AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 31, 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. 29 /X/
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 27 /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)
/x/ ON SEPTEMBER 1, 2000 PURSUANT TO PARAGRAPH (b)
// 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>
[Logo Omitted] ARK FUNDS
RETAIL
CLASS A AND CLASS B
PROSPECTUS
SEPTEMBER 1, 2000
U.S. TREASURY MONEY MARKET PORTFOLIO
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
MONEY MARKET PORTFOLIO
TAX-FREE MONEY MARKET PORTFOLIO
SHORT-TERM TREASURY 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 PORTFOLIO
(FORMERLY INTERNATIONAL EQUITY SELECTION PORTFOLIO)
EMERGING MARKETS EQUITY PORTFOLIO
<PAGE>
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 Class B Shares of the Portfolios that you should
know before investing. Please read this prospectus and keep it for future
reference.
Class A and Class B Shares have different expenses and other characteristics,
allowing you to choose the class that best suits your needs. You should consider
the amount you want to invest, how long you plan to have it invested, and
whether you plan to make additional investments.
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:
PAGE
U.S. TREASURY MONEY MARKET PORTFOLIO......................................... 2
--------------------------------------------------------------------------------
U.S. GOVERNMENT MONEY MARKET PORTFOLIO....................................... 4
--------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO....................................................... 6
--------------------------------------------------------------------------------
TAX-FREE MONEY MARKET PORTFOLIO.............................................. 8
--------------------------------------------------------------------------------
SHORT-TERM TREASURY PORTFOLIO................................................ 10
--------------------------------------------------------------------------------
MARYLAND TAX-FREE PORTFOLIO.................................................. 12
--------------------------------------------------------------------------------
PENNSYLVANIA TAX-FREE PORTFOLIO............................................. 16
--------------------------------------------------------------------------------
INTERMEDIATE FIXED INCOME PORTFOLIO.......................................... 20
--------------------------------------------------------------------------------
U.S. GOVERNMENT BOND PORTFOLIO............................................... 24
--------------------------------------------------------------------------------
INCOME PORTFOLIO............................................................. 28
--------------------------------------------------------------------------------
BALANCED PORTFOLIO........................................................... 32
--------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO...................................................... 36
--------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO....................................................... 38
--------------------------------------------------------------------------------
EQUITY INDEX PORTFOLIO....................................................... 42
--------------------------------------------------------------------------------
BLUE CHIP EQUITY PORTFOLIO................................................... 44
--------------------------------------------------------------------------------
CAPITAL GROWTH PORTFOLIO..................................................... 48
--------------------------------------------------------------------------------
MID-CAP EQUITY PORTFOLIO..................................................... 52
--------------------------------------------------------------------------------
SMALL-CAP EQUITY PORTFOLIO................................................... 54
--------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
(FORMERLY INTERNATIONAL EQUITY SELECTION PORTFOLIO)..................... 58
--------------------------------------------------------------------------------
EMERGING MARKETS EQUITY PORTFOLIO............................................ 62
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT PRINCIPAL RISK.................................. 66
--------------------------------------------------------------------------------
EACH PORTFOLIO'S OTHER INVESTMENTS........................................... 69
--------------------------------------------------------------------------------
INVESTMENT ADVISOR........................................................... 70
--------------------------------------------------------------------------------
PURCHASING, SELLING, EXCHANGING AND DISTRIBUTION OF
PORTFOLIO SHARES.......................................................... 73
--------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS.................................................. 82
--------------------------------------------------------------------------------
TAXES........................................................................ 83
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS......................................................... 84
--------------------------------------------------------------------------------
HOW TO OBTAIN MORE INFORMATION ABOUT ARK FUNDS.................Inside Back Cover
--------------------------------------------------------------------------------
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 CRIMINAL OFFENSE.
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 he or
she 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 (other than a money market fund
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.
THE U.S. TREASURY MONEY MARKET PORTFOLIO, U.S. GOVERNMENT MONEY MARKET
PORTFOLIO, MONEY MARKET PORTFOLIO AND TAX-FREE MONEY MARKET PORTFOLIO TRY TO
MAINTAIN A CONSTANT PRICE PER SHARE OF $1.00, BUT THERE IS NO GUARANTEE THAT
THESE PORTFOLIOS WILL ACHIEVE THIS GOAL. PLEASE CALL 1-800-ARK-FUND
(1-800-275-3863) TO OBTAIN CURRENT 7-DAY YIELD INFORMATION FOR THESE PORTFOLIOS.
<PAGE>
ARK U.S. TREASURY MONEY MARKET PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Maximizing current income and providing liquidity and security of principal
INVESTMENT FOCUS
Short-term U.S. Treasury securities
SHARE PRICE VOLATILITY
Very low
PRINCIPAL INVESTMENT STRATEGY
Investing in U.S. Treasury obligations
INVESTOR PROFILE
Conservative investors seeking current income through a low-risk, liquid
investment
PRINCIPAL INVESTMENT STRATEGY OF THE U.S. TREASURY
MONEY MARKET PORTFOLIO
The U.S. Treasury Money Market Portfolio seeks its investment goal by
investing exclusively in U.S. Treasury obligations.
In selecting securities for the Portfolio, the Advisor considers factors
such as current yield, the anticipated level of interest rates, and the
maturity of the instrument relative to the maturity of the entire
Portfolio. In addition, the Portfolio may only purchase securities that
meet certain SEC requirements relating to maturity, diversification and
credit quality. Under these requirements, the Portfolio's securities must
have remaining maturities of 397 days or less, and the Portfolio must have
a dollar-weighted average maturity of 90 days or less.
PRINCIPAL RISKS OF INVESTING IN THE U.S. TREASURY
MONEY MARKET PORTFOLIO
An investment in the Portfolio is subject to income risk, which is the
possibility that the Portfolio's yield will decline due to falling
interest rates. A Portfolio share is not a bank deposit and is not insured
or guaranteed by the FDIC or any government agency. In addition, although
a money market fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the
Portfolio.
The Portfolio's U.S. Treasury securities are not guaranteed against price
movements due to changing interest rates.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Class A
Shares for each year for four calendar years.
[GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS"
1996 4.77%
1997 4.77%
1998 4.55%
1999 4.17%
--------------------------------------------------------------------------------
BEST QUARTER 1.20% (3/31/96)
--------------------------------------------------------------------------------
WORST QUARTER 0.98% (3/31/99)
--------------------------------------------------------------------------------
For the period from January 1, 2000, to June 30, 2000, the Portfolio's
Class A total return was 2.51%.
This table compares the Portfolio's average annual total returns for the
periods ended December 31, 1999, to those of the iMoneyNet, Inc. 100%
U.S. Treasury Average.
CLASS A SHARES 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
U.S. Treasury Money
Market Portfolio 4.17% 4.58%*
--------------------------------------------------------------------------------
IBC/Financial Data 100%
U.S. Treasury Average 4.20% 4.58%**
--------------------------------------------------------------------------------
* SINCE DECEMBER 15, 1995.
** SINCE NOVEMBER 30, 1995.
2 PROSPECTUS
<PAGE>
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)
--------------------------------------------------------------------------------
CLASS A
SHARES
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions
(as a percentage of offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None(1)
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
CLASS A
SHARES
--------------------------------------------------------------------------------
Investment Advisory Fees 0.25%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25%
--------------------------------------------------------------------------------
Other Expenses 0.33%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 0.83%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.12%
--------------------------------------------------------------------------------
TOTAL NET OPERATING EXPENSES 0.71%(2)
--------------------------------------------------------------------------------
(1)IF REDEMPTION PROCEEDS ARE WIRED TO A BANK ACCOUNT, A $10 FEE IS
APPLICABLE.
(2)THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND
REIMBURSE EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM
EXCEEDING 0.71% UNTIL AUGUST 31, 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 WAIVER, 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 WERE AS
FOLLOWS:
U.S. TREASURY MONEY MARKET PORTFOLIO - CLASS A SHARES 0.68%
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISOR" AND
"PURCHASING, SELLING, EXCHANGING 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 and that you sell your shares at the end of the period.
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$73 $253 $449 $1,014
--------------------------------------------------------------------------------
WHAT IS AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with
a particular investment objective. You cannot invest directly in an average.
The iMoneyNet, Inc. 100% U.S. Treasury Average is a composite of money
market mutual funds with investment goals similar to the Portfolio's goals.
PROSPECTUS 3
<PAGE>
ARK U.S. GOVERNMENT MONEY MARKET PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Maximizing current income and providing liquidity and security of principal
INVESTMENT FOCUS
Short-term U.S. government securities
SHARE PRICE VOLATILITY
Very low
PRINCIPAL INVESTMENT STRATEGY
Investing in U.S. government obligations and repurchase agreements
INVESTOR PROFILE
Conservative investors seeking current income through a low-risk, liquid
investment
PRINCIPAL INVESTMENT STRATEGY OF THE U.S.GOVERNMENT MONEY MARKET PORTFOLIO
The U.S. Government Money Market Portfolio seeks its investment goal by
investing exclusively in obligations issued by the U.S. government and its
agencies and instrumentalities and in repurchase agreements.
In selecting securities for the Portfolio, the Advisor considers factors
such as current yield, the anticipated level of interest rates, and the
maturity of the instrument relative to the maturity of the entire
Portfolio. In addition, the Portfolio may purchase only securities that
meet certain SEC requirements relating to maturity, diversification and
credit quality. Under these requirements, the Portfolio's securities must
have remaining maturities of 397 days or less, and the Portfolio must have
a dollar-weighted average maturity of 90 days or less.
PRINCIPAL RISKS OF INVESTING IN THE U.S. GOVERNMENT MONEY MARKET PORTFOLIO
An investment in the Portfolio is subject to income risk, which is the
possibility that the Portfolio's yield will decline due to falling
interest rates. A Portfolio share is not a bank deposit and is not insured
or guaranteed by the FDIC or any government agency. In addition, although
a money market fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the
Portfolio.
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.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows the performance of the Portfolio's Class A Shares for
each year for two calendar years.
[GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
1998 4.96%
1999 4.60%
--------------------------------------------------------------------------------
BEST QUARTER 1.26% (9/30/98)
--------------------------------------------------------------------------------
WORST QUARTER 1.08% (3/31/99)
--------------------------------------------------------------------------------
For the period from January 1, 2000, to June 30, 2000, the Portfolio's
Class A total return was 2.73%.
4 PROSPECTUS
<PAGE>
This table compares the Portfolio's average annual total returns for the
periods ended December 31, 1999, to those of the iMoneyNet, Inc. U.S.
Government and Agencies Average.
CLASS A SHARES 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
U.S. Government
Money Market Portfolio 4.60% 4.87%*
--------------------------------------------------------------------------------
iMoneyNet, Inc.
U.S.Government and
Agencies Average 4.68% 4.97%**
--------------------------------------------------------------------------------
* SINCE JULY 7, 1997.
** SINCE JUNE 30, 1997.
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)
--------------------------------------------------------------------------------
CLASS A
SHARES
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions
(as a percentage of offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None(1)
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
CLASS A
SHARES
--------------------------------------------------------------------------------
Investment Advisory Fees 0.25%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25%
--------------------------------------------------------------------------------
Other Expenses 0.34%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 0.84%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.18%
--------------------------------------------------------------------------------
TOTAL NET OPERATING EXPENSES 0.66%(2)
--------------------------------------------------------------------------------
(1)IF REDEMPTION PROCEEDS ARE WIRED TO A BANK ACCOUNT, A $10 FEE IS
APPLICABLE.
(2)THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND
REIMBURSE EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM
EXCEEDING 0.66% UNTIL AUGUST 31, 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 WAIVER, 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:
U.S. GOVERNMENT MONEY MARKET PORTFOLIO -
CLASS A SHARES 0.64%
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISOR" AND
"PURCHASING, SELLING, EXCHANGING 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 and that you sell your shares at the end of the period.
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$67 $250 $448 $1,020
--------------------------------------------------------------------------------
WHAT IS AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with
a particular investment objective. You cannot invest directly in an average.
The iMoneyNet, Inc. U.S. Government and Agencies Average is a composite of
money market mutual funds with investment goals similar to the Portfolio's
goals.
PROSPECTUS 5
<PAGE>
ARK MONEY MARKET PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Maximizing current income and providing liquidity and security of principal
INVESTMENT FOCUS
Short-term money market instruments
SHARE PRICE VOLATILITY
Very low
PRINCIPAL INVESTMENT STRATEGY
Investing in high-quality U.S. dollar-denominated money market securities
INVESTOR PROFILE
Conservative investors seeking current income through a low-risk, liquid
investment
PRINCIPAL INVESTMENT STRATEGY OF THE MONEY MARKET PORTFOLIO
The Money Market Portfolio seeks its investment goal by investing
primarily in high-quality, short-term U.S. dollar-denominated debt
securities issued by corporations, the U.S. government and banks,
including U.S. and foreign branches of U.S. banks and U.S. branches of
foreign banks. At least 95% of such securities are rated in the highest
rating category by two or more nationally recognized statistical rating
organizations.
In selecting securities for the Portfolio, the Advisor considers factors
such as current yield, the anticipated level of interest rates, and the
maturity of the instrument relative to the maturity of the entire
Portfolio. In addition, the Portfolio may purchase only securities that
meet certain SEC requirements relating to maturity, diversification and
credit quality. Under these requirements, the Portfolio's securities must
have remaining maturities of 397 days or less, and the Portfolio must have
a dollar-weighted average maturity of 90 days or less.
PRINCIPAL RISKS OF INVESTING IN THE MONEY MARKET PORTFOLIO
An investment in the Portfolio is subject to income risk, which is the
possibility that the Portfolio's yield will decline due to falling
interest rates. A Portfolio share is not a bank deposit and is not insured
or guaranteed by the FDIC or any government agency. In addition, although
a money market fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the
Portfolio.
The Portfolio's 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.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Class A
Shares for each year for five calendar years.
[GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
1995 5.65%
1996 5.04%
1997 5.21%
1998 5.12%
1999 4.80%
--------------------------------------------------------------------------------
BEST QUARTER 1.41% (6/30/95)
--------------------------------------------------------------------------------
WORST QUARTER 1.12% (3/31/99)
--------------------------------------------------------------------------------
For the period from January 1, 2000, to June 30, 2000, the Portfolio's
Class A total return was 2.80%.
This table compares the Portfolio's average annual total returns for the
periods ended December 31, 1999, to those of the IBC/Financial Data First
Tier Average.
1 YEAR 5 YEARS SINCE INCEPTION
--------------------------------------------------------------------------------
Money Market Portfolio
Class A Shares 4.80% 5.16%* 4.97%*
--------------------------------------------------------------------------------
iMoneyNet, Inc.
First Tier Average 4.57% 4.97%** 4.81%**
--------------------------------------------------------------------------------
* SINCE MARCH 2, 1994.
** SINCE FEBRUARY 28,1994.
WHAT IS AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with
a particular investment objective. You cannot invest directly in an average.
The IBC/Financial Data First Tier Average is a composite of money market
mutual funds with investment goals similar to the Portfolio's goals.
6 PROSPECTUS
<PAGE>
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)
--------------------------------------------------------------------------------
CLASS A CLASS B
SHARES SHARES
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) None None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(CDSC) (as a percentage of offering
price) None 5.00%(1)
--------------------------------------------------------------------------------
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(2) None(2)
--------------------------------------------------------------------------------
Exchange Fee None None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
CLASS A CLASS B
SHARES SHARES
--------------------------------------------------------------------------------
Investment Advisory Fees 0.25% 0.25%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25% 0.75%
--------------------------------------------------------------------------------
Other Expenses 0.34% 0.44%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 0.84% 1.44%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.22% 0.13%
--------------------------------------------------------------------------------
TOTAL NET OPERATING EXPENSES 0.62%(3) 1.31%(3)
--------------------------------------------------------------------------------
(1)A SALES CHARGE IS IMPOSED IF YOU SELL CLASS B SHARES WITHIN SIX YEARS OF
YOUR PURCHASE. THIS SALES CHARGE ALSO APPLIES TO REDEMPTIONS OF CLASS B
SHARES PURCHASED WITH THE PROCEEDS OF AN EXCHANGE OF CLASS B SHARES OF
ANOTHER PORTFOLIO. THE SALES CHARGE WILL BE EQUAL TO THE CHARGE THAT WOULD
HAVE APPLIED HAD CLASS B SHARES OF THE OTHER PORTFOLIO NOT BEEN EXCHANGED.
SEE "SELLING FUND SHARES."
(2)IF REDEMPTION PROCEEDS ARE WIRED TO A BANK ACCOUNT, A $10 FEE IS
APPLICABLE.
(3)THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND
REIMBURSE EXPENSES OF CLASS A AND CLASS B SHARES IN ORDER TO KEEP TOTAL
OPERATING EXPENSES FROM EXCEEDING 0.62% AND 1.31%, RESPECTIVELY, UNTIL
AUGUST 31, 2001. THE CLASS A AND CLASS B 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 WAIVER, THE
ADVISOR IS VOLUNTARILY REIMBURSING EXPENSES IN ORDER TO KEEP TOTAL
OPERATING EXPENSES AT SPECIFIED LEVELS. THE ADVISOR MAY DISCONTINUE ALL OR
PART OF THESE REIMBURSEMENTS AT ANY TIME. WITH THE EXPENSE REIMBURSEMENTS,
THE PORTFOLIO'S ACTUAL TOTAL OPERATING EXPENSES WERE AS FOLLOWS:
MONEY MARKET PORTFOLIO - CLASS A SHARES 0.61%
MONEY MARKET PORTFOLIO - CLASS B SHARES 1.30%
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISOR" AND
"PURCHASING, SELLING, EXCHANGING 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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Class A Shares $63 $246 $444 $1,017
--------------------------------------------------------------------------------
Class B Shares* $633 $743 $975 $1,550
--------------------------------------------------------------------------------
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Class A Shares $63 $246 $444 $1,017
--------------------------------------------------------------------------------
Class B Shares* $133 $443 $775 $1,550
--------------------------------------------------------------------------------
* A SALES CHARGE IS IMPOSED IF YOU SELL CLASS B SHARES WITHIN SIX YEARS OF
YOUR PURCHASE. THIS SALES CHARGE ALSO APPLIES TO REDEMPTIONS OF CLASS B
SHARES PURCHASED WITH THE PROCEEDS OF AN EXCHANGE OF CLASS B SHARES OF
ANOTHER PORTFOLIO. THE SALES CHARGE WILL BE EQUAL TO THE CHARGE THAT WOULD
HAVE APPLIED HAD CLASS B SHARES OF THE OTHER PORTFOLIO NOT BEEN EXCHANGED.
SEE "SELLING FUND SHARES."
WHAT IS AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with
a particular investment objective. You cannot invest directly in an average.
The IBC/Financial Data First Tier Average is a composite of money market
mutual funds with investment goals similar to the Portfolio's goals.
PROSPECTUS 7
<PAGE>
ARK TAX-FREE MONEY MARKET PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Maximizing current income exempt from Federal income taxes and providing
liquidity and security of principal
INVESTMENT FOCUS
Short-term, high-quality municipal money market obligations
SHARE PRICE VOLATILITY
Very low
PRINCIPAL INVESTMENT STRATEGY
Investing in tax-exempt money market securities
INVESTOR PROFILE
Conservative investors seeking tax-exempt income through a low-risk,
liquid investment
PRINCIPAL INVESTMENT STRATEGY OF THE TAX-FREE MONEY MARKET PORTFOLIO
The Tax-Free Money Market Portfolio seeks its investment goal by investing
substantially all of its assets in a broad range of high-quality,
short-term municipal money market instruments that pay interest that is
exempt from Federal income taxes. The issuers of these securities may be
state and local governments and agencies located in any of the 50 states,
the District of Columbia, Puerto Rico and other U.S. territories and
possessions. The Portfolio is well diversified among issuers and comprised
only of short-term debt securities that are rated in the two highest
categories by nationally recognized statistical rating organizations or
determined by the Advisor to be of equal credit quality. Normally, the
Portfolio will not invest in securities subject to the Alternative Minimum
Tax or in taxable municipal securities.
In selecting securities for the Portfolio, the Advisor considers factors
such as current yield, the anticipated level of interest rates, and the
maturity of the instrument relative to the maturity of the entire
Portfolio. In addition, the Portfolio may only purchase securities that
meet certain SEC requirements relating to maturity, diversification and
credit quality. Under these requirements, the Portfolio's securities must
have remaining maturities of 397 days or less, and the Portfolio must have
a dollar-weighted average maturity of 90 days or less.
PRINCIPAL RISKS OF INVESTING IN THE TAX-FREE MONEY MARKET PORTFOLIO
An investment in the Portfolio is subject to income risk, which is the
possibility that the Portfolio's yield will decline due to falling
interest rates. A Portfolio share is not a bank deposit and is not insured
or guaranteed by the FDIC or any government agency. In addition, although
a money market fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the
Portfolio.
There may be economic or political changes that impact the ability of
municipal issuers to repay principal and to make interest payments on
municipal securities. Changes in the financial condition or credit rating
of municipal issuers also may adversely affect the value of the
Portfolio's securities.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Class A
Shares for each year for five calendar years.
[GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
1995 3.55%
1996 3.08%
1997 3.14%
1998 2.92%
1999 2.71%
--------------------------------------------------------------------------------
BEST QUARTER 0.94% (6/30/95)
--------------------------------------------------------------------------------
WORST QUARTER 0.58% (3/31/99)
--------------------------------------------------------------------------------
For the period from January 1, 2000, to June 30, 2000, the Portfolio's
Class A total return was 1.66%.
8 PROSPECTUS
<PAGE>
This table compares the Portfolio's average annual total returns for the
periods ended December 31, 1999, to those of the iMoneyNet, Inc.
Stockbroker & General Purpose Average.
CLASS A SHARES 1 YEAR 5 YEARS SINCE INCEPTION
--------------------------------------------------------------------------------
Tax-Free Money Market
Portfolio 2.71% 3.08%* 2.97%*
--------------------------------------------------------------------------------
iMoneyNet, Inc.
Stockbroker & General
Purpose Average 2.70% 3.00%** 2.92%**
--------------------------------------------------------------------------------
* SINCE MARCH 15, 1994.
** SINCE FEBRUARY 28, 1994.
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)
--------------------------------------------------------------------------------
CLASS A
SHARES
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions
(as a percentage of offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None(1)
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
CLASS A
SHARES
--------------------------------------------------------------------------------
Investment Advisory Fees 0.25%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25%
--------------------------------------------------------------------------------
Other Expenses 0.35%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 0.85%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.22%
--------------------------------------------------------------------------------
TOTAL NET OPERATING EXPENSES 0.63%(2)
--------------------------------------------------------------------------------
(1)IF REDEMPTION PROCEEDS ARE WIRED TO A BANK ACCOUNT, A $10 FEE IS
APPLICABLE.
(2)THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND
REIMBURSE EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM
EXCEEDING 0.63% UNTIL AUGUST 31, 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 WAIVER, 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 WERE AS
FOLLOWS:
TAX-FREE MONEY MARKET PORTFOLIO - CLASS A SHARES 0.60%
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISOR" AND
"PURCHASING, SELLING, EXCHANGING 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 and that you sell your shares at the end of the period.
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$64 $249 $450 $1,029
--------------------------------------------------------------------------------
WHAT IS AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with
a particular investment objective. You cannot invest directly in an average.
The iMoneyNet, Inc. Stockbroker & General Purpose Average is a composite
of mutual funds with goals similar to the Portfolio's goals.
PROSPECTUS 9
<PAGE>
ARK SHORT-TERM TREASURY PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Current income with relative stability of principal
INVESTMENT FOCUS
Short-term U.S. Treasury securities
SHARE PRICE VOLATILITY
Low
PRINCIPAL INVESTMENT STRATEGY
Investing in short-term fixed income securities issued directly by
the U.S. Treasury
INVESTOR PROFILE
Investors seeking to preserve principal and earn current income
PRINCIPAL INVESTMENT STRATEGY OF THE SHORT-TERM TREASURY PORTFOLIO
The Short-Term Treasury Portfolio seeks its investment goal by investing
exclusively in fixed income securities issued directly by the U.S.
Treasury. The Portfolio's Advisor will select securities that are backed
by the U.S. Treasury that pay interest that is exempt from state and local
taxes. The Portfolio has no maturity restrictions, and the average
maturity of the Portfolio's investments will vary depending on market
conditions. The Portfolio normally invests in short-term securities, and
the Portfolio will typically have a dollar-weighted average maturity of
approximately two years.
In selecting securities for the Portfolio, the Advisor considers a
security's current yield, as well as its 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 decrease 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, and may adversely affect the Portfolio's
performance.
PRINCIPAL RISKS OF INVESTING IN THE SHORT-TERM TREASURY 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. Generally, the
Portfolio's fixed income securities will decrease in value if interest
rates rise. Also, securities with longer maturities are generally more
volatile, so the average maturity of the Portfolio's securities affects
risk.
The Portfolio's U.S. Treasury securities are not guaranteed against price
movements due to changing interest rates.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Class A
Shares for each year for three calendar years.
[GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
1997 5.71%
1998 6.20%
1999 2.13%
--------------------------------------------------------------------------------
BEST QUARTER 3.02% (9/30/98)
--------------------------------------------------------------------------------
WORST QUARTER 0.28% (6/30/99)
--------------------------------------------------------------------------------
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Class A total return was 2.52%.
10 PROSPECTUS
<PAGE>
This table compares the Portfolio's average annual total returns for the
periods ended December 31, 1999, to those of the Lehman 1-3 Year
Government Bond Index and the Lipper Short U.S. Treasury Funds Average.
CLASS A SHARES 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
Short-Term Treasury
Portfolio 2.13% 4.88%*
--------------------------------------------------------------------------------
Lehman 1-3 Year
Government Bond Index 2.96% 5.83%**
--------------------------------------------------------------------------------
Lipper Short U.S. Treasury
Funds Average 1.66% 5.26%**
--------------------------------------------------------------------------------
* SINCE SEPTEMBER 9, 1996
** SINCE AUGUST 31, 1996.
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)
--------------------------------------------------------------------------------
CLASS A
SHARES
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions
(as a percentage of offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None(1)
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
CLASS A
SHARES
--------------------------------------------------------------------------------
Investment Advisory Fees 0.35%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.40%
--------------------------------------------------------------------------------
Other Expenses 0.38%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.13%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.21%
--------------------------------------------------------------------------------
TOTAL NET OPERATING EXPENSES 0.92%(2)
--------------------------------------------------------------------------------
(1)IF REDEMPTION PROCEEDS ARE WIRED TO A BANK ACCOUNT, A $10 FEE IS
APPLICABLE.
(2)THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND
REIMBURSE EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM
EXCEEDING 0.92% UNTIL AUGUST 31, 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 WAIVER, 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 WERE AS
FOLLOWS:
SHORT-TERM TREASURY PORTFOLIO - CLASS A SHARES 0.83%
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISOR" AND
"PURCHASING, SELLING, EXCHANGING 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 and that you sell your shares at the end of the period.
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$94 $338 $602 $1,356
--------------------------------------------------------------------------------
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 1-3 Year Government
Bond Index is a widely recognized index of U.S. government obligations with
maturities of between one and three years.
WHAT IS AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with
a particular investment objective. You cannot invest directly in an average.
The Lipper Short U.S. Treasury Funds Average is a composite of mutual funds
with goals similar to the Portfolio's goals.
PROSPECTUS 11
<PAGE>
ARK MARYLAND TAX-FREE PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Current income exempt from Federal and Maryland state and local income taxes
INVESTMENT FOCUS
Maryland municipal securities
SHARE PRICE VOLATILITY
Low to medium
PRINCIPAL INVESTMENT STRATEGY
Investing in Maryland municipal securities
INVESTOR PROFILE
Investors seeking income exempt from Federal and Maryland state and local
income taxes
PRINCIPAL INVESTMENT STRATEGY OF THE MARYLAND TAX-FREE PORTFOLIO
The Maryland Tax-Free Portfolio seeks its investment goal by investing
primarily in municipal securities that generate income exempt from Federal
and Maryland state and local income taxes. The principal issuers of these
securities are state and local governments and agencies located in
Maryland, as well as the District of Columbia, Puerto Rico and other U.S.
territories and possessions. The Portfolio normally invests in
investment-grade debt securities with long and intermediate maturities,
and the Portfolio will typically have a dollar-weighted average maturity
of 7 to 12 years. However, the Portfolio has no maturity restrictions, and
the average maturity of the Portfolio's investments will vary depending on
market conditions.
In selecting securities, the Portfolio's Advisor considers the future
direction of interest rates and the shape of the yield curve, as well as
credit quality and sector allocation issues. Sector allocation issues
involve the relative attractiveness of rates and market opportunities in
sectors such as general obligation or revenue bonds. Normally, the
Portfolio's assets will be invested in securities that are not subject to
Federal taxes, including the Alternative Minimum Tax.
PRINCIPAL RISKS OF INVESTING IN THE MARYLAND TAX-FREE 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, including
governments. 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.
There may be economic or political changes that impact the ability of
municipal issuers to repay principal and to make interest payments on
municipal securities. Changes in the financial condition or credit rating
of municipal issuers also may adversely affect the value of the
Portfolio's securities.
The Portfolio's concentration of investments in securities of issuers
located in Maryland subjects the Portfolio to the effects of economic and
government policies of Maryland.
The Portfolio is non-diversified, which means that it may invest in the
securities of relatively few issuers. As a result, the Portfolio may be
more susceptible to a single adverse economic or political occurrence
affecting one or more of these issuers, and may experience increased
volatility due to its investments in those securities.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
12 PROSPECTUS
<PAGE>
This bar chart shows changes in the performance of the Portfolio's Class A
Shares for each year for three calendar years. Class A commenced
operations on January 2, 1997. The Portfolio's Institutional Class, which
is not offered in this prospectus, began offering its shares on November
18, 1996. In the bar chart below, performance results before January 2,
1997 are for the Institutional Class and have been adjusted for the total
annual operating expenses applicable to Class A Shares.
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
[GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
1997 8.11%
1998 5.46%
1999 -3.54%
--------------------------------------------------------------------------------
BEST QUARTER 3.11% (6/30/97)
--------------------------------------------------------------------------------
WORST QUARTER -2.11% (6/30/99)
--------------------------------------------------------------------------------
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Class A total return was 3.29%.
This table compares the Portfolio's average annual total returns for the
periods ended December 31, 1999, to those of the Lehman 10 Year Municipal
Bond Index, the Lehman 7 Year Municipal Bond Index, and the Lipper
Maryland Municipal Debt Funds Average.
1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
Maryland Tax-Free Portfolio -
Class A Shares -7.84% 1.68%*
--------------------------------------------------------------------------------
Maryland Tax-Free Portfolio -
Class B Shares 3.63%*** 5.52%**
--------------------------------------------------------------------------------
Lehman 10 Year
Municipal Bond Index -1.24% 4.53%***
--------------------------------------------------------------------------------
Lehman 7 Year
Municipal Bond Index -0.14% 4.31%***
--------------------------------------------------------------------------------
Lipper Maryland Municipal
Debt Funds Average -3.78% 3.00%***
--------------------------------------------------------------------------------
* SINCE NOVEMBER 18, 1996. CLASS A SHARES OF THE PORTFOLIO WERE OFFERED
BEGINNING JANUARY 2, 1997. PERFORMANCE RESULTS SHOWN BEFORE THAT DATE ARE
FOR THE PORTFOLIO'S INSTITUTIONAL CLASS AND HAVE BEEN ADJUSTED FOR THE
MAXIMUM SALES CHARGE AND TOTAL ANNUAL OPERATING EXPENSES APPLICABLE TO
CLASS A SHARES. THE PORTFOLIO'S INSTITUTIONAL CLASS, WHICH IS NOT OFFERED
BY THIS PROSPECTUS, COMMENCED OPERATIONS ON NOVEMBER 18, 1996. THE CLASS A
ANNUAL RETURNS WOULD HAVE BEEN SUBSTANTIALLY SIMILAR TO THOSE OF THE
INSTITUTIONAL CLASS BECAUSE SHARES OF EACH CLASS ARE INVESTED IN THE SAME
PORTFOLIO OF SECURITIES.
**SINCE NOVEMBER 18, 1996. CLASS B SHARES OF THE PORTFOLIO WERE OFFERED
BEGINNING SEPTEMBER 1, 1999 AND DO NOT HAVE A FULL CALENDAR YEAR OF
PERFORMANCE. PERFORMANCE RESULTS SHOWN ARE FOR THE PORTFOLIO'S
INSTITUTIONAL CLASS AND HAVE BEEN ADJUSTED FOR THE MAXIMUM CONTINGENT
DEFERRED SALES CHARGE AND TOTAL ANNUAL OPERATING EXPENSES APPLICABLE TO
CLASS B SHARES. THE PORTFOLIO'S INSTITUTIONAL CLASS, WHICH IS NOT OFFERED
BY THIS PROSPECTUS, COMMENCED OPERATIONS ON NOVEMBER 18, 1996. THE CLASS B
ANNUAL RETURNS WOULD HAVE BEEN SUBSTANTIALLY SIMILAR TO THOSE OF THE
INSTITUTIONAL CLASS BECAUSE SHARES OF EACH CLASS ARE INVESTED IN THE SAME
PORTFOLIO OF SECURITIES.
***SINCE NOVEMBER 30, 1996.
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 10 Year Municipal
Bond Index is a widely recognized index of long-term investment-grade
tax-exempt bonds. The index includes general obligation bonds, revenue bonds,
insured bonds and prefunded bonds with maturities between 8 and 12 years. The
Lehman 7 Year Municipal Bond Index is a widely recognized index of long-term
investment-grade tax-exempt bonds. The index includes general obligation
bonds, revenue bonds, insured bonds and prefunded bonds with maturities
between 6 and 8 years.
WHAT IS AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with
a particular investment objective. You cannot invest directly in an average.
The Lipper Maryland Municipal Debt Funds Average is a composite of mutual
funds with goals similar to the Portfolio's goals.
PROSPECTUS 13
<PAGE>
ARK MARYLAND TAX-FREE PORTFOLIO CONTINUED
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)
--------------------------------------------------------------------------------
CLASS A CLASS B
SHARES SHARES
--------------------------------------------------------------------------------
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 5.00%(2)
--------------------------------------------------------------------------------
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(3) None(3)
--------------------------------------------------------------------------------
Exchange Fee None None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
CLASS A CLASS B
SHARES SHARES
--------------------------------------------------------------------------------
Investment Advisory Fees 0.65% 0.65%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.35% 0.45%
--------------------------------------------------------------------------------
Other Expenses 1.30% 1.85%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.30% 1.85%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.27% 0.07%
--------------------------------------------------------------------------------
TOTAL NET OPERATING EXPENSES 1.03%(4) 1.78%(4)
--------------------------------------------------------------------------------
(1)THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. SEE
"PURCHASING PORTFOLIO SHARES."
(2)A SALES CHARGE IS IMPOSED IF YOU SELL CLASS B SHARES WITHIN SIX YEARS OF
YOUR PURCHASE. SEE "SELLING FUND SHARES."
(3)IF REDEMPTION PROCEEDS ARE WIRED TO A BANK ACCOUNT, A $10 FEE IS
APPLICABLE.
(4)THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND
REIMBURSE EXPENSES OF CLASS A AND CLASS B SHARES IN ORDER TO KEEP TOTAL
OPERATING EXPENSES FROM EXCEEDING 1.03% AND 1.78%, RESPECTIVELY, UNTIL
AUGUST 31, 2001. THE CLASS A AND CLASS B 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 WAIVER, 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 WERE AS
FOLLOWS:
MARYLAND TAX-FREE PORTFOLIO - CLASS A SHARES 0.94%
MARYLAND TAX-FREE PORTFOLIO - CLASS B SHARES 1.69%
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISOR" AND
"PURCHASING, SELLING, EXCHANGING 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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Class A Shares $550 $818 $1,106 $1,925
--------------------------------------------------------------------------------
Class B Shares $681 $875 $1,194 $2,020
--------------------------------------------------------------------------------
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Class A Shares $550 $818 $1,106 $1,925
--------------------------------------------------------------------------------
Class B Shares $181 $575 $994 $2,020
--------------------------------------------------------------------------------
14 PROSPECTUS
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
ARK PENNSYLVANIA TAX-FREE PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Current income exempt from Federal and Pennsylvania state income taxes
INVESTMENT FOCUS
Pennsylvania municipal securities
SHARE PRICE VOLATILITY
Low to medium
PRINCIPAL INVESTMENT STRATEGY
Investing in Pennsylvania municipal securities
INVESTOR PROFILE
Investors seeking income exempt from Federal and Pennsylvania state income taxes
PRINCIPAL INVESTMENT STRATEGY OF THE PENNSYLVANIA
TAX-FREE PORTFOLIO
The Pennsylvania Tax-Free Portfolio seeks its investment goal by investing
primarily in municipal securities that generate income exempt from Federal
and Pennsylvania state income taxes. The principal issuers of these
securities are state and local governments and agencies located in
Pennsylvania, as well as the District of Columbia, Puerto Rico and other
U.S. territories and possessions. The Portfolio normally invests in
investment-grade debt securities with long and intermediate maturities,
and the Portfolio will typically have a dollar-weighted average maturity
of 7 to 12 years. However, the Portfolio has no maturity restrictions, and
the average maturity of the Portfolio's investments will vary depending on
market conditions.
In selecting securities, the Portfolio's Advisor considers the future
direction of interest rates and the shape of the yield curve, as well as
credit quality and sector allocation issues. Sector allocation issues
involve the relative attractiveness of rates and market opportunities in
sectors such as general obligation or revenue bonds. Normally, the
Portfolio's assets will be invested in securities that are not subject to
Federal taxes, including the Alternative Minimum Tax.
PRINCIPAL RISKS OF INVESTING IN THE PENNSYLVANIA
TAX-FREE 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, including
governments. 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.
There may be economic or political changes that impact the ability of
municipal issuers to repay principal and to make interest payments on
municipal securities. Changes in the financial condition or credit rating
of municipal issuers also may adversely affect the value of the
Portfolio's securities.
The Portfolio's concentration of investments in securities of issuers
located in Pennsylvania subjects the Portfolio to the effects of economic
and government policies of Pennsylvania.
The Portfolio is non-diversified, which means that it may invest in the
securities of relatively few issuers. As a result, the Portfolio may be
more susceptible to a single adverse economic or political occurrence
affecting one or more of these issuers, and may experience increased
volatility due to its investments in those securities.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Class A
Shares for each year for three calendar years. Class A commenced
operations on March 23, 1998.
16 PROSPECTUS
<PAGE>
The Portfolio's Institutional Class, which is not offered in this
prospectus, began offering its shares on March 23, 1998. In the bar chart
below, performance results before March 23, 1998 are for the Institutional
Class of the Marketvest Pennsylvania Intermediate Municipal Bond Fund,
which commenced operations on April 1, 1996, and was reorganized into the
Portfolio on March 20, 1998. The performance results have been adjusted
for the total annual operating expenses applicable to Class A Shares.
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
[GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
1997 6.22%
1998 5.31%
1999 -4.86%
--------------------------------------------------------------------------------
BEST QUARTER 3.03% (9/30/98)
--------------------------------------------------------------------------------
WORST QUARTER -2.58% (6/30/99)
--------------------------------------------------------------------------------
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Class A total return was 3.49%.
This table compares the Portfolio's average annual total returns for the
periods ended December 31, 1999, to those of the Lehman 10 Year Municipal
Bond Index, the Lehman 7 Year Municipal Bond Index, the Lehman 5 Year
Municipal Bond Index, and the Lipper Pennsylvania Intermediate Municipal
Average.
1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
Pennsylvania Tax-Free
Portfolio - Class A Shares -9.10% 1.40%*
--------------------------------------------------------------------------------
Pennsylvania Tax-Free
Portfolio - Class B Shares -0.34%** 3.86%**
--------------------------------------------------------------------------------
Lehman 10 Year
Municipal Bond Index -1.24% 5.26%***
--------------------------------------------------------------------------------
Lehman 7 Year
Municipal Bond Index -0.14% 4.90%***
--------------------------------------------------------------------------------
Lehman 5 Year
Municipal Bond Index 0.74% 4.57%***
--------------------------------------------------------------------------------
Lipper Pennsylvania
Intermediate Municipal
Average -2.48% 3.75%***
--------------------------------------------------------------------------------
*SINCE APRIL 1, 1996. CLASS A SHARES OF THE PORTFOLIO WERE OFFERED
BEGINNING MARCH 23, 1998. PERFORMANCE RESULTS SHOWN BEFORE THAT DATE ARE
FOR THE PORTFOLIO'S INSTITUTIONAL CLASS AND HAVE BEEN ADJUSTED FOR THE
MAXIMUM SALES CHARGE AND TOTAL ANNUAL OPERATING EXPENSES APPLICABLE TO
CLASS A SHARES. THE PORTFOLIO'S INSTITUTIONAL CLASS, WHICH IS NOT OFFERED
BY THIS PROSPECTUS, COMMENCED OPERATIONS ON MARCH 23, 1998. PERFORMANCE
RESULTS BEFORE THAT DATE ARE FOR THE MARKETVEST PENNSYLVANIA INTERMEDIATE
MUNICIPAL BOND FUND, WHICH BEGAN OFFERING ITS SHARES ON APRIL 1, 1996 AND
WAS REORGANIZED INTO THE PORTFOLIO ON MARCH 20, 1998. THE CLASS A ANNUAL
RETURNS WOULD HAVE BEEN SUBSTANTIALLY SIMILAR TO THOSE OF THE
INSTITUTIONAL CLASS BECAUSE SHARES OF EACH CLASS ARE INVESTED IN THE SAME
PORTFOLIO OF SECURITIES.
**SINCE APRIL 1, 1996. CLASS B SHARES OF THE PORTFOLIO WERE OFFERED
BEGINNING SEPTEMBER 1, 1999 AND DO NOT HAVE A FULL CALENDAR YEAR OF
PERFORMANCE. PERFORMANCE RESULTS SHOWN ARE FOR THE PORTFOLIO'S
INSTITUTIONAL CLASS AND HAVE BEEN ADJUSTED FOR THE MAXIMUM CONTINGENT
DEFERRED SALES CHARGE AND TOTAL ANNUAL OPERATING EXPENSES APPLICABLE TO
CLASS B SHARES. THE PORTFOLIO'S INSTITUTIONAL CLASS, WHICH IS NOT OFFERED
BY THIS PROSPECTUS, COMMENCED OPERATIONS ON MARCH 23, 1998. PERFORMANCE
RESULTS BEFORE THAT DATE ARE FOR THE MARKETVEST PENNSYLVANIA INTERMEDIATE
MUNICIPAL BOND FUND, WHICH BEGAN OFFERING ITS SHARES ON APRIL 1, 1996 AND
WAS REORGANIZED INTO THE PORTFOLIO ON MARCH 20, 1998. THE CLASS B ANNUAL
RETURNS WOULD HAVE BEEN SUBSTANTIALLY SIMILAR TO THOSE OF THE
INSTITUTIONAL CLASS BECAUSE SHARES OF EACH CLASS ARE INVESTED IN THE SAME
PORTFOLIO OF SECURITIES.
***SINCE MARCH 31, 1996.
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 10 Year Municipal
Bond Index is a widely recognized index of long-term investment-grade
tax-exempt bonds. The index includes general obligation bonds, revenue bonds,
insured bonds and prefunded bonds with maturities between 8 and 12 years. The
Lehman 7 Year Municipal Bond Index is a widely recognized index of long-term
investment-grade tax-exempt bonds. The index includes general obligation
bonds, revenue bonds, insured bonds and prefunded bonds with maturities
between 6 and 8 years. The Lehman 5 Year Municipal Bond Index is a widely
recognized index of municipal bonds with intermediate investment grade
tax-exempt bonds.
WHAT IS AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with
a particular investment objective. You cannot invest directly in an average.
The Lipper Pennsylvania Intermediate Municipal Average is a composite of
mutual funds with goals similar to the Portfolio's goals.
PROSPECTUS 17
<PAGE>
ARK PENNSYLVANIA TAX-FREE PORTFOLIO CONTINUED
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)
--------------------------------------------------------------------------------
CLASS A CLASS B
SHARES SHARES
--------------------------------------------------------------------------------
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 5.00%(2)
--------------------------------------------------------------------------------
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(3) None(3)
--------------------------------------------------------------------------------
Exchange Fee None None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
CLASS A CLASS B
SHARES SHARES
--------------------------------------------------------------------------------
Investment Advisory Fees 0.65% 0.65%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.30% 0.75%
--------------------------------------------------------------------------------
Other Expenses 0.35% 0.45%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.30% 1.85%(5)
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.11%
--------------------------------------------------------------------------------
TOTAL NET OPERATING EXPENSES 1.19%(4)
--------------------------------------------------------------------------------
(1)THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. SEE
"PURCHASING PORTFOLIO SHARES."
(2)A SALES CHARGE IS IMPOSED IF YOU SELL CLASS B SHARES WITHIN SIX YEARS OF
YOUR PURCHASE. SEE "SELLING FUND SHARES."
(3)IF REDEMPTION PROCEEDS ARE WIRED TO AN ACCOUNT, A $10 FEE IS APPLICABLE.
(4)THE PORTFOLIO'S ADVISOR HAS AGREED TO CONTRACTUALLY WAIVE FEES AND
REIMBURSE EXPENSES OF THE CLASS A SHARES IN ORDER TO KEEP TOTAL OPERATING
EXPENSES FROM EXCEEDING 1.19% UNTIL AUGUST 31, 2001. 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 REIMBURSING
EXPENSES IN ADDITION TO ITS CONTRACTUAL WAIVER IN ORDER TO KEEP TOTAL
EXPENSES AT A SPECIFIED LEVEL. THE ADVISOR MAY DISCONTINUE ALL OR PART OF
THESE REIMBURSEMENTS AT ANY TIME. WITH THESE EXPENSE REIMBURSEMENTS, CLASS
A SHARES' ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS:
PENNSYLVANIA TAX-FREE PORTFOLIO - CLASS A SHARES 1.10%
(5)THE CLASS B SHARES' TOTAL ACTUAL OPERATING EXPENSES FOR THE MOST RECENT
FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE 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, CLASS B
SHARES' ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS:
PENNSYLVANIA TAX-FREE PORTFOLIO - CLASS B SHARES 1.84%
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISOR" AND
"PURCHASING, SELLING, EXCHANGING 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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Class A Shares $566 $833 $1,121 $1,938
--------------------------------------------------------------------------------
Class B Shares $688 $882 $1,201 $2,026
--------------------------------------------------------------------------------
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Class A Shares $566 $833 $1,121 $1,938
--------------------------------------------------------------------------------
Class B Shares $188 $582 $1,001 $2,026
--------------------------------------------------------------------------------
18 PROSPECTUS
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
ARK INTERMEDIATE FIXED INCOME PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Current income
INVESTMENT FOCUS
Intermediate-term investment-grade fixed income securities
SHARE PRICE VOLATILITY
Low to medium
PRINCIPAL INVESTMENT STRATEGY
Investing in U.S. intermediate-term government and corporate fixed income
securities
INVESTOR PROFILE
Investors seeking current income who are willing to accept the risks of
investing in fixed income securities
PRINCIPAL INVESTMENT STRATEGY OF THE INTERMEDIATE FIXED INCOME PORTFOLIO
The Intermediate Fixed 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 select investment-grade fixed income securities
and unrated securities determined to be of comparable quality. The
Portfolio normally invests in securities with intermediate maturities, and
the Portfolio will typically have a dollar-weighted average maturity of 3
to 10 years. However, the Portfolio has no maturity restrictions, and the
average maturity of the Portfolio's investments will vary depending on
market conditions.
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.
PRINCIPAL RISKS OF INVESTING IN THE INTERMEDIATE FIXED 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.
The mortgages underlying mortgage-backed securities may be paid off early,
which makes it difficult to determine their actual maturity and therefore
calculate how they 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.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's
Institutional Class Shares for each year for three calendar years. The
Portfolio's Class A shares have not commenced operations. The Portfolio's
Institutional Class, which is not offered in this prospectus, began
offering its shares on November 18, 1996. In the bar chart below,
performance results have been adjusted for the total annual operating
expenses applicable to Class A Shares.
20 PROSPECTUS
<PAGE>
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
[GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
1997 7.13%
1998 7.18%
1999 -0.99%
--------------------------------------------------------------------------------
BEST QUARTER 4.56% (9/30/98)
--------------------------------------------------------------------------------
WORST QUARTER -1.12% (6/30/99)
--------------------------------------------------------------------------------
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional Class total return was 2.26%.
The table which follows compares the Portfolio's average annual total
returns for the periods ended December 31, 1999, to those of the Lehman
Intermediate Government Bond Index, the Lehman Intermediate Government/
Corporate Bond Index, and the Lipper Intermediate Investment Grade Debt
Funds Average.
INSTITUTIONAL CLASS SHARES 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
Intermediate Fixed
Income Portfolio -5.44%* 0.58%*
--------------------------------------------------------------------------------
Lehman Intermediate
Government Bond Index 0.50% 5.17%**
--------------------------------------------------------------------------------
Lehman Intermediate
Government/Corporate
Bond Index 0.39% 5.12%**
--------------------------------------------------------------------------------
Lipper Intermediate Investment
Grade Debt Funds Average -1.31% 4.43%**
--------------------------------------------------------------------------------
* SINCE NOVEMBER 18, 1996. CLASS A SHARES OF THE PORTFOLIO HAVE NOT
COMMENCED OPERATIONS. PERFORMANCE RESULTS SHOWN ARE FOR THE PORTFOLIO'S
INSTITUTIONAL CLASS AND HAVE BEEN ADJUSTED FOR THE MAXIMUM SALES CHARGE
AND TOTAL ANNUAL OPERATING EXPENSES APPLICABLE TO CLASS A SHARES. THE
PORTFOLIO'S INSTITUTIONAL CLASS, WHICH IS NOT OFFERED BY THIS PROSPECTUS,
COMMENCED OPERATIONS ON NOVEMBER 18, 1996. THE CLASS A ANNUAL RETURNS
WOULD HAVE BEEN SUBSTANTIALLY SIMILAR TO THOSE OF THE INSTITUTIONAL CLASS
BECAUSE SHARES OF EACH CLASS ARE INVESTED IN THE SAME PORTFOLIO OF
SECURITIES.
** SINCE NOVEMBER 30, 1996.
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)
--------------------------------------------------------------------------------
CLASS A
SHARES
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) 4.50%(1)
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a percentage of net
asset value) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions
(as a percentage of offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None(2)
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
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 Intermediate
Government Bond Index is a widely recognized index of U.S. Treasury
securities and government agency securities with maturities ranging from 1 to
10 years. The Lehman Intermediate Government/Corporate 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. Treasury securities,
U.S. government agency obligations, corporate debt securities backed by the
U.S. government and fixed-rate nonconvertible corporate debt securities
backed by the U.S. government, fixed-rate nonconvertible debt securities
issued by or guaranteed by foreign governments and agencies. All securities
in the index are rated investment-grade (BBB) or higher, with maturities of 1
to 10 years.
WHAT IS AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with
a particular investment objective. You cannot invest directly in an average.
The Lipper Intermediate Investment Grade Debt Funds Average is a composite of
mutual funds with goals similar to the Portfolio's goals.
PROSPECTUS 21
<PAGE>
ARK INTERMEDIATE FIXED INCOME PORTFOLIO CONTINUED
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
CLASS A
SHARES
--------------------------------------------------------------------------------
Investment Advisory Fees 0.60%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.30%
--------------------------------------------------------------------------------
Other Expenses 0.36%(3)
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.26%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.22%
--------------------------------------------------------------------------------
TOTAL NET OPERATING EXPENSES 1.04%(4)
--------------------------------------------------------------------------------
(1)THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. SEE
"PURCHASING PORTFOLIO SHARES."
(2)IF REDEMPTION PROCEEDS ARE WIRED TO A BANK ACCOUNT, A
$10 FEE IS APPLICABLE.
(3)OTHER EXPENSES HAVE BEEN ESTIMATED.
(4)THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND
REIMBURSE EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM
EXCEEDING 1.04% UNTIL AUGUST 31, 2001. THE PORTFOLIO'S TOTAL ANNUAL
OPERATING EXPENSES FOR CLASS A SHARES WOULD BE LESS THAN THE AMOUNT SHOWN
ABOVE BECAUSE, IN ADDITION TO ITS CONTRACTUAL WAIVER, THE ADVISOR WILL
VOLUNTARILY REIMBURSE 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 TOTAL OPERATING EXPENSES WOULD BE AS FOLLOWS:
INTERMEDIATE FIXED INCOME PORTFOLIO - CLASS A SHARES 0.95%
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISOR" AND
"PURCHASING, SELLING, EXCHANGING 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 and that you sell your shares at the end of the period.
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$551 $811 $1,090 $1,886
--------------------------------------------------------------------------------
22 PROSPECTUS
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
ARK U.S. GOVERNMENT BOND PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Current income
INVESTMENT FOCUS
U.S. government securities
SHARE PRICE VOLATILITY
Low to medium
PRINCIPAL INVESTMENT STRATEGY
Investing in U.S. government fixed income securities
INVESTOR PROFILE
Investors seeking current income who are willing to accept the
risks of investing in fixed income securities
PRINCIPAL INVESTMENT STRATEGY OF THE U.S. GOVERNMENT BOND PORTFOLIO
The U.S. Government Bond Portfolio seeks its investment goal by investing
primarily in fixed income securities issued or guaranteed by the U.S.
government and its agencies or instrumentalities, including
mortgage-backed securities. The Portfolio also invests in investment-grade
corporate fixed income securities. The Portfolio normally invests in
securities with intermediate maturities, and the Portfolio will typically
have a dollar-weighted maturity of between 3 and 10 years. However, the
Portfolio has no maturity restrictions, and the average maturity of the
Portfolio's investments will vary depending on market conditions.
In selecting securities for the Portfolio, the Advisor considers a
security's current yield, as well as its 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 decrease 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, and may adversely affect the Portfolio's
performance.
PRINCIPAL RISKS OF INVESTING IN THE U.S. GOVERNMENT
BOND 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.
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.
24 PROSPECTUS
<PAGE>
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Class A
Shares for each year for three calendar years. Class A commenced
operations on April 1, 1998. The Portfolio's Institutional Class, which is
not offered in this prospectus, began offering its shares on March 20,
1998. In the bar chart below, performance results before April 1, 1998 are
for the Institutional Class of the Marketvest Intermediate U.S. Government
Bond Fund, which commenced operations on April 1, 1996 and was reorganized
into the Portfolio on March 20, 1998. The performance results have been
adjusted for the total annual operating expenses applicable to Class A
Shares.
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
[GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
1997 6.70%
1998 15.36%
1999 -0.80%
--------------------------------------------------------------------------------
BEST QUARTER 10.01% (6/30/98)
--------------------------------------------------------------------------------
WORST QUARTER -1.28% (3/31/97)
--------------------------------------------------------------------------------
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Class A total return was 1.58%.
This table compares the Portfolio's average annual total returns for the
periods ended December 31, 1999, to those of the Lehman Intermediate
Government/Corporate Bond Index and the Lipper Intermediate U.S.
Government Funds Average.
CLASS A SHARES 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
U.S. Government Bond
Portfolio -5.25%* 5.29%*
--------------------------------------------------------------------------------
Lehman Intermediate
Government/Corporate
Bond Index 0.39% 5.72%**
--------------------------------------------------------------------------------
Lipper Intermediate U.S.
Government Funds Average -1.68% 4.96%**
--------------------------------------------------------------------------------
* SINCE APRIL 1, 1996. CLASS A SHARES OF THE PORTFOLIO WERE OFFERED
BEGINNING APRIL 1, 1998. PERFORMANCE RESULTS SHOWN BEFORE THAT DATE ARE
FOR THE PORTFOLIO'S INSTITUTIONAL CLASS AND HAVE BEEN ADJUSTED FOR THE
MAXIMUM SALES CHARGE AND TOTAL ANNUAL OPERATING EXPENSES APPLICABLE TO
CLASS A SHARES. THE PORTFOLIO'S INSTITUTIONAL CLASS, WHICH IS NOT OFFERED
BY THIS PROSPECTUS, COMMENCED OPERATIONS ON MARCH 23, 1998. PERFORMANCE
RESULTS BEFORE THAT DATE ARE FOR THE MARKETVEST INTERMEDIATE U.S.
GOVERNMENT BOND FUND, WHICH BEGAN OFFERING ITS SHARES ON APRIL 1, 1996 AND
WAS REORGANIZED INTO THE PORTFOLIO ON MARCH 20, 1998. THE CLASS A ANNUAL
RETURNS WOULD HAVE BEEN SUBSTANTIALLY SIMILAR TO THOSE OF THE
INSTITUTIONAL CLASS BECAUSE SHARES OF EACH CLASS ARE INVESTED IN THE SAME
PORTFOLIO OF SECURITIES.
** SINCE MARCH 31, 1996.
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)
--------------------------------------------------------------------------------
CLASS A
SHARES
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) 4.50%(1)
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a percentage of
net asset value) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions
(as a percentage of offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None(2)
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
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 Intermediate
Government/Corporate 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. Treasury securities, U.S. Government agency obligations,
corporate debt securities, fixed-rate nonconvertible corporate debt
securities, Yankee bonds and nonconvertible corporate debt securities issued
by or guaranteed by foreign governments and agencies. All securities in the
index are rated investment-grade (BBB) or higher, with maturities of 1 to 10
years.
WHAT IS
AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with
a particular investment objective. You cannot invest directly in an average.
The Lipper Intermediate Investment Grade Debt Funds Average is a composite of
mutual funds with goals similar to the Portfolio's goals.
PROSPECTUS 25
<PAGE>
ARK U.S. GOVERNMENT BOND PORTFOLIO CONTINUED
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
CLASS A
SHARES
--------------------------------------------------------------------------------
Investment Advisory Fees 0.75%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.30%
--------------------------------------------------------------------------------
Other Expenses 0.34%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.39%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.20%
--------------------------------------------------------------------------------
TOTAL NET OPERATING EXPENSES 1.19%(3)
--------------------------------------------------------------------------------
(1)THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. SEE
"PURCHASING PORTFOLIO SHARES."
(2)IF REDEMPTION PROCEEDS ARE WIRED TO A BANK ACCOUNT, A
$10 FEE IS APPLICABLE.
(3)THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND
REIMBURSE EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FOR CLASS A
SHARES FROM EXCEEDING 1.19% UNTIL AUGUST 31, 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
WAIVER, 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 WAIVERS AT ANY TIME. WITH THE EXPENSE
REIMBURSEMENTS, THE PORTFOLIO'S ACTUAL TOTAL OPERATING EXPENSES WERE AS
FOLLOWS:
U.S. GOVERNMENT BOND PORTFOLIO - CLASS A SHARES 1.10%
FOR MORE INFORMATION ABOUT THESE FEES, SEE "INVESTMENT ADVISOR" AND
"PURCHASING, SELLING, EXCHANGING 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 and that you sell your shares at the end of the period.
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$566 $851 $1,158 $2,027
--------------------------------------------------------------------------------
26 PROSPECTUS
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
ARK INCOME PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Primarily current income and secondarily 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 primarily current income and secondarily 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 up
to 15% of the Portfolio's total 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 5 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, and may adversely affect the Portfolio's
performance.
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.
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.
28 PROSPECTUS
<PAGE>
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Class A
Shares for each year for six calendar years. Class A commenced operations
on April 12, 1994. The Portfolio's Institutional Class, which is not
offered in this prospectus, began offering its shares on July 16, 1993. In
the bar chart below, performance results before April 12, 1994 are for the
Institutional Class and have been adjusted for the total annual operating
expenses applicable to Class A Shares.
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
[GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
1994 -2.79%
1995 17.99%
1996 2.60%
1997 9.22%
1998 6.66%
1999 -2.03%
--------------------------------------------------------------------------------
BEST QUARTER 6.58% (6/30/95)
--------------------------------------------------------------------------------
WORST QUARTER -2.24% (3/31/96)
--------------------------------------------------------------------------------
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Class A total return was 2.82%.
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 and the Lipper Corporate A-Rated Debt Funds Average.
--------------------------------------------------------------------------------
SINCE
1 YEAR 5 YEARS INCEPTION
--------------------------------------------------------------------------------
Income Portfolio
Class A Shares -6.42% 5.70% 4.27%*
--------------------------------------------------------------------------------
Income Portfolio
Class B Shares -7.20% 5.56%** 4.37%**
--------------------------------------------------------------------------------
Lehman Aggregate
Bond Index -0.83% 7.73% 5.83%***
--------------------------------------------------------------------------------
Lipper Corporate A-Rated
Debt Funds Average -2.58% 6.90% 5.08%***
--------------------------------------------------------------------------------
*SINCE JULY 16, 1993. CLASS A SHARES OF THE PORTFOLIO WERE OFFERED
BEGINNING APRIL 12, 1994. PERFORMANCE RESULTS SHOWN BEFORE THAT DATE ARE
FOR THE PORTFOLIO'S INSTITUTIONAL CLASS AND HAVE BEEN ADJUSTED FOR THE
MAXIMUM SALES CHARGE AND TOTAL ANNUAL OPERATING EXPENSES APPLICABLE TO
CLASS A SHARES. THE PORTFOLIO'S INSTITUTIONAL CLASS, WHICH IS NOT OFFERED
BY THIS PROSPECTUS, COMMENCED OPERATIONS ON JULY 16, 1993. THE CLASS A
ANNUAL RETURNS WOULD HAVE BEEN SUBSTANTIALLY SIMILAR TO THOSE OF THE
INSTITUTIONAL CLASS BECAUSE SHARES OF EACH CLASS ARE INVESTED IN THE SAME
PORTFOLIO OF SECURITIES.
**SINCE JULY 16, 1993. CLASS B SHARES OF THE PORTFOLIO WERE OFFERED
BEGINNING SEPTEMBER 14, 1998. PERFORMANCE RESULTS SHOWN BEFORE THAT DATE
ARE FOR THE PORTFOLIO'S INSTITUTIONAL CLASS AND HAVE BEEN ADJUSTED FOR THE
MAXIMUM CONTINGENT DEFERRED SALES CHARGE AND TOTAL ANNUAL OPERATING
EXPENSES APPLICABLE TO CLASS B SHARES. THE PORTFOLIO'S INSTITUTIONAL
CLASS, WHICH IS NOT OFFERED BY THIS PROSPECTUS, COMMENCED OPERATIONS ON
JULY 16, 1993. THE CLASS B ANNUAL RETURNS WOULD HAVE BEEN SUBSTANTIALLY
SIMILAR TO THOSE OF THE INSTITUTIONAL CLASS BECAUSE SHARES OF EACH CLASS
ARE INVESTED IN THE SAME PORTFOLIO OF SECURITIES.
