MSD&T FUNDS INC, 497, 1999-10-08

MSD&T FUNDS INC
497, 1999-10-08

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M.S.D.&T. Funds, Inc.
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Prospectus

Growth & Income Fund
Equity Income Fund
Equity Growth Fund
International Equity Fund
Diversified Real Estate Fund

SEPTEMBER 28, 1999

As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.
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TABLE OF CONTENTS

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Page
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<S> <C>
RISK/RETURN SUMMARY........................................................ 1
Introduction............................................................. 1
Growth & Income Fund..................................................... 2
Equity Income Fund....................................................... 4
Equity Growth Fund....................................................... 6
International Equity Fund................................................ 8
Diversified Real Estate Fund............................................. 10
Fees and Expenses........................................................ 12
Additional Information about Risk........................................ 12

INVESTING IN THE FUNDS..................................................... 13
Getting Your Investment Started.......................................... 13
How To Buy Fund Shares................................................... 14
How To Sell Fund Shares.................................................. 16
Other Purchase and Redemption Information................................ 17

SHAREHOLDER SERVICES....................................................... 18
Retirement Plans......................................................... 18
Exchange Privilege....................................................... 19
Automatic Investment Plan................................................ 19
Systematic Withdrawals................................................... 20
Directed Reinvestments................................................... 20

DIVIDENDS AND DISTRIBUTIONS................................................ 20

TAX INFORMATION............................................................ 20

MANAGEMENT OF THE COMPANY.................................................. 22
Investment Adviser....................................................... 22
Sub-Adviser.............................................................. 22

FINANCIAL HIGHLIGHTS....................................................... 23
</TABLE>
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RISK/RETURN SUMMARY

Introduction
This Prospectus describes the M.S.D.&T. Equity Funds (the "Funds"), five
investment portfolios offered by M.S.D.&T. Funds, Inc. (the "Company"). On the
following pages, you will find important information about each Fund,
including:

. The Fund's investment objective and the principal investment strategies used
by the Fund's investment adviser in trying to achieve that objective;

. The principal risks associated with an investment in the Fund;

. The Fund's past performance measured on both a year-by-year and long-term
basis; and

. The fees and expenses you will pay as an investor in the Fund.

The M.S.D.&T. Equity Funds may be appropriate for investors seeking growth of
their investment over time and who are willing to accept the risks associated
with stock markets. Equity funds have the potential for higher returns than
other funds, such as bond funds or money market funds, but also carry more
risk. The Funds may NOT be appropriate for investors who are investing for
short-term goals or are mainly seeking current income.

Before investing in a Fund, you should carefully consider:

. Your investment goals;

. Your investment time horizon; and

. Your tolerance for risk.

The Investment Adviser
Mercantile-Safe Deposit & Trust Company ("Mercantile" or the "Adviser") is the
investment adviser for each Fund. Mercantile, which has its main office at Two
Hopkins Plaza, Baltimore, Maryland 21201, is the lead bank of Mercantile
Bankshares Corporation, a multi-bank holding company. As of June 30, 1999,
Mercantile had approximately $15 billion in assets under management, of which
approximately $856 million represented the assets of an institutional real
estate pension fund.

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Value stocks are those that appear to be underpriced based on valuation
measures, such as lower price to earnings and price to book value ratios.
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Portfolio Manager The Fund is managed by Manind V. Govil, C.F.A., with the
guidance of Brian B. Topping. Mr. Topping, Vice Chairman of Mercantile, has
participated in the management of the Fund since December, 1995 and has managed
endowment, employee benefit and foundation portfolios at Mercantile since 1976.
Mr. Govil, Vice President of Mercantile, has managed the Fund since April, 1996,
and has managed endowment, employee benefit and foundation portfolios at
Mercantile since 1994.
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Growth & Income Fund

Investment Objective
The Fund's investment objective is to seek long-term
capital appreciation, with income as a secondary
objective.

Principal Investment Strategies
The Fund follows both a value and growth oriented
investment strategy. It invests primarily in common
stocks of companies the Adviser believes possess above
average growth prospects at attractive relative
valuations. In evaluating an investment, the Adviser
focuses on companies which appear to be financially
strong with leadership positions in their industries.
These companies will generally have what the Adviser
believes to be a superior track record of growth in
sales, earnings and dividends.

Under normal market and economic conditions, the Fund
will invest at least 65% of its total assets in common
stock, preferred stock and securities convertible into
common stock. These securities will generally be
publicly-traded common stocks of U.S. companies.
However, the Fund may also invest up to 25% of its
total assets in equity and debt securities of foreign
issuers, either directly or through American Depository
Receipts, European Depository Receipts and Global
Depository Receipts. There is no minimum credit rating
requirement with respect to the Fund's investments in
convertible securities. However, the Fund's investments
in convertible securities rated at the time of purchase
in the fourth highest category or lower by one or more
nationally recognized statistical rating organizations
(each a "Rating Agency") are limited to 10% of the
Fund's total assets.

The Fund follows a disciplined buy/sell process. The
Adviser may perform quantitative analysis of financial
statements, industry and economic trends. This is
complemented by qualitative analysis such as
understanding a company's products and management;
judging growth prospects and assessing risks. Finally,
an appropriate valuation level is emphasized. The Fund
will likely sell an investment which has become
relatively overvalued in relation to other issues or
when the underlying fundamentals deteriorate and
analysis indicates no improvement in the visible
future, as determined by the Adviser.

Principal Risks of Investing in the Fund
The value of common stocks and other equity securities
may decline in response to changes in the U.S. or
foreign markets. Such declines may take place over
short or extended periods of time. Equity markets tend
to move in cycles, with periods of rising prices and
periods of falling prices. The value of your investment
in the Fund will fluctuate with the value of the
securities the Fund holds. In addition, the Fund is
subject to the additional risk that the value stocks it
typically holds may not perform as well as other types
of stocks, such as growth stocks, even in times of
rising markets.

2
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securities), also known as "junk bonds," are considered to be speculative and
involve greater risk of default or price changes due to the issuer's
creditworthiness. The market prices of these securities may fluctuate more than
those of higher quality securities and may decline significantly in periods of
general economic difficulty, which may follow periods of rising rates.
Securities in the lowest quality category may present the risk of default, or
may be in default.

Foreign investments may be riskier than U.S. investments because of factors such
as less stringent foreign government regulations; less stringent accounting and
disclosure standards; changes in currency exchange rates; incomplete financial
information about the issuers of securities; and political or economic
instability. Foreign stocks may be more volatile and less liquid than U.S.
stocks.

The Adviser evaluates the risks and rewards presented by all securities
purchased by the Fund and how they further the Fund's investment objective. It
is possible, however, that these evaluations will prove to be inaccurate.

Fund Performance The bar chart and table below show the Fund's annual returns
and long-term performance, thereby giving some indication of the risk of
investing in the Fund./1/ The bar chart shows how the performance of the Fund
has varied from year to year. The table shows how the Fund's average annual
total returns for one year, five years and since inception compared to those of
a broad-based market index. The Fund's past performance does not necessarily
indicate how it will perform in the future.

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Best quarter:
22.18% for the quarter ended December 31, 1998

Worst quarter:
(9.81)% for the quarter ended September 30, 1998
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[BAR GRAPH APPEARS HERE]

Calendar Year Total Returns
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8.14% 10.33% 2.41% 24.14% 20.09% 34.15% 26.20%
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1992 1993 1994 1995 1996 1997 1998
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Year-to-date total return for the six
months ended June 30, 1999: 9.95%

Average Annual Total Returns (for the periods ended December 31, 1998)

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The S&P 500 Index is an unmanaged index comprised of 500 widely held common
stocks listed on the New York Stock Exchange, the American Stock Exchange and
NASDAQ.
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1 Year 5 Years Since Inception*
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Growth & Income Fund.............. 26.20% 20.92% 17.22%
S&P 500 Index..................... 28.58% 24.06% 19.57%
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*February 28, 1991 for the Fund and the S&P 500 Index
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/1/ Both the bar chart and the table assume reinvestment of all dividends and
distributions.

3
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Equity Income Fund

Investment Objective
The Fund's investment objective is to seek current
income and long-term capital appreciation consistent
with reasonable risk.

The Fund's investment objective can be changed by the
Company's Board of Directors without shareholder
approval. Shareholders will be given at least 30 days'
written notice before any such change occurs.

Principal Investment Strategies
The Fund invests primarily in common stocks that the
Adviser believes are likely to produce higher than
average dividend yields and which appear to represent
good relative values with the potential to appreciate
in price. In evaluating whether or not to purchase a
particular stock, the Adviser may consider that stock's
price to earnings ratio, price to sales ratio, price to
cash flow ratio, price to book value ratio, historic
earnings trend and dividend growth rate.

- ------------------
Current income Under normal market and economic conditions, the Fund
includes both will invest at least 65% of its total assets in income-
dividends from producing equity securities, including common stock,
stocks and preferred stock and securities convertible into common
interest income stock. These securities will generally be publicly-
from fixed income traded common stocks of U.S. companies. However, the
securities less Fund may also invest up to 25% of its total assets in
Fund expenses. equity and debt securities of foreign issuers, either
- ------------------ directly or through American Depository Receipts,
European Depository Receipts and Global Depository
Receipts. There is no minimum credit rating requirement
with respect to the Fund's investments in convertible
securities. However, the Fund's investments in
convertible securities rated at the time of purchase in
the fourth highest category or lower by one or more
nationally recognized statistical rating organizations
(each a "Rating Agency") are limited to 10% of the
Fund's total assets.

The Fund will likely sell a portfolio security when it
has met established price targets or has become
relatively overvalued compared to other issues, as
determined by the Adviser. A security may also be sold
as a result of a deterioration in the performance of
the security or in the financial condition of the
issuer of the security.

4
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Portfolio Manager The Fund is managed by Charles W. Brooks Jr., C.F.A. Mr.
Brooks, Senior Vice President and Director of Equity Research at Mercantile, is
responsible for the management of equity selection at Mercantile. Mr. Brooks has
been with Mercantile since 1993, heading the equity research staff of analysts
and managing a commingled fund; he has managed the Fund since it commenced
operations in 1998. Mr. Brooks has thirty-eight years of investment experience.
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Principal Risks of Investing in the Fund The value of common stocks and other
equity securities may decline in response to changes in the U.S. or foreign
markets. Such declines may take place over short or extended periods of time.
Equity markets tend to move in cycles, with periods of rising prices and periods
of falling prices. The value of your investment in the Fund will fluctuate with
the value of the securities the Fund holds. In addition, the Fund is subject to
the additional risk that the securities it holds may not perform as well as
other securities, even in times of rising markets.

Convertible securities that carry the lowest of the four highest ratings
assigned by a Rating Agency are considered to have speculative characteristics,
even though they are of investment grade quality, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations. Lower quality debt securities (including convertible securities),
also known as "junk bonds," are considered to be speculative and involve greater
risk of default or price changes due to the issuer's creditworthiness. The
market prices of these securities may fluctuate more than those of higher
quality securities and may decline significantly in periods of general economic
difficulty, which may follow periods of rising rates. Securities in the lowest
quality category may present the risk of default, or may be in default.

Foreign investments may be riskier than U.S. investments because of factors such
as less stringent foreign securities regulations; less stringent accounting and
disclosure requirements; changes in currency exchange rates; incomplete
financial information about the issuers of securities; and political or economic
instability. Foreign stocks may be more volatile and less liquid than U.S.
stocks.

Fund Performance The Fund commenced operations on March 1, 1998. As a result,
the Fund has a performance record of less than one full calendar year.

5
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Growth stocks offer strong revenue and earnings potential and accompanying
capital growth, with less dividend income than value stocks.
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Portfolio Manager
The Fund is co-managed by Charles W. Brooks, Jr., C.F.A., Senior Vice President
and Director of Equity Research at Mercantile and Christopher G. Frink, C.F.A.,
Vice President of Mercantile. Mr. Brooks has been with Mercantile since 1993,
heading the equity research staff of analysts and managing a commingled fund;
he has co-managed the Fund since September, 1999. Mr. Brooks has thirty-eight
years of investment experience. Mr. Frink is responsible for equity and
balanced portfolio management of endowment and pension funds and has been with
Mercantile since 1997. Mr. Frink has co-managed the Fund since September, 1999.
From 1995 to 1997, Mr. Frink was completing his Master of Business
Administration. Mr. Frink was a portfolio manager at Oxford Capital Management
until 1995. Mr. Frink has eight years investment experience.
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Equity Growth Fund

Investment Objective
The Fund's investment objective is to seek long-term capital appreciation.

The Fund's investment objective can be changed by the Company's Board of
Directors without shareholder approval. Shareholders will be given at least 30
days' written notice before any such change occurs.

Principal Investment Strategies
The Fund invests primarily in common stock which the Adviser believes to
represent good growth potential and seem likely to appreciate in price. In
selecting securities for the Fund, the Adviser evaluates a company's earnings
history and the risk and volatility of the company's business. The Adviser also
evaluates other factors, such as technological advances, good product
development and strong management, which support future growth.

