prior levels, although the default rate decreased in
1992.

The market for lower-rated debt securities may be thinner and less
active than that for higher-rated debt securities, which can adversely affect
the prices at which the former are sold. If market quotations are not available,
lower-rated debt securities will be valued in accordance with procedures
established by the Board of Trustees, including the use of outside pricing
services. Judgment plays a greater role in valuing these debt securities than is
the case for securities for which more external sources for quotations and
last-sale information are available. Adverse publicity and changing investor
perceptions may affect the ability of outside pricing services to value, and of
the Portfolio to dispose of, lower-rated debt securities.

Since the risk of default is higher for lower-rated debt securities,
the research and credit analysis of the Portfolio's advisor are an especially
important part of managing the Portfolio's investment in securities of this
type. In considering investments in such securities for the Portfolio, its
advisor will attempt to identify those issuers whose financial condition are
adequate to meet future obligations, have improved, or are expected to improve
in the future. The advisor's analysis focuses on relative values based on such
factors as interest or dividend coverage, asset coverage, earnings prospects,
and the experience and managerial strength of the issuer.

The Portfolio may choose, at its own expense or in conjunction with
others, to pursue litigation or otherwise to exercise its rights as a security
holder to seek to protect the interests of security holders if it determines
this to be in the best interest of the Portfolio's shareholders.

MUNICIPAL LEASE OBLIGATIONS

Municipal leases and participation interests therein, which may take
the form of a lease, an installment purchase, or a conditional sale contract,
are issued by state and local governments and authorities to acquire land and a
wide variety of equipment and facilities, such as fire and sanitation vehicles,
telecommunications equipment, and other capital assets. Generally, the
Portfolios will not hold such obligations directly as a lessor of the property,
but will purchase a participation interest in a municipal obligation from a bank
or other third party. A participation interest gives the Portfolio a specified,
undivided interest in the obligation in proportion to its purchased interest in
the total amount of the obligation.

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Municipal leases frequently have risks distinct from those associated
with general obligation or revenue bonds. State constitutions and statutes set
forth requirements that states or municipalities must meet to incur debt. These
may include voter referenda, interest rate limits, or public sale requirements.
Leases, installment purchases, or conditional sale contracts (which normally
provide for title to the leased asset to pass to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting their constitutional and statutory requirements for the issuance
of debt. Many leases and contracts include "non-appropriation" clauses providing
that the governmental issuer has no obligation to make future payments under the
lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis.
Non-appropriation clauses free the issuer from debt issuance obligations.

In determining the liquidity of a municipal lease obligation, the
Portfolio's advisor will differentiate between direct municipal leases and
municipal lease-backed securities, the latter of which may take the form of a
lease-backed revenue bond, a tax-exempt asset-backed security, or any other
investment structure using a municipal lease-purchase agreement as its base.
While the former may present liquidity issues, the latter are based on a
well-established method of securing payment of a municipal lease obligation.

MARKET DISRUPTION RISK

The value of municipal securities may be affected by uncertainties in
the municipal market related to legislation or litigation involving the taxation
of municipal securities or the rights of municipal securities holders in the
event of a bankruptcy. Municipal bankruptcies are relatively rare, and certain
provisions of the U.S. Bankruptcy Code governing such bankruptcies are unclear
and remain untested. Further, the application of state law to municipal issuers
could produce varying results among the states or among municipal securities
issuers within a state. These legal uncertainties could affect the municipal
securities market generally, certain specific segments of the market, or the
relative credit quality of particular securities.

Any of these effects could have a significant impact on the prices of
some or all of the municipal securities held by the Portfolio.

PORTFOLIOS' RIGHTS AS SHAREHOLDERS

The Portfolios do not intend to direct or administer the day-to-day
operations of any company whose shares they hold. A Portfolio, however, may
exercise its rights as a shareholder and may communicate its views on important
matters of policy to management, the board of directors or trustees, and the
shareholders of a company when its advisor determines that such matters could
have a significant effect on the value of the Portfolio's investment in the
company. The activities that a Portfolio may engage in, either individually or
in conjunction with other shareholders, may include, among others, supporting or
opposing proposed changes in a company's corporate structure or business
activities; seeking changes in a company's board of directors or trustees, or
management; seeking changes in a company's

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direction or policies; seeking the sale or reorganization of the company or a
portion of its assets; or supporting or opposing third-party takeover efforts.
This area of corporate activity is increasingly prone to litigation and it is
possible that a Portfolio could be involved in lawsuits related to such
activities. The Portfolio's advisor will monitor such activities with a view to
mitigating, to the extent possible, the risk of litigation against the Portfolio
and the risk of actual liability if the Portfolio is involved in litigation.
There is no guarantee, however, that litigation against a Portfolio will not be
undertaken or liabilities incurred.

REAL-ESTATE-RELATED INSTRUMENTS

Real-estate-related instruments include real estate investment trusts
(REITs), commercial and residential mortgage-backed securities and real estate
financings. Real-estate-related instruments are sensitive to factors such as
changes in real estate values and property taxes, interest rates, cash flow of
underlying real assets, overbuilding and the management and creditworthiness of
the issuer. Real-estate-related instruments may also be affected by tax and
regulatory requirements, such as those relating to the environment.

REFUNDING CONTRACTS

Refunding obligations require the issuer to sell and the Portfolio to
buy refunded municipal obligations at a stated price and yield on a settlement
date that may be several months or years in the future. The Portfolio generally
will not be obligated to pay the full purchase price if it fails to perform
under a refunding contract. Instead, refunding contracts generally provide for
payment of liquidated damages to the issuer (currently 15% to 20% of the
purchase price). The Portfolio may secure its obligations under a refunding
contract by depositing collateral or a letter of credit equal to the liquidated
damages provisions of the refunding contract. When required by SEC guidelines,
the Portfolio will place liquid assets in a segregated custodial account equal
in amount to its obligations under refunding contracts.

REPURCHASE AGREEMENTS

In a repurchase agreement, the Portfolio purchases a security and
simultaneously commits to resell it to the seller at an agreed upon price on an
agreed upon date. The resale price reflects the purchase price plus an
agreed-upon incremental amount which is unrelated to the coupon rate or maturity
of the purchased security. A repurchase agreement involves the obligation of the
seller to pay the agreed-upon price, which obligation is in effect secured by
the value (at least equal to the amount of the agreed-upon resale price and
marked to market daily) of the underlying security. The risk associated with
repurchase agreements is that a Portfolio may be unable to sell the collateral
at its full value in the event of the seller's default. While it does not
presently appear possible to eliminate all risks from these transactions
(particularly the possibility of a decline in the market value of the underlying
securities, as well as delays and costs to the Portfolio in connection with
bankruptcy proceedings), it is each Portfolio's current policy to limit
repurchase agreements to those parties whose creditworthiness has been reviewed
and found satisfactory by its advisor.

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REVERSE REPURCHASE AGREEMENTS

In a reverse repurchase agreement, the Portfolio sells a portfolio
instrument to another party, such as a bank or broker-dealer, in return for cash
and agrees to repurchase the instrument at a particular price and time. While a
reverse repurchase agreement is outstanding, the Portfolio will maintain
appropriate liquid assets in a segregated custodial account to cover its
obligation under the agreement. The Portfolio will enter into reverse repurchase
agreements only with parties whose creditworthiness has been found satisfactory
by its advisor. These transactions may increase fluctuations in the market value
of the Portfolio's assets and may be viewed as a form of leverage.

SECURITIES LENDING

The Board of Trustees has authorized securities lending for the Income
Portfolio. This Portfolio may lend securities to parties such as broker-dealers
or institutional investors. Securities lending allows the Portfolio to retain
ownership of the securities loaned and, at the same time, to earn additional
income. Since there may be delays in the recovery of loaned securities, or even
a loss of rights in collateral supplied should the borrower fail financially,
loans will be made only to parties whose creditworthiness has been reviewed and
found satisfactory by the Portfolio's advisor.

It is the current view of the SEC that the Portfolio may engage in loan
transactions only under the following conditions: (1) the Portfolio must receive
100% collateral in the form of cash or cash equivalents (e.g., U.S. Treasury
bills or notes) from the borrower; (2) the borrower must increase the collateral
whenever the market value of the securities loaned (determined on a daily basis)
rises above the value of the collateral; (3) after giving notice, the Portfolio
must be able to terminate the loan at any time; (4) the Portfolio must receive
reasonable interest on the loan or a flat fee from the borrower, as well as
amounts equivalent to any dividends, interest, or other distributions on the
securities loaned and to any increase in market value; (5) the Portfolio may pay
only reasonable custodian fees in connection with the loan; and (6) the
Portfolio must be able to vote proxies on the securities loaned, either by
terminating the loan or by entering into an alternative arrangement with the
borrower. Cash received through loan transactions may be invested in any
security in which the Portfolio is authorized to invest. Investing this cash
subjects that investment, as well as the security loaned, to market forces
(i.e., capital appreciation or depreciation).

SOVEREIGN DEBT OBLIGATIONS

Sovereign debt instruments are securities issued or guaranteed by
foreign governments or their agencies, including debt of Latin American nations
or other developing countries. Sovereign debt may be in the form of conventional
securities or other types of debt instruments, such as loans or loan
participations. Sovereign debt of developing countries may involve a high degree
of risk, and may be in default or present the risk of default. Governmental
entities responsible for repayment of the debt may be unable or unwilling to
repay principal and interest when due, and may require negotiations or
rescheduling of debt

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payments. In addition, prospects for repayment of principal and interest may
depend on political as well as economic factors. Although some sovereign debt,
such as Brady Bonds, is collateralized by U.S. government securities, repayment
of principal and interest is not guaranteed by the U.S. government.

SPECIAL SITUATIONS

The Small-Cap Equity Portfolio may invest in companies experiencing an
unusual or possibly non-repetitive development or "special situation." An
unusual or possibly non-repetitive development or special situation may involve
one or more of the following characteristics:

- a technological advance or discovery, the offering of a new or
unique product or service, or changes in consumer demand or
consumption forecasts

- changes in the competitive outlook or growth potential of an
industry or a company within an industry, including changes in
the scope or nature of foreign competition or the development
of an emerging industry

- new or changed management, or material changes in management
policies or corporate structure

- significant economic or political occurrences abroad,
including changes in foreign or domestic import and tax laws
or other regulations o other events, including natural
disasters, favorable litigation settlements, or a major change
in demographic patterns

STANDARD & POOR'S DEPOSITARY RECEIPTS ("SPDRS")

SPDRs are interests in a unit investment trust ("UIT") that may be
obtained from the UIT or purchased in the secondary market as SPDRs are listed
on the American Stock Exchange. The UIT will issue SPDRs in aggregations of
50,000 known as "Creation Units" in exchange for a "Portfolio Deposit"
consisting of (a) a portfolio of securities substantially similar to the
component securities ("Index Securities") of the S&P 500, (b) a cash payment
equal to a pro rata portion of the dividends accrued to the UIT's portfolio
securities since the last dividend payment by the UIT, net of expenses and
liabilities, and (c) a cash payment or credit ("Balancing Amount") designed to
equalize the net asset value of the S&P 500 and the net asset value of a
Portfolio Deposit.

SPDRs are not individually redeemable, except upon termination of the
UIT. To redeem, the Portfolio must accumulate enough SPDRs to reconstitute a
Creation Unit. The liquidity of small holdings of SPDRs, therefore, will depend
upon the existence of a secondary market. Upon redemption of a Creation Unit,
the Portfolio will receive Index Securities and cash identical to the Portfolio
Deposit required of an investor wishing to purchase a Creation Unit that day.

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The price of SPDRs is derived and based upon the securities held by the
UIT. Accordingly, the level of risk involved in the purchase or sale of a SPDR
is similar to the risk involved in the purchase or sale of a traditional common
stock, with the exception that the pricing mechanism for SPDRs is based on a
basket of stocks. Disruptions in the markets for the securities underlying SPDRs
purchased or sold by a Portfolio could result in losses on SPDRs. Trading in
SPDRs involves risks similar to those risks, described below under "Hedging
Strategies" relating to options, involved in the writing of options on
securities.