***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 1 year.
WHAT IS
AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with
a particular investment objective. You cannot invest directly in an average.
The Lipper Corporate A-Rated Debt Funds Average is a composite of mutual
funds with goals similar to the Portfolio's goals.
PROSPECTUS 29
<PAGE>
ARK INCOME PORTFOLIO CONTINUED
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)
--------------------------------------------------------------------------------
CLASS A CLASS B
SHARES SHARES
--------------------------------------------------------------------------------
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 5.00%(2)
--------------------------------------------------------------------------------
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(3) None(3)
--------------------------------------------------------------------------------
Exchange Fee None None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
CLASS A CLASS B
SHARES SHARES
--------------------------------------------------------------------------------
Investment Advisory Fees 0.60% 0.60%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.30% 0.75%
--------------------------------------------------------------------------------
Other Expenses 0.34% 0.44%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.24% 1.79%(5)
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.20%
--------------------------------------------------------------------------------
TOTAL NET OPERATING EXPENSES 1.04%(4)
--------------------------------------------------------------------------------
(1)THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. SEE
"PURCHASING PORTFOLIO SHARES."
(2)A SALES CHARGE IS IMPOSED IF YOU SELL CLASS B SHARES WITHIN SIX YEARS OF
YOUR PURCHASE. SEE "SELLING PORTFOLIO SHARES."
(3)IF REDEMPTION PROCEEDS ARE WIRED TO A BANK ACCOUNT, A $10 FEE IS
APPLICABLE.
(4)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 1.04% UNTIL AUGUST 31, 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, CLASS A SHARES' ACTUAL TOTAL OPERATING EXPENSES
WERE AS FOLLOWS:
INCOME PORTFOLIO - CLASS A SHARES 0.95%
(5)THE CLASS B SHARES' TOTAL ACTUAL ANNUAL OPERATING EXPENSES FOR THE MOST
RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE 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, CLASS B SHARES' ACTUAL TOTAL OPERATING EXPENSES WERE AS
FOLLOWS:
INCOME PORTFOLIO - CLASS B SHARES 1.70%
For more information about these fees, see "Investment Advisor" and
"Purchasing, Selling, Exchanging 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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Class A Shares $551 $807 $1,082 $1,866
--------------------------------------------------------------------------------
Class B Shares $682 $863 $1,170 $1,961
--------------------------------------------------------------------------------
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Class A Shares $551 $807 $1,082 $1,866
--------------------------------------------------------------------------------
Class B Shares $182 $563 $970 $1,961
--------------------------------------------------------------------------------
30 PROSPECTUS
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
ARK BALANCED PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Long-term total return
INVESTMENT FOCUS
Common stocks and fixed income securities
SHARE PRICE VOLATILITY
Medium
PRINCIPAL INVESTMENT STRATEGY
Investing in stocks and bonds to generate total return
INVESTOR PROFILE
Investors seeking total return by investing in a balanced portfolio of fixed
income and equity securities with lower volatility than an all equity portfolio
PRINCIPAL INVESTMENT STRATEGY OF THE BALANCED PORTFOLIO
The Balanced Portfolio seeks its investment goal by investing primarily in
a diverse portfolio of common stocks and investment-grade fixed income
securities. The Portfolio's Advisor will select common stocks of mid-sized
and larger companies (companies with market capitalizations of at least
$500 million at time of purchase) that are recognized leaders in their
respective markets. In evaluating securities for the Portfolio, the
Advisor considers each company's current financial strength, revenue,
earnings growth, and relative valuation of its stock. The Advisor will
also purchase investment-grade fixed income securities with varying
maturities, including corporate and government securities and
mortgage-backed securities. The Advisor will adjust the Portfolio's asset
mix based on its analysis of the relative attractiveness and risk of bonds
and stocks in connection with economic, financial and other market trends.
In selecting securities for the Portfolio, the Advisor attempts to
maximize total return by purchasing a combination of common stocks and
fixed income securities of U.S. issuers. The Advisor will also attempt to
minimize price declines during equity market downturns by reallocating
assets to fixed income securities. The dollar-weighted average maturity of
the Portfolio's fixed income securities may vary depending on market
conditions, but will typically be between 5 and 20 years.
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, and may adversely affect the Portfolio's
performance.
PRINCIPAL RISKS OF INVESTING IN THE BALANCED 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.
The medium capitalization companies the Portfolio invests in may be more
vulnerable to adverse business or economic events than larger, more
established companies. In particular, these mid-sized companies may have
limited product lines, markets and financial resources, and may depend
upon a relatively small management group. Therefore, mid-cap stocks may be
more volatile than those of larger companies.
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, including
governments. 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.
32 PROSPECTUS
<PAGE>
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 is also subject to the risk that the Advisor's asset
allocation decisions will not anticipate market trends successfully. For
example, investing too heavily in common stocks during a stock market
decline may result in a failure to preserve capital. Conversely, investing
too heavily in fixed income securities during a period of stock market
appreciation may result in lower total return.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Class A
Shares for each year for six calendar years. Class A commenced operations
on March 9, 1994. The Portfolio's Institutional Class, which is
not offered in this prospectus, began offering its shares on July 16,
1993. In the chart below, performance results before March 9, 1994 are for
the Institutional Class and have been adjusted for the total annual
operating expenses applicable to Class A Shares.
[GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
1994 -5.30%
1995 21.29%
1996 7.83%
1997 22.30%
1998 24.61%
1999 22.46%
--------------------------------------------------------------------------------
BEST QUARTER 18.25% (12/31/98)
--------------------------------------------------------------------------------
WORST QUARTER -7.74% (9/30/98)
--------------------------------------------------------------------------------
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Class A total return was 5.54%.
This table compares the Portfolio's average annual total returns for the
periods ended December 31, 1999, to those of the S&P 500 Composite Index,
Lehman Aggregate Bond Index, 60/40 Hybrid of the S&P 500 and Lehman
Aggregate Bond Index, and the Lipper Balanced Funds Average.
--------------------------------------------------------------------------------
SINCE
1 YEAR 5 YEARS INCEPTION
--------------------------------------------------------------------------------
Balanced Portfolio
Class A Shares 16.60% 18.38% 14.14%*
--------------------------------------------------------------------------------
Balanced Portfolio
Class B Shares 16.56% 18.18% 14.07%**
--------------------------------------------------------------------------------
S&P 500
Composite Index 21.04% 28.55% 22.86%***
--------------------------------------------------------------------------------
Lehman Aggregate
Bond Index -0.83% 7.73% 5.83%***
--------------------------------------------------------------------------------
60/40 Hybrid of the
S&P 500 and Lehman
Aggregate Bond Index 12.00% 20.08% 15.98%***
--------------------------------------------------------------------------------
Lipper Balanced
Funds Average 8.73% 16.24% 12.79%***
--------------------------------------------------------------------------------
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 S&P 500 Composite Index is
a widely recognized, market value-weighted (higher market value stocks have
more influence than lower market value stocks) index of 500 stocks designed
to mimic the overall equity market's industry weightings. 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. The
60/40 Hybrid of the S&P 500 and Lehman Aggregate benchmark is comprised of
two unmanaged indexes, weighted 60% S&P 500 Composite Index and 40% Lehman
Aggregate Bond Index. The Portfolio uses a blended index because it is better
suited to the Portfolio's strategy.
WHAT IS AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with
a particular investment objective. You cannot invest directly in an average.
The Lipper Balanced Funds Average is a composite of mutual funds with goals
similar to the Portfolio's goals.
PROSPECTUS 33
<PAGE>
ARK BALANCED PORTFOLIO CONTINUED
*SINCE JULY 16, 1993. CLASS A SHARES OF THE PORTFOLIO WERE OFFERED
BEGINNING MARCH 9, 1994. PERFORMANCE RESULTS SHOWN BEFORE THAT DATE ARE
FOR THE PORTFOLIO'S INSTITUTIONAL CLASS AND HAVE BEEN ADJUSTED FOR THE
MAXIMUM SALES CHARGE AND TOTAL ANNUAL OPERATING EXPENSES APPLICABLE TO
CLASS A SHARES. THE PORTFOLIO'S INSTITUTIONAL CLASS, WHICH IS NOT OFFERED
BY THIS PROSPECTUS, COMMENCED OPERATIONS ON JULY 16, 1993. THE CLASS A
ANNUAL RETURNS WOULD HAVE BEEN SUBSTANTIALLY SIMILAR TO THOSE OF THE
INSTITUTIONAL CLASS BECAUSE SHARES OF EACH CLASS ARE INVESTED IN THE SAME
PORTFOLIO OF SECURITIES.
**SINCE JULY 31, 1993. CLASS B SHARES OF THE PORTFOLIO WERE OFFERED
BEGINNING SEPTEMBER 14, 1998. PERFORMANCE RESULTS SHOWN BEFORE THAT DATE
ARE FOR THE PORTFOLIO'S INSTITUTIONAL CLASS AND HAVE BEEN ADJUSTED FOR THE
MAXIMUM CONTINGENT DEFERRED SALES CHARGE AND TOTAL ANNUAL OPERATING
EXPENSES APPLICABLE TO CLASS B SHARES. THE PORTFOLIO'S INSTITUTIONAL
CLASS, WHICH IS NOT OFFERED BY THIS PROSPECTUS, COMMENCED OPERATIONS ON
JULY 16, 1993. THE CLASS B ANNUAL RETURNS WOULD HAVE BEEN SUBSTANTIALLY
SIMILAR TO THOSE OF THE INSTITUTIONAL CLASS BECAUSE SHARES OF EACH CLASS
ARE INVESTED IN THE SAME PORTFOLIO OF SECURITIES.
***SINCE JULY 31, 1993.
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)
--------------------------------------------------------------------------------
CLASS A CLASS B
SHARES SHARES
--------------------------------------------------------------------------------
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 5.00%(2)
--------------------------------------------------------------------------------
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(3) None(3)
--------------------------------------------------------------------------------
Exchange Fee None None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
CLASS A CLASS B
SHARES SHARES
--------------------------------------------------------------------------------
Investment Advisory Fees 0.65% 0.65%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.40% 0.75%
--------------------------------------------------------------------------------
Other Expenses 0.35% 0.45%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.40% 1.85%(5)
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.30%
--------------------------------------------------------------------------------
TOTAL NET OPERATING EXPENSES 1.10%(4)
--------------------------------------------------------------------------------
(1)THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. SEE
"PURCHASING PORTFOLIO SHARES."
(2)A SALES CHARGE IS IMPOSED IF YOU SELL CLASS B SHARES WITHIN SIX YEARS OF
YOUR PURCHASE. SEE "SELLING PORTFOLIO SHARES."
(3)IF REDEMPTION PROCEEDS ARE WIRED TO A BANK ACCOUNT, A
$10 FEE IS APPLICABLE.
(4)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 1.10% UNTIL AUGUST 31, 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, CLASS A SHARES' ACTUAL TOTAL OPERATING EXPENSES
WERE AS FOLLOWS:
BALANCED PORTFOLIO - CLASS A SHARES 1.01%
(5)THE CLASS B SHARES' TOTAL ACTUAL ANNUAL OPERATING EXPENSES FOR THE MOST
RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE 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, CLASS B SHARES' ACTUAL TOTAL OPERATING EXPENSES WERE AS
FOLLOWS:
BALANCED PORTFOLIO - CLASS B SHARES 1.76%
For More information about these fees, see "Investment Advisor" and
"Purchasing, Selling, Exchanging and Distribution of Portfolio Shares."
34 PROSPECTUS
<PAGE>
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Class A Shares $582 $869 $1,177 $2,050
--------------------------------------------------------------------------------
Class B Shares $688 $882 $1,201 $2,052
--------------------------------------------------------------------------------
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Class A Shares $582 $869 $1,177 $2,050
--------------------------------------------------------------------------------
Class B Shares $188 $582 $1,001 $2,052
--------------------------------------------------------------------------------
PROSPECTUS 35
<PAGE>
ARK EQUITY INCOME PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Current income and growth of capital
INVESTMENT FOCUS
Dividend-paying U.S. common stocks
SHARE PRICE VOLATILITY
Medium to high
PRINCIPAL INVESTMENT STRATEGY
Investing in stocks which have an above-average dividend yield relative to the
broad stock market
INVESTOR PROFILE
Investors seeking current income and growth of capital who can tolerate the
share price volatility of equity investing
PRINCIPAL INVESTMENT STRATEGY OF THE EQUITY INCOME PORTFOLIO
The Equity Income Portfolio seeks its investment goal by investing
primarily in dividend-paying U.S. common stocks and other equity
securities. The Portfolio may, to a limited extent, purchase convertible
and preferred stocks and investment-grade fixed income securities. The
Portfolio's Advisor will build a broadly diversified portfolio of stocks
of mid-size and large companies (companies with market capitalizations of
at least $500 million) that have an above-average dividend yield relative
to the broad stock market.
In selecting securities for the Portfolio, the Advisor purchases stocks of
companies that have consistently paid dividends. In addition, the Advisor
will generally invest in stocks of companies whose securities are
attractively valued relative to comparable investments.
PRINCIPAL RISKS OF INVESTING IN THE EQUITY INCOME 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.
The medium capitalization companies the Portfolio invests in may be more
vulnerable to adverse business or economic events than larger, more
established companies. In particular, these mid-sized companies may have
limited product lines, markets and financial resources, and may depend
upon a relatively small management group. Therefore, mid-cap stocks may be
more volatile than those of larger companies.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows the performance of the Portfolio's Class A Shares for
each year for two calendar years.
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
1998 8.43%
1999 2.46%
--------------------------------------------------------------------------------
BEST QUARTER 11.49% (12/31/98)
--------------------------------------------------------------------------------
WORST QUARTER -10.44% (9/30/99)
--------------------------------------------------------------------------------
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
total return was 7.44%.
This table compares the Portfolio's average annual total returns for the
periods ended December 31, 1999, to those of the S&P 500
36 PROSPECTUS
<PAGE>
Composite Index and the Lipper Equity Income Funds Classification.
--------------------------------------------------------------------------------
CLASS A SHARES 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
Equity Income Portfolio -2.43% 9.35%*
--------------------------------------------------------------------------------
S&P 500 Composite Index 21.04% 27.40%**
--------------------------------------------------------------------------------
Lipper Equity Income
Funds Classificaton 4.56% 12.94%**
--------------------------------------------------------------------------------
* SINCE MAY 9, 1997.
** SINCE APRIL 30, 1997.
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)
--------------------------------------------------------------------------------
CLASS A
SHARES
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) 4.75%(1)
--------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions
(as a percentage of offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None(2)
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
CLASS A
SHARES
--------------------------------------------------------------------------------
Investment Advisory Fees 0.70%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.40%
--------------------------------------------------------------------------------
Other Expenses 0.35%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.45%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.29%
--------------------------------------------------------------------------------
TOTAL NET OPERATING EXPENSES 1.16%(3)
--------------------------------------------------------------------------------
(1)THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. SEE
"PURCHASING PORTFOLIO SHARES."
(2)IF REDEMPTION PROCEEDS ARE WIRED TO A BANK ACCOUNT, A
$10 FEE IS APPLICABLE.
(3)THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND
REIMBURSE EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FOR CLASS A
SHARES FROM EXCEEDING 1.16% UNTIL AUGUST 31, 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
WAIVER, 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 WERE AS
FOLLOWS:
EQUITY INCOME PORTFOLIO - CLASS A SHARES 1.09%
For more information about these fees, see "Investment Advisor" and
"Purchasing, Selling, Exchanging 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 and that you sell your shares at the end of the period.
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$588 $885 $1,203 $2,014
--------------------------------------------------------------------------------
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 S&P 500 Composite Index is
a widely recognized, market value-weighted (higher market value stocks have
more influence than lower market value stocks) index of 500 stocks designed
to mimic the overall equity market's industry weightings.
WHAT IS
A CLASSIFICATION?
A classification measures the share prices of a specific group of mutual
funds with a particular investment objective. You cannot invest directly in
a classification. The Lipper Equity Income Funds Classification is a
composite of mutual funds with goals similar to the Portfolio's goals.
PROSPECTUS 37
<PAGE>
ARK VALUE EQUITY PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Growth of principal
INVESTMENT FOCUS
U.S. common stocks
SHARE PRICE VOLATILITY
Medium to high
PRINCIPAL INVESTMENT STRATEGY
Investing in undervalued stocks of U.S. companies
INVESTOR PROFILE
Investors seeking long-term growth of principal who can tolerate the share price
volatility of equity investing
PRINCIPAL INVESTMENT STRATEGY OF THE VALUE EQUITY PORTFOLIO
The Value Equity Portfolio seeks its investment goal by investing
primarily in a diversified portfolio of common stocks and other equity
securities of U.S. issuers. The Portfolio's Advisor purchases stocks whose
prices appear low when compared to measures such as present and/or future
earnings and cash flows, as well as other out-of-favor stocks that the
Advisor believes are undervalued by the market.
In selecting investments for the Portfolio, the Advisor emphasizes stocks
with higher-than-average sales growth, higher-than-average return on
equity, above-average free cash flow, and return on invested capital that
exceeds the cost of capital. The Advisor will also weigh corporate
management's ability to adjust to the dynamics of rapidly changing
economic and business conditions. The Advisor's investment approach is
based on the conviction that, over the long term, broad-based economic
growth will be reflected in the growth of the revenues and earnings of
publicly held corporations.
PRINCIPAL RISKS OF INVESTING IN THE VALUE 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.
The medium capitalization companies the Portfolio invests in may be more
vulnerable to adverse business or economic events than larger, more
established companies. In particular, these mid-sized companies may have
limited product lines, markets and financial resources, and may depend
upon a relatively small management group. Therefore, mid-cap stocks may be
more volatile than those of larger companies.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Class A
Shares for each year for three calendar years. Class A commenced
operations on April 1, 1998. The Portfolio's Institutional Class,
which is not offered in this prospectus also began offering its shares on
April 1, 1998. In the bar chart below, performance results before April
1, 1998 are for the Institutional Class of the Marketvest Equity Fund,
which commenced operations on April 1, 1996 and was reorganized into the
Portfolio on March 27, 1998. The performance results have been adjusted
for the total annual operating expenses applicable to Class A Shares.
38 PROSPECTUS
<PAGE>
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
[GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
1997 28.82%
1998 18.79%
1999 11.70%
--------------------------------------------------------------------------------
BEST QUARTER 18.95% (12/31/98)
--------------------------------------------------------------------------------
WORST QUARTER -10.68% (9/30/98)
--------------------------------------------------------------------------------
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Class A total return was 3.76%.
This table compares the Portfolio's average annual total returns for the
periods ended December 31, 1999, to those of the S&P 500 Composite Index,
the S&P 500/BARRA Value Index, and the Lipper Large-Cap Value Funds
Classification.
1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
Value Equity Portfolio -
Class A Shares 6.43% 17.72%*
--------------------------------------------------------------------------------
Value Equity Portfolio -
Class B Shares 6.33% 17.84%**
--------------------------------------------------------------------------------
S&P 500 Composite Index 21.04% 26.60%***
--------------------------------------------------------------------------------
S&P 500/BARRA Value Index 12.72% 19.11%***
--------------------------------------------------------------------------------
Lipper Large-Cap Value
Funds Classification 11.17% 19.07%***
--------------------------------------------------------------------------------
*SINCE APRIL 1, 1996. CLASS A SHARES OF THE PORTFOLIO WERE OFFERED
BEGINNING APRIL 1, 1998. PERFORMANCE RESULTS SHOWN BEFORE THAT DATE ARE
FOR THE PORTFOLIO'S INSTITUTIONAL CLASS AND HAVE BEEN ADJUSTED FOR THE
MAXIMUM SALES CHARGE AND TOTAL ANNUAL OPERATING EXPENSES APPLICABLE TO
CLASS A SHARES. THE PORTFOLIO'S INSTITUTIONAL CLASS, WHICH IS NOT OFFERED
BY THIS PROSPECTUS, COMMENCED OPERATIONS ON APRIL 1, 1998. PERFORMANCE
RESULTS BEFORE THAT DATE ARE FOR THE MARKETVEST EQUITY FUND, WHICH BEGAN
OFFERING ITS SHARES ON APRIL 1, 1996 AND WAS REORGANIZED INTO THE
PORTFOLIO ON MARCH 27, 1998. THE CLASS A ANNUAL RETURNS WOULD HAVE BEEN
SUBSTANTIALLY SIMILAR TO THOSE OF THE INSTITUTIONAL CLASS BECAUSE SHARES
OF EACH CLASS ARE INVESTED IN THE SAME PORTFOLIO OF SECURITIES.
**SINCE APRIL 1, 1996. CLASS B SHARES OF THE PORTFOLIO WERE OFFERED
BEGINNING SEPTEMBER 14, 1998. PERFORMANCE RESULTS BEFORE THAT DATE ARE FOR
THE PORTFOLIO'S INSTITUTIONAL CLASS AND HAVE BEEN ADJUSTED FOR THE MAXIMUM
CONTINGENT DEFERRED SALES CHARGE AND TOTAL ANNUAL OPERATING EXPENSES
APPLICABLE TO CLASS B SHARES. THE PORTFOLIO'S INSTITUTIONAL CLASS, WHICH
IS NOT OFFERED BY THIS PROSPECTUS, COMMENCED OPERATIONS ON APRIL 1, 1998.
PERFORMANCE RESULTS BEFORE THAT DATE ARE FOR THE MARKETVEST EQUITY FUND,
WHICH BEGAN OFFERING ITS SHARES ON APRIL 1, 1996 AND WAS REORGANIZED INTO
THE PORTFOLIO ON MARCH 27, 1998. THE CLASS B ANNUAL RETURNS WOULD HAVE
BEEN SUBSTANTIALLY SIMILAR TO THOSE OF THE INSTITUTIONAL CLASS BECAUSE
SHARES OF EACH CLASS ARE INVESTED IN THE SAME PORTFOLIO OF SECURITIES.
***SINCE MARCH 31, 1996.
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)
--------------------------------------------------------------------------------
CLASS A CLASS B
SHARES SHARES
--------------------------------------------------------------------------------
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 5.00%(2)
--------------------------------------------------------------------------------
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(3) None(3)
--------------------------------------------------------------------------------
Exchange Fee None None
--------------------------------------------------------------------------------
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 S&P 500 Composite Index is
a widely recognized, market value-weighted (higher market value stocks have
more influence than lower market value stocks) index of 500 stocks designed
to mimic the overall equity market's industry weightings. The S&P 500/BARRA
Value Index is a widely recognized index of the stocks in the S&P 500 Index
that have lower price-to-book ratios.
WHAT IS A CLASSIFICATION?
A classification measures the share prices of a specific group of mutual
funds with a particular investment objective. You cannot invest directly in a
classification. The Lipper Large-Cap Value Funds Classification is a
composite of mutual funds with goals similar to the Portfolio's goals.
PROSPECTUS 39
<PAGE>
ARK VALUE EQUITY PORTFOLIO CONTINUED
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
CLASS A CLASS B
SHARES SHARES
--------------------------------------------------------------------------------
Investment Advisory Fees 1.00% 1.00%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.40% 0.75%
--------------------------------------------------------------------------------
Other Expenses 0.34% 0.44%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.74% 2.19%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.34% 0.04%
--------------------------------------------------------------------------------
TOTAL NET OPERATING EXPENSES 1.40%(4) 2.15%(4)
--------------------------------------------------------------------------------
(1)THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. SEE
"PURCHASING PORTFOLIO SHARES."
(2)A SALES CHARGE IS IMPOSED IF YOU SELL CLASS B SHARES WITHIN SIX YEARS OF
YOUR PURCHASE. SEE "SELLING PORTFOLIO SHARES."
(3)IF REDEMPTION PROCEEDS ARE WIRED TO A BANK ACCOUNT, A $10 FEE IS
APPLICABLE.
(4)THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND
REIMBURSE EXPENSES OF CLASS A AND CLASS B SHARES IN ORDER TO KEEP TOTAL
OPERATING EXPENSES FROM EXCEEDING 1.40% AND 2.15%, RESPECTIVELY, UNTIL
AUGUST 31, 2001. CLASS A AND CLASS B 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 WAIVER, THE ADVISOR IS
VOLUNTARILY REIMBURSING EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES
AT SPECIFIED LEVELS. THE ADVISOR MAY DISCONTINUE ALL OR PART OF THESE
REIMBURSEMENTS AT ANY TIME. WITH THE EXPENSE REIMBURSEMENTS, THE
PORTFOLIO'S ACTUAL TOTAL OPERATING EXPENSES WERE AS FOLLOWS:
VALUE EQUITY PORTFOLIO - CLASS A SHARES 1.31%
VALUE EQUITY PORTFOLIO - CLASS B SHARES 2.06%
For more information about these fees, see "Investment Advisor" and
"Purchasing, Selling, Exchanging 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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Class A Shares $611 $965 $1,344 $2,402
--------------------------------------------------------------------------------
Class B Shares $718 $981 $1,371 $2,407
--------------------------------------------------------------------------------
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Class A Shares $611 $965 $1,344 $2,402
--------------------------------------------------------------------------------
Class B Shares $218 $681 $1,171 $2,407
--------------------------------------------------------------------------------
40 PROSPECTUS
<PAGE>
[THIS PAGE INTENIONALLY LEFT BLANK]
<PAGE>
ARK EQUITY INDEX PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Investment results that correspond to the performance of the S&P 500 Composite
Index (S&P 500)
INVESTMENT FOCUS
U.S. common stocks
SHARE PRICE VOLATILITY
Medium to high
PRINCIPAL INVESTMENT STRATEGY
Attempts to replicate the performance of the S&P 500
INVESTOR PROFILE
Investors seeking growth of capital who can tolerate the share price volatility
of equity investing
PRINCIPAL INVESTMENT STRATEGY OF THE EQUITY INDEX PORTFOLIO
The Equity Index Portfolio seeks its investment goal by investing in
securities listed in the S&P 500, which is comprised of 500 selected
securities (mostly common stocks). The Portfolio is managed by utilizing
a computer program that identifies which stocks should be purchased or
sold in order to replicate, as closely as practicable, the composition of
the S&P 500. The Portfolio will approximate the industry and sector
weightings of the S&P 500 by matching the weightings of the stocks
included in the S&P 500.
The Portfolio may, to a limited extent, invest in futures contracts,
options, options on futures, and index participation contracts based on
the S&P 500. The Portfolio will invest in these contracts and options to
maintain sufficient liquidity to meet redemption requests, to increase the
level of Portfolio assets devoted to replicating the composition of the
S&P 500, and to reduce transaction costs.
Although the Portfolio will not replicate the performance of the S&P 500
precisely, it is anticipated that there will be a close correlation
between the Portfolio's performance and that of the S&P 500 in both rising
and falling markets. The size and timing of cash flows and the level of
expenses are the principal factors that contribute to the lack of precise
correlation between the S&P 500 and the Portfolio.
PRINCIPAL RISKS OF INVESTING IN THE EQUITY INDEX 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.
The Advisor may not be able to match the performance of the Portfolio's
benchmark.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows the performance of the Portfolio's Class A Shares for
each year for two calendar years.
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
[GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
1998 29.01%
1999 20.76%
--------------------------------------------------------------------------------
BEST QUARTER 21.14% (12/31/98)
--------------------------------------------------------------------------------
WORST QUARTER -9.48% (9/30/98)
--------------------------------------------------------------------------------
42 PROSPECTUS
<PAGE>
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Class A total return was -0.61%.
This table compares the Portfolio's average annual total returns for the
periods ended December 31, 1999, to those of the S&P 500 Composite Index
and the Lipper S&P 500 Funds Average.
CLASS A SHARES 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
Equity Index Portfolio 14.99% 22.02%*
--------------------------------------------------------------------------------
S&P 500 Composite Index 21.04% 26.23%**
--------------------------------------------------------------------------------
Lipper S&P 500 Funds
Average 20.22% 25.55%**
--------------------------------------------------------------------------------
* SINCE NOVEMBER 3, 1997.
** SINCE OCTOBER 31, 1997.
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)
--------------------------------------------------------------------------------
CLASS A
SHARES
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) 4.75%(1)
--------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions
(as a percentage of offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None(2)
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
CLASS A
SHARES
--------------------------------------------------------------------------------
Investment Advisory Fees 0.20%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.40%
--------------------------------------------------------------------------------
Other Expenses 0.43%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.03%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.44%
--------------------------------------------------------------------------------
TOTAL NET OPERATING EXPENSES 0.59%(3)
--------------------------------------------------------------------------------
(1)THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. SEE
"PURCHASING PORTFOLIO SHARES."
(2)IF REDEMPTION PROCEEDS ARE WIRED TO A BANK ACCOUNT, A $10 FEE IS
APPLICABLE.
(3)THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND
REIMBURSE EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FOR CLASS A
SHARES FROM EXCEEDING 0.59% UNTIL AUGUST 31, 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
WAIVER, 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 WERE AS
FOLLOWS:
EQUITY INDEX PORTFOLIO - CLASS A SHARES 0.50%
For more information about these fees, see "Investment Advisor" and
"Purchasing, Selling, Exchanging 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 and that you sell your shares at the end of the period.
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$532 $746 $976 $1,637
--------------------------------------------------------------------------------
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 S&P 500 Composite Index is
a widely recognized, market value-weighted (higher market value stocks have
more influence than lower market value stocks) index of 500 stocks designed
to mimic the overall equity market's industry weightings.
WHAT IS AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with
a particular investment objective. You cannot invest directly in an average.
The Lipper S&P 500 Funds Average is a composite of mutual
funds with goals similar to the Portfolio's goals.
PROSPECTUS 43
<PAGE>
ARK BLUE CHIP EQUITY PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Long-term capital appreciation
INVESTMENT FOCUS
Large capitalization U.S. common stocks
SHARE PRICE VOLATILITY
Medium to high
PRINCIPAL INVESTMENT STRATEGY
Investing in stocks of established large capitalization companies
INVESTOR PROFILE
Investors seeking capital appreciation who can tolerate the share price
volatility of equity investing
PRINCIPAL INVESTMENT STRATEGY OF THE BLUE CHIP EQUITY PORTFOLIO
The Blue Chip Equity Portfolio seeks its investment goal by investing
primarily in common stocks and other equity securities of established U.S.
companies with market capitalizations in excess of $5 billion. The
Portfolio's Advisor generally purchases stocks of companies with at least
10 years of operating history that are recognized leaders in their
respective markets. The Portfolio also may, to a limited extent, purchase
stocks of rapidly growing companies in developing industries, convertible
and preferred stocks, and investment-grade fixed income securities.
In selecting investments for the Portfolio, the Advisor will purchase
securities of large companies with strong balance sheets and prospects for
above-average growth. The Advisor will also purchase securities of issuers
based on their current financial strength and their market valuations
relative to their competitors.
PRINCIPAL RISKS OF
INVESTING IN THE BLUE CHIP 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.
The medium capitalization companies the Portfolio invests in may be more
vulnerable to adverse business or economic events than larger, more
established companies. In particular, these mid-sized companies may have
limited product lines, markets and financial resources, and may depend
upon a relatively small management group. Therefore, mid-cap stocks may be
more volatile than those of larger companies.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Class A
Shares for each year for three calendar years. Class A commenced
operations on May 16, 1996. The Portfolio's Institutional Class,
which is not offered in this prospectus, began offering its shares on
April 1, 1996. In the bar chart below, performance results before May 16,
1996 are for the Institutional Class and have been adjusted for the total
annual operating expenses applicable to Class A Shares.
44 PROSPECTUS
<PAGE>
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
[GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
1997 32.75%
1998 26.26%
1999 26.15%
--------------------------------------------------------------------------------
BEST QUARTER 21.66% (12/31/98)
--------------------------------------------------------------------------------
WORST QUARTER -11.76% (9/30/98)
--------------------------------------------------------------------------------
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Class A total return was 4.72%.
This table compares the Portfolio's average annual total returns for the
periods ended December 31, 1999, to those of the S&P 500 Composite Index
and the Lipper Large-Cap Value Funds Classification.
1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
Blue Chip Equity Portfolio -
Class A Shares 20.13% 25.01%*
--------------------------------------------------------------------------------
Blue Chip Equity Portfolio -
Class B Shares 20.21% 25.69%**
--------------------------------------------------------------------------------
S&P 500 Composite Index 21.04% 26.60%***
--------------------------------------------------------------------------------
Lipper Large-Cap Value Funds
Classification 11.17% 19.07%***
--------------------------------------------------------------------------------
*SINCE APRIL 1, 1996. CLASS A SHARES OF THE PORTFOLIO WERE OFFERED
BEGINNING MAY 16, 1996. PERFORMANCE RESULTS SHOWN BEFORE THAT DATE ARE FOR
THE PORTFOLIO'S INSTITUTIONAL CLASS AND HAVE BEEN ADJUSTED FOR THE MAXIMUM
SALES CHARGE AND TOTAL ANNUAL OPERATING EXPENSES APPLICABLE TO CLASS A
SHARES. THE PORTFOLIO'S INSTITUTIONAL CLASS, WHICH IS NOT OFFERED BY THIS
PROSPECTUS, COMMENCED OPERATIONS ON APRIL 1, 1996. THE CLASS A ANNUAL
RETURNS WOULD HAVE BEEN SUBSTANTIALLY SIMILAR TO THOSE OF THE
INSTITUTIONAL CLASS BECAUSE SHARES OF EACH CLASS ARE INVESTED IN THE SAME
PORTFOLIO OF SECURITIES.
**SINCE APRIL 1, 1996. CLASS B SHARES OF THE PORTFOLIO WERE OFFERED
BEGINNING JULY 31, 1998. PERFORMANCE RESULTS SHOWN BEFORE THAT DATE ARE
FOR THE PORTFOLIO'S INSTITUTIONAL CLASS AND HAVE BEEN ADJUSTED FOR THE
MAXIMUM CONTINGENT DEFERRED SALES CHARGE AND TOTAL ANNUAL OPERATING
EXPENSES APPLICABLE TO CLASS B SHARES. THE PORTFOLIO'S INSTITUTIONAL
CLASS, WHICH IS NOT OFFERED BY THIS PROSPECTUS, COMMENCED OPERATIONS ON
APRIL 1, 1996. THE CLASS B ANNUAL RETURNS WOULD HAVE BEEN SUBSTANTIALLY
SIMILAR TO THOSE OF THE INSTITUTIONAL CLASS BECAUSE SHARES OF EACH CLASS
ARE INVESTED IN THE SAME PORTFOLIO OF SECURITIES.
***SINCE MARCH 31, 1996.
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)
--------------------------------------------------------------------------------
CLASS A CLASS B
SHARES SHARES
--------------------------------------------------------------------------------
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 5.00%(2)
--------------------------------------------------------------------------------
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(3) None(3)
--------------------------------------------------------------------------------
Exchange Fee None None
--------------------------------------------------------------------------------
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 S&P 500 Composite Index is
a widely recognized, market value-weighted (higher market value stocks have
more influence than lower market value stocks) index of 500 stocks designed
to mimic the overall equity market's industry weightings.
WHAT IS A CLASSIFICATION?
A classification measures the share prices of a specific group of mutual
funds with a particular investment objective. You cannot invest directly in a
classification. The Lipper Large-Cap Value Funds Classification is a
composite of mutual funds with goals similar to the Portfolio's goals.
PROSPECTUS 45
<PAGE>
ARK BLUE CHIP EQUITY PORTFOLIO CONTINUED
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
CLASS A CLASS B
SHARES SHARES
--------------------------------------------------------------------------------
Investment Advisory Fees 0.70% 0.70%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.55% 0.75%
--------------------------------------------------------------------------------
Other Expenses 0.38% 0.48%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.63% 1.93%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.46% 0.01%
--------------------------------------------------------------------------------
TOTAL NET OPERATING EXPENSES 1.17%(4) 1.92%(4)
--------------------------------------------------------------------------------
(1)THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. SEE
"PURCHASING PORTFOLIO SHARES."
(2)A SALES CHARGE IS IMPOSED IF YOU SELL CLASS B SHARES WITHIN SIX YEARS OF
YOUR PURCHASE. SEE "SELLING PORTFOLIO SHARES."
(3)IF REDEMPTION PROCEEDS ARE WIRED TO A BANK ACCOUNT, $10 FEE IS APPLICABLE.
(4)THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND
REIMBURSE EXPENSES OF THE CLASS A AND CLASS B SHARES IN ORDER TO KEEP
TOTAL OPERATING EXPENSES FROM EXCEEDING 1.17% AND 1.92%, RESPECTIVELY,
UNTIL AUGUST 31, 2001. CLASS A AND CLASS B 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 WAIVER, THE
ADVISOR IS VOLUNTARILY REIMBURSING EXPENSES IN ORDER TO KEEP TOTAL
OPERATING EXPENSES AT SPECIFIED LEVELS. THE ADVISOR MAY DISCONTINUE ALL OR
PART OF THESE REIMBURSEMENTS AT ANY TIME. WITH THE EXPENSE REIMBURSEMENTS,
THE PORTFOLIO'S ACTUAL TOTAL OPERATING EXPENSES WERE AS FOLLOWS:
BLUE CHIP EQUITY PORTFOLIO - CLASS A SHARES 1.08%
BLUE CHIP EQUITY PORTFOLIO - CLASS B SHARES 1.83%
For more information about these fees, see "Investment Advisor" and
"Purchasing, Selling, Exchanging 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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Class A Shares $589 $922 $1,278 $2,279
--------------------------------------------------------------------------------
Class B Shares $695 $905 $1,241 $2,175
--------------------------------------------------------------------------------
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Class A Shares $589 $922 $1,278 $2,279
--------------------------------------------------------------------------------
Class B Shares $195 $605 $1,041 $2,175
--------------------------------------------------------------------------------
46 PROSPECTUS
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
ARK CAPITAL GROWTH PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Long-term capital appreciation
INVESTMENT FOCUS
U.S. common stocks of various market capitalizations
SHARE PRICE VOLATILITY
Medium to high
PRINCIPAL INVESTMENT STRATEGY
Investing in stocks that offer above-average growth potential
INVESTOR PROFILE
Investors seeking capital appreciation who can tolerate the share price
volatility of equity investing
PRINCIPAL INVESTMENT STRATEGY OF THE CAPITAL GROWTH PORTFOLIO
The Capital Growth Portfolio seeks its investment goal by investing
primarily in common stocks and other equity securities. The Portfolio's
Advisor will build a broadly diversified portfolio of stocks with
above-average capital growth potential.
In selecting securities for the Portfolio, the Advisor purchases
securities of well-known, established companies and small and mid-size
companies (companies with market capitalizations of $8 billion or less).
In evaluating securities for the Portfolio, the Advisor considers each
company's current financial strength, as well as its revenue and earnings
growth and the valuation of its stock.
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, and may adversely affect the Portfolio's
performance.
PRINCIPAL RISKS OF INVESTING IN THE CAPITAL GROWTH 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.
The smaller and medium 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 and mid-size
companies may have limited product lines, markets and financial resources,
and may depend upon a relatively small management group. Therefore,
small-cap and mid-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.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Class A
Shares for each year for six calendar years. Class A commenced operations
on March 9, 1994; however, the Portfolio's Institutional Class, which is
not offered in this prospectus, began offering its shares on July 16,
1993. In the bar chart below, performance results before March 9, 1994 are
for the Institutional Class and have been adjusted for the total annual
operating expenses applicable to Class A Shares.
48 PROSPECTUS
<PAGE>
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
[GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
1994 -10.41%
1995 22.85%
1996 17.64%
1997 29.07%
1998 40.93%
1999 46.27%
--------------------------------------------------------------------------------
BEST QUARTER 34.98% (12/31/98)
--------------------------------------------------------------------------------
WORST QUARTER -14.17% (9/30/98)
--------------------------------------------------------------------------------
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Class A total return was 10.81%.
This table compares the Portfolio's average annual total returns for the
periods ended December 31, 1999, to those of the S&P 500 Composite Index
and the Lipper Multi-Cap Growth Funds Classification.
--------------------------------------------------------------------------------
SINCE
1 YEAR 5 YEARS INCEPTION
--------------------------------------------------------------------------------
Capital Growth Portfolio
Class A Shares 39.28% 29.65% 21.74%*
--------------------------------------------------------------------------------
Capital Growth Portfolio
Class B Shares 40.21% 29.09%*** 21.36%**
--------------------------------------------------------------------------------
S&P 500
Composite Index 21.04% 28.55% 22.86%***
--------------------------------------------------------------------------------
Lipper Multi-Cap Growth
Funds Classification 52.19% 28.56% 22.34%***
--------------------------------------------------------------------------------
*SINCE JULY 16, 1993. CLASS A SHARES OF THE PORTFOLIO WERE OFFERED
BEGINNING MARCH 9, 1994. PERFORMANCE RESULTS SHOWN BEFORE THAT DATE ARE
FOR THE PORTFOLIO'S INSTITUTIONAL CLASS AND HAVE BEEN ADJUSTED FOR THE
MAXIMUM SALES CHARGE AND TOTAL ANNUAL OPERATING EXPENSES APPLICABLE TO
CLASS A SHARES. THE PORTFOLIO'S INSTITUTIONAL CLASS, WHICH IS NOT OFFERED
BY THIS PROSPECTUS, COMMENCED OPERATIONS ON JULY 16, 1993. THE CLASS A
ANNUAL RETURNS WOULD HAVE BEEN SUBSTANTIALLY SIMILAR TO THOSE OF THE
INSTITUTIONAL CLASS BECAUSE SHARES OF EACH CLASS ARE INVESTED IN THE SAME
PORTFOLIO OF SECURITIES.
**SINCE JULY 16, 1993. CLASS B SHARES OF THE PORTFOLIO WERE OFFERED
BEGINNING SEPTEMBER 14, 1998. PERFORMANCE RESULTS SHOWN BEFORE THAT DATE
ARE FOR THE PORTFOLIO'S INSTITUTIONAL CLASS AND HAVE BEEN ADJUSTED FOR THE
MAXIMUM CONTINGENT DEFERRED SALES CHARGE AND TOTAL ANNUAL OPERATING
EXPENSES APPLICABLE TO CLASS B SHARES. THE PORTFOLIO'S INSTITUTIONAL
CLASS, WHICH IS NOT OFFERED BY THIS PROSPECTUS, COMMENCED OPERATIONS ON
JULY 16, 1993. THE CLASS B ANNUAL RETURNS WOULD HAVE BEEN SUBSTANTIALLY
SIMILAR TO THOSE OF THE INSTITUTIONAL CLASS BECAUSE SHARES OF EACH CLASS
ARE INVESTED IN THE SAME PORTFOLIO OF SECURITIES.
***SINCE JULY 31, 1993.
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)
--------------------------------------------------------------------------------
CLASS A CLASS B
SHARES SHARES
--------------------------------------------------------------------------------
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 5.00%(2)
--------------------------------------------------------------------------------
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(3) None(3)
--------------------------------------------------------------------------------
Exchange Fee None None
--------------------------------------------------------------------------------
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 S&P 500 Composite Index is
a widely recognized, market value-weighted (higher market value stocks have
more influence than lower market value stocks) index of 500 stocks designed
to mimic the overall equity market's industry weightings.
WHAT IS A CLASSIFICATION?
A classification measures the share prices of a specific group of mutual
funds with a particular investment objective. You cannot invest directly in a
classification. The Lipper Multi-Cap Growth Funds Classification is a
composite of mutual funds with goals similar to the Portfolio's goals.
PROSPECTUS 49
<PAGE>
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
CLASS A CLASS B
SHARES SHARES
--------------------------------------------------------------------------------
Investment Advisory Fees 0.70% 0.70%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.40% 0.75%
--------------------------------------------------------------------------------
Other Expenses 0.36% 0.46%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.46% 1.91%(5)
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.26%
--------------------------------------------------------------------------------
TOTAL NET OPERATING EXPENSES 1.20%(4)
--------------------------------------------------------------------------------
(1)THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. SEE
"PURCHASING PORTFOLIO SHARES."
(2)A SALES CHARGE IS IMPOSED IF YOU SELL CLASS B SHARES WITHIN SIX YEARS OF
YOUR PURCHASE. SEE "SELLING PORTFOLIO SHARES."
(3)IF REDEMPTION PROCEEDS ARE WIRED TO A BANK ACCOUNT, A $10 FEE IS
APPLICABLE.
(4)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 1.20% UNTIL AUGUST 31, 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, CLASS A SHARES' ACTUAL TOTAL
OPERATING EXPENSES WERE AS FOLLOWS:
CAPITAL GROWTH PORTFOLIO - CLASS A SHARES 1.11%
(5)THE CLASS B SHARES' TOTAL ACTUAL ANNUAL OPERATING EXPENSES FOR THE MOST
RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE 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, CLASS B SHARES' ACTUAL TOTAL OPERATING EXPENSES WERE AS
FOLLOWS:
CAPITAL GROWTH PORTFOLIO - CLASS B SHARES 1.86%
For more information about these fees, see "Investment Advisor" and
"Purchasing, Selling, Exchanging 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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Class A Shares $591 $890 $1,211 $2,117
--------------------------------------------------------------------------------
Class B Shares $694 $900 $1,232 $2,116
--------------------------------------------------------------------------------
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Class A Shares $591 $890 $1,211 $2,117
--------------------------------------------------------------------------------
Class B Shares $194 $600 $1,032 $2,116
--------------------------------------------------------------------------------
50 PROSPECTUS
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
ARK MID-CAP EQUITY PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Long-term capital appreciation
INVESTMENT FOCUS
Medium capitalization U.S. common stocks
SHARE PRICE VOLATILITY
High
PRINCIPAL INVESTMENT STRATEGY
Investing in stocks of mid-sized companies that have significant growth
potential
INVESTOR PROFILE
Investors seeking growth of capital who can tolerate the share price volatility
of mid-cap equity investing
PRINCIPAL INVESTMENT STRATEGY OF THE MID-CAP EQUITY PORTFOLIO
The Mid-Cap Equity Portfolio seeks its investment goal by investing
primarily in common stocks and other equity securities of U.S. issuers.
The Portfolio's Advisor chooses stocks of companies with market
capitalizations of between $500 million and $8 billion that have
significant growth potential.
In selecting securities for the Portfolio, the Advisor purchases
securities of companies that have not reached full maturity, but that have
above-average sales and earnings growth. The Advisor also looks for
medium-sized companies with relatively low or unrecognized market
valuations.
PRINCIPAL RISKS OF
INVESTING IN THE MID-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.
The medium capitalization companies the Portfolio invests in may be more
vulnerable to adverse business or economic events than larger, more
established companies. In particular, these mid-sized companies may have
limited product lines, markets and financial resources, and may depend
upon a relatively small management group. Therefore, mid-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.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's
Institutional Class Shares for each year for three calendar years. Class A
commenced operations on September 1, 1999 and do not have a full calendar
year of performance. The Portfolio's Institutional Class, which is not
offered in this prospectus, began offering its shares on November 18,
1996. In the bar chart below, performance results shown are for the
Institutional Class and have been adjusted for the total annual operating
expenses applicable to Class A Shares.
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
[GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
1997 30.87%
1998 21.84%
1999 22.15%
--------------------------------------------------------------------------------
BEST QUARTER 30.55% (12/31/98)
--------------------------------------------------------------------------------
WORST QUARTER -15.39% (9/30/98)
--------------------------------------------------------------------------------
52 PROSPECTUS
<PAGE>
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional Class total return was 13.97%.
The table which follows compares the Portfolio's average annual total
returns for the periods ended December 31, 1999, to those of the S&P 400
Mid-Cap Index and the Lipper Mid-Cap Growth Funds Classification.
CLASS A SHARES 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
Mid-Cap Equity Portfolio 16.32%* 22.20%*
--------------------------------------------------------------------------------
S&P 400 Mid-Cap Index 14.72% 21.20%**
--------------------------------------------------------------------------------
Lipper Mid-Cap Growth
Funds Classification 72.56% 27.76%**
--------------------------------------------------------------------------------
*SINCE NOVEMBER 18, 1996. CLASS A SHARES OF THE PORTFOLIO WERE OFFERED
BEGINNING SEPTEMBER 1, 1999 AND DO NOT HAVE A FULL CALENDAR YEAR OF
PERFORMANCE. PERFORMANCE RESULTS SHOWN ARE FOR THE PORTFOLIO'S
INSTITUTIONAL CLASS AND HAVE BEEN ADJUSTED FOR THE MAXIMUM SALES CHARGE
AND TOTAL ANNUAL OPERATING EXPENSES APPLICABLE TO CLASS A SHARES. THE
PORTFOLIO'S INSTITUTIONAL CLASS, WHICH IS NOT OFFERED BY THIS PROSPECTUS,
COMMENCED OPERATIONS ON NOVEMBER 18, 1996. THE CLASS A ANNUAL RETURNS
WOULD HAVE BEEN SUBSTANTIALLY SIMILAR TO THOSE OF THE INSTITUTIONAL CLASS
BECAUSE SHARES OF EACH CLASS ARE INVESTED IN THE SAME PORTFOLIO OF
SECURITIES.
**SINCE NOVEMBER 30, 1996.
PORTFOLIO FEES AND EXPENSES
This table describes the shareholder fees that you may pay if you purchase
or sell Portfolio shares. You would pay these fees directly from your
investment in the Portfolio.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
--------------------------------------------------------------------------------
CLASS A
SHARES
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) 4.75%(1)
--------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions
(as a percentage of offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None(2)
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
CLASS A
SHARES
--------------------------------------------------------------------------------
Investment Advisory Fees 0.80%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.40%
--------------------------------------------------------------------------------
Other Expenses 0.38%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.58%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.27%
--------------------------------------------------------------------------------
TOTAL NET OPERATING EXPENSES 1.31%(3)
--------------------------------------------------------------------------------
(1)THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. SEE
"PURCHASING PORTFOLIO SHARES."
(2)IF REDEMPTION PROCEEDS ARE WIRED TO A BANK ACCOUNT, A $10 FEE IS
APPLICABLE.
(3)THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND
REIMBURSE EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FOR CLASS A
SHARES FROM EXCEEDING 1.31% UNTIL AUGUST 31, 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
WAIVER, 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 VOLUNTARY WAIVERS AT ANY TIME. WITH THE EXPENSE
REIMBURSEMENTS, THE PORTFOLIO'S ACTUAL TOTAL OPERATING EXPENSES WERE AS
FOLLOWS:
MID-CAP EQUITY PORTFOLIO - CLASS A SHARES 1.22%
For more information about these fees, see "Investment Advisor" and
"Purchasing, Selling, Exchanging 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 and that you sell your shares at the end of the period.
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$602 $925 $1,270 $2,242
--------------------------------------------------------------------------------
WHAT IS AN INDEX?
AAn 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 S&P 400 Mid-Cap Index is a
widely recognized, market value-weighted (higher market value stocks have
more influence than lower market value stocks) index of 400 medium
capitalization stocks.
WHAT IS A CLASSIFICATION?
A classification measures the share prices of a specific group of mutual
funds with a particular investment objective. You cannot invest directly in a
classification. The Lipper Mid-Cap Growth Funds Classification is a composite
of mutual funds with goals similar to the Portfolio's goals.
PROSPECTUS 53
<PAGE>
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 goal 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. The Portfolio
invests primarily in companies with market capitalizations of $2 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, and may adversely affect the Portfolio's
performance.
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.
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.
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.
54 PROSPECTUS
<PAGE>
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.
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
The bar chart and the performance table below 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.
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.
1997 5.36%
1998 19.05%
1999 149.79%
--------------------------------------------------------------------------------
BEST QUARTER 82.12% (12/31/99)
--------------------------------------------------------------------------------
WORST QUARTER -18.54% (9/30/98)
--------------------------------------------------------------------------------
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Class A total return was -0.77%.
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, the Russell 2000 Index, and the Lipper Mid-Cap Growth Funds
Classification.
CLASS A SHARES 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
Small-Cap Equity Portfolio1 137.89% 29.93%*
--------------------------------------------------------------------------------
Russell 2000 Growth Index 43.10% 12.41%**
--------------------------------------------------------------------------------
Russell 2000 Index 21.26% 11.22%**
--------------------------------------------------------------------------------
Lipper Mid-Cap Growth Funds
Classification 72.56% 21.04%**
--------------------------------------------------------------------------------
* SINCE MAY 16, 1996.
** SINCE MAY 31, 1996.
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.
The Russell 2000 Index is a widely recognized, capitalization-weighted index,
which measures the performance of the 2,000 smallest companies in the Russell
3000 index.
WHAT IS A CLASSIFICATION?
A classification measures the share prices of a specific group of mutual
funds with a particular investment objective. You cannot invest directly in a
classification. The Lipper Mid-Cap Growth Funds Classification is a composite
of mutual funds with goals similar to the Portfolio's goals.
PROSPECTUS 55
<PAGE>
ARK SMALL-CAP EQUITY PORTFOLIO CONTINUED
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)
--------------------------------------------------------------------------------
CLASS A
SHARES
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) 4.75%(1)
--------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions
(as a percentage of offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None(2)
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
CLASS A
SHARES
--------------------------------------------------------------------------------
Investment Advisory Fees 0.80%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.40%
--------------------------------------------------------------------------------
Other Expenses 0.41%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.61%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.22%
--------------------------------------------------------------------------------
TOTAL NET OPERATING EXPENSES 1.39%(3)
--------------------------------------------------------------------------------
(1)THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. SEE
"PURCHASING PORTFOLIO SHARES."
(2)IF REDEMPTION PROCEEDS ARE WIRED TO A BANK ACCOUNT, A $10 FEE IS
APPLICABLE.
(3)THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND
REIMBURSE EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FOR CLASS A
SHARES FROM EXCEEDING 1.39% UNTIL AUGUST 31, 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
WERE AS FOLLOWS:
SMALL-CAP EQUITY PORTFOLIO - CLASS A SHARES 1.30%
For more information about these fees, see "Investment Advisor" and
"Purchasing, Selling, Exchanging 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 and that you sell your shares at the end of the period.
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$610 $938 $1,290 $2,278
--------------------------------------------------------------------------------
56 PROSPECTUS
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
ARK INTERNATIONAL EQUITY PORTFOLIO
(FORMERLY INTERNATIONAL EQUITY SELECTION PORTFOLIO)
PORTFOLIO SUMMARY
INVESTMENT GOAL
Long-term capital appreciation
INVESTMENT FOCUS
Investment companies that invest in 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 (formerly 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.
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, and may adversely affect the Portfolio's
performance.
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.
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.
The smaller and medium 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 and mid-size
companies may have limited product lines, markets and financial resources,
and may depend upon a relatively small management group. Therefore,
small-cap and mid-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.
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 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.
58 PROSPECTUS
<PAGE>
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
On August 8, 2000, the Portfolio changed its investment policy of
investing in mutual funds to investing directly in equity securities. On
August 12, 2000, the Govett International Equity Fund was reorganized into
the Portfolio. The investment objectives and policies of the Govett fund
and the revised investment objectives and policies of the Portfolio are
substantially similar.
This bar chart shows changes in the performance of Class A Retail Shares
of the Govett International Equity Fund for each year for seven calendar
years. Class A Retail Shares of the Govett fund were offered beginning
January 7, 1992.
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
[GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
1993 54.50%
1994 -8.44%
1995 11.01%
1996 12.13%
1997 -0.71%
1998 19.12%
1999 27.95%
--------------------------------------------------------------------------------
BEST QUARTER 18.73% (12/31/98)
--------------------------------------------------------------------------------
WORST QUARTER -13.86% (9/30/98)
--------------------------------------------------------------------------------
For the period from January 1, 2000 to June 30, 2000, total return for
Class A Retail Shares of the Govett Fund was -6.95%.
This table compares the Govett International Equity Fund's average annual
total returns for the periods ended December 31, 1999, to those of the
Morgan Stanley Capital International Europe Australia Far East ("MSCI
EAFE") Index and the MSCI EAFE + Emerging Markets ("MSCI EAFE+EMG") Index.
SINCE
CLASS A RETAIL SHARES 1 YEAR 5 YEARS INCEPTION
--------------------------------------------------------------------------------
International Equity
Govett Fund 27.95%* 13.50%* 12.28%*
--------------------------------------------------------------------------------
MSCI EAFE+
EMG Index 31.03% 11.82% 10.88%**
--------------------------------------------------------------------------------
MSCI EAFE Index 27.29% 13.15% 11.28%**
--------------------------------------------------------------------------------
*SINCE JANUARY 7, 1992. PERFORMANCE RESULTS SHOWN ARE FOR THE CLASS A
RETAIL OF GOVETT INTERNATIONAL EQUITY FUND, WHICH BEGAN OFFERING SHARES ON
JANUARY 7, 1992 AND WAS REORGANIZED INTO THE PORTFOLIO ON AUGUST 12, 2000.
THE INVESTMENT OBJECTIVES AND POLICIES OF THE GOVETT FUND AND THE REVISED
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIO ARE SUBSTANTIALLY
SIMILAR. THERE WAS NO SALES CHARGE APPLICABLE TO CLASS A RETAIL SHARES OF
THE GOVETT FUND. PERFORMANCE RESULTS HAVE NOT BEEN ADJUSTED FOR THE SALES
CHARGE APPLICABLE TO RETAIL CLASS A SHARES OF THE PORTFOLIO.
**SINCE JANUARY 7, 1992.
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)
--------------------------------------------------------------------------------
CLASS A
SHARES
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) 4.75%(1)
--------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions
(as a percentage of offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None(2)
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
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 MSCI EAFE Index is
an unmanaged index that represents the general performance of
international equity markets, without consideration of emerging markets.
The MSCI EAFE+EMG Index is an unmanaged index that represents the general
performance of the international equity markets including emerging
markets.
PROSPECTUS 59
<PAGE>
ARK INTERNATIONAL EQUITY PORTFOLIO CONTINUED
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
CLASS A
SHARES
--------------------------------------------------------------------------------
Investment Advisory Fees 1.00%(3)
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.40%
--------------------------------------------------------------------------------
Other Expenses 0.45%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.85%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.35%
--------------------------------------------------------------------------------
TOTAL NET OPERATING EXPENSES 1.50%(4)
--------------------------------------------------------------------------------
(1)THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. SEE
"PURCHASING PORTFOLIO SHARES."
(2)IF REDEMPTION PROCEEDS ARE WIRED TO A BANK ACCOUNT, A $10 FEE IS
APPLICABLE.
(3)INVESTMENT ADVISORY FEES HAVE BEEN RESTATED TO REFLECT CURRENT FEES.
(4)THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND
REIMBURSE EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM
EXCEEDING 1.50% FOR CLASS A SHARES UNTIL AUGUST 31, 2001.
For more information about these fees, see "Investment Advisor" and
"Purchasing, Selling, Exchanging 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 and that you sell your shares at the end of the period.
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$620 $997 $1,397 $2,514
--------------------------------------------------------------------------------
60 PROSPECTUS
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
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 headquartered in Washington, D.C., comprised of
representatives from 181 countries, covers 206 nations and non-sovereign
entities that are recognized by the United Nations.
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, and may adversely affect the Portfolio's
performance.
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.
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.
The smaller and medium 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 and mid-size
companies may have limited product lines, markets and financial resources,
and may depend upon a relatively small management group. Therefore,
small-cap and mid-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.
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
62 PROSPECTUS
<PAGE>
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
The bar chart and the performance table below 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.
On August 12, 2000, the Govett Emerging Markets Equity Fund was
reorganized into the Portfolio. The investment objectives and policies of
the Govett fund and the Portfolio are substantially similar.
This bar chart shows changes in the performance of Class A Retail Shares
of the Govett Emerging Markets Fund for each year for seven calendar
years. Class A Retail Shares of the Govett fund were offered beginning
January 7, 1992.
The chart does not reflect sales charges. If sales charges had been
reflected, returns would be less than those shown below.
[GRAPHIC OMITTED]
PLOT POINTS ARE AS FOLLOWS:
1993 79.73%
1994 -12.65%
1995 -7.84%
1996 12.08%
1997 -10.40%
1998 34.18%
1999 70.10%
--------------------------------------------------------------------------------
BEST QUARTER 35.00% (12/31/99)
--------------------------------------------------------------------------------
WORST QUARTER -20.90% (9/30/98)
--------------------------------------------------------------------------------
For the period from January 1, 2000 to June 30, 2000, total return for
Class A Retail Shares of the Govett fund was -11.66%.
This table compares the Govett Emerging Markets Equity Fund's average
annual total returns for the periods ended December 31, 1999, to those of
the Morgan Stanley Capital International Emerging Markets Index "MSCI
Emerging Markets Index."
SINCE
CLASS A SHARES 1 YEAR 5 YEARS INCEPTION
--------------------------------------------------------------------------------
Emerging Markets
Equity Portfolio 70.10% 0.72% 7.21%*
--------------------------------------------------------------------------------
MSCI Emerging
Markets Index 68.90% 1.55% 8.27%**
--------------------------------------------------------------------------------
*SINCE JANUARY 7, 1992. PERFORMANCE RESULTS SHOWN ARE FOR THE CLASS A
RETAIL OF GOVETT EMERGING MARKETS EQUITY FUND, WHICH BEGAN OFFERING SHARES
ON JANUARY 7, 1992 AND WAS REORGANIZED INTO THE PORTFOLIO ON AUGUST 12,
2000. THE INVESTMENT OBJECTIVES AND POLICIES OF THE GOVETT FUND AND THE
PORTFOLIO ARE SUBSTANTIALLY SIMILAR. THERE WAS NO SALES CHARGE APPLICABLE
TO CLASS A RETAIL SHARES OF THE GOVETT FUND. PERFORMANCE RESULTS HAVE NOT
BEEN ADJUSTED FOR THE SALES CHARGE APPLICABLE TO RETAIL CLASS A SHARES OF
THE PORTFOLIO.
**SINCE JANUARY 7, 1992.
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)
--------------------------------------------------------------------------------
Class A
Shares
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) 4.75%(1)
--------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as a percentage
of net asset value) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
and other Distributions
(as a percentage of offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None(2)
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
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 MSCI Emerging
Markets Index is an unmanaged index that represents the general
performance of equity markets in emerging markets.