Under normal market and economic conditions, the Fund will invest at least 65%
of its total assets in growth-oriented equity securities, including common
stock, preferred stock and securities convertible into common stock. These
securities will generally be publicly-traded common stocks of U.S. companies.
However, the Fund may also invest up to 25% of its total assets in equity and
debt securities of foreign issuers, either directly or through American
Depository Receipts, European Depository Receipts and Global Depository
Receipts. There is no minimum credit rating with respect to the Fund's
investments in convertible securities. However, the Fund's investments in
convertible securities rated at the time of purchase in the fourth highest
category or lower by one or more nationally recognized statistical rating
organizations (each a "Rating Agency") are limited to 10% of the Fund's total
assets.

The Fund will sell a security if there is an adverse change in the projected
earnings growth of the company issuing the security. The Fund will also sell a
portfolio security when, as a result of changes in the economy or the
performance of the security or other circumstances, the Adviser believes that
holding the security is no longer consistent with the Fund's investment
objective.

Principal Risks of Investing in the Fund
The value of common stocks and other equity securities may decline in response
to changes in the U.S. or foreign markets. Such declines may take place over
short or extended periods of time. Equity markets tend to move in cycles, with
periods of rising prices and periods of falling prices. The value of your
investment in the Fund will fluctuate with the value of the securities the Fund
holds. In addition, the Fund is subject to the additional risk that the growth
stocks which it typically holds may not perform as well as other types of
stocks, such as value stocks, even in times of rising markets.

6
<PAGE>

grade debt obligations. Lower quality debt securities (including convertible
securities), also known as "junk bonds," are considered to be speculative and
involve greater risk of default or price changes due to the issuer's
creditworthiness. The market prices of these securities may fluctuate more than
those of higher quality securities and may decline significantly in periods of
general economic difficulty, which may follow periods of rising rates.
Securities in the lowest quality category may present the risk of default, or
may be in default.

Foreign investments may be riskier than U.S. investments because of factors
such as less stringent foreign securities regulations; less stringent
accounting and disclosure standards; changes in currency exchange rates;
incomplete financial information about the issuers of securities; and political
or economic instability. Foreign stocks may be more volatile and less liquid
than U.S. stocks.

Fund Performance
The Fund commenced operations on March 1, 1998. As a result, the Fund has a
performance record of less than one full calendar year.

7
<PAGE>

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Sub-Adviser/Portfolio Manager Mercantile has appointed BlackRock International
Ltd. ("BlackRock" or the "Sub-Adviser") as sub-adviser to assist in the day to
day management of the Fund. The organizational arrangements of BlackRock's
international equity team require that all investment decisions with respect to
the Fund be made by the BlackRock International Equity Investment Group,
chaired by its Investment Director, and no one person is primarily responsible
for making recommendations to that Group.
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International Equity Fund

Investment Objective
The Fund's investment objective is to seek long-term growth of capital and
income consistent with reasonable risk. Current income from dividends, interest
and other sources is a secondary consideration for the Fund.

Principal Investment Strategies
The Fund invests primarily in foreign common stocks, warrants and rights. The
Fund will generally acquire stocks with relatively low ratios of market values
to earnings and to book values.

Under normal market and economic conditions, the Fund will invest at least 65%
of its total assets in the equity securities of issuers in at least three
different foreign countries. There are no limitations on the amount of the
Fund's assets which may be invested in securities of issuers in any one
country. However, under normal market and economic conditions, no more than 25%
of the Fund's net assets will be invested in the securities of issuers located
in countries with emerging economies or securities markets.

In determining how much to invest in each country and region, the Sub-Adviser
looks at factors such as prospects for economic growth, expected inflation
levels, government policies and the range of investment opportunities
available. In selecting stocks, the Sub-Adviser determines which companies
represent the best values relative to their long-term growth prospects and
local markets. Decisions as to particular investments are made by the Sub-
Adviser under the supervision of the Adviser.

The Fund will sell a security if, as a result of changes in the economy of a
particular country or region, the Sub-Adviser believes that holding the
security is no longer consistent with the Fund's investment objective. A
security may also be sold as a result of a deterioration in the performance of
the security or in the financial condition of the company that issued the
security.

Principal Risks of Investing in the Fund
The value of common stock and other equity securities may decline in response
to changes in the U.S. or foreign markets. Such declines may take place over
short or extended periods of time. Equity markets tend to move in cycles, with
periods of rising prices and periods of falling prices. The value of your
investment in the Fund will fluctuate with the value of the securities the Fund
holds. In addition, the Fund is subject to the additional risk that the
securities it holds may not perform as well as other securities, even in times
of rising markets.

Investing in securities of foreign issuers may be riskier than investing in
securities of U.S. issuers due to factors such as less stringent foreign
securities regulation; less stringent accounting and disclosure standards;
changes in currency exchange rates; incomplete financial information about the
issuers of securities; and political or economic instability. Foreign stocks
may be more volatile and less liquid than U.S. stocks.

The risks associated with foreign investments are heightened when investing in
emerging markets. The governments and economies of emerging market countries
feature greater instability than those of more developed countries.

8
<PAGE>

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Best quarter:
16.22% for the quarter ended March 31, 199 8

Worst quarter:
(15.44)% for the quarter ended September 30, 1998
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The Morgan Stanley Capital International ("MSCI") All Country World ex-US Index
is an unmanaged index of foreign securities that reflects a strategic emerging
market allocation.
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The Morgan Stanley Europe, Australia and Far East ("EAFE") Index is an
unmanaged index comprised of more than 900 securities issued by foreign
companies and is weighted according to the total market value of each security.
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Such investments tend to fluctuate in price more widely and to be less liquid
than other foreign investments.

There are no limitations on the amount of the Fund's assets which may be
invested in securities of issuers in any one country. When the Fund invests a
high percentage of its assets in a particular country, the Fund will be
especially susceptible to factors affecting that country.

Although the Fund usually makes investments that are sold in foreign
currencies, it values its holdings in U.S. dollars. If the U.S. dollar rises
compared to a foreign currency, the Fund loses on the currency exchange.

Fund Performance
The bar chart and table below show the Fund's annual returns and long-term
performance, thereby giving some indication of the risk of investing in the
Fund./1/ The bar chart shows how the performance of the Fund has varied from
year to year. The table shows how the Fund's average annual total returns for
one year, five years and since inception compared to those of a broad-based
market index. The Fund's past performance does not necessarily indicate how it
will perform in the future.

[BAR GRAPH APPEARS HERE]
Calendar Year Total Returns
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4.66% 7.97% 10.19% 4.08% 11.98%
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1994 1995 1996 1997 1998
- -------------------------------------------------------------------------------

Year-to-date total return for the six
months ended June 30, 1999: 8.10%

Average Annual Total Returns (for the periods ended December 31, 1998)

<TABLE>
<CAPTION>
1 Year 5 Years Since Inception*
---------------------------------------------------------
<S> <C> <C> <C>
International Equity Fund...................... 11.98% 7.73% 9.48%
MSCI All Country World
ex-US Index................................... 14.09% 7.54% 8.83%
Morgan Stanley EAFE Index...................... 20.33% 9.50% 10.06%
---------------------------------------------------------
</TABLE>

*July 2, 1993 for the Fund; June 30, 1993 for the MSCI World ex-U.S. Index and
the Morgan Stanley EAFE Index.
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/1/ Both the bar chart and the table assume reinvestment of all dividends and
distributions.

9
<PAGE>

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REITs pool investors' funds for investment primarily in real estate or related
loans. REITs are usually classified as either equity REITs, mortgage REITs or
hybrid REITs. Equity REITs invest directly in real estate and derive most of
their income from rental and lease payments, although they can also realize
capital gains by selling real estate that has appreciated in value. Mortgage
REITs make loans to commercial real estate developers and derive most of their
income from interest payments on the loans. Hybrid REITs combine the
characteristics of both equity REITs and mortgage REITs.
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Portfolio Manager
The Fund is co-managed by Robert M. Law and David E. Ferguson, C.F.A. Mr. Law
has overseen Mercantile's Institutional Real Estate Department since joining
Mercantile in 1994 and is Chairman of Mercantile's Trust Real Estate Committee.
Before joining Mercantile, Mr. Law was a Senior Vice President at Maryland
National Bank, where he served as Division Manager of its Real Estate Finance
Division. Mr. Law has managed the Fund since it commenced operations in 1997.
Mr. Ferguson, Assistant Vice President of Mercantile, is responsible for equity
security analysis and has assisted in managing the Fund since June, 1998. He
has been co-manager of the Fund since September, 1999. Before joining
Mercantile in 1998, Mr. Ferguson was Director of Financial Analysis for USF&G
Realty Advisors. Mr. Ferguson has fifteen years of investment experience.
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Diversified Real Estate Fund

Investment Objective
The Fund's investment objective is to seek current income and capital growth.

Principal Investment Strategies
The Fund invests in the equity securities, primarily common stock, of companies
principally engaged in the real estate business. Under normal market and
economic conditions, at least 65% of the Fund's total assets will be invested
in such securities.

It is expected that the Fund will invest a majority of its assets in shares of
real estate investment trusts ("REITs") during normal market and economic
conditions. The Fund expects that a substantial portion of its investments in
REITs will be in equity and hybrid REITs.

In selecting portfolio securities for the Fund, the Adviser focuses on total
return, emphasizing those companies that offer both strong earnings growth and
an above-average dividend yield. The Fund's holdings are diversified across
several geographic regions and types of real estate.

The Fund will sell a portfolio security when, as a result of changes in the
economy, the Adviser believes that holding the security is no longer consistent
with the Fund's investment objective. A security may also be sold as a result
of a deterioration in the performance of the security or in the financial
condition of the issuer of the security or when the Adviser determines that the
security is overvalued.

Principal Risks of Investing in the Fund
The value of common stocks and other equity securities may decline in response
to changes in the U.S. or foreign markets. Such declines may take place over
short or extended periods of time. Equity markets tend to move in cycles, with
periods of rising prices and periods of falling prices. The value of your
investment in the Fund will fluctuate with the value of the securities the Fund
holds. In addition, the Fund is subject to the additional risk that the
securities it holds may not perform as well as other securities, even in times
of rising markets.

Although the Fund will not invest in real estate directly, it may be subject to
risks similar to those associated with the direct ownership of real estate
because of its policy of concentrating in the securities of companies in the
real estate industry. These risks include declines in the value of real estate,
possible lack of availability of mortgage funds, overbuilding, extended
vacancies of properties, increases in property taxes and operating expenses,
changes in zoning laws, changes in neighborhood values, and changes in interest
rates. These risks may be more significant to the extent the Fund emphasizes
investments in a particular geographic region.

REITs are also subject to the risks associated with direct ownership of real
estate. Generally, an increase in interest rates will decrease the value of
high yielding securities and increase the cost of obtaining financing, which
could decrease the value of a REIT's investments. Equity REITs may be affected
by changes in the value of the underlying property owned by the REITs, while

10
<PAGE>

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Best quarter:
(0.64)% for the quarter ended December 31, 1998

Worst quarter:
(9.32)% for the quarter ended September 30, 1998
- --------------------------------------------------------------------------------
The Wilshire Real Estate Securities Index is an unmanaged index generally
representative of the U.S. REIT market.
- --------------------------------------------------------------------------------
mortgage REITs may be affected by the quality of any credit extended. REITs are
dependent upon management skills, may not be diversified and are subject to
heavy cash flow dependency and defaults of borrowers. In addition, because
REITs pay dividends to their shareholders based upon available funds from
operations, it is quite common for a portion of these dividends to be
designated as a return of capital. Since the Fund includes dividends from REITs
in its distributions to shareholders, a portion of the Fund's dividends may
also be designated as a return of capital. In addition, like mutual funds,
REITs pay fees and expenses.

Fund Performance
The bar chart and table below show the Fund's annual returns and long-term
performance, thereby giving some indication of the risk of investing in the
Fund./1/ The bar chart shows the performance of the Fund during the last
calendar year. The table shows how the Fund's average annual total returns for
one year and since inception compared to those of a broad-based market index.
The Fund's past performance does not necessarily indicate how it will perform
in the future.

[BAR GRAPH APPEARS HERE]
Calendar Year Total Return
- -------------------------------------------------------------------------------
(13.57)%
- -------------------------------------------------------------------------------
1998
- -------------------------------------------------------------------------------

Year-to-date total return for the six
months ended June 30, 1999; 8.27%

Average Annual Total Returns (for the periods ended December 31, 1998)

<TABLE>
<CAPTION>
1 Year Since Inception*
- --------------------------------------------------------------------------------
<S> <C> <C>
Diversified Real Estate Fund.......................... (13.57)% (4.48)%
Wilshire Real Estate Securities Index................. (17.43)% (7.22)%
- --------------------------------------------------------------------------------
</TABLE>
* August 1, 1997 for the Fund; July 31, 1997 for the Wilshire Real Estate
Index.