SWAP AGREEMENTS

Swap agreements can be individually negotiated and structured to
include exposure to a variety of different types of investments or market
factors. Depending on their structure, swap agreements may increase or decrease
the Portfolio's exposure to long- or short-term interest rates (in the United
States or abroad), foreign currency values, mortgage securities, corporate
borrowing rates, or other factors such as security prices or inflation rates.
Swap agreements can take many different forms and are known by a variety of
names. A Portfolio is not limited to any particular form of swap agreement if
its advisor determines it is consistent with the Portfolio's investment
objective and policies.

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

Swap agreements will tend to shift the Portfolio's investment exposure
from one type of investment to another. For example, if the Portfolio agreed to
exchange payments in dollars for payments in foreign currency, the swap
agreement would tend to decrease the Portfolio's exposure to U.S. interest rates
and increase its exposure to foreign currency and interest rates. Caps and
floors have an effect similar to buying or writing options. Depending on how
they are used, swap agreements may increase or decrease the overall volatility a
Portfolio's investments and its share price and yield.

The most significant factor in the performance of swap agreements is
the change in the specific interest rate, currency, or other factors that
determine the amounts of payments due to and from a Portfolio. If a swap
agreement calls for payments by a Portfolio, the Portfolio must be prepared to
make such payments when due. In addition, if the counterparty's creditworthiness
declined, the value of a swap agreement would be likely to decline, potentially
resulting in losses. The Portfolios expect to be able to reduce their exposure
under swap agreements either by assignment or other disposition, or by entering
into an offsetting swap agreement with the same party or a similarly
creditworthy party.

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The Portfolio will maintain appropriate liquid assets in segregated
custodial accounts to cover its current obligations under swap agreements. If a
Portfolio enters into a swap agreement on a net basis, it will segregate assets
with a daily value at least equal to the excess, if any, of the Portfolio's
accrued obligations under the swap agreement over the accrued amount the
Portfolio is entitled to receive under the agreement. If a Portfolio enters into
a swap agreement on other than a net basis, it will segregate assets with a
value equal to the full amount of the Portfolio's accrued obligations under the
agreement.

WARRANTS

Warrants are securities that give a Portfolio the right to purchase
equity securities from an issuer at a specific price (the "strike price") for a
limited period of time. The strike price of a warrant is typically much lower
than the current market price of the underlying securities, yet a warrant is
subject to greater price fluctuations. As a result, warrants may be more
volatile investments than the underlying securities and may offer greater
potential for capital appreciation as well as capital loss.

Warrants do not entitle a holder to dividends or voting rights with
respect to the underlying securities and do not represent any rights in the
assets of the issuing company. Also, the value of the warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to the expiration date. These
factors can make warrants more speculative than other types of investments.

HEDGING STRATEGIES

Futures Transactions

A Portfolio may use futures contracts and options on such contracts for
bona fide hedging purposes within the meaning of regulations promulgated by the
Commodity Futures Trading Commission ("CFTC"). A Portfolio may also establish
positions for other purposes provided that the aggregate initial margin and
premiums required to establish such positions will not exceed 5% of the
liquidation value of the Portfolio after taking into account unrealized profits
and unrealized losses on any such instruments.

Futures Contracts

When a Portfolio purchases a futures contract, it agrees to purchase a
specified underlying instrument at a specified future date. When a Portfolio
sells a futures contract, it agrees to sell the underlying instrument at a
specified future date. The price at which the purchase and sale will take place
is fixed when a Portfolio enters into the contract. Some currently available
futures contracts are based on specific securities, such as U.S. Treasury bonds
or notes, and some are based on indices of securities prices, such as the S&P
500. A futures contract can be held until its delivery date, or can be closed
out prior to its delivery date if a liquid secondary market is available.

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<PAGE> 68
The value of a futures contract tends to increase and decrease in
tandem with the value of its underlying instrument. Therefore, purchasing
futures contracts will tend to increase a Portfolio's exposure to positive and
negative price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When a Portfolio sells a futures
contract, by contrast, the value of its futures position will tend to move in a
direction contrary to the market. Selling futures contracts, therefore, will
tend to offset both positive and negative market price changes, much as if the
underlying instrument had been sold.

Futures Margin Payments

The purchaser or seller of a futures contract is not required to
deliver or pay for the underlying instrument unless the contract is held until
the delivery date. However, both the purchaser and seller are required to
deposit "initial margin" with a futures broker, known as a futures commission
merchant ("FCM"), when the contract is entered into. Initial margin deposits are
typically equal to a percentage of the contract's value. If the value of either
party's position declines, that party will be required to make additional
"variation margin" payments to settle the change in value on a daily basis. The
party that has a gain may be entitled to receive all or a portion of this
amount. Initial and variation margin payments do not constitute purchasing
securities on margin for purposes of a Portfolio's investment limitations. In
the event of the bankruptcy of a FCM that holds margin on behalf of a Portfolio,
the Portfolio may be entitled to return of margin owed to it only in proportion
to the amount received by the FCM's other customers, potentially resulting in
losses to the Portfolio.

Purchasing Put and Call Options Relating to Securities or Futures
Contracts

By purchasing a put option, a Portfolio obtains the right (but not the
obligation) to sell the option's underlying instrument at a fixed price (strike
price). In return for this right, a Portfolio pays the current market price for
the option (known as the option premium). Options have various types of
underlying instruments, including specific securities, indices of securities
prices, and futures contracts. A Portfolio may terminate its position in a put
option it has purchased by allowing it to expire or by exercising the option. If
the option is allowed to expire, the Portfolio will lose the entire premium it
paid. If a Portfolio exercises the option, it completes the sale of the
underlying instrument at the strike price. A Portfolio may also terminate a put
option position by closing it out in the secondary market at its current price,
if a liquid secondary market exists.

The buyer of a typical put option can expect to realize a gain if the
price of the underlying security falls substantially. However, if the underlying
instrument's price does not fall enough to offset the cost of purchasing the
option, a put-buyer can expect to suffer a loss (limited to the amount of the
premium paid, plus related transaction costs).

The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call-buyer typically attempts to participate in potential price
increases of the underlying instrument with risk limited to the cost of the
option

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<PAGE> 69
if security prices fall. At the same time, the buyer can expect to suffer a loss
if the price of the underlying instrument does not rise sufficiently to offset
the cost of the option.

Writing Put And Call Options

When a Portfolio writes a put option, it takes the opposite side of the
transaction from the option's purchaser. In return for receipt of the premium,
the Portfolio assumes the obligation to pay the strike price for the option's
underlying instrument if the other party to the option chooses to exercise it.
When writing an option on a futures contract a Portfolio will be required to
make margin payments to a FCM as described above for futures contracts. A
Portfolio may seek to terminate its position in a put option it writes before
exercise by closing out the option in the secondary market at its current price.
If the secondary market is not liquid for a put option a Portfolio has written,
however, the Portfolio must continue to be prepared to pay the strike price
while the option is outstanding, regardless of price changes, and must continue
to set aside assets to cover its position.

If the price of the underlying instrument rises, a put-writer would
generally expect to profit, although its gain would be limited to the amount of
the premium it received. If the price of the underlying instrument remains the
same over time, it is likely that the writer will also profit, because it should
be able to close out the option at a lower price. If the price of the underlying
instrument falls, the put-writer would expect to suffer a loss. This loss should
be less than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should mitigate the
effects of the decline.

Writing a call option obligates a Portfolio to sell or deliver the
option's underlying instrument, in return for the strike price, upon exercise of
the option. The characteristics of writing call options are similar to those of
writing put options, except that writing a call option is generally a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call-writer mitigates the effects of a price decline. At the same
time, because a call-writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call-writer gives up some ability to participate in security price increases.

Combined Positions

A Portfolio may purchase and write options in combination with each
other, or in combination with futures contracts or forward contracts, to adjust
the risk and return characteristics of the overall position. For example, a
Portfolio may purchase a put option and write a call option on the same
underlying instrument, in order to construct a combined position whose risk and
return characteristics are similar to selling a futures contract. Another
possible combined position would involve writing a call option at one strike
price and buying a call option at a lower strike price, in order to reduce the
risk of the written call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.

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<PAGE> 70
Correlation of Price Changes

Because there are a limited number of types of exchange-traded options
and futures contracts, it is likely that the standardized contracts available
will not match a Portfolio's current or anticipated investments exactly. A
Portfolio may invest in options and futures contracts based on securities with
different issuers, maturities, or other characteristics than those of the
securities in which it typically invests - for example, by hedging
intermediate-term securities with a futures contract on an index of long-term
bond prices, or by hedging stock holdings with a futures contract on a
broad-based stock index such as the S&P 500 - which involves a risk that the
options or futures position will not track the performance of the Portfolio's
other investments.

Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Portfolio's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect the price of the underlying security the same way.
Imperfect correlation may also result from differing levels of demand in the
options and futures markets and the securities markets, from structural
differences in the trading of options, futures and securities, or from
imposition of daily price fluctuation limits or trading halts. A Portfolio may
purchase or sell options and futures contracts with a greater or lesser value
than the securities it wishes to hedge or intends to purchase in order to
attempt to compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price changes
in a Portfolio's options or futures positions are poorly correlated with its
other investments, the positions may fail to produce anticipated gains or may
result in losses that are not offset by gains in other investments.

Liquidity of Options and Futures Contracts

There is no assurance that a liquid secondary market will exist for any
particular options or futures contract at any particular time. Options may have
relatively-low trading volume and liquidity if their strike prices are not close
to the underlying instrument's current price. In addition, exchanges may
establish daily price fluctuation limits for options and futures contracts, and
may halt trading if the price of an option or futures contract moves upward or
downward more than the limit in a given day. On volatile trading days when the
price fluctuation limit is reached or a trading halt is imposed, it may be
impossible for a Portfolio to enter into new positions or close out existing
positions. If the secondary market for a contract is not liquid because of price
fluctuation limits or otherwise, it could prevent prompt liquidation of
unfavorable positions, and potentially could require a Portfolio to continue to
hold a position until delivery or expiration regardless of changes in its value.
As a result, the Portfolio's access to other assets held to cover its options or
futures positions could also be impaired.

OTC Options

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<PAGE> 71
Unlike exchange-traded options, which are standardized with respect to
the underlying instrument, expiration date, contract size and strike price, the
terms of over-the-counter ("OTC") options (options not traded on exchanges)
generally are established through negotiation with the other party to the
option. While this type of arrangement allows a Portfolio greater flexibility to
tailor an option to its needs, OTC options generally involve greater credit risk
than exchange-traded options, which are guaranteed by the clearing organization
of the exchanges upon which they are traded.

Options and Futures Contracts Relating to Foreign Currencies

Currency futures contracts are similar to forward currency exchange
contracts, except that they are traded on exchanges (and have margin
requirements) and are standardized as to contract size and delivery date. Most
currency futures contracts call for payment or delivery in U.S. dollars. The
underlying instrument of a currency option may be a foreign currency, which
generally is purchased or delivered in exchange for U.S. dollars, or may be a
futures contract. The purchaser of a currency call option obtains the right to
purchase the underlying currency, and the purchaser of a currency put option
obtains the right to sell the underlying currency.

The uses and risks of currency options and futures contracts are
similar to options and futures contracts relating to securities or securities
indices, as discussed above. A Portfolio may purchase and sell currency futures
and may purchase and write currency options to increase or decrease its exposure
to different foreign currencies. A Portfolio may also purchase and write
currency options in conjunction with each other or with currency futures or
forward contracts. Currency futures and option values can be expected to
correlate with exchange rates, but may not reflect other factors that affect the
value of the Portfolio's investments. A currency hedge, for example, should
protect a yen-denominated security from a decline in the yen, but will not
protect the Portfolio against a price decline resulting from deterioration in
the issuer's creditworthiness. Because the value of the Portfolio's
foreign-denominated investments changes in response to many factors other than
exchange rates, it may not be possible to match exactly the amount of currency
options and futures held by the Portfolio to the value of its investments over
time.

Asset Coverage For Futures and Options Positions

The Portfolios will comply with guidelines established by the SEC with
respect to coverage of options and futures strategies by mutual funds, and if
the guidelines so require, will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or option position is
outstanding, unless they are replaced with other appropriate liquid assets. As a
result, there is a possibility that segregation of a large percentage of a
Portfolio's assets could impede portfolio management or the Portfolio's ability
to meet redemption requests or other current obligations.