PROSPECTUS 63
<PAGE>
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
CLASS A
SHARES
--------------------------------------------------------------------------------
Investment Advisory Fees 1.00%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.40%
--------------------------------------------------------------------------------
Other Expenses 1.00%(3)
--------------------------------------------------------------------------------
Total Annual Portfolio
Operating Expenses 2.40%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.30%
--------------------------------------------------------------------------------
Total Net Operating Expenses 2.10%(4)
--------------------------------------------------------------------------------
(1)THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. SEE
"PURCHASING PORTFOLIO SHARES."
(2)IF REDEMPTION PROCEEDS ARE WIRED TO A BANK ACCOUNT, A
$10 FEE IS APPLICABLE.
(3)OTHER EXPENSES ARE BASED ON ESTIMATES FOR THE CURRENT FISCAL YEAR.
(4)THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND
REIMBURSE EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM
EXCEEDING 2.10% FOR CLASS A SHARES UNTIL AUGUST 31, 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 ESTIMATED TO BE AS FOLLOWS:
EMERGING MARKETS EQUITY PORTFOLIO -
CLASS A SHARES 2.08%
For more information about these fees, see "Investment Advisor" and
"Purchasing, Selling, Exchanging 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 and that you sell your shares at the end of the period.
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:
1 Year 3 Years
--------------------------------------------------------------------------------
$678 $1,161
--------------------------------------------------------------------------------
PROSPECTUS 64
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
<TABLE>
ADDITIONAL INFORMATION ABOUT PRINCIPAL RISK
RISKS PORTFOLIOS AFFECTED BY THE RISKS
<S> <C> <C>
EQUITY RISK-- Equity securities include publicly and privately Balanced Portfolio
issued equity securities, common and preferred stocks, warrants, Equity Income Portfolio
rights to subscribe to common stock and convertible securities, as Value Equity Portfolio
well as instruments that attempt to track the price movement of Equity Index Portfolio
equity indices. Investments in equity securities and equity Blue Chip Equity Portfolio
derivatives in general are subject to market risks that may cause Capital Growth Portfolio
their prices to fluctuate over time. Equity derivatives may be Mid-Cap Equity Portfolio
more volatile and increase portfolio risk. The value of Small-Cap Equity Portfolio
securities convertible into equity securities, such as warrants or International Equity Portfolio
convertible debt, is also affected by prevailing interest rates, Emerging Markets Equity Portfolio
the credit quality of the issuer and any call provision.
Fluctuations in the value of equity securities in which a mutual
fund investswill 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 whocan bear the risk of these share
price fluctuations.
---------------------------------------------------------------------------------------------------------
FIXED INCOME RISK-- The market values of fixed income investments Short-Term Treasury Portfolio
change in response to interest rate changes and other factors. Maryland Tax-Free Portfolio
During periods of falling interest rates, the values of Pennsylvania Tax-Free Portfolio
outstanding fixed income securities generally rise. Moreover, Intermediate Fixed Income Portfolio
while securities with longer maturities tend to produce higher U.S. Government Bond Portfolio
yields, the prices of longer maturity securities are also subject Income Portfolio
to greater market fluctuations as a result of changes in interest Balanced Portfolio
rates. In addition to these fundamental risks, different types of Small-Cap Equity Portfolio
fixed income securities may be subject to the following additional
risks:
---------------------------------------------------------------------------------------------------------
CALL RISK-- During periods of falling interest rates, Maryland Tax-Free Portfolio
certain debt obligations with high interest rates may be Pennsylvania Tax-Free Portfolio
prepaid (or "called") by the issuer prior to maturity. Intermediate Fixed Income Portfolio
This may cause a Portfolio's average weighted maturity to U.S. Government Bond Portfolio
fluctuate, and may require a Portfolio to invest the Income Portfolio
resulting proceeds at lower interest rates. Balanced Portfolio
---------------------------------------------------------------------------------------------------------
CREDIT RISK-- The possibility that an issuer will be Maryland Tax-Free Portfolio
unable to make timely payments of either principal or Pennsylvania Tax-Free Portfolio
interest. Intermediate Fixed Income Portfolio
U.S. Government Bond Portfolio
Income Portfolio
Balanced Portfolio
---------------------------------------------------------------------------------------------------------
EVENT RISK-- Securities may suffer declines in credit Maryland Tax-Free Portfolio
quality and market value due to issuer restructurings or Pennsylvania Tax-Free Portfolio
other factors. This risk should be reduced because of a Intermediate Fixed Income Portfolio
Portfolio's multiple holdings. U.S. Government Bond Portfolio
Income Portfolio
Balanced Portfolio
</TABLE>
66 PROSPECTUS
<PAGE>
<TABLE>
<S> <C> <C>
RISKS PORTFOLIOS AFFECTED BY THE RISKS
MORTGAGE-BACKED SECURITIES RISK-- Mortgage-backed securities are Intermediate Fixed Income Portfolio
fixed income securities representing an interest in a pool of U.S. Government Bond Portfolio
underlying mortgage loans. They are sensitive to changes in Income Portfolio
interest rates, but may respond to these changes differently from Balanced Portfolio
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.
---------------------------------------------------------------------------------------------------------
MUNICIPAL ISSUER RISK-- There may be economic or political changes Tax-Free Money Market Portfolio
that impact the ability of municipal issuers to repay principal Maryland Tax-Free Portfolio
and to make interest payments on municipal securities. Changes to Pennsylvania Tax-Free Portfolio
the financial condition or credit rating of municipal issuers may
also adversely affect the value of a Portfolio's municipal
securities. Constitutional or legislative limits on borrowing by
municipal issuers may result in reduced supplies of municipal
securities. Moreover, certain municipal securities are backed
only by a municipal issuer's ability to levy and collect taxes.
In addition, a Portfolio's concentration of investments in issuers Maryland Tax-Free Portfolio
MarylandTax-Free Portfolio located in a single state makes the Pennsylvania Tax-Free Portfolio
Portfolio moresusceptible to Pennsylvania Tax-Free Portfolio adverse
political or economicdevelopments affecting that state.
Such a Portfolio also may be riskier than mutual funds that buy
securities ofissuers in numerous states.
---------------------------------------------------------------------------------------------------------
FOREIGN SECURITY RISKS-- Investments in securities of foreign Small-Cap Equity Portfolio
companies or governments can be more volatile than investments in International Equity Portfolio
U.S. companies or governments. Diplomatic, political, or economic Emerging Markets Equity Portfolio
developments, including nationalization or appropriation, could
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
</TABLE>
PROSPECTUS 67
<PAGE>
ADDITIONAL INFORMATION ABOUT PRINCIPAL RISK
<TABLE>
<CAPTION>
<S> <C> <C>
RISKS PORTFOLIOS AFFECTED BY THE RISTS
dividend andinterest income. Although in some countries a portion
of these taxes arerecoverable, the non-recovered portion will reduce
the income received from thesecurities comprising the Portfolio.
In addition to these risks, certain foreign securities may be
subject to thefollowing additional risks factors:
--------------------------------------------------------------------------------------------------------
CURRENCY RISK-- Investments in foreign securities denominated Small-Cap Equity Portfolio
in foreign currencies involve additional risks, including: International Equity Portfolio
Emerging Markets Equity Portfolio
o The value of a Portfolio's assets measured in U.S. dollars
may beaffected by changes in currency rates and in exchange
control regulations.
o A Portfolio may incur substantial costs in connection with
conversions between various currencies.
o A Portfolio may be unable to hedge against possible
variations in foreign exchange rates or to hedge a specific
security transaction or portfolio position.
o A limited market currently exists for hedging transactions
relating to currencies in certain emerging markets.
--------------------------------------------------------------------------------------------------------
TRACKING ERROR RISK-- Factors such as Portfolio expenses, Equity Index Portfolio
imperfect correlation between a Portfolio's investments and those
of its benchmarks, rounding of share prices, changes to the
benchmark, regulatory policies, and leverage, may affect its
ability to achieve perfect correlation. The magnitude of any
tracking error may be affected by a higher portfolio turnover
rate. Because an index is just a composite of the prices of the
securities it represents rather than an actual portfolio of those
securities, an index will have no expenses. As a result, a
Portfolio, which will have expenses such as custody, management
fees and other operational costs, and brokerage expenses, may not
achieve its investment objective of accurately correlating to an
index.
</TABLE>
68 PROSPECTUS
<PAGE>
EACH PORTFOLIO'S OTHER INVESTMENTS
This prospectus describes the Portfolios' primary strategies, and the Portfolios
will normally invest at least 65% (80% for the money market fund Portfolios) 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.
PROSPECTUS 69
<PAGE>
INVESTMENT ADVISOR
The Portfolios' 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 June 30, 2000, AIA had approximately $14.5
billion in assets under management. For the fiscal year ended April 30, 2000,
AIA received advisory fees of:
--------------------------------------------------------------------------------
U.S. TREASURY MONEY MARKET PORTFOLIO 0.19%
--------------------------------------------------------------------------------
U.S. GOVERNMENT MONEY MARKET PORTFOLIO 0.14%
--------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO 0.12%
--------------------------------------------------------------------------------
TAX-FREE MONEY MARKET PORTFOLIO 0.09%
--------------------------------------------------------------------------------
SHORT-TERM TREASURY PORTFOLIO 0.35%
--------------------------------------------------------------------------------
MARYLAND TAX-FREE PORTFOLIO 0.49%
--------------------------------------------------------------------------------
PENNSYLVANIA TAX-FREE PORTFOLIO 0.65%
--------------------------------------------------------------------------------
INTERMEDIATE FIXED INCOME PORTFOLIO 0.49%
--------------------------------------------------------------------------------
U.S. GOVERNMENT BOND PORTFOLIO 0.66%
--------------------------------------------------------------------------------
INCOME PORTFOLIO 0.51%
--------------------------------------------------------------------------------
BALANCED PORTFOLIO 0.56%
--------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO 0.64%
--------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO 0.87%
--------------------------------------------------------------------------------
EQUITY INDEX PORTFOLIO 0.07%
--------------------------------------------------------------------------------
BLUE CHIP EQUITY PORTFOLIO 0.60%
--------------------------------------------------------------------------------
CAPITAL GROWTH PORTFOLIO 0.65%
--------------------------------------------------------------------------------
MID-CAP EQUITY PORTFOLIO 0.74%
--------------------------------------------------------------------------------
SMALL-CAP EQUITY PORTFOLIO 0.79%
--------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
(FORMERLY INTERNATIONAL EQUITY SELECTION PORTFOLIO) 0.55%*
--------------------------------------------------------------------------------
EMERGING MARKETS EQUITY PORTFOLIO 1.00%**
--------------------------------------------------------------------------------
* AN INCREASE IN THE PORTFOLIO'S INVESTMENT ADVISORY FEE PAYABLE FROM
0.65% TO 1.00% HAS BEEN 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 1.50%
FOR CLASS A SHARES UNTIL AUGUST 31, 2001.
**THE PORTFOLIO BEGAN OFFERING ITS SHARES ON AUGUST 12, 2000 AND HAS NOT
PAID ANY ADVISORY FEES FOR THE FISCAL YEAR ENDED APRIL 30, 2000. THE BOARD
OF TRUSTEES HAS APPROVED AN INVESTMENT ADVISORY FEE OF 1.00% FOR THE
PORTFOLIO. THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES
AND REIMBURSE EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM
EXCEEDING 2.10% FOR CLASS A SHARES UNTIL AUGUST 31, 2001. WITH THESE FEE
WAIVERS, THE ACTUAL ADVISORY FEES RECEIVED BY AIA WOULD 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 $71 billion at June 30, 2000.
INVESTMENT SUBADVISOR
AIB Govett, Inc. (AIB Govett), an indirect majority-owned subsidiary of AIB, is
the Subadvisor for the 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 June 30, 2000,
approximately $16.5 billion under management, primarily in non-U.S. funds.
PORTFOLIO MANAGERS
JAMES M. HANNAN is a Principal of AIA and manager of the U.S. TREASURY MONEY
MARKET PORTFOLIO, U.S. GOVERNMENT MONEY MARKET PORTFOLIO, MONEY MARKET
PORTFOLIO, TAX-FREE MONEY MARKET PORTFOLIO, AND SHORT-TERM TREASURY PORTFOLIO.
He is responsible for several separately managed institutional portfolios that
he has managed since 1992. He has served as a Vice President of Allfirst since
1987. Prior to 1987 he served as the Treasurer for the city of Hyattsville,
Maryland.
70 PROSPECTUS
<PAGE>
INVESTMENT ADVISOR
SUSAN L. SCHNAARS is a Principal of AIA and manager of the INTERMEDIATE
FIXED INCOME PORTFOLIO, MARYLAND TAX-FREE PORTFOLIO AND PENNSYLVANIA TAX-FREE
PORTFOLIO. Ms. Schnaars is also responsible for managing several large
institutional accounts. Prior to 1992, Ms. Schnaars managed institutional and
commingled fixed income portfolios, including the RAF Fixed Income Fund for PNC
Investment Management and Research (formerly known as Provident National Bank).
Ms. Schnaars is a Chartered Financial Analyst and a Certified Public Accountant.
STEVEN M. GRADOW is a Managing Director of, and Director of Fixed Income
Investments for, AIA and manager of the INCOME PORTFOLIO, co-manager, with Ms.
Volk, of the U.S. GOVERNMENT BOND PORTFOLIO, and co-manager of the ARK FUNDS
INSTITUTIONAL CLASS SHORT-TERM BOND 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 of fixed income
management for the Public Employees Retirement System of California (CALPERS).
N. BETH VOLK is a Principal of AIA and Senior Fixed Income Credit Analyst
responsible for leading the corporate research efforts of the Fixed Income
Group. Ms. Volk is co-manager, with Mr. Gradow, of the U.S. GOVERNMENT BOND
PORTFOLIO. Prior to 1996, she was the head of corporate fixed income research at
Alex. Brown & Sons. Ms. Volk has more than 18 years experience in the industry
and is a Chartered Financial Analyst.
CHARLES E. KNUDSEN III is a Managing Director of AIA and manager of the BALANCED
PORTFOLIO. He follows several equity industry groups. In addition, he is a
senior portfolio manager for key, tax-free institutional accounts, including
pension and profit-sharing plans, foundations, and endowments. Mr. Knudsen has
more than 14 years of investment management experience. Mr. Knudsen is a
Chartered Financial Analyst.
CLYDE L. RANDALL II is a Principal of AIA and co-manager, with Mr. Ashcroft, of
the BLUE CHIP EQUITY PORTFOLIO and manager of the EQUITY INCOME PORTFOLIO. Prior
to March 1995, Mr. Randall was an equity analyst and portfolio manager for more
than five years at Mercantile Safe Deposit and Trust Company, Baltimore,
Maryland. He has more than 16 years of experience in investment research and
equity analysis. Mr. Randall is a Chartered Financial Analyst.
ALLEN J. ASHCROFT, JR. is a Principal of AIA and co-manager, with Mr. Randall,
of the Blue Chip Equity Portfolio and manager of the Equity Income Portfolio.
Prior to joining Allfirst, Mr. Ashcroft was an equity analyst and portfolio
manager for McGlinn Capital Management, Wyomissing, Pennsylvania, for 12 years.
Mr. Ashcroft has more than 21 years of experience in investment research and
equity analysis.
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 MID-CAP EQUITY PORTFOLIO and the CAPITAL GROWTH PORTFOLIO are managed by a
portfolio management team under the supervision of J. Eric Leo. Through the team
approach, the firm seeks consistent implementation of process and continuity in
investment management staff for each Portfolio.
J. ERIC LEO is the Chief Investment Officer of AIA and Managing Director of
Equity Research responsible for overseeing the equity investment process for the
organization. Mr. Leo is the manager of the VALUE EQUITY PORTFOLIO. He has more
than 26 years experience managing portfolios and equity assets, most recently as
Executive Vice President and Chief Investment Officer of Legg Mason Capital
Management. He earned his B.S. degree from University of Richmond School of
Business Administration.
PROSPECTUS 71
<PAGE>
INVESTMENT ADVISOR
CLARENCE W. WOODS, JR. is a Principal of and Chief Equity Trader for AIA and
co-manager, with Mr. Hastings, of the EQUITY INDEX PORTFOLIO. He heads the
equity-trading unit and oversees the management of $4.5 billion of indexed
portfolios. Prior to joining AIA, Mr. Woods was the Chief Equity Trader for
Mercantile Bankshares, Baltimore, Maryland for 7 years. Mr. Woods has more
than 15 years experience in the investment industry.
PETER C. HASTINGS is a Vice President of AIA and co-manager, with Mr. Woods, of
the EQUITY INDEX PORTFOLIO. His responsibilities include trading and the
management of $4.5 billion of indexed portfolios. Prior to moving to the trading
area, Mr. Hastings created and sold indexed products as part of the marketing
unit. Mr. Hastings has 4 years of investment experience.
LOUISE MCGUIGAN has been the head of AIB Govett's EAFE product line since 1998
and is manager of the INTERNATIONAL EQUITY PORTFOLIO. Initially with AIB
Investment Managers Limited and subsequently Hill Samuel Fagan Investment
Management, she rejoined AIB Investment Managers Limited in 1994. She managed
AIB Investment Managers Limited's Far East equity book before becoming a
European equity manager in 1995. She graduated with an A.I.C.S. (Associate
Institute of Chartered Secretaries) and a Certified Diploma -- Accounting &
Finance.
CALUM GRAHAM is Director of Emerging Markets and director of AIB Govett
Asset Management Limited and manager of the EMERGING MARKETS EQUITY PORTFOLIO.
He joined AIB Govett in 1996 to specialize in Latin American investments. Two
years later, he was made head of the emerging markets group. Prior to joining
AIB Govett Asset Management Limited, he worked as a graduate trainee for
Cazenove & Co., where he helped set up the firm's operation in Latin America and
then joined the Latin American equity research and sales team for three years.
He is a Bachelor of Science graduate in Spanish from St. Andrew's University.
72 PROSPECTUS
<PAGE>
PURCHASING, SELLING, EXCHANGING AND DISTRIBUTION OF PORTFOLIO SHARES
This section tells you how to purchase, sell (sometimes called "redeem") or
exchange Class A and Class B Shares of the Portfolios.
The classes have different expenses and other characteristics.
CLASS A SHARES OF THE MONEY MARKET PORTFOLIOS
o No sales charge
o 12B-1 Fees and shareholder servicing fees
CLASS A SHARES OF THE OTHER PORTFOLIOS
o Front-end sales charge
o 12B-1 fees and shareholder servicing fees
CLASS B SHARES
o Contingent deferred sales charge
o Higher 12b-1 fees and shareholder servicing fees
Class A and Class B Shares are for individual investors and businesses.
There are three ways to invest in the ARK Funds:
o Through Authorized Brokers or Other Institutions
o Directly with ARK Funds
o Through the ARK Funds Employee Investment Program
GENERAL INFORMATION
You may purchase shares on any day that the New York Stock Exchange (NYSE) and
the Federal Reserve Bank of New York (Federal Reserve) are open for business (a
Business Day). Shares cannot be purchased by Federal Reserve wire on days when
either the NYSE or the Federal Reserve is closed.
A Portfolio 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 plus, in
the case of Class A Shares, the applicable front-end sales charge.
The U.S. Treasury Money Market Portfolio and Tax-Free Money Market Portfolio
calculate NAV each Business Day at 12:00 noon Eastern time and 4:00 p.m. Eastern
time. So, for you to be eligible to receive dividends declared on the day you
submit your purchase order, generally the Portfolio must receive your order and
Federal funds (readily available funds) before 12:00 noon Eastern time. For
orders received and accepted after 12:00 noon Eastern time but before 4:00 p.m.
Eastern time, you will begin earning dividends on the next Business Day.
The Money Market Portfolio and U.S. Government Money Market Portfolio calculate
their NAV each Business Day at 5:00 p.m. Eastern time. So, for you to be
eligible to receive dividends declared on the day you submit your purchase
order, generally the Portfolio must receive your order and Federal funds before
5:00 p.m. Eastern time.
The fixed income and equity Portfolios each calculate its NAV each Business Day
at the close of the NYSE (normally 4:00 p.m. Eastern time). So, for you to be
eligible to receive 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 (for the money market fund Portfolios only)
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, each non-money market fund Portfolio generally values its
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.
In calculating NAV for the U.S. Treasury Money Market, U.S. Government Money
Market, Tax-Free Money Market and Money Market Portfolio, we generally value
their investment portfolios using the amortized cost valuation method, which is
described in detail in our Statement of Additional Information. If this method
is determined to be unreliable during certain market conditions or for other
reasons, a Portfolio may value its securities at market price or 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.
PROSPECTUS 73
<PAGE>
PURCHASING, SELLING, EXCHANGING AND DISTRIBUTION OF PORTFOLIO SHARES
SALES CHARGES
ALTERNATIVE SALES CHARGE OPTIONS
You may purchase Class A or Class B Shares of the Portfolios at a price equal to
their net asset value per share plus any applicable sales charge. Class A Shares
include an initial sales charge. Class B Shares may pay a contingent deferred
sales charge (CDSC). The classes have the same rights and are identical in all
respects except that: (i) Class B Shares may pay deferred sales charges and pay
higher distribution and service fees; (ii) each class has exclusive voting
rights with respect to approvals of its Rule 12b-1 plan (although Class B
shareholders may be entitled to vote on any distribution fees imposed on Class A
Shares so long as Class B Shares convert into Class A Shares); (iii) only Class
B Shares carry a conversion feature; and (iv) each class has different exchange
privileges.
FRONT-END SALES CHARGES -- CLASS A SHARES
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>
U.S. GOVERNMENT BOND, INCOME, MARYLAND TAX-FREE,
PENNSYLVANIA TAX-FREE AND INTERMEDIATE FIXED INCOME PORTFOLIO
YOUR SALES CHARGE YOUR SALES CHARGE DEALER CONCESSION
IF YOUR AS A PERCENTAGE OF AS A PERCENTAGE OF AS % OF THE
INVESTMENT IS: OFFERING PRICE YOUR NET INVESTMENT OFFERING PRICE
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.05%
------------------------------------------------------------------------------------------------------------
$50,000 but less
than $100,000 4.00% 4.17% 3.60%
------------------------------------------------------------------------------------------------------------
$100,000 but less
than $250,000 3.00% 3.09% 2.70%
------------------------------------------------------------------------------------------------------------
$250,000 but less
than $500,000 2.50% 2.56% 2.25%
------------------------------------------------------------------------------------------------------------
$500,000 but less than
$1,000,000 2.00% 2.04% 1.80%
------------------------------------------------------------------------------------------------------------
$1,000,000 and above 0.00% 0.00% 0.00%
------------------------------------------------------------------------------------------------------------
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.
BALANCED, EQUITY INCOME, EQUITY INDEX, BLUE CHIP EQUITY,
VALUE EQUITY, CAPITAL GROWTH, MID-CAP EQUITY,
SMALL-CAP EQUITY, INTERNATIONAL EQUITY AND
EMERGING MARKETS EQUITY PORTFOLIOS
YOUR SALES CHARGE YOUR SALES CHARGE DEALER CONCESSION
IF YOUR AS A PERCENTAGE OF AS A PERCENTAGE OF AS % OF THE
INVESTMENT IS: OFFERING PRICE YOUR NET INVESTMENT OFFERING PRICE
------------------------------------------------------------------------------------------------------------
Less than $50,000 4.75% 4.99% 4.28%
------------------------------------------------------------------------------------------------------------
$50,000 but less
than $100,000 4.50% 4.71% 4.05%
------------------------------------------------------------------------------------------------------------
$100,000 but less
than $250,000 3.50% 3.63% 3.15%
------------------------------------------------------------------------------------------------------------
$250,000 but less
than $500,000 2.50% 2.56% 2.25%
------------------------------------------------------------------------------------------------------------
$500,000 but less
than $1,000,000 2.00% 2.04% 1.80%
------------------------------------------------------------------------------------------------------------
$1,000,000 and above 0.00% 0.00% 0.00%
------------------------------------------------------------------------------------------------------------
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.
</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;
74 PROSPECTUS
<PAGE>
(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
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 that 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. Rights of accumulation do not apply to purchases of Class A Shares of the
U.S. Treasury Money Market, U.S. Government Money Market, Money Market, Tax-Free
Money Market, and Short-Term Treasury Portfolios.
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.
PROSPECTUS 75
<PAGE>
PURCHASING, SELLING, EXCHANGING AND DISTRIBTUION OF PORTFOLIO SHARES
CONTINGENT DEFERRED SALES CHARGES -- CLASS B SHARES
You do not pay a sales charge when you purchase Class B Shares. The offering
price of Class B Shares is simply the next calculated NAV. But if you sell your
shares within six years after your purchase, you will pay a contingent deferred
sales charge as described in the table below for either (1) the NAV of the
shares at the time of purchase, or (2) NAV of the shares next calculated after
the Portfolio receives your sale request, whichever is less. The sales charge
does not apply to shares you purchase through reinvestment of dividends or
distributions. So, you never pay a deferred sales charge on any increase in your
investment above the initial offering price. This sales charge does not apply to
exchanges of Class B Shares of one Portfolio for Class B Shares of another
Portfolio.
At the end of eight years from the date of purchase, Class B Shares convert to
Class A Shares based on their relative net asset value. Class A Shares pay lower
expenses than Class B Shares.
CONTINGENT DEFERRED SALES CHARGE AS A
YEAR SINCE PURCHASE PERCENTAGE OF DOLLAR AMOUNT SUBJECT TO CHARGE
-------------------------------------------------------------------------------
First 5%
-------------------------------------------------------------------------------
Second 4%
-------------------------------------------------------------------------------
Third 3%
-------------------------------------------------------------------------------
Fourth 3%
-------------------------------------------------------------------------------
Fifth 2%
-------------------------------------------------------------------------------
Sixth 1%
-------------------------------------------------------------------------------
Seventh and after 0%
-------------------------------------------------------------------------------
The contingent deferred sales charge will be waived if you sell your Class B
Shares for the following reasons:
o to make certain withdrawals from a
retirement plan (not including IRAs);
o because of death or disability; or
o for certain payments under the Automatic Withdrawal Plan (which is discussed
later).
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.
No CDSC is imposed on redemptions of Class B Shares received from the
reinvestment of distributions on Class B Shares or exchanged for shares of
another Portfolio. However, Class B Shares acquired in exchanges (including
shares of the Money Market Portfolio) will continue to remain subject to the
CDSC, if applicable, until the applicable holding period expires. Class B Shares
not subject to a CDSC will always be redeemed first.
The CDSC will be computed using the schedule of the Portfolio with the highest
CDSC owned by you. In computing the CDSC, the length of time you owned the
shares will be measured from the date of original purchase and will not be
affected by exchanges. To exchange into another Portfolio, you must meet the
$500 minimum initial investment.
DISTRIBUTION OF PORTFOLIO 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.
76 PROSPECTUS
<PAGE>
Distribution fees, as a percentage of average daily net assets, may be up to
0.75%. The Board has set the distribution fees as follows:
FOR CLASS A SHARES
------------------------------------------------------
U.S. Treasury Money Market Portfolio 0.25%
------------------------------------------------------
U.S. Government Money Market Portfolio 0.25%
------------------------------------------------------
Money Market Portfolio 0.25%
------------------------------------------------------
Tax-Free Money Market Portfolio 0.25%
------------------------------------------------------
Short-Term Treasury Portfolio 0.40%
------------------------------------------------------
Maryland Tax-Free Portfolio 0.30%
------------------------------------------------------
Pennsylvania Tax-Free Portfolio 0.30%
------------------------------------------------------
Intermediate Fixed Income Portfolio 0.30%
------------------------------------------------------
U.S. Government Bond Portfolio 0.30%
------------------------------------------------------
Income Portfolio 0.30%
------------------------------------------------------
Balanced Portfolio 0.40%
------------------------------------------------------
Equity Income Portfolio 0.40%
------------------------------------------------------
Value Equity Portfolio 0.40%
------------------------------------------------------
Equity Index Portfolio 0.40%
------------------------------------------------------
Blue Chip Equity Portfolio 0.55%
------------------------------------------------------
Capital Growth Portfolio 0.40%
------------------------------------------------------
Mid-Cap Equity Portfolio 0.40%
------------------------------------------------------
Small-Cap Equity Portfolio 0.40%
------------------------------------------------------
International Equity Portfolio 0.40%
------------------------------------------------------
Emerging Markets Equity Portfolio 0.40%
------------------------------------------------------
FOR CLASS B SHARES
------------------------------------------------------
Money Market Portfolio 0.75%
------------------------------------------------------
Maryland Tax-Free Portfolio 0.75%
------------------------------------------------------
Pennsylvania Tax-Free Portfolio 0.75%
------------------------------------------------------
Income Portfolio 0.75%
------------------------------------------------------
Balanced Portfolio 0.75%
------------------------------------------------------
Value Equity Portfolio 0.75%
------------------------------------------------------
Blue Chip Equity Portfolio 0.75%
------------------------------------------------------
Capital Growth Portfolio 0.75%
------------------------------------------------------
In addition, for Class A and Class B Shares, shareholder services fees, as a
percentage of average daily net assets, may be up to 0.25%.
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.
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.
PROSPECTUS 77
<PAGE>
PURCHASING, SELLING, EXCHANGING AND DISTRIBUTION OF PORTFOLIO SHARES
DIRECTLY WITH ARK FUNDS
HOW TO PURCHASE PORTFOLIO SHARES
To purchase shares directly from us, please call 1-800-ARK-FUND, 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.
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 either by check or 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]
To insure proper crediting of your investment, you should notify ARK Funds'
transfer agent at 1-800-ARK-FUND 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, ARK Funds do not charge a fee for ACH transfers. You may
purchase shares through ACH by calling 1-800-ARK-FUND to effect the transfer.
HOW TO SELL YOUR PORTFOLIO SHARES
If you own shares directly, you may sell your shares on any Business Day by
contacting ARK Funds directly by mail at ARK Funds, P.O. Box 8525, Boston, MA
02266-8525, or by telephone at 1-800-ARK-FUND. There is no minimum amount for
telephone redemptions. The redemption price is based on the next calculation of
NAV after your request is received.
You may not close your account by telephone.
REDEMPTION BY MAIL
Along with your written request, the transfer agent will 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.
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.
REDEMPTION BY CHECKWRITING
Checkwriting is available for accounts investing in Class A Shares of a money
market Portfolio. You will be required to sign a signature card and will be
subject to the applicable rules and regulations of the clearing bank.
78 PROSPECTUS
<PAGE>
Checks in the amount of $500 or more drawn on one of the money market Portfolios
may be made payable to the order of any payee. You should be aware that, as the
case with regular bank checks, certain banks may not provide cash at the time of
deposit, but will wait until they have received payment from the clearing bank.
When a check is presented to the clearing bank for payment, subject to ARK
Funds' acceptance of the check, the clearing bank causes ARK Funds to redeem, at
the next NAV, a sufficient number of shares to cover the amount of the check.
Checks will be returned by the clearing bank if there are not sufficient shares
available. If you wish to use this checkwriting feature, you should check the
appropriate box on the Account Application, which includes a signature card, and
mail the completed form to ARK Funds, P.O. Box 8525, Boston, MA 02266-8525.
There is no charge for the checks, although the clearing bank will impose its
customary overdraft fee in connection with checks returned for insufficient
funds. As of the date of this prospectus, the overdraft fee is $20.
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.
If you withdraw 10% or less of your Class B Shares in one year pursuant to the
AWP, your redemptions will not be subject to the CDSC. Because automatic
withdrawals of Class B Shares in amounts greater than 10% of the initial value
of the account will be subject to the CDSC, Class B shareholders should not
participate in the AWP.
HOW TO EXCHANGE YOUR
PORTFOLIO SHARES
To exchange your Portfolio shares, contact ARK Funds directly at 1-800-ARK-FUND.
You may exchange your shares on any Business Day.
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 Portfolio receives your exchange request.
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). ARK Funds reserve 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 ARK Funds, 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 ARK
Funds by making a lump sum investment of $100 or more in Class A Shares of any
Portfolio or $50 per Portfolio per month if they participate in the Automatic
Investment Plan. Call 1-888-4ARK-FUND 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.
PROSPECTUS 79
<PAGE>
PURCHASING, SELLING, EXCHANGING AND DISTRIBUTION OF PORTFOLIO SHARES
HOW TO SELL YOUR PORTFOLIO SHARES
You may sell your shares on any Business Day by contacting ARK Funds 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. The
redemption price is based on the next calculation of NAV after your request is
received.
You may not close your account by telephone.
REDEMPTION BY MAIL
Along with your written request, the transfer agent will 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.
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).
REDEMPTION BY CHECKWRITING
Checkwriting is available for accounts investing in Class A Shares of a money
market Portfolio. You will be required to sign a signature card and will be
subject to the applicable rules and regulations of the clearing bank.
Checks in the amount of $500 or more drawn on one of the money market Portfolios
may be made payable to the order of any payee. You should be aware that, as the
case with regular bank checks, certain banks may not provide cash at the time of
deposit, but will wait until they have received payment from the clearing bank.
When a check is presented to the clearing bank for payment, subject to ARK
Funds' acceptance of the check, the clearing bank causes ARK Funds to redeem, at
the next NAV, a sufficient number of shares to cover the amount of the check.
Checks will be returned by the clearing bank if there are not sufficient shares
available. If you wish to use this checkwriting feature, you should check the
appropriate box on the Account Application, which includes a signature card, and
mail the completed form to ARK Funds, P.O. Box 8525, Boston, MA 02266-8525.
There is no charge for the checks, although the clearing bank will impose its
customary overdraft fee in connection with checks returned for insufficient
funds. As of the date of this prospectus, the overdraft fee is $20.
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 ARK Funds directly at
1-888-4ARK-FUND. You may exchange your shares on any Business Day.
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.
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 Portfolio receives your exchange request.
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.
80 PROSPECTUS
<PAGE>
OTHER POLICIES
SHARE 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.
CLASS B SHARES
You may exchange Class B Shares of any Portfolio for Class B Shares of any other
Portfolio. No contingent deferred sales charge is imposed on redemptions of
shares you acquire in an exchange, provided you hold your shares for at least
six years from your initial purchase. Upon redemption, CDSC charges may apply.
For purposes of computing CDSC, the length of time the investor owned the shares
will be measured from the date of the original purchase and will not be affected
by any exchange.
An exchange between classes of a particular Portfolio is generally not
permitted, unless a shareholder becomes eligible to purchase shares of another
class. ARK Funds reserve the right to require shareholders to complete an
Account Application or other documentation in connection with the exchange. 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 constitute a taxable event.
TELEPHONE TRANSACTIONS
Purchasing, selling and exchanging Portfolio shares over the telephone is
extremely convenient but not without risk. Although ARK Funds has certain
safeguards and procedures to confirm the identity of the callers and the
authenticity of instructions, ARK Funds 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 ARK Funds 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.
PROSPECTUS 81
<PAGE>
DISTRIBUTION OF PORTFOLIO SHARES
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid according to the following schedules:
FREQUENCY OF FREQUENCY OF
DECLARATION OF PAYMENT OF
PORTFOLIO DIVIDENDS DIVIDENDS
--------------------------------------------------------------------------------
U.S. Treasury Money Market Portfolio Daily Monthly
--------------------------------------------------------------------------------
U.S. Government Money Market Portfolio Daily Monthly
--------------------------------------------------------------------------------
Money Market Portfolio Daily Monthly
--------------------------------------------------------------------------------
Tax-Free Money Market Portfolio Daily Monthly
--------------------------------------------------------------------------------
Short-Term Treasury Portfolio Daily Monthly
--------------------------------------------------------------------------------
Maryland Tax-Free Portfolio Daily Monthly
--------------------------------------------------------------------------------
Pennsylvania Tax-Free Portfolio Daily Monthly
--------------------------------------------------------------------------------
Intermediate Fixed Income Portfolio Daily Monthly
--------------------------------------------------------------------------------
U.S. Government Bond Portfolio Daily Monthly
--------------------------------------------------------------------------------
Income Portfolio Daily Monthly
--------------------------------------------------------------------------------
Balanced Portfolio Quarterly Quarterly
--------------------------------------------------------------------------------
Equity Income Portfolio Monthly Monthly
--------------------------------------------------------------------------------
Value Equity Portfolio Quarterly Quarterly
--------------------------------------------------------------------------------
Equity Index Portfolio Quarterly Quarterly
--------------------------------------------------------------------------------
Blue Chip Equity Portfolio Quarterly Quarterly
--------------------------------------------------------------------------------
Capital Growth Portfolio Annually Annually
--------------------------------------------------------------------------------
Mid-Cap Equity Portfolio Quarterly Quarterly
--------------------------------------------------------------------------------
Small-Cap Equity Portfolio Annually Annually
--------------------------------------------------------------------------------
International Equity Portfolio Annually Annually
--------------------------------------------------------------------------------
Emerging Markets Equity Portfolio Annually Annually
--------------------------------------------------------------------------------
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.
82 PROSPECTUS
<PAGE>
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, but vary depending on how long the Portfolio has
held its assets. EACH SALE OR EXCHANGE OF SHARES IS GENERALLY A TAXABLE EVENT.
The Tax-Free Money Market, Maryland Tax-Free and Pennsylvania Tax-Free
Portfolios intend to distribute Federally tax-exempt income. These Portfolios
may invest a portion of their assets in securities that generate taxable income
for Federal or state income taxes. Income exempt from Federal tax may be subject
to state and local taxes. Any capital gains distributed by these Portfolios may
be taxable.
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
PROSPECTUS 83
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents performance information about Class A and, if
applicable, Class B 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. Their report, along with each Portfolio's financial
statements are included in our Annual Report, which accompanies our Statement of
Additional Information and is available upon request at no charge.
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED APRIL 30,
<TABLE>
<CAPTION>
Ratio
Realized of Net Ratio
and Invest- of
Unrealized Net Ratio of ment Expenses
Gains or Distri- Distri- Asset Net Expenses Income to
Net Assets Net (Losses) butions tions Value, Assets, to to Average
Value, Invest- on from Net from End Total End of Averate Average Net Assets Portfolio
Beginning ment Invest- Investment Capital of Return Period Net Net (Exluding Turnover
of Period Income ments Incom Gains Period (A) (000) Assets Assets Waivers) Rate
-----------------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY MONEY MARKET PORTFOLIO
------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RETAIL CLASS A
2000 $1.00 0.04 -- (0.04) -- $ 1.00 4.49% $ 18,618 0.68% 4.34% 0.83% --
1999 1.00 0.04 -- (0.04) -- 1.00 4.33 19,632 0.69 4.31 0.84 --
1998 1.00 0.05 -- (0.05) -- 1.00 4.77 35,302 0.70 4.66 0.85 --
1997 1.00 0.05 -- (0.05) -- 1.00 4.71 13,673 0.64 4.62 0.83 --
1996 (1) 1.00 0.02 -- (0.02) -- 1.00 1.82+ 8,758 0.55* 4.71* 0.86* --
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
--------------------------------------
RETAIL CLASS A
2000 $1.00 0.05 -- (0.05) -- $1.00 4.92% $120,578 0.64% 4.85% 0.84% --
1999 1.00 0.05 -- (0.05) -- 1.00 4.75 104,037 0.64 4.62 0.84 --
1998 (2) 1.00 0.04 -- (0.04) -- 1.00 5.19* 78,265 0.67* 4.98* 0.87* --
MONEY MARKET PORTFOLIO
----------------------
RETAIL CLASS A
2000 $1.00 0.05 -- (0.05) -- $1.00 5.13% $251,140 0.61% 5.02% 0.83% --
1999 1.00 0.05 -- (0.05) -- 1.00 4.91 246,496 0.62 4.79 0.85 --
1998 1.00 0.05 -- (0.05) -- 1.00 5.25 188,048 0.62 5.13 0.85 --
1997 1.00 0.05 -- (0.05) -- 1.00 5.03 128,693 0.59 4.92 0.83 --
1996 1.00 0.05 -- (0.05) -- 1.00 5.44 104,703 0.58 5.25 0.77 --
RETAIL CLASS B
2000 $1.00 0.04 -- (0.04) -- $1.00 4.41% $ 23 1.31% 4.39% 1.44% --
1999 (3) 1.00 0.01 -- (0.01) -- 1.00 3.86* 22 1.30* 3.76* 1.44* --
TAX-FREE MONEY MARKET PORTFOLIO
-------------------------------
RETAIL CLASS A
2000 $1.00 0.03 -- (0.03) -- $1.00 2.94% $45,970 0.60% 2.90% 0.85% --
1999 1.00 0.03 -- (0.03) -- 1.00 2.74 33,509 0.60 2.66 0.85 --
1998 1.00 0.03 -- (0.03) -- 1.00 3.16 25,144 0.61 3.11 0.86 --
1997 1.00 0.03 -- (0.03) -- 1.00 3.01 16,495 0.55 2.97 0.84 --
1996 1.00 0.03 -- (0.03) -- 1.00 3.53 16,179 0.34 3.33 0.90 --
+ Returns are for the period indicated and have not been annualized.
* Annualized.
(A) Total return for the retail class does not include the one-time sales charge.
(1) Commenced operations on December 15, 1995.
(2) Commenced operations on July 7, 1997.
(3) Commenced operations on January 22, 1999.
</TABLE>
84 PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
Ratio
Realized of Net Ratio
and Invest- of
Unrealized Net Ratio of ment Expenses
Gains or Distri- Distri- Asset Net Expenses Income to
Net Assets Net (Losses) butions tions Value, Assets, to to Average
Value, Invest- on from Net from End Total End of Averate Average Net Assets Portfolio
Beginning ment Invest- Investment Capital of Return Period Net Net (Exluding Turnover
of Period Income ments Incom Gains Period (A) (000) Assets Assets Waivers) Rate
-----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM TREASURY PORTFOLIO
-----------------------------
RETAIL CLASS A
<S><C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2000 $10.03 0.44 (0.16) (0.44) (0.02) $ 9.85 2.80% $9,804 0.82% 4.39% 1.12% 80.49%
1999 10.05 0.47 0.03 (0.47) (0.05) 10.03 5.04 14,006 0.82 4.61 1.12 70.64
1998 9.96 0.52 0.09 (0.51) (0.01) 10.05 6.23 14,410 0.78 5.02 1.07 124.24
1997 (4) 9.95 0.27 0.03 (0.28) (0.01) 9.96 3.39+ 22,937 0.67* 5.07* 0.91* 147.86
Maryland Tax-Free PortfoliO
---------------------------
Retail Class A
2000 $10.21 0.43 (0.69) (0.43) (0.04) $ 9.48 (2.50)% $25,924 0.94% 4.43% 1.30% 24.29%
1999 10.14 0.43 0.14 (0.43) (0.07) 10.21 5.69 32,395 0.93 4.18 1.29 30.83
1998 9.87 0.44 0.34 (0.45) (0.06) 10.14 7.91 25,283 0.90 4.39 1.15 22.40
1997 (5) 9.96 0.13 (0.07) (0.15) -- 9.87 0.63+ 7,997 0.91* 4.70* 1.10* 11.13
Pennsylvania Tax-Free Portfolio
-------------------------------
Retail Class A
2000 $10.22 0.40 (0.80) (0.40) (0.04) $ 9.38 (3.95)% $ 3,036 1.09% 4.23% 1.29% 30.92%
1999 10.13 0.39 0.15 (0.39) (0.06) 10.22 5.39 3,820 1.10 3.84 1.30 43.46
1998 (6) 10.26 0.04 (0.13) (0.04) -- 10.13 (0.94)+ 2,577 1.01* 3.72* 1.24* 3.50
U.S. Government Bond Portfolio
------------------------------
Retail Class A
2000 $ 9.79 0.50 (0.51) (0.50) -- $ 9.28 (0.09)% $ 2,375 1.10% 5.26% 1.40% 6.62%
1999 9.85 0.54 (0.06) (0.54) -- 9.79 4.93 2,240 1.12 5.11 1.41 102.27
1998 (7) 9.88 0.81 (0.03) (0.81) -- 9.85 7.86+ 30 1.05* 6.02* 1.33* 13.77
Income Portfolio
----------------
Retail Class A
2000 $10.20 0.56 (0.58) (0.56) -- $ 9.62 (0.18)% $ 5,830 0.95% 5.67% 1.24% 328.20%
1999 10.37 0.58 (0.16) (0.59) -- 10.20 4.08 8,573 0.95 5.59 1.24 50.41
1998 9.94 0.58 0.44 (0.59) -- 10.37 10.47 6,889 0.95 5.82 1.16 154.87
1997 9.91 0.59 0.01 (0.57) -- 9.94 6.32 4,102 0.89 5.96 1.09 271.60
1996 9.72 0.60 0.19 (0.60) -- 9.91 8.14 4,184 1.02 5.54 1.37 107.33
Retail Class B
2000 $10.08 0.48 (0.57) (0.48) -- $ 9.51 (0.85)% $ 429 1.71% 4.97% 1.80% 328.20%
1999 (8) 10.40 0.35 (0.32) (0.35) -- 10.08 0.35+ 280 1.70* 4.71* 1.79* 50.41
Balanced Portfolio
------------------
Retail Class A
2000 $14.59 0.28 2.88 (0.25) (0.66) $16.84 22.26% $43,098 1.01% 1.84% 1.40% 54.46%
1999 13.20 0.26 2.02 (0.26) (0.63) 14.59 17.97 26,927 1.01 1.94 1.40 56.70
1998 11.40 0.27 3.04 (0.28) (1.23) 13.20 30.67 15,074 1.02 2.20 1.33 71.58
1997 11.35 0.28 0.56 (0.28) (0.51) 11.40 7.66 6,164 0.96 2.56 1.19 124.22
1996 10.04 0.31 1.68 (0.31) (0.37) 11.35 20.23 3,323 1.09 2.51 1.55 107.56
Retail Class B
2000 $14.60 0.16 2.87 (0.15) (0.66) $16.82 21.32% $10,991 1.77% 1.10% 1.86% 54.46%
1999 (8) 12.58 0.16 2.67 (0.18) (0.63) 14.60 23.13+ 2,479 1.75* 0.99* 1.84* 56.70
+ Returns are for the period indicated and have not (4) Commenced operations on September 9, 1996.
been annualized. (5) Commenced operations on January 2, 1997.
* Annualized (6) Commenced operations on March 23, 1998.
(A) Total return for the retail class does not include (7) Commenced operations on April 1, 1998.
the one-time sales charge. (8) Commenced operations on September 14, 1998.
PROSPECTUS 85
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents performance information about Class A and, if
applicable, Class B 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. Their report, along with each Portfolio's financial
statements, are included in our Annual Report, which accompanies our Statement
of Additional Information and is available upon request at no charge.
<TABLE>
<CAPTION>
Ratio
Realized of Net Ratio
and Invest- of
Unrealized Net Ratio of ment Expenses
Net Gains or Distri- Distri- Asset Net Expenses Income to
Net Assets Invest- Losses) butions tions Value, Assets, to to Average
Value, ment on from Net from End Total End of Averate Average Net Assets Portfolio
Beginning Income Invest- Investment Capital of Return Period Net Net (Exluding Turnover
of Period (Loss) ments Income Gains Period (A) (000) Assets Assets Waivers) Rate
-----------------------------------------------------------------------------------------------------------------------------------
Equity Income Portfolio
-----------------------
Retail Class A
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2000 $12.04 0.22 0.38 (0.22) (0.43) $11.99 5.29% $ 3,353 1.09% 1.72% 1.45% 41.43%
1999 12.52 0.23 0.21 (0.23) (0.69) 12.04 3.92 3,659 1.08 1.93 1.44 56.03
1998 (9) 11.01 0.28 2.73 (0.29) (1.21) 12.52 28.73+ 3,428 1.07* 2.39* 1.45* 39.88
Value Equity Portfolio
----------------------
Retail Class A
2000 $15.22 0.14 1.40 (0.15) (2.51) $14.10 10.72% $ 7,516 1.32% (0.01)% 1.75% 25.00%
1999 14.60 0.05 1.36 (0.07) (0.72) 15.22 10.29 3,553 1.31 0.29 1.74 32.21
1998 (7) 14.55 -- 0.05 -- -- 14.60 0.34+ 227 1.26* 0.62* 1.67* 4.34
Retail Class B
2000 $15.16 (0.07) 1.36 -- (2.51) $13.94 9.93% $ 583 2.07% (0.77)% 2.20% 25.00%
1999 (8) 12.93 0.01 2.97 (0.03) (0.72) 15.16 23.70+ 164 2.07* (0.67)* 2.20* 32.21
Equity Index Portfolio
----------------------
Retail Class A
2000 $13.84 0.11 1.25 (0.11) (0.30) $14.79 9.95% $ 7,453 0.50% 0.78% 0.99% 58.81%
1999 11.57 0.11 2.40 (0.11) (0.13) 13.84 22.05 4,974 0.48 0.92 1.00 34.04
1998 (10) 9.78 0.06 1.80 (0.07) -- 11.57 19.08+ 1,417 0.45* 1.02* 1.08* 49.56
Blue Chip Equity Portfolio
--------------------------
Retail Class A
2000 $19.98 0.06 3.95 (0.04) (0.38) $23.57 20.29% $73,347 1.08% 0.28% 1.63% 40.58%
1999 16.98 0.09 3.40 (0.09) (0.40) 19.98 20.96 56,771 1.07 0.49 1.62 38.78
1998 12.38 0.10 4.69 (0.10) (0.09) 16.98 38.93 43,300 1.04 0.71 1.50 26.32
1997 (11) 10.33 0.16 2.06 (0.16) (0.01) 12.38 21.74+ 13,211 0.86* 1.29* 1.25* 46.91
Retail Class B
2000 $19.93 (0.07) 3.90 -- (0.38) $23.38 19.39% $10,710 1.83% (0.49)% 1.93% 40.58%
1999 (12) 17.07 0.01 3.28 (0.03) (0.40) 19.93 19.62+ 3,162 1.84* (0.43)* 1.94* 38.78
+ Returns are for the period indicated and have not been annualized.
* Annualized.
(A) Total return for the retail class does not include the one-time sales charge.
(7) Commenced operations on April 1, 1998.
(8) Commenced operations on September 14, 1998.
(9) Commenced operations on May 9, 1997.
(10) Commenced operations on November 3, 1997.
(11) Commenced operations on May 16, 1996.
(12) Commenced operation on July 31, 1998.
</TABLE>
86 PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
Ratio
Realized of Net Ratio
and Invest- of
Unrealized Net Ratio of ment Expenses
Net Gains or Distri- Distri- Asset Net Expenses Income to
Net Assets Invest- Losses) butions tions Value, Assets, to (Loss)to Average
Value, ment on from Net from End Total End of Average Average Net Assets Portfolio
Beginning Income Invest- Investment Capital of Return Period Net Net (Exluding Turnover
of Period (Loss) ments Income Gains Period (A) (000) Assets Assets Waivers) Rate
-----------------------------------------------------------------------------------------------------------------------------------
Capital Growth Portfolio
-----------------------
Retail Class A
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2000 $18.58 (0.05) 9.22 -- (1.86) $25.89 51.12% $ 52,445 1.11% (0.29)% 1.46% 113.74%
1999 14.82 (0.03) 4.30 -- (0.51) 18.58 29.34 23,035 1.09 (0.23) 1.44 118.46
1998 11.87 -- 4.93 (0.02) (1.96) 14.82 44.90 14,401 1.06 (0.10) 1.37 174.55
1997 11.56 0.09 1.41 (0.13) (1.06) 11.87 13.39 5,595 0.56 0.74 1.30 246.14
1996 10.18 0.12 2.15 (0.12) (0.77) 11.56 23.24 2,111 0.50 1.05 1.65 578.57
Retail Class B
2000 $18.61 (0.13) 9.12 -- (1.86) $25.74 50.03% $ 14,129 1.86% (1.04)% 1.91% 113.74%
1999 (8) 13.53 (0.04) 5.63 -- (0.51) 18.61 41.88+ 2,162 1.87* (1.09)* 1.92* 118.46
Small-Cap Equity Portfolio
--------------------------
Retail Class A
2000 $12.59 (0.05) 15.25 -- (4.72) $23.07 126.13% $ 11,292 1.30% (0.49)% 1.61% 753.31%
1999 $11.83 (0.07) 1.16 -- (0.33) $12.59 9.66 2,248 1.32 (0.64) 1.63 733.14
1998 8.53 (0.06) 3.98 -- (0.62) 11.83 47.57 1,853 1.21 (0.46) 1.36 410.72
1997 (11) 15.47 (0.01) (3.72) -- (3.21) 8.53 (27.14)+ 1,075 1.11* (0.13)* 1.21* 704.41
+ Returns are for the period indicated and have not been annualized.
* Annualized.
(A) Total return for the retail class does not include the one-time sales charge.
(8) Commenced operations on September 14, 1998.
(11) Commenced operations on May 16, 1996.
</TABLE>
PROSPECTUS 87
<PAGE>
On August 8, 2000, the ARK International Equity Selection Portfolio changed its
investment policy of investing in mutual funds to investing directly in equity
securities. On August 12, 2000, the Govett International Equity Fund and Govett
Emerging Markets Equity Fund ("Predecessor Funds") were reorganized into the ARK
International Equity Portfolio (formerly the ARK International Equity Selection
Portfolio) and the ARK Emerging Markets Equity Portfolio, respectively. The
Predecessor Funds commenced operations on January 7, 1992 as separate investment
portfolios of The Govett Funds, Inc. ("Govett Funds"), a Maryland corporation.
The investment objectives and policies of the Predecessor Funds and the
corresponding ARK Portfolios are substantially similar. The following table
describes the Predecessor Funds' performance. This information is intended to
help you understand each funds' financial performance for the past five years
or, if shorter, the period of the funds' operations. Some of this information
reflects financial information for a single fund share. The total returns in the
table represent the rate that you would have earned (or lost) on an investment
in a fund, assuming you reinvested all of your dividends and distributions. This
information has been audited by PricewaterhouseCoopers LLP, independent
auditors. Their unqualified report, along with each Predecessor Fund's financial
statements, are included in our Annual Report, which accompanies our Statement
of Additional Information and is available upon request at no charge.
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Net
Realized Net
and In Net Invest-
Unrealized Excess Operating ment
Net Gains or of Net Expenses Income
Net Assets Invest- (Losses) From Net From Asset to Average (Loss) to
Value, ment on Net Invest- Net Value, Daily Average Portfolio
Beginning Income Invest- Investment ment Realized End of Total Net Daily Net Turnover
of Period (Loss)/d ments Income Income Gain Period Return Assets Assets Rate
------------------------------------------------------------------------------------------------------------------------------------
GOVETT INTERNATIONAL EQUITY FUND
EQUITY FUND
RETAIL CLASS (NOTE A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 $11.17 (0.06) 3.11 -- -- (1.50) $12.72 27.95% 2.35% (0.52)% 41%
1998 10.90 (0.08) 2.15 -- -- (1.80) 11.17 19.12 2.45 (0.62) 109
1997 11.19 (0.24) 0.18 -- -- (0.23) 10.90 (0.71) 2.50 (1.01) 51
1996 11.27 (0.11) 1.45 (0.11) (0.09) (1.22) 11.19 12.13 2.39 (1.06) 84
1995 10.16 (0.08) 1.20 -- -- (0.01) 11.27 11.01 2.50 (0.64) 101
------------------------------------------------------------------------------------------------------------------------------------
GOVETT EMERGING MARKETS EQUITY FUND
RETAIL CLASS (NOTE B)
1999 $ 7.96 -- 5.58 -- -- -- $13.54 70.10% 1.85% 0.08% 63%
1998 12.24 0.02 (4.15) (0.15) -- -- 7.96 (34.18) 2.50 0.03 121
1997 13.66 (0.11) (1.31) -- -- -- 12.24 (10.40) 2.50 (0.54) 120
1996 12.24 (0.13) 1.61 -- (0.06) -- 13.66 12.08 2.38 (0.62) 122
1995 13.29 (0.06) (0.98) -- -- (0.01) 12.24 (7.84) 2.50 (0.49) 115
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note A: AIB Govett Asset Management Limited waived a portion of its management
fees and Govett Financial Services Limited, a former distributor of the Funds,
reimbursed a portion of the other operating expenses of the Funds for the year
ended December 31, 1994. For the years ended December 31, 1995, 1996, and 1997,
AIB Govett Asset Management Limited (former investment manager, currently
subadviser to all Funds) waived a portion of its management fee and reimbursed a
portion of other operating expenses of the Funds. For the year ended December
31, 1998, AIB Govett, Inc. (investment manager since January 1, 1998), waived a
portion of its management fee and reimbursed a portion of other operating
expenses of the Funds. Without the waiver and reimbursement of expenses, the
expense ratios as a percentage of average net assets for the periods indicated
would have been 3.34%, 3.30%, 3.12%, 3.09% and 2.75% for the years ended
December 31, 1999, 1998, 1997, 1996 and 1995, respectively.
Note B: For all the years presented, AIB Govett, Inc. investment manager (or its
predecessors or affiliates thereof), waived a portion of its management fee and
reimbursed a portion of the other operating expenses of the Funds. Without the
waiver and reimbursement of expenses, the expense ratios as a percentage of
average net assets for the periods indicated would have been 4.33%, 4.09%,
2.91%, 2.62% and 2.78% for the years ended December 31, 1999, 1998, 1997, 1996
and 1995, respectively.
/d Per share net investment income (loss) does not reflect the current period's
reclassification of permanent differences between book and tax basis net
investment income (loss).
PROSPECTUS 88
<PAGE>
NOTES
<PAGE>
HOW TO OBTAIN MORE INFORMATION ABOUT ARK FUNDS
INVESTMENT ADVISOR
Allied Investment Advisors, Inc.
100 E. Pratt Street
Baltimore, MD 21202
INVESTMENT SUBADVISOR
(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, N.W.
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 September 1, 2000, includes detailed information about ARK Funds.
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
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: Call 1-800-ARK-FUND
BY MAIL: Write to us
ARK Funds
P.O. Box 8525
Boston, MA 02266-8525
BY E-MAIL: www.arkfunds.com
Automated price, yield, and performance information--24 hours a day, 7 days a
week: Call 1-800-ARK-FUND (1-800-275-3863)
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.
(LOGO) ARK FUNDS (TRADE MARK)
<PAGE>
(LOGO) ARK FUNDS (TRADE MARK)
25 South Charles Street (101-624)
Balitmore, MD 21201
ARK-F-002-03000
ARK FUNDS
INSTITUTIONAL CLASS PROSPECTUS
SEPTEMBER 1, 2000
[Graphic Omitted]
ARK FUNDS
<PAGE>
[logo omitted] ARK FUNDS INSTITUTIONAL CLASS PROSPECTUS SEPTEMBER 1, 2000
HOW TO READ THIS PROSPECTUS
ARK FUNDS IS A MUTUAL FUND FAMILY THAT OFFERS INSTITUTIONAL CLASS SHARES IN
SEPARATE INVESTMENT PORTFOLIOS (PORTFOLIOS). THE PORTFOLIOS HAVE INDIVIDUAL
INVESTMENT GOALS AND STRATEGIES. THIS PROSPECTUS GIVES YOU IMPORTANT INFORMATION
ABOUT THE 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. FOR MORE DETAILED INFORMATION ABOUT EACH
PORTFOLIO, PLEASE SEE:
PAGE
ARK U.S. TREASURY MONEY MARKET PORTFOLIO 2
----------------------------------------------------------------
ARK U.S. GOVERNMENT MONEY MARKET PORTFOLIO 4
----------------------------------------------------------------
ARK MONEY MARKET PORTFOLIO 6
----------------------------------------------------------------
ARK TAX-FREE MONEY MARKET PORTFOLIO 8
----------------------------------------------------------------
ARK SHORT-TERM TREASURY PORTFOLIO 10
----------------------------------------------------------------
ARK SHORT-TERM BOND PORTFOLIO 12
----------------------------------------------------------------
ARK MARYLAND TAX-FREE PORTFOLIO 14
----------------------------------------------------------------
ARK PENNSYLVANIA TAX-FREE PORTFOLIO 16
----------------------------------------------------------------
ARK INTERMEDIATE FIXED INCOME PORTFOLIO 18
----------------------------------------------------------------
ARK U.S. GOVERNMENT BOND PORTFOLIO 20
----------------------------------------------------------------
ARK INCOME PORTFOLIO 22
----------------------------------------------------------------
ARK BALANCED PORTFOLIO 24
----------------------------------------------------------------
ARK EQUITY INCOME PORTFOLIO 26
----------------------------------------------------------------
ARK VALUE EQUITY PORTFOLIO 28
----------------------------------------------------------------
ARK EQUITY INDEX PORTFOLIO 30
----------------------------------------------------------------
ARK BLUE CHIP EQUITY PORTFOLIO 32
----------------------------------------------------------------
ARK CAPITAL GROWTH PORTFOLIO 34
----------------------------------------------------------------
ARK MID-CAP EQUITY PORTFOLIO 36
----------------------------------------------------------------
ARK SMALL-CAP EQUITY PORTFOLIO 38
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ARK INTERNATIONAL EQUITY PORTFOLIO (FORMERLY
INTERNATIONAL EQUITY SELECTION PORTFOLIO) 40
----------------------------------------------------------------
ARK EMERGING MARKETS EQUITY PORTFOLIO 42
----------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT PRINCIPAL RISK 44
----------------------------------------------------------------
EACH PORTFOLIO'S OTHER INVESTMENTS 47
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INVESTMENT ADVISOR 48
----------------------------------------------------------------
PURCHASING, SELLING AND EXCHANGING PORTFOLIO SHARES 51
----------------------------------------------------------------
DISTRIBUTION OF PORTFOLIO SHARES 54
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DIVIDENDS AND DISTRIBUTIONS 54
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TAXES 55
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FINANCIAL HIGHLIGHTS 56
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HOW TO OBTAIN MORE INFORMATION
ABOUT ARK FUNDS Inside Back Cover
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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 CRIMINAL OFFENSE.
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 he or
she believes will help each 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 (other than a money market fund
Portfolio) is based on the market value 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.
THE U.S. TREASURY MONEY MARKET PORTFOLIO, U.S. GOVERNMENT MONEY MARKET
PORTFOLIO, MONEY MARKET PORTFOLIO AND TAX-FREE MONEY MARKET PORTFOLIO TRY TO
MAINTAIN A CONSTANT PRICE PER SHARE OF $1.00, BUT THERE IS NO GUARANTEE THAT
THESE PORTFOLIOS WILL ACHIEVE THIS GOAL.