- --------
/1/ Both the bar chart and the table assume reinvestment of all dividends and
distributions.

11
<PAGE>

Fees and Expenses
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Funds.

<TABLE>
<CAPTION>
Growth & Equity Equity International Diversified
Income Income Growth Equity Real Estate
Fund Fund Fund Fund Fund
-------- ------ ------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Annual Fund Operating Expenses:
(expenses that are deducted from Fund
assets)
Management Fees/1/........... 0.60% 0.60% 0.60% 0.80% 0.80%
Distribution (12b-1) Fees.... None None None None None
Other Expenses/1/............ 0.21% 0.22% 0.31% 0.34% 0.67%
Total Annual Fund Operating
Expenses/1/................. 0.81% 0.82% 0.91% 1.14% 1.47%
</TABLE>

Example
This example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds. The example assumes that you
invest $10,000 for the time periods shown, reinvest all of your dividends and
distributions, and then sell all of your shares at the end of those periods.
The example also assumes that your investment has a 5% return each year and the
Funds' operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth & Income Fund............................ $ 81 $255 $448 $1,019
Equity Income Fund.............................. $ 82 $259 $453 $1,031
Equity Growth Fund.............................. $ 91 $287 $503 $1,045
International Equity Fund....................... $114 $359 $630 $1,434
Diversified Real Estate Fund.................... $147 $463 $812 $1,849
</TABLE>
- --------
/1/ Management Fees, Other Expenses and Total Fund Operating Expenses for the
Funds for the current fiscal year are expected to be less than the amounts
shown above because the Adviser and the Administrator are voluntarily waiving a
portion of their fees. These fee waivers are being made in order to keep the
annual fees and expenses for the Funds at a certain level. Management Fees for
the Growth & Income, Equity Income, Equity Growth, International Equity and
Diversified Real Estate Funds, after taking these fee waivers into account, are
expected to be 0.50%, 0.48%, 0.41%, 0.71% and 0.35%, respectively. Other
Expenses for the Growth & Income, Equity Income, Equity Growth, International
Equity and Diversified Real Estate Funds, after taking these fee waivers into
account, are expected to be 0.20%, 0.22%, 0.29%, 0.29% and 0.65%, respectively.
Total Fund Operating Expenses for the Growth & Income, Equity Income, Equity
Growth, International Equity and Diversified Real Estate Funds, after taking
these fee waivers into account, are expected to be 0.70%, 0.70%, 0.70%, 1.00%
and 1.00%, respectively. These fee waivers may be revised or cancelled at any
time. The Adviser and Adminstrator have the right to be reimbursed by the Funds
for such amounts prior to the end of any fiscal year.

Additional Information about Risk
The principal risks of investing in each of the Funds have been described
above. The following supplements that discussion.

12
<PAGE>

Temporary Defensive Positions
Each Fund may temporarily hold up to 100% of its total assets in investments
that are not part of its principal investment strategy to try to avoid losses
during unfavorable market conditions. With respect to the Growth & Income,
Equity Income and Equity Growth Funds, these investments may include high
quality short-term money market instruments and high quality corporate debt
securities and debt securities issued by the U.S. Government, its agencies and
instrumentalities. With respect to the International Equity Fund, these
investments may include cash (which will not earn any income) and short-term
money market instruments. With respect to the Diversified Real Estate Fund,
these investments may include money market instruments, high quality corporate
debt securities and debt securities issued by the U.S. Government, its agencies
or instrumentalities without regard to whether the issuer is principally
engaged in the real estate business. This strategy could prevent a Fund from
achieving its investment objective and could reduce the Fund's return and
affect its performance during a market upswing.

Other Types of Investments
This prospectus describes each Fund's principal investment strategies and the
particular types of securities in which each Fund principally invests. Each
Fund may from time to time pursue other investment strategies and make other
types of investments in support of its investment objective. These supplemental
investment strategies and the risks involved are described in detail in the
Statement of Additional Information ("SAI"), which is referred to on the back
cover of this prospectus.

Year 2000 Risks
As with other mutual funds, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by Mercantile and the Funds' other service providers
don't properly process and calculate date-related information and data from and
after January 1, 2000. This possibility is commonly known as the "Year 2000" or
"Y2K" problem. Mercantile is taking steps to address the Y2K problem with
respect to the computer systems that it uses and to obtain assurances that
comparable steps are being taken by the Funds' other major service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the Funds. The Y2K problem could have
a negative impact on the issuers of securities in which the Funds invest, which
could hurt the Funds' investment returns.

INVESTING IN THE FUNDS

Getting Your Investment Started
Shares of the Funds may be purchased either through the account you maintain
with certain financial institutions or directly through the Company.

Customers of Mercantile-Safe Deposit & Trust Company and its affiliated and
correspondent banks (referred to as the "Banks") may purchase Fund shares
through their qualified accounts at such Banks and should contact the Banks
directly for appropriate purchase instructions. Should you wish to establish an
account directly through the Company, please refer to the purchase options
described under "Opening and Adding to Your Fund Account."

13
<PAGE>

Payments for Fund shares must be in U.S. dollars and should be drawn on a U.S.
bank. Please remember that the Company reserves the right to reject any
purchase order, including purchase orders accompanied by foreign and third
party checks.

How To Buy Fund Shares
. Minimum Investments. Each Fund generally requires a $25,000 minimum initial
investment. Subsequent investments must be a minimum of $100. The minimum
investment requirements do not apply to purchases by Banks acting on behalf
of their customers and the Banks do not impose a minimum initial or
subsequent investment requirement for shares purchased on behalf of their
customers. The Company reserves the right to waive these minimums in other
instances.

. Opening and Adding to Your Fund Account. Direct investments in the Funds may
be made in a number of different ways, as shown in the following chart.
Simply choose the method that is most convenient for you. Any questions you
have may be answered by calling 1-800-551-2145. As described above under
"Getting Your Investment Started," you may also purchase Fund shares through
the Banks.

To Open an Account To Add to an Account

By Mail . Complete a New . Make your check
Account payable to
Application and M.S.D. & T. Funds,
mail it along with Inc. and mail it
a check payable to to the address on
M.S.D. & T. Funds, the left.
Inc. to:

. Please indicate
M.S.D. & T. Funds, the particular
Inc. P.O. Box Fund in which you
182028 Columbus, OH are investing.
43218-2028

. Please include
your account
number on your
check.

To obtain a New
Account
Application, call
1-800-551-2145

- --------------------------------------------------------------------------------
By Wire . Before wiring . Instruct your bank
funds, please call to wire Federal
1-800-551-2145 for funds to:
complete wiring Huntington Bank,
instructions. Columbus, OH
43219, Bank
Routing
#044000024, M.S.D.
& T. Concentration
A/C #01899622436.

. Promptly complete
a New Account
Application and
forward it to:

M.S.D. & T. Funds, Be sure to include
Inc. P.O. Box your name and your
182028 Columbus, OH Fund account
43218-2028 number.

. The wire should
indicate that you
are making a
subsequent
purchase as
opposed to opening
a new account.

14
<PAGE>

Consult your bank for information on remitting funds by wire and associated
bank charges.

You may use other investment options, including automatic investments,
exchanges and directed reinvestments, to invest in your Fund account. Please
refer to the section below entitled "Shareholder Services" for more
information.

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

. Explanation of Sales Price. The public offering price for shares of a Fund
is based upon net asset value. A Fund will calculate its net asset value per
share by adding the value of the Fund's investments, cash and other assets,
subtracting the Fund's liabilities, and then dividing the result by the
number of shares of the Fund that are outstanding. This process is sometimes
referred to as "pricing" a Fund's shares.

The assets of the Funds are valued at market value or, if market quotes cannot
be readily obtained, at fair value as determined by the Adviser under the
supervision of the Company's Board of Directors. Debt securities held by the
Funds that have sixty days or less until they mature are valued at amortized
cost, which generally approximates market value.

Net asset value is computed as of the close of regular trading hours on the
New York Stock Exchange (the "Exchange") (currently 4:00 p.m., Eastern Time)
each weekday, with the exception of those holidays on which the Exchange, the
Federal Reserve Bank of Cleveland, the purchasing Bank (if applicable) or the
Funds' Adviser, transfer agent or custodian is closed. The Funds currently
observe the following holidays: 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.

Shares of the Funds are sold at the public offering price per share next
computed after receipt of a purchase order by BISYS Fund Services Ohio, Inc.,
the Funds' transfer agent (the "Transfer Agent"). Purchase orders will be
accepted by the Transfer Agent only on a day on which the shares of a Fund are
priced ("Business Day").

If you purchase shares of a Fund through a Bank, the Bank is responsible for
transmitting your purchase order and required funds to the Transfer Agent on a
timely basis. If the Transfer Agent receives your purchase order from a Bank
on a Business Day prior to the close of regular trading hours (currently 4:00
P.M. Eastern Time) on the Exchange, your Fund shares will be purchased at the
public offering price calculated at the close of regular trading hours on that
day provided that the Fund's custodian receives payment on the next Business
Day in immediately available funds. If such payment is not received on the
next Business Day, the Bank which submitted the order will be notified that
the order has not been accepted. Payments for orders which are not received or
accepted will be returned after prompt inquiry.

If you purchase shares of a Fund directly through the Company and if your
purchase order, in proper form (including all necessary documentation and
signature guarantees, where required) and accompanied by payment, is received
by the Transfer Agent on a Business Day prior to the close of regular trading
hours on the Exchange, your Fund shares will be purchased at the public
offering price calculated at the close of regular trading hours on that day.

15
<PAGE>

Otherwise, your Fund shares will be purchased at the public offering price next
calculated after the Transfer Agent receives your purchase order in proper form
with the required payment.

On a Business Day when the Exchange closes early due to a partial holiday or
otherwise, the Company reserves the right to advance the times at which
purchase orders must be received in order to be processed on that Business Day.

A Fund may hold foreign securities that trade on weekends or other days when
the Fund does not price its shares. Therefore, the value of such securities may
change on days when shareholders will not be able to purchase or redeem shares.

How To Sell Fund Shares
You can arrange to get money out of your Fund account by selling some or all of
your shares. This process is known as "redeeming" your shares. If you purchased
your shares through an account at a Bank, you may only redeem shares in
accordance with the instructions pertaining to that account. If you purchased
your shares directly from the Company, you have the ability to redeem shares by
any of the methods described below.

To Redeem Shares

By Mail . Send a written request to M.S.D. & T. Funds, Inc., P.O.
Box 182028, Columbus, Ohio 43218-2028.

. Your written request must
--be signed by each account holder;
--state the number or dollar amount of shares to be
redeemed and identify the specific Fund;
--include your account number.

. Signature guarantees are required
--for all redemption requests over $100,000;
--for any redemption request where the proceeds are to be
sent to someone other than the shareholder of record or
to an address other than the address of record.

- --------------------------------------------------------------------------------
By Wire . Call 1-800-551-2145. You will need to provide the account
(available only name, account number, name of Fund and amount of
if you checked redemption ($1,000 minimum per transaction).
the appropriate
box on the New
Account
Application)

. If you have already opened your account and would like to
have the wire redemption feature, send a written request
to: M.S.D. & T. Funds, Inc., P.O. Box 182028, Columbus,
Ohio 43218-2028. The request must be signed (and
signatures guaranteed) by each account owner.

. To change bank instructions, send a written request to the
above address. The request must be signed (and signatures
guaranteed) by each account owner.

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

16
<PAGE>

. If you have already opened your account and would like to
add the telephone redemption feature, send a written
request to: M.S.D. & T. Funds, Inc., P.O. Box 182028,
Columbus, Ohio 43218-2028. The request must be signed (and
signatures guaranteed) by each account owner.

Other redemption options, including exchanges and
systematic withdrawals, are also available. Please refer
to the section below entitled "Shareholder Services" for
more information.

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

. Explanation of Redemption Price. Redemption orders received in proper form
(including all necessary documentation and signature guarantees, where
required) by the Transfer Agent are processed at their net asset value per
share next determined after receipt. On a Business Day when the Exchange
closes early due to a partial holiday or otherwise, the Company reserves the
right to advance the time at which redemption orders must be received in
order to be processed on that Business Day.

Redemption proceeds generally will be wired or sent to the shareholder(s) of
record within three Business Days after receipt of the redemption order.
However, the Company reserves the right to wire or send redemption proceeds
within seven days after receiving the redemption order if the Adviser believes
that earlier payment would adversely affect the Company. If you purchased your
shares directly through the Company, your redemption proceeds will be sent by
check unless you otherwise direct the Company or the Transfer Agent. The
Automated Clearing House ("ACH") system may also be utilized for payment of
redemption proceeds. In unusual circumstances, the Company may pay redemption
proceeds in readily marketable portfolio securities having a market value equal
to the redemption price.