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<PAGE> 72
Short Sales

A Portfolio may enter into short sales with respect to securities it
owns, or with respect to stocks underlying its convertible bond holdings (short
sales "against the box"). For example, if the Portfolio's advisor anticipates a
decline in the price of the stock underlying a convertible security it holds,
the Portfolio may sell the stock short. If the stock price substantially
declines, the proceeds of the short sale could be expected to offset all or a
portion of the effect of the stock's decline on the value of the convertible
security.

When a Portfolio enters into a short sale against the box, it will be
required to set aside securities equivalent in kind and amount to those sold
short (or securities convertible or exchangeable into such securities) and will
be required to continue to hold them while the short sale is outstanding. A
Portfolio will incur transaction costs, including interest expense, in
connection with opening, maintaining and closing short sales against the box.

HEALTH CARE INDUSTRY

The health care industry is subject to regulatory action by a number of
private and governmental agencies, including Federal, state, and local
governmental agencies. A major source of revenues for the health care industry
is payments from Medicare and Medicaid programs. As a result, the industry is
sensitive to legislative changes and reductions in governmental spending for
such programs. Numerous other factors may affect the industry, such as general
and local economic conditions; demands for services; expenses (including
malpractice insurance premiums); and competition among health care providers. In
the future, the following elements may adversely affect health care facility
operations: adoption of legislation proposing a national health insurance
program; medical and technological advances that dramatically alter the need for
health services or the way in which such services are delivered; and efforts by
employers, insurers, and governmental agencies to reduce the costs of health
insurance and health care services.

TRANSPORTATION

Transportation debt may be issued to finance the construction of
airports, toll roads, and highways. Airport bonds are dependent on the general
stability of the airline industry abd stability of a specific carrier which uses
the airport as a hub. Air traffic generally follows broader economic trends and
is also affected by the price and availability of fuel. Toll-road bonds are also
affected by the cost and availability of fuel as well as toll levels, the
presence of competing roads and the general economic health of an area. Fuel
costs and availability also affect other transportation-related services, as do
the presence of alternate forms of transportation, such as public
transportation.

PORTFOLIO TRANSACTIONS

The Portfolios' advisor (or subadvisor) seeks the most favorable
execution result with

27
<PAGE> 73
respect to transactions. In seeking the most favorable execution, the advisor,
having in mind a Portfolio's best interest, considers all factors it deems
relevant, including, by way of illustration: price; the size of the transaction;
the nature of the market for the security; the amount of the commission; the
timing of the transaction, taking into account market process and trends; the
reputation, experience and financial stability of the broker-dealer involved;
and the quality of service rendered by the broker-dealer in other transactions.
For additional information about the Portfolios' advisor and subadvisor, see
"Investment Advisor" below.

Transactions on U.S. stock exchanges and other agency transactions
involve the payment by a Portfolio of negotiated brokerage commissions. Such
commissions vary by the price and the size of the transaction along with the
quality of service. Transactions in foreign securities often involve the payment
of fixed brokerage commissions, that are generally higher than those in the
United States. There is generally no stated commission in the case of securities
traded in the OTC markets, but the price paid by a Portfolio usually includes an
undisclosed dealer commission or mark-up. In underwritten offerings, the price
paid by a Portfolio includes a disclosed, fixed commission or discount retained
by the underwriter or dealer.

For each Portfolio, the advisor (or subadvisor) places all orders for
the purchase and sale of Portfolio securities and buys and sells securities for
the Portfolio through a number of brokers and dealers.

It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research, statistical, and quotation services from broker-dealers
that execute Portfolio transactions for the clients of such advisers. Consistent
with this practice, a Portfolio's advisor (or subadvisor) may receive research,
statistical, and quotation services from broker-dealers with which it places the
Portfolio's portfolio transactions. These services, which in some cases may also
be purchased for cash, include such matters as general economic and security
market reviews, industry and company reviews, evaluations of securities, and
recommendations as to the purchase and sale of securities. Some of these
services are of value to the advisor (or subadvisor) and its affiliates in
advising various of their clients (including the Portfolios), although not all
of these services are necessarily useful and of value in managing the
Portfolios. The fee paid by a Portfolio to the advisor is not reduced because
the advisor (or subadvisor) and its affiliates receive such services.

As permitted by Section 28(e) of the Securities Exchange Act of 1934,
as amended, the advisor (or subadvisor) of a Portfolio may cause the Portfolio
to pay a broker-dealer that provides brokerage and research services to the
advisor (or subadvisor) a commission in excess of the commission charged by
another broker-dealer for effecting a particular transaction. To cause a
Portfolio to pay any such greater commissions, the advisor (or subadvisor) must
determine in good faith that such commissions are reasonable in relation to the
value of the brokerage or research service provided by such executing
broker-dealers viewed in terms of a particular transaction or the advisor's (or
subadvisor's) overall responsibilities to the Portfolio or its other clients. In
reaching this determination, the advisor (or subadvisor) will

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<PAGE> 74
not attempt to place a specific dollar value on the brokerage or research
services provided or to determine what portion of the compensation should be
related to those services.

Certain investments may be appropriate for a Portfolio and for other
clients advised by the advisor (or subadvisor). Investment decisions for a
Portfolio and other clients are made with a view to achieving their respective
investment objectives and after consideration of such factors as their current
holdings, availability of cash for investment, and the size of their investments
generally. A particular security may be bought or sold for only one client or in
different amounts and at different times for more than one but fewer than all
clients. Likewise, a particular security may be brought for one or more clients
when one or more other clients are selling the security. In addition, purchases
or sales of the same security may be made for two or more clients of the advisor
(or subadvisor) on the same day. In each of these situations, the transactions
will be allocated among the clients in a manner considered by the advisor (or
subadvisor) to be equitable to each. In some cases, this procedure could have an
adverse effect on the price or amount of the securities purchased or sold by a
Portfolio. Purchase and sale orders for a Portfolio may be combined with those
of other clients in the interest of achieving the most favorable execution for
the Portfolio.

For the fiscal year ended April 30, 1997, the Small-Cap Equity
Portfolio paid brokerage commissions of $274,131. For the fiscal year ended
April 30, 1998, the Small-Cap Equity Portfolio paid brokerage commissions of
$210,728. For the fiscal year ended April 30, 1999, the Small-Cap Equity
Portfolio paid brokerage commissions of $249,580, respectively. For the fiscal
years ended April 30, 1997, 1998, and 1999, Income Portfolio and International
Equity Selection Portfolio paid no brokerage commissions. As of the date of this
Statement of Additional Information, the International Equity Portfolio and
Emerging Markets Equity Portfolio have not yet commenced operations and have
paid no brokerage commissions.

For the fiscal year ended April 30, 1997, the Small-Cap Equity
Portfolio paid brokerage commissions of $28 to affiliated brokers. For the
fiscal year ended April 30, 1998, the Portfolio paid no brokerage commissions to
affiliated brokers. For the fiscal year ended April 30, 1999, the Portfolio paid
no brokerage commissions to affiliated brokers. For the fiscal years ended April
30, 1997, 1998, and 1999, Income Portfolio and International Equity Selection
Portfolio paid no brokerage commissions to affiliated brokers. As of the date of
this Statement of Additional Information, the International Equity Portfolio and
Emerging Markets Equity Portfolio have not yet commenced operations and have not
paid any brokerage commissions to affiliated brokers.

The Fund is required to identify any securities of its "regular brokers
or dealers" (as such term is defined in the 1940 Act) which the Fund has
acquired during its most recent fiscal year. As of April 30, 1999, the
Portfolios held securities of the Fund's "regular brokers or dealers" as
follows: the Income Portfolio held corporate obligations issued by Merrill Lynch
valued at $9,991,000, corporate obligations issued by Morgan Stanley, Dean
Witter valued at $7,374,000, and repurchase agreements issued by First Boston
valued at $18,157,000; the Small-Cap Equity Portfolio held repurchase agreements
issued by First Boston valued at

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<PAGE> 75
$1,230,000; and the International Equity Selection Portfolio held repurchase
agreements issued by First Boston valued at $1,230,000.

VALUATION OF PORTFOLIO SECURITIES

INCOME PORTFOLIO

Valuations of portfolio securities furnished by the pricing service
utilized by the Fund are based upon a computerized matrix system and/or
appraisals by the pricing service, in each case in reliance upon information
concerning market transactions and quotations from recognized securities
dealers. The methods used by the pricing service and the quality of valuations
so established are reviewed by officers of the Fund and the Portfolio's pricing
agent under general supervision of the Board of Trustees. There are a number of
pricing services available, and the Board, on the basis of evaluation of these
services, may use other pricing services or discontinue the use of any pricing
service in whole or in part.

SMALL-CAP EQUITY PORTFOLIO, INTERNATIONAL EQUITY SELECTION PORTFOLIO,
INTERNATIONAL EQUITY PORTFOLIO AND EMERGING MARKETS EQUITY PORTFOLIO

Securities owned by each of these Portfolios are valued by various
methods depending on the market or exchange on which they trade. Securities
traded on a national securities exchange are valued at the last sale price, or
if no sale has occurred, at the closing bid price. Securities traded in the
over-the-counter market are valued at the last sale price, or if no sale has
occurred, at the closing bid price. Securities and other assets for which market
quotations are not readily available are valued at their fair value as
determined under procedures established by the Board of Trustees.

Generally, the valuation of foreign and domestic equity securities, as
well as corporate bonds, U.S. Government Securities, Money Market Instruments,
and repurchase agreements, is substantially completed each day at the close of
the NYSE. The values of any such securities held by a Portfolio are determined
as of such time for the purpose of computing a Portfolio's NAV. Foreign security
prices are furnished by independent brokers or quotation services which express
the value of securities in their local currency. The pricing agent gathers all
exchange rates daily at 2:00 p.m., Eastern Time, and using the last quoted price
of the security in the local currency, translates the value of foreign
securities from their local currency into U.S. dollars. Any changes in the value
of forward contracts due to exchange rate fluctuations and days to maturity are
included in the calculation of NAV. If an extraordinary event that is expected
to affect materially the value of a portfolio security occurs after the close of
an exchange on which that security is traded, then the security will be valued
pursuant to the procedures established by the Board of Trustees.

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<PAGE> 76
PORTFOLIO PERFORMANCE

YIELD CALCULATIONS

For shares of the Portfolios, yields used in advertising are computed by
dividing the interest income for a given 30-day or one-month period, net of the
Portfolio's expenses, by the average number of shares entitled to receive
dividends during the period, dividing this figure by the Portfolio's NAV at the
end of the period and annualizing the result (assuming compounding of income) in
order to arrive at an annual percentage rate. Income is calculated for purposes
of the yield quotations in accordance with standardized methods applicable to
all stock and bond funds. In general, interest income is reduced with respect to
bonds trading at a premium over their par value by subtracting a portion of the
premium from income on a daily basis, and is increased with respect to bonds
trading at a discount by adding a portion of the discount to daily income.
Capital gains and losses generally are excluded from the calculation.

Income calculated for the purposes of determining yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding of income assumed in
yield calculations, a Portfolio's yield may not equal its distribution rate, the
income paid to your account, or income reported in the Portfolio's financial
statements.

For the 30-day period ended October 31, 1999, the yields for the
Portfolios were as follows:

<TABLE>
<CAPTION>
NAME OF PORTFOLIO AND CLASS YIELD
--------------------------- -----
<S> <C>
INCOME PORTFOLIO
Retail Class A 5.47
Institutional Class 5.86

SMALL - CAP EQUITY PORTFOLIO
Retail Class A (0.75)
Institutional Class (0.69)

INTERNATIONAL EQUITY SELECTION PORTFOLIO
Retail Class A 0.09
Institutional Class 0.18
</TABLE>

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TOTAL RETURN

The average annual total returns for the one-year period and five - year
period ended October 31, 1999 and since inception are shown in the table below.
The performance shown for Retail Class A includes applicable sales charges.