<PAGE>
ARK U.S. TREASURY MONEY MARKET PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Maximizing current
income and providing
liquidity and security of
principal
INVESTMENT FOCUS
Short-term U.S.
Treasury securities
SHARE PRICE VOLATILITY
Very low
PRINCIPAL INVESTMENT STRATEGY
Investing in U.S.
Treasury obligations
INVESTOR PROFILE
Conservative investors
seeking current income
through a low-risk,
liquid investment
PRINCIPAL INVESTMENT
STRATEGY OF THE U.S. TREASURY
MONEY MARKET PORTFOLIO
The U.S. Treasury Money Market Portfolio seeks its investment goal by investing
exclusively in U.S. Treasury obligations.
In selecting securities for the Portfolio, the Advisor considers factors such as
current yield, the anticipated level of interest rates, and the maturity of the
instrument relative to the maturity of the entire Portfolio. In addition, the
Portfolio may only purchase securities that meet certain SEC requirements
relating to maturity, diversification and credit quality. Under these
requirements, the Portfolio's securities must have remaining maturities of 397
days or less, and the Portfolio must have a dollar-weighted average maturity of
90 days or less.
PRINCIPAL RISKS OF INVESTING
IN THE U.S. TREASURY MONEY
MARKET PORTFOLIO
An investment in the Portfolio is subject to income risk, which is the
possibility that the Portfolio's yield will decline due to falling interest
rates. A Portfolio share is not a bank deposit and is not insured or guaranteed
by the FDIC or any government agency. In addition, although a money market fund
seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the Portfolio.
The Portfolio's U.S. Treasury securities are not guaranteed against price
movements due to changing interest rates.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares for each year for six calendar years.
[Graphic Omitted]
Plot points as follows:
1994 3.75%
1995 5.48%
1996 5.00%
1997 5.09%
1998 4.82%
1999 4.41%
BEST QUARTER WORST QUARTER
1.39% 0.71%
(06/30/95) (03/31/94)
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional Class total return was 2.62%.
This table compares the Portfolio's average annual total returns for the
periods ended December 31, 1999, to those of the iMoneyNet, Inc. 100%
U.S. Treasury Average.
INSTITUTIONAL CLASS 1 YEAR 5 YEARS SINCE INCEPTION
--------------------------------------------------------------------------------
U.S. Treasury Money
Market Portfolio 4.41% 4.96% 4.59%*
--------------------------------------------------------------------------------
iMoneyNet, Inc. 100%
U.S. Treasury Average 4.20% 4.69% 4.33%**
--------------------------------------------------------------------------------
* Since June 14, 1993.
** Since May 31, 1993.
2 PROSPECTUS
<PAGE>
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)
--------------------------------------------------------------------------------
INSTITUTIONAL
CLASS
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends and other
Distributions (as a percentage of
offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Investment Advisory Fees 0.25%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees None
--------------------------------------------------------------------------------
Other Expenses 0.33%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 0.58%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.10%
--------------------------------------------------------------------------------
NET TOTAL OPERATING EXPENSES 0.48%(1)
--------------------------------------------------------------------------------
(1) THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 0.48%
UNTIL AUGUST 31, 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 WAIVER, 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 WERE AS FOLLOWS:
U.S. TREASURY MONEY MARKET PORTFOLIO --
INSTITUTIONAL CLASS 0.45%
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 and that
you sell your shares at the end of the period.
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:
--------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$49 $176 $314 $716
--------------------------------------------------------------------------------
WHAT IS
AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with a
particular investment objective. You cannot invest directly in an average. The
iMoneyNet, Inc. 100% U.S. Treasury Average is a composite of money market mutual
funds with investment goals similar to the Portfolio's goals.
PROSPECTUS 3
<PAGE>
ARK U.S. GOVERNMENT MONEY MARKET PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Maximizing current
income and providing
liquidity and security of
principal
INVESTMENT FOCUS
Short-term U.S.
government securities
SHARE PRICE VOLATILITY
Very low
PRINCIPAL INVESTMENT
STRATEGY
Investing in U.S.
government obligations
and repurchase
agreements
INVESTOR PROFILE
Conservative investors
seeking current income
through a low-risk,
liquid investment
PRINCIPAL INVESTMENT
STRATEGY OF THE U.S.
GOVERNMENT MONEY MARKET
PORTFOLIO
The U.S. Government Money Market Portfolio seeks its investment goal by
investing exclusively in obligations issued by the U.S. government and its
agencies and instrumentalities and in repurchase agreements.
In selecting securities for the Portfolio, the Advisor considers factors such as
current yield, the anticipated level of interest rates, and the maturity of the
instrument relative to the maturity of the entire Portfolio. In addition, the
Portfolio may purchase only securities that meet certain SEC requirements
relating to maturity, diversification and credit quality. Under these
requirements, the Portfolio's securities must have remaining maturities of 397
days or less, and the Portfolio must have a dollar-weighted average maturity of
90 days or less.
PRINCIPAL RISKS OF INVESTING
IN THE U.S. GOVERNMENT
MONEY MARKET PORTFOLIO
An investment in the Portfolio is subject to income risk, which is the
possibility that the Portfolio's yield will decline due to falling interest
rates. A Portfolio share is not a bank deposit and is not insured or guaranteed
by the FDIC or any government agency. In addition, although a money market fund
seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the Portfolio.
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.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Institutional
Class Shares for each year for six calendar years.
1994 4.13%
1995 5.83%
1996 5.24%
1997 5.39%
1998 5.22%
1999 4.84%
BEST QUARTER WORST QUARTER
1.47% 0.77%
(06/30/95) (03/31/94)
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional Class total return was 2.84%.
4 PROSPECTUS
<PAGE>
This table compares the Portfolio's average annual total returns for the periods
ended December 31, 1999, to those of the iMoneyNet, Inc. Government Only
Institutions Only Average.
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS 1 YEAR 5 YEARS SINCE INCEPTION
--------------------------------------------------------------------------------
U.S. Government
Money Market
Portfolio 4.84% 5.30% 4.92%*
--------------------------------------------------------------------------------
iMoneyNet, Inc.
Government Only
Institutions Only
Average 4.68% 5.13% 4.75%**
--------------------------------------------------------------------------------
* Since June 14, 1993.
** Since May 31, 1993.
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)
--------------------------------------------------------------------------------
INSTITUTIONAL
CLASS
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends and other
Distributions (as a percentage of
offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Investment Advisory Fees 0.25%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees None
--------------------------------------------------------------------------------
Other Expenses 0.34%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 0.59%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.16%
--------------------------------------------------------------------------------
NET TOTAL OPERATING EXPENSES 0.43%(1)
--------------------------------------------------------------------------------
(1) THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 0.43%
UNTIL AUGUST 31, 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 WAIVER, 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 WERE AS FOLLOWS:
U.S. GOVERNMENT MONEY MARKET PORTFOLIO --
INSTITUTIONAL CLASS 0.41%
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 and that
you sell your shares at the end of the period.
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:
--------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$44 $173 $313 $723
--------------------------------------------------------------------------------
WHAT IS AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with a
particular investment objective. You cannot invest directly in an average. The
iMoneyNet, Inc. Government Only Institutions Only Average is a composite of
money market mutual funds with investment goals similar to the Portfolio's
goals.
PROSPECTUS 5
<PAGE>
ARK MONEY MARKET PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Maximizing current
income and providing
liquidity and security of
principal
INVESTMENT FOCUS
Short-term money
market instruments
SHARE PRICE VOLATILITY
Very low
PRINCIPAL INVESTMENT
STRATEGY
Investing in high-quality
U.S. dollar-
denominated money
market securities
INVESTOR PROFILE
Conservative investors
seeking current income
through a low-risk,
liquid investment
PRINCIPAL INVESTMENT
STRATEGY OF THE MONEY
MARKET PORTFOLIO
The Money Market Portfolio seeks its investment goal by investing primarily in
high-quality, short-term U.S. dollar-denominated debt securities issued by
corporations, the U.S. government and banks, including U.S. and foreign branches
of U.S. banks and U.S. branches of foreign banks. At least 95% of such
securities are rated in the highest rating category by two or more nationally
recognized statistical rating organizations.
In selecting securities for the Portfolio, the Advisor considers factors such as
current yield, the anticipated level of interest rates, and the maturity of the
instrument relative to the maturity of the entire Portfolio. In addition, the
Portfolio may purchase only securities that meet certain SEC requirements
relating to maturity, diversification and credit quality. Under these
requirements, the Portfolio's securities must have remaining maturities of 397
days or less, and the Portfolio must have a dollar-weighted average maturity of
90 days or less.
PRINCIPAL RISKS OF
INVESTING IN THE MONEY
MARKET PORTFOLIO
An investment in the Portfolio is subject to income risk, which is the
possibility that the Portfolio's yield will decline due to falling interest
rates. A Portfolio share is not a bank deposit and is not insured or guaranteed
by the FDIC or any government agency. In addition, although a money market fund
seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the Portfolio.
The Portfolio's 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.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares for each year for six calendar years.
1994 4.26%
1995 5.97%
1996 5.37%
1997 5.53%
1998 5.38%
1999 5.05%
BEST QUARTER WORST QUARTER
1.50% 0.80%
(06/30/95) (03/31/94)
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional Class total return was 2.92%.
6 PROSPECTUS
<PAGE>
This table compares the Portfolio's average annual total returns for the periods
ended December 31, 1999, to those of the iMoneyNet, Inc. First Tier Institutions
Only Average.
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS 1 YEAR 5 YEARS SINCE INCEPTION
--------------------------------------------------------------------------------
Money Market
Portfolio 5.05% 5.46% 5.07%*
--------------------------------------------------------------------------------
iMoneyNet, Inc. First
Tier Institutions Only
Average 4.94% 5.34% 4.93%**
--------------------------------------------------------------------------------
* Since June 14, 1993.
** Since May 31, 1993.
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)
--------------------------------------------------------------------------------
INSTITUTIONAL II CLASS
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends and other
Distributions (as a percentage of
offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Investment Advisory Fees 0.25%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees None
--------------------------------------------------------------------------------
Other Expenses 0.34%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 0.59%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.20%
--------------------------------------------------------------------------------
NET TOTAL OPERATING EXPENSES 0.39%(1)
--------------------------------------------------------------------------------
(1) THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 0.39%
UNTIL AUGUST 31, 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 WAIVER, 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 WERE AS FOLLOWS:
MONEY MARKET PORTFOLIO -- INSTITUTIONAL CLASS 0.38%
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 and that
you sell your shares at the end of the period.
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:
--------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$40 $169 $309 $719
--------------------------------------------------------------------------------
WHAT IS AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with a
particular investment objective. You cannot invest directly in an average. The
iMoneyNet, Inc. First Tier Institutions Only Average is a composite of money
market mutual funds with investment goals similar to the Portfolio's goals.
PROSPECTUS 7
<PAGE>
ARK TAX-FREE MONEY MARKET PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Maximizing current
income exempt from
Federal income taxes
and providing liquidity
and security of principal
INVESTMENT FOCUS
Short-term, high-quality
municipal money
market obligations
SHARE PRICE VOLATILITY
Very low
PRINCIPAL INVESTMENT
STRATEGY
Investing in tax-exempt
money market
securities
INVESTOR PROFILE
Conservative investors
seeking tax-exempt
income through a
low-risk, liquid investment
PRINCIPAL INVESTMENT
STRATEGY OF THE TAX-FREE
MONEY MARKET PORTFOLIO
The Tax-Free Money Market Portfolio seeks its investment goal by investing
substantially all of its assets in a broad range of high-quality, short-term
municipal money market instruments that pay interest that is exempt from Federal
income taxes. The issuers of these securities may be state and local governments
and agencies located in any of the 50 states, the District of Columbia, Puerto
Rico and other U.S. territories and possessions. The Portfolio is well
diversified among issuers and comprised only of short-term debt securities that
are rated in the two highest categories by nationally recognized statistical
rating organizations or determined by the Advisor to be of equal credit quality.
Normally, the Portfolio will not invest in securities subject to the Alternative
Minimum Tax or in taxable municipal securities.
In selecting securities for the Portfolio, the Advisor considers factors such as
current yield, the anticipated level of interest rates, and the maturity of the
instrument relative to the maturity of the entire Portfolio. In addition, the
Portfolio may purchase only securities that meet certain SEC requirements. Under
these requirements, the Portfolio's securities must have remaining maturities of
397 days or less, and the Portfolio must have a dollar-weighted average maturity
of 90 days or less.
PRINCIPAL RISKS OF INVESTING
IN THE TAX-FREE MONEY
MARKET PORTFOLIO
An investment in the Portfolio is subject to income risk, which is the
possibility that the Portfolio's yield will decline due to falling interest
rates. A Portfolio share is not a bank deposit and is not insured or guaranteed
by the FDIC or any government agency. In addition, although a money market fund
seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the Portfolio.
There may be economic or political changes that impact the ability of municipal
issuers to repay principal and to make interest payments on municipal
securities. Changes in the financial condition or credit rating of municipal
issuers also may adversely affect the value of the Portfolio's securities.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares for each year for six calendar years.
1994 2.74%
1995 3.76%
1996 3.30%
1997 3.46%
1998 3.18%
1999 2.94%
BEST QUARTER WORST QUARTER
0.97% 0.53%
(06/30/94) (03/31/94)
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional Class total return was 1.78%.
8 PROSPECTUS
<PAGE>
This table compares the portfolio's average annual total returns for the periods
ended December 31, 1999, to those of the iMoneyNet,Inc. Tax-Free Institutions
Only Average.
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS 1 YEAR 5 YEARS SINCE INCEPTION
--------------------------------------------------------------------------------
Tax-Free Money
Market Portfolio 2.94% 3.33% 3.13%*
--------------------------------------------------------------------------------
iMoneyNet, Inc.
Tax-Free Institutions
Only Average 2.96% 3.26% 3.07%**
--------------------------------------------------------------------------------
* Since June 14, 1993.
** Since May 31, 1993.
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)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends and other
Distributions (as a percentage of
offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Investment Advisory Fees 0.25%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees None
--------------------------------------------------------------------------------
Other Expenses 0.35%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 0.60%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.20%
--------------------------------------------------------------------------------
NET TOTAL OPERATING EXPENSES 0.40%(1)
--------------------------------------------------------------------------------
(1) THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 0.40%
UNTIL AUGUST 31, 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 WAIVER, 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 WERE AS FOLLOWS:
TAX-FREE MONEY MARKET PORTFOLIO -- INSTITUTIONAL CLASS 0.37%
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 and that
you sell your shares at the end of the period.
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:
--------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$41 $172 $315 $731
--------------------------------------------------------------------------------
WHAT IS AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with a
particular investment objective. You cannot invest directly in an average. The
iMoneyNet, Inc. Tax-Free Institutions Only Average is a composite of money
market mutual funds with investment goals similar to the Portfolio's goals.
PROSPECTUS 9
<PAGE>
ARK SHORT-TERM TREASURY PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Current income with
relative stability of
principal
INVESTMENT FOCUS
Short-term U.S.
Treasury securities
SHARE PRICE VOLATILITY
Low
PRINCIPAL INVESTMENT
STRATEGY
Investing in short-term
fixed income securities
issued directly by the
U.S. Treasury
INVESTOR PROFILE
Investors seeking to
preserve principal and
earn current income
PRINCIPAL INVESTMENT
STRATEGY OF THE SHORT-TERM
TREASURY PORTFOLIO
The Short-Term Treasury Portfolio seeks its investment goal by investing
exclusively in fixed income securities issued directly by the U.S. Treasury. The
Portfolio's Advisor will select securities that are backed by the U.S. Treasury
that pay interest that is exempt from state and local taxes. The Portfolio has
no maturity restrictions, and the average maturity of the Portfolio's
investments will vary depending on market conditions. The Portfolio normally
invests in short-term securities, and the Portfolio will typically have a
dollar-weighted average maturity of approximately two years.
In selecting securities for the Portfolio, the Advisor considers a security's
current yield, 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 decrease 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, and may adversely affect the Portfolio's performance.
PRINCIPAL RISKS OF
INVESTING IN THE SHORT-TERM
TREASURY 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. Generally, the Portfolio's
fixed income securities will decrease in value if interest rates rise. Also,
securities with longer maturities are generally more volatile, so the average
maturity of the Portfolio's securities affects risk.
The Portfolio's U.S. Treasury securities are not guaranteed against price
movements due to changing interest rates.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares for each year for three calendar years.
1997 5.95%
1998 6.50%
1999 2.33%
BEST QUARTER WORST QUARTER
3.06% 0.33%
(09/30/98) (06/30/99)
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional Class total return was 2.62%.
10 PROSPECTUS
<PAGE>
This table compares the Portfolio's average annual total returns for the periods
ended December 31, 1999, to those of the Lehman 1-3 Year Government Bond Index
and the Lipper Short U.S. Treasury Funds Average.
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
Short-Term Treasury
Portfolio 2.33% 4.94%*
--------------------------------------------------------------------------------
Lehman 1-3 Year
Government Bond Index 2.96% 5.67%**
--------------------------------------------------------------------------------
Lipper Short U.S.
Treasury Funds Average 1.66% 5.05%**
--------------------------------------------------------------------------------
* Since March 20, 1996.
** Since March 31, 1996.
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)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends and other
Distributions (as a percentage of
offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Investment Advisory Fees 0.35%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees None
--------------------------------------------------------------------------------
Other Expenses 0.38%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 0.73%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.06%
--------------------------------------------------------------------------------
NET TOTAL OPERATING EXPENSES 0.67%(1)
--------------------------------------------------------------------------------
(1) THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 0.67%
UNTIL AUGUST 31, 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 WAIVER, 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 WAIVERS AT ANY TIME. WITH THE EXPENSE REIMBURSEMENTS WAIVERS,
THE PORTFOLIO'S ACTUAL TOTAL OPERATING EXPENSES WERE AS FOLLOWS:
SHORT-TERM TREASURY PORTFOLIO -- INSTITUTIONAL CLASS 0.64%
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 and that
you sell your shares at the end of the period.
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:
--------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$68 $227 $400 $901
--------------------------------------------------------------------------------
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 1-3 Year Government Bond Index is a
widely recognized index of U.S. government obligations with maturities between
one and three years.
WHAT IS AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with a
particular investment objective. You cannot invest directly in an average. The
Lipper Short U.S. Treasury Funds Average is a composite of mutual funds with
goals similar to the Portfolio's goals.
PROSPECTUS 11
<PAGE>
ARK SHORT-TERM BOND PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Current income
INVESTMENT FOCUS
Short-term fixed
income securities
SHARE PRICE VOLATILITY
Low
PRINCIPAL INVESTMENT
STRATEGY
Investing in short-term
investment-grade fixed
income securities of
U.S. issuers
INVESTOR PROFILE
Investors seeking
current income who are
willing to accept the
risks of investing in
fixed income securities
PRINCIPAL INVESTMENT
STRATEGY OF THE SHORT-TERM
BOND PORTFOLIO
The Short-Term Bond Portfolio seeks its investment goal by investing primarily
in U.S. corporate and government securities, including mortgage- and
asset-backed securities. The Portfolio's Advisor will select investment-grade
securities and unrated securities determined to be of comparable quality. The
dollar-weighted average maturity of the Portfolio's investments will vary
depending on market conditions, but will typically be between one and three
years.
In selecting securities for the Portfolio, the Advisor considers a security's
current yield, 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 SHORT-TERM
BOND 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, including governments.
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.
The mortgages underlying mortgage-backed securities may be paid off early, which
makes it difficult to determine their actual maturity and therefore calculate
how they 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.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares for each year for three calendar years.
1997 5.66%
1998 6.00%
1999 2.96%
BEST QUARTER WORST QUARTER
2.67% 0.22%
(09/30/98) (06/30/99)
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional Class total return was 1.65%.
12 PROSPECTUS
<PAGE>
This table compares the Portfolio's average annual total returns for the periods
ended December 31, 1999, to those of the Lehman 1-3 Year Government Bond Index
and the Lipper Short Investment-Grade Debt Funds Average.
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
Short-Term Bond Portfolio 2.96% 4.92%*
--------------------------------------------------------------------------------
Lehman 1-3 Year
Government Bond Index 2.96% 5.67%**
--------------------------------------------------------------------------------
Lipper Short Investment-
Grade Debt Funds Average 2.81% 5.61%**
--------------------------------------------------------------------------------
* PERFORMANCE PRESENTED PRIOR TO MARCH 23, 1998 REFLECTS THE PERFORMANCE
OF THE MARKETVEST SHORT-TERM BOND FUND SHARES, WHICH WERE OFFERED
BEGINNING APRIL 1, 1996. THE ASSETS OF THE MARKETVEST FUND WERE
REORGANIZED INTO THE PORTFOLIO IN 1998 FOLLOWING THE ACQUISITION BY
ALLFIRST BANK OF DAUPHIN DEPOSIT BANK AND TRUST COMPANY.
** SINCE MARCH 31, 1996.
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)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends and other
Distributions (as a percentage of offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage of amount
redeemed, if applicable) None
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Investment Advisory Fees 0.75%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees None
--------------------------------------------------------------------------------
Other Expenses 0.36%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.11%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.11%
--------------------------------------------------------------------------------
NET TOTAL OPERATING EXPENSES 1.00%(1)
--------------------------------------------------------------------------------
(1) THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 1.00%
UNTIL AUGUST 31, 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 WAIVER, 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 WERE AS FOLLOWS:
SHORT-TERM BOND PORTFOLIO -- INSTITUTIONAL CLASS 0.97%
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 and that
you sell your shares at the end of the period.
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:
-------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
$102 $342 $601 $1,342
-------------------------------------------------------------------------------
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 1-3 Year Government Bond Index is a
widely recognized index of U.S. government obligations with maturities between 1
and 3 years.
WHAT IS
AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with a
particular investment objective. You cannot invest directly in an average. The
Lipper Short Investment-Grade Debt Funds Average is a composite of mutual funds
with goals similar to the Portfolio's goals.
PROSPECTUS 13
<PAGE>
ARK MARYLAND TAX-FREE PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Current income exempt
from Federal and
Maryland state and
local income taxes
INVESTMENT FOCUS
Maryland municipal
securities
SHARE PRICE VOLATILITY
Low to medium
PRINCIPAL INVESTMENT
STRATEGY
Investing in Maryland
municipal securities
INVESTOR PROFILE
Investors seeking
income exempt from
Federal and Maryland
state and local income
taxes
PRINCIPAL INVESTMENT
STRATEGY OF THE MARYLAND
TAX-FREE PORTFOLIO
The Maryland Tax-Free Portfolio seeks its investment goal by investing primarily
in municipal securities that generate income exempt from Federal and Maryland
state and local income taxes. The principal issuers of these securities are
state and local governments and agencies located in Maryland, as well as the
District of Columbia, Puerto Rico and other U.S. territories and possessions.
The Portfolio normally invests in investment-grade debt securities with long and
intermediate maturities, and the Portfolio will typically have a dollar-weighted
average maturity of 7 to 12 years. However, the Portfolio has no maturity
restrictions, and the average maturity of the Portfolio's investments will vary
depending on market conditions.
In selecting securities, the Portfolio's Advisor considers the future direction
of interest rates and the shape of the yield curve, as well as credit quality
and sector allocation issues. Sector allocation issues involve the relative
attractiveness of rates and market opportunities in sectors such as general
obligation or revenue bonds. Normally, the Portfolio's assets will be invested
in securities that are not subject to Federal taxes, including the Alternative
Minimum Tax.
PRINCIPAL RISKS OF
INVESTING IN THE MARYLAND
TAX-FREE 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, including governments.
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.
There may be economic or political changes that impact the ability of municipal
issuers to repay principal and to make interest payments on municipal
securities. Changes in the financial condition or credit rating of municipal
issuers also may adversely affect the value of the Portfolio's securities.
The Portfolio's concentration of investments in securities of issuers located in
Maryland subjects the Portfolio to the effects of economic and government
policies of Maryland.
The Portfolio is non-diversified, which means that it may invest in the
securities of relatively few issuers. As a result, the Portfolio may be more
susceptible to a single adverse economic or political occurrence affecting one
or more of these issuers, and may experience increased volatility due to its
investments in those securities.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares for each year for three calendar years.
1997 8.12%
1998 5.64%
1999 -3.42%
BEST QUARTER WORST QUARTER
3.17% -2.08%
(06/30/97) (06/30/99)
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional Class total return was 3.47%.
14 PROSPECTUS
<PAGE>
This table compares the Portfolio's average annual total returns for the periods
ended December 31, 1999, to those of the Lehman 10 Year Municipal Bond Index,
The Lehman 7 Year Municipal Bond Index, and the Lipper Maryland Municipal Debt
Funds Average.
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
Maryland Tax-Free
Portfolio -3.42% 3.33%*
--------------------------------------------------------------------------------
Lehman 10 Year
Municipal Bond Index -1.24% 4.53%**
--------------------------------------------------------------------------------
Lehman 7 Year
Municipal Bond Index -0.14% 4.31%**
--------------------------------------------------------------------------------
Lipper Maryland Municipal
Debt Funds Average -3.78% 3.00%**
--------------------------------------------------------------------------------
* Since November 18, 1996.
** Since November 30, 1996.
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)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends and other
Distributions (as a percentage of
offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Investment Advisory Fees 0.65%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees None
--------------------------------------------------------------------------------
Other Expenses 0.35%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.00%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.16%
--------------------------------------------------------------------------------
NET TOTAL OPERATING EXPENSES 0.84%(1)
--------------------------------------------------------------------------------
(1) THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 0.84%
UNTIL AUGUST 31, 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 WAIVER, 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 WERE AS FOLLOWS:
MARYLAND TAX-FREE PORTFOLIO -- INSTITUTIONAL CLASS 0.81%
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 and that
you sell your shares at the end of the period.
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:
--------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$86 $302 $537 $1,210
--------------------------------------------------------------------------------
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 10 Year Municipal Bond Index is a widely
recognized index of long-term investment-grade tax-exempt bonds. The index
includes general obligation bonds, revenue bonds, insured bonds and prefunded
bonds with maturities between 8 and 12 years. The Lehman 7 Year Municipal Bond
Index is a widely recognized index of long-term investment-grade tax-exempt
bonds. The index includes general obligation bonds, revenue bonds, insured bonds
and prefunded bonds with maturities between 6 and 8 years.
WHAT IS
AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with a
particular investment objective. You cannot invest directly in an average. The
Lipper Maryland Municipal Debt Funds Average is a composite of mutual funds with
goals similar to the Portfolio's goals.
PROSPECTUS 15
<PAGE>
ARK PENNSYLVANIA TAX-FREE PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Current income exempt
from Federal and
Pennsylvania state
income taxes
INVESTMENT FOCUS
Pennsylvania municipal
securities
SHARE PRICE VOLATILITY
Low to medium
PRINCIPAL INVESTMENT
STRATEGY
Investing in
Pennsylvania
municipal securities
INVESTOR PROFILE
Investors seeking
income exempt from
Federal and
Pennsylvania state
income taxes
PRINCIPAL INVESTMENT
STRATEGY OF THE PENNSYLVANIA
TAX-FREE PORTFOLIO
The Pennsylvania Tax-Free Portfolio seeks its investment goal by investing
primarily in municipal securities that generate income exempt from Federal and
Pennsylvania state income taxes. The principal issuers of these securities are
state and local governments and agencies located in Pennsylvania, as well as the
District of Columbia, Puerto Rico and other U.S. territories and possessions.
The Portfolio normally invests in investment-grade debt securities with long and
intermediate maturities, and the Portfolio will typically have a dollar-weighted
average maturity of 7 to 12 years. However, the Portfolio has no maturity
restrictions, and the average maturity of the Portfolio's investments will vary
depending on market conditions.
In selecting securities, the Portfolio's Advisor considers the future direction
of interest rates and the shape of the yield curve, as well as credit quality
and sector allocation issues. Sector allocation issues involve the relative
attractiveness of rates and market opportunities in sectors such as general
obligation or revenue bonds. Normally, the Portfolio's assets will be invested
in securities that are not subject to Federal taxes, including the Alternative
Minimum Tax.
PRINCIPAL RISKS OF INVESTING
IN THE PENNSYLVANIA
TAX-FREE 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, including governments.
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.
There may be economic or political changes that impact the ability of municipal
issuers to repay principal and to make interest payments on municipal
securities. Changes in the financial condition or credit rating of municipal
issuers also may adversely affect the value of the Portfolio's securities.
The Portfolio's concentration of investments in securities of issuers located in
Pennsylvania subjects the Portfolio to the effects of economic and government
policies of Pennsylvania.
The Portfolio is non-diversified, which means that it may invest in the
securities of relatively few issuers. As a result, the Portfolio may be more
susceptible to a single adverse economic or political occurrence affecting one
or more of these issuers, and may experience increased volatility due to its
investments in those securities.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares for each year for three calendar years.
1997 6.63%
1998 5.24%
1999 -4.63%
BEST QUARTER WORST QUARTER
3.17% -2.54%
(09/30/98) (06/30/99)
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional Class total return was 3.59%.
16 PROSPECTUS
<PAGE>
This table compares the Portfolio's average annual total returns for the periods
ended December 31, 1999, to those of the Lehman 10 Year Municipal Bond Index,
the Lehman 7 Year Municipal Bond Index, the Lehman 5 Year Municipal Bond Index
and the Lipper Pennsylvania Intermediate Municipal Funds Average.
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
Pennsylvania Tax-Free
Portfolio -4.63% 2.88%*
--------------------------------------------------------------------------------
Lehman 10 Year
Municipal Bond Index -1.24% 5.26%**
--------------------------------------------------------------------------------
Lehman 7 Year
Municipal Bond Index -0.14% 4.90%**
--------------------------------------------------------------------------------
Lehman 5 Year
Municipal Bond Index 0.74% 4.57%**
--------------------------------------------------------------------------------
Lipper Pennsylvania Inter-
Mediate Municipal Funds Average -2.48% 3.75%**
--------------------------------------------------------------------------------
* PERFORMANCE PRESENTED PRIOR TO MARCH 23, 1998 REFLECTS THE PERFORMANCE OF
THE MARKETVEST PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND SHARES, WHICH
WERE OFFERED BEGINNING APRIL 1, 1996. THE ASSETS OF THE MARKETVEST FUND WERE
REORGANIZED INTO THE PORTFOLIO IN 1998 FOLLOWING THE ACQUISITION BY ALLFIRST
BANK OF DAUPHIN DEPOSIT BANK AND TRUST COMPANY.
** SINCE MARCH 31, 1996.
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)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends and other
Distributions (as a percentage of
offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Investment Advisory Fees 0.65%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees None
--------------------------------------------------------------------------------
Other Expenses 0.35%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.00%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.01%
--------------------------------------------------------------------------------
TOTAL NET OPERATING EXPENSES 0.99%(1)
--------------------------------------------------------------------------------
(1) THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND REIMBURSE
EXPENSES IN ORDER TO KEEP THE TOTAL OPERATING EXPENSES FROM EXCEEDING 0.99%
UNTIL AUGUST 31, 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 WAIVER, THE ADVISOR IS
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 WERE AS FOLLOWS:
PENNSYLVANIA TAX-FREE PORTFOLIO --
INSTITUTIONAL CLASS 0.96%
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 and that
you sell your shares at the end of the period.
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:
--------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$101 $317 $551 $1,224
--------------------------------------------------------------------------------
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 10 Year Municipal Bond Index is a widely
recognized index of long-term investment-grade tax-exempt bonds. The index
includes general obligation bonds, revenue bonds, insured bonds and prefunded
bonds with maturities between 8 and 12 years. The Lehman 7 Year Municipal Bond
Index is a widely recognized index of long-term investment-grade tax-exempt
bonds. The index includes general obligation bonds, revenue bonds, insured bonds
and prefunded bonds with maturities between 6 and 8 years. The Lehman 5 Year
Municipal Bond Index is a widely recognized index of intermediate investment
grade tax-exempt bonds.
WHAT IS
AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with a
particular investment objective. You cannot invest directly in an average. The
Lipper Pennsylvania Intermediate Municipal Funds Average is a composite of
mutual funds with goals similar to the Portfolio's goals.
PROSPECTUS 17
<PAGE>
ARK INTERMEDIATE FIXED INCOME PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Current income
INVESTMENT FOCUS
Intermediate-term
investment-grade fixed
income securities
SHARE PRICE VOLATILITY
Low to medium
PRINCIPAL INVESTMENT
STRATEGY
Investing in U.S.
intermediate-term
government and
corporate fixed income
securities
INVESTOR PROFILE
Investors seeking
current income who are
willing to accept the
risks of investing in
fixed income securities
PRINCIPAL INVESTMENT
STRATEGY OF THE INTERMEDIATE
FIXED INCOME PORTFOLIO
The Intermediate Fixed 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
select investment-grade fixed income securities and unrated securities
determined to be of comparable quality. The Portfolio normally invests in
securities with intermediate maturities, and the Portfolio will typically have a
dollar-weighted average maturity of 3 to 10 years. However, the Portfolio has no
maturity restrictions, and the average maturity of the Portfolio's investments
will vary depending on market conditions.
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 decrease
in interest rates.
PRINCIPAL RISKS OF INVESTING
IN THE INTERMEDIATE FIXED
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.
The mortgages underlying mortgage-backed securities may be paid off early, which
makes it difficult to determine their actual maturity and therefore calculate
how they 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.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares for each year for three calendar years.
1997 7.58%
1998 7.63%
1999 -0.57%
BEST QUARTER WORST QUARTER
4.67% -1.02%
(09/30/98) (06/30/99)
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional Class total return was 2.26%.
18 PROSPECTUS
<PAGE>
This table compares the Portfolio's average annual total returns for the periods
ended December 31, 1999, to those of the Lehman Intermediate Government Bond
Index, Lehman Intermediate Government/Credit Index, and the Lipper Intermediate
Investment Grade Debt Funds Average.
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
Intermediate Fixed
Income Portfolio -0.57% 4.55%*
--------------------------------------------------------------------------------
Lehman Intermediate
Government Bond Index 0.50% 5.17%**
--------------------------------------------------------------------------------
Lehman Intermediate
Government/Credit Index 0.39% 5.12%**
--------------------------------------------------------------------------------
Lipper Intermediate
Investment Grade
Debt Funds Average -1.31% 4.43%**
--------------------------------------------------------------------------------
* Since November 18, 1996.
** Since November 30, 1996.
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)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends and other
Distributions (as a percentage of
offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Investment Advisory Fees 0.60%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees None
--------------------------------------------------------------------------------
Other Expenses 0.36%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 0.96%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.12%
--------------------------------------------------------------------------------
NET TOTAL OPERATING EXPENSES 0.84%(1)
--------------------------------------------------------------------------------
(1) THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 0.84%
UNTIL AUGUST 31, 2001. THE PORTFOLIO'S TOTAL ANNUAL OPERATING EXPENSES WOULD
BE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISOR WILL VOLUNTARILY
REIMBURSE 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 TOTAL OPERATING
EXPENSES WOULD BE AS FOLLOWS:
INTERMEDIATE FIXED INCOME PORTFOLIO --
INSTITUTIONAL CLASS 0.81%
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 and that
you sell your shares at the end of the period.
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:
--------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$86 $294 $519 $1,167
--------------------------------------------------------------------------------
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 Intermediate Government/Corporate 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. Treasury
securities, U.S. government agency obligations, corporate debt securities backed
by the U.S. government, fixed-rate nonconvertible corporate debt securities,
Yankee bonds and nonconvertible debt securities issued by or guaranteed by
foreign governments and agencies. All securities in the index are rated
investment-grade (BBB) or higher, with maturities of 1 to 10 years. The Lehman
Intermediate Government Bond Index is a widely recognized index of U.S. Treasury
securities and government agency securities with maturities ranging from 1 to 10
years.
WHAT IS
AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with a
particular investment objective. You cannot invest directly in an average. The
Lipper Intermediate Investment Grade Debt Funds Average is a composite of mutual
funds with goals similar to the Portfolio's goals.
PROSPECTUS 19
<PAGE>
ARK U.S. GOVERNMENT BOND PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Current income
INVESTMENT FOCUS
U.S. government
securities
SHARE PRICE VOLATILITY
Low to medium
PRINCIPAL INVESTMENT
STRATEGY
Investing in U.S.
government fixed
income securities
INVESTOR PROFILE
Investors seeking
current income who are
willing to accept the
risks of investing in
fixed income securities
PRINCIPAL INVESTMENT
STRATEGY OF THE U.S.
GOVERNMENT BOND PORTFOLIO
The U.S. Government Bond Portfolio seeks its investment goal by investing
primarily in fixed income securities issued or guaranteed by the U.S. government
and its agencies or instrumentalities, including mortgage-backed securities. The
Portfolio also invests in a range of investment-grade corporate fixed income
securities. The Portfolio normally invests in intermediate-term securities, and
the Portfolio will typically have a dollar-weighted average maturity of between
3 and 10 years. However, the Portfolio has no maturity restrictions, and the
average maturity of the Portfolio's investments will vary depending on market
conditions.
In selecting securities for the Portfolio, the Advisor considers a security's
current yield, 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 decrease 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, and may adversely affect the Portfolio's performance.
PRINCIPAL RISKS OF INVESTING
IN THE U.S. GOVERNMENT
BOND 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.
The mortgages underlying mortgage-backed securities may be paid off early, which
makes it difficult to determine their actual maturity and therefore calculate
how they 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.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares for each year for three calendar years.
1997 6.70%
1998 7.02%
1999 -0.70%
BEST QUARTER WORST QUARTER
3.73% -1.28%
(09/30/98) (03/31/97)
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional Class total return was 1.76%.
20 PROSPECTUS
<PAGE>
This table compares the Portfolio's average annual total returns for the periods
ended December 31, 1999, to those of the Lehman Intermediate
Government/Corporate Bond Index and the Lipper Intermediate U.S. Government
Funds Average.
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
U.S. Government
Bond Portfolio -0.70% 4.50%*
--------------------------------------------------------------------------------
Lehman Intermediate
Government/Corporate
Bond Index 0.39% 5.72%**
--------------------------------------------------------------------------------
Lipper Intermediate
U.S. Government
Funds Average -1.68% 4.96%**
--------------------------------------------------------------------------------
* PERFORMANCE PRESENTED PRIOR TO MARCH 23, 1998 REFLECTS THE PERFORMANCE OF
THE MARKETVEST INTERMEDIATE U.S. GOVERNMENT BOND FUND SHARES, WHICH WERE
OFFERED BEGINNING APRIL 1, 1996. THE ASSETS OF THE MARKETVEST FUND WERE
REORGANIZED INTO THE PORTFOLIO IN 1998 FOLLOWING THE ACQUISITION BY ALLFIRST
BANK OF DAUPHIN DEPOSIT BANK AND TRUST COMPANY.
** SINCE MARCH 31, 1996.
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)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends and other
Distributions (as a percentage of
offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES
DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Investment Advisory Fees 0.75%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees None
--------------------------------------------------------------------------------
Other Expenses 0.34%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES 1.09%
--------------------------------------------------------------------------------
Fee Waivers and Expense Reimbursements 0.10%
--------------------------------------------------------------------------------
NET TOTAL OPERATING EXPENSES 0.99%(1)
--------------------------------------------------------------------------------
(1) THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 0.99%
UNTIL AUGUST 31, 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 WAIVER, 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 WERE AS FOLLOWS:
U.S. GOVERNMENT BOND PORTFOLIO -- INSTITUTIONAL CLASS 0.96%
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 and that
you sell your shares at the end of the period.
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:
--------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$101 $337 $591 $1,320
--------------------------------------------------------------------------------
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 Intermediate Government/Corporate 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. Treasury
securities, U.S. government agency obligations, corporate debt securities,
fixed-rate nonconvertible securities, Yankee bonds and nonconvertible debt
securities issued by or guaranteed by foreign governments and agencies. All
securities in the index are rated investment-grade (BBB) or higher, with
maturities of 1 to 10 years.
WHAT IS
AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with a
particular investment objective. You cannot invest directly in an average. The
Lipper Intermediate U.S. Government Funds Average is a composite of mutual funds
with goals similar to the Portfolio's goals.
PROSPECTUS 21
<PAGE>
ARK INCOME PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Primarily current
income and secondarily
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
primarily current
income and secondarily
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 up to 15% of the Portfolio's total
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 5 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 decrease
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, and may adversely affect the Portfolio's performance.
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.
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
The bar chart and the performance table that 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.
22 PROSPECTUS
<PAGE>
This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares for each year for six calendar years.
1994 -1.90%
1995 18.00%
1996 2.75%
1997 9.60%
1998 6.76%
1999 -1.79%
BEST QUARTER WORST QUARTER
6.67% -2.11%
(06/30/95) (03/31/96)
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional Class total return was 2.78%.
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
and the Lipper Corporate A-Rated Debt Funds Average.
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS 1 YEAR 5 YEARS SINCE INCEPTION
--------------------------------------------------------------------------------
Income Portfolio -1.79% 6.86% 5.37%*
--------------------------------------------------------------------------------
Lehman Aggregate
Bond Index -0.83% 7.73% 5.83%**
--------------------------------------------------------------------------------
Lipper Corporate A-Rated
Debt Funds Average -2.58% 6.90% 5.08%**
--------------------------------------------------------------------------------
* SINCE JULY 16, 1993.
** SINCE JULY 31, 1993.
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)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends and other
Distributions (as a percentage of
offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Investment Advisory Fees 0.60%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees None
--------------------------------------------------------------------------------
Other Expenses 0.34%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 0.94%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.09%
--------------------------------------------------------------------------------
NET TOTAL OPERATING EXPENSES 0.85%(1)
--------------------------------------------------------------------------------
(1) THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 0.85%
UNTIL AUGUST 31, 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 WAIVER, 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 WERE AS FOLLOWS:
INCOME PORTFOLIO -- INSTITUTIONAL CLASS 0.82%
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:
--------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$87 $291 $511 $1,146
--------------------------------------------------------------------------------
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 1
year.
WHAT IS AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with a
particular investment objective. You cannot invest directly in an average. The
Lipper Corporate A-Rated Debt Funds Average is a composite of mutual funds with
goals similar to the Portfolio's goals.
23 PROSPECTUS
<PAGE>
ARK BALANCED PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Long-term total return
INVESTMENT FOCUS
Common stocks and
fixed income securities
SHARE PRICE VOLATILITY
Medium
PRINCIPAL INVESTMENT
STRATEGY
Investing in stocks and
bonds to generate total
return
INVESTOR PROFILE
Investors seeking total
return by investing in a
balanced portfolio of
fixed income and equity
securities with lower
volatility than an all
equity portfolio
PRINCIPAL INVESTMENT
STRATEGY OF THE BALANCED
PORTFOLIO
The Balanced Portfolio seeks its investment goal by investing primarily in a
diverse portfolio of common stocks and investment-grade fixed income securities.
The Portfolio's Advisor will select common stocks of mid-sized and larger
companies (companies with market capitalizations of at least $500 million at
time of purchase) that are recognized leaders in their respective markets. In
evaluating securities for the Portfolio, the Advisor considers each company's
current financial strength, revenue, earnings growth, and relative valuation of
its stock. The Advisor will also purchase investment-grade fixed income
securities with varying maturities, including corporate and government
securities and mortgage-backed securities. The Advisor will adjust the
Portfolio's asset mix based on its analysis of the relative attractiveness and
risk of bonds and stocks in connection with economic, financial and other market
trends.
In selecting securities for the Portfolio, the Advisor attempts to maximize
total return by purchasing a combination of common stocks and fixed income
securities of U.S. issuers. The Advisor will also attempt to minimize price
declines during equity market downturns by reallocating assets to fixed income
securities. The dollar-weighted average maturity of the Portfolio's fixed income
securities may vary depending on market conditions, but will typically be
between 5 and 20 years.
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, and may adversely affect the Portfolio's performance.
PRINCIPAL RISKS OF INVESTING
IN THE BALANCED 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.
The medium capitalization companies the Portfolio invests in may be more
vulnerable to adverse business or economic events than larger, more established
companies. In particular, these mid-sized companies may have limited product
lines, markets and financial resources, and may depend upon a relatively small
management group. Therefore, mid-cap stocks may be more volatile than those of
larger companies.
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, including governments.
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.
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 is also subject to the risk that the Advisor's asset allocation
decisions will not anticipate market trends successfully. For example, investing
too heavily in common stocks during a stock market decline may result in a
failure to preserve capital. Conversely, investing too heavily in fixed income
securities during a period of stock market appreciation may result in lower
total return.
PERFORMANCE INFORMATION
The bar chart and the performance table that 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.
24 PROSPECTUS
<PAGE>
This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares for each year for six calendar years.
1994 -4.65%
1995 21.92%
1996 8.12%
1997 22.59%
1998 24.83%
1999 22.57%
BEST QUARTER WORST QUARTER
18.32% -7.67%
(12/31/98) (09/30/98)
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional Class total return was 5.65%.
This table compares the Portfolio's average annual total returns for the periods
Ended December 31, 1999, to those of the S&P 500 Composite Index, the Lehman
Aggregate Bond Index, 60/40 Hybrid of the S&P 500 Composite and Lehman
Aggregate Bond indices and the Lipper Balanced Funds Average.
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS 1 YEAR 5 YEARS SINCE INCEPTION
--------------------------------------------------------------------------------
Balanced Portfolio 22.57% 19.85% 15.45%*
--------------------------------------------------------------------------------
S&P 500
Composite Index 21.04% 28.55% 22.86%**
--------------------------------------------------------------------------------
Lehman Aggregate
Bond Index -0.83% 7.73% 5.83%**
--------------------------------------------------------------------------------
60/40 Hybrid of the
S&P 500 and
Lehman Aggregate 12.00% 20.08% 15.98%**
--------------------------------------------------------------------------------
Lipper Balanced Funds
Average 8.73% 16.24% 12.79%**
--------------------------------------------------------------------------------
* SINCE JULY 16, 1993.
** SINCE JULY 31, 1993.
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)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends and other
Distributions (as a percentage of
offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Investment Advisory Fees 0.65%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees None
--------------------------------------------------------------------------------
Other Expenses 0.36%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.01%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.07%
--------------------------------------------------------------------------------
NET TOTAL OPERATING EXPENSES 0.94%(1)
--------------------------------------------------------------------------------
(1) THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 0.94%
UNTIL AUGUST 31, 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 WAIVER, 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 WERE AS FOLLOWS:
BALANCED PORTFOLIO -- INSTITUTIONAL CLASS 0.90%
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 and that
you sell your shares at the end of the period.
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:
--------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$96 $315 $551 $1,230
--------------------------------------------------------------------------------
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 S&P 500 Composite Index is a widely recognized,
market value-weighted (higher market value stocks have more influence than lower
market value stocks) index of 500 stocks designed to mimic the overall equity
market's industry weightings. 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. The 60/40 Hybrid of the S&P 500 and Lehman Aggregate benchmark is
comprised of two unmanaged indices, weighted 60% S&P 500 Composite Index and 40%
Lehman Aggregate Bond Index. The Portfolio uses a blended index because it is
better suited to the Portfolio's strategy.
WHAT IS AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with a
particular investment objective. You cannot invest directly in an average. The
Lipper Balanced Funds Average is a composite of mutual funds with goals similar
to the Portfolio's goals.
25 PROSPECTUS
<PAGE>
ARK EQUITY INCOME PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Current income and
growth of capital
INVESTMENT FOCUS
Dividend-paying U.S.
common stocks
SHARE PRICE VOLATILITY
Medium to high
PRINCIPAL INVESTMENT
STRATEGY
Investing in stocks
which have an above-
average dividend yield
relative to the broad
stock market
INVESTOR PROFILE
Investors seeking
current income and
growth of capital who
can tolerate the share
price volatility of equity
investing
PRINCIPAL INVESTMENT
STRATEGY OF THE EQUITY
INCOME PORTFOLIO
The Equity Income Portfolio seeks its investment goal by investing primarily in
dividend-paying U.S. common stocks and other equity securities. The Portfolio
may, to a limited extent, purchase convertible and preferred stocks and
investment-grade fixed income securities. The Portfolio's Advisor will build a
broadly diversified portfolio of stocks of mid-size and large companies
(companies with market capitalizations of at least $500 million) that have an
above-average dividend yield relative to the broad stock market.
In selecting securities for the Portfolio, the Advisor purchases stocks of
high-quality companies that have consistently paid dividends. In addition, the
Advisor will generally invest in stocks of companies whose securities are
attractively valued relative to comparable investments.
PRINCIPAL RISKS OF
INVESTING IN THE EQUITY
INCOME 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.
The medium capitalization companies the Portfolio invests in may be more
vulnerable to adverse business or economic events than larger, more established
companies. In particular, these mid-sized companies may have limited product
lines, markets and financial resources, and may depend upon a relatively small
management group. Therefore, mid-cap stocks may be more volatile than those of
larger companies.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares for each year for three calendar years.
1997 32.28%
1998 8.62%
1999 2.57%
BEST QUARTER WORST QUARTER
12.41% -10.41%
(06/30/97) (09/30/99)
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional Class total return was 7.49%.
This table compares the Portfolio's average annual total returns for the periods
ended December 31, 1999, to those of the S&P 500 Composite Index and the Lipper
Equity Income Funds Classification.
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
Equity Income Portfolio 2.57% 13.55%*
--------------------------------------------------------------------------------
S&P 500
Composite Index 21.04% 25.91%**
--------------------------------------------------------------------------------
Lipper Equity Income
Funds Classification 4.56% 12.66%**
--------------------------------------------------------------------------------
* Since November 18, 1996.
** Since November 30, 1996.
26 PROSPECTUS
<PAGE>
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)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends and other
Distributions (as a percentage of
offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Investment Advisory Fees 0.70%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees None
--------------------------------------------------------------------------------
Other Expenses 0.36%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.06%
--------------------------------------------------------------------------------
Fee Waivers and Expense Reimbursements 0.07%
--------------------------------------------------------------------------------
NET TOTAL OPERATING EXPENSES 0.99%(1)
--------------------------------------------------------------------------------
(1) THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 0.99%
UNTIL AUGUST 31, 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 WAIVER, 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 WERE AS FOLLOWS:
EQUITY INCOME PORTFOLIO -- INSTITUTIONAL CLASS 0.98%
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 and that
you sell your shares at the end of the period.
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:
--------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$101 $330 $578 $1,288
--------------------------------------------------------------------------------
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 S&P 500 Composite Index is a widely recognized,
market value-weighted (higher market value stocks have more influence than lower
market value stocks) index of 500 stocks designed to mimic the overall equity
market's industry weightings.
WHAT IS A CLASSIFICATION?
A classification measures the share prices of a specific group of mutual funds
with a particular investment objective. You cannot invest directly in a
classification. The Lipper Equity Income Funds Classification is a composite of
mutual funds with goals similar to the Portfolio's goals.
PROSPECTUS 27
<PAGE>
ARK VALUE EQUITY PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Growth of principal
INVESTMENT FOCUS
U.S. common stocks
SHARE PRICE VOLATILITY
Medium to high
PRINCIPAL INVESTMENT
STRATEGY
Investing in
undervalued stocks of
U.S. companies
INVESTOR PROFILE
Investors seeking long-
term growth of principal
who can tolerate the
share price volatility of
equity investing
PRINCIPAL INVESTMENT
STRATEGY OF THE VALUE
EQUITY PORTFOLIO
The Value Equity Portfolio seeks its investment goal by investing primarily in a
diversified portfolio of common stocks and other equity securities of U.S.
issuers. The Portfolio's Advisor purchases stocks whose prices appear low when
compared to measures such as present and/or future earnings and cash flows, as
well as other out-of-favor stocks that the Advisor believes are undervalued by
the market.
In selecting investments for the Portfolio, the Advisor emphasizes stocks with
higher-than-average sales growth, higher-than-average return on equity,
above-average free cash flow, and return on invested capital that exceeds the
cost of capital. The Advisor will also weigh corporate management's ability to
adjust to the dynamics of rapidly changing economic and business conditions. The
Advisor's investment approach is based on the conviction that, over the long
term, broad-based economic growth will be reflected in the growth of the
revenues and earnings of publicly held corporations.
PRINCIPAL RISKS OF INVESTING
IN THE VALUE 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.
The medium capitalization companies the Portfolio invests in may be more
vulnerable to adverse business or economic events than larger, more established
companies. In particular, these mid-sized companies may have limited product
lines, markets and financial resources, and may depend upon a relatively small
management group. Therefore, mid-cap stocks may be more volatile than those of
larger companies.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares for each year for three calendar years.
1997 29.40%
1998 19.63%
1999 11.86%
BEST QUARTER WORST QUARTER
18.89% -10.63%
(12/31/98) (09/30/98)
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional Class total return was 3.79%.
28 PROSPECTUS
<PAGE>
This table compares the Portfolio's average annual total returns for the periods
ended December 31, 1999, to those of the S&P 500 Composite Index, the S&P
500/Barra Value Index and the Lipper Large-Cap Value Funds Classification.
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO 11.86% 20.12%*
--------------------------------------------------------------------------------
S&P 500 COMPOSITE INDEX 21.04% 26.60%**
--------------------------------------------------------------------------------
S&P 500/BARRA
VALUE INDEX 12.72% 19.11%**
--------------------------------------------------------------------------------
LIPPER LARGE-CAP VALUE
FUNDS CLASSIFICATION 11.17% 19.07%**
--------------------------------------------------------------------------------
* PERFORMANCE PRESENTED PRIOR TO MARCH 30, 1998 REFLECTS THE PERFORMANCE OF
THE MARKETVEST EQUITY FUND SHARES, WHICH WERE OFFERED BEGINNING APRIL 1,
1996. THE ASSETS OF THE MARKETVEST FUND WERE REORGANIZED INTO THE PORTFOLIO
IN 1998 FOLLOWING THE ACQUISITION BY ALLFIRST BANK OF DAUPHIN DEPOSIT BANK
AND TRUST COMPANY.
** SINCE MARCH 31, 1996.
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)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends and other
Distributions (as a percentage of
offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Investment Advisory Fees 1.00%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees None
--------------------------------------------------------------------------------
Other Expenses 0.35%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.35%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.12%
--------------------------------------------------------------------------------
NET TOTAL OPERATING EXPENSES 1.23%(1)
--------------------------------------------------------------------------------
(1) THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 1.23%
UNTIL AUGUST 31, 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 WAIVER, THE ADVISOR IS
VOLUNTARILY REIMBURSING EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES
AT SPECIFIED LEVELS. THE ADVISOR MAY DISCONTINUE ALL OR PART OF THESE
REIMBURSEMENTS AT ANY TIME. WITH THE EXPENSE REIMBURSEMENTS, THE PORTFOLIO'S
ACTUAL TOTAL OPERATING EXPENSES WERE AS FOLLOWS:
VALUE EQUITY PORTFOLIO -- INSTITUTIONAL CLASS 1.20%
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 and that
you sell your shares at the end of the period.
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:
--------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$125 $416 $728 $1,613
--------------------------------------------------------------------------------
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 S&P 500 Composite Index is a widely recognized,
market value-weighted (higher market value stocks have more influence than lower
market value stocks) index of 500 stocks designed to mimic the overall equity
market's industry weightings. The S&P 500/Barra Value Index is a widely
recognized index of the stocks in the S&P 500 Index that have lower
price-to-book ratios.
WHAT IS
A CLASSIFICATION?
A classification measures the share prices of a specific group of mutual funds
with a particular investment objective. You cannot invest directly in a
classification. The Lipper Large-Cap Value Funds Classification is a composite
of mutual funds with goals similar to the Portfolio's goals.
PROSPECTUS 29
<PAGE>
ARK EQUITY INDEX PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Investment results that
correspond to the
performance of the
Standard & Poor's 500
Composite Index
(S&P 500)
INVESTMENT FOCUS
U.S. common stocks
SHARE PRICE VOLATILITY
Medium to high
PRINCIPAL INVESTMENT
STRATEGY
Attempts to replicate
the performance of the
S&P 500
INVESTOR PROFILE
Investors seeking
growth of capital who
can tolerate the share
price volatility of equity
investing
PRINCIPAL INVESTMENT
STRATEGY OF THE EQUITY
INDEX PORTFOLIO
The Equity Index Portfolio seeks its investment goal by investing in securities
listed in the S&P 500, which is comprised of 500 selected securities (mostly
common stocks). The Portfolio is managed by utilizing a computer program that
identifies which stocks should be purchased or sold in order to replicate, as
closely as practicable, the composition of the S&P 500. The Portfolio will
approximate the industry and sector weightings of the S&P 500 by matching the
weightings of the stocks included in the S&P 500.
The Portfolio may, to a limited extent, invest in futures contracts, options,
options on futures, and index participation contracts based on the S&P 500. The
Portfolio will invest in these contracts and options to maintain sufficient
liquidity to meet redemption requests, to increase the level of Portfolio assets
devoted to replicating the composition of the S&P 500, and to reduce transaction
costs.
Although the Portfolio will not replicate the performance of the S&P 500
precisely, it is anticipated that there will be a close correlation between the
Portfolio's performance and that of the S&P 500 in both rising and falling
markets. The size and timing of cash flows and the level of expenses are the
principal factors that contribute to the lack of precise correlation between the
S&P 500 and the Portfolio.
PRINCIPAL RISKS OF INVESTING
IN THE EQUITY INDEX 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.
The Advisor may not be able to match the performance of the Portfolio's
benchmark.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows the performance of the Portfolio's Institutional Class
shares for each year for two calendar years.
1998 29.34%
1999 21.08%
BEST QUARTER WORST QUARTER
21.27% -9.49%
(12/31/98) (09/30/98)
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional Class total return was -0.49%.
30 PROSPECTUS
<PAGE>
This table compares the Portfolio's average annual total returns for the periods
ended December 31, 1999, to those of the S&P 500 Composite Index and the Lipper
S&P 500 Index Objective Funds Average.
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
Equity Index Portfolio 21.08% 22.83%*
--------------------------------------------------------------------------------
S&P 500
Composite Index 21.04% 23.27%**
--------------------------------------------------------------------------------
Lipper S&P 500 Index
Objective Funds Average 20.22% 22.61%**
--------------------------------------------------------------------------------
* SINCE OCTOBER 1, 1997.
** SINCE SEPTEMBER 30, 1997.
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)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends and other
Distributions (as a percentage of
offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Investment Advisory Fees 0.20%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees None
--------------------------------------------------------------------------------
Other Expenses 0.43%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 0.63%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.35%
--------------------------------------------------------------------------------
NET TOTAL OPERATING EXPENSES 0.28%(1)
--------------------------------------------------------------------------------
(1) THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 0.28%
UNTIL AUGUST 31, 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 WAIVER, 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 WERE AS FOLLOWS:
EQUITY INDEX PORTFOLIO -- INSTITUTIONAL CLASS 0.25%
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 and that
you sell your shares at the end of the period.
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:
--------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$29 $166 $317 $753
--------------------------------------------------------------------------------
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 S&P 500 Composite Index is a widely recognized,
market value-weighted (higher market value stocks have more influence than lower
market value stocks) index of 500 stocks designed to mimic the overall equity
market's industry weightings.
WHAT IS AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with a
particular investment objective. You cannot invest directly in an average. The
Lipper S&P 500 Index Objective Funds Average is a composite of mutual funds with
goals similar to the Portfolio's goals.
PROSPECTUS 31
<PAGE>
ARK BLUE CHIP EQUITY PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Long-term capital
appreciation
INVESTMENT FOCUS
Large capitalization U.S.
common stocks
SHARE PRICE VOLATILITY
Medium to high
PRINCIPAL INVESTMENT
STRATEGY
Investing in stocks of
established large
capitalization
companies
INVESTOR PROFILE
Investors seeking
capital appreciation
who can tolerate the
share price volatility of
equity investing
PRINCIPAL INVESTMENT
STRATEGY OF THE BLUE CHIP
EQUITY PORTFOLIO
The Blue Chip Equity Portfolio seeks its investment goal by investing primarily
in common stocks and other equity securities of established U.S. companies with
market capitalizations in excess of $5 billion. The Portfolio's Advisor
generally purchases stocks of companies with at least 10 years of operating
history that are recognized leaders in their respective markets. The Portfolio
also may, to a limited extent, purchase stocks of rapidly growing companies in
developing industries, convertible and preferred stocks, and investment-grade
fixed income securities.
In selecting investments for the Portfolio, the Advisor will purchase securities
of large companies with strong balance sheets and prospects for above-average
growth. The Advisor will also purchase securities of issuers based on their
current financial strength and their market valuations relative to their
competitors.
PRINCIPAL RISKS OF
INVESTING IN THE BLUE CHIP
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.
The medium capitalization companies the Portfolio invests in may be more
vulnerable to adverse business or economic events than larger, more established
companies. In particular, these mid-sized companies may have limited product
lines, markets and financial resources, and may depend upon a relatively small
management group. Therefore, mid-cap stocks may be more volatile than those of
larger companies.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares for each year for three calendar years.
1997 32.98%
1998 26.54%
1999 26.26%
BEST QUARTER WORST QUARTER
21.68% -11.70%
(12/31/98) (09/30/98)
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional Class total return was 4.82%.
32 PROSPECTUS
<PAGE>
This table compares the Portfolio's average annual total returns for the periods
ended December 31, 1999, to those of the S&P 500 Composite Index and the Lipper
Large-Cap Value Funds Classification.
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
Blue Chip Equity
Portfolio 26.26% 26.80%*
--------------------------------------------------------------------------------
S&P 500
Composite Index 21.04% 26.60%**
--------------------------------------------------------------------------------
Lipper Large-Cap Value
Funds Classification 11.17% 19.07%**
--------------------------------------------------------------------------------
* SINCE APRIL 1, 1996.
** SINCE MARCH 31, 1996.
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)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends and other
Distributions (as a percentage of
offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Investment Advisory Fees 0.70%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees None
--------------------------------------------------------------------------------
Other Expenses 0.39%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.09%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.09%
--------------------------------------------------------------------------------
NET TOTAL OPERATING EXPENSES 1.00%(1)
--------------------------------------------------------------------------------
(1) THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 1.00%
UNTIL AUGUST 31, 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 WAIVER, THE ADVISOR IS
VOLUNTARILY REIMBURSING EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES
AT SPECIFIED LEVELS. THE ADVISOR MAY DISCONTINUE ALL OR PART OF THESE
VOLUNTARY REIMBURSEMENTS AT ANY TIME. WITH THE EXPENSE REIMBURSEMENTS, THE
PORTFOLIO'S ACTUAL TOTAL OPERATING EXPENSES WERE AS FOLLOWS:
BLUE CHIP EQUITY PORTFOLIO -- INSTITUTIONAL CLASS 0.97%
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 and that
you sell your shares at the end of the period.