Banks are responsible for transmitting their customers' redemption orders to
the Transfer Agent and crediting their customers' accounts with redemption
proceeds on a timely basis. No charge is imposed by the Company for wiring
redemption proceeds, although the Banks may charge their customers' accounts
directly for redemption and other services. In addition, if a customer has
agreed with a Bank to maintain a minimum cash balance in his or her account
maintained with the Bank and the balance falls below that minimum, the customer
may be obliged to redeem some or all of the Fund shares held in the account in
order to maintain the required minimum balance.

The Company imposes no charge when you redeem shares. The value of the shares
you redeem may be more or less than your cost, depending on a Fund's current
net asset value.

Other Purchase and Redemption Information
Federal regulations require that you provide a certified taxpayer
identification number whenever you open or reopen an account.

17
<PAGE>

Shareholders who purchased Fund shares directly through the Company should note
that if an account balance falls below $500 as a result of redemptions and is
not increased to at least $500 within 60 days after notice, the account may be
closed and the proceeds sent to the shareholder.

If you purchased shares by wire, you must file a New Account Application with
the Transfer Agent before any of those shares can be redeemed. You should
contact your bank for information about sending and receiving funds by wire,
including any charges by your bank for these services. The Company may decide
at any time to change the minimum amount per transaction for redemption of
shares by wire or to no longer permit wire redemptions.

You may choose to initiate certain transactions by telephone. The Company and
its agents will not be responsible for any losses resulting from unauthorized
transactions when reasonable procedures to verify the identity of the caller
are followed. To the extent that the Company does not follow such procedures,
it and/or its agents may be responsible for any unauthorized transactions.

The Company reserves the right to refuse a telephone redemption if it believes
it is advisable to do so. Procedures for redeeming shares by telephone may be
modified or terminated by the Company at any time. It may be difficult to reach
the Company by telephone during periods of unusual market activity. If this
happens, you may redeem your shares by mail as described above.

The Company may suspend the right of redemption or postpone the date of payment
upon redemption (as well as suspend the recordation of the transfer of its
shares) for such periods as permitted under the Investment Company Act.

Certain redemption requests and other communications with the Company require a
signature guarantee. Signature guarantees are designed to protect both you and
the Company from fraud. To obtain a signature guarantee you should visit a
financial institution that participates in the Stock Transfer Agents Medallion
Program ("STAMP"). Guarantees must be signed by an authorized person at one of
these institutions and be accompanied by the words "Signature Guaranteed." A
notary public cannot provide a signature guarantee.

For current yield, purchase and redemption information, call 1-800-551-2145.

SHAREHOLDER SERVICES

The Company provides a variety of ways to make managing your investments more
convenient. Some of these options require you to request them on the New
Account Application or you may request them after opening an account by calling
1-800-551-2145. Except for retirement plans, these options are available only
to shareholders who purchase their Fund shares directly through the Company.

18
<PAGE>

Company. To invest through any tax-sheltered retirement plan, please call the
Company at 1-800-551-2145 for information and the required separate
application. You should consult with a tax adviser to determine whether a tax-
sheltered retirement plan is available and/or appropriate for you.

Exchange Privilege
Shares of a Fund may be exchanged for shares of another Fund or for shares of
one of the other portfolios offered by the Company. You may exchange shares by
mailing your request to M.S.D. & T. Funds, Inc., P.O. Box 182028, Columbus,
Ohio 43218-2028, or by telephoning your request to 1-800-551-2145. If you are
opening a new account in a different Fund or portfolio by exchange, the
exchanged shares must be at least equal in value to the minimum investment for
the Fund or portfolio in which the account is being opened.

You should read the prospectus for the Fund or portfolio into which you are
exchanging. Exchanges will be processed only when the shares being offered can
legally be sold in your state. Exchanges may have tax consequences for you.
Consult your tax adviser for further information.

To elect the exchange privilege after you have opened a Fund account, or for
further information about the exchange privilege, call 1-800-551-2145. The
Company reserves the right to reject any exchange request. The Company may
modify or terminate the exchange privilege, but will not materially modify or
terminate it without giving shareholders 60 days' notice.

Automatic Investment Plan
One easy way to pursue your financial goals is to invest money regularly. The
Company offers an Automatic Investment Plan--a convenient service that lets you
transfer money from your bank account into your Fund account automatically on a
regular basis. At your option, your bank account will be debited in a
particular amount ($100 minimum) that you have specified, and Fund shares will
automatically be purchased on the 15th day of each month or, if that day is not
a Business Day, on the preceding Business Day. Your bank account must be
maintained at a domestic financial institution that is an ACH member. You will
be responsible for any loss or expense to the Funds if an ACH transfer is
rejected. To select this option, or for more information, please call 1-800-
551-2145.

The Automatic Investment Plan is one means by which you may use "Dollar Cost
Averaging" in making investments. Dollar Cost Averaging can be useful in
investing in portfolios such as the Funds whose price per share fluctuates.
Instead of trying to time market performance, a fixed dollar amount is invested
in Fund shares at predetermined intervals. This may help you to reduce your
average cost per share because the agreed upon fixed investment amount allows
more shares to be purchased during periods of lower share prices and fewer
shares during periods of higher prices. In order to be effective, Dollar Cost
Averaging should usually be followed on a sustained, consistent basis. You
should be aware, however, that shares bought using Dollar Cost Averaging are
made without regard to their price on the day of investment or to market
trends. In addition, while you may find Dollar Cost Averaging to be beneficial,
it will not prevent a loss if you ultimately redeem your shares at a price
which is lower than their purchase price.

19
<PAGE>

Systematic Withdrawals
The Company offers a convenient way of withdrawing money from your Fund
account. You may request regular monthly, quarterly, semi-annual or annual
withdrawals in any amount of $100 or more. The withdrawal will be made on the
fifteenth day of each month of the period you select and distributed in cash or
reinvested in shares of another Fund or portfolio offered by the Company. To
elect this option, or for more information, please call 1-800-551-2145.

Directed Reinvestments
Generally, dividends and capital gain distributions are automatically
reinvested in shares of the Fund from which the dividends and distributions are
paid. You may elect, however, to have your dividends and capital gain
distributions automatically reinvested in shares of another Fund or portfolio
offered by the Company. To elect this option, or for more information, please
call 1-800-551-2145.

DIVIDENDS AND DISTRIBUTIONS
Shareholders receive dividends and net capital gain distributions. Dividends
for each Fund are derived from its net investment income. A Fund realizes
capital gains whenever it sells securities for a higher price than it paid for
them.

If you purchased your Fund shares through a Bank, your dividends and
distributions will be paid in cash and wired to your Bank. If you purchased
your shares directly from the Company, your dividends and distributions will be
automatically reinvested in additional shares of the Fund on which the dividend
or distribution was declared unless you notify the Company in writing that you
wish to receive dividends and/or distributions in cash. If you have elected to
receive dividends and/or distributions in cash and the postal or other delivery
service is unable to deliver checks to your address of record, you will be
deemed to have rescinded your election to receive dividends and/or
distributions in cash and your dividends and distributions will be
automatically reinvested in additional shares. No interest will accrue on
amounts represented by uncashed dividend and/or distribution checks.

Distribution Schedule

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Dividends Capital Gains
- ---- --------- -------------
<S> <C> <C>
Growth & Income Declared and paid monthly Declared and paid annually
Equity Income Declared and paid monthly Declared and paid annually
Equity Growth Declared and paid monthly Declared and paid annually
International
Equity Declared and paid semi-annually Declared and paid annually
Diversified Real
Estate Declared and paid quarterly Declared and paid annually
</TABLE>

TAX INFORMATION
Federal taxes. Each Fund contemplates declaring as dividends each year all or
substantially all of its taxable income, including its net capital gain (the
excess of long-term capital gain over short-term capital loss). Distributions
attributable to the net capital gain of a Fund will be taxable to you as long-
term capital gain, regardless of how long you have held your shares. Other Fund
distributions will generally be taxable as ordinary income. (However, if a
Fund's distributions exceed its net income and gain--as may be the case for the
Diversified Real Estate Fund because REIT distributions often include a

20
<PAGE>

non-taxable return of capital--that excess will generally result in a non-
taxable return of capital to you.)

You will be subject to income tax on Fund distributions regardless whether they
are paid in cash or reinvested in additional shares. You will be notified
annually of the tax status of distributions to you.

You should note that if you purchase shares just before a distribution, the
purchase price will reflect the amount of the upcoming distribution, but you
will be taxed on the entire amount of the distribution received, even though,
as an economic matter, the distribution simply constitutes a return of capital.
This is known as "buying into a dividend."

Any loss realized on shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gain dividends that were
received on the shares.

The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, shares held in an IRA (or other tax-
qualified plan) will not be currently taxable.

It is expected that the International Equity Fund and, to some extent, the
Growth & Income, Equity Income and Equity Growth Funds will be subject to
foreign withholding taxes with respect to dividends or interest received from
sources in foreign countries. The International Equity Fund may make an
election to treat a proportionate amount of such taxes as constituting a
distribution to each shareholder, which would allow each shareholder either
(1) to credit such proportionate amount of taxes against U.S. federal income
tax liability or (2) to take such amount as an itemized deduction. However, the
Funds other than the International Equity Fund will not be able to make such an
election.

REITs often do not provide complete tax information to the Diversified Real
Estate Fund until after the calendar year-end. Consequently, because of the
delay, it may be necessary for the Fund to request permission to extend the
deadline for issuance of Forms 1099-DIV beyond January 31.

State and local taxes. Shareholders may also be subject to state and local
taxes on distributions and redemptions. State income taxes may not apply
however to the portions of each Fund's distributions, if any, that are
attributable to interest on U.S. Government securities.

Miscellaneous. The foregoing is only a summary of certain tax considerations
under current law, which may be subject to change in the future. Shareholders
who are nonresident aliens, foreign estates or trusts, or foreign corporations
or partnerships may be subject to different U.S. federal income tax
consequences. You should consult your tax adviser for further information
regarding federal, state, local and/or foreign tax consequences relevant to
your specific situation.

21
<PAGE>

MANAGEMENT OF THE COMPANY

Investment Adviser
Mercantile, subject to the general supervision of the Company's Board of
Directors, manages the investment portfolio of each Fund in accordance with its
investment objective and policies. This includes selecting portfolio
investments and placing purchase and sale orders for each Fund.

In exchange for these services, Mercantile is entitled to investment advisory
fees from the Funds that are calculated daily and paid monthly. For the fiscal
year ended May 31, 1999, the Funds paid Mercantile advisory fees as follows:

<TABLE>
<CAPTION>
Investment Advisory Fees
Fund as a % of net assets
---- ------------------------
<S> <C>
Growth & Income Fund................................... 0.495%
Equity Income Fund..................................... 0.484%
Equity Growth Fund..................................... 0.406%
International Equity Fund.............................. 0.713%
Diversified Real Estate Fund........................... 0.353%
</TABLE>

Mercantile and its predecessors have been in the business of managing the
investments of fiduciary and other accounts in the Baltimore area since 1864.

Sub-Adviser
BlackRock serves as sub-adviser to the International Equity Fund and is
responsible for the management of the Fund's assets. BlackRock manages the
investment portfolio of the International Equity Fund in accordance with the
investment requirements and policies established by Mercantile. BlackRock
receives a quarterly fee from Mercantile based on the Fund's average daily net
assets.

BlackRock has its principal office at 345 Park Avenue, New York, New York
10137. BlackRock is a subsidiary of PNC Holding Corp., which holds an 80%
equity interest in BlackRock with the remaining 20% equity interest held by
senior BlackRock professionals. BlackRock had approximately $2 billion in
international equity assets under management at June 30, 1999, with total
assets under management of approximately $142 billion. BlackRock (or its
predecessor) has served as sub-adviser to the International Equity Fund since
1996.

22
<PAGE>

FINANCIAL HIGHLIGHTS
The financial highlights tables shown below are intended to help you understand
the Funds' financial performance for the past five years (or, if shorter, the
period since a particular Fund began operations). Certain information reflects
the financial performance for a single Fund share. The total returns in the
tables represent the rate that an investor would have earned (or lost) on an
investment in each Fund, assuming all dividends and distributions were
reinvested. This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose report, along with the Funds' financial
statements, are included in the Company's Annual Report to Shareholders and are
incorporated by reference into the SAI. The Annual Report to Shareholders and
SAI are available free of charge upon request.