<TABLE>
<CAPTION>
NAME OF PORTFOLIO
AND CLASS ONE-YEAR FIVE-YEAR SINCE INCEPTION
--------- -------- --------- ---------------
<S> <C> <C> <C> <C>
INCOME PORTFOLIO
Retail Class A (4.59) 5.92 5.22 (April 12, 1994)
Institutional Class (0.03) 7.07 5.60 (July 16, 1993)

SMALL - CAP EQUITY
PORTFOLIO
Retail Class A 81.87 ------ 16.62 (May 16, 1996)
Institutional Class 91.02 ------ 27.12 (July 13, 1995)

INTERNATIONAL EQUITY
SELECTION PORTFOLIO(1)
Retail Class A 22.91 ------ 6.24 (April 1, 1998)
Institutional Class(2) 24.96 11.14 10.93 (May 31, 1991)
</TABLE>

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Each Portfolio is open for business and its NAV is calculated each day
that the Federal Reserve Bank of New York ("FRB") and the New York Stock
Exchange ("NYSE") are open for trading (a "Business Day").

The calculation of the NAV, dividends and distributions of a Portfolio's
Retail Class A and Institutional Class shares recognizes two types of expenses.
General expenses that do not pertain specifically to any class are allocated pro
rata to the shares of each class, based on the

- ----------

(1) Performance presented reflects the performance of the International
Equity Selection Portfolio prior to the approval and implementation of the
proposal to change the Portfolio's investment objectives and policies.

(2) Performance presented from inception reflects the performance of the
Marketvest International Equity Fund shares, 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 to April 1, 1997 when the
Marketvest International Equity Fund's registration statement became effective,
as adjusted to reflect the Marketvest International Equity Fund's anticipated
expenses.

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<PAGE> 78
percentage of the net assets of such class to the Portfolio's total assets, and
then equally to each outstanding share within a given class. Such general
expenses include (i) management fees, (ii) legal, bookkeeping and audit fees,
(iii) printing and mailing costs of shareholder reports, prospectuses,
statements of additional information and other materials for current
shareholders, (iv) fees to independent trustees, (v) custodian expenses, (vi)
share issuance costs, (vii) organization and start-up costs, (viii) interest,
taxes and brokerage commissions, and (ix) non-recurring expenses, such as
litigation costs. Other expenses that are directly attributable to a class are
allocated equally to each outstanding share within that class. Such expenses
include (i) distribution and/or other fees, (ii) transfer and shareholder
servicing agent fees and expenses, (iii) registration fees and (iv) shareholder
meeting expenses, to the extent that such expenses pertain to a specific class
rather than to a Portfolio as a whole.

The NAV per share of Retail Class A and Institutional Class shares of a
Portfolio are determined as of the close of business of the NYSE on each day
that the NYSE is open, by dividing the value of the Portfolio's net assets
attributable to that class by the number of shares of that class outstanding.

The NAV of the Income Portfolio, Small-Cap Equity Portfolio,
International Equity Selection Portfolio, International Equity Portfolio and
Emerging Markets Equity Portfolio is determined as of the close of regular
trading on the NYSE, normally 4:00 p.m., Eastern Time ("4:00 p.m."). Shares
purchased at 4:00 p.m. begin to earn dividends on the following Business Day.

The following holiday closings have been scheduled for 2000 and the Fund
expects the schedule to be the same in the future: New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day. The
NYSE or FRB may also close on other days. When the NYSE or the FRB is closed, or
when trading is restricted for any reason other than its customary weekend or
holiday closings, or under emergency circumstances as determined by the SEC to
merit such action, each Portfolio will determine its NAV at the close of
business, the time of which will coincide with the closing of the NYSE. To the
extent that securities held by a Portfolio are traded in other markets on days
the NYSE or FRB is closed (when investors do not have access to the Portfolio to
purchase or redeem shares), the Portfolio's NAV may be significantly affected.

If, in the opinion of the Board of Trustees, conditions exist which make
cash payment undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing the NAV of the Portfolio. Shareholders receiving securities or other
property on redemption may realize a gain or loss for tax purposes and will
incur any costs of sale as well as the associated inconveniences.

REDEMPTION IN KIND

Under normal circumstances, the Portfolio will redeem shares in cash as
described in the prospectus. However, if the Portfolio's board of trustees
determines that it would be in the

33
<PAGE> 79
best interests of the remaining shareholders to make payment of the redemption
price in whole or in part by a distribution in kind of portfolio securities in
lieu of cash, in conformity with applicable rules of the SEC, the Portfolio will
make such distributions in kind. If shares are redeemed in kind, the redeeming
shareholder will incur brokerage costs in later converting the assets into cash.
The method of valuing portfolio securities is described under "Calculation of
Net Asset Value" and such valuation will be made as of the same time the
redemption price is determined. The Portfolio has elected to be governed by Rule
18f-1 under the Investment Company Act pursuant to which the Portfolio is
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Portfolio during any 90-day period for any one
shareholder.

RETAIL CLASS A SALES CHARGES

The offering price (price to buy one share) is the net asset value of a
Retail Class A share, divided by the sum of one minus the applicable sales
charge percentage. The following table shows the total sales charges applicable
to purchases of Retail Class A shares:

<TABLE>
<CAPTION>
SMALL-CAP EQUITY,
INTERNATIONAL EQUITY
INCOME PORTFOLIO SELECTION(2),
INTERNATIONAL EQUITY,
EMERGING MARKETS EQUITY
PORTFOLIOS
-------------------------------------------------------------------------

SALES CHARGE PROFESSIONAL SALES CHARGE PROFESSIONAL
AS A % OF CONCESSION AS A % OF CONCESSION
AS A % OF AS A % OF
OFFERING OFFERING
PRICE PRICE
-------------------- ----- --------------------- -----

NET NET
OFFERING AMOUNT OFFERING AMOUNT
PRICE INVESTED PRICE INVESTED
----- -------- ----- --------

<S> <C> <C> <C> <C> <C> <C>
Less than $50,000 4.50 4.71 4.05 4.75 4.99 4.28
$50,000 but less
than $100,000... 4.00 4.17 3.60 4.50 4.71 4.05
$100,000 but
less than 3.00 3.09 2.70 3.50 3.63 3.15
$250,000........
$250,000 but
less than 2.50 2.56 2.25 2.50 2.56 2.25
$500,000........
$500,000 but
less than 2.00 2.04 1.80 2.00 2.04 1.80
$1,000,000......
$1,000,000 and
above(1)........ 0.00 0.00 0.00 0.00 0.00 0.00
</TABLE>

- -------------------------
(1) No initial sales charge applies to purchases of Retail Class A shares of $1
million or more. However, you will pay a redemption fee of

34
<PAGE> 80
1.00% if you sell your shares within one year of the date of purchase, or of
0.50% if you sell your shares between one and two years of the date of the
purchase.

(2) The Board of Trustees has approved an increase in the sales charge for the
International Equity Selection Portfolio from 1.50% to 4.75%. Such change has
not been approved by the shareholders of the Portfolio or implemented.

All questions regarding the applicability of sales charges to share
purchases will be determined by the Fund's distributor.

TAXES

The following is only a summary of certain additional Federal income tax
considerations generally affecting the Portfolios and their shareholders that
are not described in the prospectus. No attempt is made to present a detailed
explanation of the Federal, state or local tax treatment of the Portfolios or
their shareholders, and the discussion here and in the prospectus is not
intended as a substitute for careful tax planning.

The following discussion of Federal income tax consequences is based on
the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated herein.

Each Portfolio calculates dividend and capital gain distributions
separately, and is treated as a separate entity in all respects for tax
purposes.

TAXATION OF THE PORTFOLIOS

Each Portfolio intends to qualify as a regulated investment company
("RIC") under Subchapter M of the Code. In order to qualify as a RIC for any
taxable year, a Portfolio must derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans and gains
from the sale or other disposition of stock, securities or foreign currencies
and other income (including, but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"). In addition, at the
close of each quarter of the Portfolio's taxable year, (1) at least 50% of the
value of its assets must consist of cash and cash items, U.S. government
securities, securities of other RICs, and securities of other issuers (as to
which the Portfolio has not invested more than 5% of the value of its total
assets in securities of any one such issuer and as to which the Portfolio does
not hold more than 10% of the outstanding voting securities of any one such
issuer), and (2) no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. government
securities and securities of other RICs), or in two or more issuers that the
Portfolio controls and that are engaged in the same or similar trades or
businesses or related trades or businesses (the "Asset Diversification Test").
Generally, a Portfolio will not lose its

35
<PAGE> 81
status as a RIC if it fails to meet the Asset Diversification Test solely as a
result of a fluctuation in value of Portfolio assets not attributable to a
purchase.

Under Subchapter M of the Code, a Portfolio is not subject to Federal
income tax on the portion of its taxable net investment income and net capital
gains that it distributes to shareholders, provided generally that it
distributes at least 90% of its investment company taxable income (net
investment income and the excess of net short-term capital gains over net
long-term capital loss) for the year and at least 90% of the excess of its
tax-exempt interest income over related expenses (the "Distribution
Requirement") and complies with the other requirements of the Code described
above. The Distribution Requirement for any year may be waived if a RIC
establishes to the satisfaction of the Internal Revenue Service that it is
unable to satisfy the Distribution Requirement by reason of distributions
previously made for the purpose of avoiding liability for Federal excise tax
(discussed below).

If for any taxable year a Portfolio does not qualify as a RIC, all of
its taxable income will be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and such distributions generally
will be taxable as ordinary dividends to the extent of the Portfolio's current
and accumulated earnings and profits. However, in the case of corporate
shareholders, such distributions generally will be eligible for the 70%
dividends received deduction for "qualifying dividends."

The Code imposes a nondeductible 4% excise tax on RICs that do not
distribute in each calendar year an amount equal to 98% of their ordinary income
for the calendar year plus 98% of their capital gains net income for the
one-year period ending on October 31 of such calendar year. The balance of such
income must be distributed during the next calendar year. For the foregoing
purposes, a RIC will include in the amount distributed any amount taxed to the
RIC as investment company taxable income or capital gains for any taxable year
ending in such calendar year. Each Portfolio intends to make sufficient
distributions of its ordinary income and capital gains net income prior to the
end of each calendar year to avoid liability for excise tax. However, a
Portfolio may in certain circumstances be required to liquidate portfolio
investments in order to make sufficient distributions to avoid excise tax
liability.

TAXATION OF SHAREHOLDERS

Distributions from each Portfolio's taxable net investment income and
short-term capital gain are taxed as dividends. Distributions that are (i)
designated by a Portfolio as capital gains dividends and (ii) made out of the
"net capital gain" (the excess of net long-term capital gain over net short-term
capital loss), if any, of a Portfolio will be taxed to shareholders as net
capital gain, regardless of the length of time a shareholder has held shares,
whether such gain was reflected in the price paid for the shares, or whether
such gain was attributable to bonds bearing tax-exempt interest. Net capital
gain of a noncorporate taxpayer is generally taxed at a rate of 20%.
Distributions that are not net capital gain dividends or exempt-interest
dividends will generally be taxed at a maximum marginal rate of 39.6% in the
case of non-corporate taxpayers. Corporate taxpayers are currently taxed at the
same maximum marginal rates on both ordinary income and capital gains. A portion
of the dividends may

36
<PAGE> 82
qualify for the dividends received deduction for corporations to the extent
derived from dividend income received by the Portfolio. The Portfolios'
distributions are taxable when they are paid, whether taken in cash or
reinvested in additional shares, except that distributions declared in October,
November or December and payable to shareholders of record in such month, if
paid in January of the following year, will be taxed as though paid on December
31. The Portfolios will send non-corporate shareholders a tax statement by
January 31 showing the tax status of the distributions received in the prior
year. It is suggested that shareholders keep all statements received to assist
in personal record keeping.

Shareholders may realize a capital gain or loss when they redeem (sell)
or exchange shares of the Portfolios. For most types of accounts, the Portfolios
will report the proceeds of a shareholder's redemptions to the shareholder and
the IRS annually. However, because the tax treatment also depends on the
purchase price and the shareholder's personal tax position, shareholders should
keep their regular account statements for use in determining their tax. If a
shareholder receives a long-term capital gain distribution on shares of the
Portfolios, and such shares are held six months or less and are sold at a loss,
the portion of the loss equal to the amount of the long-term capital gain
distribution will be considered a long-term loss for tax purposes. Short-term
capital gains distributed by the Portfolios are taxable to shareholders as
dividends, not as capital gains.

Any gain or loss recognized on a sale or redemption of shares of a
Portfolio by a shareholder who is not a dealer in securities generally will be
treated as a long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise generally will be treated as a short-term
capital gain or loss. Any resultant net capital gain will be subject to the 20%
rate.