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:
--------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$102 $338 $592 $1,321
--------------------------------------------------------------------------------
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 S&P 500 Composite Index is a widely recognized,
market value-weighted (higher market value stocks have more influence than lower
market value stocks) index of 500 stocks designed to mimic the overall equity
market's industry weightings.
WHAT IS
A CLASSIFICATION?
A classification measures the share prices of a specific group of mutual funds
with a particular investment objective. You cannot invest directly in a
classification. The Lipper Large-Cap Value Funds Classification is a composite
of mutual funds with goals similar to the Portfolio's goals.
PROSPECTUS 33
<PAGE>
ARK CAPITAL GROWTH PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Long-term capital
appreciation
INVESTMENT FOCUS
U.S. common stocks of
various market
capitalizations
SHARE PRICE VOLATILITY
Medium to high
PRINCIPAL INVESTMENT STRATEGY
Investing in stocks that
offer above-average
growth potential
INVESTOR PROFILE
Investors seeking
capital appreciation
who can tolerate the
share price volatility of
equity investing
PRINCIPAL INVESTMENT
STRATEGY OF THE CAPITAL
GROWTH PORTFOLIO
The Capital Growth Portfolio seeks its investment goal by investing primarily in
common stocks and other equity securities. The Portfolio's Advisor will build a
broadly diversified portfolio of stocks with above-average capital growth
potential.
In selecting securities for the Portfolio, the Advisor purchases securities of
well-known, established companies and small- and mid-size companies (companies
with market capitalizations of $8 billion or less). In evaluating securities for
the Portfolio, the Advisor considers each company's current financial strength,
as well as its revenue and earnings growth and the valuation of its stock.
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, and may adversely affect the Portfolio's performance.
PRINCIPAL RISKS OF
INVESTING IN THE CAPITAL
GROWTH 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.
The smaller and medium 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 and mid-size companies may
have limited product lines, markets and financial resources, and may depend upon
a relatively small management group. Therefore, small-cap and mid-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.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares for each year for six calendar years.
1994 -9.88%
1995 23.27%
1996 17.82%
1997 29.33%
1998 41.21%
1999 46.47%
BEST QUARTER WORST QUARTER
35.07% -14.10%
(12/31/98) (09/30/98)
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional Class total return was 10.84%.
34 PROSPECTUS
<PAGE>
This table compares the Portfolio's average annual total returns for the periods
ended December 31, 1999, to those of the S&P 500 Composite Index and the Lipper
Multi-Cap Growth Funds Classification.
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS 1 YEAR 5 YEARS SINCE INCEPTION
--------------------------------------------------------------------------------
Capital Growth
Portfolio 46.47% 31.18% 23.06%*
--------------------------------------------------------------------------------
S&P 500
Composite Index 21.04% 28.55% 22.86%**
--------------------------------------------------------------------------------
Lipper Multi-Cap
Growth Funds
Classification 52.19% 28.56% 22.34%**
--------------------------------------------------------------------------------
* Since July 16, 1993.
** Since July 31, 1993.
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)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends and other
Distributions (as a percentage of
offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Investment Advisory Fees 0.70%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees None
--------------------------------------------------------------------------------
Other Expenses 0.37%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.07%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.03%
--------------------------------------------------------------------------------
NET TOTAL OPERATING EXPENSES 1.04%(1)
--------------------------------------------------------------------------------
(1) THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 1.04%
UNTIL AUGUST 31, 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 WAIVER, 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 ANY TIME. WITH THE EXPENSE REIMBURSEMENTS, THE PORTFOLIO'S
ACTUAL TOTAL OPERATING EXPENSES WERE AS FOLLOWS:
CAPITAL GROWTH PORTFOLIO-- INSTITUTIONAL CLASS 1.00%
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 and that
you sell your shares at the end of the period.
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:
--------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$106 $337 $587 $1,303
--------------------------------------------------------------------------------
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 S&P 500 Composite Index is a widely recognized,
market value-weighted (higher market value stocks have more influence than lower
market value stocks) index of 500 stocks designed to mimic the overall equity
market's industry weightings.
WHAT IS A CLASSIFICATION?
A classification measures the share prices of a specific group of mutual funds
with a particular investment objective. You cannot invest directly in a
classification. The Lipper Multi-Cap Growth Funds Classification is a composite
of mutual funds with goals similar to the Portfolio's goals.
PROSPECTUS 35
<PAGE>
ARK MID-CAP EQUITY PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL
Long-term capital
appreciation
INVESTMENT FOCUS
Medium capitalization
U.S. common stocks
SHARE PRICE VOLATILITY
High
PRINCIPAL INVESTMENT STRATEGY
Investing in stocks of
mid-sized companies
that have significant
growth potential
INVESTOR PROFILE
Investors seeking
growth of capital who
can tolerate the share
price volatility of mid-
cap equity investing
PRINCIPAL INVESTMENT
STRATEGY OF THE MID-CAP
EQUITY PORTFOLIO
The Mid-Cap Equity Portfolio seeks its investment goal by investing primarily in
common stocks and other equity securities of U.S. issuers. The Portfolio's
Advisor chooses stocks of companies with market capitalizations of between $500
million and $8 billion that have significant growth potential.
In selecting securities for the Portfolio, the Advisor purchases securities of
companies that have not reached full maturity, but that have above-average sales
and earnings growth. The Advisor also looks for medium-sized companies with
relatively low or unrecognized market valuations.
PRINCIPAL RISKS OF
INVESTING IN THE MID-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.
The medium capitalization companies the Portfolio invests in may be more
vulnerable to adverse business or economic events than larger, more established
companies. In particular, these mid-sized companies may have limited product
lines, markets and financial resources, and may depend upon a relatively small
management group. Therefore, mid-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.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares for each year for three calendar years.
1997 31.39%
1998 22.07%
1999 23.70%
BEST QUARTER WORST QUARTER
30.57% -15.35%
(12/31/98) (09/30/98)
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional Class total return was 13.88%.
36 PROSPECTUS
<PAGE>
This table compares the Portfolio's average annual total returns for the periods
ended December 31, 1999 to those of the S&P 400 Mid-Cap Index and the Lipper
Mid-Cap Growth Funds Classification.
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
Mid-Cap Equity Portfolio 23.70% 24.86%*
--------------------------------------------------------------------------------
S&P 400
Mid-Cap Index 14.72% 21.20%**
--------------------------------------------------------------------------------
Lipper Mid-Cap Growth
Funds Classification 72.56% 27.76%**
--------------------------------------------------------------------------------
* Since November 18, 1996.
** Since November 30, 1996.
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)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends and other
Distributions (as a percentage of
offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Investment Advisory Fees 0.80%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees None
--------------------------------------------------------------------------------
Other Expenses 0.39%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.19%
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.04%
--------------------------------------------------------------------------------
NET TOTAL OPERATING EXPENSES 1.15%(1)
--------------------------------------------------------------------------------
(1) THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 1.15%
UNTIL AUGUST 31, 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 WAIVER, 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'
ACTUAL TOTAL OPERATING EXPENSES WERE AS FOLLOWS:
MID-CAP EQUITY PORTFOLIO-- INSTITUTIONAL CLASS 1.11%
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 and that
you sell your shares at the end of the period.
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:
--------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$117 $374 $650 $1,440
--------------------------------------------------------------------------------
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 S&P 400 Mid-Cap Index is a widely recognized,
market value-weighted (higher market value stocks have more influence than lower
market value stocks) index of 400 medium capitalization stocks.
WHAT IS A CLASSIFICATION?
A classification measures the share prices of a specific group of mutual funds
with a particular investment objective. You cannot invest directly in a
classification. The Lipper Mid-Cap Growth Funds Classification is a composite of
mutual funds with goals similar to the Portfolio's goals.
PROSPECTUS 37
<PAGE>
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 goal 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. The Portfolio invests primarily in
companies with market capitalizations of $2 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, and may adversely affect the Portfolio's performance.
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.
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.
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.
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 to
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.
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.
38 PROSPECTUS
<PAGE>
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares for each year for four calendar years.
1996 14.82%
1997 5.55%
1998 19.31%
1999 150.08%
BEST QUARTER WORST QUARTER
82.09% -18.56%
(12/31/99) (09/30/98)
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional Class total return was -0.72%.
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, the Russell
2000 Index and the Lipper Mid-Cap Growth Funds Classification.
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
Small-Cap Equity Portfolio 150.08% 38.35%*
--------------------------------------------------------------------------------
Russell 2000 Growth Index 43.10% 17.39%**
--------------------------------------------------------------------------------
Russell 2000 Index 21.26% 15.21%**
--------------------------------------------------------------------------------
Lipper Mid-Cap Growth Funds Classification 72.56% 25.39%**
--------------------------------------------------------------------------------
* SINCE JULY 13, 1995.
** SINCE JUNE 30, 1995.
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)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends and other
Distributions (as a percentage of
offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Investment Advisory Fees 0.80%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees None
--------------------------------------------------------------------------------
Other Expenses 0.42%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.22%(1)
--------------------------------------------------------------------------------
(1) 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 WERE AS FOLLOWS:
SMALL-CAP EQUITY PORTFOLIO-- INSTITUTIONAL CLASS 1.19%
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 and that
you sell your shares at the end of the period.
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:
--------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$124 $387 $670 $1,477
--------------------------------------------------------------------------------
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 U.S. companies with high growth rates and
price-to-book ratios. The Russell 2000 Index is a widely recognized,
capitalization-weighted index, which measures the performance of the 2,000
smallest companies in the Russell 3000 Index.
WHAT IS A CLASSIFICATION?
A classification measures the share prices of a specific group of mutual funds
with a particular investment objective. You cannot invest directly in a
classification. The Lipper Mid-Cap Growth Funds Classification is a composite of
mutual funds with goals similar to the Portfolio's goals.
PROSPECTUS 39
<PAGE>
ARK INTERNATIONAL EQUITY PORTFOLIO (FORMERLY
INTERNATIONAL EQUITY SELECTION PORTFOLIO)
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 (formerly 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.
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, and may adversely affect the Portfolio's performance.
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.
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.
The smaller and medium 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 and mid-size companies may
have limited product lines, markets and financial resources, and may depend upon
a relatively small management group. Therefore, small-cap and mid-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.
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 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
The bar chart and the performance table that 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.
On August 8, 2000, the Portfolio changed its investment policy of investing in
mutual funds to investing directly in equity securities. On August 12, 2000,
Govett International Equity Fund was reorganized into the Portfolio. The
investment objectives and policies of the Govett fund and the revised investment
objectives and policies of the Portfolio substantially similar.
This bar chart shows changes in the performance of the Institutional Class of
the Govett International Equity Fund for each year for seven calendar years.
Institutional Class Shares of the Govett fund were offered beginning July 24,
1998. Class Retail A Shares of the Govett fund were offered beginning January 7,
1992. In the bar chart below, performance results before July 24, 1998 are for
Class A Retail Shares and reflect the total annual operating expenses applicable
to Class A Retail Shares of the Govett fund.
40 PROSPECTUS
<PAGE>
1993 54.50%
1994 -8.44%
1995 11.01%
1996 12.13%
1997 -0.71%
1998 19.12%
1999 28.25%
BEST QUARTER WORST QUARTER
18.73% -13.86%
(12/31/98) (09/30/98)
For the period from January 1, 2000 to June 30, 2000, total return for the
Institutional Class of the Govett Fund was -6.77%.
This table compares the Govett International Equity Fund's average annual total
returns for the periods ended December 31, 1999, to those of the Morgan Stanley
Capital InternationalEurope Australia Far East ("MSCI EAFE") Index and the MSCI
EAFE + Emerging Markets ("MSCI EAFE+EMG") Index.
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS 1 YEAR 5 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
Govett International Equity Fund 28.25% 13.50% 12.28%*
--------------------------------------------------------------------------------
MSCI EAFE + EMG Index 31.03% 11.82% 10.88%**
--------------------------------------------------------------------------------
MSCI EAFE Index 27.29% 13.15% 11.28%**
--------------------------------------------------------------------------------
* SINCE JANUARY 7, 1992, INSTITUTIONAL CLASS SHARES OF THE GOVETT INTERNATIONAL
EQUITY FUND WERE OFFERED BEGINNING JULY 24, 1998. PERFORMANCE RESULTS
BEFORE THAT DATE ARE FOR THE CLASS A RETAIL SHARES OF THE GOVETT FUND, WHICH
BEGAN OFFERING SHARES ON JANUARY 7, 1992 AND WAS REORGANIZED INTO THE
PORTFOLIO ON AUGUST 12, 2000. THE INVESTMENT OBJECTIVES AND POLICIES OF THE
GOVETT FUND AND THE REVISED INVESTMENT OBJECTIVES AND POLICIES OF THE
PORTFOLIO ARE SUBSTANTIALLY SIMILAR. THERE WAS NO SALES CHARGE APPLICABLE TO
CLASS A RETAIL SHARES OF THE GOVETT FUND. PERFORMANCE RESULTS HAVE NOT BEEN
ADJUSTED FOR THE SALES CHARGE APPLICABLE TO RETAIL CLASS A SHARES OF THE
PORTFOLIO.
** SINCE JANUARY 7, 1992.
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)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends and other
Distributions (as a percentage of
offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Investment Advisory Fees 1.00%(1)
--------------------------------------------------------------------------------
Distribution (12b-1) Fees None
--------------------------------------------------------------------------------
Other Expenses 0.45%
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 1.45%(1)
--------------------------------------------------------------------------------
Fee Waivers and Expense
Reimbursements 0.05%
--------------------------------------------------------------------------------
NET TOTAL OPERATING EXPENSES 1.40%(2)
--------------------------------------------------------------------------------
(1) INVESTMENT ADVISORY FEES HAVE BEEN RESTATED TO REFLECT CURRENT FEES.
(2) THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND REIMBURSE
EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING 1.40% FOR
INSTITUTIONAL CLASS UNTIL AUGUST 31, 2001.
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 and that
you sell your shares at the end of the period.
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:
--------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
$143 $454 $ 787 $1,731
--------------------------------------------------------------------------------
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 MSCI EAFE+EMG Index is an unmanaged index that
represents the general performance of the international equity markets including
emerging markets. The MSCI EAFE Index is an unmanaged index that represents the
general performance of international equity markets, without consideration of
emerging markets.
PROSPECTUS 41
<PAGE>
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 headquartered in Washington, D.C., comprised of
representatives from 181 countries, covers 206 nations and non-sovereign
entities that are recognized by the United Nations.
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, and may adversely affect the Portfolio's performance.
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.
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.
The smaller and medium 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 and mid-size companies may
have limited product lines, markets and financial resources, and may depend upon
a relatively small management group. Therefore, small-cap and mid-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.
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
The bar chart and the performance table that 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.
On August 12, 2000, Govett Emerging Markets Equity Fund was reorganized into the
Portfolio. The investment objectives and policies of the Govett fund and the
Portfolio are substantially similar.
The bar chart that follows shows changes in the performance of Class A Retail
Shares of the Govett Emerging Markets Equity Fund for each year for seven
calendar years. The Portfolio's Institutional Class has not commenced
operations. Class A Retail Shares of the Govett fund were offered
beginning January 7, 1992. In the bar chart that follows, performance results
reflect the total annual operating expenses applicable to Class A Retail Shares
of the Govett fund.
42 PROSPECTUS
<PAGE>
1993 79.73%
1994 -12.65%
1995 -7.84%
1996 12.08%
1997 -10.40%
1998 34.18%
1999 70.10%
BEST QUARTER WORST QUARTER
35.00% -20.90%
(12/31/99) (09/30/98)
For the period from January 1, 2000 to June 30, 2000, total return for
Class A Retail Shares of the Govett fund was -11.66%.
This table compares the Govett Emerging Markets Equity Fund's average annual
total returns for the periods ended December 31, 1999, to those of the Morgan
Stanley Capital International Emerging Markets Index "MSCI Emerging Markets
Index."
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS 1 YEAR 5 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
Govett Emerging Markets Equity Fund 70.10% 0.72% 7.21%*
--------------------------------------------------------------------------------
MSCI Emerging Markets Index 68.90% 1.55% 8.27%**
--------------------------------------------------------------------------------
* SINCE JANUARY 7, 1992. PERFORMANCE RESULTS SHOWN ARE FOR THE CLASS A RETAIL
SHARES OF GOVETT EMERGING MARKETS EQUITY FUND, WHICH BEGAN OFFERING SHARES
ON JANUARY 7, 1992 AND WAS REORGANIZED INTO THE PORTFOLIO ON AUGUST 12, 2000.
THE INVESTMENT OBJECTIVES AND POLICIES OF THE GOVETT FUND AND THE PORTFOLIO
ARE SUBSTANTIALLY SIMILAR. INSTITUTIONAL CLASS SHARES OF THE PORTFOLIO HAVE
NOT COMMENCED OPERATIONS. THERE WAS NO SALES CHARGE APPLICABLE TO CLASS A
RETAIL SHARES OF THE GOVETT FUND. PERFORMANCE RESULTS HAVE NOT BEEN ADJUSTED
FOR THE SALES CHARGES APPLICABLE TO RETAIL CLASS A SHARES OF THE PORTFOLIO.
** SINCE JANUARY 7, 1992.
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)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a percentage of offering price) None
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends and other
Distributions (as a percentage of
offering price) None
--------------------------------------------------------------------------------
Redemption Fee (as a percentage
of amount redeemed, if applicable) None
--------------------------------------------------------------------------------
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
--------------------------------------------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Investment Advisory Fees 1.00%
--------------------------------------------------------------------------------
Distribution (12b-1) Fees None
--------------------------------------------------------------------------------
Other Expenses 1.00%(1)
--------------------------------------------------------------------------------
TOTAL ANNUAL PORTFOLIO
OPERATING EXPENSES 2.00%(2)
--------------------------------------------------------------------------------
(1) OTHER EXPENSES ARE BASED ON ESTIMATES FOR THE CURRENT FISCAL YEAR.
(2) 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 ESTIMATED TO BE AS
FOLLOWS:
EMERGING MARKETS EQUITY PORTFOLIO - INSTITUTIONAL CLASS 1.98%
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 and that
you sell your shares at the end of the period.
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:
--------------------------------------------------------------------------------
1 YEAR 3 YEARS
--------------------------------------------------------------------------------
$203 $627
--------------------------------------------------------------------------------
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 MSCI Emerging Markets Index is an unmanaged
index that represents the general performance of equity markets in emerging
markets.
PROSPECTUS 43
<PAGE>
<TABLE>
<CAPTION>
ADDITIONAL INFORMATION ABOUT PRINCIPAL RISK
RISKS PORTFOLIOS AFFECTED BY THE RISKS
<S> <C>
EQUITY RISK - Equity securities include publicly and privately Balanced Portfolio
issued equity securities, common and preferred stocks, warrants, Equity Income Portfolio
rights to subscribe to common stock and convertible securities, as Value Equity Portfolio
well as instruments that attempt to track the price movement of Equity Index Portfolio
equity indices. Investments in equity securities and equity Blue Chip Equity Portfolio
derivatives in general are subject to market risks that may cause Capital Growth Portfolio
their prices to fluctuate over time. Equity derivatives may be Mid-Cap Equity Portfolio
more volatile and increase portfolio risk. The value of Small-Cap Equity Portfolio
securities convertible into equity securities, such as warrants or International Equity Portfolio
convertible debt, is also affected by prevailing interest rates, Emerging Markets Equity Portfolio
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 Short-Term Treasury Portfolio
change in response to interest rate changes and other factors. Short-Term Bond Portfolio
During periods of falling interest rates, the values of Maryland Tax-Free Portfolio
outstanding fixed income securities generally rise. Moreover, Pennsylvania Tax-Free Portfolio
while securities with longer maturities tend to produce higher Intermediate Fixed Income Portfolio
yields, the prices of longer maturity securities are also subject U.S. Government Bond Portfolio
to greater market fluctuations as a result of changes in interest Income Portfolio
rates. In addition to these fundamental risks, different types of Balanced Portfolio
fixed income securities may be subject to the following additional
risks:
----------------------------------------------------------------------------------------------------------------
CALL RISK - During periods of falling interest rates, Short-Term Bond Portfolio
certain debt obligations with high interest rates may be Maryland Tax-Free Portfolio
prepaid (or "called") by the issuer prior to maturity. Pennsylvania Tax-Free Portfolio
This may cause a Portfolio's average weighted maturity to Intermediate Fixed Income Portfolio
fluctuate, and may require a Portfolio to invest the U.S. Government Bond Portfolio
resulting proceeds at lower interest rates. Income Portfolio
Balanced Portfolio
----------------------------------------------------------------------------------------------------------------
CREDIT RISK - The possibility that an issuer will be Short-Term Bond Portfolio
unable to make timely payments of either principal or Maryland Tax-Free Portfolio
interest. Pennsylvania Tax-Free Portfolio
Intermediate Fixed Income Portfolio
U.S. Government Bond Portfolio
Income Portfolio
Balanced Portfolio
----------------------------------------------------------------------------------------------------------------
EVENT RISK - Securities may suffer declines in credit Short-Term Bond Portfolio
quality and market value due to issuer restructurings or Maryland Tax-Free Portfolio
other factors. This risk should be reduced because of a Pennsylvania Tax-Free Portfolio
Portfolio's multiple holdings. Intermediate Fixed Income Portfolio
U.S. Government Bond Portfolio
Income Portfolio
Balanced Portfolio
</TABLE>
44 PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
ADDITIONAL INFORMATION ABOUT PRINCIPAL RISK
RISKS PORTFOLIOS AFFECTED BY THE RISKS
<S> <C>
MORTGAGE-BACKED SECURITIES RISK -- Mortgage-backed Short-Term Bond Portfolio
securities are fixed income securities representing an Intermediate Fixed Income Portfolio
interest in a pool of underlying mortgage loans. They U.S. Government Bond Portfolio
are sensitive to changes in interest rates, but may Income Portfolio
respond to these changes differently from other fixed Balanced Portfolio
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.
MUNICIPAL ISSUER RISK -- There may be economic or Tax-Free Money Market Portfolio
political changes that impact the ability of municipal Maryland Tax-Free Portfolio
issuers to repay principal and to make interest payments Pennsylvania Tax-Free Portfolio
on municipal securities. Changes to the financial
condition or credit rating of municipal issuers may also
adversely affect the value of a Portfolio's municipal
securities. Constitutional or legislative limits on
borrowing by municipal issuers may result in reduced
supplies of municipal securities. Moreover, certain
municipal securities are backed only by a municipal
issuer's ability to levy and collect taxes.
In addition, a Portfolio's concentration of investments Maryland Tax-Free Portfolio
in issuers located in a single state makes them more Pennsylvania Tax-Free Portfolio
susceptible to adverse political or economic developments
affecting that state. Such Portfolio also may be riskier
than mutual funds that buy securities of issuers in
numerous states.
FOREIGN SECURITY RISKS -- Investments in securities of foreign Small-Cap Equity Portfolio
companies or governments can be more volatile than investments in International Equity Portfolio
U.S. companies or governments. Diplomatic, political, or economic Emerging Markets Equity Portfolio
developments, including nationalization or appropriation, could
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
</TABLE>
PROSPECTUS 45
<PAGE>
<TABLE>
<CAPTION>
ADDITIONAL INFORMATION ABOUT PRINCIPAL RISK
RISKS PORTFOLIOS AFFECTED BY THE RISKS
<S> <C> <C>
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 Small-Cap Equity Portfolio
denominated in foreign currencies involve additional International Equity Portfolio
risks including: Emerging Markets Equity Portfolio
[SQUARE BULLET] 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.
[SQUARE BULLET] Portfolio may incur substantial costs in connection
with conversions between various currencies.
[SQUARE BULLET] Portfolio may be unable to hedge against possible
variations in foreign exchange rates or to hedge a
specific security transaction or portfolio position.
[SQUARE BULLET] Only a limited market currently exists for hedging
transactions relating to currencies in certain
emerging markets.
-----------------------------------------------------------------------------------------------------------------
TRACKING ERROR RISK -- Factors such as Portfolio expenses, Equity Index Portfolio
imperfect correlation between a Portfolio's investments and those
of its benchmarks, rounding of share prices, changes to the
benchmark, regulatory policies, and leverage, may affect its
ability to achieve perfect correlation. The magnitude of any
tracking error may be affected by a higher portfolio turnover
rate. Because an index is just a composite of the prices of the
securities it represents rather than an actual portfolio of those
securities, an index will have no expenses. As a result, a
Portfolio, which will have expenses such as custody, management
fees and other operational costs, and brokerage expenses, may not
achieve its investment objective of accurately correlating to an
index.
</TABLE>
46 PROSPECTUS
<PAGE>
EACH PORTFOLIO'S OTHER INVESTMENTS
This prospectus describes the Portfolios' primary strategies, and the Portfolios
will normally invest at least 65% (80% for the money market fund Portfolios) 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
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 the Advisor is employing a temporary defensive strategy.
PROSPECTUS 47
<PAGE>
INVESTMENT ADVISOR
The Portfolios' 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 the ARK Funds supervises the Advisor and establishes
policies that the Advisor 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 June 30, 2000, AIA had approximately $14.5
billion in assets under management. For the fiscal year ended April 30, 2000,
AIA received advisory fees of:
--------------------------------------------------------------------------------
U.S. Treasury Money Market Portfolio 0.19%
--------------------------------------------------------------------------------
U.S. Government Money Market Portfolio 0.14%
--------------------------------------------------------------------------------
Money Market Portfolio 0.12%
--------------------------------------------------------------------------------
Tax-Free Money Market Portfolio 0.09%
--------------------------------------------------------------------------------
Short-Term Treasury Portfolio 0.35%
--------------------------------------------------------------------------------
Short-Term Bond Portfolio 0.70%
--------------------------------------------------------------------------------
Maryland Tax-Free Portfolio 0.49
--------------------------------------------------------------------------------
Pennsylvania Tax-Free Portfolio 0.65%
--------------------------------------------------------------------------------
Intermediate Fixed Income Portfolio 0.49%
--------------------------------------------------------------------------------
U.S. Government Bond Portfolio 0.66%
--------------------------------------------------------------------------------
Income Portfolio 0.51%
--------------------------------------------------------------------------------
Balanced Portfolio 0.56%
--------------------------------------------------------------------------------
Equity Income Portfolio 0.64%
--------------------------------------------------------------------------------
Value Equity Portfolio 0.87%
--------------------------------------------------------------------------------
Equity Index Portfolio 0.07%
--------------------------------------------------------------------------------
Blue Chip Equity Portfolio 0.60%
--------------------------------------------------------------------------------
Capital Growth Portfolio 0.65%
--------------------------------------------------------------------------------
Mid-Cap Equity Portfolio 0.74%
--------------------------------------------------------------------------------
Small-Cap Equity Portfolio 0.79%
--------------------------------------------------------------------------------
International Equity Portfolio (Formerly
International Equity Selection) 0.55%*
--------------------------------------------------------------------------------
Emerging Markets Equity Portfolio 1.00%**
--------------------------------------------------------------------------------
----------------------------
* AN INCREASE IN THE PORTFOLIO'S INVESTMENT ADVISORY FEE PAYABLE FROM 0.65% TO
1.00% AND A CHANGE IN THE PORTFOLIO'S INVESTMENT POLICY HAVE BEEN 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 1.40% UNTIL AUGUST 31, 2001.
** THE PORTFOLIO BEGAN OFFERING ITS SHARES ON AUGUST 12, 2000 AND HAS NOT
PAID ANY ADVISORY FEES FOR THE FISCAL YEAR ENDED APRIL 30, 2000. THE BOARD
OF TRUSTEES HAS APPROVED AN INVESTMENT ADVISORY FEE OF 1.00% FOR THE
PORTFOLIO. THE PORTFOLIO'S ADVISOR HAS AGREED CONTRACTUALLY TO WAIVE FEES AND
REIMBURSE EXPENSES IN ORDER TO KEEP TOTAL OPERATING EXPENSES FROM EXCEEDING
2.00% UNTIL AUGUST 31, 2001. WITH THIS FEE WAIVER, THE ACTUAL ADVISORY FEES
RECEIVED BY AIA WOULD BE LOWER THAN THOSE SHOWN IN THE TABLE ABOVE.
48 PROSPECTUS
<PAGE>
INVESTMENT ADVISOR
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 $71 billion at June 30, 2000.
INVESTMENT SUBADVISOR
AIB Govett, Inc. (AIB Govett), an indirect majority owned subsidiary of AIB, is
the Subadvisor for the 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 June 30, 2000,
approximately $16.5 billion under management, primarily in non-U.S. funds.
PORTFOLIO MANAGERS
JAMES M. HANNAN is a Principal of AIA and manager of the U.S. TREASURY MONEY
MARKET, U.S. GOVERNMENT MONEY MARKET, MONEY MARKET, TAX-FREE MONEY MARKET AND
SHORT-TERM TREASURY PORTFOLIO. He is also responsible for several separately
managed institutional portfolios that he has managed since 1992. He has served
as a Vice President of Allfirst since 1987. Prior to 1987 he served as the
Treasurer for the city of Hyattsville, Maryland.
SUSAN L. SCHNAARS is a Principal of AIA and manager of the INTERMEDIATE
FIXED INCOME PORTFOLIO, MARYLAND TAX-FREE PORTFOLIO AND PENNSYLVANIA TAX-FREE
PORTFOLIO. Ms. Schnaars is also responsible for managing several large
institutional accounts. Prior to 1992, Ms. Schnaars managed institutional and
commingled fixed-income portfolios, including the RAF Fixed Income Fund, for PNC
Investment Management and Research (formerly known as Provident National Bank).
Ms. Schnaars is a Chartered Financial Analyst and a Certified Public Accountant.
STEVEN M. GRADOW is a Managing Director of, and Director of Fixed Income
Investments for, AIA and manager of the INCOME PORTFOLIO, co-manager, with Ms.
Volk, of the U.S. GOVERNMENT BOND PORTFOLIO, and co-manager, with Mr. Stith, of
the SHORT-TERM BOND 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 of fixed income management for the
Public Employees Retirement System of California (CALPERS).
N. BETH VOLK is a Principal of AIA and Senior Fixed Income Credit Analyst
responsible for leading the corporate research efforts of the Fixed Income
Group. Ms. Volk is co-manager, with Mr. Gradow, of the U.S. GOVERNMENT BOND
PORTFOLIO. Prior to 1996, she was the head of corporate fixed income research at
Alex. Brown & Sons. Ms. Volk has more than 18 years experience in the industry
and is a Chartered Financial Analyst.
WILMER C. STITH III is a Vice President of AIA and co-manager, with Mr. Gradow,
of the SHORT-TERM BOND PORTFOLIO. He manages separate account money market
accounts, assists in the management of the money market portfolios, and is
responsible for analyzing and trading various fixed income securities. Prior to
joining AIA he was an investment executive with the Treasury Banking Group of
Allfirst.
CHARLES E. KNUDSEN III is a Managing Director of AIA and manager of the
BALANCED PORTFOLIO. He follows several equity industry groups. In addition, he
is a senior portfolio manager for key, tax-free institutional accounts,
including pension and profit-sharing plans, foundations, and endowments. Mr.
Knudsen has more than 14 years of investment management experience with
Allfirst. Mr. Knudsen is a Chartered Financial Analyst.
PROSPECTUS 49
<PAGE>
CLYDE L. RANDALL II is a Principal of AIA and co-manager, with Mr. Ashcroft,
of the EQUITY INCOME PORTFOLIO and BLUE CHIP EQUITY PORTFOLIO. Prior to
March 1995, Mr. Randall was an equity analyst and portfolio manager for more
than five years at Mercantile Safe Deposit and Trust, Baltimore, Maryland. He
has more than 16 years of experience in investment research and equity analysis.
Mr. Randall is a Chartered Financial Analyst.
ALLEN J. ASHCROFT, JR. is a Principal of AIA and co-manager, with Mr. Randall,
of the BLUE CHIP EQUITY PORTFOLIO and manager of the EQUITY INCOME PORTFOLIO.
Prior to joining Allfirst, Mr. Ashcroft was an equity analyst and portfolio
manager for McGlinn Capital Management, Wyomissing, Pennsylvania, for
12 years. Mr. Ashcroft has more than 21 years of experience in investment
research and equity analysis.
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 MID-CAP EQUITY PORTFOLIO and the CAPITAL GROWTH PORTFOLIO are managed by a
portfolio management team under the supervision of J. ERIC LEO. Through the team
approach, the firm seeks consistent implementation of process and continuity in
investment management staff for each Portfolio.
J. ERIC LEO is the Chief Investment Officer of AIA and Managing Director of
Equity Research responsible for overseeing the equity investment process for the
organization. Mr. Leo is the manager of the VALUE EQUITY PORTFOLIO. He has more
than 26 years experience managing portfolios and equity assets, most recently as
Executive Vice President and Chief Investment Officer of Legg Mason Capital
Management.
CLARENCE W. WOODS, JR. is a Principal of and Chief Equity Trader for AIA
and co-manager, with Mr. Hastings, of the EQUITY INDEX PORTFOLIO. He heads the
equity-trading unit and oversees the management of $4.5 billion of indexed
portfolios. Prior to joining AIA, Mr. Woods was the Chief Equity Trader for
Mercantile Bankshares, Baltimore, Maryland for 7 years. Mr. Woods has more than
15 years experience in the investment industry.
PETER C. HASTINGS is a Vice President of AIA and co-manager, with Mr. Woods, of
the EQUITY INDEX PORTFOLIO. His responsibilities include trading and
the management of $4.5 billion of indexed portfolios. Prior to moving to the
trading area, Mr. Hastings created and sold indexed products as part of the
marketing unit. Mr. Hastings has 4 years of investment experience.
LOUISE MCGUIGAN has been the head of AIB Govett's EAFE product line since 1998
and is manager of the INTERNATIONAL EQUITY PORTFOLIO. Initially with AIB
Investment Managers Limited and subsequently Hill Samuel Fagan Investment
Management, she rejoined AIB Investment Managers Limited in 1994. She managed
AIB Investment Managers Limited's Far East equity book before becoming a
European equity manager in 1995. She graduated with an A.I.C.S. (Associated
Institute of Chartered Secretaries) and a Certified Diploma -- Accounting &
Finance.
CALUM GRAHAM is Director of Emerging Markets and director of AIB Govett
Asset Management Limited and manager of the EMERGING MARKETS EQUITY PORTFOLIO.
He joined AIB Govett in 1996 to specialize in Latin American investments. Two
years later, he was made head of the emerging markets group. Prior to joining
AIB Govett Asset Management Limited, he worked as a graduate trainee for
Cazenove & Co., where he helped set up the firm's operation in Latin America and
then joined the Latin American equity research and sales team for three years.
He is a Bachelor of Science graduate in Spanish from St. Andrew's University.
50 PROSPECTUS
<PAGE>
PURCHASING, SELLING AND EXCHANGING PORTFOLIO SHARES
This section tells you how to purchase, sell (sometimes called "redeem") or
exchange Institutional Class Shares of the Portfolios.
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.
HOW TO PURCHASE PORTFOLIO SHARES
Generally, you must make payment to Allfirst or a correspondent bank, who will
forward your purchase orders. You may purchase shares of the money market fund
Portfolios directly by Federal funds, wire or other funds immediately available
to the Portfolios. For the other 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.
GENERAL INFORMATION
You may purchase shares on any day that the New York Stock Exchange (NYSE) and
the Federal Reserve Bank of New York (Federal Reserve) are open for business (a
Business Day). Shares of the money market fund Portfolios 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. For the
money market fund Portfolios, NAV is expected to remain constant at $1.00 per
share.
The U.S. Treasury Money Market Portfolio and Tax-Free Money Market Portfolio
calculate their NAV each Business Day at 12:00 noon Eastern time and 4:00 p.m.
Eastern time. So, for you to be eligible to receive dividends declared on the
day you submit your purchase order, generally the Portfolio must receive and
accept your order and receive Federal funds (readily available funds) before
12:00 noon Eastern time. For orders received and accepted after 12:00 noon
Eastern time but before 4:00 p.m. Eastern time, you will begin earning dividends
on the next Business Day.
The Money Market Portfolio and U.S. Government Money Market Portfolio calculate
their NAV each Business Day at 5:00 p.m. Eastern time. So, for you to be
eligible to receive dividends declared on the day you submit your purchase
order, generally the Portfolio must receive and accept your order and receive
Federal funds before 5:00 p.m. Eastern time.
The fixed income and equity 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 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 (for the money market fund Portfolios only)
close early, the Portfolios will advance the time on any such day by which
purchase orders must be received.
PROSPECTUS 51
<PAGE>
PURCHASING, SELLING AND EXCHANGING PORTFOLIO SHARES
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, each non-money market Portfolio generally values its
investment portfolio 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.
In calculating NAV for the U.S. Treasury Money Market, U.S. Government Money
Market, Money Market and Tax-Free Money Market Portfolios, we generally value
their investment portfolios using the amortized cost valuation method, which is
described in detail in our Statement of Additional Information. If this method
is determined to be unreliable during certain market conditions or for other
reasons, a Portfolio may value its securities at market price or 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.
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.
If you hold Institutional Class Shares directly with the Fund, you may sell
shares by telephone or mail by following procedures established when you opened
your 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. The redemption price is based on the next calculation of NAV
after your request is received.
BY MAIL. To redeem by mail, send a written request to Allfirst Bank Trust
Division Banc #101-624, P. O. Box 1596, Baltimore, Maryland 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 by 12:00 noon Eastern time for
the U.S. Treasury Money Market and Tax-Free Money Market Portfolios (1:30 p.m.
Eastern time for the U.S. Government Money Market and Money Market Portfolios)
on any Business Day, we will send your sale proceeds on that day. For the other
Portfolios, 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.
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.
52 PROSPECTUS
<PAGE>
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.
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 Portfolio receives your exchange request. The
Portfolios reserve the right to modify or suspend this exchange privilege.
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.
TELEPHONE TRANSACTIONS
Purchasing, selling and exchanging Portfolio shares over the telephone is
extremely convenient, but not without risk. Although ARK Funds has certain
safeguards and procedures to confirm the identity of callers and the
authenticity of instructions, ARK Funds 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 ARK Funds over the
telephone, you will generally bear the risk of any loss.
PROSPECTUS 53
<PAGE>
DISTRIBUTION OF PORTFOLIO SHARES
The Distributor receives no compensation for its distribution of Institutional
Class Shares. For Institutional Class Shares, shareholder service fees, as a
percentage of average daily net assets, may be up to 0.15%.
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.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid according to the following schedule:
--------------------------------------------------------------------------------
FREQUENCY OF FREQUENCY OF
DECLARATION OF PAYMENT
PORTFOLIO DIVIDENDS DIVIDENDS
--------------------------------------------------------------------------------
U.S. Treasury Money Market Portfolio Daily Monthly
--------------------------------------------------------------------------------
U.S. Government Money Market Portfolio Daily Monthly
--------------------------------------------------------------------------------
Money Market Portfolio Daily Monthly
--------------------------------------------------------------------------------
Tax-Free Money Market Portfolio Daily Monthly
--------------------------------------------------------------------------------
Short-Term Treasury Portfolio Daily Monthly
--------------------------------------------------------------------------------
Short-Term Bond Portfolio Daily Monthly
--------------------------------------------------------------------------------
Maryland Tax-Free Portfolio Daily Monthly
--------------------------------------------------------------------------------
Pennsylvania Tax-Free Portfolio Daily Monthly
--------------------------------------------------------------------------------
Intermediate Fixed Income Portfolio Daily Monthly
--------------------------------------------------------------------------------
U.S. Government Bond Portfolio Daily Monthly
--------------------------------------------------------------------------------
Income Portfolio Daily Monthly
--------------------------------------------------------------------------------
Balanced Portfolio Quarterly Quarterly
--------------------------------------------------------------------------------
Equity Income Portfolio Monthly Monthly
--------------------------------------------------------------------------------
Value Equity Portfolio Quarterly Quarterly
--------------------------------------------------------------------------------
Equity Index Portfolio Quarterly Quarterly
--------------------------------------------------------------------------------
Blue Chip Equity Portfolio Quarterly Quarterly
--------------------------------------------------------------------------------
Capital Growth Portfolio Annually Annually
--------------------------------------------------------------------------------
Mid-Cap Equity Portfolio Quarterly Quarterly
--------------------------------------------------------------------------------
Small-Cap Equity Portfolio Annually Annually
--------------------------------------------------------------------------------
International Equity Portfolio (formerly
International Equity Selection Portfolio) Annually Annually
--------------------------------------------------------------------------------
Emerging Markets Equity Portfolio Annually Annually
--------------------------------------------------------------------------------
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 will receive dividends and distributions in the form of additional Portfolio
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify Allfirst or your correspondent bank 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 Allfirst or your correspondent bank written notice.
PROSPECTUS 54
<PAGE>
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, but vary depending on how long the Portfolio has
held its assets. A SALE OR EXCHANGE OF SHARES IS GENERALLY A TAXABLE EVENT.
The Tax-Free Money Market, Pennsylvania Tax-Free and Maryland Tax-Free
Portfolios intend to distribute Federally tax-exempt income. These Portfolios
may invest a portion of their assets in securities that generate taxable income
for Federal or state income taxes. Income exempt from Federal tax may be subject
to state and local taxes. Any capital gains distributed by the Portfolios may be
taxable.
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
PROSPECTUS 55
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents performance information about Institutional
Class Shares of each ARK Portfolio. 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. Their report, along with each Portfolio's financial statements are
included in our Annual Report, which accompanies our Statement of Additional
Information and is available upon request at no charge.
For a Share Outstanding Throughout the Period ended April 30,
<TABLE>
<CAPTION>
Realized and
Unrealized Net
Net Asset Gains or Distributions Assets,
Value, Net (Losses) from Net Distributions Net Asset End of
Beginning Investment Gains on Investment from Capital Value, End Total (Period
of Period Income Investments Income Gains of Period Return (000)
-----------------------------------------------------------------------------------------------------------
U.S. TREASURY MONEY MARKET PORTFOLIO
------------------------------------
INSTITUTIONAL CLASS
<S> <C> <C> <C> <C> <C> <C>
2000 $1.00 0.05 -- (0.05) -- $ 1.00 4.73% $ 278,568
1999 1.00 0.04 -- (0.04) -- 1.00 4.58 289,930
1998 1.00 0.05 -- (0.05) -- 1.00 5.08 262,687
1997 1.00 0.05 -- (0.05) -- 1.00 5.00 225,924
1996 1.00 0.05 -- (0.05) -- 1.00 5.32 275,259
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
--------------------------------------
INSTITUTIONAL CLASS
2000 $1.00 0.05 -- (0.05) -- $1.00 5.16% $1,414,772
1999 1.00 0.05 -- (0.05) -- 1.00 5.00 1,428,064
1998 1.00 0.05 -- (0.05) -- 1.00 5.42 1,285,840
1997 1.00 0.05 -- (0.05) -- 1.00 5.22 1,250,778
1996 1.00 0.05 -- (0.05) -- 1.00 5.64 1,043,758
MONEY MARKET PORTFOLIO
-----------------------
INSTITUTIONAL CLASS
2000 $1.00 0.05 -- (0.05) -- $1.00 5.37% $ 509,229
1999 1.00 0.05 -- (0.05) -- 1.00 5.17 527,132
1998 1.00 0.05 -- (0.05) -- 1.00 5.55 226,439
1997 1.00 0.05 -- (0.05) -- 1.00 5.36 318,919
1996 1.00 0.06 -- (0.06) -- 1.00 5.78 348,343
TAX-FREE MONEY MARKET PORTFOLIO
-------------------------------
INSTITUTIONAL CLASS
2000 $1.00 0.03 -- (0.03) -- $1.00 3.17% $ 63,666
1999 1.00 0.03 -- (0.03) -- 1.00 2.99 77,896
1998 1.00 0.03 -- (0.03) -- 1.00 3.45 90,446
1997 1.00 0.03 -- (0.03) -- 1.00 3.29 69,091
1996 1.00 0.04 -- (0.04) -- 1.00 3.61 74,739
</TABLE>
Ratio of Ratio
Net of Expenses
Ratio of Investment to Average
Expenses Income Net Assets Portfolio
to Average to Average (Excluding Turnover
Net Assets Net Assets Waivers) Rate
--------------------------------------------------------------------------------
U.S. TREASURY MONEY MARKET PORTFOLIO
-----------------------------------
INSTITUTIONAL CLASS
2000 0.45% 4.63% 0.58% --
1999 0.45 4.47 0.59 --
1998 0.40 4.96 0.48 --
1997 0.37 4.88 0.43 --
1996 0.36 5.18 0.45 --
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
--------------------------------------
INSTITUTIONAL CLASS
2000 0.41% 5.05% 0.59% --
1999 0.40 4.86 0.59 --
1998 0.35 5.29 0.49 --
1997 0.32 5.10 0.43 --
1996 0.31 5.45 0.44 --
MONEY MARKET PORTFOLIO
----------------------
INSTITUTIONAL CLASS
2000 0.38% 5.25% 0.58% --
1999 0.38 5.01 0.60 --
1998 0.33 5.41 0.50 --
1997 0.28 5.23 0.43 --
1996 0.25 5.62 0.44 --
TAX-FREE MONEY MARKET PORTFOLIO
-------------------------------
INSTITUTIONAL CLASS
2000 0.37% 3.12% 0.60% --
1999 0.36 2.95 0.60 --
1998 0.32 3.39 0.51 --
1997 0.28 3.23 0.44 --
1996 0.22 3.54 0.45 --
56 PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
Realized and
Unrealized Net
Net Asset Gains or Distributions Assets,
Value, Net (Losses) from Net Distributions Net Asset End of
Beginning Investment Gains on Investment from Capital Value, End Total (Period
of Period Income Investments Income Gains of Period Return (000)
-----------------------------------------------------------------------------------------------------------
SHORT-TERM TREASURY PORTFOLIO
-----------------------------
INSTITUTIONAL CLASS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2000 $10.03 0.46 (0.15) (0.46) (0.02) $ 9.86 3.11% $ 34,877
1999 10.05 0.48 0.03 (0.48) (0.05) 10.03 5.24 34,088
1998 9.96 0.53 0.10 (0.53) (0.01) 10.05 6.48 24,929
1997 9.96 0.50 -- (0.49) (0.01) 9.96 5.13 21,563
1996 (1) 10.00 0.06 (0.04) (0.06) -- 9.96 0.16+ 18,823
SHORT-TERM BOND PORTFOLIO
-------------------------
INSTITUTIONAL CLASS
2000 $9.94 0.50 (0.30) (0.50) (0.01) $ 9.63 2.01% $ 92,185
1999 9.95 0.51 (0.01) (0.51) -- 9.94 5.15 111,127
1998 9.96 0.09 (0.01) (0.09) -- 9.95 0.82+ 131,669
1998++ 9.95 0.57 0.01 (0.57) -- 9.96 5.98 133,544
1997++ (2) 10.00 0.49 (0.05) (0.49) -- 9.95 4.49+ 146,178
MARYLAND TAX-FREE PORTFOLIO
-----------------------------
INSTITUTIONAL CLASS
2000 $10.21 0.44 (0.69) (0.44) (0.04) $ 9.48 (2.37)% $ 87,845
1999 10.14 0.45 0.14 (0.45) (0.07) 10.21 5.86 95,046
1998 9.87 0.47 0.33 (0.47) (0.06) 10.14 8.15 83,215
1997 (3) 10.00 0.22 (0.13) (0.22) -- 9.87 0.89+ 79,608
PENNSYLVANIA TAX-FREE PORTFOLIO
-------------------------------
INSTITUTIONAL CLASS
2000 $10.23 0.42 (0.81) (0.42) (0.04) $ 9.38 (3.88)% $160,664
1999 10.14 0.41 0.15 (0.41) (0.06) 10.23 5.56 224,480
1998 10.28 0.07 (0.14) (0.07) -- 10.14 (0.66)+ 215,182
1998++ 10.09 0.40 0.19 (0.40) -- 10.28 6.68 195,322
1997++ (2) 10.00 0.40 0.09 (0.40) -- 10.09 5.03+ 221,393
INTERMEDIATE FIXED INCOME PORTFOLIO
------------------------------------
INSTITUTIONAL CLASS
2000 $ 9.93 0.53 (0.50) (0.53) (0.01) $ 9.42 0.32% $114,554
1999 10.00 0.55 (0.02) (0.55) (0.05) 9.93 5.40 100,419
1998 9.80 0.60 0.23 (0.60) (0.03) 10.00 8.65 84,328
1997 (3) 10.00 0.28 (0.20) (0.28) -- 9.80 0.78+ 76,326
U.S. GOVERNMENT BOND PORTFOLIO
------------------------------
INSTITUTIONAL CLASS
2000 $ 9.78 0.51 (0.51) (0.51) -- $ 9.27 0.04% $166,837
1999 9.85 0.54 (0.07) (0.54) -- 9.78 4.82 255,329
1998 9.85 0.10 -- (0.10) -- 9.85 1.02+ 265,616
1998++ 9.82 0.67 0.03 (0.67) -- 9.85 7.40 264,565
1997++ (2) 10.00 0.59 (0.18) (0.59) -- 9.82 4.18+ 259,042
</TABLE>
Ratio of Ratio
Net of Expenses
Ratio of Investment to Average
Expenses Income Net Assets Portfolio
to Average to Average (Excluding Turnover
Net Assets Net Assets Waivers) Rate
---------------------------------------------------------------------
SHORT-TERM TREASURY PORTFOLIO
-----------------------------
INSTITUTIONAL CLASS
2000 0.64% 4.60% 0.73% 80.49%
1999 0.63 4.79 0.72 70.64
1998 0.55 5.26 0.60 124.24
1997 0.55 5.11 0.60 147.86
1996 (1) 0.55* (0.55)* 0.60* --
SHORT-TERM BOND PORTFOLIO
-------------------------
INSTITUTIONAL CLASS
2000 0.97% 5.09% 1.11% 65.58%
1999 0.97 5.14 1.11 91.22
1998 0.97* 5.14* 1.16* 108.18
1998++ 0.82 5.78 1.01 135.00
1997++ (2) 0.90* 5.47* 1.08 112.00
MARYLAND TAX-FREE PORTFOLIO
--------------------------
INSTITUTIONAL CLASS
2000 0.81% 4.57% 1.00% 24.29%
1999 0.76 4.35 0.99 30.83
1998 0.68 4.62 0.77 22.40
1997 (3) 0.67* 4.95* 0.72* 11.13
PENNSYLVANIA TAX-FREE PORTFOLIO
-------------------------------
INSTITUTIONAL CLASS
2000 0.96% 4.32% 1.00% 30.92%
1999 0.92 4.01 1.00 43.46
1998 0.84* 3.84* 0.91* 3.50
1998++ 0.80 4.43 1.00 57.00
1997++ (2) 0.83* 4.41* 1.02* 86.00
INTERMEDIATE FIXED INCOME PORTFOLIO
-----------------------------------
INSTITUTIONAL CLASS
2000 0.81% 5.52% 0.96% 29.28%
1999 0.77 5.49 0.95 52.87
1998 0.69 6.02 0.87 41.63
1997 (3) 0.68* 5.55* 0.83* 17.18
U.S. GOVERNMENT BOND PORTFOLIO
-------------------------------
INSTITUTIONAL CLASS
2000 0.96% 5.38% 1.09% 6.62%
1999 0.93 5.43 1.10 102.27
1998 0.88* 6.04* 1.06* 13.77
1998++ 0.79 6.88 0.98 431.00
1997++ (2) 0.85* 6.54* 1.03* 255.00
+ Returns are for the period indicated and have not been annualized.
++ Period ended February 28. See Note 9 of Notes to Financial Statements
regarding fund mergers.
* Annualized.
(1) Commenced operations on March 20, 1996.
(2) Commenced operations on April 1, 1996.
(3) Commenced operations on November 18, 1996.
PROSPECTUS 57
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For a Share Outstanding Throughout the Period ended April 30,
Realized and
Unrealized Net
Net Asset Gains or Distributions Assets,
Value, Net (Losses) from Net Distributions Net Asset End of
Beginning Investment Gains on Investment from Capital Value, End Total (Period
of Period Income Investments Income Gains of Period Return (000)
-----------------------------------------------------------------------------------------------------------
INCOME PORTFOLIO
----------------
INSTITUTIONAL CLASS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2000 $10.08 0.56 (0.57) (0.56) -- $ 9.51 (0.01)%$ 343,260
1999 10.25 0.59 (0.17) (0.59) -- 10.08 4.22 356,482
1998 9.82 0.61 0.43 (0.61) -- 10.25 10.84 322,304
1997 9.80 0.59 0.02 (0.59) -- 9.82 6.51 242,966
1996 9.60 0.61 0.20 (0.61) -- 9.80 8.46 180,962
BALANCED PORTFOLIO
------------------
INSTITUTIONAL CLASS
2000 $14.64 0.28 2.90 (0.26) (0.66) $16.90 22.39% $ 348,332
1999 13.24 0.28 2.03 (0.28) (0.63) 14.64 18.17 118,395
1998 11.43 0.30 3.04 (0.30) (1.23) 13.24 30.95 96,858
1997 11.38 0.33 0.53 (0.30) (0.51) 11.43 7.85 76,987
1996 10.04 0.34 1.71 (0.34) (0.37) 11.38 20.90 102,233
EQUITY INCOME PORTFOLIO
-----------------------
INSTITUTIONAL CLASS
2000 $12.05 0.20 0.38 (0.20) (0.43) $12.00 5.40% $ 83,473
1999 12.52 0.25 0.22 (0.25) (0.69) 12.05 4.17 101,104
1998 10.67 0.31 3.06 (0.31) (1.21) 12.52 33.04 106,643
1997 (3) 10.00 0.12 0.67 (0.12) -- 10.67 7.88+ 83,947
VALUE EQUITY PORTFOLIO
----------------------
INSTITUTIONAL CLASS
2000 $15.22 0.26 1.40 (0.26) (2.51) $14.11 10.87% $428,675
1999 14.59 0.08 1.36 (0.09) (0.72) 15.22 10.48 536,827
1998 14.00 0.01 0.62 (0.01) (0.03) 14.59 4.51+ 645,202
1998++ 11.91 0.15 3.45 (0.15) (1.36) 14.00 31.64 577,154
1997++ (2) 10.00 0.14 2.10 (0.14) (0.19) 11.91 22.77+ 540,889
EQUITY INDEX PORTFOLIO
----------------------
INSTITUTIONAL CLASS
2000 $13.87 0.14 1.26 (0.14) (0.30) $14.83 10.25% $151,157
1999 11.59 0.14 2.41 (0.14) (0.13) 13.87 22.37 86,911
1998 (4) 10.00 0.08 1.58 (0.07) -- 11.59 16.71+ 45,531
</TABLE>
Ratio of Ratio
Net of Expenses
Ratio of Investment to Average
Expenses Income Net Assets Portfolio
to Average to Average (Excluding Turnover
Net Assets Net Assets Waivers) Rate
--------------------------------------------------------------------
INCOME PORTFOLIO
----------------
INSTITUTIONAL CLASS
2000 0.82% 5.82% 0.94% 328.20%
1999 0.78 5.77 0.94 50.41
1998 0.73 6.05 0.77 154.87
1997 0.68 6.19 0.68 271.60
1996 0.73 6.00 0.73 107.33
BALANCED PORTFOLIO
-------------------
INSTITUTIONAL CLASS
2000 0.90% 1.95% 1.00% 54.46%
1999 0.85 2.12 1.00 56.70
1998 0.79 2.44 0.83 71.58
1997 0.74 2.79 0.74 124.22
1996 0.75 3.19 0.75 107.56
EQUITY INCOME PORTFOLIO
-----------------------
INSTITUTIONAL CLASS
2000 0.98% 1.83% 1.05% 41.43%
1999 0.91 2.10 1.04 56.03
1998 0.84 2.58 0.97 39.88
1997 (3) 0.83* 2.47* 0.93* 34.38
VALUE EQUITY PORTFOLIO
----------------------
INSTITUTIONAL CLASS
2000 1.20% 0.16% 1.34% 25.00%
1999 1.14 0.58 1.34 32.21
1998 1.08* 0.65* 1.20* 4.34
1998++ 1.00 1.17 1.20 30.00
1997++ (2) 1.05* 1.48* 1.26* 37.00
EQUITY INDEX PORTFOLIO
----------------------
INSTITUTIONAL CLASS
2000 0.25% 1.03% 0.59% 58.81%
1999 0.23 1.20 0.61 34.04
1998 (4) 0.20 1.43 0.62 49.56
+ Returns are for the period indicated and have not been
annualized.
++ Period ended February 28. See Note 9 of Notes to Financial
Statements
regarding fund mergers.
* Annualized.
(2) Commenced operations on April 1, 1996.
(3) Commenced operations on November 18, 1996.
(4) Commenced operations on October 1, 1997.
58 PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
Realized and
Unrealized Net
Net Asset Gains or Distributions Assets,
Value, Net (Losses) from Net Distributions Net Asset End of
Beginning Investment Gains on Investment from Capital Value, End Total (Period
of Period Income Investments Income Gains of Period Return (000)
-----------------------------------------------------------------------------------------------------------
BLUE CHIP EQUITY PORTFOLIO
--------------------------
INSTITUTIONAL CLASS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2000 $20.00 0.08 3.97 (0.07) (0.38) $23.60 20.45% $211,534
1999 17.01 0.10 3.41 (0.12) (0.40) 20.00 21.07 129,720
1998 12.39 0.14 4.70 (0.13) (0.09) 17.01 39.34 67,060
1997 10.12 0.17 2.28 (0.17) (0.01) 12.39 24.41 35,690
1996 (2) 10.00 -- 0.12 -- -- 10.12 1.20+ 11,456
CAPITAL GROWTH PORTFOLIO
------------------------
INSTITUTIONAL CLASS
2000 $18.71 (0.03) 9.31 -- (1.86) $26.13 51.36% $193,827
1999 14.90 (0.01) 4.33 -- (0.51) 18.71 29.51 90,042
1998 11.92 0.02 4.96 (0.04) (1.96) 14.90 45.19 50,615
1997 11.60 0.11 1.41 (0.14) (1.06) 11.92 13.46 34,170
1996 10.20 0.16 2.17 (0.16) (0.77) 11.60 23.62 39,560
MID-CAP EQUITY PORTFOLIO
------------------------
INSTITUTIONAL CLASS
2000 $14.70 (0.04) 5.30 -- (2.04) $17.92 38.90% $ 92,253
1999 14.11 0.01 1.16 (0.01) (0.57) 14.70 8.76 63,648
1998 10.17 0.04 4.61 (0.04) (0.67) 14.11 46.92 55,280
1997 (3) 10.00 0.03 0.17 (0.03) -- 10.17 1.98+ 27,059
SMALL-CAP EQUITY PORTFOLIO
-------------------------
INSTITUTIONAL CLASS
2000 $12.65 (0.08) 15.39 -- (4.72) $23.24 126.42% $ 81,375
1999 11.86 (0.05) 1.17 -- (0.33) 12.65 9.89 30,562
1998 8.53 (0.02) 3.97 -- (0.62) 11.86 47.93 27,372
1997 14.72 (0.01) (2.97) -- (3.21) 8.53 (23.43) 17,746
1996 (5) 10.00 0.09 4.72 (0.09) -- 14.72 48.34+ 33,621
</TABLE>
Ratio of Ratio
Net of Expenses
Ratio of Investment to Average
Expenses Income Net Assets Portfolio
to Average to Average (Excluding Turnover
Net Assets Net Assets Waivers) Rate
--------------------------------------------------------------------------------
BLUE CHIP EQUITY PORTFOLIO
--------------------------
INSTITUTIONAL CLASS
2000 0.97% 0.39% 1.08% 40.58%
1999 0.91 0.63 1.07 38.78
1998 0.81 0.96 0.89 26.32
1997 0.70 1.55 0.90 46.91
1996 (2) 0.65* 1.52* 1.38* 0.97
CAPITAL GROWTH PORTFOLIO
------------------------
INSTITUTIONAL CLASS
2000 1.00% (0.18)% 1.06% 113.74%
1999 0.94 (0.07) 1.04 118.46
1998 0.84 0.13 0.88 174.55
1997 0.39 0.92 0.85 246.14
1996 0.24 1.26 0.84 578.57
MID-CAP EQUITY PORTFOLIO
-------------------------
INSTITUTIONAL CLASS
2000 1.11% (0.26)% 1.18% 55.90%
1999 1.06 0.04 1.18 61.81
1998 0.97 0.31 1.06 38.30
1997 (3) 0.90* 0.65* 0.95* 14.74
SMALL-CAP EQUITY PORTFOLIO
---------------------------
INSTITUTIONAL CLASS
2000 1.19% (0.49)% 1.21% 753.31%
1999 1.16 (0.48) 1.23 733.14
1998 0.98 (0.24) 1.02 410.72
1997 0.95 (0.12) 0.95 704.41
1996 (5) 0.91* 0.60* 0.91* 286.80
+ Returns are for the period indicated and have not been annualized.
++ Period ended February 28. See Note 9 of Notes to Financial Statements
regarding fund mergers.
* Annualized.
(2) Commenced operations on April 1, 1996.
(3) Commenced operations on November 18, 1996.
(4) Commenced operations on October 1, 1997.
(5) Commenced operations on July 13, 1995.
PROSPECTUS 59
<PAGE>
FINANCIAL HIGHLIGHTS
On August 8, 2000, the ARK International Equity Selection Portfolio changed its
investment policy of investing in mutual funds to investing directly in equity
securities. On August 12, 2000, the Govett International Equity Fund
("Predecessor Fund") was reorganized into the ARK International Equity Portfolio
(formerly the ARK International Equity Selection Portfolio). The Institutional
Class of the Govett International Equity Fund commenced operations on July 24,
1998 as a separate investment portfolio of The Govett Funds, Inc. ("Govett
Funds"), a Maryland corporation. The investment objectives and policies of the
Predecessor Fund and the corresponding ARK Portfolio are substantially similar.