GROWTH & INCOME FUND
Financial Highlights for a share of the Growth & Income Fund outstanding
throughout each of the periods indicated:

<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
5/31/99 5/31/98 5/31/97 5/31/96 5/31/95
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period...................... $ 21.37 $ 18.25 $ 14.58 $ 13.42 $ 12.14
-------- -------- -------- -------- -------
Income From Investment
Operations:
Net Investment Income....... 0.18 0.20 0.23 0.33 0.35
Net Realized and Unrealized
Gain (Loss)
on Investments............. 3.62 5.01 4.19 1.89 1.55
-------- -------- -------- -------- -------
Total From Investment
Operations................. 3.80 5.21 4.42 2.22 1.90
-------- -------- -------- -------- -------
Less Distributions to
Shareholders from:
Net Investment Income....... (0.14) (0.23) (0.25) (0.35) (0.34)
Net Capital Gains........... (0.60) (1.86) (0.50) (0.71) (0.28)
-------- -------- -------- -------- -------
Total Distributions......... (0.74) (2.09) (0.75) (1.06) (0.62)
-------- -------- -------- -------- -------
Net Asset Value, End of
Period...................... $ 24.43 $ 21.37 $ 18.25 $ 14.58 $ 13.42
======== ======== ======== ======== =======
Total Return................. 18.20% 29.40% 31.26% 17.24% 16.22%
Ratios/Supplemental Data
Net Assets, End of Period
(000)...................... $427,038 $373,864 $142,452 $107,233 $91,277
Ratio of Expenses to Average
Net Assets
After Expense Waiver........ 0.70% 0.71% 0.73% 0.73% 0.73%
Before Expense Waiver....... 0.81% 0.88% 0.89% 0.89% 0.89%
Ratio of Net Investment
Income to
Average Net Assets.......... 0.80% 0.99% 1.52% 2.38% 2.99%
Portfolio turnover rate...... 26.48% 24.09% 27.10% 45.15% 33.26%
</TABLE>

23
<PAGE>

EQUITY INCOME FUND, EQUITY GROWTH FUND AND DIVERSIFIED REAL ESTATE FUND
Financial Highlights for a share of the Equity Income Fund, Equity Growth Fund
and Diversified Real Estate Fund outstanding throughout each of the periods
indicated:

<TABLE>
<CAPTION>
DIVERSIFIED REAL
EQUITY INCOME FUND EQUITY GROWTH FUND ESTATE FUND
--------------------- --------------------- ---------------------
3/1/98/1 3/1/98/1 8/1/97/1
Year Ended / Year Ended / Year Ended /
5/31/99 to 5/31/98 5/31/99 to 5/31/98 5/31/99 to 5/31/98
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 10.21 $ 10.00 $ 10.28 $ 10.00 $10.13 $10.00
-------- -------- ------- ------- ------ ------
Income From Investment
Operations:
Net Investment Income.. 0.17 0.04 0.04 0.02 0.53 0.32
Net Realized and
Unrealized Gain (Loss)
on Investments........ 1.23 0.19 2.23 0.27 (0.76) 0.12
-------- -------- ------- ------- ------ ------
Total From Investment
Operations............ 1.40 0.23 2.27 0.29 (0.23) 0.44
-------- -------- ------- ------- ------ ------
Less Distributions to
Shareholders from:
Net Investment Income.. (0.17) (0.02) (0.05) (0.01) (0.52) (0.28)
Return of Capital...... -- -- -- -- (0.01) (0.03)
Net Capital Gains...... (1.19) -- (1.02) -- -- --
-------- -------- ------- ------- ------ ------
Total Distributions.... (1.36) (0.02) (1.07) (0.01) (0.53) (0.31)
-------- -------- ------- ------- ------ ------
Net Asset Value, End of
Period................. $ 10.25 $ 10.21 $ 11.48 $ 10.28 $ 9.37 $10.13
======== ======== ======= ======= ====== ======
Total Return............ 15.30% 2.28% 23.13% 2.89% (1.80)% 4.31%
Ratios/Supplemental Data
Net Assets, End of
Period (000).......... $314,306 $319,971 $47,521 $34,876 $7,829 $6,677
Ratio of Expenses to
Average Net Assets
After Expense Waiver... 0.70% 0.70%/2/ 0.70% 0.70%/2/ 1.00% 1.00%/2/
Before Expense Waiver.. 0.82% 0.93%/2/ 0.91% 1.02%/2/ 1.47% 2.25%/2/
Ratio of Net Investment
Income to
Average Net Assets..... 1.77% 1.45%/2/ 0.38% 0.68%/2/ 6.03% 4.17%/2/
Portfolio turnover
rate................... 24.47% 2.00% 62.49% 7.99% 14.35% 0.84%
</TABLE>
- --------
/1/ Commencement of operations.
/2/ Annualized.

INTERNATIONAL EQUITY FUND
Financial Highlights for a share of the International Equity Fund outstanding
throughout each of the periods indicated:

<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
5/31/99 5/31/98 5/31/97 5/31/96 5/31/95
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period......................... $ 13.90 $ 13.18 $ 12.47 $ 11.60 $ 11.81
------- ------- ------- ------- -------
Income From Investment
Operations:
Net Investment Income.......... 0.11 0.12 0.31 0.09 0.03
Net Realized and Unrealized Gain
(Loss)
on Investments and Foreign
Currency....................... (0.27) 1.42 0.88 1.51 0.08
------- ------- ------- ------- -------
Total From Investment
Operations.................... (0.16) 1.54 1.19 1.60 0.11
------- ------- ------- ------- -------
Less Distributions to
Shareholders from:
Net Investment Income.......... (0.08) (0.15) (0.24) (0.07) (0.04)
Net Capital Gains.............. (0.31) (0.67) (0.24) (0.66) (0.28)
------- ------- ------- ------- -------
Total Distributions............ (0.39) (0.82) (0.48) (0.73) (0.32)
------- ------- ------- ------- -------
Net Asset Value, End of Period.. $ 13.35 $ 13.90 $ 13.18 $ 12.47 $ 11.60
======= ======= ======= ======= =======
Total Return.................... (1.02)% 12.77% 9.81% 14.27% 0.82%
Ratios/Supplemental Data
Net Assets, End of Period
(000)......................... $81,301 $85,402 $83,313 $75,676 $69,172
Ratio of Expenses to Average
Net Assets
After Expense Waivers.......... 1.00% 1.03% 1.05% 1.05% 1.05%
Before Expense Waiver.......... 1.14% 1.14% 1.16% 1.17% 1.16%
Ratio of Net Investments Income
to
Average Net Assets............ 0.82% 0.92% 0.97% 0.78% 0.06%
Portfolio turnover rate......... 67.33% 55.55% 74.15% 53.58% 42.15%
</TABLE>

24
<PAGE>

Service Providers:
Management and support services are provided to M.S.D.&T. Funds, Inc. by several
organizations.

Investment Adviser and Administrator:

[GRAPHIC APPEARS HERE]
MERCANTILE

Mercantile-Safe Deposit & Trust Company
Baltimore, Maryland

Custodian:
The Fifth Third Bank
Cincinnati, Ohio

Transfer Agent:
BISYS Fund Services Ohio, Inc.
Columbus, Ohio

Distributor:
BISYS Fund Services Limited Partnership
Columbus, Ohio

<PAGE>

For More Information
You'll find more information about the Funds in the following documents:

Annual and Semi-Annual Reports
The Company's annual and semi-annual reports contain more information about each
Fund and a discussion about the market conditions and investment strategies that
had a significant effect on each Fund's performance during the last fiscal year.

Statement of Additional Information (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it is incorporated by reference into (considered to be part of) this
prospectus.

You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling 1-800-551-2145 or writing to:

M.S.D. & T. Funds, Inc.
Mutual Fund Administration
20 South Charles Street
Fifth Floor
Baltimore, Maryland 21201

If you buy your shares through a financial institution, you may contact your
institution for more information.

You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They will charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you are there. For information about
the operation of the Public Reference Room, call the SEC.

Public Reference Section of the SEC
Washington, DC 20549-6009
1-800-SEC-0330

Reports and other information about the Funds are also available on the SEC's
website at http://www.sec.gov.

The Company's Investment Company Act File No. is 811-5782.
<PAGE>

M.S.D.&T. Funds, Inc.
- --------------------------------------------------------------------------------

Prospectus

Prime Money Market Fund
Government Money Market Fund
Limited Maturity Bond Fund
Total Return Bond Fund

SEPTEMBER 28, 1999

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK/RETURN SUMMARY....................................................... 1
Introduction............................................................ 1
Prime Money Market Fund................................................. 2
Government Money Market Fund............................................ 4
Limited Maturity Bond Fund.............................................. 6
Total Return Bond Fund.................................................. 9
Fees and Expenses....................................................... 11
Additional Information about Risk....................................... 11
INVESTING IN THE FUNDS.................................................... 12
Getting Your Investment Started......................................... 12
How To Buy Fund Shares.................................................. 13
How To Sell Fund Shares................................................. 16
Other Purchase and Redemption Information............................... 17
SHAREHOLDER SERVICES...................................................... 18
Retirement Plans........................................................ 18
Exchange Privilege...................................................... 18
Automatic Investment Plan............................................... 19
Systematic Withdrawals.................................................. 19
Directed Reinvestments.................................................. 19
DIVIDENDS AND DISTRIBUTIONS............................................... 20
TAX INFORMATION........................................................... 20
MANAGEMENT OF THE COMPANY................................................. 21
Investment Adviser...................................................... 21
FINANCIAL HIGHLIGHTS...................................................... 22
</TABLE>
<PAGE>

RISK/RETURN SUMMARY

Introduction

This Prospectus describes the M.S.D.&T. Taxable Fixed Income Funds (the
"Funds"), four investment portfolios offered by M.S.D.&T. Funds, Inc. (the
"Company"). On the following pages, you will find important information about
each Fund, including:

. The Fund's investment objective and the principal investment strategies used
by the Fund's investment adviser in trying to achieve that objective;

. The principal risks associated with an investment in the Fund;

. The Fund's past performance measured on both a year-by-year and long-term
basis; and

. The fees and expenses you will pay as an investor in the Fund.

The Prime Money Market Fund may be appropriate for investors who want a
flexible and convenient way to manage cash while earning money market returns.
The Government Money Market Fund may be appropriate for investors who want to
earn money market returns with the extra margin of safety associated with U.S.
Government obligations. The Limited Maturity Bond and Total Return Bond Funds
may be appropriate for investors who seek current income from their investments
greater than that normally available from a money market fund and can accept
fluctuations in price and yield. The Limited Maturity Bond and Total Return
Bond Funds may not be appropriate for investors who are investing for long-term
capital appreciation.

Before investing in a Fund, you should carefully consider:

. Your investment goals;

. Your investment time horizon; and

. Your tolerance for risk.

The Investment Adviser

Mercantile-Safe Deposit & Trust Company ("Mercantile" or the "Adviser") is the
investment adviser for each Fund. Mercantile, which has its main office at Two
Hopkins Plaza, Baltimore, Maryland 21201, is the lead bank of Mercantile
Bankshares Corporation, a multi-bank holding company. As of June 30, 1999,
Mercantile had approximately $15 billion in assets under management.

An investment in the Funds is not a deposit of Mercantile-Safe Deposit & Trust
Company and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. Although the Prime Money Market and
Government Money Market Funds seek to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Funds. You
could also lose money by investing in the other Taxable Fixed Income Funds.
<PAGE>

- --------------------------------------------------------------------------------
Repurchase agreements are transactions in which a Fund buys securities from a
seller (usually a bank or broker-dealer) who agrees to buy them back from the
Fund on a certain date and at a certain price (which typically includes a profit
for the Fund).
- --------------------------------------------------------------------------------

Prime Money Market Fund

Principal Investment Strategies
The Fund invests substantially all of its assets in a
broad range of U.S. dollar-denominated money market
instruments, including commercial paper, notes and
bonds issued by U.S. and foreign corporations,
obligations issued by the U.S. Government and its
agencies and instrumentalities, and obligations issued
by U.S. and foreign banks, such as certificates of
deposit and bankers' acceptances. The Fund also invests
in repurchase agreements backed by U.S. Government
obligations.

Because the Fund is a "money market fund," securities
purchased by it must meet strict requirements as to
investment quality, maturity and diversification. The
Fund will only buy a security if it has the highest
rating (or one of the two highest ratings if the
security is a corporate bond) from at least two
nationally recognized statistical rating organizations,
such as Standard & Poor's Ratings Group or Moody's
Investors Service, Inc., or only one such rating if
only one organization has rated the instrument. If the
security is not rated, the Adviser must determine that
it is of comparable quality to eligible rated
securities. The Fund generally does not invest in
securities with maturities of more than 397 days
(subject to certain exceptions) and the average
maturity of all securities held by the Fund must be 90
days or less. Prior to purchasing a security for the
Fund, the Adviser must determine that the security
carries very little credit risk.

Principal Risks of Investing in the Fund
The yield paid by the Fund will vary with changes in
short-term interest rates.

Although credit risk is very low because the Fund only
invests in high quality obligations, if an issuer fails
to pay interest or repay principal, the value of your
investment could decline.

Repurchase agreements carry the risk that the other
party may not fulfill its obligations under the
agreement. This could cause the value of your
investment to decline.

The Adviser evaluates the rewards and risks presented
by all securities purchased by the Fund and how they
may advance the Fund's investment objective. It is
possible, however, that these evaluations will prove to
be inaccurate.

There's no guarantee the Fund will be able to preserve
the value of your investment at $1.00 per share.