On the record date for a distribution or dividend, the applicable
Portfolio's share value is reduced by the amount of the distribution. If a
shareholder were to buy shares just before the record date ("buying a
dividend"), he would pay the full price for the shares and then receive a
portion of the price back as a taxable distribution.

INTERNATIONAL EQUITY SELECTION, INTERNATIONAL EQUITY AND EMERGING MARKETS EQUITY
PORTFOLIOS

Income that the International Equity Selection Portfolio, International
Equity Portfolio and Emerging Markets Equity Portfolio receive from sources
within various foreign countries may be subject to foreign income taxes withheld
at the source. If a Portfolio has more than 50% of its assets invested in
foreign securities at the end of its taxable year, it may elect to pass through
the foreign tax credit to its shareholders. It is expected that the
International Equity Selection Portfolio will not have more than 50% of the
value of its total assets at the close of its taxable year invested in foreign
securities, and therefore will not be permitted to make this election and "pass
through" to its shareholders. Each shareholder's respective pro rata share of
foreign taxes the Portfolio pays will, therefore in effect, be netted against
their share of the Portfolio's gross income.

37
<PAGE> 83
The Portfolios may invest in non-U.S. corporations which could be
treated as passive foreign investment companies ("PFICs"). This could result in
adverse tax consequences upon the disposition of, or the receipt of "excess
distributions" with respect to, such equity investments. To the extent a
Portfolio does invest in PFICs, it may adopt certain tax strategies to reduce or
eliminate the adverse effects of certain Federal tax provisions governing PFIC
investments. Some of these strategies may require the Portfolio to distribute
amounts in excess of its realized income and gains. Many non-U.S. banks and
insurance companies may not be treated as PFICs if they satisfy certain
technical requirements under the Code. To the extent that a Portfolio does
invest in foreign securities which are determined to be PFIC securities and is
required to pay a tax on such investments, a credit for this tax would not be
allowed to be passed through to its shareholders. Therefore, the payment of this
tax would reduce the Portfolio's economic return from its PFIC shares, and
excess distributions received with respect to such shares are treated as
ordinary income rather than capital gains.

OTHER TAX INFORMATION

In addition to Federal taxes, shareholders may be subject to state or
local taxes on their investment, depending on state law.

The Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of distributions payable to any shareholder who (1) has
provided the Fund either an incorrect tax identification number or no number at
all, (2) is subject to backup withholding by the Internal Revenue Service for
failure to properly report payments of interest or dividends, or (3) has failed
to certify to the Fund that such shareholder is not subject to backup
withholding.

TRUSTEES AND OFFICERS

The trustees and officers of the Fund and their principal occupations
during the past five years are set forth below. Each trustee who is an
"interested person" of the Fund (as defined in the 1940 Act) is indicated by an
asterisk (*). Unless otherwise indicated the business address of each is One
Freedom Valley Drive, Oaks, PA 19456.

WILLIAM H. COWIE, JR., 1408 Ruxton Road, Baltimore, MD 21204. Date of
Birth: 1/24/31. Trustee since 1993. Prior to retirement, Mr. Cowie was Chief
Financial Officer (1991-1995) of Pencor, Inc. (developers of environmental
projects). Prior to 1991, Mr. Cowie was Vice Chairman of Signet Banking
Corporation.

*DAVID D. DOWNES, 210 Allegheny Ave., Towson, MD 21204. Date of Birth:
7/16/35. Trustee since 1995. Mr. Downes is an attorney in private practice
(since October 1996). Prior thereto he was a partner (1989-1995) and of counsel
(1995-Sept. 1996) of Venable, Baetjer & Howard (law firm).

38
<PAGE> 84
CHARLOTTE R. KERR, American City Building, 10227 Wincopin Circle, Suite
108, Columbia, MD 21044. Date of Birth: 9/26/46. Trustee since 1993. Ms. Kerr is
Practitioner and faculty member at the Traditional Acupuncture Institute.

THOMAS SCHWEIZER, 6 Betty Bush Lane, Baltimore, MD 21212. Date of
Birth: 8/21/22. Trustee since 1993. Prior to his retirement in 1987, Mr.
Schweizer was self-employed. He currently is a board member of various charity
organizations and hospitals.

RICHARD B. SEIDEL, 770 Hedges Lane, Wayne, Pennsylvania 19087. Date of
Birth: 4/20/41. Trustee since 1998. Mr. Seidel is a Director and President
(since 1994) of Girard Partners, Ltd. (a registered broker-dealer). Prior to
1994, Mr. Seidel was a Director and President of Fairfield Group, Inc.

RICHARD A. GOLD. Date of Birth: __________. President since March 2000.
Mr. Gold is Executive Vice President of the Asset Management Group of Allfirst
Financial Inc., a financial services company headquartered in Baltimore, MD, and
parent company to Allfirst Bank and AIA.

JAMES F. VOLK. Date of Birth: 8/28/62. Controller, Treasurer and Chief
Financial Officer since March 1997. Mr. Volk is Director of Investment
Accounting Operations. He joined SEI Investments Mutual Fund Services in
February 1996 and is co-director of the International Fund Accounting Group.
From December 1993 to January 1996, Mr. Volk was Assistant Chief Accountant of
the Securities and Exchange Commission's Division of Investment Management.
Prior to December 1993, Mr. Volk spent nine years with Coopers & Lybrand L.L.P.,
most recently as a senior manager.

MICHELE L. DALTON. Date of Birth: 2/16/59. Vice President and Assistant
Secretary since March 2000. Ms. Dalton is a Senior Vice President of Allfirst
Financial Inc. since 1994. Prior to 1994, Ms. Dalton was Vice President of First
Colonial Bankshares Corporation.

KEVIN P. ROBINS. Date of Birth: 4/15/61. Vice President and Assistant
Secretary since November 1995. Mr. Robins is Senior Vice President, General
Counsel and Secretary of SEI Investments since 1994. Prior to 1994, Mr. Robins
was Vice President and Assistant Secretary of SEI Investments. Prior to 1992,
Mr. Robins was an Associate with Morgan Lewis & Bockius (law firm) since 1988.

TODD CIPPERMAN. Date of Birth: 2/14/66. Vice President and Assistant
Secretary since November 1995. Mr. Cipperman is Vice President and Assistant
Secretary of SEI Investments since 1995. From 1994 to May 1995, Mr. Cipperman
was an Associate with Dewey Ballantine (law firm). Prior to 1994, Mr. Cipperman
was an Associate with Winston & Strawn (law firm) since 1991.

LYDIA A. GAVALIS. Date of Birth: 6/5/64. Vice President and Assistant
Secretary since 1998. Ms. Gavalis is Vice President and Assistant Secretary of
SEI Investments

39
<PAGE> 85
Company since 1998. She was Assistant General Counsel and Director of
Arbitration for the Philadelphia Stock Exchange from 1989 to 1998.

JAMES R. FOGGO. Date of Birth: 6/30/64. Vice President and Assistant
Secretary since 1998. Mr. Foggo is Vice President and Assistant Secretary of the
Administrator and the Distributor since 1998. In 1998, Mr. Foggo was an
Associate with Paul Weiss, Rifkind, Wharton & Garrison. From 1995 to 1998, Mr.
Foggo was an Associate with Baker & McKenzie. From 1993 to 1995, Mr. Foggo was
an Associate with Battle Fowler L.L.P. Prior to 1990, Mr. Foggo was Operations
Manager with The Shareholder Services Group, Inc. since 1986.

TIMOTHY D. BARTO. Date of Birth: 3/28/68. Vice President and Assistant
Secretary since March 2000. Mr. Barto is Vice President and Assistant Secretary
of SEI Investments Company since November 1999. From 1997 to 1999, Mr. Barto was
an Associate at Dechert Price & Rhoads. From 1994 to 1997, he was an Associate
at Richter, Miller & Finn.

CHRISTINE M. MCCULLOUGH. Date of Birth: 12/5/60. Vice President and
Assistant Secretary since March 2000. Ms. McCullough is Vice President and
Assistant Secretary of SEI Investments Company since November 1999. From 1991 to
1999, Ms. McCullough was an Associate at White & Williams. From 1990 to 1991,
she was an Associate at Montgomery, McCracken, Walker & Rhoads.

THOMAS R. RUS. Date of Birth: 10/11/59. Secretary since March 2000. Mr.
Rus is Vice President and Trust Counsel of Allfirst Trust Company, N.A. and
Allfirst Bank. He is also Compliance Officer of Allfirst Trust Company, N.A. and
ARK Funds. He has been with Allfirst Trust Company, N.A. since 1995.

The following table sets forth information describing the compensation
of each current trustee of the Fund for his or her services as trustee for the
fiscal year ended April 30, 1999.

TRUSTEE COMPENSATION TABLE

<TABLE>
<CAPTION>
PENSION OR
RETIREMENT ESTIMATED
BENEFITS ANNUAL TOTAL
AGGREGATE ACCRUED FROM RETIREMENT COMPENSATION
COMPENSATION THE FUND FROM THE FUND FROM THE FUND
NAME OF TRUSTEE FROM THE FUND COMPLEX* COMPLEX* COMPLEX*
--------------- ------------- -------- -------- --------
<S> <C> <C> <C> <C>
William H. Cowie, Jr. $16,000 -- -- $16,000
David D. Downes 13,500 -- -- 13,500
Charlotte R. Kerr 13,500 -- -- 13,500
Thomas Schweizer 13,500 -- -- 13,500
Richard B. Seidel 11,750 -- -- 11,750
</TABLE>

40
<PAGE> 86
*The Fund's trustees do not receive any pension or retirement benefits
from the Fund as compensation for their services as trustees of the Fund. The
Fund, a Massachusetts business trust, is the sole investment company in the fund
complex.

INVESTMENT ADVISOR

The investment advisor of the Fund is Allied Investment Advisors, Inc.
("AIA"). AIA provides (or supervises any subadvisor who provides) the Portfolios
with day-to-day management services and makes investment decisions on the
Portfolios' behalf in accordance with each Portfolio's investment policies. AIB
Govett, Inc. ("AIB Govett") serves as subadvisor to the International Equity
Selection Portfolio and Emerging Markets Equity Portfolio. As subadvisor, AIB
Govett furnishes an investment program in respect of, and makes investment
decisions for, all assets of the Portfolios and places all orders for the
purchase and sale of securities, on behalf of the Portfolios.

Institutional shares of the Fund are offered through Allfirst Trust
Company, N.A. ("Allfirst Trust"), and Retail Class A shares are offered through
Allfirst Brokerage Corporation ("Allfirst Brokerage"). Allfirst Trust also
provides custodial and administrative services to the Fund. AIA, Allfirst Trust
and Allfirst Brokerage are wholly-owned subsidiaries of Allfirst Bank, a
Maryland-chartered Federal Reserve member bank based in Baltimore, Maryland.
Allfirst Bank is a wholly-owned subsidiary of Allfirst Financial Inc., which is
owned by Allied Irish Banks, p.l.c., an international financial services
organization based in Dublin, Ireland. AIB Govett is an indirect, majority-owned
subsidiary of Allied Irish Banks, p.l.c. SEI Investments Distribution Co., the
distributor of the Fund, is not affiliated with Allied Irish Banks, p.l.c. or
its affiliates.

Pursuant to an investment advisory agreement with the Fund, AIA
furnishes, at its own expense, all services, facilities and personnel necessary
to manage each applicable Portfolio's investments and effect portfolio
transactions on its behalf. Pursuant to an investment subadvisory agreement with
the Fund and AIA, AIB Govett furnishes, at its own expense, all services,
facilities and personnel necessary to manage the International Equity
Portfolio's and Emerging Markets Equity Portfolio's investments and effect
portfolio transactions on its behalf.

The advisory contracts have been approved by the Board of Trustees and
will continue in effect with respect to a Portfolio only if such continuance is
specifically approved at least annually by the Board or by vote of the
shareholders of the Portfolio, and in either case by a majority of the trustees
who are not parties to the advisory contract or interested persons of any such
party, at a meeting called for the purpose of voting on the advisory contract.
The advisory contracts are terminable with respect to a Portfolio without
penalty on 60 days' written notice when authorized either by vote of the
shareholders of the Portfolio or by a vote of a majority of the trustees, or by
AIA (and, in the case of the subadvisory agreement, AIB Govett), on 60 days'
written notice, and will automatically terminate in the event of its assignment.