The following table describes the Predecessor Fund's performance. This
information is intended to help you understand the fund's financial performance
for the past five years or, if shorter, the period of the fund's operations.Some
of this information reflects financial information for a single fund share. The
total returns in the table represent the rate that you would have earned (or
lost) on an investment in a fund, assuming you reinvested all of your dividends
and distributions. This information has been audited by PricewaterhouseCoopers
LLP, independent auditors. Their unqualified report, along with the Predecessor
Fund's financial statements, are included in our Annual Report, which
accompanies our Statement of Additional Information and is available upon
request at no charge.
For a Share Outstanding Throughout the Period ended December 31,
<TABLE>
<CAPTION>
NET REALIZED
AND NET
NET ASSET NET UNREALIZED IN EXCESS OPERATING
VALUE, INVESTMENT GAINS OR FROM NET OF NET FROM NET NET ASSET EXPENSES
BEGINNING INCOME (LOSSES) ON INVESTMENT INVESTMENT REALIZED VALUE, END TOTAL TO AVERAGE
OF PERIOD (LOSS)/D INVESTMENTS INCOME INCOME GAIN OF PERIOD RETURN NET ASSETS
-------------------------------------------------------------------------------------------------------------------------------
GOVETT INTERNATIONAL EQUITY PORTFOLIO
-----------------------------------------------
INSTITUTIONAL CLASS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 $11.19 (0.02) 3.11 -- -- (1.50) $12.78 28.25% 2.00%
1998(a) 12.85 (0.02) (0.13) -- -- (1.51) 11.19 (1.15)** 1.75*
</TABLE>
NET
INVESTMENT
(LOSS) TO PORTFOLIO
AVERAGE DAILY TURNOVER
NET ASSETS RATE
-------------------------------------
GOVETT INTERNATIONAL EQUITY PORTFOLIO
-------------------------------------
INSTITUTIONAL CLASS
(0.17)% 41%
(0.47)* 109%
Note A: AIB Govett Asset Management Limited waived a portion of its management
fees and Govett Financial Services Limited, a former distributor of the Fund,
reimbursed a portion of the other operating expenses of the Fund for the year
ended December 31, 1994. For the years ended December 31, 1995, 1996, and 1997,
AIB Govett Asset Management Limited (former investment manager, currently
subadviser to the Fund) waived a portion of its management fee and reimbursed a
portion of the other operating expenses of the Fund. For the year ended December
31, 1998, AIB Govett, Inc. (investment manager since January 1, 1998), waived a
portion of its management fee and reimbursed a portion of other operating
expenses of the Fund. Without the waiver and reimbursement of expenses, the
expense ratios as a percentage of average net assets for the periods indicated
would have been 2.98% and 2.90%* for the years ended December 31, 1999 and 1998
respectively.
(a) Commencement of Operations was July 24, 1998.
* Annualized.
** Not Annualized.
\d Per share net investment income (loss) does not reflect the current period's
reclassification of permanent differences between book and tax basis net
investment income (loss).
60 PROSPECTUS
<PAGE>
NOTES
<PAGE>
NOTES
<PAGE>
NOTES
<PAGE>
HOW TO OBTAIN MORE INFORMATION ABOUT ARK FUNDS
INVESTMENT ADVISOR
Allied Investment Advisors, Inc.
100 E. Pratt Street
Baltimore, MD 21202
INVESTMENT SUBADVISOR
(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, N.W.
Washington, D.C. 20036
INDEPENDENT AUDITORS
KPMG LLP
99 High Street
Boston, MA 02110
[ARK Logo Omitted]
More information about the Portfolios is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI dated September 1, 2000, includes detailed information about ARK Funds.
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
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: Call 1-800-624-4116 (INSIDE MARYLAND 1-800-638-7751)
BY MAIL: Write to us at:
ARK Funds
c/o Allfirst Bank Trust Division
[Banc #101-624]
P.O. Box 1596
Baltimore, MD 21201
BY E-MAIL: www.arkfunds.com
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, D.C. (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, D.C. 20549-6009 or (2) sending an electronic request to
[email protected]. ARK Funds' Investment Company Act registration number is
811-7310.
<PAGE>
ARK FUNDS
INSTITUTIONAL II CLASS
PROSPECTUS
SEPTEMBER 1, 2000
U.S. TREASURY MONEY MARKET PORTFOLIO
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
MONEY MARKET PORTFOLIO
TAX-FREE MONEY MARKET 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
CRIMINAL OFFENSE.
<PAGE>
HOW TO READ THIS PROSPECTUS
ARK Funds is a mutual fund family that offers shares in separate investment
portfolios (Portfolios). The Portfolios have individual investment goals and
strategies. This prospectus gives you important information about the
Institutional II 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. FOR MORE DETAILED INFORMATION ABOUT EACH
PORTFOLIO, PLEASE SEE:
PAGE
U.S. TREASURY MONEY MARKET PORTFOLIO............................. 3
U.S. GOVERNMENT MONEY MARKET PORTFOLIO........................... 6
MONEY MARKET PORTFOLIO........................................... 9
TAX-FREE MONEY MARKET PORTFOLIO.................................. 12
ADDITIONAL INFORMATION ABOUT PRINCIPAL RISK...................... 15
EACH PORTFOLIO'S OTHER INVESTMENTS............................... 16
INVESTMENT ADVISOR............................................... 16
PURCHASING, SELLING AND EXCHANGING PORTFOLIO SHARES.............. 16
DISTRIBUTION OF PORTFOLIO SHARES................................. 19
DIVIDENDS AND DISTRIBUTIONS...................................... 19
TAXES............................................................ 20
FINANCIAL HIGHLIGHTS............................................. 21
HOW TO OBTAIN MORE INFORMATION ABOUT ARK FUNDS......Inside Back Cover
Page 1 of 25
<PAGE>
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 he or
she believes will help each 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 PORTFOLIOS TRY TO MAINTAIN A CONSTANT PRICE PER SHARE OF $1.00, BUT THERE IS
NO GUARANTEE THAT THESE PORTFOLIOS WILL ACHIEVE THIS GOAL.
Page 2 of 25
<PAGE>
ARK U.S. TREASURY MONEY MARKET PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL Maximizing current income and providing
liquidity and security of principal
INVESTMENT FOCUS Short-term U.S. Treasury securities
SHARE PRICE VOLATILITY Very low
PRINCIPAL INVESTMENT STRATEGY Investing in U.S. Treasury obligations
INVESTOR PROFILE Conservative investors seeking current
income through a low-risk, liquid investment
PRINCIPAL INVESTMENT STRATEGY OF THE U.S. TREASURY MONEY MARKET PORTFOLIO
The U.S. Treasury Money Market Portfolio seeks its investment goal by investing
exclusively in U.S. Treasury obligations.
In selecting securities for the Portfolio, the Advisor considers factors such as
current yield, the anticipated level of interest rates, and the maturity of the
instrument relative to the maturity of the entire Portfolio. In addition, the
Portfolio may purchase only securities that meet certain SEC requirements
relating to maturity, diversification and credit quality. Under these
requirements, the Portfolio's securities must have remaining maturities of 397
days or less, and the Portfolio must have a dollar-weighted average maturity of
90 days or less.
PRINCIPAL RISKS OF INVESTING IN THE U.S. TREASURY MONEY MARKET PORTFOLIO
An investment in the Portfolio is subject to income risk, which is the
possibility that the Portfolio's yield will decline due to falling interest
rates. A Portfolio share is not a bank deposit and is not insured or guaranteed
by the FDIC or any government agency. In addition, although a money market fund
seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the Portfolio.
The Portfolio's U.S. Treasury securities are not guaranteed against price
movements due to changing interest rates.
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
Page 3 of 25
<PAGE>
This bar chart shows changes in the performance of the Portfolio's Institutional
II Class Shares for each year for four calendar years.
1996 4.90%
1997 4.98%
1998 4.77%
1999 4.33%
BEST QUARTER WORST QUARTER
1.24% 1.02%
09/30/97 03/31/99
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional II Class total return was 2.59%.
THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1999, TO THOSE OF THE IMONEYNET, INC. 100% U.S. TREASURY
AVERAGE.
INSTITUTIONAL II CLASS 1 YEAR SINCE INCEPTION
-------------------------------------------------- ------------ ----------------
U.S. TREASURY MONEY MARKET PORTFOLIO 4.33% 4.81%*
IMONEYNET, INC. 100% U.S. TREASURY AVERAGE 4.20% 4.62%**
* Since July 28, 1995.
** Since July 31, 1995.
WHAT IS AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with a
particular investment objective. You cannot invest directly in an average. The
iMoneyNet, Inc.100% U.S. Treasury Average is a composite of money market mutual
funds with investment goals similar to the Portfolio's goals.
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 II
CLASS
-------------------------------------------------------------------------- -------------------
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of
offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of offering price) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and None
other Distributions (as a percentage of offering price)
Distribution (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
Page 4 of 25
<PAGE>
ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
INSTITUTIONAL II CLASS
--------------------------------------------------------------------------------
Investment Advisory Fees 0.25%
Distribution (12b-1) Fees 0.15%
OTHER EXPENSES 0.18%
-----
TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES 0.58%
Fee Waivers and Expense Reimbursements 0.03%
-----
NET TOTAL OPERATING EXPENSES 0.55%(1)
-----
--------------------------------------------------------------------------------
(1) The Portfolio's Advisor has agreed contractually to waive fees and reimburse
expenses in order to keep total operating expenses from exceeding 0.55% until
August 31, 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 waiver, 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 were
as follows:
U.S. Treasury Money Market Portfolio -- Institutional II Class 0.52%
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 and that
you sell your shares at the end of the period.
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$56 $183 $321 $723
Page 5 of 25
<PAGE>
ARK U.S. GOVERNMENT MONEY MARKET PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL Maximizing current income and providing
liquidity and security of principal
INVESTMENT FOCUS Short-term U.S. government securities
SHARE PRICE VOLATILITY Very low
PRINCIPAL INVESTMENT STRATEGY Investing in U.S. government obligations and
repurchase agreements
INVESTOR PROFILE Conservative investors seeking current
income through a low-risk, liquid investment
PRINCIPAL INVESTMENT STRATEGY OF THE U.S. GOVERNMENT MONEY MARKET PORTFOLIO
The U.S. Government Money Market Portfolio seeks its investment goal by
investing exclusively in obligations issued by the U.S. government and its
agencies and instrumentalities and in repurchase agreements.
In selecting securities for the Portfolio, the Advisor considers factors such as
current yield, the anticipated level of interest rates, and the maturity of the
instrument relative to the maturity of the entire Portfolio. In addition, the
Portfolio may purchase only securities that meet certain SEC requirements
relating to maturity, diversification and credit quality. Under these
requirements, the Portfolio's securities must have remaining maturities of 397
days or less, and the Portfolio must have a dollar-weighted average maturity of
90 days or less.
PRINCIPAL RISKS OF INVESTING IN THE U.S. GOVERNMENT MONEY MARKET PORTFOLIO
An investment in the Portfolio is subject to income risk, which is the
possibility that the Portfolio's yield will decline due to falling interest
rates. A Portfolio share is not a bank deposit and is not insured or guaranteed
by the FDIC or any government agency. In addition, although a money market fund
seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the Portfolio.
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.
Page 6 of 25
<PAGE>
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Institutional
II Class Shares for each year for four calendar years.
1996 5.13%
1997 5.28%
1998 5.18%
1999 4.76%
BEST QUARTER WORST QUARTER
1.33% 1.12%
12/31/97 03/31/99
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional II Class total return was 2.81%.
THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1999, TO THOSE OF THE IMONEYNET, INC. GOVERNMENT ONLY
INSTITUTIONS ONLY AVERAGE.
INSTITUTIONAL II CLASS 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
U.S. GOVERNMENT MONEY MARKET PORTFOLIO 4.76% 5.15%*
IMONEYNET, INC. GOVERNMENT ONLY INSTITUTIONS
ONLY AVERAGE 4.68% 5.06%**
* Since July 28, 1995.
** Since July 31, 1995.
WHAT IS AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with a
particular investment objective. You cannot invest directly in an average. The
iMoneyNet, Inc. Government Only Institutions Only Average is a composite of
money market mutual funds with investment goals similar to the Portfolio's
goals.
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 II
CLASS
-------------------------------------------------------------------------- -------------------
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of
offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of offering price) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and None
other Distributions (as a percentage of offering price)
</TABLE>
Page 7 of 25
<PAGE>
Distribution (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed,
if applicable) None
Exchange Fee None
ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
INSTITUTIONAL II CLASS
--------------------------------------------------------------------------------
Investment Advisory Fees 0.25%
Distribution (12b-1) Fees 0.15%
OTHER EXPENSES 0.19%
-----
TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES 0.59%
FEE WAIVERS AND EXPENSE REIMBURSEMENTS 0.09%
-----
NET TOTAL OPERATING EXPENSES 0.50%(1)
-----
--------------------------------------------------------------------------------
(1) The Portfolio's Advisor has agreed contractually to waive fees and reimburse
expenses in order to keep total operating expenses from exceeding 0.50% until
August 31, 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 waiver, 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 were
as follows:
U.S. Government Money Market Portfolio -- Institutional II Class 0.48%
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 and that
you sell your shares at the end of the period.
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$51 $180 $320 $729
Page 8 of 25
<PAGE>
ARK MONEY MARKET PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL Maximizing current income and providing
liquidity and security of principal
INVESTMENT FOCUS Short-term money market instruments
SHARE PRICE VOLATILITY Very low
PRINCIPAL INVESTMENT STRATEGY Investing in high-quality U.S. dollar-
denominated money market securities
INVESTOR PROFILE Conservative investors seeking current income
through a low-risk, liquid investment
PRINCIPAL INVESTMENT STRATEGY OF THE MONEY MARKET PORTFOLIO
The Money Market Portfolio seeks its investment goal by investing primarily in
high-quality, short-term U.S. dollar-denominated debt securities issued by
corporations, the U.S. government and banks, including U.S. and foreign branches
of U.S. banks and U.S. branches of foreign banks. At least 95% of such
securities are rated in the highest rating category by two or more nationally
recognized statistical rating organizations.
In selecting securities for the Portfolio, the Advisor considers factors such as
current yield, the anticipated level of interest rates, and the maturity of the
instrument relative to the maturity of the entire Portfolio. In addition, the
Portfolio may purchase only securities that meet certain SEC requirements
relating to maturity, diversification and credit quality. Under these
requirements, the Portfolio's securities must have remaining maturities of 397
days or less, and the Portfolio must have a dollar-weighted average maturity of
90 days or less.
PRINCIPAL RISKS OF INVESTING IN THE MONEY MARKET PORTFOLIO
An investment in the Portfolio is subject to income risk, which is the
possibility that the Portfolio's yield will decline due to falling interest
rates. A Portfolio share is not a bank deposit and is not insured or guaranteed
by the FDIC or any government agency. In addition, although a money market fund
seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the Portfolio.
The Portfolio's 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.
Page 9 of 25
<PAGE>
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Institutional
II Class Shares for each year for four calendar years.
1996 5.26%
1997 5.43%
1998 5.34%
1999 4.97%
BEST QUARTER WORST QUARTER
1.36% 1.16%
12/31/97 03/31/99
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional II Class total return was 2.88%.
THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1999, TO THOSE OF IMONEYNET, INC. FIRST TIER INSTITUTIONS
ONLY AVERAGE.
INSTITUTIONAL II CLASS 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO 4.97% 5.31%*
IMONEYNET, INC. FIRST TIER INSTITUTIONS ONLY AVERAGE 4.94% 5.27%**
* Since July 21, 1995.
** Since July 31, 1995.
WHAT IS AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with a
particular investment objective. You cannot invest directly in an average. The
iMoneyNet, Inc. First Tier Institutions Only Average is a composite of money
market mutual funds with investment goals similar to the Portfolio's goals.
Page 10 of 25
<PAGE>
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 II
CLASS
---------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of
offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of offering price) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and None
other Distributions (as a percentage of offering price)
Distribution (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONAL II CLASS
--------------------------------------------------------------------------------------------
<S> <C>
Investment Advisory Fees 0.25%
Distribution (12b-1) Fees 0.15%
OTHER EXPENSES 0.19%
-----
TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES 0.59%
Fee Waivers And Expense Reimbursements 0.13%
-----
NET TOTAL OPERATING EXPENSES 0.46%(1)
-----
</TABLE>
--------------------------------------------------------------------------------
(1) The Portfolio's Advisor has agreed contractually to waive fees and reimburse
expenses in order to keep total operating expenses from exceeding 0.46% until
August 31, 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 waiver, 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 were
as follows:
Money Market Portfolio -- Institutional II Class 0.45%
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 and that
you sell your shares at the end of the period.
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$47 $176 $316 $725
Page 11 of 25
<PAGE>
ARK TAX-FREE MONEY MARKET PORTFOLIO
PORTFOLIO SUMMARY
INVESTMENT GOAL Maximizing current income exempt from Federal
income taxes and providing liquidity and
security of principal
INVESTMENT FOCUS Short-term, high-quality municipal money
market obligations
SHARE PRICE VOLATILITY Very low
PRINCIPAL INVESTMENT STRATEGY Investing in tax-exempt money market securities
INVESTOR PROFILE Conservative investors seeking income through a
low-risk, liquid investment
PRINCIPAL INVESTMENT STRATEGY OF THE TAX-FREE MONEY MARKET PORTFOLIO
The Tax-Free Money Market Portfolio seeks its investment goal by investing
substantially all of its assets in a broad range of high quality, short-term
municipal money market instruments that pay interest that is exempt from Federal
income taxes. The issuers of these securities may be state and local governments
and agencies located in any of the 50 states, the District of Columbia, Puerto
Rico and other U.S. territories and possessions. The Portfolio is well
diversified among issuers and comprised only of short-term debt securities that
are rated in the two highest categories by nationally recognized statistical
rating organizations or determined by the Advisor to be of equal credit quality.
Normally, the Portfolio will not invest in securities subject to the Alternative
Minimum Tax or in taxable municipal securities.
In selecting securities for the Portfolio, the Advisor considers factors such as
current yield, the anticipated level of interest rates, and the maturity of the
instrument relative to the maturity of the entire Portfolio. In addition, the
Portfolio may purchase only securities that meet certain SEC requirements
relating to maturity, diversification and credit quality. Under these
requirements, the Portfolio's securities must have remaining maturities of 397
days or less, and the Portfolio must have a dollar-weighted average maturity of
90 days or less.
PRINCIPAL RISKS OF INVESTING IN THE TAX-FREE MONEY MARKET PORTFOLIO
An investment in the Portfolio is subject to income risk, which is the
possibility that the Portfolio's yield will decline due to falling interest
rates. A Portfolio share is not a bank deposit and is not insured or guaranteed
by the FDIC or any government agency. In addition, although a money market fund
seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the Portfolio.
There may be economic or political changes that impact the ability of municipal
issuers to repay principal and to make interest payments on municipal
securities. Changes in the financial condition or credit rating of municipal
issuers also may adversely affect the value of the Portfolio's securities.
Page 12 of 25
<PAGE>
PERFORMANCE INFORMATION
The bar chart and the performance table below 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.
This bar chart shows changes in the performance of the Portfolio's Institutional
II Class Shares for each year for four calendar years.
1996 3.20%
1997 3.36%
1998 3.14%
1999 2.87%
BEST QUARTER WORST QUARTER
0.88% 0.62%
06/30/97 03/31/99
For the period from January 1, 2000 to June 30, 2000, the Portfolio's
Institutional II Class total return was 1.74%.
THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1999, TO THOSE OF THE IMONEYNET, INC. TAX-FREE INSTITUTIONS
ONLY AVERAGE.
INSTITUTIONAL II CLASS 1 YEAR SINCE INCEPTION
--------------------------------------------------------------------------------
TAX-FREE MONEY MARKET PORTFOLIO 2.87% 3.24%*
IMONEYNET, INC. TAX-FREE INSTITUTIONS ONLY AVERAGE 2.96% 3.21%**
* Since July 28, 1995.
** Since July 31, 1995.
WHAT IS AN AVERAGE?
An average measures the share prices of a specific group of mutual funds with a
particular investment objective. You cannot invest directly in an average. The
iMoneyNet, Inc. Tax-Free Institutions Only Average is a composite of money
market mutual funds with investment goals similar to the Portfolio's goals.
Page 13 of 25
<PAGE>
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 II
CLASS
----------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of
offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of offering price) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and None
other Distributions (as a percentage of offering price)
Distribution (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
INSTITUTIONAL II CLASS
----------------------------------------------------------------------------------------------
Investment Advisory Fees 0.25%
Distribution (12b-1) Fees 0.15%
OTHER EXPENSES 0.20%
-----
TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES 0.60%
Fee Waivers And Expense Reimbursements 0.13%
-----
NET TOTAL OPERATING EXPENSES 0.47%(1)
-----
</TABLE>
--------------------------------------------------------------------------------
(1) The Portfolio's Advisor has agreed contractually to waive fees and reimburse
expenses in order to keep total operating expenses from exceeding 0.47% until
August 31, 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 waiver, 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 were
as follows:
Tax-Free Money Market Portfolio -- Institutional II Class 0.44%
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 and that
you sell your shares at the end of the period.
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$48 $179 $322 $738
Page 14 of 25
<PAGE>
<TABLE>
ADDITIONAL INFORMATION ABOUT PRINCIPAL RISK
<S> <C> <C>
RISKS PORTFOLIOS AFFECTED BY THE RISKS
MUNICIPAL ISSUER RISK-- There may be economic or political changes Tax-Free Money Market Portfolio
that impact the ability of municipal issuers to repay principal
and to make interest payments on municipal securities. Changes to
the financial condition or credit rating of municipal issuers may
also adversely affect the value of the Portfolio's municipal
securities. Constitutional or legislative limits on borrowing by
municipal issuers may result in reduced supplies of municipal
securities. Moreover, certain municipal securities are backed
only by a municipal issuer's ability to levy and collect taxes.
</TABLE>
Page 15 of 25
<PAGE>
EACH PORTFOLIO'S OTHER INVESTMENTS
This prospectus describes the Portfolios' primary strategies, and each Portfolio
will invest at least 80% of its 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.
INVESTMENT ADVISOR
The Portfolio's Investment Advisor makes investment decisions for the Portfolios
and continuously reviews, supervises and administers the Portfolios' respective
investment programs.
The Board of Trustees of the ARK Funds supervises the Advisor and establishes
policies that the Advisor 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 June 30, 2000, AIA had approximately $14.5 billion in
assets under management. For the fiscal year ended April 30, 2000, AIA received
advisory fees of:
U.S. TREASURY MONEY MARKET PORTFOLIO 0.19%
U.S. GOVERNMENT MONEY MARKET PORTFOLIO 0.14%
MONEY MARKET PORTFOLIO 0.12%
TAX-FREE MONEY MARKET PORTFOLIO 0.09%
PORTFOLIO MANAGER
James M. Hannan is a Principal of AIA and manager of each Portfolio. He is also
manager of the ARK SHORT-TERM TREASURY PORTFOLIO and is responsible for several
separately managed institutional portfolios that he has managed since 1992. He
has served as a Vice President of Allfirst since 1987. Prior to 1987 he served
as the Treasurer for the city of Hyattsville, Maryland.
PURCHASING, SELLING AND EXCHANGING PORTFOLIO SHARES
This section tells you how to purchase, sell (sometimes called "redeem") or
exchange Institutional II Class Shares of the Portfolios.
Institutional II Class Shares are for individuals, financial institutions,
corporations and other entities that have established trust relationships with
Allfirst or its affiliates or correspondent banks. Before you can buy
Institutional II Class Shares, you must establish a qualified account. 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.
Page 16 of 25
<PAGE>
HOW TO PURCHASE PORTFOLIO SHARES
Generally, you must make payment to Allfirst or a correspondent bank, who will
forward your purchase orders. You may purchase shares directly by Federal funds,
wire or other funds immediately available to the Portfolios. 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 II 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 or a correspondent bank to purchase
Institutional II 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.
GENERAL INFORMATION
You may purchase shares on any day that the New York Stock Exchange (NYSE) and
the Federal Reserve Bank of New York (Federal Reserve) are open for business (a
Business Day). 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. We expect
that the NAV of the Portfolios will remain constant at $1.00 per share.
The U.S. Treasury Money Market Portfolio and Tax-Free Money Market Portfolio
calculate their NAV each Business Day at 12:00 noon Eastern time and 4:00 p.m.
Eastern time. So, for you to be eligible to receive dividends declared on the
day you submit your purchase order, generally the Portfolio must receive and
accept your order and receive Federal funds (readily available funds) before
12:00 noon Eastern time. For orders received and accepted after 12:00 noon
Eastern time but before 4:00 p.m. Eastern time, you will begin earning dividends
on the next Business Day.
The Money Market Portfolio and U.S. Government Money Market Portfolio calculate
their NAV each Business Day at 5:00 p.m. Eastern time. So, for you to be
eligible to receive dividends declared on the day you submit your purchase
order, generally the Portfolio must receive and accept your order and receive
Federal funds before 5:00 p.m. Eastern time.
When the NYSE or Federal Reserve 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.
Page 17 of 25
<PAGE>
In calculating NAV for the Portfolios, we generally value a Portfolio's
investment portfolio using the amortized cost valuation method, which is
described in detail in our Statement of Additional Information. If this method
is determined to be unreliable during certain market conditions or for other
reasons, a Portfolio may value its securities at market price, or fair value
prices may be determined in good faith using methods approved by the Board of
Trustees.
MINIMUM PURCHASES
To purchase shares for the first time, you must invest at least $500 in any
Portfolio. Your subsequent investments in any Portfolio may be made in any
amount. 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
Holders of Institutional II Class Shares may sell shares by telephone or by mail
on any Business Day 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 a correspondent
bank. The redemption price is based on the next calculation of NAV after your
request is received.
BY MAIL. To redeem by mail, send a written request to Allfirst Bank Trust
Division Banc #101-624, P.O. Box 1596, Baltimore, Maryland 21201, or to your
correspondent bank and follow their procedures.
BY TELEPHONE. To redeem by telephone, call 1-800-624-4116 (inside Maryland
1-800-638-7751) or your investor representative at Allfirst or a correspondent
bank.
RECEIVING YOUR MONEY
Normally, if we receive your redemption request by 12:00 noon Eastern time (1:30
p.m. Eastern time for the U.S. Government Money Market and Money Market
Portfolios) on any Business Day, we will send your sale proceeds on that day.
Your proceeds can be wired to your bank account. For Allfirst clients, currently
Allfirst Bank pays the costs of these wires. The Portfolios reserve the right to
charge wire fees to investors. You may not close your account by telephone.
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.
HOW TO EXCHANGE YOUR SHARES
You may exchange your Institutional II 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 investor representative at Allfirst or a correspondent
bank.
Page 18 of 25
<PAGE>
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 Portfolio receives your exchange request. The
Portfolios reserve the right to modify or suspend this exchange privilege.
An exchange between the Institutional II Class and another class of any
Portfolio is generally not permitted, except that an exchange to Class A Shares
of a Portfolio will occur if an investor becomes ineligible to hold
Institutional II Class Shares. ARK Funds will provide 30 days notice of any
such exchange. ARK Funds have received a private letter ruling from the Internal
Revenue Service that provides that exchanges of shares of one class of a
Portfolio for another class of the same Portfolio will not be a taxable event.
TELEPHONE TRANSACTIONS
Purchasing, selling and exchanging Portfolio shares over the telephone is
extremely convenient, but not without risk. Although ARK Funds has certain
safeguards and procedures to confirm the identity of callers and the
authenticity of instructions, ARK Funds 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 ARK Funds over the
telephone, you will generally bear the risk of any loss.
DISTRIBUTION OF PORTFOLIO SHARES
Each Portfolio has adopted a distribution plan that allows the Portfolio 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.
Distribution fees, as a percentage of average daily net assets, may be up to
0.75%. The Board has set the distribution fees as follows:
U.S. Treasury Money Market Portfolio 0.15%
U.S. Government Money Market Portfolio 0.15%
Money Market Portfolio 0.15%
Tax-Free Money Market Portfolio 0.15%
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.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared daily and paid monthly. 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.
Page 19 of 25
<PAGE>
You will receive dividends and distributions in the form of additional Portfolio
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify Allfirst or your correspondent bank in writing prior to the date of
the distribution. Your election will be effective for dividends and
distributions paid after Allfirst receives your written notice. To cancel your
election, simply send 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, but vary depending on how long the Portfolio has
held its assets. A SALE OR EXCHANGE OF SHARES IS GENERALLY A TAXABLE EVENT.
The Tax-Free Money Market Portfolio intends to distribute Federally tax-exempt
income. This Portfolio may invest a portion of its assets in securities that
generate taxable income for Federal or state income taxes. Income exempt from
Federal tax may be subject to state and local taxes. Any capital gains
distributed by the Portfolio may be taxable.
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
Page 20 of 25
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents performance information about Institutional II
Class Shares of each Portfolio. 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. Their report, along with each Portfolio's financial statements,
are included in our Annual Report, which accompanies our Statement of Additional
Information and is available upon request at no charge.
Page 21 of 25
<PAGE>
For a Share Outstanding Throughout the Periods Ended April 30,
<TABLE>
<CAPTION>
Ratio of Ratio
Net Realized Distri- Distri- Net Asset Net Net Expenses
Asset and bution butions Value, Assets Ratio of Investment to Average
Value, Net Unrealized from Net from End End of Expenses Income Net Assets
Beginning Investment Gains on Investment Capital of Total Period to Average to Average (Excluding
of Period Income Investments Income Gains Period Return(A) (000) Net Assets Net Assets Waivers)
U.S. Treasury Money Market Portfolio
Institutional II Class
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2000 $1.00 0.05 -- (0.05) -- $ 1.00 4.66% $129,378 0.52% 4.58% 0.58%
1999 1.00 0.04 -- (0.04) -- 1.00 4.53 139,253 0.50 4.39 0.56
1998 1.00 0.05 -- (0.05) -- 1.00 4.99 94,844 0.48 4.88 0.54
1997 1.00 0.05 -- (0.05) -- 1.00 4.89 63,496 0.47 4.79 0.53
1996 (1) 1.00 0.04 -- (0.04) -- 1.00 3.87+ 47,220 0.47* 4.98* 0.55*
U.S. Government Money Market Portfolio
Institutional II Class
2000 $1.00 0.05 -- (0.05) -- $1.00 5.08% $ 84,503 0.48% 4.91% 0.59%
1999 1.00 0.05 -- (0.05) -- 1.00 4.95 142,144 0.45 4.76 0.56
1998 1.00 0.05 -- (0.05) -- 1.00 5.33 91,629 0.44 5.21 0.55
1997 1.00 0.05 -- (0.05) -- 1.00 5.12 37,284 0.42 5.01 0.53
1996 (1) 1.00 0.04 -- (0.04) -- 1.00 4.11+ 17,027 0.41* 5.25* 0.56*
Money Market Portfolio
Institutional II Class
2000 $1.00 0.05 -- (0.05) -- $1.00 5.30% $300,562 0.45% 5.20% 0.58%
1999 1.00 0.05 -- (0.05) -- 1.00 5.11 229,046 0.43 4.97 0.57
1998 1.00 0.05 -- (0.05) -- 1.00 5.47 82,293 0.41 5.33 0.55
1997 1.00 0.05 -- (0.05) -- 1.00 5.25 62,960 0.38 5.14 0.53
1996 (2) 1.00 0.04 -- (0.04) -- 1.00 4.33+ 28,790 0.36* 5.37* 0.55*
Tax-Free Money Market Portfolio
Institutional II Class
2000 $1.00 0.03 -- (0.03) -- $1.00 3.10% $ 35,256 0.44% 3.04% 0.60%
1999 1.00 0.03 -- (0.03) -- 1.00 2.94 43,575 0.41 2.87 0.57
1998 1.00 0.03 -- (0.03) -- 1.00 3.37 29,474 0.40 3.31 0.56
1997 1.00 0.03 -- (0.03) -- 1.00 3.19 16,727 0.38 3.14 0.54
1996 (1) 1.00 0.02 -- (0.02) -- 1.00 2.62+ 9,387 0.33* 3.35* 0.58*
<FN>
+ Returns are for the period indicated and have not been annualized.
* Annualized.
(1) Commenced operations on July 28, 1995.
(2) Commenced operations on July 21, 1995.
</FN>
</TABLE>
Page 22 of 25
<PAGE>
HOW TO OBTAIN MORE INFORMATION ABOUT ARK FUNDS
INVESTMENT ADVISOR
Allied Investment Advisors, Inc.
100 E. Pratt Street
Baltimore, MD 21202
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, PA 19456
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
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 September 1, 2000, includes detailed information about ARK Funds.
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
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: CALL 1-800-624-4116 (INSIDE MARYLAND 1-800-638-7751)
BY MAIL: Write to us at:
ARK Funds
c/o Allfirst Bank Trust Division
Banc #101-624
Inside Back Cover
<PAGE>
P.O. Box 1596
Baltimore, MD 21201
BY E-MAIL: www.arkfunds.com
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.
<PAGE>
ARK FUNDS
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 1, 2000
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the current prospectuses dated September 1, 2000,
for Retail Class A and Class B, Institutional Class, and Institutional II Class
Shares of 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 prospectuses. The Fund's Annual Report (including financial
statements for the fiscal year ended April 30, 2000) is incorporated herein by
reference. To obtain additional copies of the prospectuses, Annual Report or
this Statement of Additional Information, please call 1-800-624-4116 (inside
Maryland 1-800-638-7751).
TABLE OF CONTENTS PAGE
INVESTMENT GOALS AND STRATEGIES................................................2
INVESTMENT POLICIES AND LIMITATIONS...........................................13
INVESTMENT PRACTICES..........................................................17
SPECIAL CONSIDERATIONS........................................................40
PORTFOLIO TRANSACTIONS........................................................51
VALUATION OF PORTFOLIO SECURITIES.............................................54
PORTFOLIO PERFORMANCE.........................................................56
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................62
TAXES ........................................................................63
TRUSTEES AND OFFICERS.........................................................69
INVESTMENT ADVISOR............................................................72
ADMINISTRATOR AND DISTRIBUTOR.................................................75
TRANSFER AGENT................................................................81
CUSTODIAN.....................................................................81
CODE OF ETHICS................................................................81
DESCRIPTION OF THE FUND.......................................................82
INDEPENDENT AUDITORS..........................................................90
FINANCIAL STATEMENTS..........................................................90
Appendix A - Description of Indices and Ratings..............................A-1
Appendix B - 2000 Tax Rates..................................................B-1
<PAGE>
INVESTMENT GOALS AND STRATEGIES
The Fund consists of separate investment portfolios with a variety of
investment goals and strategies. A Portfolio's investment advisor is responsible
for providing a continuous investment program in accordance with its investment
goal and strategies. Except for its investment goal and those strategies
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 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 prospectuses and elsewhere in this Statement of Additional Information.
See "Investment Policies and Limitations."
MONEY MARKET FUND PORTFOLIOS
The U.S. TREASURY MONEY MARKET PORTFOLIO, U.S. GOVERNMENT MONEY MARKET
PORTFOLIO, MONEY MARKET PORTFOLIO, and TAX-FREE MONEY MARKET PORTFOLIO (the
"MONEY MARKET FUND PORTFOLIOS") invest in high-quality, short-term, U.S.
dollar-denominated instruments determined by the advisor to present minimal
credit risks in accordance with guidelines adopted by the Board of Trustees. The
money market fund Portfolios seek to maintain a net asset value per share of
$1.00, limit their investments to securities with remaining maturities of 397
days or less, and maintain a dollar-weighted average maturity of 90 days or
less. Estimates may be used in determining a security's maturity for purposes of
calculating average maturity. An estimated maturity can be substantially shorter
than a stated final maturity. Although the money market fund Portfolios'
policies are designed to help maintain a stable $1.00 share price, all money
market instruments can change in value when interest rates or issuers'
creditworthiness change, or if an issuer or guarantor of a security fails to pay
interest or principal when due. If these changes in value are large enough, a
money market fund Portfolio's share price could fall below $1.00. In general,
securities with longer maturities are more vulnerable to price changes, although
they may provide higher yields.
The investment goal of the U.S. TREASURY MONEY MARKET PORTFOLIO is to
maximize current income and provide liquidity and security of principal by
investing in instruments which are issued or guaranteed as to principal and
interest by the U.S. government and thus constitute direct obligations of the
United States. As a non-fundamental operating policy, the Portfolio invests 100%
of its total assets in U.S. Treasury bills, notes and bonds, and limits its
investments to U.S. Treasury obligations that pay interest which is specifically
exempt from state and local taxes under Federal law.
The investment goal of the U.S. GOVERNMENT MONEY MARKET PORTFOLIO is to
maximize current income and provide liquidity and security of principal by
investing in instruments which are issued or guaranteed as to principal and
interest by the U.S. government or any of its agencies or instrumentalities
("U.S. Government Securities"), or in repurchase agreements backed by such
instruments. As a non-fundamental policy, the Portfolio invests 100% of its
-2-
<PAGE>
assets in U.S. Government Securities and in repurchase agreements backed by such
instruments. The Portfolio normally may not invest more than 5% of its total
assets in the securities of any single issuer (other than the U.S. government).
Under certain conditions, however, the Portfolio may invest up to 25% of its
total assets in first-tier securities of a single issuer for up to three days.
The investment goal of the MONEY MARKET PORTFOLIO is to maximize
current income and provide liquidity and security of principal by investing in a
broad range of short-term, high-quality U.S. dollar-denominated debt securities
("Money Market Instruments"). At least 95% of the assets of the Portfolio will
be invested in securities that have received the highest rating assigned by any
two nationally recognized statistical rating organizations ("NRSROs") or, if
only one such rating organization has assigned a rating, such single
organization. Up to 5% of the Portfolio's assets may be invested in securities
that have received ratings in the second highest category by any two NRSROs or,
if only one such rating organization has assigned a rating, such single
organization. The Portfolio may also acquire unrated securities determined by
the advisor to be comparable in quality to rated securities in accordance with
guidelines adopted by the Board of Trustees. The Portfolio may invest in U.S.
dollar-denominated obligations of U.S. banks and foreign branches of U.S. banks
("Eurodollars"), U.S. branches and agencies of foreign banks ("Yankee dollars"),
and foreign branches of foreign banks. The Portfolio may also invest more than
25% of its total assets in certain obligations of domestic banks and normally
may not invest more than 5% of its total assets in the securities of any single
issuer (other than the U.S. government). Under certain conditions, however, the
Portfolio may invest up to 25% of its total assets in first-tier securities of a
single issuer for up to three days.
The investment goal of the TAX-FREE MONEY MARKET PORTFOLIO is to
provide a high level of interest income by investing primarily in high-quality
municipal obligations that are exempt from Federal income taxes. The Portfolio
attempts to invest 100% of its assets in securities exempt from Federal income
tax (not including the alternative minimum tax), and maintains a fundamental
policy that at least 80% of its income will, under normal market conditions, be
exempt from Federal income tax, including the Federal alternative minimum tax.
The Portfolio invests in high-quality, short-term municipal securities but may
also invest in high-quality, long-term fixed, variable, or floating rate
instruments (including tender option bonds) which have demand features or
interest rate adjustment features that result in interest rates, maturities, and
prices similar to short-term instruments. The Portfolio's investments in
municipal securities may include tax, revenue, or bond anticipation notes;
tax-exempt commercial paper; general obligation or revenue bonds (including
municipal lease obligations and resource recovery bonds); and zero coupon bonds.
At least 95% of the assets of the Portfolio will be invested in securities that
have received the highest rating assigned by any two NRSROs or, if only one such
rating organization has assigned a rating, such single organization. The
Portfolio may also acquire unrated securities determined by the advisor to be of
comparable quality in accordance with guidelines adopted by the Board of
Trustees.
The portfolios' advisor anticipates that the TAX-FREE MONEY MARKET
PORTFOLIO will be as fully invested as is practicable in municipal obligations.
However, the Portfolio reserves the
-3-
<PAGE>
right for temporary defensive purposes to invest without limitation in taxable
Money Market Instruments. There may be occasions when, as a result of maturities
of portfolio securities or sales of portfolio shares, or in order to meet
anticipated redemption requests, the Portfolio may hold cash which is not
earning income.
The TAX-FREE MONEY MARKET PORTFOLIO may invest up to 25% of its net
assets in a single issuer's securities. The Portfolio may invest any portion of
its assets in industrial revenue bonds ("IRBs") backed by private companies, and
may invest up to 25% of its total assets in IRBs related to a single industry.
The Portfolio also may invest 25% or more of its total assets in tax-exempt
securities whose revenue sources are from SIMILAR TYPES OF PROJECTS (E.G.,
education, electric utilities, health care, housing, transportation, water,
sewer, and gas utilities). There may be economic, business or political
developments or changes that affect all securities of a similar type. Therefore,
developments affecting a single issuer or industry, or securities financing
similar types of projects, could have a significant effect on the Portfolio's
performance.
SHORT-TERM TREASURY PORTFOLIO
The investment goal of the SHORT-TERM TREASURY PORTFOLIO is to provide
current income with relative stability of principal.
The Portfolio invests 100% of its total assets in instruments which are
issued or guaranteed by the U.S. government and thus constitute direct
obligations of the United States, and in repurchase agreements backed by such
instruments. As a non-fundamental policy, the Portfolio will invest 100% of its
total assets in U.S. Treasury bills, notes and bonds, and will limit its
investments to U.S. Treasury obligations that pay interest that is specifically
exempt from state and local taxes under Federal law.
SHORT-TERM BOND PORTFOLIO
The investment goal of the SHORT-TERM BOND PORTFOLIO is to provide
current income.
The Portfolio invests primarily in investment-grade debt securities,
U.S. Government Securities, and mortgage-backed and asset-backed securities. In
addition, the Portfolio may invest in taxable municipal obligations. The
securities in which the Portfolio invests include, but are not limited to: U.S.
Government Securities; corporate obligations; mortgage-backed securities;
asset-backed securities; and Money Market Instruments. The Portfolio may invest
up to 5% of its total assets in securities rated below investment grade ("junk
bonds"). Under normal market conditions, the Portfolio will invest at least 65%
of its total assets in bonds.
INTERMEDIATE FIXED INCOME PORTFOLIO
The investment goal of the INTERMEDIATE FIXED INCOME PORTFOLIO is to
provide current income.
-4-
<PAGE>
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 5% of its total assets in securities rated
below investment grade ("junk bonds"). Common stocks acquired through the
exercise of conversion rights or warrants, or the 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 judgment of the
advisor as to the best price available. Under normal circumstances, at least 65%
of the value of the Portfolio's total assets will be invested in fixed-income
securities.
U.S. GOVERNMENT BOND PORTFOLIO
The investment goal of the U.S. GOVERNMENT BOND PORTFOLIO is to provide
current income.
The securities in which the Portfolio invests include, but are not
limited to: U.S. Government Securities; mortgage-backed securities; asset-backed
securities; corporate obligations; taxable municipal obligations; and Money
Market Instruments. The Portfolio may also invest up to 5% of its total assets
in securities rated below investment grade ("junk bonds").
Under normal market conditions, the Portfolio will invest at least 65%
of the value of its total assets in U.S. Government Securities. For purposes of
this policy, the Portfolio will consider collateralized mortgage obligations
issued by U.S. government agencies or instrumentalities to be U.S. Government
Securities. In addition, under normal market conditions, the Portfolio will
invest at least 65% of its total assets in bonds. The Portfolio's remaining
assets may be invested in any of the securities listed above.
INCOME PORTFOLIO
The primary investment goal of the INCOME PORTFOLIO is to provide
current income; capital growth is a secondary goal in the selection of
investments.
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
-5-
<PAGE>
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.
MARYLAND TAX-FREE PORTFOLIO
The investment goal of the MARYLAND TAX-FREE PORTFOLIO is to provide
high current income exempt from Federal and Maryland state and local income
taxes.
Under normal circumstances, at least 65% of the value of the
Portfolio's total assets will be invested in Maryland municipal securities. In
addition, as a matter of fundamental policy, the Portfolio's assets will be
invested during periods of normal market conditions so that at least 80% of its
income will not be subject to Federal income tax, including the Federal
alternative minimum tax.
The Portfolio normally invests primarily in investment-grade debt
securities (and unrated securities determined by the advisor to be of comparable
quality), but may also invest up to 5% of its total assets in securities rated
below investment grade ("junk bonds").
If you are subject to the Federal alternative minimum tax, you should
note that the Portfolio may invest some of its assets in municipal securities
issued to finance private activities. The interest from these investments is a
tax-preference item for purposes of the tax.
The advisor normally invests the Portfolio's assets according to its
investment strategy and does not expect to invest in Federally or state taxable
obligations. However, the Portfolio reserves the right to invest without
limitation in short-term instruments, to hold a substantial amount of uninvested
cash, and to invest more than normally permitted in taxable obligations for
temporary defensive purposes.
PENNSYLVANIA TAX-FREE PORTFOLIO
The investment goal of the PENNSYLVANIA TAX-FREE PORTFOLIO is to
provide current income exempt from Federal and Pennsylvania state income taxes.
Under normal circumstances, at least 65% of the value of the
Portfolio's total assets will be invested in Pennsylvania municipal securities.
In addition, as a matter of fundamental policy, the Portfolio's assets will be
invested during periods of normal market conditions so that at least 80% of its
income will not be subject to Federal income tax, including the Federal
alternative minimum tax. The Portfolio invests primarily in investment-grade
debt securities (and unrated securities determined by the advisor to be of
comparable quality), but also may invest up to 5% of its total assets in
securities rated below investment grade ("junk bonds").
If you are subject to the Federal alternative minimum tax, you should
note that the Portfolio may invest some of its assets in municipal securities
issued to finance private activities. The interest from these investments is a
tax-preference item for purposes of the tax.
-6-
<PAGE>
The advisor normally invests the Portfolio's assets according to its
investment strategy and does not expect to invest in Federally or state taxable
obligations. However, the Portfolio reserves the right to invest without
limitation in short-term instruments, to hold a substantial amount of uninvested
cash, and to invest more than normally permitted in taxable obligations for
temporary, defensive purposes.
BALANCED PORTFOLIO
The investment goal of the BALANCED PORTFOLIO is long-term total
return.
The Portfolio's common stock investments may include foreign and
domestic issues of larger, well-established companies, as well as medium-sized
and smaller companies. The Portfolio may invest in preferred stock and
convertible securities. Debt securities acquired by the Portfolio may include
mortgage or asset-backed securities, corporate issues, indexed securities and
U.S. Government 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, but may also
invest up to 5% of its total assets in securities rated below investment grade
("junk bonds"). The Portfolio maintains at least 25% of its total assets in
fixed-income senior securities.
The Portfolio emphasizes long-term total return from capital
appreciation and current income. Although it is not a policy of the Portfolio to
engage in short-term trading, the advisor may dispose of securities without
regard to the length of time they are held if it believes such action will
benefit the Portfolio. Although the advisor will consider the potential for
income in selecting investments for the Portfolio, the Portfolio is generally
not intended to achieve a level of income comparable to fixed-income portfolios.
EQUITY INCOME PORTFOLIO
The investment goal of the EQUITY INCOME PORTFOLIO is current income
and growth of capital.
The Portfolio seeks capital appreciation from a broadly diversified
portfolio of common stocks which, in general, have above-average dividend yields
relative to the stock market as measured by the S&P 500. Under normal
circumstances, at least 65% of the value of the Portfolio's total assets will be
invested in dividend-paying common stocks. The Portfolio may invest up to 35% of
its total assets in other types of securities, including preferred stock, which
may be convertible into common stock, and investment-grade debt securities
(including convertible debt securities) and unrated securities determined by the
advisor to be of comparable quality. The Portfolio may invest up to 5% of its
total assets in securities rated below
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<PAGE>
investment grade ("junk bonds").
The advisor considers many factors when evaluating a security for
investment by the Portfolio, including the company's current financial strength
and relative value. Although the advisor will consider the potential for income
in selecting investments for the Portfolio, the Portfolio is generally not
intended to achieve a level of income comparable to fixed-income portfolios.
EQUITY INDEX PORTFOLIO
The investment goal of the EQUITY INDEX PORTFOLIO is to provide
investment results that correspond to the performance of the S&P 500.
The advisor believes that the Portfolio's objective can best be
achieved by investing in the common stocks of approximately 250 to 500 of the
companies included in the S&P 500, depending upon the size of the Portfolio.
The Portfolio is managed by utilizing a computer program that
identifies which stocks should be purchased or sold in order to replicate, as
closely as practicable, the composition of the S&P 500. The Portfolio includes a
stock in the order of its weighting in the S&P 500, starting with the most
heavily weighted stock. Thus, the proportion of the Portfolio's assets invested
in a stock or industry closely approximates the percentage of the S&P 500
represented by that stock or industry. Portfolio turnover is expected to be well
below that of actively managed mutual funds.
Although the Portfolio will not duplicate the performance of the S&P
500 precisely, it is anticipated that there will be a close correlation between
the Portfolio's performance and that of the S&P 500 in both rising and falling
markets. The Portfolio will attempt to achieve a correlation of at least 95%,
without taking into account expenses of the Portfolio. A perfect correlation
would be indicated by a figure of 100%, which would be achieved if the
Portfolio's net asset value, including the value of its dividends and capital
gains distributions, increased or decreased in exact proportion to changes in
the S&P 500. The Portfolio's ability to replicate the performance of the S&P 500
may be affected by, among other things, changes in securities markets, the
manner in which Standard & Poor's calculates the S&P 500, and the amount and
timing of cash flows into and out of the Portfolio. Although cash flows into and
out of the Portfolio will affect the Portfolio's ability to replicate the S&P
500's performance as well as its portfolio turnover rate, investment adjustments
will be made, as practicable, to account for these circumstances. The Board of
Trustees will monitor the targeted correlation of the Portfolio and, in the
event that it is not achieved, will consider alternative methods for replicating
the composition of the S&P 500.
The Portfolio may invest up to 20% of its total assets in stock index
futures contracts, options on stock indices, options on stock index futures, and
index participation contracts based on the S&P 500. The Portfolio may also
invest up to 5% of its total assets in Standard & Poor's Depositary Receipts
("SPDRS"). The Portfolio will not invest in these types of contracts and options
for speculative purposes, but rather to maintain sufficient liquidity to meet
redemption
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<PAGE>
requests, to increase the level of Portfolio assets devoted to replicating the
composition of the S&P 500, and to reduce transaction costs.
Standard & Poor's designates the stocks included in the S&P 500 on a
statistical basis. A particular stock's weighting in the S&P 500 is based on its
total market value (that is, its market price per share times the number of
shares outstanding) relative to the total market value of all stocks included in
the S&P 500. From time to time, Standard & Poor's may add or delete stocks to or
from the S&P 500. Inclusion of a particular stock in the S&P 500 does not imply
any opinion by Standard & Poor's as to its merits as an investment. "S&P 500
Index" is a registered service mark of Standard & Poor's Corporation, which does
not sponsor and is in no way affiliated with the Equity Index Portfolio.
BLUE CHIP EQUITY PORTFOLIO
The investment goal of the BLUE CHIP EQUITY PORTFOLIO is capital
appreciation.
The Portfolio seeks capital appreciation from a broadly diversified
portfolio of common stocks of established, large capitalization companies. The
Portfolio may also seek capital by investing up to 35% of its total assets in
other types of securities, including preferred stock and debt securities,
securities convertible into common stock and asset-backed securities. The
Portfolio normally invests in investment-grade debt securities (including
convertible securities) and unrated securities determined by the advisor to be
of comparable quality, but may also invest up to 5% of its total assets in
securities rated below investment grade ("junk bonds").
Under normal circumstances, at least 65% of the value of the
Portfolio's total assets will be invested in equity securities of companies with
operating histories of ten years or more and market capitalizations in excess of
$5 billion. It is expected that the companies in which the Portfolio invests
will be based primarily in the United States and will be recognized market
leaders with strong financial positions.
MID-CAP EQUITY PORTFOLIO
The investment goal of the MID-CAP EQUITY PORTFOLIO is long-term
capital appreciation.
The Portfolio seeks capital appreciation from a broadly diversified
portfolio of common stocks of medium-sized companies. 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 $500
million to $8 billion. Companies with market capitalizations in this range are
considered "mid-cap" and are represented by the Standard & Poor's Mid-Cap 400
Index.
Assets not invested in equity securities of medium-sized companies as
described above may be invested in equity securities of larger, more established
companies or in investment-grade fixed-income securities (and unrated securities
determined by the advisor to be of comparable quality).
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<PAGE>
VALUE EQUITY PORTFOLIO
The investment goal of the VALUE EQUITY PORTFOLIO is growth of
principal.
The securities in which the Portfolio invests include, but are not
limited to: common stocks; convertible securities; securities of foreign issuers
traded on the New York or American Stock Exchanges or in the over-the-counter
market, including American Depositary Receipts ("ADRs"); futures and options;
U.S. Government Securities; corporate obligations; mortgage-backed securities;
and Money Market Instruments.
Under normal market conditions, the Portfolio intends to invest at
least 65% of its total assets in equity securities of U.S. companies. In most
market conditions, the stocks comprising the Portfolio's assets will exhibit
traditional value characteristics, such as higher than average sales growth,
higher than average return on equity, above average free cash flow, and high
return on the company's invested capital.
CAPITAL GROWTH PORTFOLIO
The investment goal of CAPITAL GROWTH PORTFOLIO is long-term capital
appreciation. The Portfolio is expected to produce modest dividend or interest
income. This income will be incidental to the Portfolio's primary goal.
The Portfolio seeks capital appreciation from a broadly diversified
portfolio of primarily common stocks and securities convertible into common
stock. The Portfolio may also seek capital appreciation by investing up to 35%
of its total assets in other types of securities, including preferred stock,
debt securities, asset-backed securities and indexed securities. Debt securities
(including convertible securities) in which the Portfolio invests will normally
be investment grade or unrated securities determined by the advisor to be of
comparable quality. The Portfolio may, however, invest up to 5% of its total
assets in securities rated below investment grade ("junk bonds").
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".
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<PAGE>
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:
o a technological advance or discovery, the offering of a new
or unique product or service, or changes in consumer demand
or consumption forecasts
o 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
o new or changed management, or material changes in management
policies or corporate structure
o significant economic or political occurrences abroad,
including changes in foreign or domestic import and tax laws
or other regulations or other events, including natural
disasters, favorable litigation settlements, or a major change
in demographic patterns
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.
INTERNATIONAL EQUITY PORTFOLIO (FORMERLY INTERNATIONAL EQUITY SELECTION
PORTFOLIO)
The investment goal of the INTERNATIONAL EQUITY PORTFOLIO (formerly
International Equity Selection Portfolio) is long-term capital appreciation. The
Portfolio invests primarily in equity securities of non-U.S. issuers.
The Portfolio invests primarily in equity securities of companies
located in some or all of the following countries: Argentina, Austria,
Australia, Belgium, Brazil, Canada, Croatia
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<PAGE>
(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 Portfolio will invest at least 65%
of its total assets in issuers located in not less than three different
countries (other than the United States). In addition, the Portfolio will
normally invest at least 65% of its total assets in common and preferred stocks,
and warrants to acquire such stocks. The Portfolio typically invests in equity
securities listed on recognized foreign securities exchanges, but it may hold
securities which are not so listed. The Portfolio may invest in debt obligations
convertible into equity securities, and in non-convertible debt securities when
its sub-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
sub-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 sub-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
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<PAGE>
will be invested in securities of issuers
located in at least three different countries (other than the United States).
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 prospectuses. Unless otherwise expressly noted, whenever an investment
policy or limitation states a 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 cannot be changed without approval by a
"majority of the outstanding voting securities" (as defined in the 1940 Act) of
a Portfolio.
<TABLE>
<CAPTION>
<S> <C> <C>
PORTFOLIOS TO
WHICH THE POLICY
FUNDAMENTAL POLICIES: APPLIES:
The Portfolio may not issue senior securities, except as permitted under the All Portfolios
1940 Act.
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 (other than
securities of any issuer (other than securities issued or guaranteed by the Maryland Tax-Free
U.S. Government or any of its agencies or instrumentalities) if, as a Portfolio and Pennsylvania
result, (a) more than 5% of the Portfolio's total assets would be invested in Tax-Free Portfolio)1
the securities of that issuer, or (b) the Portfolio would hold more than 10% of
the outstanding voting securities of that issuer.
----------------------
1 For the Maryland Tax-Free Portfolio and Pennsylvania Tax-Free
Portfolio, the Portfolios' advisor identifies the issuer of a security depending
on its terms and conditions. In identifying the issuer, the advisor will
consider the entity or entities responsible for payment
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<PAGE>
The Portfolio may not underwrite securities issued by others, except to the Money Market Fund Portfolios,
extent that the Portfolio may be considered an underwriter within the meaning of Short-Term Treasury Portfolio,
the Securities Act of 1933 in the disposition of portfolio securities. Short-Term Bond Portfolio,
Intermediate Fixed Income
Portfolio, U.S. Government Bond
Portfolio, Income Portfolio,
Balanced Portfolio, Equity Income
Portfolio, Value Equity
Portfolio, Capital Growth
Portfolio, International Equity
Portfolio and Emerging Markets
Equity Portfolio
The Portfolios may not underwrite securities issued by others, except to the Maryland Tax-Free Portfolio,
extent that the Portfolio may be considered an underwriter within the meaning of Pennsylvania Tax-Free Portfolio,
the Securities Act of 1933 in the disposition of restricted securities. Equity Index Portfolio, Blue Chip
Equity Portfolio, Mid-Cap Equity
Portfolio and Small-Cap Equity
Portfolio
The Portfolios may not purchase the securities of any issuer (other than All Portfolios (other than
securities issued or guaranteed by the U.S. Government or any of its agencies or Money Market Portfolio and
instrumentalities) if, as a result, more than 25% of the Portfolio's total Tax-Free Money Market
assets would be invested in the securities of companies whose principal business Portfolio)2
activities are in the same industry.
----------------------
and repayment of principal and the source of such payments; the way in which
assets and revenues of an issuing political subdivision are separated from those
of other political entities; and whether a governmental body is guaranteeing the
security.
2 For the Maryland Tax-Free Portfolio and Pennsylvania Tax-Free
Portfolio, the Portfolios' advisor identifies the issuer of a security depending
on its terms and conditions. In identifying the issuer, the advisor will
consider the entity or entities responsible for payment and repayment of
principal and the source of such payments; the way in which assets and revenues
of an issuing political subdivision are separated from those of other political
entities; and whether a governmental body is guaranteeing the security.
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<PAGE>
The Portfolio may not purchase the securities of any issuer (other than Money Market Portfolio
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, except that the
Portfolio may invest 25% or more of its assets in obligations of domestic banks.
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 Money market fund Portfolios
of ownership of securities or other instruments.
The Portfolios may not purchase or sell commodities unless acquired as a result All Portfolios (other than Money
of ownership of securities or other instruments (but this shall not prevent the Market Fund Portfolios, Value
Portfolio from purchasing or selling futures contracts or options on such Equity Portfolio, International
contracts for the purpose of managing its exposure to changing interest rates, Equity Portfolio and Emerging
security prices, and currency exchange rates). Markets Equity Portfolio)
The Portfolio may engage in transactions involving financial and stock index Value Equity Portfolio,
futures contracts or options on such futures contracts, and the International International Equity Portfolio
Equity Portfolio and Emerging Markets Equity Portfolio may engage in foreign and Emerging Markets Equity
currency transactions, invest in options and futures on foreign Portfolio
currencies, and purchase or sell forward contracts with respect to foreign
currencies and related options.
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.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL POLICIES AND MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL:
NON-FUNDAMENTAL POLICIES: PORTFOLIOS TO WHICH THE POLICY
APPLIES:
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<PAGE>
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 does not currently intend to purchase a security (other than a U.S. Government Money
security issued or guaranteed by the U.S. government or any of its Market Portfolio and Money
agencies or instrumentalities) if, as a result, more than 5% of a Market Portfolio
Portfolio's total assets would be invested in the securities of a single issuer;
provided that the Portfolio may invest up to 25% of its total assets in
the first tier securities of a single issuer for up to three business days.
The Portfolio, in order to meet Federal tax requirements for qualification as a Maryland Tax-Free Portfolio and
"regulated investment company," limits its investments so that at the close Pennsylvania Tax-Free Portfolio 3
of each quarter of its taxable year: (a) with regard to at least 50% of total
assets, no more than 5% of total assets are invested in the securities of a
single issuer, and (b) no more than 25% of total assets are invested in the
securities of a single issuer. Limitations (a) and (b) do not apply to
"Government securities" as defined for Federal tax purposes.
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.
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 engage in repurchase agreements or U.S. Treasury Money Market
make loans, but this limitation does not apply to purchases of debt securities. Portfolio and Tax-Free Money
Market Portfolio
----------------------
3 For the Maryland Tax-Free Portfolio and Pennsylvania Tax-Free
Portfolio, the Portfolios' advisor identifies the issuer of a security depending
on its terms and conditions. In identifying the issuer, the advisor will
consider the entity or entities responsible for payment and repayment of
principal and the source of such payments; the way in which assets and revenues
of an issuing political subdivision are separated from those of other political
entities; and whether a governmental body is guaranteeing the security.
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<PAGE>
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 (other than
result, more than 15% of its net assets would be invested in securities that money market fund
are deemed to be illiquid because they are subject to legal or contractual Portfolios)
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.
The Portfolio does not currently intend to purchase any security if, as a Money market fund
result, more than 10% of its net assets would be invested in securities that are Portfolios
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.
The Portfolio does not currently intend to invest more than 25% of its total Maryland Tax-Free Portfolio
assets in industrial revenue bonds issued by entities whose principal and Pennsylvania Tax-Free
business activities are in the same industry. Portfolio
</TABLE>
INVESTMENT PRACTICES
The Portfolios may engage in the following investment practices
consistent with their investment policies and limitations. Please refer to the
current prospectuses and the section "Investment Policies and Limitations"
contained in this Statement of Additional Information for a further description
of each Portfolio's investment policies and limitations.
DEPOSITARY 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).
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<PAGE>
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 sub-advisor
uses the World Bank's classification system to identify the potential universe
of emerging markets. However, the sub-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 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
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<PAGE>
emerging markets countries have restrictions on foreign ownership that may limit
or eliminate 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 sub-advisor's judgment 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.