2
<PAGE>

Fund Performance
The bar chart and table below show the Fund's annual
returns and long-term performance, thereby giving some
indication of the risk of investing in the Fund./1/ The
bar chart shows how the performance of the Fund has
varied from year to year. The table shows the Fund's
average annual total returns for one year, five years
and since inception. The Fund's past performance does
not necessarily indicate how it will perform in the
future.

- --------------------------------------------------------------------------------
Best quarter:
1.40% for the quarter ended December 31, 1990

Worst quarter:
0.69% for the quarter ended June 30, 1999
- --------------------------------------------------------------------------------

[BAR GRAPH APPEARS HERE]

Calendar Year Total Returns

- -------------------------------------------------------------------------------
8.09% 5.83% 3.45% 2.83% 3.96% 5.71% 5.11% 5.26% 5.24%
- -------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998

Year-to-date total return for the six
months ended June 30, 1999: 2.28%

Average Annual Total Returns (for the periods ended December 31, 1998)

1 Year 5 Years Since Inception*
-----------------------------------------------------------------
<S> <C> <C> <C>
Prime Money Market Fund........... 5.24% 5.05% 5.21%
-----------------------------------------------------------------
</TABLE>
*July 21, 1989

To obtain the Fund's current 7-day yield please call 1-800-551-2145.
--------------------
/1/Both the bar chart and the table assume reinvestment of all dividends and
distributions.

3
<PAGE>

- --------------------------------------------------------------------------------
U.S. Government obligations are debt obligations issued or guaranteed by the
U.S. Government or one of its agencies or instrumentalities. U.S. Government
obligations generally have less credit risk than other debt obligations.
- --------------------------------------------------------------------------------

Government Money Market Fund

Investment Objective
The Fund's investment objective is to seek as high a
level of current income as is consistent with liquidity
and stability of principal by investing in a portfolio
of direct Treasury obligations, other obligations
issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, and repurchase
agreements relating to such obligations.

Principal Investment Strategies

The Fund invests primarily in U.S. Government
obligations, including U.S. Treasury obligations and
obligations of U.S. Government agencies and
instrumentalities. The Fund also invests in repurchase
agreements backed by these obligations.

Because the Fund is a "money market fund," the
securities purchased by it must meet strict
requirements as to investment quality, maturity and
diversification. The Fund generally does not invest in
securities with maturities of more than 397 days
(subject to certain exceptions) and the average
maturity of all securities held by the Fund must be 90
days or less. Prior to purchasing a security for the
Fund, the Adviser must determine that the security
carries very little credit risk.

Principal Risks of Investing in the Fund
The yield paid by the Fund will vary with changes in
short-term interest rates.

Although U.S. Government securities have historically
involved little credit risk, if an issuer fails to pay
interest or repay principal, the value of your
investment could decline.

Repurchase agreements carry the risk that the other
party may not fulfill its obligations under the
agreement. This could cause the value of your
investment to decline.

The Adviser evaluates the risks and rewards presented
by all securities purchased by the Fund and how they
advance the Fund's investment objective. It's possible,
however, that these evaluations will prove to be
inaccurate.

There's no guarantee the Fund will be able to preserve
the value of your investment at $1.00 per share.

4
<PAGE>

Fund Performance
The bar chart and table below show the Fund's annual
returns and long-term performance, thereby giving some
indication of the risk of investing in the Fund./1/ The
bar chart shows how the performance of the Fund has
varied from year to year. The table shows the Fund's
average annual total returns for one year, five years
and since inception. The Fund's past performance does
not necessarily indicate how it will perform in the
future.

- --------------------------------------------------------------------------------
Best quarter:
1.99% for the quarter ended June 30, 1990

Worst quarter:
0.68% for the quarter ended June 30, 1993
- --------------------------------------------------------------------------------

[BAR GRAPH APPEARS HERE]

Calendar Year Total Returns
- -------------------------------------------------------------------------------
7.95% 5.78% 3.42% 2.80% 3.92% 5.63% 5.09% 5.19% 5.16%
- -------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998

Year-to-date total return for the six
months ended June 30, 1999: 2.27%

Average Annual Total Returns (for the periods ended December 31, 1998)
<TABLE>
<CAPTION>
1 Year 5 Years Since Inception*
----------------------------------------------------------------
<S> <C> <C> <C>
Government Money Market Fund.... 5.16% 4.99% 5.15%
----------------------------------------------------------------
</TABLE>
*July 21, 1989

To obtain the Fund's current 7-day yield please call 1-800-551-2145.
--------------------
/1/Both the bar chart and the table assume reinvestment of all dividends and
distributions.

5
<PAGE>

- --------------------------------------------------------------------------------
Mortgage-backed securities are certificates representing ownership interests in
a pool of mortgage loans, and include those issued by the Government National
Mortgage Association ("Ginnie Maes"), the Federal National Mortgage Association
("Fannie Maes") and the Federal Home Loan Mortgage Corporation ("Freddie
Macs").
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Average weighted maturity gives you the average time until all debt securities
in a Fund come due or mature. It is calculated by averaging the time to
maturity of all debt securities held by a Fund with each maturity "weighted"
according to the percentage of assets it represents.
- --------------------------------------------------------------------------------

Limited Maturity Bond Fund

Investment Objective
The Fund's investment objective is to seek as high a level of current income as
is consistent with protection of capital.

Principal Investment Strategies
The Fund invests substantially all of its assets (at least 65% of total assets
under normal market and economic conditions) in a broad range of debt
obligations, including corporate obligations, U.S. Government obligations and
mortgage-backed securities. Corporate obligations may include bonds, notes and
debentures. U.S. Government obligations may include U.S. Treasury obligations
and obligations of certain U.S. Government agencies. Mortgage-backed securities
may include Ginnie Maes, Fannie Maes and Freddie Macs. The Fund may also invest
in asset-backed securities and in repurchase agreements backed by U.S.
Government obligations. Although the Fund invests primarily in the debt
obligations of U.S. issuers, it may invest up to 25% of its total assets in the
debt obligations of foreign corporations and governments.

The Fund will invest only in investment grade debt obligations. These are
obligations which have one of the four highest ratings assigned by a nationally
recognized statistical rating organization, such as Standard & Poor's Ratings
Group or Moody's Investors Service, Inc., or are unrated securities determined
by the Adviser to be of comparable quality. Occasionally, the rating of a
security held by the Fund may be downgraded below investment grade. If that
happens, the Fund does not have to sell the security unless the Adviser
determines that under the circumstances the security is no longer an
appropriate investment for the Fund.

In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends, including anticipated changes in interest rates. The
Adviser also considers a number of other factors, including credit quality, the
price of a security relative to that of other securities in its sector, current
yield, maturity, yield to maturity, liquidity and the overall quality of the
investment. The Adviser expects that under normal market conditions the Fund's
portfolio securities will have an average weighted maturity of two to five
years.

The Fund will sell a portfolio security when, as a result of changes in the
economy or the performance of the security or other circumstances, the Adviser
believes that holding the security is no longer consistent with the Fund's
investment objective.

Principal Risks of Investing in the Fund
The prices of debt securities tend to move in the opposite direction to
interest rates. When rates are rising, the prices of debt securities tend to
fall. When rates are falling, the prices of debt securities tend to rise.
Generally, the longer the time until maturity, the more sensitive the price of
a debt security is to interest rate changes.

6
<PAGE>

- --------------------------------------------------------------------------------
Portfolio Manager
Mark G. McGlone, Senior Vice President of Mercantile, has managed the Limited
Maturity Bond Fund since June, 1992. During the past eighteen years, Mr.
McGlone has managed institutional fixed income portfolios at Mercantile,
including pension plans, endowment funds and self-insurance funds.
- --------------------------------------------------------------------------------

investment, and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise in
interest rates, the value of the obligation will decrease, and the Fund may
suffer from the inability to invest in higher-yielding securities.

Foreign investments may be riskier than U.S. investments because of factors
such as less stringent foreign securities regulations; less stringent
accounting and disclosure standards; changes in currency exchange rates;
incomplete financial information about issuers of securities; and political or
economic instability. Foreign securities may be more volatile and less liquid
than U.S. securities.

The Adviser evaluates the rewards and risks presented by all securities
purchased by the Fund and how they may advance the Fund's investment objective.
It is possible, however, that these evaluations will prove to be inaccurate.

7
<PAGE>

- --------------------------------------------------------------------------------
The Lehman Brothers Mutual Fund Short 1-5 Year Government/Corporate Bond Index
is an unmanaged index generally representative of the performance of government
and corporate bonds with remaining maturities of between one and five years.
- --------------------------------------------------------------------------------

Fund Performance
The bar chart and table below show the Fund's annual returns and long-term
performance, thereby giving some indication of the risk of investing in the
Fund./1/ The bar chart shows how the performance of the Fund has varied from
year to year. The table shows how the Fund's average annual total returns for
one year, five years and since inception compared to those of a broad-based
market index. The Fund's past performance does not necessarily indicate how it
will perform in the future.

- --------------------------------------------------------------------------------
Best quarter:
4.52% for the quarter ended June 30, 1995

Worst quarter:
(1.53)% for the quarter ended March 31, 1994
- --------------------------------------------------------------------------------

[BAR GRAPH APPEARS HERE]

Calendar Year Total Returns

- -------------------------------------------------------------
6.06% 6.33% 14.41% 3.10% 7.15% 7.11%
- -------------------------------------------------------------
(1.26)%
- -------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998

Year-to-date total return for the six
months ended June 30, 1999: 0.32%

Average Annual Total Returns (for the periods ended December 31, 1998)

<TABLE>
<CAPTION>
1 Year 5 Years Since Inception*
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Limited Maturity Bond Fund.................... 7.11% 5.98% 6.59%
Lehman Brothers Mutual Fund Short 1-5 Year
Government/Corporate Bond Index.............. 7.64% 6.25% 7.18%
- ------------------------------------------------------------------------------
</TABLE>
* March 14, 1991 for the Fund; February 28, 1991 for the Lehman Brothers Mutual
Fund Short 1-5 Year Government/Corporate Bond Index.
- --------------------
/1/Both the bar chart and the table assume reinvestment of all dividends and
distributions.

8
<PAGE>

- --------------------------------------------------------------------------------
Total return consists of net income (interest and/or dividend income from
portfolio securities, less expenses of the Fund) and capital gains and losses,
both realized and unrealized, from portfolio securities.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Average weighted maturity gives you the average time until all debt securities
in a Fund come due or mature. It is calculated by averaging the time to
maturity of all debt securities held by a Fund with each maturity "weighted"
according to the percentage of assets it represents.
- --------------------------------------------------------------------------------
Total Return Bond Fund

Investment Objective
The investment objective of the Total Return Bond Fund is to seek as high a
level of current income as is consistent with relative protection of capital.
Subject to this objective, the Adviser considers the total rate of return on
portfolio securities in managing the Fund.

The Fund's investment objective may be changed by the Company's Board of
Directors without shareholder approval. Shareholders will be given at least 30
days' written notice before any such change occurs.

Principal Investment Strategies
The Fund invests substantially all of its assets (at least 65% of its total
assets under normal market and economic conditions) in a broad range of debt
obligations, including corporate obligations, U.S. Government obligations and
mortgage-backed securities. Corporate obligations may include bonds, notes and
debentures. U.S. Government obligations may include U.S. Treasury obligations
and obligations of certain U.S. Government agencies. Mortgage-backed securities
may include Ginnie Maes, Fannie Maes and Freddie Macs. The Fund may also invest
in asset-backed securities and in repurchase agreements backed by U.S.
Government obligations. Although the Fund invests primarily in the debt
obligations of U.S. issuers, it may invest up to 25% of its total assets in the
debt obligations of foreign corporations and governments.

The Fund will generally only purchase investment grade debt obligations. These
are obligations which have one of the four highest ratings assigned by a
nationally recognized statistical rating organization, such as Standard &
Poor's Ratings Group or Moody's Investors Service, Inc., or will be unrated
securities determined by the Adviser to be of comparable quality. When deemed
appropriate by the Adviser, however, the Fund may invest up to 10% of its net
assets in non-investment grade debt securities, also known as "junk bonds."

In selecting portfolio securities for the Fund, the Adviser monitors and
evaluates economic trends, including anticipated changes in interest rates. The
Adviser also evaluates the effect of a particular security on the total rate of
return of all of the securities in the Fund's portfolio.

The Fund's average weighted maturity will vary from time to time depending on,
among other things, current market and economic conditions and the comparative
yields on instruments with different maturities. The Adviser expects that under
normal market conditions the Fund will have an average weighted maturity of
between 4 and 15 years.