41
<PAGE> 87
The advisory contracts provide that, with respect to each Portfolio,
neither AIA or AIB Govett, nor their personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in the performance of its
duties to a Portfolio, except for willful misfeasance, bad faith or gross
negligence in the performance by either AIA or AIB Govett of its duties or by
reason of reckless disregard of its obligations and duties under the advisory
contract. The advisory contracts provide that AIA and AIB Govett may render
services to others.

For the fiscal year ended April 30, 1999, the advisory fee payable to
AIA with respect to the Income Portfolio was $2,086,212 of which $312,937 was
waived; with respect to the Small-Cap Equity Portfolio was $221,721 of which
$2,772 was waived; and with respect to the International Equity Selection
Portfolio was $232,924 of which $35,834 was waived.

For the fiscal year ended April 30, 1998, the advisory fee payable to
AIA with respect to the Income Portfolio was $1,430,536 of which $24,176 was
waived; with respect to the Small-Cap Equity Portfolio was $150,514 of which
$238 was waived; and with respect to the International Equity Selection
Portfolio was $42,205 of which $23,706 was waived. Prior to February 12, 1998,
the fees set forth above were payable pursuant to an advisory agreement with AIA
which provided a different fee schedule.

For the fiscal year ended April 30, 1997, the advisory fee payable to
AIA with respect to the Income Portfolio was $1,065,590; and with respect to the
Small-Cap Equity Portfolio was $149,991. The International Equity Selection
Portfolio commenced operations in April 1997, and thus paid no advisory fees as
of April 30, 1997.

As of the date of this Statement of Additional Information, the
International Equity Portfolio and the Emerging Markets Equity Portfolio have
not yet commenced operations and have paid no investment advisory fees.

In addition to receiving its advisory or subadvisory fee, AIA and AIB
Govett may also act and be compensated as investment manager for clients with
respect to assets which are invested in a Portfolio. In some instances AIA and
AIB Govett may elect to credit against any investment management fee received
from a client who is also a shareholder in a Portfolio an amount equal to all or
a portion of the fee received by AIA and AIB Govett, or their affiliates, from a
Portfolio with respect to the client's assets invested in the Portfolio.

Each Portfolio has, under its advisory contract, confirmed its
obligation to pay all expenses, including interest charges, taxes, brokerage
fees and commissions; certain insurance premiums; fees, interest charges and
expenses of the custodian, transfer agent and dividend disbursing agent;
telecommunications expenses; auditing, legal and compliance expenses;
organization costs and costs of maintaining existence; costs of preparing and
printing the Portfolios' prospectuses, statements of additional information and
shareholder reports and delivering them to existing and prospective
shareholders; costs of maintaining books of original entry for portfolio
accounting and other required books and accounts of calculating the NAV of
shares of the Portfolios; costs of reproduction, stationery and supplies;
compensation

42
<PAGE> 88
of trustees and officers of the Fund and costs of other personnel performing
services for the Fund who are not officers of the Administrator or Distributor,
or their respective affiliates; costs of shareholder meetings; SEC registration
fees and related expenses; state securities laws registration fees and related
expenses; fees payable under the advisory contracts and under the administration
agreement, and all other fees and expenses paid by the Portfolios.

ADMINISTRATOR AND DISTRIBUTOR

ADMINISTRATOR AND SUB-ADMINISTRATOR

SEI Investments Mutual Funds Services serves as administrator (the
"Administrator") to the Fund. The Administrator assists in supervising all
operations of the Portfolios, except those performed by AIA and/or AIB Govett
under the advisory contracts, by the Distributor under the distribution
agreement and by Allfirst Trust Company, National Association ("Allfirst Trust")
under the sub-administration and custodian agreements.

Under its administration agreement with the Fund, the Administrator has
agreed to maintain office facilities for the Fund. The Administrator prepares
annual and semi-annual reports to the SEC, prepares Federal and state tax
returns, prepares filings with state securities commissions, and generally
assists in all aspects of the Fund's operations other than those discussed
above. Under the administration agreement, the Administrator also provides fund
accounting and related accounting services. The Administrator may delegate its
responsibilities under the administration agreement with the Fund's written
approval.

The Administrator, a Delaware business trust, has its principal business
offices at 1 Freedom Valley Drive, Oaks, PA 19456. SEI Investments Management
Corporation, a wholly-owned subsidiary of SEI Investments Company ("SEI"), is
the owner of all beneficial interest in the Administrator. SEI and its
subsidiaries and affiliates are leading providers of funds evaluation services,
trust accounting systems, and brokerage and information services to financial
institutions, institutional investors and money managers. The Administrator also
serves as administrator or sub-administrator to the following mutual funds: SEI
Daily Income Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, SEI Index
Funds, SEI Institutional Managed Trust, SEI Institutional International Trust,
SEI Insurance Products Trust, The Advisors' Inner Circle Fund, The Pillar Funds,
CUFUND, STI Classic Funds, First American Funds, Inc., First American Investment
Funds, Inc., The Arbor Fund, Boston 1784 Funds, The PBHG Funds, Inc., The
Achievement Funds Trust, Bishop Street Funds, CrestFunds, Inc., STI Classic
Variable Trust, Huntington Funds, SEI Asset Allocation Trust, TIP Funds, SEI
Institutional Investments Trust, First American Strategy Funds, Inc., HighMark
Funds, Armada Funds, PBHG Insurance Series Fund, Inc., Expedition Funds, Alpha
Select Funds, Oak Associates Funds, The Nevis Fund, Inc., The Parkstone Group of
Funds, CNI Charter Funds, The Armada Advantage Funds, Amerindo Funds Inc.,
Huntington VA Funds, and Friends Ivory Funds.

For the fiscal year ended April 30, 1999, the administration fee payable
to the Administrator with respect to the Income Portfolio was $452,006; with
respect to the Small-

43
<PAGE> 89
Cap Equity Portfolio was $36,029; and with respect to the International Equity
Selection Portfolio was $46,584.

For the fiscal year ended April 30, 1998, the administration fee payable
to the Administrator with respect to the Income Portfolio was $364,951; with
respect to the Small-Cap Equity Portfolio (formerly Special Equity Portfolio)
was $31,575; and with respect to the International Equity Selection Portfolio
was $4,627 (an additional $10,640 was paid to Federated).

For the fiscal year ended April 30, 1997, the administration fee payable
to the Administrator with respect to the Income Portfolio was $277,052; and with
respect to the Small-Cap Equity Portfolio was $32,496. The International Equity
Selection Portfolio commenced operations in April 1997, and thus paid no
administration fees as of April 30, 1997.

The administration agreement permits the Administrator to subcontract
its services thereunder, provided that the Administrator will not be relieved of
its obligations under the agreement by the appointment of a subcontractor and
the Administrator shall be responsible to the Fund for all acts of the
subcontractor as if such acts were its own, except for losses suffered by any
Portfolio resulting from willful misfeasance, bad faith or gross negligence by
the subcontractor in the performance of its duties or for reckless disregard by
it of its obligations and duties. Pursuant to a sub-administration agreement
between the Administrator and Allfirst Trust, Allfirst Trust performs services
which may include clerical, bookkeeping, accounting, stenographic, and
administrative services, for which it receives a fee, paid by the Administrator,
at the annual rate of up to 0.0275% of aggregate average net assets. For the
fiscal year ended April 30, 1998, the Administrator paid a sub-administration
fee to Allfirst Trust of $429,472.47. For the fiscal year ended April 30, 1999,
the Administrator paid a sub-administration fee to Allfirst Trust of $1,492,171.

DISTRIBUTOR

SEI Investments Distribution Co. (formerly SEI Financial Services
Company) serves as the distributor (the "Distributor") of the Fund. The
Distributor offers shares continuously and has agreed to use its best efforts to
solicit purchase orders.

DISTRIBUTION PLANS

44
<PAGE> 90

The Board of Trustees has adopted distribution plans (the "Plans")
pursuant to Rule 12b-1 under the 1940 Act (the "Rule") on behalf of the Retail
Class A of each Portfolio. The Plans allow the Portfolios to pay the Distributor
a distribution fee at the annual rate of up to 0.75% of the average net assets
of such class, or such lesser amount as approved from time to time by the Board.
These fees may be used to pay expenses associated with the promotion and
administration of activities primarily intended to result in the sale of shares
of the Portfolios, including, but not limited to: advertising the availability
of services and products; designing material to send to customers and developing
methods of making such materials accessible to customers; providing information
about the product needs of customers; providing facilities to solicit sales and
to answer questions from prospective and existing investors about the
Portfolios; receiving and answering correspondence from prospective investors,
including requests for sales literature, prospectuses and statements of
additional information; displaying and making sales literature and prospectuses
available; acting as liaison between shareholders and the Portfolios, including
obtaining information from the Portfolios regarding the Portfolios and providing
performance and other information about the Portfolios; and providing additional
distribution-related services.

The Plans have been approved by the Board of Trustees, including the
majority of disinterested trustees, and where approved by the initial sole
shareholder of the classes. As required by the Rule, the Board considered all
pertinent factors relating to the implementation of each of the Plans prior to
its approval, and the trustees have determined that there is a reasonable
likelihood that the Plans will benefit the classes and their respective
shareholders. To the extent that the Plans provide greater flexibility in
connection with the distribution of shares of the Portfolios, additional sales
may result.

The Board has approved distribution fees based on the following
percentages of the average daily net assets of the Retail Class A: 0.30% for the
Income Portfolio; and 0.40% for the Small-Cap Equity Portfolio, International
Equity Selection Portfolio, International Equity Portfolio and Emerging Markets
Equity Portfolio. For the fiscal year ended April 30, 1999, the Retail Class A
of the Portfolios paid distribution fees in the following amounts: $19,710 for
the Income Portfolio, $4,724 for the Small-Cap Equity Portfolio, and $2,970 for
the International Equity Selection Portfolio. As of the date of this Statement
of Additional Information, the International Equity Portfolio and the Emerging
Markets Equity Portfolio have not yet commenced operations and have paid no
distribution fees.

As of the date of this Statement of Additional Information, all
distribution fees received by the Distributor under the Plans are paid to
qualified securities brokers or financial institutions or other investment
professionals in respect of their share accounts. The Plans are a compensation
plan because the Distributor is paid a fixed fee and is given discretion
concerning what expenses are payable under the Plans. The Distributor may spend
more for marketing and distribution than it receives in fees. However, to the
extent fees received exceed expenses, including indirect expenses such as
overhead, the Distributor could be said to have received a profit. For example,
if the Distributor pays $1 for distribution-related expenses and receives $2
under the Plan, the $1 difference could be said to be a profit for the
Distributor. If, after payments by the Distributor for marketing and
distribution, there are any

45
<PAGE> 91
remaining fees which have been paid under the Plan, they may be used as the
Distributor may elect. Since the amounts payable under the Plan are commingled
with the Distributor's general funds, including the revenues it receives in the
conduct of its business, it is possible that certain of the Distributor's
overhead expenses will be paid out of distribution fees and that these expenses
may include the costs of leases, depreciation, communications, salaries,
training and supplies.

SHAREHOLDER SERVICES PLANS

The Board of Trustees has adopted shareholder services plans on behalf
of the Retail Class A and Institutional Class of the Portfolios to compensate
qualified recipients for individual shareholder services and account
maintenance. These functions include, but are not limited to, answering
shareholder questions and handling correspondence, assisting customers, and
account record keeping and maintenance. For these services the participating
qualified recipients are paid a service fee at the annual rate of up to 0.25% of
average net assets of Retail Class A of each Portfolio or such lesser amount as
may be approved by the Board and 0.15% of average net assets of the
Institutional Class of each Portfolio or such lesser amounts as may be approved
by the Board of Trustees.

For the fiscal year ended April 30, 1999, Institutional Class of the
Income Portfolio, Small-Cap Equity Portfolio and International Equity Selection
Portfolio paid shareholder servicing fees of $272,899, $22,948 and $27,969,
respectively.

For the fiscal year ended April 30, 1998, the Institutional Class of the
Income Portfolio, Small-Cap Equity Portfolio and International Equity Selection
Portfolio paid shareholder servicing fees of $61,137, $4,891, $2,135,
respectively.