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FEDERALLY TAXABLE OBLIGATIONS
The Tax-Free Money Market Portfolio, Maryland Tax-Free Portfolio and
Pennsylvania Tax-Free Portfolio generally do not intend to invest in securities
whose interest is taxable; however, from time to time the Portfolios may invest
on a temporary basis in fixed-income obligations whose interest is subject to
Federal income tax. For example, the Portfolio may invest in obligations whose
interest is taxable pending the investment or reinvestment in municipal
securities of proceeds from the sale of its shares or sales of portfolio
securities.
Should the Portfolio invest in taxable obligations, it would purchase
securities that, in the advisor's judgment, are of high quality. This would
include obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities, obligations of domestic banks and repurchase agreements. The
Portfolios' standards for high-quality taxable obligations are essentially the
same as those described by Moody's in rating corporate obligations within its
two highest ratings of Prime-1 and Prime-2, and those described by S&P in rating
corporate obligations within its two highest ratings of A-1 and A-2. The
Portfolios may also acquire unrated securities determined by the advisor to be
of comparable quality.
The Supreme Court of the United States has held that Congress may
subject the interest on municipal obligations to Federal income tax. Proposals
to restrict or eliminate the Federal income tax exemption for interest on
municipal obligations are introduced before Congress from time to time.
Proposals may also be introduced before state legislatures that would affect the
state tax treatment of the Portfolios' distributions. If such proposals were
enacted, the availability of municipal obligations and the value of the
Portfolios' holdings would be affected and the Board of Trustees would
reevaluate the Portfolios' investment objectives and policies.
The Tax-Free Money Market Portfolio, Maryland Tax-Free Portfolio and
Pennsylvania Tax-Free Portfolio anticipate being as fully invested in municipal
securities as is practicable; however, there may be occasions when as a result
of maturities of portfolio securities, or sales of portfolio shares, or in order
to meet redemption requests, the Portfolios may hold cash that is not earning
income. In addition, there may be occasions when, in order to raise cash to meet
redemptions or to preserve credit quality, the Portfolios may be required to
sell securities at a loss.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The 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
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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 Portfolio and Emerging Markets Equity
Portfolio may use currency forward contracts for any purpose consistent with
their 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 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,
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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 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 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,
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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 or sub-advisor
will be able to anticipate these potential events or counter their effects.
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 valued for purposes of monitoring amortized cost valuation (for
money market fund Portfolios) and priced (for other Portfolios) 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
Portfolio were in a position
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where more than 10% (for money market fund Portfolios) or 15% (for other
Portfolios) 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.
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.
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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 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
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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-QUALITY MUNICIPAL SECURITIES
The Maryland Tax-Free Portfolio and Pennsylvania Tax-Free Portfolio may
invest a portion of their assets in lower-quality municipal securities as
described in the prospectus. While the markets for Maryland and Pennsylvania
municipal securities are considered to be adequate, adverse publicity and
changing investor perceptions may affect the ability of outside pricing services
used by the Portfolios to value their portfolio securities, and a Portfolio's
ability to dispose of lower-quality bonds. The outside pricing services are
monitored by a Portfolios' advisor to determine whether the services are
furnishing prices that accurately reflect fair value. The impact of changing
investor perceptions may be especially pronounced in markets where municipal
securities are thinly traded.
The Portfolio may choose, at its expense or in conjunction with others,
to pursue litigation or otherwise exercise its rights as a security holder to
seek to protect the interest of security holders if it determines this to be in
the best interest of the Portfolio's shareholders.
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 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.
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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.
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.
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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. For the Money
Market Fund Portfolios, investing in these securities may make it more difficult
to maintain a stable net asset value per share.
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 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.
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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.
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
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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
following Portfolios: Short-Term Treasury Portfolio, Short-Term Bond Portfolio,
Intermediate Fixed Income Portfolio, U.S. Government Bond Portfolio and Income
Portfolio. These Portfolios 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 Portfolios 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 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.
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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.
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.
STANDBY COMMITMENTS
The Tax-Free Money Market Portfolio, Maryland Tax-Free Portfolio and
Pennsylvania Tax-Free Portfolio each may invest in standby commitments. These
obligations are puts that entitle holders to same day settlement at an exercise
price equal to the amortized cost of the underlying security plus accrued
interest, if any, at the time of exercise. The Portfolios may acquire standby
commitments to enhance the liquidity of portfolio securities when the issuers of
the commitments present minimal risk of default.
Ordinarily a Portfolio will not transfer a standby commitment to a
third party, although it could sell the underlying municipal security to a third
party at any time. The Portfolios may purchase standby commitments separate from
or in conjunction with the purchase of securities subject to such commitments.
In the latter case, a Portfolio would pay a higher price for the securities
acquired, thus reducing their yield to maturity. Standby commitments will not
affect the dollar-weighted average maturity of the Portfolio, or the valuation
of the securities underlying the commitments.
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Standby commitments are subject to certain risks, including the ability
of issuers of standby commitments to pay for securities at the time the
commitments are exercised, the fact that standby commitments are not marketable
by the Portfolio and the possibility that the maturities of the underlying
securities may be different from those of the commitments.
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.
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
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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.
TENDER OPTION BONDS
The Tax-Free Money Market Portfolio, Maryland Tax-Free Portfolio and
Pennsylvania Tax-Free Portfolio may invest in tender option bonds. These bonds
are created by coupling an intermediate- or long-term fixed-rate tax-exempt bond
(generally held pursuant to a custodial agreement) with a tender agreement that
gives the holder the option to tender the bond at its face value. As
consideration for providing the tender option, the sponsor (usually a bank,
broker-dealer, or other financial institution) receives periodic fees equal to
the difference between the bond's fixed coupon rate and the rate (determined by
a remarketing or similar agent) that would cause the bond, coupled with the
tender option, to trade at par on the date of such determination. After payment
of the tender option fee, the Portfolio effectively holds a demand obligation
that bears interest at the prevailing short-term tax-exempt rate. Subject to
applicable regulatory requirements, the Tax-Free Money Market Portfolio may buy
tender option bonds if the agreement gives the Portfolio the right to tender the
bond to its sponsor no less frequently than once every 397 days. In selecting
tender option bonds for a Portfolio, the advisor will, pursuant to procedures
established by the Board of Trustees, consider the creditworthiness of the
issuer of the underlying bond, the custodian, and the third-party provider of
the tender option. In certain instances, a sponsor may terminate a tender option
if, for example, the issuer of the underlying bond defaults on interest
payments.
VARIABLE OR FLOATING RATE INSTRUMENTS
The money market fund Portfolios (other than the U.S. Treasury Money
Market Portfolio) may invest in variable or floating rate instruments that
ultimately mature in more than 397 days, if the Portfolio acquires a right to
sell the securities that meet certain requirements set forth in Rule 2a-7 under
the 1940 Act. Variable rate instruments (including instruments subject to a
demand feature) that mature in 397 days or less may be deemed to have maturities
equal to the period remaining until the next readjustment of the interest rate.
Other variable rate instruments with demand features may be deemed to have a
maturity equal to the longer of the period remaining until the next readjustment
of the interest rate or the period remaining until the principal amount can be
recovered through demand. A floating rate instrument subject to a demand feature
may be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand.
VARIABLE OR FLOATING RATE DEMAND OBLIGATIONS
The money market fund Portfolios (other than the U.S. Treasury Money
Market Portfolio) may invest in variable or floating rate demand obligations
(VRDOs/FRDOs). These obligations are tax-exempt obligations that bear variable
or floating interest rates and carry rights that permit holders to demand
payment of the unpaid principal balance plus accrued interest from
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the issuers or certain financial intermediaries. Floating rate obligations have
interest rates that change whenever there is a change in a designated base rate
while variable rate obligations provide for a specified periodic adjustment in
the interest rate. These formulas are designed to result in a market value for
the VRDO or FRDO that approximates its par value.
A demand obligation with a conditional demand feature must have
received both a short-term and a long-term high quality rating from a NRSRO or,
if unrated, have been determined by the Portfolio's advisor to be of comparable
quality pursuant to procedures adopted by the Board of Trustees. A demand
obligation with an unconditional demand feature may be acquired solely in
reliance upon a short-term high quality rating or, if unrated, upon finding of
comparable short-term quality pursuant to procedures adopted by the Board.
A Portfolio may invest in fixed-rate bonds that are subject to third
party puts and in participation interests in such bonds held by a bank in trust
or otherwise. These bonds and participation interests have tender options or
demand features that permit a Portfolio to tender (or put) the bonds to an
institution at periodic intervals of up to one year and to receive the principal
amount thereof. A Portfolio considers variable rate obligations structured in
this way (participating VRDOs) to be essentially equivalent to other VRDOs that
it may purchase. The Internal Revenue Service (the "IRS") has not ruled whether
or not the interest on participating VRDOs is tax-exempt and, accordingly, the
Portfolios intend to purchase these obligations based on opinions of bond
counsel.
A variable rate instrument that matures in 397 or fewer days may be
deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate. A variable rate obligation that matures in
more than 397 days but that is subject to a demand feature that is 397 days or
fewer may be deemed to have a maturity equal to the longer of the period
remaining until the next readjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand. A floating
rate obligation that is subject to a demand feature may be deemed to have a
maturity equal to the period remaining until the principal amount may be
recovered through demand. The money market fund Portfolios may purchase a demand
obligation with a remaining final maturity in excess of 397 days only if the
demand feature can be exercised on no more than 30 days' notice (a) at any time
or (b) at specific intervals not exceeding 397 days.
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.
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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.
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
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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 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.
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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.
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
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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
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
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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.
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.
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SPECIAL CONSIDERATIONS
The following information as to certain Maryland and Pennsylvania risk
factors has been provided in view of the policy of the Maryland Tax-Free
Portfolio and Pennsylvania Tax-Free Portfolio of concentrating in Maryland and
Pennsylvania municipal securities, respectively. This information constitutes
only a brief summary, does not purport to be a complete description of risk
factors and is principally drawn from official statements relating to securities
offerings of the State of Maryland and the Commonwealth of Pennsylvania that
were available as of the date of this Statement of Additional Information.
MARYLAND TAX-FREE PORTFOLIO
THE STATE AND ITS ECONOMY. According to 1990 Census reports, Maryland's
population in that year was 4,797,431 reflecting an increase of approximately
13.4% from the 1980 Census. Maryland's population in 1999 was 5,171,634.
Maryland's population is concentrated in urban areas: the eleven counties and
Baltimore City located in the Baltimore-Washington Corridor contain 50.4% of the
State's land area and 87.2% of its population. Overall, Maryland's population
per square mile in 1990 was 489.1.
After enjoying rapid economic growth in the 1980s, Maryland has
experienced declining rates of growth in the 1990s. Per capita personal income
in Maryland has grown at an average annual rate of 4.1% since 1990, slightly
less than the national average of 4.5%. In 1999, however, per capita income of
$32,166 was significantly above the national average of $28,518. Per capital
income in Maryland has ranked as the fifth highest in the nation for each of the
past ten years. Unemployment in Maryland peaked in 1988 at 8.5%, then decreased
steadily to a low of 3.6% in 1999. The unemployment rate in Maryland was 4.9% in
1996, 5.1% in 1997, 4.5% in 1998 and 3.6% in 1999.
Retail sales in Maryland grew by 2.9% in 1996, 4.7% in 1997, 3.1% in
1998 and 6.7% in 1999.
Services (including mining), wholesale and retail trade, government and
manufacturing (primarily printing and publishing, food and kindred products,
instruments and related products, industrial machinery, electronic equipment and
chemical and allied products) are the leading areas of employment in the State
of Maryland. In contrast to the nation as a whole, more people in Maryland are
employed in services than in manufacturing.
STATE FISCAL INFORMATION. In April 1998, the General Assembly approved
a $16.6 billion fiscal year 1999 budget, which budget provided for, among other
things, sufficient funds to pay debt service on the State's general obligation
bonds and to enable the State to maintain the State property tax rate at $.21
per $100 of assessed valuation, $3.3 billion in aid to local governments, and
net general fund deficiency appropriations of $75.5 million for fiscal 1998,
including $25 million for computer programming modifications to address the
"year 2000" problem. The fiscal year 1999 budget incorporated the first full
year of a five-year phase-in of a 10% reduction in personal income taxes,
accelerated by legislation enacted by the 1998 General Assembly; the
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reduction in fiscal 1999 revenues resulting from the reductions in income taxes
enacted by the 1998 General Assembly was mitigated by a transfer of $185.2
million to the General Fund from the Revenue Stabilization Account of the State
Reserve Fund. The General Fund surplus on a budgetary basis at June 30, 1999 was
$583.3 million, in addition to which there was $634.9 million in the Revenue
Stabilization Account of the State Reserve Fund.
In April 1999, the General Assembly approved a $17.6 billion fiscal
year 2000 budget, which provided for, among other things, sufficient funds to
enable the State to maintain the State property tax rate at $.21 per $100 of
assessed valuation, $306.5 million for capital projects (including $160 million
for public school instruction), $44 million for "year 2000" remediation (of
which $24 million was a fiscal year 1999 deficiency appropriation), $3.0 billion
in aid to local governments and net general fund deficiency appropriations of
$68 million for fiscal year 1999 (including the $24 million "year 2000"
deficiency appropriation). The 2000 budget also incorporated a 30 cent per pack
increase in the cigarette tax effective July 1, 1999 estimated to generate $91.7
million in fiscal year 2000. General fund appropriations to the State Reserve
Fund included $82.2 million to the Revenue Stabilization Fund and $19.8 million
to the Economic Development Opportunities Program Fund. It is estimated that the
General Fund balance on a budgetary basis at June 30, 2000, will be
approximately $804.1 million. In addition, the balance in the Revenue
Stabilization Fund of the State Reserve Fund is estimated to be $81.0 million at
June 30, 2000 (after a $160 million transfer to the General Fund). The State's
fiscal year 2000 capital budget was to be funded with $448 million in general
obligation bonds, $1.5 billion in general funds appropriated in the operating
budget (including special and federal funds), and $265 million in revenue bonds
($25 million for higher education and $240 million for transportation).
In April 2000, the General Assembly approved a $19.5 billion fiscal
year 2001 budget, which provided for, among other things, sufficient funds to
enable the State to maintain the State property tax rate at $.21 per $100
assessed valuation, $3.1 billion in aid to local governments, $596.3 million for
capital projects (other than transportation projects but including $172 million
for public school construction) and $73.3 million in net general fund deficiency
appropriations, including $25.3 million to the State Reserve Fund. The State's
fiscal year 2001 capital budget is to be funded with $471.8 million in general
obligation bonds, $2.0 billion in general funds in the operating budget, and
$210 million in revenue bonds, including higher education academic bonds ($25
million), Maryland Stadium Authority bonds ($10 million), and transportation
bonds ($175 million). Based on the 2001 budget, it is estimated that the general
fund surplus on a budgetary basis at June 30, 2001, will be approximately $19.6
million. It is also estimated that the balance in the Revenue Stabilization
Account of the State Reserve Fund at June 30, 2001 will be $912.3 million, equal
to 9.8% of general fund revenues.
STATE-LEVEL MUNICIPAL OBLIGATIONS. The State of Maryland and its
various political subdivisions issue a number of different kinds of municipal
obligations, including general obligation bonds supported by tax collections,
revenue bonds payable from certain identified tax levies or revenue streams,
conduit revenue bonds payable from the repayment of certain loans to authorized
entities such as hospitals and universities, and certificates of participation
in tax-exempt municipal leases.
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The State of Maryland issues general obligation bonds, which are
payable from ad valorem property taxes. The State Constitution prohibits the
contracting of State debt unless the debt is authorized by law levying an annual
tax or taxes sufficient to pay the debt service within 15 years and prohibiting
the repeal of the tax or taxes or their use for another purpose until the debt
has been paid. The State also enters into lease-purchase agreements, in which
participation interests are often sold publicly as individual securities.
As of July 2000, the State's general obligation bonds were rated "Aaa"
by Moody's, "AAA" by S&P, and "AAA" by Fitch IBCA, Inc. ("Fitch").
The Maryland Department of Transportation issues Consolidated
Transportation Bonds, which are payable out of specific excise taxes, motor
vehicle taxes, and corporate income taxes, and from the general revenues of the
Department. Issued to finance highway, port, transit, rail or aviation
facilities, these bonds are rated "Aa2" by Moody's, "AA" by S&P, and "AA" by
Fitch. The Maryland Transportation Authority, a unit of the Department, issues
its own revenue bonds for transportation facilities, which are payable from
certain highway, bridge and tunnel tolls. These bonds are rated "A1" by Moody's,
"A+" by S&P. There can be no assurance that these ratings will continue.
Other State agencies which issue municipal obligations include the
Maryland Stadium Authority, which has issued bonds payable from sports facility
and other lease revenues and certain lottery revenues; the Maryland Water
Quality Financing Administration, which issues bonds to provide loans to local
governments or private entities for wastewater control and drinking water
projects; the Community Development Administration of the Department of Housing
and Community Development, which issues mortgage revenue bonds for housing; the
Maryland Environmental Service, which issues bonds secured by the revenues from
its various water supply, wastewater treatment and waste management projects;
and the various public institutions of higher education in Maryland (which
include the University System of Maryland, Morgan State University, Baltimore
City Community College and St. Mary's College of Maryland) which issue their own
revenue bonds. None of these bonds constitute debts or pledges of the full faith
and credit of the State of Maryland. The issuers of these obligations are
subject to various economic risks and uncertainties, and the credit quality of
the securities issued by them may vary considerably from the quality of
obligations backed by the full faith and credit of the State.
In addition, the Maryland Health and Higher Educational Facilities
Authority, the Maryland Industrial Development Financing Authority, the
Northeast Maryland Waste Disposal Authority, the Maryland Economic Development
Corporation and the Maryland Energy Financing Administration issue conduit
revenue bonds, the proceeds of which are lent to borrowers eligible under
relevant state and federal law. Conduit revenue bonds of these issuers are
payable solely from the loan payments made by borrowers and other financing
participants, and their credit quality varies with the financial strengths of
these entities.
OTHER ISSUERS OF MUNICIPAL BONDS. Maryland has 24 geographical
subdivisions, composed of 23 counties plus the independent City of Baltimore,
which functions much like a
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county. Some of the counties and the City of Baltimore operate pursuant to the
provisions of codes of their own adoption, while others operate pursuant to
State-approved charters and State statutes.
Maryland counties and municipalities and the City of Baltimore receive
most of their revenues from ad valorem taxes on real and personal property,
individual income taxes, transfer taxes, miscellaneous taxes and aid from the
State. Their expenditures include public safety, public works, health, public
welfare, court and correctional services, education, and general governmental
costs.
The economic factors affecting the State, as discussed above, also have
affected the counties, municipalities and the City of Baltimore. In addition,
reductions in State aid caused by State budget deficits have caused the local
governments to trim expenditures and, in some cases, raise taxes.
According to recent available ratings, general obligation bonds of
Montgomery County (abutting Washington, D.C.) are rated "Aaa" by Moody's and
"AAA" by S&P. Prince George's County, also in the Washington, D.C. suburbs,
issues general obligation bonds rated "Aa3" by Moody's and "AA-" by S&P, while
Baltimore County, a separate political subdivision surrounding the City of
Baltimore, issues general obligation bonds rated "Aaa" by Moody's and "AAA" by
S&P and Anne Arundel County issues general obligation bonds which are rated
"AA+" by both Fitch and S&P and "Aa2" by Moody's. The City of Baltimore's
general obligation bonds are rated "A1" by Moody's and "A+" by S&P. The other
counties in Maryland all have general obligation bond ratings of "A" or better,
except for Allegany County and Garrett County, the bonds of which are rated
"Baa1"and "Baa2", respectively, by Moody's, and Kent County and Somerset County
which are not rated. The Washington Suburban Sanitary District, a bi-county
agency providing water and sewerage services in Montgomery and Prince George's
counties, issues general obligation bonds rated "Aa1" by Moody's and "AA" by
S&P. There can be no assurance that these ratings will continue.
Additionally, some of the large municipal corporations in Maryland
(such as the cities of Rockville, Annapolis and Frederick) have issued general
obligation bonds.
Many of Maryland's counties and the City of Baltimore have established
subsidiary agencies with bond issuing powers, such as housing authorities,
parking revenue authorities, and industrial development authorities. In
addition, all Maryland municipalities have the authority under State law to
issue conduit revenue bonds. These entities are subject to various economic
risks and uncertainties and the credit quality of the securities issued by them
may vary considerably from the credit quality of obligations backed by the full
the faith and credit of the State.
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PENNSYLVANIA TAX-FREE PORTFOLIO
GENERAL
Pennsylvania has historically been dependent on heavy industry,
although declines over the past thirty years in the coal, steel and railroad
industries have led to diversification of the Commonwealth's economy. Recent
sources of economic growth in Pennsylvania are in the service sector, including
trade, medical and health services, education and financial institutions.
Agriculture continues to be an important component of the Commonwealth's
economic structure, with nearly one-third of the Commonwealth's total land area
devoted to cropland, pasture and farm woodlands.
In 1999, the population of Pennsylvania was 11.9 million people.
According to the U.S. Department of Commerce, Bureau of the Census,
Pennsylvania's population experienced a slight increase from the 1990 estimate
of 11.89 million. Pennsylvania has a high proportion of persons 65 years of age
or older. The Commonwealth is highly urbanized, with 79% of the 1990 census
population residing in metropolitan statistical areas.
Pennsylvania's average annual unemployment rate remained below the
national average between 1986 and 1990. Slower economic growth caused the rate
to rise to 7.0% in 1991 and 7.6% in 1992. The resumption of faster economic
growth resulted in a decrease in the Commonwealth's unemployment rate to 4.3% in
1999. From 1994 through 1998, Pennsylvania's annual average unemployment rate
was below the overall rate in the Mid-Atlantic region, but slightly higher than
in the United States as a whole. Seasonally adjusted data for June 2000, the
most recent month for which data is available, shows an unemployment rate of
4.1%, which is slightly higher than the rate for the United States.
FINANCIAL ACCOUNTING
Pennsylvania utilizes the fund method of accounting and over 150 funds
have been established for the purpose of recording receipts and disbursements,
of which the General Fund is the largest. Most operating and administrative
expenses are payable from the General Fund. The Motor License Fund is a special
revenue fund that receives tax and fee revenues relating to motor fuels and
vehicles (except one-half cent per gallon of the liquid fuels tax which is
deposited in the Liquid Fuels Tax Fund for distribution to local municipalities)
and all such revenues are required to be used for highway purposes. Other
special revenue funds have been established to receive specified revenues
appropriated to specific departments, boards, and/or commissions. These funds
include the Game, Fish, Boat, Banking Department, Milk Marketing, State Farm
Products Show, State Racing and State Lottery Funds. The General Fund, all
special revenue funds, the Debt Service Funds and the Capital Project Funds
combine to form the Governmental Fund Types.
Enterprise funds are maintained for departments or programs operated
like private enterprises. The largest of the Enterprise funds is the State
Stores Fund, which is used for the
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receipts and disbursements of the Commonwealth's liquor store system. Sale and
distribution of all liquor within Pennsylvania is a government enterprise.
Financial information for the funds is maintained on a budgetary basis
of accounting ("Budgetary"). Since 1984, the Commonwealth has also prepared
financial statements in accordance with generally accepted accounting principles
("GAAP"). The GAAP statements have been audited jointly by the Auditor General
of the Commonwealth and an independent public accounting firm. The Budgetary
information is adjusted at fiscal year end to reflect appropriate accruals for
financial reporting in conformity with GAAP. The Commonwealth maintains a June
30th fiscal year end.
The Constitution of Pennsylvania provides that operating budget
appropriations may not exceed the actual and estimated revenues and available
surplus in the fiscal year for which funds are appropriated. Annual budgets are
enacted for the General Fund and for certain special revenue funds which
represent the majority of expenditures of the Commonwealth.
REVENUES AND EXPENDITURES
Pennsylvania's Governmental Fund Types receive over 57% of their
revenues from taxes levied by the Commonwealth. Interest earnings, licenses and
fees, lottery ticket sales, liquor store profits, miscellaneous revenues,
augmentations and federal government grants supply the balance of the receipts
of these funds. Revenues not required to be deposited in another fund are
deposited in the General Fund. The major tax sources for the General Fund are
the 6% sales and use tax (34.4% of General Fund revenues in fiscal 1999), the
2.8% personal income tax (34.8% of General Fund revenues in fiscal 1999) and the
9.99% corporate net income tax (9.0% of General Fund revenues in fiscal 1999).
Tax and fee proceeds relating to motor fuels and vehicles are constitutionally
dedicated to highway purposes and are deposited into the Motor License Fund. The
major sources of revenue for the Motor License Fund include the liquid fuels
tax, the oil company franchise tax, aviation taxes and revenues from fees levied
on heavy trucks. These revenues are restricted to the repair and construction of
highway bridges and aviation programs. Lottery ticket sales revenues are
deposited in the State Lottery Fund and are reserved by statute for programs to
benefit senior citizens.
Pennsylvania's major expenditures include funding for education ($7.83
billion of fiscal 1999 expenditures and the projected $8.05 billion of the
fiscal 2000 budget) and public health and human services ($14.9 billion of
fiscal 1999 expenditures and the projected $15.3 billion of the fiscal 2000
budget).
GOVERNMENTAL FUND TYPES: FINANCIAL CONDITION/RESULTS OF OPERATIONS
(GAAP BASIS)
Assets in the Commonwealth's governmental fund types rose during fiscal
1999 by 21.0 percent to $9,238.6 million. Liabilities for the governmental fund
types during fiscal 1999 increased by 6.3 percent to $4068.8 million. A larger
gain in assets than in liabilities during fiscal 1999 for governmental fund
types produced a 5.9 percent increase in equity and other
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credits at June 30, 1999. Equity and other credits at the end of fiscal 1999
totaled $5,151.8 million, up from $3,791.8 million at the end of fiscal 1998.
The five-year period ending with fiscal 1999 was a time of economic growth with
modest growth rates at the beginning of the period and faster increased during
the most recent years. Throughout the period inflation has remained relatively
low, helping to restrain expenditure growth. Favorable economic conditions have
helped total revenues and other sources rise at an annual average 5.8 percent
rate during the five-year period. The growth rate for taxes of 4.3 percent
almost matched the total revenue rate. License and fee revenues expanded at a
7.1 percent rate, largely because of various motor vehicle fees effective for
fiscal 1999. Other revenues, mostly charges for sales and services and
investment income, increased an average 20.3 percent during the period.
Expenditure and other uses during the fiscal 1995 through fiscal 1999 period
rose at a 4.8 percent average rate, led by a 9.6 percent average increase for
protection of person and property costs. Though still high, the growth rate for
this program is declining as the increased costs to acquire, staff and operate
expanded prison facilities becomes part of the expenditure base. Public health
and welfare programs, the largest single category of expenditures, have
experienced a 5.8 percent average growth rate for expenditure, slightly above
the average for total expenditures. A departmental restructuring in fiscal 1996
resulted in a re-categorization of expenditures from conservation of natural
resources to other categories and is responsible for the decline of expenditures
in that category beginning in fiscal 1996.
GENERAL FUND: FINANCIAL CONDITIONS/RESULTS OF OPERATIONS
FIVE-YEAR OVERVIEW (GAAP BASIS)
For the five-year period from fiscal 1995 through fiscal 1999, total
revenues and other sources rose at a 6.0% average annual rate while total
expenditures and other uses grew by 5.0% annually. Tax revenues from this same
period increased by an average of 4.2% per year. The largest rate of growth for
any single revenue source during this period came from other revenues, which
increased by 24.4% per year.
Expenditures and other uses rose at a slightly higher percentage than
revenues during the period from fiscal 1995 through fiscal 1999, at a rate of
5.0% per year. Program costs for economic development and assistance increased
at an average rate of 12.1% per year. Protection of persons and property costs
increased at an average annual rate of 10.3% during this period, the
second-highest rate of percentage increase among Commonwealth programs. The
amount and growth of these costs has been restrained by efforts to control costs
for various social programs and by generally favorable economic conditions
throughout the Commonwealth.
The fund balance at June 30, 1999 totaled $2,863.9 million, an
increase of $905 million over the $958.9 million balance at June 30, 1998.
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FISCAL 1998 BUDGET (GAAP BASIS)
GAAP Basis: For fiscal 1998, general fund (including the tax
stabilization reserve fund) assets increased $705.1 million and liabilities rose
by $111.1 million during the fiscal year. These changes contributed to a $310.3
million rise in the undesignated-unreserved balance for June 30, 1998 to $497.6
million, the highest level achieved since audited GAAP reporting was instituted
in 1984 for the Commonwealth. Fiscal 1998 total revenues and other sources rose
4.3 percent led by an 11.1 percent increase in other revenues, largely charges
for sales and services and investment income. Tax revenues rose 4.2 percent.
Expenditures and other uses during fiscal 1998 rose by 4.5 percent.
Program areas with the largest percentage increase for the fiscal year were
economic development and assistance (21.3 percent), transportation (19.3
percent) and general government (14.3 percent). A drop in general government
expenditures for fiscal 1997 exaggerates the increase for fiscal 1998.
FISCAL 1999 BUDGET (BUDGETARY BASIS)
For fiscal 1999, assets increased $1,024 million, 20.6 percent over the
prior fiscal year. An increase of $1,118 million of temporary investments
represented the largest asset increase for the period. Liabilities rose $119.5
million representing a 4 percent increase over the prior period. The increase of
assets over liabilities for fiscal 1999 caused the fund balance as of June 30,
1999 to increase by $904.5 million over the fund balance as of June 30, 1998.
The total fund balance as of June 30, 1999 was $2,863.4 million, the largest
fund balance achieved since audited GAAP reporting was instituted in 1994 for
the Commonwealth.
The increase to fund balance resulted from a $2,057.4 million increase
in revenues and other sources offset by $1,766.8 million of higher expenditures,
other uses and equity transfers. Tax revenues increased 4.2 percent for the
fiscal year while other revenues, largely investment income and charges for
sales and services, increased by 24.4 percent. Public health and welfare program
expenses accounted for the largest expenditures increase for the fiscal year,
$943.3 million representing a 5.9 percent increase. The largest percentage
increases in expenditures for the fiscal year were in capital outlay (19.8
percent), economic development and assistance programs (12.1 percent), and
protection of persons and property programs (10.3 percent).
FISCAL 2000 BUDGET (BUDGETARY BASIS)
The General Fund budget for the 1999-2000 fiscal year was approved by
the General Assembly in May 1999. The adopted budget includes estimated spending
of $19,061.5 million and estimated revenues (net of estimated tax refunds and
enacted tax changes) of $18,699.9 million. Funds to cover the difference between
estimated revenues and projected spending will be obtained from a draw down of
the projected fiscal 1999 year-end balance.
The estimate of Commonwealth revenues for fiscal 1999 is based on an
economic forecast for real gross domestic product to grow at a 1.4 percent rate
from the second quarter of 1999 to the second quarter of
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2000. Growth of real gross domestic product is expected to be restrained by a
slowing of the rate of consumer spending to a level consistent with personal
income gains and by smaller gains in business investment in response to falling
capacity utilization and profits. Slowing economic growth is expected to cause
the unemployment rate to rise through the fiscal year but inflation is expected
to remain quite moderate. Trends for the Pennsylvania economy are expected to
maintain their close association with national economic trends. Personal income
growth is anticipated to remain slightly below that of the U.S. while the
Pennsylvania unemployment rate is anticipated to be very close to the national
rate.
COMMONWEALTH DEBT
Current constitutional provisions permit Pennsylvania to issue the
following types of debt: (i) debt to suppress insurrection or rehabilitate areas
affected by disaster, (ii) electorate approved debt, (iii) debt for capital
projects subject to an aggregate debt limit of 1.75 times the annual average tax
revenues of the preceding five fiscal years, and (iv) tax anticipation notes
payable in the fiscal year of issuance. All debt except tax anticipation notes
must be amortized in substantial and regular amounts.
General obligation debt totaled $4,924.5 million at June 30, 1999, a
decrease of $197.0 million from June 30, 1998. Over the 10-year period ended
June 30, 1999, total outstanding general obligation debt increased at an annual
rate of 0.5%. For the most recent five years, total outstanding general
obligation debt decreased at an annual rate of 0.6%. All outstanding general
obligation bonds of the Commonwealth are rated AA by S & P's, Aa3 by Moody's and
AA by Fitch. The ratings reflect only the views of the rating agencies.
Pennsylvania engages in short-term borrowing to fund expenses within a
fiscal year through the sale of tax anticipation notes which must mature within
the fiscal year of issuance. The principal amount issued, when added to that
already outstanding, may not exceed in aggregate 20% of the revenues estimated
to accrue to the appropriate fund in the fiscal year. The Commonwealth is not
permitted to fund deficits between fiscal years with any form of debt. All
year-end deficit balances must be fielded within the succeeding fiscal year's
budget. Currently, the Commonwealth has no tax anticipation notes outstanding.
The fiscal 2000 budget includes the issuance of $560 million of tax anticipation
notes. The Commonwealth has no plans to issue tax anticipation notes for fiscal
2000.
Pending the issuance of bonds, Pennsylvania may issue bond anticipation
notes subject to the applicable statutory and constitutional limitations
generally imposed on bonds. The term of such borrowings may not exceed three
years. Currently, $60 million of bond anticipation notes are authorized to be
issued in the form of commercial paper notes. As of January 10, 2000, $47.6
million was issued and outstanding.
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STATE-RELATED OBLIGATIONS
Certain state-created agencies have statutory authorization to incur
debt for which no legislation providing for state appropriations to pay debt
service thereon is required. The debt of these agencies is supported by assets
of, or revenues derived from, the various projects financed and the debt of such
agencies is not an obligation of Pennsylvania although some of the agencies are
indirectly dependent on Commonwealth appropriations. In addition, Pennsylvania
may choose to take action to financially assist these organizations. The
following agencies had debt currently outstanding as of June 30, 1999: Delaware
River Joint Toll Bridge Commission ($51.4 million), Delaware River Port
Authority ($623.2 million), Pennsylvania Economic Development Financing
Authority ($1,239.7 million), Pennsylvania Energy Development Authority ($42.1
million), Pennsylvania Higher Education Assistance Agency ($1,783.8 million),
Pennsylvania Higher Educational Facilities Authority ($3,522.5 million),
Pennsylvania Industrial Development Authority ($373.8 million), Pennsylvania
Infrastructure Investment Authority ($186.9 million), Pennsylvania Turnpike
Commission ($1,573.1 million), Philadelphia Regional Port Authority ($57.9
million), and the State Public School Building Authority ($347.5 million). In
addition, the Governor is statutorily required to place in the budget of the
Commonwealth an amount sufficient make up any deficiency in the capital reserve
fund created for, or to avoid default on, bonds issued by the Pennsylvania
Housing Finance Agency ($2,749.3 million of revenue bonds outstanding as of June
30, 1999), and an amount of funds sufficient to alleviate any deficiency that
may arise in the debt service reserve fund for bonds issued by The Hospitals and
Higher Education Facilities Authority of Philadelphia ($1.0 million of the loan
principal was outstanding as of June 30, 1999). The budget as finally adopted by
the legislation may or may not include the amounts requested by the Governor.
LITIGATION
Certain litigation is pending against the Commonwealth that could
adversely affect the ability of the Commonwealth to pay debt service on its
obligations, including suits relating to the following matters: (a)
approximately 3,500 suits are pending against the Commonwealth pursuant to the
General Assembly's 1978 approval of a limited waiver of sovereign immunity which
permits recovery of damages for any loss up to $250,000 per person and
$1,000,000 per accident ($20.0 million has been appropriated from the Motor
License Fund in fiscal 1998); (b) in 1987, the Supreme Court of Pennsylvania
held that the statutory scheme for county funding of the judicial system was in
conflict with the Pennsylvania Constitution but stayed judgment pending
enactment by the legislature of funding consistent with the opinion (In response
to an action in mandamus seeking to compel the Commonwealth to comply with the
1987 decision, on July 26, 1996, the Supreme Court appointed retired Justice
Montemuro as special master to devise a plan and submit it for implementation by
January 1, 1998. On January 28, 1997, the Supreme Court announced the
establishment of a tripartite committee, including representatives of the
Commonwealth Executive and Legislative Departments and Justice Montemuro, to
develop an implementation plan. On July 26, 1997, Justice Montemuro filed an
interim report wherein he recommended a transition to state funding of a unified
judicial system in four phases, during each of which specified court employees
would transfer into the Commonwealth payroll
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system. Justice Montemuro recommended implementation of the system effective
July 1, 1998, with completion of the first phase early in the next century.
Objections to the report were due by September 1, 1997. Although the General
Assembly is yet to enact legislation implementing the Supreme Court's decision,
the Governor has proposed an appropriation of $15.6 million to implement Phase I
of Justice Montemuro's report as part of his proposed fiscal 1999 budget.); (c)
on November 3, 1995, the Commonwealth and the Governor, along with the Mayor and
City of Philadelphia, were joined as additional respondents in an enforcement
action commenced in Commonwealth Court in 1973 against the School District of
Philadelphia, to remedy unintentional conditions of segregation in the
Philadelphia public schools. The Governor and Commonwealth were joined in the
remedial phase of the proceeding to determine their liability, if any, to pay
additional costs necessary to remedy the unlawful conditions of segregation
found to exist in Philadelphia public schools. On February 28, 1996, the School
District of Philadelphia and certain public interest intervenors each filed
third-party actions against the Commonwealth to require the Commonwealth to
supply the funding necessary to fully comply with the remedial orders of the
Commonwealth Court. Following denial of the Commonwealth's preliminary
objections seeking dismissal of the claims against it, the Commonwealth asserted
numerous defenses and filed a cross-claim against the City of Philadelphia
claiming that sole liability rests with the City or, in the alternative, that
the Commonwealth has a right of indemnity or contribution against the City if
liability exists (Trial commenced on May 30, 1996 in the Commonwealth Court, but
the Supreme Court of Pennsylvania assumed extraordinary plenary jurisdiction on
July 3, 1996 for a resolution of the case before Judge Smith. On August 20,
1996, Judge Smith issued an opinion and order and entered judgment in favor of
the School District and the intervenors against the Commonwealth and Governor;
entered judgment in favor of the City and Mayor on the intervenors' claim and on
the Commonwealth's and Governor's cross-claim; and required the Commonwealth and
Governor to submit a plan to the Court within 30 days to effect a transfer of
funds to enable the School District to comply with the remedial order. The
Governor and Commonwealth moved to vacate Judge Smith's order, and on September
10, 1996, the Supreme Court granted the motion to vacate, retaining further
jurisdiction in the case. On January 28, 1997, the Supreme Court issued an order
directing the parties to brief, among other issues, whether the lower court
erred in its opinion joining the Commonwealth and Governor and City and Mayor as
additional respondents. Oral argument was heard in the case on February 3, 1998,
and the Supreme Court took the matter under advisement.); (d) on December 29,
1993 a former judge of the Allegheny Court of Common Pleas filed a complaint for
declaratory judgment in the Commonwealth Court against the State Employees'
Retirement Board, alleging that its use of gender distinct actuarial factors for
benefits based on service prior to August 1, 1983 violated the equal protection
and equal rights provisions of the Pennsylvania Constitution. Due to the
constitutional nature of the claims, it is possible that a decision adverse to
the State Employee's Retirement Board would also be applicable to other
Commonwealth retirement systems which paid lower benefits to some participants
on the basis of their gender or the gender of their survivor annuitants (The
Commonwealth Court granted the State Employee's Retirement Board's preliminary
objections to the plaintiff's claims for all damages except for a recalculation
of his pension benefits should he prevail. On February 13, 1997, the
Commonwealth Court en banc denied the plaintiff's motion for judgment and the
pleadings.); and (e) five residents of the City of Philadelphia, on
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their own behalf and that of their school-aged children, together with a number
of public interest organizations, filed an action for declaratory judgment in
the Commonwealth Court on February 24, 1997, against the Commonwealth, the
General Assembly, the Governor and numerous other Legislative and Executive
Branch officials. The plaintiffs claim that Pennsylvania's statutory education
financing system violates the Pennsylvania Constitution as applied in
Philadelphia, and that they were denied their constitutional right to a
"thorough and efficient" system of public education in the financial and
administrative circumstances faced by the School District of Philadelphia. The
plaintiffs sought a declaration that the present funding system is
unconstitutional and that the legislature must amend the present or enact new
education legislation so as to assure that future funding for the School
District of Philadelphia makes adequate provision for the special needs of its
students (The respondents filed preliminary objections seeking dismissal of the
action and the Commonwealth Court heard oral argument on the matter on September
10, 1997. The Commonwealth Court subsequently dismissed the case on the grounds
that it presented non-justiciable issues. An appeal is presently expected.).
PHILADELPHIA
The Pennsylvania Intergovernmental Cooperation Authority ("PICA") was
created by Commonwealth legislation in 1991 to assist Philadelphia, the
Commonwealth's largest city, in remedying its fiscal emergencies. PICA is
designed to provide assistance through the issuance of funding debt and to make
factual findings and recommendations to Philadelphia concerning its budgetary
and fiscal affairs. The financial assistance has included the refunding of
certain city general obligations bonds, funding of capital projects and the
liquidation of the cumulative general fund balance deficit of Philadelphia as of
June 30, 1992, of $224.9 million. At this time, Philadelphia is operating under
a five-year fiscal plan approved by PICA on June 15, 1999.
No further bonds are to be issued by PICA for the purpose of financing
a capital project or deficit as the authority for such bond sales expired
December 31, 1994. PICA's authority to issue debt for the purpose of financing a
cash flow deficit expired on December 31, 1996. Its ability to refund existing
outstanding debt is unrestricted. PICA has $1,014.1 million in special revenue
bonds outstanding as of June 30, 1999. Neither the taxing power nor the credit
of the Commonwealth is pledged to pay debt service on PICA's bonds.
PORTFOLIO TRANSACTIONS
The Portfolios' advisor (or subadvisor) seeks the most favorable price
and execution with respect to portfolio transactions. In seeking the most
favorable price and 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.
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
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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 advisors 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 advisors. 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 higher 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 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 bought 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
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<PAGE>
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, 1998, the Balanced Portfolio,
Capital Growth Portfolio, Small-Cap Equity Portfolio, Blue Chip Equity
Portfolio, Equity Income Portfolio, Mid-Cap Equity Portfolio, Equity Index
Portfolio and Value Equity Portfolio paid brokerage commissions of $121,443,
$178,598, $210,728, $83,365, $127,244, $52,089, $33,683 and $87,444,
respectively. For the fiscal year ended April 30, 1999, the U.S. Government Bond
Portfolio, Balanced Portfolio, Equity Income Portfolio, Equity Index Portfolio,
Blue Chip Equity Portfolio, Mid-Cap Equity Portfolio, Value Equity Portfolio,
Capital Growth Portfolio and Small-Cap Equity Portfolio paid brokerage
commissions of $1,400, $138,610, $176,499, $38,056, $182,928, $74,796, $587,947,
$236,101 and $249,580, respectively. For the fiscal year ended April 30, 2000,
the U.S. Government Bond Portfolio, Balanced Portfolio, Equity Income Portfolio,
Equity Index Portfolio, Blue Chip Equity Portfolio, Mid-Cap Equity Portfolio,
Value Equity Portfolio, Capital Growth Portfolio and Small-Cap Equity Portfolio
paid brokerage commissions of $0, $175,528, $166,296, $81,465, $270,399,
$85,654, $634,832, $396,859, and $480,274 respectively.
For the fiscal year ended April 30, 1998, April 30, 1999 and April 30,
2000, the Portfolios paid no 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, 2000, the
Portfolios held securities of the Fund's "regular brokers or dealers" as
follows: the Money Market Portfolio held corporate obligations issued by Bear
Stearns valued at $40,000,000, corporate obligations issued by Chase Manhattan
valued at $23,999,000, corporate obligations issued by Goldman Sachs valued at
$35,031,000, corporate obligations issued by Lehman Brothers valued at
$34,817,000, corporate obligations issued by Merrill Lynch valued at
$35,009,000, corporate obligations issued by Morgan Stanley valued at
$25,029,000 and repurchase agreements issued by Goldman Sachs valued at
$19,108,000 and repurchase agreements issued by Salomon Brothers valued at
$27,000,000; the U.S. Government Money Market Portfolio held repurchase
agreements issued by Deutsche Bank valued at $300,000,000, repurchase agreements
issued by Goldman Sachs valued at $6,421,000, and repurchase agreements issued
by Salomon Brothers valued at $285,000,000; the Short-Term Bond Portfolio held
corporate obligations issued by Bear Stearns valued at $779,000; corporate
obligations issued by Goldman Sachs valued at $1,001,000, corporate obligations
issued by Lehman Brothers valued at $2,395,000, and repurchase agreements issued
by First Boston valued at $6,973,000; the Intermediate Fixed Income Portfolio
held corporate obligations issued by Bear Stearns valued at $784,000, corporate
obligations issued by Merrill Lynch valued at $1,384,000, and repurchase
agreements issued by First Boston valued at $5,653,000; the U.S. Government
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<PAGE>
Bond Portfolio held repurchase agreements issued by First Boston valued at
$3,082,000; the Income Portfolio held corporate obligations issued by Bear
Stearns valued at $2,865,000, corporate obligations issued by Goldman Sachs
valued at $8,000,000, corporate obligations issued by Morgan Stanley, Dean
Witter valued at $7,370,000, corporate obligations issued by Salomon Smith
Barney valued at $10,006,000 and repurchase agreements issued by First Boston
valued at $11,483,000; the Balanced Portfolio held equity securities issued by
Chase Manhattan valued at $4,879,000, equity securities issued by Merrill Lynch
valued at $2,548,000, equity securities issued by Morgan Stanley, Dean Witter
valued at $7,675,000, corporate obligations issued by Bear Stearns valued at
$980,000, and repurchase agreements issued by First Boston valued at
$30,236,000; the Equity Income Portfolio held equity securities issued by Chase
Manhattan valued at $1,802,000 and repurchase agreements issued by First Boston
valued at $1,339,000; the Value Equity Portfolio held equity securities issued
by Chase Manhattan valued at $17,206,000 and repurchase agreements issued by
First Boston valued at $12,687,000; the Equity Index Portfolio held equity
securities issued by Bear Stearns valued at $55,000, equity securities issued by
Chase Manhattan valued at $756,000, equity securities issued by Lehman Brothers
valued at $113,000, equity securities issued by Merrill Lynch valued at
$483,000, equity securities issued by Morgan Stanley, Dean Witter valued at
$1,121,000, equity securities issued by Paine Webber valued at $71,000, and
repurchase agreements issued by First Boston valued at $16,717,000; the Blue
Chip Equity Portfolio held equity securities issued by Chase Manhattan valued at
$5,765,000, equity securities issued by Morgan Stanley, Dean Witter valued at
$7,675,000, and repurchase agreements issued by First Boston valued at
$14,334,000; the Capital Growth Portfolio held equity securities issued by Chase
Manhattan valued at $4,324,000, equity securities issued by Merrill Lynch valued
at $4,078,000, equity securities issued by Morgan Stanley Dean Witter valued at
$4,605,000, and repurchase agreements issued by First Boston valued at
$23,662,000; the Mid-Cap Equity Portfolio held repurchase agreements issued by
First Boston valued at $776,000; the Small-Cap Equity Portfolio held repurchase
agreements issued by First Boston valued at $22,355,000; and the International
Equity Portfolio (formerly International Equity Selection Portfolio) held
repurchase agreements issued by First Boston valued at $4,586,000.
VALUATION OF PORTFOLIO SECURITIES
MONEY MARKET FUND PORTFOLIOS
Each money market fund Portfolio values its investments on the basis of
amortized cost. This method involves valuing an instrument at its cost as
adjusted for amortization of premium or accretion of discount rather than its
value based on current market quotations or appropriate substitutes which
reflect current market conditions. The amortized cost value of an instrument may
be higher or lower than the price the Portfolio would receive if it sold the
instrument.
Valuing a Portfolio's instruments on the basis of amortized cost and
use of the term "money market portfolio" are permitted by Rule 2a-7 under the
1940 Act. Each money market fund Portfolio must adhere to certain conditions
under Rule 2a-7.
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<PAGE>
The Board of Trustees oversees the advisor's adherence to SEC rules
concerning money market funds, and has established procedures designed to
stabilize each money market fund Portfolio's net asset value per share ("NAV")
at $1.00. At such intervals as they deem appropriate, the trustees consider the
extent to which NAV calculated by using market valuations would deviate from
$1.00 per share. If the trustees believe that a deviation from the Portfolio's
amortized cost per share may result in material dilution or other unfair results
to shareholders, the trustees will take such corrective action, if any, as they
deem appropriate to eliminate or reduce, to the extent reasonably practicable,
such dilution or other unfair result. Such corrective action could include
selling portfolio instruments prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity; withholding dividends;
redeeming shares in kind; establishing NAV by using available market quotations;
and such other measures as the trustees may deem appropriate.
During periods of declining interest rates, a Portfolio's yield based
on amortized cost may be higher than the yield based on market valuations. Under
these circumstances, a shareholder in the Portfolio would be able to obtain a
somewhat higher yield than would result if the Portfolio utilized market
valuations to determine its NAV. The converse would apply in a period of rising
interest rates.
OTHER PORTFOLIOS
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 each Portfolio's
respective 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.
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
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<PAGE>
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.
PORTFOLIO PERFORMANCE
YIELD CALCULATIONS
In computing the yield of shares of a money market fund Portfolio for a
period, the net change in value of a hypothetical account containing one share
reflects the value of additional shares purchased with dividends from the one
original share and dividends declared on both the original share and any
additional shares. The net change is then divided by the value of the account at
the beginning of the period to obtain a base period return. This base period
return is annualized to obtain a current annualized yield. A money market fund
Portfolio may also calculate a compounded effective yield for its shares by
compounding the base period return over a one-year period. In addition to the
current yield, the money market fund Portfolios may quote yields in advertising
based on any historical seven-day period. Yields for the shares of the money
market fund Portfolios are calculated on the same basis as other money market
funds, as required by regulation.
For shares of Portfolios other than the money market fund 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 Tax-Free Money Market Portfolio, Maryland Tax-Free Portfolio
and Pennsylvania Tax-Free Portfolio, a tax-equivalent yield is the rate an
investor would have to earn from a fully taxable investment before taxes to
equal the Portfolio's tax-free yield.
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<PAGE>
Tax-equivalent yields are calculated by dividing a Portfolio's yield by the
result of one minus a stated Federal or combined Federal, state and city tax
rate. (If only a portion of a Portfolio's yield was tax-exempt, only that
portion is included in the calculation.) If any portion of a Portfolio's income
is derived from obligations subject to state or Federal income taxes, its
tax-equivalent yield will generally be lower.
See Appendix B for tables showing the effect of a shareholder's tax
status on effective yield under the Federal income tax laws for 2000.
For the seven-day period ended April 30, 2000, the yields and effective
yields for the money market fund Portfolios were:
<TABLE>
<CAPTION>
NAME OF PORTFOLIO AND CLASS YIELD EFFECTIVE YIELD
--------------------------- ----- ---------------
<S> <C> <C>
U.S. TREASURY MONEY MARKET PORTFOLIO
Retail Class A 5.13% 5.26%
Institutional Class 5.36% 5.50%
Institutional II Class 5.28% 5.42%
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
Retail Class A 5.36% 5.50%
Institutional Class 5.59% 5.74%
Institutional II Class 5.52% 5.67%
MONEY MARKET PORTFOLIO
Retail Class A 5.58% 5.74%
Retail Class B 4.89% 5.01%
Institutional Class 5.81% 5.98%
Institutional II Class 5.74% 5.90%
TAX-FREE MONEY MARKET PORTFOLIO
Retail Class A 3.93% 4.01%
Institutional Class 4.16% 4.24%
Institutional II Class 4.09% 4.17%
</TABLE>
For the 30-day period ended April 30, 2000, the yields for the
Portfolios (other than the Money Market Fund Portfolios) were as follows:
<TABLE>
<CAPTION>
NAME OF PORTFOLIO AND CLASS YIELD
--------------------------- -----
<S> <C>
SHORT-TERM TREASURY PORTFOLIO
Retail Class A 5.65%
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<PAGE>
Institutional Class 5.84%
SHORT-TERM BOND PORTFOLIO
Institutional Class 6.05%
MARYLAND TAX-FREE PORTFOLIO
Retail Class A 4.36%
Retail Class B 3.81%
Institutional Class 4.70%
PENNSYLVANIA TAX-FREE PORTFOLIO
Retail Class A 4.36%
Retail Class B 3.81%
Institutional Class 4.71%
INTERMEDIATE FIXED INCOME PORTFOLIO
Institutional Class 6.40%
U.S. GOVERNMENT BOND PORTFOLIO
Retail Class A 5.82%
Institutional Class 6.25%
INCOME PORTFOLIO
Retail Class A 5.97%
Retail Class B 5.49%
Institutional Class 6.39%
BALANCED PORTFOLIO
Retail Class A 1.78%
Retail Class B 1.13%
Institutional Class 1.97%
EQUITY INCOME PORTFOLIO
Retail Class A 1.20%
Institutional Class 1.37%
VALUE EQUITY PORTFOLIO
Retail Class A 0.03%
Retail Class B (0.69)%
Institutional Class 0.14%
EQUITY INDEX PORTFOLIO
Retail Class A 0.66%
Institutional Class 0.94%
BLUE CHIP EQUITY PORTFOLIO
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NAME OF PORTFOLIO AND CLASS YIELD
--------------------------- -----
<S> <C>
Retail Class A 0.14%
Retail Class B (0.58)%
Institutional Class 0.25%
</TABLE>
TOTAL RETURN
The average annual total returns for the one-year period and five-year
period ended April 30, 2000 and since inception are shown in the table below.
The performance shown for Retail Class A and Retail Class B includes applicable
sales charges.
<TABLE>
<CAPTION>
NAME OF PORTFOLIO
AND CLASS ONE-YEAR FIVE-YEAR SINCE INCEPTION
----------------- -------- --------- ---------------
<S> <C> <C> <C>
SHORT-TERM BOND PORTFOLIO
Institutional Class 1 2.01% N/A 4.51% (April 1, 1996)
SHORT-TERM TREASURY PORTFOLIO
Retail Class A 2.80% N/A 4.80% (September 9, 1996)
Institutional Class 3.11% N/A 4.88% (March 20, 1996)
MARYLAND TAX-FREE PORTFOLIO
Retail Class A (6.88)% N/A 3.44% (January 2, 1997)
Retail Class B 2 N/A N/A 8.31% (September 9, 1999)
Institutional Class (2.37)% N/A 3.54% (November 18, 1996)
PENNSYLVANIA TAX-FREE
PORTFOLIO
Retail Class A (8.26)% N/A 1.79% (March 23, 1998)
Retail Class B 2 N/A N/A 4.54% (September 9, 1999)
Institutional Class 3 (3.88)% N/A 3.02% (April 1, 1996)
----------------------
1 Performance presented prior to March 23, 1998 reflects the
performance of the Marketvest Short-Term Bond Fund shares, which were
reorganized into the Portfolio on that date, and were offered beginning April 1,
1996.
2 Performance presented from inception is cumulative and has not been
annualized.
3 Performance presented prior to March 23, 1998 reflects the
performance of the Marketvest Pennsylvania Intermediate Municipal Bond Fund
shares, which were reorganized into the Portfolio on that date, and were offered
beginning April 1, 1996.
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<PAGE>
NAME OF PORTFOLIO
AND CLASS ONE-YEAR FIVE-YEAR SINCE INCEPTION
----------------- -------- --------- ---------------
INTERMEDIATE FIXED INCOME
PORTFOLIO
Institutional Class 0.32% N/A 4.33% (November 18, 1996)
U.S. GOVERNMENT BOND
PORTFOLIO
Retail Class A (4.58)% N/A 3.73% (April 1, 1998)
Institutional Class 4 0.04% N/A 4.25% (April 1, 1996)
INCOME PORTFOLIO
Retail Class A (4.67)% 4.73% 4.89% (April 12, 1994)
Retail Class B (5.57)% N/A (2.58)% (September 14, 1998)
Institutional Class (0.01)% 5.94% 5.30% (July 16, 1993)
BALANCED PORTFOLIO
Retail Class A 16.37% 18.36% 14.55% (March 9, 1994)
Retail Class B 16.32% N/A 25.85% (September 14, 1998)
Institutional Class 22.39% 19.82% 15.44% (July 16, 1993)
EQUITY INCOME PORTFOLIO
Retail Class A 0.29% N/A 10.37% (May 9, 1997)
Institutional Class 5.40% N/A 14.06% (November 18, 1996)
VALUE EQUITY PORTFOLIO
Retail Class A 5.46% N/A 7.69% (April 1, 1998)
Retail Class B 5.33% N/A 18.59% (September 14, 1998)
Institutional Class 5 10.87% N/A 19.46% (April 1, 1996)
EQUITY INDEX PORTFOLIO
Retail Class A 4.72% N/A 18.36% (November 3, 1997)
Institutional Class 10.25% N/A 19.23% (October 1, 1997)
</TABLE>
----------------------
4 Performance presented prior to March 23, 1998 reflects the
performance of the Marketvest Intermediate U.S. Government Bond Fund shares,
which were reorganized into the Portfolio on that date, and were offered
beginning April 1, 1996.
5 Performance presented prior to March 30, 1998 reflects the
performance of the Marketvest Equity Fund shares, which were reorganized into
the Portfolio on that date, and were offered beginning April 1, 1996.
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<TABLE>
<CAPTION>
NAME OF PORTFOLIO
AND CLASS ONE-YEAR FIVE-YEAR SINCE INCEPTION
----------------- -------- --------- ---------------
<S> <C> <C> <C>
BLUE CHIP EQUITY PORTFOLIO
Retail Class A 14.56% N/A 24.00% (May 16, 1996)
Retail Class B 14.39% N/A 20.60% (July 31, 1998)
Institutional Class 20.45% N/A 25.87% (April 1, 1996)
CAPITAL GROWTH PORTFOLIO
Retail Class A 43.92% 30.39% 23.28% (March 9, 1994)
Retail Class B 45.03% N/A 57.24% (September 14, 1998)
Institutional Class 51.36% 31.90% 23.66% (July 16, 1993)
MID-CAP EQUITY PORTFOLIO
Retail Class A 2 N/A N/A 27.66% (September 1, 1999)
Institutional Class 38.90% N/A 26.65% (November 18, 1996)
SMALL-CAP EQUITY PORTFOLIO
Retail Class A 115.35% N/A 26.55% (May 16, 1996)
Institutional Class 126.42% N/A 34.81% (July 13, 1995)
INTERNATIONAL EQUITY
PORTFOLIO (formerly
International Equity
Selection Portfolio)
Retail Class A 6 27.95% 13.50% 12.28% (January 7, 1992)
Institutional Class 7 28.25% N/A 17.94% (July 24, 1998)
EMERGING MARKETS EQUITY
PORTFOLIO
Retail Class A 8 70.10% 0.72% 7.21% (January 7, 1992)
----------------------
6 On August 12, 2000, Govett International Equity Fund was reorganized
into the Portfolio. Performance presented for the periods ended December 31,
1999 reflects the performance of the Govett International Equity Fund shares,
which were offered beginning January 7, 1992.
7 On August 12, 2000, Govett International Equity Fund was reorganized
into the Portfolio. Performance presented from inception reflects the
performance of the Govett International Equity Fund shares, which were offered
beginning July 24, 1998.
8 On August 12, 2000, Govett Emerging Market Fund was reorganized
into the Portfolio. Performance presented for the periods ended December 31,
1999 from inception reflects the performance of the Govett Emerging Equity Fund
shares, which were offered beginning January 7, 1992.
</TABLE>
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<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
CALCULATION OF NAV
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, Retail Class B, Institutional Class and
Institutional II 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 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 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.
CONVERSION OF RETAIL CLASS B SHARES
Retail Class B shares will automatically convert into Retail Class A
shares at the end of the month eight years after the purchase date. Retail Class
B shares acquired by exchanging Retail Class B shares of another Portfolio will
convert into Retail Class A shares based on the time of the initial purchase.
Retail Class B shares acquired through reinvestment of distributions will
convert into Retail Class A shares based on the date of the initial purchase to
which such shares relate. For this purpose, Retail Class B shares acquired
through reinvestment of distributions will be attributed to particular purchases
of Retail Class B shares in accordance with
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<PAGE>
such procedures as the Board of Trustees may determine from time to time. The
conversion of Retail Class B shares to Retail Class A shares is subject to the
condition that such conversions will not constitute taxable events for Federal
tax purposes.
REDEMPTION IN KIND
Under normal circumstances, the Portfolio will redeem shares in cash as
described in the prospectus. However, if the Board of Trustees determines that
it would be in the 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 Fund has elected to
be governed by Rule 18f-1 under the 1940 Act pursuant to which the Fund is
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
the net asset value of a Portfolio during any 90-day period for any one
shareholder.
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 prospectuses. 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
prospectuses 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
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<PAGE>
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 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.
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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 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. Shareholders also will be notified as to the portion of
distributions from the Tax-Free Money Market Portfolio, Maryland Tax-Free
Portfolio and Pennsylvania Tax-Free Portfolio that are exempt from Federal
income taxes. 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.
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INTERNATIONAL EQUITY AND EMERGING MARKETS EQUITY PORTFOLIOS
Income that the 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.
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.
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.
TAX-FREE MONEY MARKET PORTFOLIO, MARYLAND TAX-FREE PORTFOLIO AND PENNSYLVANIA
TAX-FREE PORTFOLIO
Dividends (i) designated by these Portfolios as exempt-interest
dividends and (ii) paid to shareholders out of tax-exempt interest income earned
by the Portfolios (exempt-interest dividends) generally will not be subject to
Federal income tax paid by the Portfolios' shareholders. However, persons who
are "substantial users" or "related persons" of facilities financed by private
activity bonds held by the Portfolios may be subject to tax on their pro-rata
share of the interest income from such bonds and should consult their tax
advisors before purchasing shares of the Portfolios. Realized market discount on
tax-exempt obligations purchased after April 30, 1993 is treated as ordinary
income and not as a capital gain. Dividends paid by a Portfolio out of its
taxable net investment income (including realized net short-term capital gains,
if any) are taxable to shareholders as ordinary income notwithstanding that such
dividends are reinvested in additional shares of the Portfolio. The "exempt
interest dividend" portion of a distribution is determined by the ratio of the
net tax-exempt income realized by a Portfolio for the entire year to the
aggregate amount of distributions for such year and, thus, is an annual average,
rather than a day-to-day determination for each shareholder. Distributions of
long-term capital gains, if any, are taxable as long-term capital gains to the
shareholder receiving them regardless of the length of time he or she may have
held his or her shares. Under current tax law (1) interest on certain private
activity bonds is treated as an item of tax preference for
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purposes of the Federal Alternative Minimum Tax imposed on individuals and
corporations, although for regular Federal income tax purposes such interest
remains fully tax-exempt, and (2) interest on all tax-exempt obligations is
included in "adjusted current earnings" of corporations for Federal Alternative
Minimum Tax purposes. Because the Portfolios expect to purchase private activity
bonds, a portion (not expected to exceed 20%) of each Portfolio's
exempt-interest dividends may constitute an item of tax preference for those
shareholders subject to the Federal Alternative Minimum Tax.