9
<PAGE>

- --------------------------------------------------------------------------------
Portfolio Manager
Kevin J. Dachille, Senior Vice President of Mercantile, has managed the Total
Return Bond Fund since it began operations in 1998. During the past twenty
years, Mr. Dachille has managed institutional fixed income portfolios at
Mercantile, including pension plans, endowment funds and self-insurance funds.
- --------------------------------------------------------------------------------

Changes in interest rates also may cause certain debt securities held by the
Fund, particularly asset-backed and mortgage-backed securities, to be paid off
much sooner or later than expected, which could adversely affect the Fund's
value. In the event that a security is paid off sooner than expected because of
a decline in interest rates, the Fund may be unable to recoup all of its
initial investment, and may also suffer from having to reinvest in lower-
yielding securities. In the event of a later than expected payment because of a
rise in interest rates, the value of the obligation will decrease, and the Fund
may suffer from the inability to invest in higher-yielding securities.

The value of debt securities also depends on the ability of issuers to make
principal and interest payments. If an issuer can't meet its payment
obligations or if its credit rating is lowered, the value of its debt
securities will fall. Debt securities which have the lowest of the top four
ratings assigned by Standard & Poor's Ratings Group or Moody's Investors
Service, Inc. have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make payments of
principal and interest than is the case for higher rated securities. Generally,
non-investment grade securities, i.e. junk bonds, are subject to greater credit
risk, price volatility and risk of loss than investment grade securities. In
addition, there may be less of a market for such securities, which could make
it harder to sell them at an acceptable price.

Foreign investments may be riskier than U.S. investments because of factors
such as less stringent foreign securities regulations; less stringent
accounting and disclosure standards; changes in currency exchange rates;
incomplete financial information about issuers of securities; and political or
economic instability. Foreign securities may be more volatile and less liquid
than U.S. securities.

The Adviser evaluates the rewards and risks presented by all securities
purchased by the Fund and how they may advance the Fund's investment objective.
It is possible, however, that these evaluations will prove to be inaccurate.

Fund Performance
The Fund commenced operations on March 1, 1998. As a result, the Fund has a
performance record of less than one full calendar year.

10
<PAGE>

Fees and Expenses
The following table shows the fees and expenses you may pay when you buy and
hold shares of the Funds.

<TABLE>
<CAPTION>
Prime Government Limited Total
Money Money Maturity Return
Market Market Bond Bond
Fund Fund Fund Fund
------ ---------- -------- ------
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses:
(expenses that are deducted from
Fund assets)
Management Fees/1/ .......................... 0.25% 0.25% 0.35% 0.35%
Distribution (12b-1) Fees.................... None None None None
Other Expenses/1/ ........................... 0.20% 0.20% 0.23% 0.27%
Total Annual Fund Operating Expenses/1/ ..... 0.45% 0.45% 0.58% 0.62%
</TABLE>

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prime Money Market Fund......................... $45 $142 $249 $566
Government Money Market Fund.................... $45 $142 $249 $566
Limited Maturity Bond Fund...................... $58 $183 $320 $730
Total Return Bond Fund.......................... $62 $195 $343 $780
</TABLE>
- --------------------
/1/ Management Fees, Other Expenses and Total Fund Operating Expenses for the
Funds for the current fiscal year are expected to be less than the amounts
shown above because the Adviser and the Administrator are voluntarily waiving a
portion of their fees. These fee waivers are being made in order to keep the
annual fees and expenses for the Funds at a certain level. Management Fees for
the Prime Money Market, Government Money Market, Limited Maturity Bond and
Total Return Bond Funds, after taking these fee waivers into account, are
expected to be 0.23%, 0.22%, 0.24% and 0.22%, respectively. Other Expenses for
the Prime Money Market, Government Money Market, Limited Maturity Bond and
Total Return Bond Funds, after taking these fee waivers into account, are
expected to be 0.145%, 0.155%, 0.21% and 0.23%, respectively. Total Fund
Operating Expenses for the Prime Money Market, Government Money Market, Limited
Maturity Bond and Total Return Bond Funds, after taking these fee waivers into
account, are expected to be 0.375%, 0.375%, 0.45% and 0.45%, respectively.
These fee waivers may be revised or cancelled at any time. The Adviser and
Administrator have the right to be reimbursed by the Funds for such amounts
prior to the end of any fiscal year.

Additional Information about Risk
The principal risks of investing in each of the Funds have been described
above. The following supplements that discussion.

11
<PAGE>

Temporary Defensive Positions
Each Fund may temporarily hold investments that are not part of its principal
investment strategy to try to avoid losses during unfavorable conditions. These
investments may include cash (which will not earn any income). In addition, the
Limited Maturity Bond and Total Return Bond Funds may temporarily hold high
quality short-term money market instruments. This strategy could prevent a Fund
from achieving its investment objective.

Other Types of Investments
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund principally invests. Each
Fund may, from time to time pursue other investment strategies and make other
types of investments in support of its investment objective. These supplemental
investment strategies and the risks involved are described in detail in the
Statement of Additional Information ("SAI"), which is referred to on the back
cover of this prospectus.

INVESTING IN THE FUNDS

Getting Your Investment Started
Shares of the Funds may be purchased either through the account you maintain
with certain financial institutions or directly through the Company.

12
<PAGE>

To Open an Account To Add to an Account

By Mail . Complete a New . Make your check
Account payable to M.S.D.
Application and & T. Funds, Inc.
mail it along with and mail it to the
a check payable to address on the
M.S.D. & T. Funds, left.
Inc. to:

M.S.D. & T. Funds, . Please indicate
Inc. P.O. Box the particular
182028 Columbus, Fund in which you
Ohio 43218-2028 are investing.

To obtain a New . Please include
Account your account
Application, call number on your
1-800-551-2145 check.

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

By Wire . Before wiring . Instruct your bank
funds, please call to wire Federal
1-800-551-2145 for funds to:
complete wiring Huntington Bank,
instructions. Columbus, OH 43219,
Bank Routing
. Promptly complete #044000024, M.S.D.
a New Account & T. Concentration
Application and A/C # 01899622436.
forward it to:

M.S.D. & T. Funds, . Be sure to include
Inc. P.O. Box your name and your
182028 Columbus, Fund account
Ohio 43218-2028 number.

. The wire should
indicate that you
are making a
subsequent
purchase as
opposed to opening
a new account.

13
<PAGE>

Consult your bank for information on remitting funds by wire and associated
bank charges.

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

. Explanation of Sales Price. The public offering price for shares of a Fund is
based upon net asset value. A Fund will calculate its net asset value per
share by adding the value of the Fund's investments, cash and other assets,
subtracting the Fund's liabilities, and then dividing the result by the
number of shares of the Fund that are outstanding. This process is sometimes
referred to as "pricing" a Fund's shares.

The assets of the Prime Money Market Fund and Government Money Market Fund (the
"Money Market Funds") are valued at amortized cost, which generally
approximates market value. Although each Money Market Fund seeks to maintain
its net asset value per share at $1.00, there can be no assurance that the net
asset value per share will not vary. The assets of the Limited Maturity Bond
Fund and Total Return Bond Fund (the "Bond Funds") are valued at market value
or, if market quotes cannot be readily obtained, at fair value as determined by
the Adviser under the supervision of the Company's Board of Directors. Debt
securities held by the Bond Funds that have sixty days or less until they
mature are valued at amortized cost, which generally approximates market value.

Net asset value is computed (i) with respect to each Money Market Fund, at
11:00 a.m. Eastern Time and as of the close of regular trading hours on the New
York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern Time) each
weekday and (ii) with respect to each Bond Fund, as of the close of regular
trading hours on the Exchange (currently 4:00 p.m. Eastern Time) each weekday,
in each case with the exception of those holidays on which the Exchange, the
Federal Reserve Bank of Cleveland, the purchasing Bank (if applicable) or the
Funds' Adviser, transfer agent or custodian is closed. The Funds currently
observe the following holidays: 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.

Purchase orders will be accepted by BISYS Fund Services Ohio, Inc., the Funds'
transfer agent (the "Transfer Agent"), only on a day on which shares of a Fund
are priced ("Business Day"). If you purchase shares of a Fund through a Bank,
the Bank is responsible for transmitting your purchase order and required funds
to the Transfer Agent on a timely basis.

If your purchase order for shares of a Money Market Fund is received by the
Transfer Agent on a Business Day before 11:00 a.m. Eastern Time, your Fund
shares will be purchased at the public offering price calculated at 11:00 a.m.
provided that the Fund's custodian receives payment in immediately available
funds by the close of regular trading hours on the Exchange that day. If your
purchase order for shares of a Money Market Fund is received by the Transfer
Agent on a Business Day after 11:00 a.m. Eastern Time but before the close of
regular trading hours on the Exchange that day, your Fund shares will be

14
<PAGE>

purchased at the public offering price calculated at 11:00 a.m. Eastern Time on
the following Business Day if the Fund's custodian receives payment in
immediately available funds by the close of regular trading hours on the
Exchange on the following Business Day. If the procedures described above are
not followed and if a Bank submitted the order, the Bank will be notified that
the order has not been accepted. If you purchase shares of a Money Market Fund
directly through the Company and if your purchase order is accompanied by
payment in any form other than immediately available funds, your Fund shares
will be purchased at the public offering price calculated at 11:00 a.m. Eastern
Time on the next Business Day after the Business Day on which both the order
and payment in immediately available funds are received by the Transfer Agent.
Payments for orders which are not received or accepted will be returned after
prompt inquiry.

Shares of the Bond Funds are sold at the public offering price per share next
computed after receipt of a purchase order by the Transfer Agent. If you
purchase shares of a Bond Fund through a Bank and the Transfer Agent receives
your purchase order from the Bank on a Business Day prior to the close of
regular trading hours (currently 4:00 P.M. Eastern Time) on the Exchange, your
Fund shares will be purchased at the public offering price calculated at the
close of regular trading hours on that day provided that the Fund's custodian
receives payment on the next Business Day in immediately available funds. If
such payment is not received on the next Business Day, the Bank which submitted
the order will be notified that the order has not been accepted. Payments for
orders which are not received or accepted will be returned after prompt
inquiry.

If you purchase shares of a Bond Fund directly through the Company and if your
purchase order, in proper form (including all necessary documentation and
signature guarantees, where required) and accompanied by payment, is received
by the Transfer Agent on a Business Day prior to the close of regular trading
hours on the Exchange, your Fund shares will be purchased at the public
offering price calculated at the close of regular trading hours on that day.
Otherwise, your Fund shares will be purchased at the public offering price next
calculated after the Transfer Agent receives your purchase order in proper form
with the required payment.

15
<PAGE>

How To Sell Fund Shares
You can arrange to get money out of your Fund account by selling some or all
of your shares. This process is known as "redeeming" your shares. If you
purchased your shares through an account at a Bank, you may only redeem shares
in accordance with the instructions pertaining to that account. If you
purchased your shares directly from the Company, you have the ability to
redeem shares by any of the methods described below.

To Redeem Shares

By Mail . Send a written request to M.S.D. & T. Funds, Inc., P.O.
Box 182028, Columbus, Ohio 43218-2028.

. Your written request must
--be signed by each account holder;
--state the number or dollar amount of shares to be
redeemed and identify the specific Fund;
--include your account number.

By Wire . Call 1-800-551-2145. You will need to provide the account
(available only name, account number, name of Fund and amount of
if you checked redemption ($1,000 minimum per transaction).
the appropriate
box on the New . If you have already opened your account and would like to
Account have the wire redemption feature, send a written request
Application) to: M.S.D. & T. Funds, Inc., P.O. Box 182028, Columbus,
Ohio 43218-2028. The request must be signed (and
signatures guaranteed) by each account owner.

. To change bank instructions, send a written request to the
above address. The request must be signed (and signatures
guaranteed) by each account owner.
- -------------------------------------------------------------------------------

By Telephone . Call 1-800-551-2145. You will need to provide the account
(available only name, account number, name of Fund and amount of
if you checked redemption.
the appropriate
box on the New . If you have already opened your account and would like to
Account add the telephone redemption feature, send a written
Application) request to: M.S.D. & T. Funds, Inc., P.O. Box 182028,
Columbus, Ohio 43218-2028. The request must be signed (and
signatures guaranteed) by each account owner.

Other redemption options, including exchanges and
systematic withdrawals, are also available. Please refer
to the section below entitled "Shareholder Services" for
more information.
- -------------------------------------------------------------------------------

16
<PAGE>

Payment for redemption orders with respect to a Money Market Fund which are
received by the Transfer Agent before 11:00 a.m. Eastern Time normally will be
wired or sent to the shareholder(s) of record on the same Business Day. Payment
for redemption orders with respect to a Money Market Fund which are received
between 11:00 a.m. and the close of regular trading hours on the Exchange
(currently 4:00 p.m. Eastern Time) or on a non-Business Day normally will be
wired or sent to the shareholder(s) of record on the next Business Day. Payment
for redemption orders with respect to a Bond Fund generally will be wired or
sent to the shareholder(s) of record within three Business Days after receipt
of the redemption order. However, in each case the Company reserves the right
to wire or send redemption proceeds within seven days after receiving the
redemption order if the Adviser believes that earlier payment would adversely
affect the Company. If you purchased your shares directly through the Company,
your redemption proceeds will be sent by check unless you otherwise direct the
Company or the Transfer Agent. The Automated Clearing House ("ACH") system may
also be utilized for payment of redemption proceeds. In unusual circumstances,
the Company may pay redemption proceeds in readily marketable portfolio
securities having a market value equal to the redemption price.