TRANSFER AGENT

The Fund has a Transfer Agency and Services Agreement dated November 1,
1995, with SEI Investments Management Corporation. SEI Investments Management
Corporation has subcontracted transfer agency services to State Street Bank and
Trust Company ("State Street Bank"). State Street Bank maintains an account for
each shareholder, provides tax reporting for each Portfolio, performs other
transfer agency functions and acts as dividend disbursing agent for each
Portfolio.

46
<PAGE> 92
DESCRIPTION OF THE FUND

TRUST ORGANIZATION

The U.S. Treasury Money Market Portfolio, U.S. Government Money Market
Portfolio, Money Market Portfolio, Tax-Free Money Market Portfolio, Pennsylvania
Tax-Free Money Market Portfolio, Short-Term Treasury Portfolio, Short-Term Bond
Portfolio, Maryland Tax-Free Portfolio, Pennsylvania Tax-Free Portfolio,
Intermediate Fixed Income Portfolio, U.S. Government Bond Portfolio, Income
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, International Equity
Selection Portfolio, International Equity Portfolio and Emerging Markets Equity
Portfolio are series of ARK Funds, an open-end management investment company
organized as a Massachusetts business trust by a Declaration of Trust dated
October 22, 1992, and amended and restated on March 19, 1993. A supplement to
the Declaration of Trust was executed and filed on March 23, 1993. The
Declaration of Trust permits the Board to create additional series and classes
of shares.

In the event that an affiliate of Allied Irish Banks, p.l.c. ceases to
be the investment advisor to the Portfolios, the right of the Fund and Portfolio
to use the identifying name "ARK" may be withdrawn.

The assets of the Fund received for the issue or sale of shares of a
Portfolio and all income, earnings, profits and proceeds thereof are allocated
to the Portfolio and constitute the underlying assets thereof. The underlying
assets of a Portfolio are segregated on the books of account and are charged
with the liabilities with respect to the Portfolio and with a share of the
general expenses of the Fund. General expenses of the Fund are allocated in
proportion to the asset value of the respective Portfolios, except where
allocations of direct expense can otherwise fairly be made. The officers of the
Fund, subject to the general supervision of the Board of Trustees, have the
power to determine which expenses are allocable to a given Portfolio, or which
are general or allocable to all of the Portfolios. In the event of the
dissolution or liquidation of the Fund, shareholders of a Portfolio are entitled
to receive as a class the underlying assets of the Portfolio available for
distribution.

SHAREHOLDER AND TRUSTEE LIABILITY

The Fund is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable for the obligations
of the trust. The Declaration of Trust provides that the Fund shall not have any
claim against shareholders, except for the payment of the purchase price of
shares, and requires that each agreement, obligation or instrument entered into
or executed by the Fund or the trustees shall include a provision limiting the
obligations created thereby to the Fund and its assets. The Declaration of Trust
provides for indemnification out of a Portfolio's property of any shareholders
of the Portfolio held personally liable for the obligations of the Portfolio.
The Declaration of Trust also

47
<PAGE> 93
provides that a Portfolio shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Portfolio and
satisfy any judgment thereon. Thus, the risk of a shareholder incurring
financial loss because of shareholder liability is limited to circumstances in
which the Portfolio itself would be unable to meet its obligations. In view of
the above, the risk of personal liability to shareholders is remote.

The Declaration of Trust further provides that the trustees, if they
have exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects a trustee against
any liability to which he or she would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his or her office.

Shares of a Portfolio of any class are fully paid and non-assessable,
except as set forth under the heading "Shareholder and Trustee Liability" above.
Shareholders may, as set forth in the Declaration of Trust, call meetings for
any purpose related to the Fund, a Portfolio or a class, respectively, including
in the case of a meeting of the entire Fund, the purpose of voting on removal of
one or more trustees. The Fund or any Portfolio may be terminated upon the sale
of its assets to another open-end management investment company, or upon
liquidation and distribution of its assets, if approved by vote of the holders
of a majority of the outstanding shares of the Fund or the Portfolio. If not so
terminated, the Fund and the Portfolios will continue indefinitely.

SHARE OWNERSHIP

As of April _______, 2000, the officers and trustees of the Fund owned
less than 1% of the outstanding shares of any Portfolio and the following
persons owned beneficially more than 5% of the outstanding shares of the
Portfolios and classes indicated. Unless otherwise indicated the address as of
July 30, 1999 for the 5% shareholders listed below is: c/o Allfirst Bank, 110
South Paca Street, Baltimore, Maryland 21201.

INCOME PORTFOLIO

SMALL-CAP EQUITY PORTFOLIO

INTERNATIONAL EQUITY SELECTION PORTFOLIO

A shareholder owning beneficially more than 25% of a particular
Portfolio's shares may be considered to be a "controlling person" of that
Portfolio. Accordingly, its vote could have a more significant effect on matters
presented at shareholder meetings than the votes of

48
<PAGE> 94
the Portfolio's other shareholders. Allfirst Bank or its affiliates, however,
may receive voting instructions from certain underlying customer accounts and
will vote the shares in accordance with those instructions. In the absence of
such instructions, Allfirst Bank or its affiliates will vote those shares in the
same proportion as it votes the shares for which it has received instructions
from its customers and fiduciary accounts.

CUSTODIAN

Allfirst Trust, 25 South Charles Street, Baltimore, Maryland 21201,
serves as custodian for the Portfolios. Under the custody agreement with the
Fund, Allfirst Trust holds the Fund's portfolio securities in safekeeping and
keeps all necessary records and documents relating to its duties. For the
services provided to the Fund pursuant to the custody agreement, the Fund pays
Allfirst Trust a monthly fee at the annual rate of 0.015% of the average net
assets of the Portfolios. Allfirst Trust also charges the Fund transaction
handling fees ranging from $5 to $75 per transaction and receives reimbursement
for out-of-pocket expenses. Foreign securities purchased by the Portfolios are
held by foreign banks participating in a network coordinated by Bankers Trust,
which serves as sub-custodian for the Portfolios holding foreign securities. All
expenses incurred through this network are paid by the Portfolios holding
foreign securities.

INDEPENDENT AUDITORS

KPMG LLP, located at 99 High Street, Boston, Massachusetts 02110, are
the Fund's independent auditors, providing audit services and consultation in
connection with the review of various Securities and Exchange Commission
filings.

FINANCIAL STATEMENTS

The Portfolios' financial statements and financial highlights for the
fiscal year ended April 30, 1999 and for the six months ended October 31, 1999
are included in the Annual Report and the Semi-Annual Report, respectively,
which are supplied with this Statement of Additional Information. The
Portfolios' financial statements and financial highlights are incorporated
herein by reference.

49
<PAGE> 95
Part C - Other Information Item

Item 23. Exhibits

(a) (1) Declaration of Trust dated October 22, 1992 is incorporated
by reference to Exhibit 1 to the Registration Statement.

(2) Amended and Restated Declaration of Trust dated March 19,
1993 is incorporated by reference to Exhibit 1(b) to
Pre-Effective Amendment No. 2.

(3) Supplement dated March 23, 1993 to the Amended and Restated
Declaration of Trust dated March 19, 1993 is incorporated by
reference to Exhibit 1(c) to Pre-Effective Amendment No. 2.

(b) By-Laws of the Registrant are incorporated by reference to
Exhibit 1(d) to Pre-Effective Amendment No. 2.

(d) (1) Investment Advisory Agreement dated February 12, 1998,
between the Registrant and Allied Investment Advisors, Inc. is
incorporated herein by reference to Exhibit 5(b) to
Post-Effective Amendment No. 17.

(2) Investment Subadvisory Agreement.*

(e) (1) Distribution Agreement dated November 1, 1995, between the
Registrant and SEI Investments Distribution Co. is incorporated
herein by reference to Exhibit 6(a) to Post-Effective Amendment
No. 6.

(2) Administration Agreement dated November 1, 1995, between the
Registrant and SEI Investments Mutual Fund Services is
incorporated herein by reference to Exhibit 6(b) to
Post-Effective Amendment No. 6.

(f) Not applicable.

(g) (1) Custody Agreement dated April 1, 1997, between the
Registrant and Allfirst Trust Company, National Association, is
incorporated herein by reference to Exhibit 8(a) to
Post-Effective Amendment No. 17.

(2) Subcustody Agreement.*

(h) (1) Transfer Agency and Service Agreement dated November 1,
1995, between the Registrant and SEI Investments Mutual Fund
Services is incorporated herein by reference to Exhibit 9 to
Post-Effective Amendment No. 6.

(2) Sub-Administration Agreement dated January 1, 1998, between
SEI Investments Management Corporation and Allfirst Trust
Company, National Association, is incorporated herein by
reference to Exhibit 9(b) to Post-Effective Amendment No. 17.

(i) Opinion and consent of legal counsel (filed herewith).
<PAGE> 96
(j) Consent of independent auditors (filed herewith).

(k) Not applicable.

(l) Not applicable.

(m) (1) Distribution and Shareholder Services Plan with respect to
Retail Class A Shares is incorporated by reference to Exhibit
(m)(1) to Post-Effective Amendment No. 21.

(2) Shareholder Services Plan for Institutional Class Shares is
incorporated by reference to Exhibit (m)(2) to Post-Effective
Amendment No. 21.

(n) Amended and Restated Rule 18f-3 Plan is incorporated by
reference to Exhibit (o) to Post-Effective Amendment No. 25.

(o) Reserved.

(p) (1) Fund Code of Ethics is incorporated by reference to Exhibit
(p) (1) to Post-Effective Amendment No. 25.

(2) SEI Investments Code of Ethics and Insider Trading Policy is
incorporated by reference to Exhibit (p)(2) to Post-Effective
Amendment No. 25.
.
- --------------------
*To be filed by amendment.

Item 24. Persons Controlled by or Under Common Control with Registrant

None.

Item 25. Indemnification

Article XI, Section 2 of the Declaration of Trust sets forth the
reasonable and fair means for determining whether indemnification shall be
provided to any past or present trustee or officer. It states that the
Registrant shall indemnify any present or past trustee or officer to the fullest
extent permitted by law against liability and all expenses reasonably incurred
by him in connection with any claim, action, suit or proceeding in which he is
involved by virtue of his service as a trustee, an officer, or both.
Additionally, amounts paid or incurred in settlement of such matters are covered
by this indemnification. Indemnification will not be provided in certain
circumstances, however. These include instances of willful misfeasance, bad
faith, gross negligence, and reckless disregard of the duties involved in the
conduct of the particular office involved. Insofar as indemnification for
liability arising under the Securities Act of 1933 may be permitted to trustees,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, officer or controlling person
in connection with the securities being registered,
<PAGE> 97
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

Item 26. Business and Other Connections of Investment Adviser

Allied Investment Advisors, Inc. ("AIA") serves as investment adviser to
all Portfolios of the Registrant. A description of the directors and officers of
AIA and other required information is included in the Form ADV and schedules
thereto of AIA, as amended, on file with the Securities and Exchange Commission
(File No. 801-50883) and is incorporated herein by reference.

AIB Govett, Inc. ("AIB Govett") serves as investment subadviser to the
International Equity Selection Portfolio, as revised or alternatively to the
International Equity Portfolio and Emerging Markets Equity Portfolio. A
description of the directors and officers of AIB Govett, and other required
information, is included in AIB Govett's Form ADV and schedules thereto, as
amended, which is on file at the SEC (File No. 801-54821). AIB Govett's Form
ADV, as amended, is incorporated herein by reference.

Item 27. Principal Underwriters

(a) SEI Investments Distribution Co. (the "Distributor") acts as
distributor for the Registrant. The Distributor also acts as distributor for:

<TABLE>
<S> <C>
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI Institutional International Trust August 30, 1988
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
Boston 1784 Funds June 1, 1993
The PBHG Funds, Inc. July 16, 1993
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
STI Classic Variable Trust August 18, 1995
Huntington Funds January 11, 1996
SEI Asset Allocation Trust April 1, 1996
TIP Funds April 28, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
HighMark Funds February 15, 1997
Armada Funds March 8, 1997
PBHG Insurance Series Fund, Inc. April 1, 1997
</TABLE>
<PAGE> 98
<TABLE>
<S> <C>
The Expedition Funds June 9, 1997
Alpha Select Funds January 1, 1998
Oak Associates Funds February 27, 1998
The Nevis Fund, Inc. June 29, 1998
The Parkstone Group of Funds September 14, 1998
CNI Charter Funds April 1, 1999
The Armada Advantage Funds May 1, 1999
Amerindo Funds, Inc. July 13, 1999
Huntington VA Funds October 15, 1999
SEI Insurance Products Trust March 29, 1999
Friends Ivory Funds December 16, 1999
</TABLE>

The Distributor provides numerous financial services to investment managers,
pension plan sponsors and bank trust departments. These services include
portfolio evaluation, performance measurement and consulting services ("Funds
Evaluation") and automated execution, clearing and settlement of securities
transactions ("MarketLink").