Interest on indebtedness incurred by shareholders to purchase or carry
shares of Portfolios generating exempt-interest dividends generally is not
deductible for Federal income tax purposes. Under IRS rules for determining when
borrowed funds are used for purchasing or carrying particular assets, shares of
the Portfolios may be considered to have been purchased or carried with borrowed
funds even though those funds are not directly linked to the shares.
The exemption for Federal income tax purposes of dividends derived from
interest on municipal securities does not necessarily result in an exemption
under the income or other tax laws of any state or local taxing authority.
Shareholders of a Portfolio may be exempt from state and local taxes on
distributions of tax-exempt interest income derived from obligations of the
state and/or municipalities of the state in which they reside but may be subject
to tax on income derived from the municipal securities of other jurisdictions.
Shareholders are advised to consult with their tax advisors concerning the
application of state and local taxes to investments in the Portfolios which may
differ from the Federal income tax consequences described above.
Receipt of tax-exempt income may result in collateral tax consequences
to certain taxpayers, including, without limitation, financial institutions,
property and casualty insurance companies, certain foreign corporations doing
business in the United States, certain S corporations with excess passive
income, individual recipients of social security or railroad retirement benefits
and individuals otherwise eligible for the earned income credit. For example,
shareholders who receive social security benefits may be subject to Federal
income tax on up to 85% of such benefits to the extent that their income,
including tax-exempt income, exceeds certain base amounts. Prospective
purchasers of Portfolio shares should consult their own tax advisors as to the
applicability of any such collateral consequences.
The Portfolios purchase municipal obligations based on opinions of bond
counsel regarding the Federal income tax status of the obligations. These
opinions generally will be based upon covenants by the issuers regarding
continuing compliance with Federal tax requirements. If the issuer of an
obligation fails to comply with its covenant at any time, interest on the
obligation could become federally taxable retroactive to the date the obligation
was issued.
Corporate investors should note that the corporate Alternative Minimum
Tax base is increased by 75% of the amount by which adjusted current earnings
(which includes tax-exempt interest not already included as a specified item of
tax preference) exceeds the alternative
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minimum taxable income of the corporation (computed without regard to such
increase and net operating loss deductions).
If a shareholder receives an exempt-interest dividend and sells shares
at a loss after holding them for a period of six months or less, the loss will
be disallowed to the extent of the amount of exempt-interest dividend.
Shares of the Tax-Free Money Market Portfolio, Maryland Tax-Free
Portfolio and Pennsylvania Tax-Free Portfolio would not be suitable for
tax-exempt institutions and may not be suitable for retirement plans qualified
under Section 401 of the Code, H.R. 10 plans and Individual Retirement Accounts,
because such plans and accounts are generally tax-exempt. Therefore, such plans
and accounts would not gain any additional benefit from the tax-exempt status of
the Portfolios' dividends and, moreover, such dividends would be taxable when
distributed to the beneficiary.
MARYLAND TAX MATTERS
To the extent that dividends paid by the Portfolios qualify as
exempt-interest dividends of a regulated investment company, the portion of
exempt-interest dividends that represents interest received by the Portfolios
(a) on obligations of Maryland or its political subdivisions and authorities,
(b) on obligations of the United States, or (c) obligations of certain
authorities, commissions, instrumentalities, possessions or territories of the
United States, will be exempt from Maryland state and local income taxes when
allocated or distributed to a shareholder of the Portfolios. In addition, gains
realized by the Portfolios from the sale or exchange of a bond issued by
Maryland or a political subdivision of Maryland, will not be subject to Maryland
state and local income taxes.
To the extent that distributions of the Portfolios are attributable to
sources other than those described in the preceding paragraph, such as interest
received by the Portfolios on obligations issued by states other than Maryland
or capital gains realized on obligations issued by U.S. territories and
possessions and from states other than Maryland, and income earned on repurchase
agreements, such distributions will be subject to Maryland state and local
income taxes. Income earned on certain private activity bonds (other than
obligations of the State of Maryland or a political subdivision or authority
thereof) which the Portfolios might hold will constitute a Maryland tax
preference for individual shareholders. In addition, capital gains realized by a
shareholder upon a redemption or exchange of portfolio shares will be subject to
Maryland state and local income taxes.
PENNSYLVANIA TAX MATTERS
To the extent that dividends paid by the Portfolios qualify as
exempt-interest dividends of a regulated investment company, the portion of
exempt-interest dividends that represents interest received by the Portfolios on
obligations (a) of Pennsylvania or its political subdivisions and authorities,
or (b) of the United States or an authority, commission, instrumentality,
possession
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or territory of the United States, will be exempt from Pennsylvania state and
local income taxes when allocated or distributed to a shareholder of the
Portfolios.
In addition, gains realized by the Portfolios from the sale or exchange
of a bond issued by Pennsylvania or a political subdivision of Pennsylvania, or
by the United States or an authority, commission or instrumentality of the
United States, will not be subject to Pennsylvania state and local income taxes.
To the extent that distributions of the Portfolios are attributable to sources
other than those described in the preceding sentences, such as interest received
by the Portfolios on obligations issued by states other than Pennsylvania or
capital gains realized on obligations issued by U.S. territories and possessions
and from states other than Pennsylvania, and income earned on repurchase
agreements, such distributions will be subject to Pennsylvania state and local
income taxes. Income earned on certain private activity bonds which the
Portfolios might hold will constitute a Pennsylvania tax preference for
individual shareholders. In addition, capital gains realized by a shareholder
upon a redemption or exchange of portfolio shares will be subject to
Pennsylvania state and local income taxes.
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).
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).
SIR VICTOR GARLAND, 15 Wilton Place, Knightsbridge, London, SW1X 8RL.
Date of
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Birth: 5/5/34. Trustee since 2000. He has been a private investor since 1984. He
is President of The Govett Funds, Inc. and a director of a number of U.K. public
companies. He is the former Australian Ambassador to the U.K. and a former
director of Prudential Assurance Corporation in the U.K.
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, 8626 Tower Bridge Way, Lutherville, MD 21093. 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
charitable 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).
*RICK A. GOLD. Date of Birth: 8/4/49. President since March 2000 and
Trustee since June 2000. Mr. Gold is Executive Vice President of the Asset
Management Group of Allfirst Financial Inc., the 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 SEC's Division of Investment Management.
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.
TODD CIPPERMAN. Date of Birth: 2/14/66. Vice President and Assistant
Secretary since November 1995. Mr. Cipperman is Senior Vice President and
General Counsel of SEI Investments since January 2000 and from 1995 to 1999, he
served as Vice President and Assistant Secretary.
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 Company since 1998. Prior to 1998, she was Assistant General
Counsel and Director of Arbitration for the Philadelphia Stock Exchange.
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.
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<PAGE>
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.
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, 2000.
<TABLE>
<CAPTION>
TRUSTEE COMPENSATION TABLE
PENSION OR
RETIREMENT ESTIMATED ANNUAL
AGGREGATE BENEFITS ACCRUED RETIREMENT FROM TOTAL COMPENSATION
COMPENSATION FROM FROM THE FUND THE FUND FROM THE FUND
NAME OF TRUSTEE THE FUND COMPLEX(1) COMPLEX(1) COMPLEX(1)
--------------- ----------------- ---------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Cowie, Jr., William H. $ 25,000 -- -- $ 25,000
Downes, David D. $ 20,000 -- -- $ 20,000
Garland, Sir Victor $ 0 -- -- $ 0
Gold, Rick A. $ 0 -- -- $ 0
Kerr, Charlotte R.(2) $ 28,750 -- -- $ 28,750
Reynolds, III, George K.(3) $ 5,000 -- -- $ 5,000
Schweizer, Thomas $ 20,000 -- -- $ 20,000
Seidel, Richard B. $ 20,000 -- -- $ 20,000
----------------------
<FN>
(1) The Fund's Trustees did not receive any pension or retirement benefits from
the Fund as compensation for the services as Trustees. The Fund adopted a
retirement policy at its June 1999 Board Meeting for the fiscal year ended
April 30, 2000. The policy calls for the retirement of Trustees when they
reach the age of 75, although Trustees who were 75 at the time of the June
1999 meeting will be allowed to serve an additional two years. The Fund is
the sole investment company in the fund complex.
(2) Ms. Kerr earned $8,750 in deferred compensation for Board service in previous
years.
(3) Mr. Reynolds resigned from the Board of Trustees on June 24, 1999. Amounts
shown represent compensation Mr. Reynolds received during fiscal year ended
April 30, 2000.
</FN>
</TABLE>
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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
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 and Institutional II Class shares of the Fund are offered
through Allfirst Trust Company, N.A. ("Allfirst Trust"), and Retail Class A and
Retail Class B shares are offered through Allfirst Brokerage Corporation
("Allfirst Brokerage") and other registered broker dealers. 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, 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.
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.
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For the fiscal year ended April 30, 2000, the advisory fee payable to
AIA with respect to the U.S. Treasury Money Market Portfolio was $1,069,281 of
which $256,621 was waived; with respect to the U.S. Government Money Market
Portfolio was $4,097,213 of which $1,802,784 was waived; with respect to the
Money Market Portfolio was $2,552,707 of which $1,331,740 was waived; with
respect to the Tax-Free Money Market Portfolio was $404,848 of which $259,105
was waived; with respect to the Short-Term Treasury Portfolio was $166,816 of
which $0 was waived; with respect to the Short-Term Bond Portfolio was $733,885
of which $48,926 was waived; with respect to the Maryland Tax-Free Portfolio was
$798,297 of which $196,505 was waived; with respect to the Pennsylvania Tax-Free
Portfolio was $1,259,448 of which $0 was waived; with respect to the
Intermediate Fixed Income Portfolio was $649,351 of which $119,048 was waived;
with respect to the U.S. Government Bond Portfolio was $1,553,644 of which
$186,440 was waived; with respect to the Income Portfolio was $2,131,017 of
which $319,656 was waived; with respect to the Balanced Portfolio was $1,368,479
of which $189,483 was waived; with respect to the Equity Income Portfolio was
$651,047 of which $55,803 was waived; with respect to the Value Equity Portfolio
was $4,786,521 of which $622,241 was waived; with respect to the Equity Index
Portfolio was $242,277 of which $157,204 was waived; with respect to the Blue
Chip Equity Portfolio was $1,639,547 of which $234,218 was waived; with respect
to the Capital Growth Portfolio was $1,220,718 of which $87,195 was waived; with
respect to the Mid-Cap Equity Portfolio was $606,168 of which $45,462 was
waived; with respect to the Small-Cap Equity Portfolio was $499,955 of which
$6,249 was waived; and with respect to the International Equity Portfolio
(formerly International Equity Selection Portfolio) was $222,921 of which
$34,295 was waived. Effective August 8, 2000, the fees set forth above for
International Equity Selection Portfolio are payable pursuant to an advisory
agreement with AIA which provides a different fee schedule.
For the fiscal year ended April 30, 1999, the advisory fee payable to
AIA with respect to the U.S. Treasury Money Market Portfolio was $1,076,083 of
which $258,255 was waived; with respect to the U.S. Government Money Market
Portfolio was $4,172,358 of which $1,835,842 was waived; with respect to the
Money Market Portfolio was $1,959,252 of which $1,097,179 was waived; with
respect to the Tax-Free Money Market Portfolio was $391,788 of which $250,747
was waived; with respect to the Short-Term Treasury Portfolio was $152,294 of
which $0 was waived; with respect to the Short-Term Bond Portfolio was $983,974
of which $65,598 was waived; with respect to the Maryland Tax-Free Portfolio was
$761,925 of which $187,552 was waived; with respect to the Pennsylvania Tax-Free
Portfolio was $1,442,998 of which $0 was waived; with respect to the
Intermediate Fixed Income Portfolio was $563,525 of which $103,313 was waived;
with respect to the U.S. Government Bond Portfolio was $1,986,405 of which
$238,374 was waived; with respect to the Income Portfolio was $2,086,212 of
which $312,937 was waived; with respect to the Balanced Portfolio was $820,804
of which $113,652 was waived; with respect to the Equity Income Portfolio was
$724,219 of which $62,075 was waived; with respect to the Value Equity Portfolio
was $5,913,639 of which $768,762 was waived; with respect to the Equity Index
Portfolio was $134,964 of which $95,275 was waived; with respect to the Blue
Chip Equity Portfolio was $981,292 of which $140,183 was waived; with respect to
the Capital Growth Portfolio was $591,773 of which $42,271 was waived; with
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respect to the Mid-Cap Equity Portfolio was $444,981 of which $33,373 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 Portfolio
(formerly 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 U.S. Treasury Money Market Portfolio was $950,471 of
which $228,108 was waived; with respect to the U.S. Government Money Market
Portfolio was $3,419,050 of which $1,504,386 was waived; with respect to the
Money Market Portfolio was $1,340,587 of which $750,727 was waived; with respect
to the Tax-Free Money Market Portfolio was $363,632 of which $232,727 was
waived; with respect to the Short-Term Treasury Portfolio was $142,899 of which
$7,217 was waived; with respect to the Short-Term Bond Portfolio was $173,712 of
which $26,223 was waived; with respect to the U.S. Government Bond Portfolio was
$333,031 of which $49,534 was waived; with respect to the Intermediate Fixed
Income Portfolio was $470,633 of which $114,918 was waived; with respect to the
Income Portfolio was $1,430,536 of which $24,176 was waived; with respect to the
Maryland Tax-Free Portfolio was $523,716 of which $60,920 was waived; with
respect to the Pennsylvania Tax-Free Portfolio was $232,022 of which $22,998 was
waived; with respect to the Balanced Portfolio was $537,057 of which $8,299 was
waived; with respect to the Equity Income Portfolio was $691,714 of which
$95,123 was waived; with respect to the Equity Index Portfolio was $39,637 of
which $37,626 was waived; with respect to the Blue Chip Equity Portfolio was
$473,707 of which $27,150 was waived; with respect to the Mid-Cap Equity
Portfolio was $286,418 of which $20,587 was waived; with respect to the Value
Equity Portfolio was $997,541 of which $162,273 was waived; with respect to the
Capital Growth Portfolio was $304,120 of which $2,637 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 Portfolio (formerly 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.
The Emerging Markets Portfolio commenced operations on August 12,
2000. Thus for the fiscal year ended April 30, 2000, the Portfolio 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;
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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 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 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.
For the fiscal year ended April 30, 2000, the administration fee
payable to the Administrator with respect to the U.S. Treasury Money Market
Portfolio was $556,021; with respect to the U.S. Government Money Market
Portfolio was $2,130,534; with respect to the Money Market Portfolio was
$1,327,397; with respect to the Tax-Free Money Market Portfolio was $210,519;
with respect to the Short-Term Treasury Portfolio was $61,960; with respect to
the Short-Term Bond Portfolio was $127,206; with respect to the Maryland
Tax-Free Portfolio was $59,658; with respect to the Pennsylvania Tax-Free
Portfolio was $251,887; with respect to the Intermediate Fixed Income Portfolio
was $140,691; with respect to the U.S. Government Bond Portfolio was $269,296;
with respect to the Income Portfolio was $461,715; with respect to
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the Balanced Portfolio was $273,693; with respect to the Equity Income Portfolio
was $120,908; with respect to the Value Equity Portfolio was $622,241; with
respect to the Equity Index Portfolio was $157,478 of which $72,431 was waived;
with respect to Blue Chip Equity Portfolio was $304,484; with respect to the
Capital Growth Portfolio was $226,703; with respect to the Mid-Cap Equity
Portfolio was $98,502; with respect to the Small-Cap Portfolio was $81,242; and
with respect to the International Equity Portfolio (formerly International
Equity Selection Portfolio) was $44,584.
For the fiscal year ended April 30, 1999, the administration fee
payable to the Administrator with respect to the U.S. Treasury Money Market
Portfolio was $559,558; with respect to the U.S. Government Money Market
Portfolio was $2,169,604; with respect to the Money Market Portfolio was
$1,018,801; with respect to the Tax-Free Money Market Portfolio was $203,728;
with respect to the Short-Term Treasury Portfolio was $56,566; with respect to
the Short-Term Bond Portfolio was $170,554; with respect to the Maryland
Tax-Free Portfolio was $152,383; with respect to the Pennsylvania Tax-Free
Portfolio was $288,596; with respect to the Intermediate Fixed Income Portfolio
was $122,095; with respect to the U.S. Government Bond Portfolio was $344,307;
with respect to the Income Portfolio was $452,006; with respect to the Balanced
Portfolio was $164,159; with respect to the Equity Income Portfolio was
$134,496; with respect to the Value Equity Portfolio was $768,762; with respect
to the Equity Index Portfolio was $27,405; with respect to Blue Chip Equity
Portfolio was $182,238; with respect to the Capital Growth Portfolio was
$109,899; with respect to the Mid-Cap Equity Portfolio was $72,308; with respect
to the Small-Cap Equity Portfolio was $36,029; and with respect to the
International Equity Portfolio (formerly 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 U.S. Treasury Money Market
Portfolio was $494,240; with respect to the U.S. Government Money Market
Portfolio was $1,777,888; with respect to the Money Market Portfolio was
$697,098; with respect to the Tax-Free Money Market Portfolio was $189,087; with
respect to the Income Portfolio was $364,951; with respect to the Balanced
Portfolio was $124,759; with respect to the Capital Growth Portfolio was
$64,748; with respect to the Small-Cap Equity Portfolio (formerly Special Equity
Portfolio) was $31,575; with respect to Blue Chip Equity Portfolio was $100,718;
with respect to the Short-Term Treasury Portfolio was $53,076; with respect to
the Intermediate Fixed Income Portfolio was $101,969; with respect to the
Maryland Tax-Free Portfolio was $132,656; with respect to the Pennsylvania
Tax-Free Portfolio was $30,476 (an additional $16,803 was paid to Federated
Investors, the administrator of the Marketvest Funds prior to the
reorganizations ("Federated")); with respect to the Equity Income Portfolio was
$128,459; with respect to the Mid-Cap Equity Portfolio was $52,356; with respect
to the Short-Term Bond Portfolio was $18,456 (an additional $12,347 was paid to
Federated); with respect to the U.S. Government Bond Portfolio was $36,989 (an
additional $22,521 was paid to Federated); with respect to the Value Equity
Portfolio was $69,147 (an additional $86,672 was paid to Federated); and with
respect to the International Equity Portfolio (formerly International Equity
Selection Portfolio) was $4,627 (an additional $10,640 was paid to Federated).
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The Emerging Markets Portfolio commenced operations on August 12, 2000.
Thus for the fiscal year ended April 30, 2000, the Portfolio paid no
administration fees.
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.
For the fiscal year ended April 30, 2000, the Administrator paid a
sub-administration fee to Allfirst Trust of $1,580,669.
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
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 and Retail Class B of each Portfolio and Institutional II Class of each
money market fund 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.
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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 a distribution fee of 0.15% of the average net
assets of the Institutional II Class. For the fiscal year ended April 30, 2000,
the Institutional II Class of the U.S. Treasury Money Market Portfolio, U.S.
Government Money Market Portfolio, Money Market Portfolio and Tax-Free Money
Market Portfolio paid distribution fees of $169,000, $177,000, $380,000 and
$58,000, respectively. For the fiscal year ended April 30, 1999, the
Institutional II Class of the U.S. Treasury Money Market Portfolio, U.S.
Government Money Market Portfolio, Money Market Portfolio and Tax-Free Money
Market Portfolio paid distribution fees of $138,487, $180,079, $203,976 and
$52,457, respectively.
The Board has approved distribution fees based on the following
percentages of the average daily net assets of the Retail Class A: 0.25% for
each money market fund Portfolio; 0.30% for the Short-Term Bond Portfolio, U.S.
Government Bond Portfolio, Intermediate Fixed Income Portfolio, Income
Portfolio, Maryland Tax-Free Portfolio and Pennsylvania Tax-Free Portfolio;
0.40% for the Short-Term Treasury Portfolio, Balanced Portfolio, Equity Income
Portfolio, Equity Index Portfolio, Mid-Cap Equity Portfolio, Value Equity
Portfolio, Capital Growth Portfolio, Small-Cap Equity Portfolio, International
Equity Portfolio and Emerging Markets Equity Portfolio; and 0.55% for the Blue
Chip Equity Portfolio.
For the fiscal year ended April 30, 2000, the Retail Class A of the
Portfolios paid distribution fees in the following amounts: $56,408 for the U.S.
Treasury Money Market Portfolio, $344,339 for the U.S. Government Money Market
Portfolio, $657,561 for the Money Market Portfolio, $121,331 for the Tax-Free
Money Market Portfolio, $17,767 for the Income Portfolio, $86,334 for the
Balanced Portfolio, $87,892 for the Capital Growth Portfolio, $1,806 for the
Mid-Cap Equity Portfolio, $13,677 for the Small-Cap Equity Portfolio, $156,325
for the Blue Chip Equity Portfolio, $30,845 for the Short-Term Treasury
Portfolio, $76,779 for the Maryland Tax-Free Portfolio, $11,257 for the
Pennsylvania Tax-Free Portfolio, $6,374 for the U.S. Government Bond Portfolio,
$8,522 for the Equity Income Portfolio, $16,141 for the Equity Index Portfolio,
$13,857 for the Value Equity Portfolio and $5,527 for the International Equity
Portfolio (formerly International Equity Selection Portfolio).
The Board has approved distribution fees of 0.75% of the average daily
net assets of the Retail Class B of each Portfolio. For the fiscal year ended
April 30, 2000, the Retail Class B of the Portfolios paid distribution fees in
the following amounts: $1,470 for the Pennsylvania Tax-Free Portfolio; $3,029
for the Income Portfolio; $48,146 for the Balanced Portfolio; $47,712 for
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the Blue Chip Equity Portfolio; $3,035 for the Value Equity Portfolio; and
$52,907 for the Capital Growth Portfolio.
The Emerging Markets Portfolio commenced operations on August 12, 2000.
Thus for the fiscal year ended April 30, 2000, the Portfolio paid no
distribution fees. 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
compensation plans 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 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, Retail Class B 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 and Retail Class B of each Portfolio or
such lesser amount as may be approved by the Board and up to 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, 2000, Retail Class A of the U.S.
Treasury Money Market Portfolio paid $13,538, U.S. Government Money Market
Portfolio paid $82,642, Money Market Portfolio paid $157,817, and Tax-Free Money
Market Portfolio paid $29,119 in shareholder servicing fees.
For the fiscal year ended April 30, 2000, Retail Class B of the Income
Portfolio paid $1,009, Balanced Portfolio paid $16,048, Value Equity Portfolio
paid $0, Blue Chip Equity Portfolio paid $15,904 and Capital Growth Portfolio
paid and $17,635 in shareholder servicing fees.
For the fiscal year ended April 30, 2000, Institutional Class of the
U.S. Treasury Money Market Portfolio paid $233,726, U.S. Government Money Market
Portfolio paid $1,106,568,
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Money Market Portfolio paid $403,634, Tax-Free Money Market Portfolio paid
$59,646, Short-Term Treasury Portfolio paid $21,194, Short-Term Bond Portfolio
paid $58,710, Maryland Tax-Free Portfolio paid $110,469, Pennsylvania Tax-Free
Portfolio paid $208,115, U.S. Government Bond Portfolio paid $225,064,
Intermediate Fixed Income Portfolio paid $119,048, Income Portfolio paid
$417,192, Balanced Portfolio paid $237,416, Equity Income Portfolio paid
$125,438, Value Equity Portfolio paid $661,787, Blue Chip Equity Portfolio paid
$231,460, Capital Growth Portfolio paid $185,049, Mid-Cap Equity Portfolio paid
$105,628, Small-Cap Equity Portfolio paid $79,834 and International Equity
Portfolio (formerly International Equity Selection Portfolio) paid $44,919 in
shareholder servicing fees.
For the fiscal year ended April 30, 1999, Retail Class A of the U.S.
Treasury Money Market Portfolio paid $16,757, U.S. Government Money Market
Portfolio paid $54,910, Money Market Portfolio paid $129,872 and Tax-Free Money
Market Portfolio paid $16,543 in shareholder servicing fees.
For the fiscal year ended April 30, 1999, Retail Class B of the Money
Market Portfolio paid $15, Income Portfolio paid $232, Balanced Portfolio paid
$1,249, Blue Chip Equity Portfolio paid $16,757, Value Equity Portfolio paid
$83, and Capital Growth Portfolio paid $1,035 in shareholder servicing fees.
For the fiscal year ended April 30, 1999, Institutional Class of the U.S.
Treasury Money Market Portfolio paid $191,841, U.S. Government Money Market
Portfolio paid $965,908, Money Market Portfolio paid $267,531, Tax-Free Money
Market Portfolio paid $56,305, Short-Term Treasury Portfolio paid $17,494,
Short-Term Bond Portfolio paid $78,716, Maryland Tax-Free Portfolio paid
$71,626, Pennsylvania Tax-Free Portfolio paid $167,382, U.S. Government Bond
Portfolio paid $201,067, Intermediate Fixed Income Portfolio paid $72,686,
Income Portfolio paid $272,899, Balanced Portfolio paid $94,100, Equity Income
Portfolio paid $86,044, Value Equity Portfolio paid $504,823, Blue Chip Equity
Portfolio paid $85,415, Capital Growth Portfolio paid $49,329, Mid-Cap Equity
Portfolio paid $61,883, Small-Cap Equity Portfolio paid $22,948 and
International Equity Portfolio (formerly International Equity Selection
Portfolio) paid $27,969 in shareholder servicing fees.
For the fiscal year ended April 30, 1998, Retail Class A of the U.S.
Treasury Money Market Portfolio paid $16,492, U.S. Government Money Market
Portfolio paid $19,162, Money Market Portfolio paid $109,013 and Tax-Free Money
Market Portfolio paid $15,603 in shareholder servicing fees.
For the fiscal year ended April 30, 1998, the Institutional Class of
the U.S. Treasury Money Market Portfolio paid $59,751, U.S. Government Money
Market Portfolio paid $210,161, Money Market Portfolio paid $52,733, Tax-Free
Money Market Portfolio paid $19,720, Income Portfolio paid $61,137, Balanced
Portfolio paid $18,509, Capital Growth Portfolio paid $9,213, Small-Cap Equity
Portfolio paid $4,891, Blue Chip Equity Portfolio paid $11,688, Short-Term
Treasury Portfolio paid $4,700, Intermediate Fixed Income Portfolio paid
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$16,149, Maryland Tax-Free Portfolio paid $16,836, Pennsylvania Tax-Free
Portfolio paid $13,905, Equity Income Portfolio paid $20,520, Mid-Cap Equity
Portfolio paid $9,987, International Equity Portfolio (formerly International
Equity Selection Portfolio) paid $2,135, U.S. Government Bond Portfolio paid
$17,071, Value Equity Portfolio paid $31,907 and Short-Term Bond Portfolio paid
$8,518 in shareholder servicing fees.
The Emerging Markets Portfolio commenced operations on August 12, 2000.
Thus for the fiscal year ended April 30, 2000, the Portfolio paid no shareholder
servicing fees.
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.
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.
CODE OF ETHICS
The Board of Trustees of the Fund has adopted a Code of Ethics pursuant
to Rule 17j-1 under the 1940 Act. The Code of Ethics applies to the personal
investing activities of all trustees and officers of the Fund, as well as to
designated officers, directors and employees of AIA, AIB Govett and the
Distributor. As described below, the Code of Ethics imposes significant
restrictions of AIA's and AIB Govett's investment personnel, including the
portfolio mangers and employees who execute or help execute a portfolio
manager's decisions or who obtain contemporaneous information regarding the
purchase or sale of a security by the Portfolios.
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The Code of Ethics requires that covered employees of AIA, AIB Govett
and trustees who are "interested persons," preclear personal securities
investments (with certain exceptions, such as non-volitional purchases,
purchases that are part of an automatic dividend reinvestment plan or purchases
of securities that are not eligible for purchase by the Portfolios). The
preclearance requirement and associated procedures are designed to identify any
substantive prohibition or limitation applicable to the proposed investment. The
substantive restrictions applicable to investment personnel include a ban on
acquiring any securities in an initial public offering, a prohibition from
profiting on short-term trading in securities and preclearance of the
acquisition of securities in private placements. Furthermore, the Code of Ethics
provides for trading "blackout periods" that prohibit trading by investment
personnel and certain other employees within periods of trading by the
Portfolios in the same security. Officers, directors and employees of AIA, AIB
Govett and the Distributor may comply with codes instituted by those entities so
long as they contain similar requirements and restrictions.
DESCRIPTION OF THE FUND
TRUST ORGANIZATION
ARK Funds ("the Fund") is an open-end management investment company
organized as a Massachusetts business trust by a Declaration of Trust dated that
was amended and restated on March 19, 1993. Currently, the Fund is comprised of
the following twenty-five Portfolios: The U.S. Treasury Money Market Portfolio,
U.S. Government Money Market Portfolio, Money Market Portfolio, Tax-Free Money
Market Portfolio, U.S. Treasury Cash Management Portfolio, U.S. Government Cash
Management Portfolio, Prime Cash Management Portfolio, Tax-Free Cash Management
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 Portfolio and Emerging Markets
Equity Portfolio. 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
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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 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
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 July 31, 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
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<PAGE>
address as of July 31, 2000 for the 5% shareholders listed below is: c/o
Allfirst Bank, 110 South Paca Street, Baltimore, Maryland 21201.
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET PORTFOLIO
<S> <C>
RETAIL CLASS - Medco Erikson Foundation - 99 Project Erikson Foundation, Attn: Jeffrey
A. Jacobson, 701 Maiden Choice Lane, Catonsville, MD 21228 (28.15%)
Balto City Selp Note Funding #4 - Tom Jaudon, Home Ownership Institute,
417 E. Fayette St., Baltimore, MD 21202/Bureau of Treasury Management,
Attn: Beth Wexler, 100 Guilford Ave, Baltimore, MD 21202 (11.09%)
Medco Chf Salisbury Construction - Collegiate Housing Foundation, Attn:
Lee Covey, 3613 Stein St, Mobile, AL 36608/Allen & Ohara Inc., Attn:
Carl Shipley, 530 Oak Court Dr, Ste 300, Memphis, TN 38117 (7.25%)
Russ Ven Jolly Acres - Jolly Acres Utilities Ltd. Part, 8815 Centre Park
Dr, Ste 104, Columbia, MD 21045-2144/Anne Arundel County, Attn: Mr. Al
Warfield, P.O. Box 2700 MS 1309, Annapolis, MD 21404/Russett Venture
Limited, Attn: Marshall Zinn, 9030 Red Branch Road, Suite 110, Columbia,
MD 21045-2116/Russett Venture Ltd. Partnership, Attn: Sherre Hankson,
Suite 200, 9030 Red Branch Road, Columbia, MD 21045-2116 (5.57%)
Balto City Selp Note Funding # 2 - Tom Jaudon, Homeownership Institute,
417 E. Fayette Street, Baltimore, MD 21202/Bureau of Treasury
Management, Attn: Beth Wexler, 100 Guilford Avenue, Baltimore, MD 21202
(5.12%)
INSTITUTIONAL II CLASS - Waverly Inc. Pension Plan - Wolters Kluwer U.S. Corp, Attention: Ed
Carroll, 161 N Clark Street, Chicago, IL 60601-3221 (26.15%)
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
RETAIL CLASS - Medco Hgs 1999 A&B Facility FD - Human Genome Sciences, Inc., Attn:
Alain Cappeluti, 9410 Key West Ave, Rockville, MD 20850-3331/MD Economic
Development Corp, Attn: Executive Director, 36 S. Charles St., Ste 2410,
Baltimore, MD 21201-3020 (6.60%)
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<PAGE>
MCC Balt Parking 97B Const Fd - City of Baltimore, Bureau of Treasury
Management, 100 Guilford Ave, Baltimore, MD 21202-3421/City of Baltimore
- Acctg Ops, Attn: Mr. Isser Goldsmith, 401 E. Fayette St., 6th Fl,
Baltimore, MD 21202 (5.27%)
York Co Solid Waste 97 Bond Fd - York Co Solid Waste & Refuse Authority,
Attn: William A. Ehrman, 2700 Black Bridge Rd, York, PA 17402-7901
(5.04%)
INSTITUTIONAL CLASS II - Manuel Dupkin II Rev Tr - Rothschild Capital Management, LLC, The
Exchange - Suite 317, 1122 Kenilworth Drive, Towson, MD 21204-2146
(12.01%)
Metro Wash Airports Auth IC - Attn: Nancy Edwards, 1 Aviation Circle,
Washington, DC 20001-6000/Attn: Reporting & Controls MA22-C, 1 Aviation
Circle, Washington, DC 20001-6000 (9.84%)
Metro Wash Airports Auth const 1997 - Attn: Nancy Edwards, 1 Aviation
Circle, Washington, DC 20001-6000/Attn: Reporting & Controls MA22-C, 1
Aviation Circle, Washington, DC 20001-6000 (7.42%)
Metro Wash Airports Auth 1998 const - Attn: Nancy Edwards, 1 Aviation
Circle, Washington, DC 20001-6000/Attn: Reporting & Controls MA22-C, 1
Aviation Circle, Washington, DC 20001-6000 (7.10%)
David D. Rothschild PC - Rothschild Capital Management, LLC, The Exchange
- Suite 317, 1122 Kenilworth Drive, Towson, MD 21204-2146 (5.08%)
Casey Foundation - Alex Brown IC - Alex Brown & Sons, Attn: Terri Leone,
One South Street, Baltimore, MD 21202-3220 (5.06%)
MONEY MARKET PORTFOLIO
RETAIL CLASS - Amtrak/RTOA Escrow Acct - Janet O'Boyle, 60 Massachusetts Ave, NE, Room
4W-321, Washington, DC 20002/Talgo, Inc., Attn: Darold Strood, 100
South King St, Ste 320, Seattle, Washington 98104 (41.83%)
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<PAGE>
Chestnut/Blakehur Adm/Entr Phase III - The Chestnut Partnership, C/O
Chestnut Village, Inc, 800 Second Ave, Des Moines, IA 50309/Blakehurst,
Attn: Roland De Vasher, 1055 West Joppa Rd., Towson, MD 21204 (18.96%)
Chestnut/Blakehur Health Phase I - Blakehurst, Attn: Roland De Vasher,
1055 West Joppa Rd., Towson, MD 21204 (16.35%)
BSA & Economy Fire Escrow - Business Service America II, Inc, Attn:
Charles Litt, 27012 Gardner Dr, Alpharutta, GA 30004/Economy Fire &
Casualty, C/O St Paul Co., Attn: Rosemary Quin, 5801 Centennial Way,
Baltimore, MD 21209/BSA II, Attn: Richard Davis, 1717 Doolittle Dr, San
Leandro, CA 94577-0655 (9.32%)
INSTITUTIONAL CLASS - ACE Guranty RE Inc IC Lazard - Ms. Lisa Mumford, Capital Re
Corporaton, 1325 Ave of Americas 18TH Fl, New York, NY 10019-3811/Ace
Guaranty, Attn: Christine O'Hara, 1325 Ave of Americas 18TH Fl, New
York, NY 10019-3811/Lazard Freres Asset Management, Asset Management
Accounting, 49TH Fl, 30 Rockefeller Plaza, New York, NY 10112-6300 (5.70%)
INSTITUTIONAL II CLASS - Piper Marbury Rudnick & Wolfe IC - C/O Karen R. Pasko, 6225 Smith Ave,
Baltimore, MD 21209-3600 (8.98%)
Metro Wash Airports Auth - C/P Conm - Attn: Reporting & Controls MA22-C,
1 Aviation Circle, Washington, DC 20001-6000/Attn: Nancy Edwards, 1
Aviation Circle, Washington, DC 20001-6000 (6.53%)
Roman Catholic Clergy (Alex Brown) IC - Alex Brown Investment Management,
Attn: J. Dorsey Brown, III, One South Street, Baltimore, MD 21202-3220
(6.07%)
TAX-FREE MONEY MARKET PORTFOLIO
RETAIL CLASS - IDA BAC 1999 Water Bans - City of Baltimore, Bureau of Treasury
Management, 100 Guilford Ave, Baltimore, MD 21202-3421 (35.17%)
IDA BAC 1999 Wastewater Bans - City of Baltimore, Bureau of Treasury
Management, 100 Guilford Ave, Baltimore, MD 21202-3421 (22.74%)
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<PAGE>
IDA BAC 1986 Cell #6 - City of Baltimore, Bureau of Treasury
Management, 100 Guilford Ave, Baltimore, MD 21202-3421 (9.89%)
IDA BAC 1997 Water Bans - City of Baltimore, Bureau of Treasury
Management, 100 Guilford Ave, Baltimore, MD 21202-3421 (9.29%)
IDA BAC 1997 Waste Water Bans - City of Baltimore, Bureau of Treasury
Management, 100 Guilford Ave, Baltimore, MD 21202-3421 (8.73%)
INSTITUTIONAL CLASS - MCC Balt Cops 1998B Acquisition - Bureau of Treasury Management, Attn:
Louise Green, 100 Guilford Ave, Baltimore, MD 21202-3421 (8.09%)
INSTITUTIONAL II CLASS - Merchants Terminal Corp IC - Mr. Harry D Hapert, 501 North Kresson
Street, Baltimore, MD 21224 (16.11%)
Gaye G. Haynes, PC - 327 Ponte Vedra Blvd, Ponte Vedra, FL
32082-1813/Beaty Haynes & Patterson Inc, Attn: Trish Koch, 140-300
(11.68%)
Josephine Bennett Musgrave Irrev tr - Thomas C. Musgrave, Jr. Trustee,
4640 Garfield St., NW, Washington, DC 20007-1025 (6.46%)
Charles Fulton Trustee PC TTEE - Charles R. Fulton, P.O. Box 67, Snow
Hill, MD 21863 (6.07%)
PENNSYLVANIA TAX-FREE PORTFOLIO
INSTITUTIONAL CLASS - Pollock, S&G T/A - Grace M. Pollock, 333 N 26TH Street, Camp Hill, PA
17011 (8.32%)
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<PAGE>
INCOME PORTFOLIO
INSTITUTIONAL CLASS - IBEW Intl Off Rep & Assts Pen Plan - IBEW, Attn: Jeff Miller, 1125 15TH
Street, NW, Washington, DC 20005-2765 (18.95%)
Allfirst Financial Pension Plan - Michael Driscoll, Vice President,
Allfirst Bank - Mail code 109-810 (11.63%)
IBEW Office Emp Pension Plan - IBEW, Attn: Jeff Miller, 1125 15TH
Street, NW, Washington, DC 20005-2765 (6.95%)
BALANCED PORTFOLIO
INSTITUTIONAL CLASS - Allfirst Financial Pension Plan - Michael Driscoll, Vice President,
Allfirst Bank - Mail code 109-810 (66.38%)
U of MD Med Pen - Dottie Laforce Sr., Consultant-U of MD, 29 S Green
Street, Baltimore, MD 21201/Michelle Wiles, Dir, Compensation-U of MD, 29
S Greene St, Baltimore, MD 21201 (13.47%)
Smithco Profit Sharing - FASCORP, Attn: Aileen Koanui, 8515 Each Orchard
Road, Englewood, CO 80111/L.B. Smith, Inc, Attn: Robert Sherwood, 2001
State Road, Camp Hill, PA 17011 (7.77%)
Montgomery Co Bd Ed Ret Health - Larry Bowers, CFO, Montgomery County
Public Schools, 850 Hungerford Dr, Rockville, MD 20850-1718/G Wesley
Girling, Director Ins/Ret, Montgomery County Public Schools, 850 Hungerford
Drive, Rockville, MD 20850-1747 (6.25%)
VALUE EQUITY PORTFOLIO
INSTITUTIONAL CLASS - Pinnacle Health System AIA/Equity, Attn: Fredrick G. Fetters, CFO, P.O.
Box 8700, Harrisburg, PA 17105-8700 (6.04%)
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<PAGE>
EQUITY INDEX PORTFOLIO
INSTITUTIONAL CLASS - Pollock FDN, T/A - Heath L. Allen Esq., P.O. Box 11963,
Harrisburg, PA 17108-1963/S Wilson Pollock & M, 333 N 26TH Street, Camp
Hill, PA 17011 (10.44%)
Pinnacle Health System PP - ARK Index - Pinnacle Health System, Attn:
Frederick G. Fetters, CFO, P.O. Box 8700, Harrisburg, PA
17105-8700/Yanni Bilkey Investment Consulting, Attn: Charles W. Gregor,
Sr Consultant, 2500 Grant Bldg, Pittsburgh, PA 15219/Pinnacle Health
System, Attn: Robert Zomok, Dir Benefits, 205 S Front St, Harrisburg,
PA 17101 (10.16%)
Md Med Comp Ins - Equity - MD Medicine Comp Ins Program, Attn: Jane
McConnell, 11 South Paca St Suite 200, Baltimore, MD 21201 (10.02%)
Lane Enterprises, Inc 401 K - Lane Enterprises Inc, Attn: Daniel N.
Gallgher, 3905 Hartzdale Dr - Suite 514, Camp Hill, PA 17011 (9.27%)
Pinnacle Health System - ARK Index - Pinnacle Health System, Attn:
Frederick G. Fetters, CFO, P.O. Box 8700, Harrisburg, PA 17105-8700
(7.44%)
Pollock, Doug T/A - Douglas W. Pollock, 1358 Pieffers Lane, Oberlin, PA
17113 (6.54%)
AMP Inc Supp Ben Tr - AMP Inc, Attn: Lisa Durborow, P.O. Box 3608 MS
161-04, Harrisburg, PA 17105-3608/TYCO Intl USA Inc, Attn: Kelly
Heffernan, 1 Town Center Rd, Boca Rotan, FL 33486/TYCO Intl, Attn:
Jamie Sykes, P.O. Box 3608 MS 3856, Harrisburg, PA 17105 (5.86%)
MID-CAP EQUITY PORTFOLIO
INSTITUTIONAL CLASS - Allfirst Financial Pension Plan - Michael Driscoll, Vice President,
Allfirst Bank - Mail code 109-810 (11.26%)
IBEW INTL OFF REP & ASSTS PEN PLAN - IBEW, Attn: Jeff Miller, 1125 15TH
Street, NW, Washington, DC 20005-2765 (5.15%)
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<PAGE>
SMALL-CAP EQUITY PORTFOLIO
INSTITUTIONAL CLASS - Allfirst Financial Pension Plan - Michael Driscoll, Vice President,
Allfirst Bank - Mail code 109-810 (20.28%)
IBEW INTL OFF REP & ASSTS PEN PLAN - IBEW, Attn: Jeff Miller, 1125 15TH
Street, NW, Washington, DC 20005-2765 (17.56%)
SHADOW - So Central Comm Hlth Pen - Equity - David Abel Controller, York
Hospital, 1001 S. George St, York, PA 17403-3676/South Central Community
Health, Attn: Joe McCoy, 140 N Duke St, York PA 17401 (6.62%)
SHADOW - So Central Comm Hlth Pen - Equity - South Central Community
Health, Attn: Joe McCoy, 140 N Duke St, York PA 17401 (6.10%)
IBEW OFFICE EMP PENSION PLAN - IBEW, Attn: Jeff Miller, 1125 15TH
Street, NW, Washington, DC 20005-2765 (5.75%)
</TABLE>
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 the Portfolio's other
shareholders. Allfirst Trust 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 Trust 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.
INDEPENDENT AUDITORS
KPMG LLP, located at 99 High Street, Boston, Massachusetts 02110, is
the ARK Funds' independent auditors, providing audit services and consultation
in connection with the review of various SEC filings. PricewaterhouseCoopers
LLP, located at 333 Market Street, San Francisco, CA 94105, served as
independent auditors to the Govett Funds.
FINANCIAL STATEMENTS
Financial statements and financial highlights for Portfolios other
than ARK International Equity Portfolio and ARK Emerging Markets Equity
Portfolio for the fiscal year ended April 30, 2000 are included in the ARK Funds
2000 Annual Report. Audited financial statements for the fiscal year ended
December 31,
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<PAGE>
1999 for Govett International Equity Fund and Govett Emerging Markets Equity
Fund are included in the Govett Funds' Annual Report to Shareholders dated
December 31, 1999. The ARK Funds' Annual Report and the Govett Funds' Annual
Report are supplied with this Statement of Additional Information. Financial
statements and financial highlights for the ARK Portfolios and the Govett Funds
are incorporated herein by reference.
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<PAGE>
APPENDIX A
DESCRIPTION OF SELECTED INDICES
Standard & Poor's 500 Composite Stock Price Index is an unmanaged index of
common stock prices and includes reinvestment of dividends.
S&P 500/BARRA Value Index is a widely recognized index of the stocks in
the S&P 500 Index that have lower price-to-book ratios.
Standard & Poor's MidCap 400 Index is an unmanaged index of common stock prices
and includes reinvestment of dividends.
Russell 2000 Index is an unmanaged index of Small-Capitalization stocks that
includes reinvestment of dividends.
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 U.S. companies with high growth
rates and price-to-book ratios.
Morgan Stanley Capital International Europe, Australia, Far East (EAFE) Index is
an unmanaged index of over 1,000 foreign securities in Europe, Australia and the
Far East, and includes reinvestment of dividends.
Morgan Stanley Capital International Emerging Markets Index is an unmanaged
index that represents the general performance of equity markets in emerging
markets.
Morgan Stanley Capital International Europe Australia Far East and Emerging
Markets Index is an unmanaged index that represents the general performance of
the international equity markets including emerging markets.
Lehman Brothers Aggregate Bond Index, an unmanaged index, is a broad measure of
bond performance and includes reinvestment of interest. It is comprised of
securities from the Lehman Brothers Government/Corporate Bond Index,
Mortgage-Backed Securities Index, and Yankee Bond Index.
Lehman Brothers Intermediate Government Bond Index is an index comprised of all
public obligations of the U.S. Treasury, U.S. government agencies, quasi-federal
corporations, and of corporate debt guaranteed by the U.S. government. The index
excludes flower bonds, foreign targeted issues, and mortgage-backed securities.
Lehman Brothers Corporate Bond Index is an index comprised of all public,
fixed-rate, non-convertible investment-grade domestic corporate debt. Issues
included in this index are
A-1
<PAGE>
rated at least Baa3 by Moody's or BBB- by S&P or, in the case of unrated bonds,
BBB by Fitch Investors Service. Collateralized mortgage obligations are not
included in the Corporate Bond Index.
The Lehman Brothers Intermediate Government Bond Index and the Lehman Brothers
Corporate Bond Index combine to form the Lehman Intermediate
Government/Corporate Bond Index.
Lehman Brothers Intermediate Corporate Bond Index is an index comprised of all
public, fixed-rate, non-convertible investment-grade domestic corporate debt.
Issues included in this index have remaining maturities of one to ten years and
are rated at least Baa3 by Moody's or BBB- by S&P, or, in the case of unrated
bonds, BBB- by Fitch Investors Service.
Lehman Brothers Long-Term Corporate Bond Index is an index comprised of all
public, fixed-rate, non-convertible investment-grade domestic corporate debt.
Issues included in this index have remaining maturities greater than ten years
and are rated at least Baa3 by Moody's or BBB- by S&P, or, in the case of
unrated bonds, BBB- by Fitch Investors Service.
The Lehman Brothers Municipal Bond Index is a widely recognized index of
long-term investment-grade tax-exempt bonds. The index includes general
obligation bonds, revenue bonds, insured bonds and prefunded bonds.
DESCRIPTION OF MOODY'S RATINGS OF STATE AND MUNICIPAL NOTES
Moody's ratings for state and municipal and other short-term obligations are
designated Moody's Investment Grade ("MIG," or "VMIG" for variable rate
obligations). This distinction is in recognition of the difference between
short-term credit risk and long-term credit risk. Factors affecting the
liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short run.
Symbols used will be as follows:
MIG-1/VMIG-1 - This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG-2/VMIG-2 - This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
DESCRIPTION OF S&P'S RATINGS OF STATE AND MUNICIPAL NOTES
SP-1 - Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 - Satisfactory capacity to pay principal and interest.
A-2
<PAGE>
DESCRIPTION OF MOODY'S MUNICIPAL BOND RATINGS
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long- term risks appear somewhat larger than Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest may be present which suggest a susceptibility to
impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF S&P'S MUNICIPAL BOND RATINGS
AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated debt issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
A-3
<PAGE>
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher categories.
The ratings from AA to BBB may be modified by the addition of a plus or minus to
show relative standing within the major rating categories.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate
reliance on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial
charges and with high internal cash generation.
- Well established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
DESCRIPTION OF S&P'S COMMERCIAL PAPER RATINGS
A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2, and 3 to indicate the relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
designation.
A-4
<PAGE>
A-2 - Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A - Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered as medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca - Bonds rated Ca represent obligations which are speculative to a high
degree. Such issues are often in default or have other marked short-comings.
A-5
<PAGE>
C - Bonds rated C are the lowest rated class of bonds, and issues so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF S&P'S CORPORATE BOND RATINGS
AAA - Debt rated AAA has the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only to a small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher- rated categories.
BB - Debt rate BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
B - Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
A-6
<PAGE>
C - The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed but debt service
payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is being
paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or minus to
show relative standing within the major rating categories.
A-7
<PAGE>
APPENDIX B
2000 TAX RATES
The following tables show the effect of a shareholder's tax status on
effective yield under the Federal and applicable state and local income tax laws
for 2000. The second table shows the approximate yield a taxable security must
provide at various income brackets to produce after-tax yields equivalent to
those of hypothetical tax-exempt obligations yielding from 3% to 7%. Of course,
no assurance can be given that a Portfolio will achieve any specific tax-exempt
yield. While the Portfolios invest principally in obligations whose interest is
exempt from Federal income tax (and, in the case of the Maryland Tax-Free
Portfolio and the Pennsylvania Tax-Free Portfolio, from Maryland and
Pennsylvania state income tax, respectively, as well) other income received by a
Portfolio may be taxable.
Use the first table to find your approximate effective tax bracket
taking into account Federal and state taxes for 2000.
<TABLE>
<CAPTION>
COMBINED
MARYLAND COMBINED
AND PENNSYLVANIA COMBINED
FEDERAL FEDERAL AND FEDERAL PENNSYLVANIA
INCOME MARYLAND EFFECTIVE PENNSYLVANIA EFFECTIVE AND FEDERAL
SINGLE RETURN JOINT RETURN TAX MARGINAL TAX MARGINAL TAX EFFECTIVE TAX
TAXABLE INCOME* TAXABLE INCOME* BRACKET** RATE BRACKET*** RATE BRACKET**** BRACKET*****
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
26,251 63,550 43,851 105,950 28.00% 4.85% 33.67% 2.80% 33.34% 30.02%
63,551 132,600 105,951 161,450 31.00% 4.85% 36.43% 2.80% 36.12% 32.93%
132,601 288,350 161,451 288,350 36.00% 4.85% 41.04% 2.80% 40.74% 37.79%
288,351 288,351 39.60% 4.85% 44.35% 2.80% 44.08% 41.29%
<FN>
* Net amount subject to Federal income tax after deductions and exemptions.
Assumes ordinary income only.
** Excludes the impact of the phaseout of personal exemptions, limitations
on itemized deductions, and other credits, exclusions, and adjustments
which may increase a taxpayer's marginal tax rate. An increase in a
shareholder's marginal tax rate would increase that shareholder's
tax-equivalent yield.
*** Combined Maryland and Federal effective tax brackets take into account
the highest combined Maryland state and county income tax rate of 7.87%
(applicable to residents of Caroline County). The table below sets
forth the combined Maryland state and county income tax rate in
descending order for each county combined:
</FN>
</TABLE>
B-1
<PAGE>
COMBINED
COUNTY RATE
Caroline 7.87%
Somerset 7.86%
Wicomico 7.86%
Montgomery 7.85%
Price George's 7.85%
St. Mary's 7.77%
Allegany 7.67%
Carroll 7.62%
Baltimore 7.61%
Queen Anne's 7.61%
Garrett 7.38%
Calvert 7.37%
Cecil 7.36%
Charles 7.36%
Dorchester 7.36%
Frederick 7.36%
Harford 7.36%
Kent 7.36%
Washington 7.36%
Anne Arundel 7.35%
Baltimore City 7.33%
Howard 7.26%
Talbot 6.60%
Worcester 5.85%
Figures are tax-effected to reflect the federal tax benefit for persons who
itemized deductions.
**** Combined Pennsylvania and Federal effective tax brackets take into
account the Pennsylvania state income tax rate of 2.8% and Philadelphia
school district investment income tax rate of 4.6135%. Figures are
tax-effected to reflect the Federal tax benefit for persons who
itemized deductions. Having determined your effective tax bracket
above, use the following table to determine the tax equivalent yield
for a given tax-free yield.
***** Combined Pennsylvania and Federal effective tax brackets take into
account the highest Pennsylvania state income tax rate of 2.8% but does
not take into account any local income tax rate since only residents of
the school district of Philadelphia are subject to a local income tax
on the net income from the ownership, sale or other disposition of
tangible and intangible personal property. Figures are tax-effected to
reflect the Federal tax benefit for persons who itemized deductions.
B-2
<PAGE>
If your combined effective Federal, Maryland state and county personal income
tax rate in 2000 is:
33.67% 36.43% 41.04% 44.35%
To match these tax free rates: Your taxable investment would have to earn the
following yield:
3.00% 4.52% 4.72% 5.09% 5.39%
4.00% 6.03% 6.29% 6.78% 7.19%
5.00% 7.54% 7.87% 8.48% 8.99%
6.00% 9.05% 9.44% 10.18% 10.78%
7.00% 10.55% 11.01% 11.87% 12.58%
If your combined effective Federal, Pennsylvania state and Philadelphia school
district investment income tax rate in 2000 is:
33.34% 36.12% 40.74% 44.08%
Your taxable investment would have to earn the following yield:
3.00% 4.50% 4.70% 5.06% 5.36%
4.00% 6.00% 6.26% 6.75% 7.15%
5.00% 7.50% 7.83% 8.44% 8.94%
6.00% 9.00% 9.39% 10.13% 10.73%
7.00% 10.50% 10.96% 11.81% 12.52%
If your combined effective Federal and Pennsylvania state income tax rate in
2000 is:
30.02% 32.93% 37.79% 41.29%
B-3
<PAGE>
Your taxable investment would have to earn the following yield:
3.00% 4.29% 4.47% 4.82% 5.11%
4.00% 5.72% 5.96% 6.43% 6.81%
5.00% 7.14% 7.46% 8.04% 8.52%
6.00% 8.57% 8.95% 9.65% 10.22%
7.00% 10.00% 10.44% 11.25% 11.92%
A Portfolio may invest a portion of its assets in obligations that are subject
to Federal, state, or county (or City of Baltimore) income taxes. When the
Portfolio invests in these obligations, its tax-equivalent yield will be lower.
In the table above, tax-equivalent yields are calculated assuming investments
are 100% Federal and state tax free.
Yield information may be useful in reviewing a Portfolio's performance and in
providing a basis for comparison with other investment alternatives. However,
each Portfolio's yield fluctuates, unlike investments that pay a fixed interest
rate over a stated period of time. When comparing investment alternatives,
investors should also note the quality and maturity of the portfolio securities
of the respective investment companies that they have chosen to consider.
Investors should recognize that in periods of declining interest rates a
Portfolio's yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates a Portfolio's yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net new
money to a Portfolio from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of the
Portfolio's holdings, thereby reducing the Portfolio's current yield. In periods
of rising interest rates, the opposite can be expected to occur. THE YIELDS OF
THE RETAIL CLASS A, RETAIL CLASS B, INSTITUTIONAL CLASS OR INSTITUTIONAL II
CLASS OF A PORTFOLIO ARE EACH CALCULATED SEPARATELY. THE YIELDS OF THE RETAIL
CLASS A, RETAIL CLASS B AND INSTITUTIONAL CLASS OF A PORTFOLIO WILL BE LOWER
THAN THOSE OF THE INSTITUTIONAL CLASS OF THE SAME PORTFOLIO, DUE TO HIGHER
EXPENSES IN GENERAL.
B-4
<PAGE>
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.
(c) Not applicable.
(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) Form of Investment Subadvisory Agreement is
incorporated herein by reference to Exhibit (d)(2) to
Post-Effective Amendment No. 27.
(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 dated November 9,1995, between First
National Bank of Maryland and Bankers Trust Company is
incorporated herein by reference to Exhibit 8(b) to
Post-Effective Amendment No. 6.
(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.
<PAGE>
(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).
(j) (1) Consent of KPMG LLP (filed herewith).
(2) Consent of PricewaterhouseCoopers LLP (filed
herewith).
(k) Not applicable.
(l) Not applicable.
(m) (1) Distribution and Shareholder Services Plan with
respect to Retail Class A Shares is incorporated herein
by reference to Exhibit (m)(1) to Post-Effective
Amendment No. 21.
(2) Shareholder Services Plan for Institutional Class
Shares is incorporated herein by reference to
Exhibit (m)(2) to Post-Effective Amendment No. 21.
(n) Amended and Restated Rule 18f-3 Plan is incorporated
herein by reference to Exhibit (o) to Post-Effective
Amendment No. 25.
(o) Reserved.
(p) (1) Fund Code of Ethics is incorporated herein by
reference to Exhibit (p)(1) to Post-Effective Amendment No.25.
(2) SEI Investments Code of Ethics and Insider Trading Policy
is incorporated herein by reference to Exhibit (p)(2) to Post-
Effective Amendment No. 25.
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
<PAGE>
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, 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 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:
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
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
<PAGE>
Armada Funds March 8, 1997
PBHG Insurance Series Fund, Inc. April 1, 1997
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
Pitcarin Funds August 1, 2000
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:
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS * UNDERWRITER WITH REGISTRANT
------------------- -------------------------- ---------------------
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
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
Jack May Senior Vice President
Hartland J. McKeown Senior Vice President
Kevin P. Robins Senior Vice President
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
Carolyn McLaurin Vice President and Managing Director
Paul Lonergan Vice President and Managing Director
Steven Gardner Vice President and Managing Director
Scott Fanatico Vice President and Managing Director
Scott W. Dellorfano Vice President and Managing Director
John Andersen 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 General Vice President
Counsel and Assistant
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
Secretary and Assistant
Secretary
Lydia A. Gavalis Vice President and Assistant Vice President
Secretary and Assistant
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
Ellen Marquis Vice President
Timothy D. Barto Vice President and Assistant Vice President
Secretary and Assistant
Secretary
Christine M. McCullough Vice President and Assistant Vice President
Secretary and Assistant
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
Daniel Spaventa Vice President
----------------------
* 1 Freedom Valley Drive, Oaks, PA 19456
(c) Not applicable.
<PAGE>
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. 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>
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. 29 to be signed on its behalf by the undersigned, hereunto duly
authorized, in the City of Baltimore, and State of Maryland, on the 31st day of
August, 2000.
ARK FUNDS
BY: /S/ RICK A. GOLD
----------------
Rick A. Gold
President
<TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 29 to the
Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
<S> <C> <C>
/S/ RICK A. GOLD President (principal executive August 31, 2000
---------------------------------
Rick A. Gold officer)
/S/ JAMES F. VOLK Treasurer, Controller and Chief August 31, 2000
---------------------------------
James F. Volk Financial Officer
* Trustee
---------------------------------
William H. Cowie
* Trustee
---------------------------------
David D. Downes
* Trustee
---------------------------------
Charlotte R. Kerr
* Trustee
---------------------------------
Thomas Schweizer
* Trustee
---------------------------------
Richard B. Seidel
* BY: /S/ ALAN C. PORTER August 31, 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.
<TABLE>
EXHIBIT INDEX
-------------
<S> <C> <C>
(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/
(c) Voting Trust Agreements - None
(d) (1) Investment Advisory Agreement between the Registrant and Allied Investment Advisors, Inc. dated
February 12, 1998 4/
(2) Form of Investment Subadvisory Agreement between the Registrant, Allied Investment Advisors,
Inc., and AIB Govett Inc. 8/
(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 between First National Bank of Maryland and Bankers Trust Company
dated November 9, 1995 3/
(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) (1) Consent of KPMG LLP (filed herewith)
(2) Consent of PricewaterhouseCoopers LLP (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/
<PAGE>
(o) Reserved.
(p) (1) Fund Code of Ethics 6/
(2) SEI Investments Code of Ethics and Insider Trading Policy 6/
.
-------------------------
1/ Incorporated by reference to the Registration Statement of the Trust on Form
N-1A as filed with the SEC on October 23, 1992.
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.
7/ Incorporated by reference to Post-Effective Amendment No. 26 to the Registration Statement of the Trust on
Form N-1A as filed with the SEC on May 22, 2000.
8/ Incorporated by reference to Post-Effective Amendment No. 27 to the Registration Statement of the Trust on
Form N-1A as filed with the SEC on June 29, 2000.
9/ Incorporated by reference to Post-Effective Amendment No. 28 to the Registration Statement of the Trust on
Form N-1A as filed with the SEC on June 30, 2000.
10/ Incorporated by reference to Post-Effective Amendment No. 26 to The Govett Funds, Inc. Registration Statement
on Form N-1A as filed with the SEC on May 9, 20000.
11/ Incorporated by reference to the Registrant's filing with the SEC
pursuant to Rule 30b-2 under the Investment Company Act of 1940.
</TABLE>
<PAGE>
Exhibit (i)
Kirkpatrick & Lockhart LLP 1800 Massachusetts Avenue. NW
Second Floor
Washington, DC 20036-1800
202.778.9000
www.kl.com
August 25, 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. 29 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 each
series of the Trust referenced therein (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.
<PAGE>
Exhibit (i)
ARK Funds
August 25, 2000
Page 2
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 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 is 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