The Company imposes no charge when you redeem shares. The value of the shares
you redeem may be more or less than your cost, depending on a Fund's current
net asset value.

Other Purchase and Redemption Information
Federal regulations require that you provide a certified taxpayer
identification number whenever you open or reopen an account.

17
<PAGE>

For current yield, purchase and redemption information, call 1-800-551-2145.

SHAREHOLDER SERVICES
The Company provides a variety of ways to make managing your investments more
convenient. Some of these options require you to request them on the New
Account Application or you may request them after opening an account by calling
1-800-551-2145. Except for retirement plans, these options are available only
to shareholders who purchase their Fund shares directly through the Company.

Retirement Plans
Shares of each Fund may be purchased in connection with certain tax-sheltered
retirement plans, including individual retirement accounts. Shares may also be
purchased in connection with profit-sharing plans, section 401(k) plans, money
purchase pension plans and target benefit plans. Further information about how
to participate in these plans, the fees charged, the limits on contributions
and the services available to participants in such plans can be obtained from
the Company. To invest through any tax-sheltered retirement plan, please call
the Company at 1-800-551-2145 for information and the required separate
application. You should consult with a tax adviser to determine whether a tax-
sheltered retirement plan is available and/or appropriate for you.

Exchange Privilege
Shares of a Fund may be exchanged for shares of another Fund or for shares of
one of the other portfolios offered by the Company. You may exchange shares by
mailing your request to M.S.D.&T. Funds, Inc., P.O. Box 182028, Columbus, Ohio
43218-2028 or by telephoning your request to 1-800-551-2145. If you are opening
a new account in a different Fund or portfolio by exchange, the exchanged
shares must be at least equal in value to the minimum investment for the Fund
or portfolio in which the account is being opened.

18
<PAGE>

The Automatic Investment Plan is one means by which you may use "Dollar Cost
Averaging" in making investments. Dollar Cost Averaging can be useful in
investing in portfolios such as the Limited Maturity Bond and Total Return Bond
Funds whose price per share fluctuates. Instead of trying to time market
performance, a fixed dollar amount is invested in Fund shares at predetermined
intervals. This may help you to reduce your average cost per share because the
agreed upon fixed investment amount allows more shares to be purchased during
periods of lower share prices and fewer shares during periods of higher prices.
In order to be effective, Dollar Cost Averaging should usually be followed on a
sustained, consistent basis. You should be aware, however, that shares bought
using Dollar Cost Averaging are made without regard to their price on the day
of investment or to market trends. In addition, while you may find Dollar Cost
Averaging to be beneficial, it will not prevent a loss if you ultimately redeem
your shares at a price which is lower than their purchase price.

19
<PAGE>

DIVIDENDS AND DISTRIBUTIONS
Shareholders receive dividends and net capital gain distributions. Dividends
for each Fund are derived from its net investment income and are declared daily
and paid monthly. A Fund realizes capital gains whenever it sells securities
for a higher price than it paid for them. Capital gains distributions will be
made at least annually.

Shares in each Fund begin earning dividends on the day a purchase order is
settled and continue earning dividends through and including the day before the
shares are redeemed by the Company. If you purchased your Fund shares through a
Bank, your dividends and distributions will be paid in cash and wired to your
Bank. If you purchased your shares directly from the Company, your dividends
and distributions will be automatically reinvested in additional shares of the
Fund on which the dividend or distribution was declared unless you notify the
Company in writing that you wish to receive dividends and/or distributions in
cash. If you have elected to receive dividends and/or distributions in cash and
the postal or other delivery service is unable to deliver checks to your
address of record, you will be deemed to have rescinded your election to
receive dividends and/or distributions in cash and your dividends and
distributions will be automatically reinvested in additional shares. No
interest will accrue on amounts represented by uncashed dividend and/or
distribution checks.

TAX INFORMATION
Federal taxes. Each Fund contemplates declaring as dividends each year all or
substantially all of its taxable income, including its net capital gain (the
excess of long-term capital gain over short term capital loss). Distributions
attributable to the net capital gain of a Fund will be taxable to you as long-
term capital gain, regardless of how long you have held your shares. Other Fund
distributions (including all anticipated distributions of the Prime Money
Market Fund and the Government Money Market Fund) will generally be taxable as
ordinary income. You will be subject to income tax on Fund distributions
regardless of whether they are paid in cash or reinvested in additional shares.
You will be notified annually of the tax status of distributions to you.

In case of the Limited Maturity Bond and Total Return Bond Funds, you should
note that if you purchase shares before a distribution, the purchase price will
reflect the amount of the upcoming distribution, but you will be taxed on the
entire amount of the distribution received, even though, as an economic matter,
the distribution simply constitutes a return of capital. This is known as
"buying into a dividend."

Any loss realized on shares held for six months or less will be treated as
long-term capital loss to the extent of any capital gain dividends that were
received on the shares.

The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemption's of, shares held in an IRA (or other tax-
qualified plan) will not be currently taxable.

20
<PAGE>

Miscellaneous. The foregoing is only a summary of certain tax considerations
under current law, which may be subject to change in the future. Shareholders
who are nonresident aliens, foreign entities or trusts, or foreign corporations
or partnerships, may be subject to different U.S. federal income tax
consequences. You should consult your tax adviser for further information
regarding federal, state, local and/or foreign tax consequences relevant to
your specific situation.

MANAGEMENT OF THE COMPANY

<TABLE>
<CAPTION>
Investment Advisory Fees
Fund as a % of net assets
---- ------------------------
<S> <C>
Prime Money Market Fund............................. 0.230%
Government Money Market Fund........................ 0.220%
Limited Maturity Bond Fund.......................... 0.242%
Total Return Bond Fund.............................. 0.220%
</TABLE>

Mercantile and its predecessors have been in the business of managing the
investments of fiduciary and other accounts in the Baltimore area since 1864.

21
<PAGE>

FINANCIAL HIGHLIGHTS
The financial highlights tables shown below are intended to help you
understand the Funds' financial performance for the past five years (or, if
shorter, the period since a particular Fund began operations). Certain
information reflects the financial performance of a single Fund share. The
total returns in the tables represent the rate that an investor would have
earned (or lost) on an investment in each Fund, assuming all dividends and
distributions were reinvested. This information has been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report, along with
the Funds' financial statements, are included in the Company's Annual Report
to Shareholders and are incorporated by reference into the SAI. The Annual
Report to Shareholders and SAI are available free of charge upon request.

PRIME MONEY MARKET FUND
Financial Highlights for a share of the Prime Money Market Fund outstanding
throughout each of the periods indicated:

<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
5/31/99 5/31/98 5/31/97 5/31/96 5/31/95
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income From Investment
Operations:
Net Investment Income....... 0.0486 0.0521 0.0498 0.0532 0.0491
-------- -------- -------- -------- --------
Total From Investment
Operations................. 0.0486 0.0521 0.0498 0.0532 0.0491
-------- -------- -------- -------- --------
Less Distributions to
Shareholders from:
Net Investment Income....... (0.0486) (0.0521) (0.0498) (0.0532) (0.0491)
-------- -------- -------- -------- --------
Total Distributions......... (0.0486) (0.0521) (0.0498) (0.0532) (0.0491)
-------- -------- -------- -------- --------
Net Asset Value, End of
Period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return................. 4.97% 5.33% 5.10% 5.45% 5.02%
Ratios/Supplemental Data
Net Assets, End of Period
(000)...................... $530,835 $448,751 $368,853 $326,878 $382,059
Ratio of Expenses to Average
Net Assets
After Expense Waiver........ 0.38% 0.42% 0.43% 0.43% 0.43%
Before Expense Waiver....... 0.45% 0.47% 0.48% 0.48% 0.48%
Ratio of Net Investment
Income to Average Net
Assets..................... 4.84% 5.21% 4.98% 5.33% 4.92%
</TABLE>

22
<PAGE>

GOVERNMENT MONEY MARKET FUND
Financial Highlights for a share of the Government Money Market Fund
outstanding throughout each of the periods indicated:

<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
5/31/99 5/31/98 5/31/97 5/31/96 5/31/95
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income From Investment
Operations:
Net Investment Income....... 0.0478 0.0515 0.0495 0.0526 0.0485
-------- -------- -------- -------- --------
Total From Investment
Operations................. 0.0478 0.0515 0.0495 0.0526 0.0485
-------- -------- -------- -------- --------
Less Distributions to
Shareholders from:
Net Investment Income....... (0.0478) (0.0515) (0.0495) (0.0526) (0.0485)
-------- -------- -------- -------- --------
Total Distributions......... (0.0478) (0.0515) (0.0495) (0.0526) (0.0485)
-------- -------- -------- -------- --------
Net Asset Value, End of
Period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return................. 4.89% 5.27% 5.06% 5.39% 4.95%
Ratios/Supplemental Data
Net Assets, End of Period
(000)...................... $445,522 $391,133 $340,809 $264,725 $263,752
Ratio of Expenses to Average
Net Assets
After Expense Waiver........ 0.38% 0.42% 0.43% 0.43% 0.43%
Before Expense Waiver....... 0.45% 0.46% 0.49% 0.48% 0.48%
Ratio of Net Investment
Income to Average Net
Assets..................... 4.76% 5.15% 4.95% 5.27% 4.85%
</TABLE>

LIMITED MATURITY BOND FUND
Financial Highlights for a share of the Limited Maturity Bond Fund outstanding
throughout each of the periods indicated:

<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
5/31/99 5/31/98 5/31/97 5/31/96 5/31/95
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period......................... $ 10.45 $ 10.31 $ 10.19 $ 10.43 $ 10.10
-------- -------- ------- ------- -------
Income From Investment
Operations:
Net Investment Income.......... 0.58 0.60 0.59 0.59 0.56
Net Realized and Unrealized
Gain (Loss) On Investments.... (0.10) 0.22 0.12 (0.24) 0.33
-------- -------- ------- ------- -------
Total From Investment
Operations.................... 0.48 0.82 0.71 0.35 0.89
-------- -------- ------- ------- -------
Less Distributions to
Shareholders from:
Net Investment Income.......... (0.58) (0.60) (0.59) (0.59) (0.56)
Net Capital Gains.............. (0.03) (0.08) -- -- --
-------- -------- ------- ------- -------
Total Distributions............ (0.61) (0.68) (0.59) (0.59) (0.56)
-------- -------- ------- ------- -------
Net Asset Value, End of Period.. $ 10.32 $ 10.45 $ 10.31 $ 10.19 $ 10.43
======== ======== ======= ======= =======
Total Return.................... 4.63% 8.15% 7.12% 3.38% 9.13%
Ratios/Supplemental Data
Net Assets, End of Period
(000)......................... $166,257 $151,922 $43,010 $44,102 $44,652
Ratio of Expenses to Average
Net Assets
After Expense Waiver........... 0.45% 0.50% 0.60% 0.60% 0.60%
Before Expense Waiver.......... 0.58% 0.78% 0.75% 0.72% 0.70%
Ratio of Net Investment Income
to Average Net Assets......... 5.54% 5.71% 5.72% 5.66% 5.56%
Portfolio turnover rate......... 59.73% 48.24% 20.92% 52.79% 22.01%
</TABLE>

23
<PAGE>

TOTAL RETURN BOND FUND
Financial Highlights for a share of the Total Return Bond Fund outstanding
throughout each of the periods indicated:

<TABLE>
<CAPTION>
Year Ended 3/1/98/1/
5/31/99 to 5/31/98
---------- ----------
<S> <C> <C>
Net Asset Value, Beginning of Period................... $ 10.02 $ 10.00
-------- --------
Income From Investment Operations:
Net Investment Income................................. 0.59 0.15
Net Realized and Unrealized Gain (Loss) On
Investments.......................................... (0.14) 0.02
-------- --------
Total From Investment Operations...................... 0.45 0.17
-------- --------
Less Distributions to Shareholders from:
Net Investment Income................................. (0.59) (0.15)
Net Capital Gains..................................... (0.06) --
-------- --------
Total Distributions................................... (0.65) (0.15)
-------- --------
Net Asset Value, End of Period......................... $ 9.82 $ 10.02
======== ========
Total Return........................................... 4.48% 1.69%
Ratios/Supplemental Data
Net Assets, End of Period (000)....................... $107,149 $101,363
Ratio of Expenses to Average Net Assets
After Expense Waiver.................................. 0.45% 0.45%/2/
Before Expense Waiver................................. 0.62% 0.73%/2/
Ratio of Net Investment Income to Average Net Assets.. 5.82% 5.89%/2/
Portfolio turnover rate................................ 74.94% 10.51%
</TABLE>
- -------------------
/1/Commencement of operations.
/2/Annualized.