(b) Directors, officers and partners of SEI Investments Distribution Co.
are as follows:

<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH
ADDRESS * UNDERWRITER REGISTRANT
--------- ----------- ----------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman of the
Board of Directors
Richard B. Lieb Director and Executive Vice
President
Carmen V. Romeo Director
Mark J. Held President and Chief Operating
Officer
Gilbert L. Beebower Executive Vice President
Dennis J. McGonigle Executive Vice President
Robert M. Silvestri Chief Financial Officer and
Treasurer
Leo J. Dolan, Jr. Senior Vice President
Carl A. Guarino Senior Vice President
Larry Hutchinson Senior Vice President
Jack May Senior Vice President
Hartland J. McKeown Senior Vice President
Kevin P. Robins Senior Vice President Vice President and Assistant
Secretary
Patrick K. Walsh Senior Vice President
Robert Crudup Vice President and Managing
Director
Barbara Doyne Vice President
Vic Galef Vice President and Managing
Director
Kim Kirk Vice President and Managing
Director
John Krzeminski Vice President and Managing
Director
</TABLE>
<PAGE> 99
<TABLE>
<S> <C> <C>
Carolyn McLaurin Vice President and Managing
Director
Lori White Vice President and Assistant
Secretary
Wayne M. Withrow Vice President
Robert Aller Vice President
Todd Cipperman Senior Vice President and Vice President and Assistant
General Counsel Secretary
S. Courtney E. Collier Vice President and Assistant
Secretary
Richard A. Deak Vice President and Assistant
Secretary
Jeff Drennen Vice President
James R. Foggo Vice President and Assistant Vice President and Assistant
Secretary Secretary
Lydia A. Gavalis Vice President and Assistant Vice President and Assistant
Secretary Secretary
Greg Gettinger Vice President
Kathy Heilig Vice President
Jeff Jacobs Vice President
Samuel King Vice President
Mark Nagle Vice President
Joanne Nelson Vice President
Timothy D. Barto Vice President and Assistant Vice President and Assistant
Secretary Secretary
Christine M. McCullough Vice President and Assistant Vice President and Assistant
Secretary Secretary
Cynthia M. Parrish Vice President and Secretary
Robert Redican Vice President
Maria Rinehart Vice President
Steve Smith Vice President
Kathryn L. Stanton Vice President
Lynda J. Striegel Vice President and Assistant
Secretary
Daniel Spaventa Vice President
</TABLE>

- ----------------------
* 1 Freedom Valley Drive, Oaks, PA 19456

Item 28. Location of Accounts and Records

The Registrant maintains the records required by Section 31(a) of the Investment
Company Act of 1940 and Rules 31a-1 to 31a-3 inclusive thereunder at its
principal office located at One Freedom Valley Drive, Oaks, PA 19456. Certain
records, including records relating to the Registrant's shareholders, may be
maintained pursuant to Rule 31a-3 at the offices of the Registrant's investment
adviser, Allied Investment Advisors, Inc., located at 100 E. Pratt Street,
Baltimore, MD 21202; its sub-adviser, AIB Govett, Inc., located at 250
Montgomery Street, Suite 1200, San Francisco, CA 94104; and its transfer agent,
SEI Investments Mutual Fund Services, located at One Freedom Valley Drive, Oaks,
PA. 19456.
<PAGE> 100
Certain records relating to the physical possession of the Registrant's
securities may be maintained at the offices of the Registrant's custodian,
Allfirst Trust Company, N.A., located at 25 S. Charles Street, Baltimore, MD
21201.

Item 29. Management Services

(a) Not applicable.

Item 30. Undertakings

(a) Not applicable.
<PAGE> 101
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant duly caused this Post-Effective
Amendment No. 26 to be signed on its behalf by the undersigned, hereunto duly
authorized, in the City of Baltimore, and State of Maryland, on the 19th day of
May, 2000.

ARK FUNDS

By: /s/ Richard A. Gold
-------------------
Richard A. Gold
President

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 26 to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.

<TABLE>
<S> <C> <C>
/s/ Richard A. Gold President (principal May 19, 2000
- --------------------------- executive officer)
Richard A. Gold

/s/ James F. Volk Treasurer, Controller and May 19, 2000
- --------------------------- Chief Financial Officer
James F. Volk
Trustee
*
- ---------------------------
William H. Cowie

Trustee
*
- ---------------------------
David D. Downes

Trustee
*
- ---------------------------
Charlotte R. Kerr

Trustee
*
- ---------------------------
Thomas Schweizer

Trustee
*
- ---------------------------
Richard B. Seidel

* By: /s/ Alan C. Porter May 19, 2000
--------------------
Alan C. Porter
Attorney-in-Fact
</TABLE>

An original power-of-attorney authorizing Alan C. Porter to execute amendments
to this Registration Statement for each trustee of the Registrant on whose
behalf this amendment to the Registration Statement is filed has been executed
and filed with the Securities and Exchange Commission.
<PAGE> 102
EXHIBIT INDEX

(a) (1) Declaration of Trust 1/

(2) Amended and Restated Declaration of Trust 2/

(3) Supplement dated March 23, 1993 to the Amended and Restated
Declaration of Trust dated March 19, 1993 2/

(b) By-Laws 2/

(d) (1) Investment Advisory Agreement between the Registrant and
Allied Investment Advisors, Inc. dated February 12, 1998 4/

(2) Investment Subadvisory Agreement (to be filed)

(e) (1) Distribution Agreement between the Registrant and SEI
Investments Distribution Co. dated November 1, 1995 3/

(2) Administration Agreement between the Registrant and SEI
Investments Mutual Fund Services dated November 1, 1995 3/

(f) Bonus or Profit Sharing Contracts- Not applicable

(g) (1) Custody Agreement between the Registrant and Allfirst
Trust Company, National Association dated April 1, 1997 4/

(2) Subcustody Agreement (to be filed)

(h) (1) Transfer Agency and Service Agreement between the Registrant
and SEI Investments Mutual Fund Services dated
November 1, 1995 3/

(2) Sub-Administration Agreement between SEI Investments
Management Corporation and Allfirst Trust Company, National
Association dated January 1, 1998 4/

(i) Opinion and consent of legal counsel (filed herewith)

(j) Consent of independent auditors (filed herewith)

(k) Omitted Financial Statements- Not applicable

(l) Initial Capital Agreements- Not applicable

(m) (1) Distribution and Shareholder Services Plan with respect to
Retail Class A Shares 5/

(2) Shareholder Services Plan for Institutional Class Shares 5/

(n) Amended and Restated Rule 18f-3 Plan 6/

(o) Reserved.

<PAGE> 103

(p) (1) Fund Code of Ethics 6/

(2) SEI Investments Code of Ethics and Insider Trading Policy 6/

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

1/ Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement of the Trust on Form N-1A as filed with the SEC
on February 12, 1993.

2/ Incorporated by reference to Pre-Effective Amendment No. 2 to the
Registration Statement of the Trust on Form N-1A as filed with the SEC
on May 4, 1993.

3/ Incorporated by reference to Post-Effective Amendment No. 6 to the
Registration Statement of the Trust on Form N-1A as filed with the SEC
on December 12, 1995.

4/ Incorporated by reference to Post-Effective Amendment No. 17 to the
Registration Statement of the Trust on Form N-1A as filed with the SEC
on February 6, 1998.

5/ Incorporated by reference to Post-Effective Amendment No. 21 to the
Registration Statement of the Trust on Form N-1A as filed with the SEC
on June 29, 1999.

6/ Incorporated by reference to Post-Effective Amendment No. 25 to the
Registration Statement of the Trust on Form N-1A as filed with the SEC
on April 13, 2000.

<PAGE> 1

[KIRKPATRICK & LOCKHART LETTERHEAD]

May 19, 2000

ARK Funds
One Freedom Valley Drive
Oaks, PA 19456

Re: Registration Statement on Form N-1A

Ladies and Gentlemen:

We have acted as Massachusetts counsel for ARK Funds, a Massachusetts
business trust (the "Trust"), in connection with the filing with the Securities
and Exchange Commission of Post-Effective Amendment No. 26 to the Trust's
Registration Statement on Form N-1A (File No. 33-53690; 811-7310) (the
"Post-Effective Amendment"), registering an indefinite number of shares of the
Trust's International Equity Portfolio and Emerging Markets Equity Portfolio
series (the "Series") under the Securities Act of 1933, as amended (the "1933
Act").

In our capacity as Massachusetts counsel for the Trust, we have
examined the Trust's Declaration of Trust as Amended and Restated March 19,
1993, and as further amended (the "Declaration of Trust"), and By-Laws, the
Post-Effective Amendment, the corporate action of the Trust which provides for
the issuance of the shares of the Series, and such other documents and matters
as we have deemed necessary or appropriate for purposes of this opinion. We have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us, the conformity to original documents of all documents presented
to us as copies thereof and the authenticity of the original documents from
which any such copies were made, which assumptions we have not independently
verified. As to various matters of fact material to this opinion, we have relied
upon statements and certificates of officers of the Trust.

Based upon and subject to the foregoing, we are of the opinion that,
except as described herein, the shares of the Series to be issued pursuant to
the Post-Effective Amendment have been duly authorized for issuance and, when
issued and paid for upon the terms provided in the Post-Effective Amendment,
subject to compliance with the 1933 Act, the Investment Company Act of 1940, as
amended, and applicable state law regulating the offer and sale of securities,
will be legally issued, fully paid, and non-assessable.

In connection with our opinion expressed above that the shares of the
Series will be non-assessable, we note that the Trust is an entity of the type
commonly known as a "Massachusetts
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[KIRKPATRICK & LOCKHART LETTERHEAD]

ARK Funds
May 19, 2000
Page 2

business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust. The
Declaration of Trust states that all persons extending credit to, contracting
with or having any claim against the Trust or the Trustees shall look only to
the assets of the appropriate Series for payment under such credit, contract or
claim; and neither the shareholders nor the Trustees, nor any of their agents,
whether past, present or future, shall be personally liable therefor. The
Declaration of Trust also requires that every note, bond, contract or other
undertaking issued by or on behalf of the Trust or the Trustees relating to the
Trust shall include a recitation limiting the obligation represented thereby to
the Trust, or Series, and its assets (but the omission of such recitation shall
not operate to bind any shareholder). The Declaration of Trust further provides:
(1) for indemnification from the assets of the applicable Series for all loss
and expense of any shareholder or former shareholder held personally liable
solely by reason of his being or having been a shareholder; and (2) for a Series
to assume, upon request by the shareholder, the defense of any claim made
against the shareholder for any act or obligation of the Series and satisfy any
judgment thereon. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the Trust
or Series would be unable to meet its obligations.

We hereby consent to the filing of this opinion as an exhibit to the
Trust's Registration Statement and to the reference to our firm and the opinions
set forth herein in the Registration Statement. In giving our consent we do not
thereby admit that we are in the category of persons whose consent in required
under Section 7 of the 1933 Act or the rules and regulations of the Securities
and Exchange Commission thereunder.

Very truly yours,

/s/ Kirkpatrick & Lockhart LLP
------------------------------
Kirkpatrick & Lockhart LLP

<PAGE> 1

CONSENT OF INDEPENDENT AUDITORS

The Trustees and Shareholders
ARK Funds

We consent to the use of our report dated May 28, 1999, incorporated herein by
reference and to the references to our Firm under the headings "Independent
Auditors" in the statement of additional information and "Financial Highlights"
and "Independent Auditors" in the Institutional Class and Retail Class A
prospectus.

/s/ KPMG LLP

Boston, Massachusetts
May 19, 2000